• UK PM May resigns, to step down as Tory leader on June 7th and is to remain as PM until a new leader is elected
• European Indices [Euro Stoxx 50 +0.9%] have extended on initial gains following their Asian counterparts which were somewhat boosted by upbeat US-China comments from President Trump
• In FX, the USD is weighed on by G10 counterparts bar safe havens in consolidation from yesterday’s DXY highs and amidst the risk-on tone this morning
• Looking ahead, highlights include; US Durable Goods

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 (-0.6%) and Nikkei 225 (-0.2%) 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 (+0.3%) and Shanghai Comp. (U/C) 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)

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 PM Abe says will do all to manage economy amid overseas uncertainty. Subsequently, Japan's Government have cut their economic assessment in May's monthly report, Economy is recovering at a moderate pace while the weakenss in exports and outputs continues; no change to the view that fundamentals supporting domestic demand remain firm. (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%)

US

EU Diplomat states that EU-US trade talks remain comatose, EU Trade Commissioner Malmstrom states that the US is not ready., AFP's Pigman. (Twitter)

German Govt. Spokesperson says the meeting with Secretary of State Pompeo has been rescheduled for Friday next week. (Newswires)

UK/EU

UK PM May has announced she will step down on the 7th of June, and she is to continue serving as PM until a new leader is elected. The leadership contest will begin the following week on the 10th of June. This does follow extensive speculation and reports that UK PM May was to announce the timetable for her resignation to 1922 Committee Chair Brady today; the timing of her resignation means May will be PM for US President Trump’s state visit to the UK on June 3rd and the D-Day Commemorations. 

- In terms of the next steps: upon the commencement of the Conservative Party Leader campaign (expected on 10th June) the Tory Chief Whip Smith will receive nominations for party members to be the next Tory leader. In this process a candidate needs the nomination of two other MP’s to put forward to the Chief Whip. In the event that only one MP is put forward then they automatically become leader, but this is extremely unlikely given the number of MP’s who have stated their intention to run for PM; with one Conservative MP speculating that at least 7 MP’s are expected to launch their own leadership bid. Alternatively, in the likely event of multiple candidates a ballot is held with the lowest polling name removed and then another ballot is held, with this process repeating every Tuesday & Thursday until two nominees are left; who are then put to a Tory party ballot to determine the next Conservative leader. (ITV, Telegraph, Twitter, RANsquawk)

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)

Italy Deputy PM Salvini states he is not interested in a reshuffling of the government, but does want greater cooperation from the 5 Star movement, and the Government will not fall following on from the EU elections; even in the scenario that the League gets over 30% of the vote. (Newswires)

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

GEOPOLITICAL

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

EQUITIES

European stocks extend on opening gains [Eurostoxx 50 +0.9%] as the region nurses some losses following yesterday’s collapse. Upside in Europe seems to be more of a consolidation, although sentiment is somewhat supported following comments from US President Trump who said there is a good possibility of a US-China trade deal and that Huawei could be included in any trade deal. However, the President did caveat his comments by suggesting it that it would be fine if a meet with China does not happen. Nonetheless, broad-based gains are seen across major bourses, with Italy’s FTSE MIB (+1.2%) outperforming its peers as banks are supported by price action in BTPs (given the large holdings of the Italian debt). Meanwhile, defensive sectors are slightly lagging their peers with healthcare and consumer staples posting milder gains than the riskier sectors. In terms of individual movers, Casino shares (+17.9%) spiked higher amid reports that the co. will not be impacted by its parent company Rallye (-33.2%) confirming administrative procedures. Elsewhere, Deutsche Bank (-1.0%) shares fell following its AGM, although it’s worth noting the Co. is trading ex-dividend. Finally, Moller-Maersk (-1.5%) fell post-earnings as the shipping giant flagged negative impacts from the US-China trade war.

FX

USD - The Greenback has pulled back further from Thursday’s highs, with the DXY down to 97.685 vs 98.373 ahead of the Markit PMIs and US housing data that prompted the relatively abrupt fall from its fresh ytd pinnacle. However, the index is showing signs of stabilisation around support at 97.700 as the Buck bounces vs G10 and EM rivals ahead of durable goods and a long holiday weekend (Memorial Day in the US, and Spring Bank holiday in the UK).

CAD/NZD/AUD - The Loonie and Kiwi are leading the comeback vs their US counterpart, but not the major pack as the NOK and SEK outperform following upbeat Scandi labour data, and improvement in overall risk sentiment and a partial recovery in oil prices that has seen Eur/Nok retreat from 9.8000 and Eur/Sek through 10.7500. The crude revival is also weighing on Usd/Cad to an extent as the pair pivots 1.3450 vs 1.3500+ at one stage on Thursday, while Nzd/Usd is back above 0.6500, partly as Aud/Nzd cross flows reverse from near 1.0600 to 1.0560 on even louder RBA easing shouts overnight. Specifically, Westpac is now predicting 3 rate reductions before the end of 2019 and Aud/Usd is struggling to regain a foothold above 0.6900.

GBP - Better than expected, or not as weak as forecast UK retail sales data has supported the recovery in Sterling to a degree with Cable back above 1.27 from almost 1.2600 yesterday. Sterling strength then aided the pair to clip 1.2700 to the upside after UK PM May decided to step down on June 7th with a leadership contest to begin in the following week (10th June), although those gains faded as PM May continued her speech with GBP falling back below the figure. In terms of the next steps in UK politics, following the leadership contest, a new Tory leader will be elected towards the end of July. Reports then noted the prospect of a potential general election to take place in October (according to Telegraph’s Christopher Hope) before dialogue with the EU recommences in regard to a Brexit deal.

JPY/EUR/CHF - All relatively flat vs. the Buck following yesterday’s mammoth moves, although the JPY holds onto most of its risk premium having briefly dipped below 109.50 ahead of a Fib at 109.41. The Yen was hardly deterred after Japan's Government cut their economic assessment in May's monthly report, which also noted that the Japanese economy is recovering at a moderate pace while the weakness in exports and outputs continues. It’s worth keeping in mind large option expiries in the form of 1.7bln at strike 109.40-50 and 1.8bln between 109.75-85. Similarly, CHF retains most of yesterday’s gains and is ultimately little changed vs the USD and EUR. Elsewhere, the single currency remains just under the 1.1200 handle after having clipped the figure amid the pullback in the Dollar with little to inspire the currency amid the absence of Eurozone data and speakers. EUR/USD currently hovers below its 21 DMA (1.1189) with chunky option expiries in the form of 2.1bln between 1.1170-80 and 2.3bln around 1.1185-1.1200.

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

FIXED INCOME

The evident headline-grabber has been the departure date announcement by the UK PM as June 7th, with UK debt seeing an extension of the originally retail sales driven downside to print a fresh session lows of 129.68 before recovering to trade essentially unchanged for the day. Traders now look ahead to any political posturing ahead of the upcoming leadership contest with the continuation high of 130.08 eyed should upside be noted throughout the session.

Core EU debt futures have been on the front foot, with the periphery leading the way. Bund trading has been uninspiring in the EU morning and has been trading within a ~15 tick range after yesterday’s test of contract peaks of 167.43, with German benchmark trading overshadowed by moves in Italy. This comes as BTP futures have derived over 90 ticks of upside from source reports suggesting a BTP Italia retail suspension until post-EU Parliament elections. Spanish debt futures have also been shining and trade with gains of over 30 ticks as Citi have noted positive month end extensions for the Iberian fixed income benchmark, and Moody’s credit rating on Spain now to look forward to at the end of the US session.

Moving to the US, the more positive trade chatter emanating from the China-US trade dispute has seen debt futures lower across the curve, with 10yr debt futures trading with losses of over 9 ticks and printing a session base of 124-07 in the EU morning. This comes as yields recover following yesterday’s print of fresh 10yr YTD lows at 2.292%, with yields up by just over 4 bps. Traders will now be looking ahead to US durable goods data to round off the week.

COMMODITIES

The energy complex is consolidating some of yesterday’s losses after the sector posted its largest sell-off YTD. WTI (+1.3%) and Brent (+1.3%) hovers around 58.50/bbl and 68.50/bbl respectively with news flow relatively light thus far. Broader macro concerns seem to have sparked yesterday’s selloff alongside several factors including disappointing data, increasing US stockpiles and with technical selling. Elsewhere, metals are directionless with gold (Unch) failing to benefit from the receding Dollar amid a potential unwind in risk premium, whilst copper (+0.3%) prices are supported amid rising demand as traders stockpiled ahead of restrictions on scarp imports coming into force in July.

Russia have agreed to take back 1mln tonnes of contaminated oil stuck in the pipeline in Poland, according to sources. (Newswires)

Polish Energy Minister says talks with Russia went well yesterday over contaminated oil. (Newswires)

Libya's NOC say they are to develop the North Hamada oilfield. (Newswires)