• Asia-Pac stocks remain lower as the risk-off sentiment spills over from the US; amidst negative Chinese rhetoric on a US trade deal
• US President Trump remains optimistic on achieving a deal with China, but added that tariffs on the rest of Chinese imports will be imposed if no deal can be achieved; has no deadline for these tariffs
• USD remains firm to the detriment of G10 counterparts, with Cable pressured after the Labour party’s parliament control bill was defeated
• Looking ahead highlights include, German CPI, EZ Industrial Production, US Import, Export Prices & Jobless Claims, New Zealand Manufacturing PMI, SNB Rate Decision. Supply from Italy & US

ASIA-PAC

Asian equity markets traded mostly downbeat following an uninspiring performance on Wall St where all major indices extended on losses as trade uncertainty lingered, with the downside led by energy and financials after a further decline in oil prices and yields. ASX 200 (Unch.) and Nikkei 225 (-0.7%)were subdued but with losses in Australia stemmed as mixed jobs data supported the case for further rate cuts by the RBA, while the Japanese benchmark was pressured as energy names suffered the brunt from the recent 4% drop in crude and with the nation’s largest megabank MUFG weighed as it faces its first ever Q1 loss due to a JPY 300bln impairment related to its Indonesia JV. Hang Seng (-0.8%) and Shanghai Comp. (+0.1%) were also weaker after the recent miss on lending data, as well as ongoing trade uncertainty with President Trump continuing to send mixed signals regarding a trade deal and as the Chinese government mouthpiece Global Times suggested Beijing is preparing for ties worsening. Hong Kong underperformed again amid disruptions following the mass protests and as the Legislative Council was set to hold a meeting regarding the extradition bill today, although this was later postponed, and stocks gradually rebounded from lows. US equity futures were also active and deteriorated overnight amid the widespread risk averse tone and technical selling in which DJIA futures slipped below the 26k level and E-mini Nasdaq 100 pulled back from resistance at 7.5k. Finally, 10yr JGBs were initially higher as the weakness across stocks spurred a flight to quality and amid the declining global yield environment, although the gains in bonds were aggressively pared after an abysmal 30yr auction in which the b/c printed its lowest since November 2017 and the tail in price spiked to 0.87 from 0.03. 

PBoC injected CNY 100bln via 28-day reverse repo for a daily net injection of CNY 90bln. (Newswires) PBoC set CNY mid-point at 6.8934 (Prev. 6.8932)

US President Trump said he has a feeling the US is going to make a deal with China but added that he will impose tariffs on the rest of imports from China if a deal cannot be made, while he later commented that he has no deadline for implementing the next round of tariffs on China. (Newswires)

China Vice Premier Liu He said there is room to expand financial support for quality GDP growth and that domestic economy remains stable and healthy, while he added that China continues to push ahead with economic rebalancing. Furthermore, Liu He commented that the domestic economy is facing external pressure but suggested long-term trends are good. (Newswires)

China CBIRC Vice Chairman said China will prevent flooding of the financial system with liquidity, while he added that a certain country is trying to curb China's growth. (Newswires)

China Global Times Editor said China's state media will publish more heavyweight commentaries criticizing the US and demonstrating China's determination which suggests that Beijing is preparing for ties worsening. Furthermore, Global Times later tweeted that the conduct of the US has laid bare that the US itself is a non-market economy and that its actions have nothing to do with the laws and principles of the market. (Twitter)

Economists expect the PBoC to either lower interest rates or RRR in the upcoming weeks, while they think that moderate China inflation and global dovish environment may provide more space for officials to adjust money and credit supply to counter risks if trade tensions escalate. (China Daily)

HKMA said HKD, FX and money markets are operating in an orderly manner, while it added that domestic banks are well capitalized and highly liquid. (Newswires)

UK/EU

UK opposition Labour party Brexit vote to seize control over parliamentary business as an attempt to block a no-deal was defeated by 309 vs 298 votes, while there were comments from Labour Brexit Chief Starmer that the vote was just the start of efforts to stop a no-deal and that they stand ready to do whatever mechanism available. (Newswires)

UK PM candidate Johnson has privately assured senior Brexiteers that he will leave open the option of suspending parliament to force through a no-deal exit from the EU, according to sources. (Times)

Italy’s government won a confidence motion in the lower house which paves the way for the approval of reforms on public tender rules aimed at supporting its economy. (Newswires)

UK RICS Housing Survey (May) -10 vs. Exp. -21.0 (Prev. -23.0, Rev. -22). (Newswires)

FX

In FX markets, the DXY slightly eased below the 97.00 level but still held on to most the prior day’s gains as its major counterparts struggled to nurse recent losses with EUR/USD and GBP/USD below the 1.1300 and 1.2700 handles respectively, with the latter pressured after UK opposition Labour party’s attempts to seize control over parliamentary business and block a no-deal Brexit was defeated by 309 vs 298 votes. Elsewhere, the risk averse tone spurred demand for safe haven JPY and weighed on high-beta currencies with AUD/USDalso dragged by mixed jobs data in which headline Employment Change topped estimates but the Unemployment Rate remained at 5.2% vs. Exp. 5.1% (Prev. 5.2%), which suggests the RBA remain on track for a further cut this year and saw the Aussie 3yr yield drop to a record low under 1.00%.

Australian Employment Change (May) 42.3k vs. Exp. 17.5k (Prev. 28.4k). (Newswires) Australian Unemployment Rate (May) 5.2% vs. Exp. 5.1% (Prev. 5.2%) Australian Participation Rate (May) 66.0% vs. Exp. 65.8% (Prev. 65.8%)

COMMODITIES

Commodities were mixed as WTI crude futures traded flat to provide much-needed respite after the prior day’s 4% drop to briefly below the USD 51.00/bbl level, with the losses due to this week’s bearish inventory data in which both API and EIA reports showed surprise builds in headline crude stockpiles. Elsewhere, gold prices were relatively unchanged as safe-haven demand for the precious metal was counterbalanced by a resolute greenback, while copper was dampened by the mostly risk adverse tone across the region.

Algeria is mulling the idea of an OPEC+ supply cut of 1.8mln BPD (up from 1.2mln BPD) in H2 and still expects the 1.2mln BPD cut to roll over beyond June, according to OPEC sources. (Newswires)

GEOPOLITCAL

US President Trump said the US and Poland are mulling sending 2,000 troops from Germany to Poland and that he is discussing a big transaction with Poland. Furthermore, US President Trump is considering sanctions to block Nord Stream 2 and suggested that Germany is putting itself at risk by depending on Russian energy. (Newswires)

Iranian President Rouhani said the meeting with Japanese PM Abe was successful and that Tehran welcomes improving Japanese ties. Rouhani also commented that Iran will remain committed to the 2015 nuclear deal and that it is important for regional security, while he added that Japan and Iran oppose nuclear weapons. (Newswires) US State Department said it is ready to continue working level denuclearization talks with North Korea. (Yonhap)

US

The curve bull-steepened after a slightly soft CPI report resulted in further bets of looser Fed policy. Trump optimism (though a repeat of his comments from this week) saw slight selling. The Treasury sold 10s, which tailed 0.1bps, and sold at the lowest yield since 2016. The internals were also encouraging, and there has been no sign of a collapse in the foreign bid so far at the Treasury auctions, with indirects taking 65.6% (six auction average 61.8%), and up from the 53.3% at the May auction. Cover was also decent at 2.49, above recent averages. At settlement, the 2s30s part of the curve was almost 5bps steeper. On Thursday, the Treasury will sell USD 16bln of 30s; recent auctions in the 30-year sector have tailed. However, TD Securities suggests that curve steepening might provide demand for long-end debt. Recent averages imply a tail of around 0.4bps, with a 74% buy side takedown (14% directs, 60% indirects). T-note futures (M9) settled 6+ ticks higher at 126-20+.

US House Oversight Committee voted to hold AG Barr and Commerce Secretary Ross in contempt of Congress regarding dispute on documents related to 2020 census, while there were separate reports that Former White House Communications Director Hick agreed to provide a closed-door testimony to the House committee. (Newswires)