• Asian equity markets were mostly higher following the tailwinds from US where sentiment was underpinned by hopes of averting tariffs on Mexico
• However, White House Press Secretary Sanders later cast doubts on this and stated the US is still moving ahead with tariffs
• DXY consolidated around the 97.00 level after the prior day’s tumultuous session in which the USD lost ground against EUR
• Looking ahead, highlights include German Industrial Output & Trade Balance, US & Canadian Jobs Report, Fed's Barkin, Saudi Energy Minister Al Falih, Russian Energy Minister Novak

*Due to technical issues the blog's audio cuts out at the end of the recording, as such please see the Daily European Opening News for a full briefing and we apologise for any inconvenience caused.

ASIA-PAC

Asian equity markets were mostly higher following the tailwinds from US where sentiment was underpinned by hopes of averting tariffs on Mexico after reports the US was considering delaying tariffs as time for a deal was running short. However, White House Press Secretary Sanders later cast doubts on this and stated the US is still moving ahead with tariffs, while President Trump reportedly plans to declare a national emergency to impose the tariffs on Mexico. ASX 200 (+0.7%) was positive with the index led by the energy sector after similar outperformance stateside following a rebound in oil prices and Nikkei 225 (+0.6%) gained as exporters coat-tailed on favourable currency flows. KOSPI (+0.3%) eventually shrugged off the early indecisiveness and conformed to the upbeat tone but with gains capped across Asia-Pac bourses amid holiday closures across the Greater China region, ongoing trade uncertainty and ahead of the key NFP jobs data. Finally, 10yr JGBs traded marginally higher despite the gains in stocks as prices edged back above the 153.50 level and as yields declined in which the 30yr yield fell to its lowest since August 2016. The BoJ were also present in the market today for JPY 720bln in the belly to super-long end in which it increased its buying amount in 10yr-25yr maturities, although this was after it had already announced to reduce frequency of those purchases for the month.

PBoC Governor Yi Gang said talks with US Treasury Secretary Mnuchin at the G20 will be difficult, while he added that no CNY exchange rate number is more important than others and that there is lots of policy room if the trade war worsens. (Newswires) 

UK/EU

UK PM May is said to be at loggerheads with Chancellor Hammond regarding her plans to leave office with large spending announcements. (Newswires)

UK Remainer Tory MPs are reportedly beginning to back former UK Foreign Minister Boris Johnson in the hope he will be easily influenced to soften or revoke Brexit. (The Sun)

The UK government official in charge of delivering “frictionless” Brexit border arrangements, including emergency plans for Dover and Ireland in the event of no deal, has quit just two years into her job. (Guardian)

Germany and most other EU governments will back another delay (potentially as late as next spring) to Brexit regardless of who the next UK PM is, according to a senior European source. (Times)

FX

DXY consolidated around the 97.00 level after the prior day’s tumultuous session in which the USD lost ground against EURwith EUR/USD was boosted in the aftermath of the ECB. GBP/USD was steady just below 1.2700 handle as a Labour win at the Peterborough by-election, to deny the Brexit Party its first parliament seat, failed to spur price action. USD/JPY was lifted by the positive risk tone and antipodeans were uneventful amid the China closures and ahead of the extended weekend in Australia, while MXN traded choppy at the whim of several conflicting tariff-related news reports with officials set for a 3rd day of talks in Washington.

COMMODITIES

Commodities were mixed with WTI crude futures higher after it caught a bid heading into the settlement which was further exacerbated by the positive risk sentiment on hopes regarding a delay of tariffs on Mexico. Furthermore, there were also recent reports that Saudi and Russia are seeking to bridge divisions over their response to the recent energy sell-off, while the US also increased the pressure for Venezuela’s PDVSA and clarified that exports of diluents could be subject to sanctions. Elsewhere, gold was flat with price action tentative ahead of the key US jobs data and copper was underpinned by the risk appetite but with gains limited by the absence of China.

US Treasury Department tightened pressure on Venezuela’s PDVSA and clarified that exports of diluents by international shippers could be subject to US sanctions. (Newswires)

Russia Energy Minister Novak said Russia's oil output level is currently influenced by the contaminated oil and refinery maintenance, while he suggested output will decrease in June and then will recover. (Newswires)

GEOPOLITICAL

US has stopped accepting additional Turkish pilots to train in US on F-35 jets, according to officials. (Newswires) 

Reports suggest that intelligence officials informed US senators recently of advances in Saudi-owned missile technology, and that evidence has emerged of work at a Chinese-built development center. (Times)

US

The TPLEX was takings its cue from EGBs in early trade, and the curve flattened after the ECB extended its forward guidance, pledging to keep rates in negative territory through the summer of 2020. The ECB's TLTRO announcement, however, once the details were digested, saw the short-end of the yield curve rise, since the rate was not as low as analysts were expecting. Fed rate cut pricing was little changed on Thursday, ahead of Friday's payrolls data, after which the Fed enters blackout. Fed's Williams (voter) touched on market pricing in remarks on Thursday, and he suggested that while it is informative, it does not force the Fed's hand; Williams suggested that it was reflective of uncertainty around trade, and potential recessions on the horizon. Treasuries did sell off going into settlement on the news that the US was mulling the delay of tariffs on Mexico, but the move was respectful of recent ranges. At settlement, major curve spreads had flattened, the 2s/10s contracted c. 4bps, with the 2s/30s most pronounced, where it flattened by c. 5.5bps. US T-note futures (M9) settled 1 tick lower at 126-19+.

There were initial reports that US is reportedly mulling delaying Mexico tariffs as time for a deal is running short but that tariffs coming into effect on Monday is still possible. However, White House Press Secretary Sanders later said the US is still moving ahead with Mexico tariffs at this point and there were earlier comments from US Presidential aide Schlapp that Mexico are not offering enough to avert tariffs. (Newswires/The Hill)

US President Trump plans to declare a national emergency to impose tariffs on Mexico. In related news, President Trump suggested that Mexico needs the US and that the US does not need them, while he commented that he will definitely get a deal with China. President Trump also reiterated that the Fed should have had lower interest rates and that the market would be 10k points higher without rate hikes. (The Hill/Newswires)

US Vice President Pence said he was encouraged Mexican officials went into talks offering to do more, while he added that Mexico needs to take decisive action on immigration to avert tariffs and that talks with Mexico will continue in the upcoming days. (Newswires)

Mexico Foreign Minister Ebrard said the National Guard will be deployed to the border with Guatemala to contain migrant flows, while he added that talks with the US will continue today. Furthermore, Ebrard thinks the US and Mexico made some advances on Thursday and other reports noted that Mexico and US were considering outlines of a deal that could boost Mexican immigration enforcement effort and give the US more latitude to deport asylum seekers. (Newswires/Washington Post)

Fed's Williams (Voter, Hawkish) said market views on Fed rate pricing are informative but do not force the Fed's hand and that an inverted yield curve does not require a rate cut. Williams also commented he is not worried by market pricing of rates and said trade worries among investors are likely to be a factor in the cuts priced in. (Newswires)