• European Indices [Euro Stoxx 50 -0.6%] are broadly softer as the region failed to capitalise on the positive Asia-Pac momentum
• On the trade front SCMP reports that US-China talks hit a snag as the US side ‘kept adding new demands in late stages of the negotiations’
• Looking ahead, highlights include US Consumer Confidence and supply from the US

EU PARLIAMENTARY ELECTIONS SUMMARY

European elections failed to deliver any drastic upsets; right wing anti-EU parties extended their share of the vote to 23% (vs. 20% in 2014). The Greens & Liberals also put in a strong showing, especially in France, Germany and the UK. In sum, the four largest pro-European parties saw their combined share of the vote fall to 67% from 70%. Focus now falls on the Parliamentary arithmetic with the EPP and S&D unable to achieve a majority alone, as such are likely to team up with the Alliance of Liberals and Democratics. Today’s summit’s focus is on who becomes the next European Commission President with Manfred Weber expected to maintain his claim, though VP Timmermans or Competition Commissioner Vestager are contenders. Further afield is the next ECB President with the relevant summit on 20/21 June.

ASIA-PAC

Asian equity markets were mostly higher but with gains capped as trade slowly picked up from the holiday lull in the US and UK. ASX 200 (+0.5%) was positive with the gains led by the tech sector and as miners cheered the recent upside in commodities including Chinese benchmark iron ore prices which hit record highs. Nikkei 225 (+0.4%) was underpinned by corporate news flow with Tokyo Electron lifted from a JPY 150bln buyback, while Nissan and Mitsubishi Motors gained following the recent merger proposal between alliance partner Renault and Fiat. Hang Seng (+0.4%) and Shanghai Comp. (+0.6%) gained following a substantial liquidity injection of CNY 150bln by the PBoC which placed the ongoing trade uncertainty on the back seat. 10yr JGBs were steady as they mirrored the sideways trade in T-note futures although saw mild support following the results from the 40yr JGB auction where the b/c was firmer than previous and as 40yr yields hit their lowest levels since September 2016.

PBoC injected CNY 150bln via 7-day reverse repos for a net daily injection of CNY 70bln. (Newswires) PBoC set CNY mid-point at 6.8973 (Prev. 6.8924)

PBoC Governor Yi Gang says he is confident that China can keep the Yuan "basically stable"; the benchmark deposit rate will continue to play a important role in the promotion of market-based interest rate reform; the current benchmark lending and deposit rate is at an appropriate level. And the Chinese - US 10yr yield gap is within a relatively comfortable range. Separately, reported that the PBoC are to increase counter cyclical adjustments, Deputy Chief reiterates they are to maintain a prudent monetary policy., Securities Times. (Newswires)

Chinese President Xi said China will increase access to further sectors. There were separate comments from a securities regulator official that China is looking to widen access for foreign investors to the futures market. (Newswires)

US

US-China talks hit a snag because the US side “kept adding new demands in the late stages of the negotiations”. They said “some of these would directly affect China’s political and social stability”., according to SCMP citing sources. (SCMP)

- Beijing was particularly angered by the additional tariffs and what it saw as the US’ attempt to shift the blame to China.

Canada is said yo give formal notice to bring legislation forward to ratify new NAFTA treaty. (Newswires)

UK/EU

ECB's Hansson said ECB should be less generous in pricing the TLTROs and that a less generous loan should signal policy normalisation, while he added that tiering ECB rates would risk overcomplicating ECB policy. (Newswires)

ECB's Villeroy (Dovish) says that maintaining low interest rates should be 'completely justified and necessary' given the current economic situation, the impact of lower interest rates on the banking sector should not be overlooked or blown out of proportion. (Newswires)

Italy to cite more revenue spending cuts in their response to the EU., Corriere. While Deputy PM Salvini says the EU could fine Italy EUR 3bln for excessive debt but he will all his energies to fight outdated EU fiscal rules; aim to cut taxes for Italian households with a annual income which is less than EUR 50k, would cost EUR 30bln. (Corriere/Newswires) Subsequently, EU’s Moscovici stated that he is not in favour of sanctioning Italy, and European Commission VP Dombrovskis says he cannot confirm reports on potential Italy fines, Commission will assess the compliance of member states looking into FY 19/20 next week. (Newswires)

Germany DIHK Chamber of Industry and Commerce has reduced their domestic 2019 GDP forecast to 0.6% from 0.9%

- Business outlook has deteriorated since the beginning of the year

- Expectations for foreign business has hit its lowest level in 10 years which is seen as an 'an alarm signal'

Austrian Chancellor Kurz was ousted after losing a no confidence vote. (Newswires)

EU Consumer Confid. Final (May) -6.5 vs. Exp. -6.5 (Prev. -6.5, Rev. -7.3)

UK Foreign Secretary Hunt states that any PM who attempts to take Britain out of the EU without a deal will trigger a general election, which leads to the risk of Conservative Party ‘extinction’. Brexit Party leader Farage warning that the new Tory leader must take Britain out of the EU by October, or the Brexit Party will ‘fight every seat’ at the next general election. (Telegraph/Times)

Agustín Carstens, the former finance minister and head of Mexico’s central bank has ruled himself out of the running to become the next BoE Governor. (Guardian)

GEOPOLITICAL

US President Trump is said to have asked Japanese PM Abe for help arranging a summit with Iran. (Newswires) Subsequently, Iranian Foreign Ministry spokesman says it sees no prospect for negotiations with US, according to FARS news. (Newswires)

Israel conducted a rocket strike against Syria in retaliation to anti-aircraft fire at an Israeli jet. (Newswires)

Venezuela President Maduro said more than 88 tons of gold is frozen in London and that 10 boats that were bringing in gasoline were sabotaged. (Newswires)

Turkey has reportedly launched a ground offensive into Iraq, in order to quell PKK terrorists., Anadolu. (Anadolu)

EQUITIES

A downbeat session thus far for European equities [Eurostoxx 50 -0.6%] as the region failed to capitalise on the positive momentum seen in Asia. Most major European bourses are experiencing broad-based losses although Italy’s FTSE MIB (-0.9%) underperforms as banking names are weighed on by the decline in BTPs, whilst the UK’s FTSE (Unch) is supported by heavyweight mining names (Rio Tinto +3.2%, BHP +1.8%, Antofagasta +2.2%) profiting from the surge in iron ore price. Thus, the sector is outperforming whilst most of the other sectors are posting broad-based losses. In terms of individual movers, Renault (+0.7%) shares are higher in a continuation of yesterday’s rise due to a potential Renault-Fiat Chrysler merger. Richemont (-0.6%) and Swatch (-0.8%) are subdued amid a Swiss watch export decline of 0.4% Y/Y. Finally, Thyssenkrupp (+3.2%) rose to the top of the DAX amid a rise in steel prices. In terms of some analysis from Nomura Quant, amongst major hedge funds, macro funds are tilting short equities, with overall sentiment on US-China trade discussions on a gradual downtrend. Whilst some short-lived rallies may yet come, little optimism is seen on the immediate horizon, and it is unlikely hedge funds and CTAs will be convinced to return to buying. “It also looks likely to us that CTAs will go back to closing out long positions in NASDAQ 100 futures and S&P 500 futures starting today” says Nomura.

E-Cigarette/Tobacco Names – e-cigarette flavourings may damage the cells that line blood vessels and pose a risk for consumers long-term heart health according to a study. (Axios)

FX

USD - The Buck remains off recent key day reversal or retracement lows, but the DXY is still struggling to regain sufficient momentum for an attempt to revisit 98.000 and 2019 peaks reached only last Thursday (98.373). However, in a twist to normal month end trends, equity rebalancing flows may be Dollar supportive this week as at least one preliminary model is signalling a net buy, and especially strong against Sterling vs relatively weak demand against the Yen.

JPY/NOK/SEK - The clear G10 outperformers as Usd/Jpy retreats from 109.50+ highs to test support ahead of 109.00 at a 109.23 Fib amidst a broad downturn in risk sentiment, while the Scandi Crowns continue to derive encouragement from last week’s stellar unemployment developments rather than less upbeat sentiment indicators today. Indeed, Eur/Nok has had a look at 9.2000 ahead of a key downside technical level in the form of the 100 DMA (9.7190), with extra impetus from higher Norwegian oil investment forecasts, while Eur/Sek is back below 10.7000 and has been under 10.6750.

NZD/AUD - The next best majors as the Kiwi holds above 0.6500 vs its US counterpart awaiting the latest RBNZ Financial Stability Report due tomorrow and the Aussie maintains 0.6900+ status ahead of next week’s RBA policy meeting with a 25 bp rate cut all but totally priced in. On that note, Aud/Usd may well be capped by macro offers

CAD/GBP/CHF - All slightly softer vs the Greenback, as the Loonie pivots 1.3450 and trades cautiously into Wednesday’s BoC (full preview available on the Ransquawk Research Suite), while the Pound hovers closer to the base of a 1.2700-1.2655 range in the fall-out from last week’s formal notice of resignation from UK PM May and the weekend EU Parliamentary elections, and with the aforementioned end of May Cable signals hardly helping. In similar vein, the Franc has not been able to glean much, if any traction from much stronger than forecast Swiss GDP, as the Government was quick to caution that one-off factors impacted favourably in Q1 and it would not be raising its full year growth forecast on the back of a bumper first quarter, while April’s trade surplus was smaller than expected. Usd/Chf is firmly above recent lows within a tight 1.0050-35 band and Eur/Chf is also looking more solid on the 1.1200 handle between 1.1245-25 vs sub-big figure levels last week.

EUR - As noted above, the single currency has rebounded off worst levels vs the Franc despite the return of Italian/EU fiscal tensions, and the Euro is also displaying a degree of resilience against the Dollar within 1.1176-1.1200 trading parameters, albeit not convincingly through 30 DMA resistance (1.1196) or beyond 1.1200 to challenge a Fib at 1.1215.

EM - Another marginal move up in the Usd/Cny fix overnight still leaves the spread to Usd/Cnh on a wider trajectory, but the former could be set higher in wake of the PBoC’s move to raise its counter cyclical ‘adjustments’. Elsewhere, the Try has finally reaped some benefit from Monday’s CBRT hike in the RRR, but Turkey is still embroiled in geopolitical and diplomatic conflicts that could see the Lira lurch again.

Swiss Govt. Economist says that the strong Q1 GDP figures don't mean an automatic upgrade to annual forecasts, general environment remains the same. Growth was helped by one-offs, but negatives still present; cite trade war, Brexit and Germany as risks. (Newswires)

FIXED INCOME

Some signs of stabilisation in overall risk sentiment via the Dax future reclaiming 12k and 10 year Italian debt getting a reprieve of sorts from EU’s Moscovici and Dombrovskis, have combined to take some of the shine off safe-haven Bunds, Gilts and US Treasuries. However, the core Eurozone bond remains above par having tailed off just ahead of 168.00 at 167.91 (+27 ticks on the day), while its UK equivalent is still over ¼ point ahead and the corresponding 10 year T-note is 11 ticks ahead as the latter 2 hold corrective gains after Monday’s holidays. Ahead, Italy must await for official budget judgement next week before it is out of the EDP firing line, while the PM agenda holds US housing data and supply after satisfactory auctions from Germany and Italy.

COMMODITIES

WTI and Brent futures have been relatively resilient to the risk aversion around the market with the former hovering above USD 59/bbl and the latter around USD 70.50/bbl. Of note, there was no WTI settlement yesterday and thus there is a deviation in price change between the two benchmarks. Nevertheless, WTI’s discount to Brent has been gaining more focus, with the WTI/Brent Arb now almost USD -11/bbl. The widening spread is attributed to US stockpiles building keeping WTI subdued, whilst Brent is supported by the Russian oil contamination. Analysts at RBC highlight that physical markets are tight, and inventories are piling up despite the backwardated term structure. “We do not interpret the recent increases as entirely bearish given that the majority of builds from the US to consuming Asia have been deliberate and tactical which has, in turn, kept markets tight” RBC says. Meanwhile, gold (Unch) is flat on the day, but the yellow metal nursed some of its overnight losses as the risk tone deteriorated further, from a technical perspective; immediate levels to the upside include the 50 DMA at 1288.12/oz ahead of the psychological 1290/oz.  Elsewhere, copper remains lacklustre amid the downbeat risk tone, as prices fluctuate on either side of USD 2.70/lb. Finally, Dalian iron ore prices spiked to record highs amid ongoing supply concerns and with stockpiles around 2yr lows.

Russian Energy Minister Novak hopes OPEC and partners will be able to formalise the OPEC+ agreement by June with the adoption of a new charter. (Newswires)

Shanghai Futures Exchange Chairman said they are preparing to launch alumina and gold futures this year. (Newswires)