• Asian equity markets were mixed with the region cautious following the headwinds from US. ASX 200 underperformed amid the slump in oil prices 
• US President Trump said there is a good possibility of a US-China trade deal and that Huawei could be included in any trade deal
• UK PM May is to announce her timetable to step down on Friday, according to reports 
• In FX markets, the DXY languished near this week’s lows whilst AUD was subdued as Westpac now expects three RBA rate cuts this year
• Looking ahead, highlights include UK Retail Sales; US Durable Goods, ECB's Nowotny

ASIA-PAC

Asian equity markets were mixed with the region cautious following the headwinds from US where all major indices declined due to ongoing trade uncertainty, weak PMI data and after energy losses snowballed. ASX 200 (-0.8%) and Nikkei 225 (-0.5%) were negative as Australia’s energy sector felt the brunt of the recent sell-off in oil in which WTI fell over 5%, while a firmer currency dampened risk appetite in Tokyo. Conversely, Hang Seng (+0.2%) and Shanghai Comp. (-0.2%.) were kept afloat for most of the session after recent encouraging comments from President Trump that there is a good possibility of a US-China trade deal and that Huawei could be included in a trade agreement. Furthermore, the PBoC refrained from open market operations, although this was due to ample liquidity and as its efforts this week already resulted to a net injection of CNY 100bln. Finally, 10yr JGBs were higher following the bull flattening seen in the US curve and amid the mostly risk-averse tone in the region, while the results of Japan’s enhanced liquidity auction for 2s, 5s, 10s and 20s also showed firmer demand.

PBoC skipped open market operations for a net weekly injection of CNY 100bln vs. last week's CNY 50bln net drain. (Newswires) PBoC set CNY mid-point at 6.8993 (Prev. 6.8994)

US President Trump said there is a good possibility of a US-China trade deal and that Huawei could be included in any trade deal. Furthermore, President Trump said he is hopeful the US will get together with China at some point and looks forward to seeing Chinese President Xi at the G20, but also suggested it would be fine if a meetup with China doesn’t occur. (Newswires)

China Mofcom said China trade environment is growing more uncertain and there are more challenges for China trade, while it added domestic economy faces downward pressure. (Newswires)

Japanese National CPI (Apr) Y/Y 0.9% vs. Exp. 0.9% (Prev. 0.5%). (Newswires) Japanese National CPI Ex. Fresh Food (Apr) Y/Y 0.9% vs. Exp. 0.9% (Prev. 0.8%) Japanese National CPI Ex. Fresh Food & Energy (Apr) Y/Y 0.6% vs. Exp. 0.6% (Prev. 0.4%)

UK/EU

UK PM May is to announce her timetable to step down on Friday according to reports. There had been plenty of prior speculation concerning this as reports had suggested that PM May is expected to outline her departure schedule to 1922 Committee Chief Brady at their meeting on Friday and that week of 10th June (after the Trump visit) seems most likely, while PM May is also expected to agree that a leadership contest should start on 10th June although a UK government spokesperson also suggested earlier that they were unaware of any plans for the PM to make any announcements today or tomorrow. (Newswires/Twitter)

European Commission President Juncker suggested that the UK is drifting towards another Brexit extension in October whilst criticising UK MPs for prioritising PM May’s removal over finding a Brexit agreement. (Guardian)

ECB's Vasle said the economy remains in line with projections made in March and at this stage is strong enough. (Newswires)

FX

In FX markets, the DXY languished near this week’s lows at a sub-98.00 level after yesterday’s data-triggered losses in which US PMIs disappointed across all components, with the sharp slowdown in business activity attributed to increased uncertainty and trade war concerns. Meanwhile, the greenback’s major counterparts were steady in which EUR/USD held on to recent gains after the weak US data spurred dip buying in the single currency and GBP/USD also recently benefitted from the USD woes but with upside restricted amid political uncertainty with PM May expected to announce her timetable to step down later. Elsewhere, the risk averse tone kept USD/JPY subdued near 109.50 with a cluster of nearby option expiries and inline CPI data contributing to the rangebound trade, while antipodeans pared some of the recent gains in which AUD/USD gave up the 0.6900 handle after Westpac adjusted its RBA forecasts and now sees the central bank lowering rates 3 times this year (vs. prior view of rate cuts in August and November).

US Commerce Department proposed a rule to impose duties on countries which undervalue their currency relative to USD. (Newswires)

COMMODITIES

Commodities were mixed in which WTI crude futures partially nursed losses but has far to go to recoup the prior day’s slump of more than 5% which was the largest sell-off in oil YTD. The weakness in prices was due to several factors including the risk averse tone, disappointing data, increasing US stockpiles and with technical selling adding to the snowball effect on prices. Elsewhere, gold held on to recent gains as the greenback languished following weak PMI data, while copper marginally benefitted as its largest buyer China remained afloat.

GEOPOLITICS

US President Trump said he does not think US is going to need additional troops in the Middle East to counter Iran. In related news, there were earlier comments from US Acting Defence Secretary Shanahan that the US is considering potentially sending additional troops to the Middle East, while Iranian President Rouhani said Iran will not surrender even if it is bombed. (Newswires/IRNA)

Eastern Libya forces reportedly conducted airstrikes on im which hit parliament and other locations in Tripoli. (Newswires)

US

Treasuries rallied and the curve bull-flattened as havens were sought amid risk-off trade driven by trade anxiety and growth concerns. The crucial 3m/10yr -- a gauge of future recessions -- spread inverted again. A sale of 10-year TIPS tailed 0.2bps. US T-note futures (M9) settled 24+ ticks higher at 125-06+.

US Agricultural Secretary Perdue confirmed that US President Trump authorised USD 16bln in farm aid in which USD 14.5bln will be spent on direct payments to farmers, USD 1.4bln on food purchases and USD 0.1bln will be spent on market development. (Newswires)

Fed's Kaplan (Non-Voter, Dove) said the Fed can afford to be patient and that he has no view on whether next rate move should be up or down. Kaplan also commented that being patient on policy may serve us well even though we have not hit inflation goal and that he is more concerned about businesses rather than consumers being at the front end of the next slowdown. (Newswires)

Fed's Barkin (Non-Voter, Hawk) said businesses are holding back on investments due to the uncertainty and does not see much impact of trade war if dispute ends quickly. (Newswires)

Fed's Bostic (Non-Voter, Dove) said FOMC will use whatever tools are required to combat future recessions. (Newswires)

Fed's Daly (Non-Voter, Dove) said the global economy is clouded by trade and global uncertainty, while she also commented that US tariffs on Chinese imports could help bring inflation towards 2%. (Newswires)

Fed's Mester (Non-Voter, Hawk) said an interest rate cut at this stage would be "bad policy". (Newswires)