• European equities are firmer [Euro Stoxx 50 +0.2%], deviating from their Asia-Pac counterparts
• WTI & Brent are significantly firmer amidst reports that two oil tankers in the Gulf of Oman have been attacked
• In FX, the USD remains relatively stead while safe havens are buoyed by ongoing geopolitical tensions
• Looking ahead highlights include, US Import, Export Prices & Jobless Claims, New Zealand Manufacturing PMI. Supply from the US

ASIA-PAC

Asian equity markets traded relatively flat/mixed 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 (-0.5%) 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 (U/C) and Shanghai Comp. (+0.1%) were initially 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)

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)

Global Times 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)

US

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)

UK/EU

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. Subsequently, Eurogroup Head Centeno expects Italy to achieve its targets in regard to debt. (Newswires)

GEOPOLITICAL

Several Saudi-led coalition air strikes have been reported on Sanaa, the capital of Yemen., according to Al-Masirah TV; no confirmation as of yet from the coalition on this. (Newswires)

US State Department said it is ready to continue working level denuclearization talks with North Korea. (Yonhap)

Russian Lawmaker states that the plans by the US to deploy spy drones in Poland is of concern to Moscow, stating that Poland could be targeted in a retaliatory strike in the scenario of an attack on Russia., IFX. (Interfax)

Turkish Foreign Minister states that it is not possible to confirm that a full ceasefire in Idlib has been achieved. (Newswires)

Iranian supreme leader told Japanese PM Abe that Iran will not negotiate with the US. (Newswires)

EQUITIES

European equities are higher across the board [Eurostoxx 50 +0.4%] as the region deviated from the subdued Asia-Pac lead. Sectors are all in the green with the energy sector outperforming (+0.6%) amid the surge in energy prices as two oil tankers were reportedly attacked near the key shipping channel, the Strait of Hormuz (see the Commodities section for a full briefing). Meanwhile, some defensive sectors are lagging its peers with the likes of Utilities (+0.1%) and Consumer Staples (Unch) little changed. Elsewhere, Germany’s 5G auction ended in which raised EUR 6.55bln, above estimates of EUR 3-5bln. Four companies won bids: Deutsche Telekom (+0.7%) won 130MHz, Vodafone (+1.1%) won 130MHz, Telefonica Deutschland (3.5%) won 90MHz and 1&1 Drillisch (+7.5%) won 70MHz. In terms of individual movers, Thales (+2.3%) shares are supported after the Co. raised its EBIT outlook. Wirecard (+3.2%) rose to the top of the DAX amid a positive broker move. On the flip side, ProsiebenSat1 (-3.9%) fell to the foot of the Stoxx 600 amid ex-dividend trade.

FX

CHF/AUD - Flanking the G10 ranks after the SNB refrained from raising its assessment of the Franc from highly valued despite acknowledging that the currency has appreciated since the last quarterly policy review in March and repeating the need to maintain NIRP and intervention. Board members also noted elevated risks of heightened demand for the Chf, more pronounced downside risks to the Swiss economy due to external and reiterated that there is room to loosen the monetary reins further, but signalled steady rates through the 3 year forecast horizon. Note, the 3 month Libor target and range was replaced with a new benchmark rate, but for purely technical reasons and the impending switch from Libor to SARON. Usd/Chf and Eur/Chf are both lower in wake of the policy pronouncements, statement and revised forecasts for growth and inflation, with the former retreating towards 0.9900 again and latter eyeing 1.1200. Conversely, the Aussie has been undermined by mixed labour data that underpins prospects for another RBA rate cut, with Aud/Usd hovering just above 0.6900 and Aud/Nzd only a few pips away from 1.0500. For the record, headline payrolls beat consensus, but mainly due to temp jobs and the unemployment rate remained unchanged against forecast for a dip, while decent option expiries at 0.6930 look fairly safe at this stage.

CAD/JPY - The Loonie and Yen are both firmer vs the Greenback amidst an escalation in US-China trade angst and geopolitical concerns, with Usd/Cad easing back between 1.3343-14 parameters and Usd/Jpy holding in a 108.53-17 range. A relatively sharp rebound in crude prices on reports of tanker attacks in the Gulf of Oman has underpinned the Loonie, while the Yen is benefiting from a degree of safe-haven positioning, like the Franc and Gold, but also wary of balanced expiry interest given 1.5 bn running off from 107.90-108.10 and 1.6 bn between 108.65-80.

EUR/NZD/GBP - Narrowly mixed vs the Buck as the DXY nestles near 97.000 after the post-US CPI bounce, but is capped ahead of resistance just above the round number in the form of 100 and 10 DMAs (97.020 and 97.033 respectively). The single currency is pivoting 1.1300 having failed to close above Fib resistance at 1.1338 on Wednesday, with support coming in around 1.1280 and option expiries nearby at 1.1310-30 (1.1bn) then 1.1345-60 (1.2 bn). Elsewhere, the Kiwi is seeing some bearish contagion from its Antipodean counterpart, but holding up better vs the Usd within a 0.6587-65 band ahead of NZ manufacturing PMI. Meanwhile, the Pound has lost grip of 1.2700 vs the Usd and Eur/Gbp is back over 0.8900 on no deal Brexit risk in the run up to the start of the Tory leadership race and first elimination vote.

EM - The Lira has given up more post-CBRT gains and is now somewhat weaker than it was prior to the policy meet on latest remarks from Turkey reaffirming intentions to go ahead with the Russian S-400 order, and as the Defence Minister claims that Syrian Government forces attacked a Turkish observation post in Idlib. Usd/Try has rebounded towards 5.8500.

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%)

Notable FX Expiries:

- EUR/USD: 1.1235-50 (2.5BLN), 1.1310-30 (1.1BLN), 1.1345-60 (1.2BLN)

- AUD/USD: 0.6935 (1BLN), 0.6950 (709M)

- USD/JPY: 107.90-108.10 (1.5BLN), 108.65-80 (1.6BLN)

Swiss government sees growth for 2019 at 1.2% (Prev. 1.1%), 2020 1.7% (Prev. 1.7%); CPI in 2019 at 0.6% (Prev. 0.4%), 2020 0.6% (0.6%). (Newswires)

SNB 3M Target LIBOR Rate -0.75% vs. Exp. -0.75% (Prev. -0.75%)

- SNB repeated language around FX; he situation in FX market is still fragile, maintaining that expansionary monetary policy and intervention are essential

- Retained highly valued assessment of CHF and noted that the Franc is stronger than in March (prior meeting)

- Introduced a new policy rate to replace the 3-month Libor target, as the future of Libor is not guaranteed; will keep the rate as close to -0.75% as is possible.

- Risks to the baseline scenario are still to the downside and more pronounced than in March, updated inflation forecasts assumes unchanged rates throughout the forecast horizon

SNB President Jordan says the SNB still has room for expansionary policy, adding that the central bank decide on intervension when necessary and will not discuss specific levels. (Newswires)

FIXED INCOME

10 year benchmarks extended recovery gains to 171.65, 130.43 and 127-09 respectively as supportive macro/fundamental impulses were supplemented by safe-haven buying amidst a raft of worrying geopolitical headlines. However, Bunds, Gilts and US Treasuries have all subsequently drifted back down from best levels, and technical factors may have prompted the loss of momentum or bout of consolidation, as the former pulled up just shy of chart resistance at 171.66 and its UK equivalent faded a whisker before this week’s peak (130.45 set on Monday). Meanwhile, USTs have more issuance to digest after a more mixed set of 10 year auction results compared to the relatively strong 3 year sale with the last leg comprising Usd16 bn long bonds, and data in the form of import/export prices alongside weekly claims.

COMMODITIES

WTI and Brent futures surged higher in early European trade and have held onto most of their gains amid a number of bullish headlines for the oil complex: 1) a UAE Port Official stated that an oil tanker is currently on fire in the Gulf of Oman, with subsequent reports indicating that two oil tankers (of which one belongs to a Japanese shipping company, and is carrying chemical materials) have been attacked by torpedoes, although no one has yet claimed the attacks. Analyst point out that the magnitude of the spike in energy prices could be attributed more to the location of the attack, i.e. close to the Strait of Hormuz (a key shipping channel), for reference, four oil tankers have been damaged in the same area in the last month. Fingers have been pointed at Iran for last months attacks, although Tehran has denied any involvement. 2) On the OPEC front, reports stated that Kazakhstan has reduced its oil output to 1.76mln BPD for the January to May period, which exceeds their obligations under the current OPEC+ pact. The oil producer has also indicated support for an extension to the OPEC+ deal, whilst Algeria has also floated the idea of an OPEC+ supply cut of 1.8mln BPD (currently 1.2mln BPD) in H2. 3) Russian President Putin stating that relations with the US are worsening, which comes in the context of US President Trump stating overnight that he is considering sanctions to block the Nord Stream 2 pipeline, and indicating that Germany is at risk by depending on energy from Russia. Brent futures currently reside around the USD 61.75/bbl mark, having opened trade sub-60/bbl and hit a high of around USD 62.60/bbl thus far. Looking ahead, the OPEC Monthly Report will be released at 11:40BST/0540EDT with focus on any revision to global oil demand following EIA Short Term Energy Outlook downgrading its forecast. Elsewhere, gold prices (+0.3%) hold onto the majority of recent gains, as the yellow metal moves more to the risk environment as opposed to the Greenback amid the heightening geopolitical tensions as mentioned above. Copper prices have failed to rebound amid global growth pressures and as trade tensions outweigh supply woes. Finally, Dalian iron ore resumed its rally, buoyed by expectations of tight supply and high demand.

UAE Port Official states that an oil tanker is currently on fire in the Gulf of Oman; subsequent reports indicate that 2 oil tankers have been attacked in the region. Following this it was reported that the Frontline tanker was struck by a torpedo. And the damaged tanker, Front Altair has sunk according to IRNA (though, this was subsequently denied by a Frontline spokesman). For reference, Japanese shipping Co. Kokua Sangyo confirm that one of their ships carrying chemical materials was attacked in the Gulf. (Newswires)

Kazakhstan has reduced oil output to 1.76mln BPD in the period of Jan-May, exceeding its obligations, the country also supports the extension of the OPEC+ output pact until year-end. (Newswires)