• European Indices [Euro Stoxx 50 +0.3%] are firmer but notably not as buoyed as the Asia-Pac session was overnight
• In FX, the USD remains weak with the DXY back below the 97.0 handle to the benefit of all (ex-JPY) G10 counterparts
• European Commission are to instigate infringement processes against the Italian Government due to their fiscal policy
• Looking ahead, highlights include US Composite and Services PMI, US ADP, ISM Non-Manufacturing PMI, Fed’s Clarida, Evans, Rosengren, Bostic

ASIA-PAC

Asian equity markets were higher as the region took impetus from the strength in the US where sentiment was buoyed after comments from Fed Chair Powell spurred hopes of a rate cut. This saw Wall St notch its biggest gain since early-January with the Nasdaq the frontrunner as tech outperformed, while all sectors in the S&P 500 closed in the green and the DJIA rallied by over 500 points. ASX 200 (+0.4%) gained in which tech led the upside and with risk appetite supported by the recent rate cut by the RBA, as well its openness to further reductions. Nikkei 225 (+1.8%) surged as Japanese exporters cheered a weaker currency and with SoftBank shares boosted as it expects to book a profit of around JPY 1.2tln on the partial sale of its Alibaba stake. Hang Seng (+0.5%) and Shanghai Comp. (U/C) conformed to the positive global risk tone but with gains capped by disappointing Chinese Caixin PMI data and a substantial liquidity drain of CNY 210bln by the PBoC, while trade concerns lingered after China issued a warning against travelling to the US and held a meeting on rare earths where experts recommended greater controls on exports of the metals. Finally, 10yr JGBs were higher with prices underpinned on the back of Fed Chair Powell’s dovishness and as Japanese 10yr yields slipped to their lowest in around 3 years.

PBoC injected CNY 60bln via 7-day reverse repos for a net daily drain of CNY 210bln. (Newswires) PBoC set CNY mid-point at 6.8903 (Prev. 6.8822)

Chinese Caixin Services PMI (May) 52.7 vs. Exp. 54.3 (Prev. 54.5); 3-month low. (Newswires) Chinese Caixin Composite PMI (May) 51.5 (Prev. 52.7)

Chinese President Xi said China's economy is improving and that China has ample room to use policies to deal with risks. Xi also commented that China's economy will have enough factors of support to maintain stable, health and sustainable development, while he added that domestic consumption remained the main driver of growth. (Newswires)

US Treasury Secretary Mnuchin will meet with PBoC Governor Yi Gang at the G20 Finance meeting in Japan, while there were separate reports that G20 finance ministers will tell G20 this week that resolving global trade tensions has become the highest priority and that any further global economic slowdown will call for coordinated response. (Newswires)

US Commerce Department made recommendations to boost production of domestic critical minerals and other measures such as low rates, loan guarantees, tax credits and capital gains tax exemptions. The report also recommended expanding cooperation with Canada, Australia, EU, Japan and South Korea on critical minerals exploration, processing and recycling. (Newswires)

Ford’s China JV was fined CNY 162.8mln by Chinese regulators for violating anti-monopoly law. (Newswires)

China’s Embassy in Canada said PM Trudeau's comments on Chinese human rights represent a flagrant interference in China's internal affairs and China has made stern representations to Canada following Trudeau's criticism of Beijing's human rights record. (Newswires)

World Bank lowers global growth forecast for this year to 2.6% from 2.9%. (Newswires)

US

US President Trump stated that US Senate Minority leader Schumer gave Mexico bad advice in his suggestion that the tariffs on Mexico is a bluff, while Trump added it is 'no bluff!'. Elsewhere, US Senate Majority leader McConnell said there is "not much support" from Republicans for tariffs on Mexico and hopes they can be avoided via talks with the Mexican delegation, while a US administration official said US-Mexico talks will be held at the White House today around 1500EDT or 1600EDT. (Newswires)

US President Trump tweets that 'House Republicans support the President on Tariffs with Mexico all the way, & that makes any measure the President takes on the Border totally Veto proof'. (Newswires)

Fed's Kaplan (Non-Voter, Dove) said he wants to see if trade tensions ease before considering a rate cut and suggested that it pays to be patient and vigilant right now. (Newswires)

UK/EU

Former UK Foreign Secretary Boris Johnson warned Conservative MPs that a Brexit delay means defeat and that the Conservative Party faces “extinction” if Britain is not out of the EU by October 31st. (Telegraph)

US President Trump backtracked regarding the NHS being part of a future US-UK trade deal and stated that he doesn’t see it being on the table as the health service was something that would not be consider part of trade, which was in contrast to a prior suggestion of including the NHS in trade discussions. (Guardian)

UK Markit/CIPS Services PMI (May) 51.0 vs. Exp. 50.6 (Prev. 50.4)

- IHS Markit state that the data suggests the UK economy is close to stagnation

- Modest increase in business activity, New work rises for the first time since December 2018

- Slowest rise in input costs for 12 months

The European Commission are to begin infringement process against the Italian government due to its fiscal policy, the letter states that Italian polices have hurt confidence and have contributed to the economic slowdown. With the European Commission stating that the launch of EDP on Italy is justified by their growing debt. Prior to this, it was reported that yesterday Italian Deputy PM’s Salvini and Di Maio discussed the option of breaching the EU’s 3% budget deficit rule. Additionally, Italian League Economic Chief Borghi stated that PM Conte and Economy Minister Tria need to take a hard line on EU budget talks Separately, Italy are reportedly committing to EUR 3.5bln in annual savings. (Newswires/La Repubblica/Corriere Della Sera/Stampa)

EU Markit Services Final PMI (May) 52.9 vs. Exp. 52.5 (Prev. 52.5)

- EU Markit Comp Final PMI (May) 51.8 vs. Exp. 51.6 (Prev. 51.6)

- German Markit Services Final PMI (May) 55.4 vs. Exp. 55 (Prev. 55)

- German Markit Comp Final PMI (May) 52.6 vs. Exp. 52.4 (Prev. 52.4)

- French Markit Services PMI (May) 51.5 vs. Exp. 51.7 (Prev. 51.7)

- French Markit Comp PMI (May) 51.2 vs. Exp. 51.3 (Prev. 51.3)

EQUITIES

Major European indices [Euro Stoxx 50 +0.2%] are firmer, although somewhat more subdued than their Asia-Pac counterparts, which were boosted by Wall Street printing its largest daily gain since early-January. Sectors are somewhat mixed, with the Tech sector the notable outperformer, despite yesterday’s FAANG driven underperformance in tech names; where the sector lagged heavily for much of the session. Separately, but potentially of note for Tech names; TSMC Chairman Liu stated that the US’s move to ban US companies from doing business with Huawei is to have a short-term impact on TSMC, though the Co’s outlook remains unchanged, which may have provided some impetus to the European IT names. This morning’s most notable move is Provident Financial (+16.4%) on the back of Non-Standard Finance (-2.7%) stating that they are not going ahead with the hostile takeover. Also, in the green and towards the top of the Stoxx 600 are Norsk Hydro (+3.6%) after posting stronger than expected earnings; however, the Co. state that they expect to see payments relating to the cyber-attack in their Q3 earnings. Meanwhile, Saipem (+4.8%) shares spiked higher after announcing a new EPC contract for Anadarko Mozambique project, in which the Co. will have a share of around USD 6bln. Finally, Hikma Pharmaceuticals (-0.8%) are in negative territory as they are set to be removed from the FTSE 100.

FX

NZD/AUD - Some divergence down under as RBNZ Deputy Governor Hawkesby intimates that rates may remain on hold for a while if not considerably longer in contrast to RBA Governor Lowe who inferred that more easing could be in the offing in addition to Tuesday’s 25 bp OCR cut. Hence, the Aud/Nzd cross has recoiled further from circa 1.0600 and through 1.0550, while the Kiwi is leading G10 gains vs a soggy Greenback after Fed chair Powell promised to support the US economy against a more pronounced slowdown yesterday. Nzd/Usd has tested resistance and offers around 0.6950, as Aud/Usd continues its rebound from pre-RBA lows to just over 0.7000 and into a heavy option expiry zone spanning 0.7005 to 0.7025 (1.7 bn). Note also, the Aussie needs to clear Fib resistance at 0.6995 convincingly and faces congested technical resistance between 0.7033-35 in the form of the 55 DMA and another Fib.

USD - The aforementioned Dollar weakness has pushed the DXY back down below 97.000 and sub-the 100 DMA at 96.980 to a fresh 96.915 low amidst widespread losses vs major currency counterparts and EMs, bar the Yen and Rand. Technically, 96.745 is the next support level and fundamentally the focus switches to ADP ahead of Friday’s NFP, services surveys (Markit PMI and ISM) and more Fed speak.

EUR/GBP/CAD/CHF - As noted above, all beneficiaries of the Buck’s demise, but with the single currency and Pound also gleaning some traction via better than expected services PMIs, on balance. Indeed, Eur/Usd has now surpassed the 100 DMA (1.1276) having narrowly missed the equivalent level on Tuesday and is eyeing 1.1300, while Cable seems more assured on the 1.2700 handle, albeit still lagging in Eur/Gbp cross terms within a 0.8855-80 range. Elsewhere, the Loonie has overcome 1.3400 and is filling hefty buying interest layered from 1.3370 to 1.3360, with the 100 DMA sitting just under 1.3350 at 1.3348, and the Franc has rebounded towards 0.9900 but underperforming vs the Euro in broad 1.1300-1.1250 parameters.

JPY - In contrast to its major peers, the Yen has been undermined by the ongoing recovery in broad risk sentiment and is retesting recent 108.30+ lows vs the Dollar with decent expiries also within close proximity at 108.20-30 (1 bn) and 108.50-55 (1.1 bn).

EM - While most of the region takes advantage of the Dollar’s downturn, more downbeat SA macro developments have hit the Rand and propped up Usd/Zar within 14.8240-6260 boundaries. The bad news kicked off with a sub-50 services PMI and continued via weaker business sentiment, while the ANC party’s ally has joined forces to back a wider SARB policy mandate prompting a dismissive response from the Bank itself.

Australian Real GDP (Q1) Q/Q 0.4% vs. Exp. 0.5% (Prev. 0.2%). (Newswires) Australian Real GDP (Q1) Y/Y 1.8% vs. Exp. 1.8% (Prev. 2.3%)

RBNZ Assistant Governor Hawkesby said RBNZ central view is for interest rates to remain broadly around current levels for the foreseeable future and that the bank needs to be prepared to adapt to changing conditions to meet its objectives. (Newswires)

South African Communist Party, seen as a key ANC ally, state that the SARB's mandate must explicitly include employment and growth targeting and the act pertaining to the bank should be amended, subsequently SARB Governor Kganyago states that the constitutional mandate of the bank is price stability; and their Finance Minister says no-one is discussing changes to the SARB’s mandate. (Newswires)

FIXED INCOME

Notwithstanding claims from Italian PM Conte that the country’s finances will be more healthy than implied by the first half of 2019 and Rome will do all it can to avoid EDP measures, BTPs are succumbing to another bout of investor angst with the Sep19 future now down through 129.00 and almost a full point below the 129.78 high. This has given Bunds a boost from a new 170.85 Eurex low in wake of better than expected Eurozone services PMIs, but Gilts have rebounded further from their deeper 129.67 Liffe base despite a UK services beat. Elsewhere, the US Treasury curve remains steeper after yesterday’s assurances from Fed’s Powell that policy will be tweaked as needed, ie loosened in the case of a more pronounced slowdown, as the focus turns to ADP, non-manufacturing PMI/ISM and another raft of Fed speakers.

COMMODITIES

WTI (-0.7%) and Brent (-0.6%) prices are back on the decline as a surprise build in last night’s API exacerbated the recent downside seen amidst demand concerns. Stockpiles last week increased by 3.5mln barrels vs. an expected decline of 800k barrels. On the OPEC front, Russian Energy Minister Novak will be meeting his Saudi counterpart, Al-Falih, on June 10th to potentially discuss a date for the OPEC/OPEC+ meeting with no confirmation as of yet to whether it will take place at the end of June or early July. News-flow has been light for the complex thus far, with traders now eyeing the release of the weekly DoE crude stocks data in which the headline is expected to draw by 849k barrels. Elsewhere, Gold (+0.9%) is holding onto a bulk of its recent gains amid the weaker post-Powell USD whilst copper is set to notch a third straight day of gains on the back of a receding Buck, whilst alumina prices declined due to a demand halt as traders paused on spot purchases amid high prices.

Russian Energy Minister Novak and Saudi Energy Minister Al-Falih are to meet on June 10th, according to a statement. (Newswires)