• Asian equity markets began the week mixed as a lack of risk drivers and an extended weekend in some major global markets resulted to a non-committal tone in the region
• Preliminary results from the European Parliament elections indicate the centre-right and centre-left groups are set to remain the biggest groups but have fallen short of a majority
• President Trump suggested a US-Japan trade deal can wait until after the Japanese upper house elections in July
• Looking ahead, today’s calendar sees a lack of tier 1 highlights; UK and US markets are closed

ASIA-PAC

Asian equity markets began the week mixed as a lack of risk drivers and an extended weekend in some major global markets resulted to a non-committal tone in the region. ASX 200 (-0.1%) was indecisive with strength in mining names offset by losses in financials. Nikkei 225 (+0.3%) was positive but with price action contained by recent currency moves and after President Trump suggested a US-Japan trade deal can wait until after the Japanese upper house elections in July. Hang Seng (-0.6%) and Shanghai Comp. (+0.3%) were subdued following weak Industrial Profits data which declined by 3.7%, although some of the losses were later pared as the stats bureau attributed the decline in profits to a rush increase in production prior to a VAT cut as well as a high 2018 base, while the PBoC also injected CNY 80bln of liquidity via reverse repos. Finally, 10yr JGBs were flat as they mirrored the recent sideways price action in T-notes and with the BoJ presence in the market for JPY 1tln of JGBs counterbalanced by the lack of safe-haven demand in Japan.

PBoC injected CNY 80bln via 7-day reverse repo. (Newswires) PBoC set CNY mid-point at 6.8924 (Prev. 6.8993)

Chinese Industrial Profits (Apr) Y/Y -3.7% (Prev. 13.9%). (Newswires)

China MOF plans to restrict direct investment from foreign IT companies beginning in August. (Newswires)

China Global Times Editor expects US-China trade deal will be reached but stated there are currently factors complicating a resolution. (Twitter)

US President Trump said US and Japan are nearing a big trade announcement but also noted that they can wait until after the Japanese elections for a trade deal with Japan, which indicates an agreement may not happen during his visit this week. (Nikkei)

UK/EU

Preliminary results from the European Parliament elections indicated the centre-right and centre-left groups are set to remain the biggest groups but have fallen short of the majority needed in the 751-strong assembly for the 1st time since the 1970 with the European People’s Party projected to win 179 seats (Prev. 217 seats) and Progressive Alliance of Socialists and Democrats projected to win 150 seats (Prev. 189). Meanwhile, Liberals, Eurosceptic and Green parties are projected to gain ground which reportedly could complicate coalition talks. (Newswires/WSJ)

On a national basis, the UK vote share showed Brexit Party are to win 28 seats with 33% of votes, Lib Dems at 15 seats with 21%, Labour at 10 seats with 15%, Green at 7 seats with 13% and Conservative at 3 seats with 9%. However, the results also showed ‘Remain’ parties had 40% of support vs. 35% of support for the ‘Pro-Brexit’ parties. (Newswires) Elsewhere, France’s National Rally Party (23.5%) defeated President Macron’s Renaissance Party (22.5%), albeit with a smaller than anticipated margin of victory. In Germany, Chancellor Merkel’s CDU Party (28%) was the clear winner with the SPD’s (15.6%) share of the vole collapsing. The Italian vote, Salvini’s League Party won 33.6% if the vote with the 5SM (16.7%) Party falling behind the Democratic Party (23.5%); Deputy PM Salvini said nothing should change at the national level following the EU vote. Elsewhere, Greek Prime Minister Tsipras said he cannot ignore election results and has called for snap elections following a heavy defeat by his Syriza party at European Parliament elections which trails behind opposition New Democracy by around 9 points. (Newswires) Please click here for a more detailed breakdown of the vote

Boris Johnson and Dominic Raab have been warned that Tory MPs would be prepared to bring down any prime minister backing a no-deal Brexit, triggering a general election. (Guardian) Elsewhere, over the weekend Michael Gove and Matt Hancock joined the race to become the next UK PM. (CityAM) The latest list of candidates is as follows: Johnson, Raab, Gove, Hancock, Hunt, Stewart, McVey, Leadsom. (City AM) UK Brexit Party leader Farage said he will work with Boris Johnson or anyone if it meant delivering on Brexit. (Newswires)

Fitch affirmed Portugal at BBB; Outlook revised to Positive. (Newswires)

FX

The DXY was subdued around the 97.50 level following last week’s softness and retreat from 98.00, while the holiday closure in the US for Memorial Day added to the lacklustre trade. The greenback’s major counterparts held on to recent gains with EUR/USD above 1.1200 despite the European Parliament Election results which showed the centrist parties remained by far the dominant force in Europe but failed to achieve a majority for the first time since the 1970s as liberals, greens and Eurosceptics gained some ground, which therefore shifts focus on coalition building. Nonetheless, this failed to dent EUR/USD given the unlikelihood for any major fallout across the national level aside from Greece where PM Tsipras called for a snap election after his party trailed the main opposition by as much as 9 points. GBP/USD stabilized after last Friday’s swings through peaks and troughs triggered by PM May’s resignation announcement, with the UK also closed for holiday and participants awaiting who will emerge the victor in a crowded race to be PM May’s successor. Elsewhere, USD/JPYattempted to nurse losses and eyed 109.50, while antipodeans were flat around last week’s highs amid the mixed risk tone and weak greenback.

COMMODITIES

Commodities were mixed with WTI crude futures subdued as it retreated further away from resistance at the USD 59.00/bbl which also follows the recent slump in which trade related fears and bearish inventory data spurred a 9% drop last week. Elsewhere, gold held near the prior day’s best levels as a weaker greenback provided a platform for the precious metal, while copper also saw mild gains as sentiment in mainland China gradually improved and amid strength in Dalian iron ore futures which surged over 5% shortly after the open due to ongoing supply concerns.

Baker Hughes (May 24) US oil rigs -5 at 797, US nat gas rigs +1 at 186, total US rigs -4 at 983. (Newswires)

GEOPOLITICS

US President Trump approved sending 1,500 troops to the Middle East which he stated was for "mostly protective" reasons. In related news, US military said that intelligence suggests a "campaign" by Iran that ties together threats across the region, while it also alleged Iranian Revolutionary Guards are directly responsible for attacks on tankers outside the UAE. (Newswires)

US President Trump said he thinks good things will come with North Korea and that there has not been nuclear or rocket testing, although he added he could be wrong on North Korea. (Newswires)

North Korea said US National Security Adviser Bolton is wrong to conclude missile test was in violation of UN resolutions, while it added that giving up missile launches would mean giving up right to self-defence. (KCNA)

US

Treasury trade was lacklustre and sideways ahead of the long weekend; the bias was for higher yields with the US Treasury curve bear-flattening. In early trade, the dip was attributed to profit taking, and in European trade, the complex took its cue from the Gilt, after UK PM May announced a timeline for her departure. After Europeans left, sideways trade resumed, with Thursday's ranges largely remaining intact. Major curve spreads tightened at settlement. US T-Note futures (M9) settled 10 ticks lower at 124-28+.

US President Trump reiterated his view that US growth would have exceeded 3% if the Fed did not raise rates last year. (Newswires)