• European indices [Euro Stoxx 50 +1.0%] are firmer as the positive sentiment rolls over from Asia-Pac session ahead of NFP
• White House Press Secretary Sanders stated that the US is moving ahead with Mexico tariffs, President Trump reportedly plans to declare a national emergency to impose the tariffs
• Looking ahead, highlights include, US & Canadian Jobs Report, Fed's Barkin

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 (+1.0%) was positive with the index led by the energy sector after similar outperformance stateside following a rebound in oil prices and Nikkei 225 (+0.5%) gained as exporters coat-tailed on favourable currency flows. KOSPI (+0.2%) 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)

US

White House Press Secretary Sanders later said the US is still moving ahead with Mexico tariffs at this point. (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.

UK/EU

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)

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)

Bank of England/TNS Inflation Attitudes Survey

- 12-month ahead inflation 3.1% (prev 3.2%)

- 2-year ahead inflation 3.0% (prev 2.9%)

- 5-year ahead inflation 3.8% (prev 3.4%)

Italian Deputy PM Di Maio says that there has been no discussion with Deputy PM Salvini about a potential government reshuffle. (Newswires)

ECB's Nowotny (Hawk) says that TLTRO 3 should not become a permanent instrument at the Bank. (Newswires)

Bundesbank cuts German 2019 GDP growth forecast to 0.6% (Prev. 1.6%), 2020 cut to 1.2% (Prev. 1.6%), 2021 cut to 1.3% (1.5%). Inflation forecast 2019 maintained at 1.4%, 2020 cut to 1.5% (Prev. 1.8%), 2021 cut to 1.7% (Prev. 1.8%)

- Bundesbank expects German exports to start rising from H2 2019, private consumption and investment weakening after 2019

- Bundesbank says more protracted decline in economic output currently seems an unlikely prospect

GEOPOLiTICAL

Russian Pacific Fleet have issued a formal protest to the US regarding dangerous manoeuvring by a US ship, Russia state that one of their ships was forced to make a dangerous manoeuvre to avoid collision in the East China Sea. Subsequently, the US Navy says that a Russian destroyer made and unsafe and unprofessional approach to a US Missile cruiser in the Philippine Sea, which put the safety of US sailors at risk. (Newswires)

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)

EQUITIES

European equities are higher across the board [Eurostoxx 50 +1.0%] as the region continues the positive handover from Asia with sentiment buoyed by reports that the US is considering delayed tariffs on Mexico. European sectors are all in the green with energy names outperforming as the oil market continues to recover from recent lows, whiles other sectors are showing broad-based gains. In terms of individual movers, Bpost (-9.7%), Deutsche Wohnen (-6.6%) and Royal Mail (-5.9%) all rest at the foot of the Stoxx 600 amid negative broker moves. Meanwhile, Sanofi (+4.9%) are higher after the Co. appointed Paul Hudson as CEO effective 1st September after the current CEO retired. Finally, MediaSet Espana (+8.6%) spiked higher in European trade amid reports that that the company is considering options in Spain, including a potential combination with its parent company MediaSet (+2.6%)

FX

DXY - The index is holding just above the 97.000 level in a very tight range (97.007-124) into NFP, with the Dollar firmer or steady vs most major counterparts and racking up heftier gains against EMs. Clearly the upcoming US jobs data will provide the next big directional pointer for the Greenback and currency markets as a whole, but from a technical perspective the DXY is highly likely to remain well within nearest support and resistance around 97.745 (Wednesday’s low) and 97.546 (late May base) on the charts in advance.

GBP/CHF - The G10 outliers, as Cable continues to consolidate above the 1.2700 handle, though faces some resistance in the form of the 21 DMA at 1.2730, while the Franc is underperforming and still meeting offers ahead of the psychological 0.9900 mark as Eur/Chf eyes 1.1200 ahead of next week’s SNB Quarterly Policy review and post-Thursday’s ECB action.

CAD/NZD/AUD/EUR/JPY - All narrowly mixed vs the Usd, with the Loonie straddling 1.3350 and awaiting Canada’s labour report that should provide some independent impetus alongside the aforementioned US release, while the Aussie and Kiwi remain in flux following RBA and RBNZ inspired moves earlier this week, the former meandering between 0.6969-82 and latter from 0.6615 to 0.6626. Elsewhere, the single currency seems content or merely relieved to conform to the usual quieter pre-NFP trading environment after yesterday’s post-ECB whip-saw price moves, as Eur/Usd skirts 1.1258 and 1.1284 bounds, but is also ensconced in hefty expiries – 8.6 bn spanning 1.1200-1.1325, and 3.4 bn running off between 1.1250-60 and 1.1275 alone. Conversely, the Yen looks free from option interest after Thursday’s cluster stretching from 108.00 to 109.00, but has lost a bit more safe-haven premium as the broad recovery in risk appetite enters its 4th day. Hence, Usd/Jpy has probed above 108.50 to test the weight of supply reportedly close by.

EM - As noted above, further depreciation or bullish retracement across the region, and in particular the Cnh after dovish PBoC commentary overnight and with no official Cny midpoint fix to anchor the offshore Yuan. Accordingly, Usd/Cnh has hit highs just over 6.9600 and cleared option barriers at 6.9500 on the way. Meanwhile, Usd/Zar has extended through 15.0000 to 1.1650+ as the Rand suffers even more pronounced angst from ANC wrangling over the SARB’s mandate.

FX Expiries of note:

- EUR/USD: 1.1150 (1.3BLN), 1.1200 (2.6BLN), 1.1250-60 (1.6BLN), 1.1275 (1.8BLN), 1.1305 (1.1BLN), 1.1315-25 (1.5BLN)

- USD/JPY: 108.00 (814M), 109.00 (1.8BLN)

FIXED INCOME

It may be premature, but bonds could have set out stalls for the big BLS release already and are now likely to idle into the number barring anything major in the interim. In fact, trade and direction has been relatively muted if not non-descript or even non-existent for a while, as Bunds sit tight between 171.45-25, Gilts hold just above the base of their 130.20-36 range and US Treasuries barely budge within narrow overnight session confines. In contrast, BTPs have been lively and outperforming, as the 10 year Italian benchmark retains a healthy bid above 130.00, albeit off 130.89 peaks vs yesterday’s 129.85 close and a low of 129.96, with TLTRO3 providing support and no EDP launch as yet also a relative source of relief.

COMMODITIES

WTI and Brent prices are firmly in the green and recovering from a five-month low amid reports of more engaged US-Mexico talks, which lifted sentiment during the US session. In the EU session, upside was exacerbated as Russian Energy Minister Novak and his Saudi counterpart Al-Falih participated in a panel discussion alongside a few CEOs from energy giants. Al-Falih noted that the precise volume of output (i.e. any potential revision to the OPEC+ deal) is still up for discussion and any decision taken at the upcoming meeting can be adjusted in H2 2019 (which was then echoed by the Iraqi Oil Minister), but he is sure that OPEC+ will extend the output pact. Furthermore, Al-Falih acknowledged that the Kingdom is “already cutting deeper”, referring to the overcompliance noted at the JMMC meeting last month, which comes in the context of sources noting that the Russian and Saudi Energy Minister discussed a scenario which would see an elimination of over-compliance (currently over 150%, equating to output cuts of just under 2mln BPD, according to calculations). This would mean a continuation of the current deal and an increase in production of around 0.8mln BPD. Finally, regarding the date of the next meeting, Novak spoke of consensus among “many oil producers” are skewed towards a July 2/4 meeting in Vienna, i.e. a delayed to the original June 25/26 date.

Elsewhere, precious metals are uneventful and largely tentative ahead of the key US labour market report (Full preview available in the Research Suite), although the yellow metal is poised for its biggest weekly gain in six-months. Elsewhere, copper trades with marginal gains but with upside capped ahead of the US jobs numbers and the absence of China. To provide some colour, Codelco, the largest miner of the red metal, notes that copper demand “remains good” despite recent trade-sparked decline in prices, but the price rout could discourage mining companies from making investment decision, which could lead to tightened supply, while a potential strike at one of the Co’s main mines could add to the global deficit.

Saudi Energy Minister Al Falih says the precise volumes of output is up for discussion and any decision taken next month can be adjusted in H2 and is sure that OPEC+ will extend the oil-cut pact(Newswires)

- Regarding oil output "we are already cutting deeper" and domestic production is 0.7mln bpd, states that Saudi Arabia produced 9.65mln BPD of oil in May

- Does not wish to engage in lifting production to compensate for softer oil prices

- Prices of USD 60/bbl does not provide confidence to the industry to invest, and Saudi Arabia does not have a oil price target

Iraq oil minister believes that OPEC+ will most probably extend the current output deal until the end of 2019 and then assess the situation again in December. (Newswires)

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)