• Asian equity markets began the week mostly positive but with trade relatively rangebound. In FX, the greenback was somewhat subdued with the DXY below 92.50
• Italy’s 5-Star Movement and League reportedly reached an agreement on certain measures although still need to reach a deal on who to choose to be PM and cabinet members
• Looking ahead, highlights include the OPEC Monthly Report, Fed’s Mester, Bullard, BoE’s Carney, ECB’s Praet, Lautenschlaeger, and Coeure

ASIA

Asian equity markets began the week mostly positive but with trade relatively rangebound following Friday’s mixed performance on Wall St, where stocks saw an indecisive finish to their best week since March. In addition, US equity futures also received a modest uplift after US President Trump provided a lifeline for ZTE over the weekend as he vowed to get the Chinese telco back to business in a surprising policy U-turn after the Co. had announced a halt to major operating activities following a US 7-year supply ban order. ASX 200 (+0.3%) was positive with M&A activity underpinning Healthscope, while Nikkei 225 (+0.4%) was also in the green as earnings remained in focus with Shiseido among the index leaders on record Q1 sales. Shanghai Comp. (+0.6%) and Hang Seng (+1.5%) conformed to the broad risk appetite as trade concerns eased following the ZTE policy reversal by Trump and as participants also reacted to better than expected lending data. Elsewhere, KLCI (+0.4%) saw an early slump with losses of over 2% on reopen from the surprise election result, but then pared all the weakness as the fears of a new government gradually subsided. Finally, 10yr JGBs were flat amid similar price action in T-notes and with demand sapped amid gains in stocks, while downside was also counterbalanced by the BoJ’s presence in the market for a respectable JPY 1.03tln of JGBs in 1yr-10yr maturities.

PBoC skipped reverse repo operations and instead announced to lend CNY 156bln via 1yr Medium-term Lending Facility at 3.3% which effectively rolled over same maturing amount, while it conducted CNY 80.1bln in PSL loans. (Newswires)
PBoC set CNY mid-point at 6.3345 (Prev. 6.3524)

US President Trump said he instructed the US Commerce Department to assist Chinese telecoms firm ZTE to get back into business which is seen as a U-turn on the firm which was previously placed under a 7-year supply ban by the US. (FT)

UK

UK Visa consumer spending decline 2.0% Y/Y during April vs. 2.0% decline in March. (Newswires)

Divisions in the UK cabinet were exposed again yesterday as Jeremy Hunt told fellow ministers to trust Theresa May’s Brexit plan but Michael Gove said that there were “significant question marks” over her preferred customs model. (Times)

EU Brexit Negotiator Barnier sees a risk that Brexit talks will fail, according to reports on Friday. (Spiegel)

EU

Italy’s 5-Star Movement and League reportedly reached an agreement on measures including universal basic income, a flat tax and roll back of pension reforms from 2011. Reports also stated that the agreement is likely to underpin the formation of a government although they still need to reach a deal on who to choose to be PM and cabinet members. (WSJ)

Norges Bank Governor Olsen writes in op-ed that outlook demonstrates it will soon be correct to raise rates. (Newswires)

FX

In FX markets, the greenback was somewhat subdued with the DXY below 92.50 in a continuation of last week’s inflation-provoked pullback and amid the backdrop of Trump policy uncertainty. This benefitted its major counterparts EUR/USD and GBP/USD in which the former was also facilitated by news that Italy’s 5-Star Movement and League reached an agreement which is likely to pave the way for the formation of a government, while a subdued commodities complex kept trade in related currencies indecisive. Elsewhere, MYR saw volatile trade as participants reacted to the regime change in Malaysia which saw the currency slip to a 4-month low on the initial shock before it mounted a recovery, while NOK was underpinned in late trade after Norges Bank Governor Olsen suggested in an op-ed that it will soon be appropriate to lift rates.

SNB’s Zurbruegg said the CHF can quickly strengthen, while he added that there is no need to give up negative interest rates and does not see a need to give up FX market intervention. (Newswires)

COMMODITIES

Commodities traded mixed with oil prices subdued on continued profit taking in which WTI crude extended further below the USD 71.00/bbl level, while some reports also noted increased efforts by European nations to salvage the Iranian nuclear deal and will be meeting with Iranian Foreign Minister Zarif tomorrow. Elsewhere, gold traded flat with marginal gains observed on the back of a subdued USD, while copper also remained afloat alongside the positive risk tone. (Newswires)

US Baker Hughes Total Rig Count (4 May) 1045 (Prev. 1032). (Newswires)

GEOPOLITICS

North Korea is planning to take apart its nuclear test site during a ceremony to be held between May 23rd-25th, while there were also comments from US Secretary of State Pompeo that North Korea sanctions will be lifted if the nation proceeds with total denuclearizarion of the Korean peninsula. (Newswires/CBS)

US

The curve flattened to fresh decade narrows on Friday (5s30s); however, when the dust settled, Friday action was uneventful, and yields were little changed. At the end of the week, a June hike is completely priced (100%) rising around 5ppts in the week, according to the CME Fedwatch data. Heading into the cash open, Treasuries found sellers, with the 10yr T-Note future hitting session lows before ticking higher gradually as the cash equity day got underway. Nonetheless the moves were relatively range-bound as volume was hardly spectacular heading to the weekend, and following yesterday’s softer CPI prints. * FOREX: *DXY: The index ended. US 10yr T-Notes futures settled half a tick higher at 119-13.

US President Trump’s administration released a blueprint on Friday for how it intends to lower drug prices in which Trump stated they are eliminating the middlemen in the drug industry who have become rich. Furthermore, Trump stated he instructed officials to bring soaring drug prices back to earth and that a pricing plan will encourage drugmakers to keep prices low. (Newswires)

Canada’s Foreign Minister Freeland said meaningful progress has been made by the three NAFTA sides last week. There were also comments from Mexican Economy Minister Guajardo who stated that the NAFTA meeting was efficient and that ministers are working to reach a NAFTA deal by 17th May. (Newswires)