• European indices are firmer [Euro Stoxx 50 +0.8%], diverging from the mixed performance of their Asia-Pac counterparts
• US President Trump stated that tariffs on China could be raised to another USD 300bln if necessary due to trade disputes
• In FX, the USD has consolidated above 97.0 while the EUR remains within a relatively narrow band ahead of ECB and close to notable option expiries
• Looking ahead highlights include; US International Trade, Initial Jobless Claims, Labour Cost & Productivity, ECB Rate Decision & Staff Projections, ECB’s Draghi, Fed’s Kaplan & Williams.

ASIA-PAC

Asian equity markets traded somewhat mixed with the region cautious after hopes of an agreement to avert Trump tariffs on Mexico have so far failed to materialize, although officials will continue discussions on Thursday. Nonetheless, ASX 200 (+0.4%) and Nikkei 225 (U/C) remained afloat as Australia continued to ride the wave of the lower rate environment and amid broad gains across the sectors aside from mining names, while the Japanese benchmark was also higher but with gains capped amid an indecisive currency, as well as weakness in automakers including Nissan and Mitsubishi Motors after Fiat abruptly withdrew its merger proposal for Renault. Hang Seng (+0.3%) and Shanghai Comp. (-1.2%) were mixed ahead of their extended weekend with initial weakness seen as Chinese press continued to point the blame on the US for the breakdown of negotiations and with Chinese agencies said to be collecting opinions on further countermeasures against the US. However, some of the losses were later pared after the PBoC announced CNY 500bln in 1-year MLFs and reiterated to keep liquidity in the banking system ample. Finally, 10yr JGBs pulled back to below the 153.50 level amid mild gains in Japanese stocks and as yields recovered from multi-year lows, while the enhanced liquidity auction for longer-dated JGBs also showed slightly weaker demand.

PBoC injected CNY 10bln via 7-day reverse repos and announced a CNY 500bln 1-year MLF operation. (Newswires) PBoC set CNY mid-point at 6.8945 (Prev. 6.8903)

US lawmakers reportedly offered legislation which would increase oversight on some Chinese companies. Elsewhere, there were also reports the US Defence Department held talks with Mkango Resources and other rare earth projects about supplies of critical minerals, while it is said to be working on connecting rare earth development projects with financiers. (Newswires)

Chinese Commerce Ministry says the nation will be forced to adopt appropriate countermeasures if US decides to unilaterally escalate trade tensions, and that China will fight to the end in the scenario that the US decides to escalate trade tensions. (Newswires)

US

US President Trump says tariffs on China could be raised to another USD 300bln if necessary in trade disputes, talks are ongoing. (Newswires)

US and Mexico officials failed to reach a deal on tariffs and immigration at Wednesday meeting. Furthermore, US President Trump stated progress is being made in talks with Mexico "but not nearly enough", while he added that talks will resume on Thursday and that 5% tariffs will begin on Monday if no deal is reached. (Newswires)

Mexico Foreign Minister Ebrard said they did not discuss tariffs during meeting on Wednesday and will seek common ground in Thursday’s talks. (Newswires)

Reports noted that US talking points going into the tariff meetings were said included asylum cooperation, stopping trafficking networks, border enforcement and maintaining or increasing immigration detentions, while Mexico reportedly would make its own demands in talks with the US in which they will seek funds from US for development, demand that arms cease to criminal cartels and will not accept a "safe third country status" that forces asylum claimants to seek refuge in Mexico. (Newswires)

UK/EU

UK Trade Minister Fox said a trade deal is possible soon after Brexit although the ratification process will take some time. (Newswires)

EU's Moscovici says Italy still has the burden of proof on its deficit and debt, and his door remains open for talks. (Newswires)

EU GDP Revised QQ (Q1) 0.4% vs. Exp. 0.4% (Prev. 0.4%)

- EU GDP Revised YY (Q1) 1.2% vs. Exp. 1.2% (Prev. 1.2%)

- EU Employment Final QQ (Q1) 0.3% vs. Exp. 0.3% (Prev. 0.3%)

- EU Employment Final YY (Q1) 1.3% vs. Exp. 1.3% (Prev. 1.3%)

EQUITIES

European equities are higher across the board [Eurostoxx 50 +0.8%] as sentiment somewhat diverges from the mixed handover in Asia ahead of the ECB monetary policy decision. Sectors are mostly higher, although European Telecom names underperform with the likes of Vodafone (-3.0%) weighing on the sector as they are ex-dividend. Notable movers include Renault (-7.3%) after Fiat Chrysler (Unch) withdrew its merger offer after the French state, Renault’s largest shareholder, requested discussions be put off to a later date; albeit the French Budget Minister did note that future merger talks between the company may happen. The news of the break-up in talks saw most European autos open lower, although Renault competitor Peugeot (+2.0%) spiked to the top of the CAC. Elsewhere, the FTSE reshuffle is due to take place on June 24th, with confirmation that easyJet (+0.5%) and Hikma Pharmaceuticals (Unch) will be demoted, whilst JD sports (-0.4%) and Aveva (+1.1%) will be added to the blue-chip index. Furthermore, in Italy, the FTSE MIB will see Nexi (+1.1%) replace Banca Generali (+0.1%).

FX

DXY - The Dollar is off recovery highs, but the index is consolidating above the 97.000 axis after rebounding from sub-96.500 at one stage on Wednesday when Fed rate cut fever rose on the back of dovish leaning speeches from Brainard and Evans (latter changing tune somewhat from the previous day), hot on the heels of a dismal ADP survey (albeit partly corrective perhaps). Subsequent comments from Kaplan advocating the current wait-and-see policy and a solid looking services ISM helped the Greenback regain composure and the latest Beige Book also maintained a relatively upbeat tone. Hence, the DXY is holding within a 97.344-198 range ahead of more potentially pivotal US data and Fed commentary.

JPY/NZD/AUD/EUR - Usd/Jpy looks pretty tethered to the 108.00 level after another rally on improved risk sentiment and a resultant rebound in US Treasury yields fizzled out ahead of 108.50. However, the headline pair may now be hostage to option-related flows given a mass of mega expiries ranging from 108.00 to 109.00 and totalling 10.5 bn. Meanwhile, the Antipodean Dollars are both firmer vs their US counterpart, albeit not breaking fresh ground after recent RBA and RBNZ policy actions and guidance, with Aud/Usd and Nzd/Usd meandering between 0.6983-64 and 0.6633-18 respective parameters. Note, little net reaction to Aussie trade data overnight as a sub-forecast surplus was partly compensated by an encouraging rebound in exports. Elsewhere, the single currency is also fairly contained vs the Buck and generally eyeing the upcoming ECB policy meeting and press conference to see how dovish or not President Draghi is and anticipating details of TLTRO3 – see our Research Suite for a full preview. Eur/Usd is currently hovering around 1.1230 and also close to decent option expiry interest lying at 1.1220-30 in 2 bn and 1.1200-10 in 1.5 bn.

NOK/SEK - The Scandi Crowns have both bounced off worst levels to retest technical and psychological resistance vs the Euro around 9.7850 and 10.6000 respectively, with the former propped by an uptick in Norway’s 2019 mainland GDP forecast from the Stats office which also sees the Norges Bank hiking this month in line with official guidance.

CAD/GBP/CHF - All relatively flat vs the Usd, but the Loonie could derive some independent impetus from Canadian trade later and deviate from 1.3400-30 bounds, while Cable hovers just below 1.2700 and the Franc near 0.9950.

EM - The Mxn has conceded more ground than most to the semi-Usd revival as high hopes of a Mexican-US deal were dashed yesterday, and even though talks are set to continue today the Peso suffered a double ratings whammy as Fitch downgraded the sovereign to BBB from BBB+ and Moody’s revised the outlook to credit negative from stable. Usd/Mxn now midway between 19.5720-8345.

Australian Trade Balance (AUD)(Apr) 4871mln vs. Exp. 5100mln (Prev. 4949mln, Rev. 4887mln). (Newswires) Australian Exports (Apr) M/M 3% (Prev. -2.0%) Australian Imports (Apr) M/M 3% (Prev. -2.0%)

Moody's revised Mexico outlook to Negative from Stable and affirmed rating at A3, while Fitch downgraded Mexico rating to BBB from BBB+; outlook revised to Stable from Negative. (Newswires)

Japanese Finance Minister Aso will meet with US Treasury Secretary Mnuchin to discuss currency clause at the G20. (Newswires)

Indian Repo Rate* N/A 5.75% vs. Exp. 5.75% (Prev. 6.0%)

- Unanimous decision to cut rates and shift monetary policy stance to "accommodation" from "neutral"

Key Option Expiries for today’s NY cut:

- EUR/USD: 1.1150 (1.6BLN), 1.1200-10 (1.5BLN), 1.1220-30 (2BLN), 1.1235-50 (750M), 1.1290 (500M)

- USD/JPY: 108.00 (2.8BLN), 108.25 (2.4BLN), 108.50 (2.1BLN), 109.00 (3.2BLN)

FIXED INCOME

It’s virtually relentless or almost self-fulfilling as the rally in core debt continues with only brief pauses for breath and periods of consolidation. Bunds have now been up to 171.46 (and -24 bp in the corresponding cash yield) and Gilts as high as 130.33, while US Treasuries are hovering just under overnight session peaks, albeit lagging behind and a little detached from EU equivalents awaiting US data and more Fed rhetoric ahead of tomorrow’s NFP release. Back to Eurex, Italian debt has pared gains in the run up to the ECB amidst more reports from Rome suggesting that the Government will not scale back fiscal plans to appease the EU, or at least not to the extend that Brussels wants. 10 year BTPs currently just shy of 130.00 vs 130.49 at best and a new recent low at 129.81.

COMMODITIES

WTI (+0.1%) and Brent (+0.5%) futures are higher on the day, but with gains capped as the benchmarks hold onto most of yesterday’s supply-sparked losses following the barrage of bearish numbers including record high US production and a mammoth surprise build in stockpiles. WTI tested resistance around the USD 52.00/bbl broke the level in a short-lived move, whilst its Brent counterpart briefly breached the USD 61.00/bbl to the upside. In terms of implications ahead of the OPEC gathering, concerns about the rise in US inventories were flagged by oil producers at the JMMC meeting, and this was reinforced by OPEC and allies yesterday in which OPEC Secretary General Barkindo noted that they will take the current “economic bearishness” into account when they meet in the coming weeks.  In terms of the meeting date, Russian Energy Minister Novak noted that he is discussing postponing the OPEC+ gathering to July 2nd/4th, ahead of a meeting with his Saudi counterpart on June 10th. Elsewhere, gold (+0.5%) extends on recent gains and remains near three-month highs as trade tensions show no signs of abating as US-Mexico talks failed to conclude with an agreement; albeit dialogue is expected to resume today. Meanwhile, copper declined to a two-year low amid the bleak demand outlook whilst Dalian iron ore futures were pressured by anticipation of increased supply.

US refiners warned the Trump administration that tariffs on imports from Mexico could severely impact refiners and raise gasoline prices just as the US driving season kicks into high gear. (Newswires)

Former US Energy Secretary Moniz said there is sufficient capacity to compensate for a supply disruption in the order of 1mln bpd. (Twitter)

Morgan Stanley have lowered their H2 2019 oil demand growth forecast to 1.0mln BPD vs. Prev. 1.2mln BPD, lowered Brent price forecast for 2H19 to USD 65-70/bbl vs. Prev. USD 75-80/bbl. (Newswires)

Russian Energy Minister Novak states he is discussing a OPEC+ meeting on July 2nd-4th and keeps their 2019 oil output forecast unchanged, can offset losses from tainted oil by year-end, adds he will now discuss the tainted oil issue with Hungary. (Newswires)

The Kashagan oilfield in Kazakhstan is to produce 13.3mln Tonnes in 2019, 15.4mln Tonnes in 2020, as according to the energy ministry. (Newswires)