• Major European stocks are flat/mixed in a continuation of the cautious tone seen in Asia
• Most major FX pairs remain rangebound ahead of an action-packed week
• Looking ahead highlights include, US NY Fed Manufacturing and ECB’s Draghi

ASIA-PAC

Asian equity markets began mixed with the region cautious ahead of the upcoming slate of central bank activity and after last Friday’s losses on Wall St, where the tech sector underperformed as chipmakers suffered from losses in Broadcom. ASX 200 (-0.4%) and Nikkei 225 (Unch) were varied with Australia subdued by losses in telecoms, while Tokyo trade was underpinned as exporters benefitted from a weaker JPY. Hang Seng (+0.4%) and Shanghai Comp. (+0.2%) were both positive for most of early trade after the PBoC conducted a substantial liquidity injection and as the 2nd phase of its RRR cut took effect today which releases CNY 100bln of funds. However, momentum in the mainland eventually waned while Hong Kong outperformed after Chief Executive Lam postponed the extradition bill indefinitely. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and following the bear flattening seen in US on Friday, with demand also dampened by the absence of BoJ Rinban operations in the market today.

PBoC injected CNY 150bln via 14-day reverse repos for a daily net injection of CNY 120bln. (Newswires) PBoC set CNY mid-point at 6.8940 (Prev. 6.8937)

Chinese Securities Regulator is reportedly urging inter-bank liquidity support measures for smaller non-financial institutions, according to sources. (Newswires)

Hong Kong Chief Executive Carrie Lam suspended the extradition bill indefinitely and stated that the bill has caused plenty of division, while around 2mln protesters were said to have demonstrated over the weekend calling for the complete withdrawal of the extradition bill and for Lam to resign. (Newswires)

US

Mexican Economy Minister Graciela Marquez Colin said on Friday that a retaliation list is ready if the US raises tariffs. (Newswires)

UK/EU

Former UK Foreign Minister Boris Johnson’s plans to withhold Brexit bill payments could be thwarted by Attorney General Cox’s legal advice as he warned that linking Brexit bill payments to progress in trade talks would be illegal. In other news, UK Health Minister Hancock said he will be backing Boris Johnson in the leadership race. (Telegraph/FT)

ECB’s Nowotny (Hawkish) said ECB still has tools to support Eurozone economy in the event of a recession or deflation risk and suggested that additional instruments are not needed in the foreseeable future. (Newswires)

ECB’s De Guindos (Neutral) suggested that the ECB will take action in the event that inflation expectations are de-anchored. (Newswires)

ECB's Coeure (Neutral) said the question is which instrument or combination of instruments would be best suited to the circumstances, and added that the ECB would have to consider whether a tiering system. (Newswires)

Bundesbank Monthly Report says German economy is to contract slightly in Q2, economic outlook will fall slightly in Q2 as one-off effects that supported Q1 expansion fades. (Newswires)

Fitch affirmed France at 'AA'; Outlook Stable and Moody’s downgraded Turkey by one notch to B1 from Ba3; Outlook remains Negative. (Newswires)

EQUITIES

European stocks are mixed in a continuation of the cautious tone seen in Asia, ahead of the central bank-packed week. Sectors are mixed with underperformance in the energy sector amid price action in the complex, whilst financial names lead the gains as banks benefit from the higher yields. In terms of movers, airline stocks took a hit after Lufthansa (-11.3%) cut its revenue and adj. EBIT margin guidance, citing increased competition in the market, and as such, Ryanair (-5.9%), easyJet (-5.3%) and Air France (-3.6%) all slipped in tandem. Elsewhere, Airbus (+1.0%) shares are buoyed as the Paris Air Show gets underway with reports noting the Co. has won a major 100-plane order over Boeing. Finally, Deutsche Bank (+2.2%) shares are feeling some reprieve after sources stated that the bank is mulling holding EUR 50bln of assets in a “bad bank” whilst also shrinking or shutting its US equity trading business. 

FX

USD - The Dollar has maintained its post-US data positivity and the DXY is pivoting 97.500 with resistance close by in the form of a 61.8% Fib retracement of the relatively pronounced pull-back from May 23 ytd highs of 97.373 to June 7 lows at 96.451, and support sitting around 97.457-6 where 21 and 55 DMAs converge. In terms of fundamentals, the looming FOMC will be paramount as markets widely if not unanimously anticipate another dovish shift from the Fed and signal that rates will be cut in July. However, ongoing global trade wars and geopolitical developments are propping up the Greenback and other safe-havens to varying degrees.

NZD/AUD - Bucking the broad consolidative G10 trend and largely rangebound Usd/major trade, the Kiwi has bounced back to straddle 0.6500 and appears to be deriving some impetus from firmer NZ inflation metrics ahead of Westpac’s Q2 consumer survey tonight. Moreover, Aud/Nzd cross-flows may be supportive as the Aussie remains depressed around 1.0550 and 0.6875 vs its US counterpart amidst more dovish RBA calls (Macquarie now expecting the OCR to decline to 0.5% by year end) in advance of June policy meeting minutes in the early hours on Tuesday.

EUR/CAD/JPY/GBP/CHF - As noted above, narrow parameters vs the Buck for the most part as the single currency holds within a 1.1205-25 band and just above decent option expiry interest at the 1.1200 strike (1 bn). Contacts also believe that reserve managers are lurking at the big figure on the buy-side, while nearest chart levels are seen at 1.1171 (76.4% Fib of the move from 1.1116 to 1.1348) and 1.1250 (latter more psychological than technical). Meanwhile, aside from the aforementioned Fed meet, the Euro may get some independent direction from the ECB’s annual Sintra conference that kicks off today with an opening speech from President Draghi. Elsewhere, the Loonie is also sitting tight between 1.3405-20 and awaiting a speech from BoC’s Schembri, but Deutsche Bank expects the headline pair to spike on FOMC disappointment given overly dovish expectations and some BoC catch up, targeting 1.3665 with a 1.3225 stop (recent low). The Yen is holding in a 108.43-70 range ahead of the BoJ on Friday and Cable is hovering just below 1.2600 pre-BoE, UK CPI and retail sales with Pound bears aware that 1.2560 is last month’s trend low. Finally, the Franc is holding just above parity post-last Thursday’s SNB and Eur/Chf remains confined either side of 1.1200.

EM - The Lira has pared some losses from 5.9250+ lows vs the Dollar after Moody’s downgraded Turkey’s credit rating deeper into junk with the aid of a much needed improvement in unemployment, while the CBRT has enhanced liquidity provisions for primary banks via a facility discounted by 1% vs the 24% benchmark rate and based on government bond holdings.

COMMODITIES

WTI and Brent futures continue to decline ahead of a risk-packed week with a number of bearish factors looming over the complex. 1) US crude stocks have been on the rise, with inventory reports via both API and EIA printing surprise builds for two straight weeks. Traders will now be wondering whether these increases will be enough for OPEC+ to possibly revise its output cut pact, with the meeting now seemingly taking place in the first week of July according to the Saudi Energy Minister. 2) Last week saw all three monthly oil reports (EIA, OPEC, IEA) cut their respective global oil growth demand forecasts amid rising threats of trade wars, whilst hopes for a deal between China and the US at the G20 summit seem slim. 3) Last week, speculators trimmed net long positions in Brent longs (-12.3k lots), but WTI saw a more significant reduction (-53.96k lots) as speculators try to balance rising US inventories with Middle-East tensions and potential OPEC+ reaction. WTI futures are hovering just above the USD 52/bbl mark (low USD 52.07/bbl) whiles Brent futures lost the USD 62/bbl handle, albeit remain off lows (USD 61.56/bbl). Elsewhere, precious metals are subdued, potentially on some profit taking ahead of this week’s key risk events including BoJ, BoE and Fed and a slew of ECB speakers. Gold has lost further ground below the USD 1350/oz level after a failed attempt at breaching long-term resistance at USD 1358.50/bbl last week. Meanwhile, copper is little changed amid the indecisive risk tone ahead of the aforementioned risk events.

Saudi Energy Minister Al-Falih stated that the OPEC meeting will likely be in the first week of July and noted that OPEC are moving towards a consensus to on the extension of the output cut. The Energy Minister also expects global oil demand to exceed 100mln BPD in 2019 and says oil demand growth is holding up despite trade disputes. (Newswires)

China (May) Iron ore output +1.5% Y/Y to 70.8mln Tonnes, Refined Copper output -5.2% Y/Y to 711k Tonnes. (Newswires)

GEOPOLITICS

US Secretary of State Pompeo said the US is considering a full range of options regarding increasing tensions with Iran, including military options but added that President Trump does not want to go to war. (CNN)

Iran are reportedly exceeding the inventory limit on low enriched uranium, according to sources. Furthermore, Iran said the production of low-enriched uranium will quadruple (no time frame), meanwhile reports stated that the 60-day deadline for Europe to save the Iranian deal will not be extended. (Newswires)