• Asian indices are largely negative as tech suffered in sympathy with Wall St. and the US accused China of misrepresenting trade talks
• Fed’s Bullard (Voter) said a rate cut may be warranted soon amid trade and inflation concerns
• RBA cut rates as expected; to support employment growth and generate greater confidence around the inflation target
• Looking ahead, highlights include UK Construction PMI, EZ CPI (Flash) & Unemployment Rate, US Factory Orders, RBA’s Lowe, Fed’s Powell, Williams, Evans, Brainard & Kaplan, supply from the UK
•  

ASIA-PAC

Asian equity markets traded subdued after the headwinds from Wall St where tech underperformed and the Nasdaq slipped into a correction as FAANG stocks were hit on reports of the US launching antitrust and business practice probes into the large tech names. ASX 200 (+0.2%) and Nikkei 225 (-0.2%) were indecisive as strength in mining names and a widely anticipated RBA rate cut helped offset the tech losses in Australia, while trade in Tokyo was relatively uneventful with exporter sentiment dampened by further unfavourable currency flows. Hang Seng (-0.5%) and Shanghai Comp. (-0.8%) weakened as trade tensions persisted as the US accused China of misrepresenting trade talks and placed the blame on Chinese negotiators back-peddling on issues, while the PBoC’s liquidity efforts resulted to a daily net drain of CNY 90bln. Finally, 10yr JGBs were higher and the 10yr yield dropped to the lowest since August 2016 of below -0.10% amid the risk averse tone and as prices tracked the moves in T-notes following the comments from Fed’s Bullard, while 10yr JGB auction results showed higher accepted prices.

PBoC injected CNY 60bln via 7-day reverse repos for a net daily drain of CNY 90bln. (Newswires) PBoC sets CNY mid-point at 6.8822 (Prev. 6.8896)

US said it is disappointed that China is misrepresenting trade talks in response to China's White Paper on trade in which the US Trade Representative and Treasury Department said US insistence of enforceable commitments is not a threat to China's sovereignty, while they added that China negotiators backed away from previously agreed provisions in wrapping up issues during trade talks. (Newswires)

US Secretary of State Pompeo said US hopes were dashed by China's human rights behaviour following Tiananmen Square and urged China to release human rights prisoners on anniversary of Tiananmen Square protest crackdown, while China's Embassy in US expressed strong dissatisfaction and opposition to US statement on the Tiananmen Square anniversary. (Newswires)

UK/EU

UK Conservative Party 1922 Committee is to meet today to set out a plan for electing a new leader, while there were separate reports that candidates with little support could be culled to speed up the process. (Newswires/Telegraph)

UK will reportedly take a tough line with US President Trump regarding China and say that Huawei participation in 5G will not impact US cooperation. (Times) Elsewhere, US President Trump said a "big" US/UK trade deal is possible once the UK "gets rid of the shackles", adding that the US and UK are "already starting to talk". (Twitter)

Italy PM Conte said EU rules will stay in force until the government can secure changes and that EU disciplinary action would be very bad for Italy, while he added that Italy needs the confidence of financial markets and that coalition leaders need to decide if they want to continue with the government or pursue an election. (Newswires) Italian Deputy PM Di Maio says he is ready to back the proposed "flat tax" and devolution measures under certain conditions (Corriere Della Sera).

UK BRC Retail Sales (May) Y/Y -3.0% vs. Exp. 0.9% (Prev. 3.7%). (Newswires)

FX

The greenback remained subdued after the prior day’s losses which were triggered by somewhat disappointing Markit and ISM Manufacturing PMI data, falling yields and comments from Fed’s Bullard that an interest rate cut might be warranted soon which made him the first among his peers at the FOMC to publicly call for lower rates. The subdued greenback lifted EUR/USD to around 1.1250 and provided GBP/USD with some reprieve from the ongoing political and Brexit-related weakness, while USD/JPY slipped below 108.00 as the risk averse tone added to the demand for the safe-haven JPY. Antipodeans were choppy overnight with AUD/USD briefly dampened following a miss on Current Account and Retail Sales data but with the pressure short-lived and AUD/USD was later buoyed after the RBA cut rates for the 1st time in nearly 3 years as expected. This was due to the market being heavily one-sided going into the decision and as the statement didn’t provide anything that suggested urgency by the central bank to cut again as soon as August which many forecasters anticipate, although AUD then eventually drifted back to pre-announcement levels as participants now shift focus to RBA Governor Lowe’s comments later. MXN was also mildly supported overnight after reports suggested that Congressional Republicans discussed moves to block Trump's tariffs on Mexico.

RBA cut the Official Cash Rate by 25bps to 1.25% as expected and stated that it took the decision to lower rates to support employment growth as well as provide greater confidence inflation will be consistent with medium-term targets. RBA added that the outlook for global economy remains reasonable and that main domestic uncertainty continues to be household consumption although some pick-up of growth in household income is expected which should support consumption growth. Furthermore, the RBA said the central scenario is for economy to grow 2.75% this year and next, while underlying inflation is seen at 1.75% this year and 2.00% next year. (Newswires)

Australian Current Account Balance SA (AUD)(Q1) -2.9B vs. Exp. -2.5B (Prev. -7.2B, Rev. -6.3B). (Newswires) Australian Net Exports Contribution (Q1) 0.2% vs. Exp. 0.2% (Prev. -0.2%) Australian Retail Sales (Apr) M/M -0.1% vs. Exp. 0.2% (Prev. 0.3%)

COMMODITIES

Commodities were uneventful overnight with WTI crude futures lacklustre around the USD 53.00/bbl level as recent support from Saudi Arabia’s commitment to do whatever is required to keep market stability including drawing inventories down from their current elevated levels, eventually waned due to the subdued risk appetite. Elsewhere, gold took a breather from recent advances but remained near 3-month highs amid a weaker greenback, while price action in copper reflected the cautious sentiment. 

Russian Energy Minister Novak said Russia is committed to sticking to the OPEC+ deal in June and that Russia's combined production cut under the deal stood at 317k BPD in May compared to October levels (11.36mln BPD). (Newswires)

US

Treasuries continued their march higher on Monday. The rally was initiated by disappointing UK and EZ Markit Manufacturing PMI, where the bid in Gilts and Bunds seeped across the pond; it worth highlighting that Bund yields reached their all-time lows as German manufacturing remained in the contractionary zone. Analysts note that the reaching of multi-year lows in several US yields sparked some dealer sales and profit taking, where the 30-year posted 31-month lows. However, a mixed release of the US Markit Manufacturing PMI saw the rally continue in the US session, which was then exacerbated by Fed’s Bullard warranting the idea of a rate cut. At settlement, the curve had bull steepened considerably, where the 2s/30s widened by c. 5.5bps, and the 2-year yield dropped by more than 10bps. US T-note futures (M9) settled 16+ higher ticks at 126-28+.

Fed's Bullard (Voter, Dove) said an interest rate cut might be warranted soon on trade and inflation worries, while he added that inversion of yield suggests current policy rate setting is inappropriately high and that trade uncertainty means expected slowdown in the US may now be even slower. (Newswires)

US Commerce Secretary Ross reiterated President Trump's message that Mexico needs to do more on illegal immigration in a meeting with Mexico's Economic Minister, while Mexico said without its efforts a further 500k migrants would reach US this year and that they could take several paths if the US goes ahead with the tariffs including asking for help from WTO or implementing its own tariffs on US goods. (Newswires)

US Congressional Republicans are discussing moves to stop Trump's tariffs on Mexico. (Washington Post)

Federal judge in Washington DC rejected House Democrats’ attempt to block President Trump's use of emergency powers to reprogram military funds for the border wall. (Newswires)

US House Judiciary Committee launched antitrust probe into tech industry including Google (GOOG), Amazon (AMZN), Facebook (FB) and others. (Newswires)