• Asian equity markets traded mostly lacklustre as the FOMC-fuelled momentum began to wane in the region despite the strong lead from Wall St
• Boris Johnson maintained the lead after the 5th round of the Tory leadership ballot with Jeremy Hunt making it to the final two after Michael Gove was eliminated
• US President Trump reportedly pulled back from launching attacks on Iran hours after approving strikes on a handful of targets
• Looking ahead, highlights include Eurozone and US PMIs, Canadian retail sales, Baker Hughes, Fed’s Rosengren, Clarida, Mester, Daly, BoE’s Tenreyro and Carney, quadruple witching

ASIA-PAC

Asian equity markets traded mostly lacklustre as the FOMC-fuelled momentum began to wane in the region despite the strong lead from Wall St where the S&P 500 rallied to fresh all-time highs and the energy sector outperformed on further oil advances. ASX 200 (-0.6%)and Nikkei 225 (-0.9%) were both lower although downside was stemmed for most the session by strength in energy and commodity-related stocks after WTI gained around 6% and gold broke above USD 1400/oz for the first time since September 2013, while South32 was among the notable gainers in Australia after it received a couple of bids for its coal assets. Chinese markets were mixed with the Hang Seng (-0.2%) subdued after further disruptions from protesters discontent the extradition law wasn’t fully withdrawn by their set deadline and who also demanded that all charges against those involved in last week’s protests are dropped. Conversely, the Shanghai Comp. (+0.6%) bucked the trend and rose above the 3,000 level after the PBoC’s liquidity efforts resulted to a net injection of CNY 285bln for the week and with US-China trade negotiating teams said to meet as early as Tuesday. Finally, 10yr JGBs were higher and briefly broke above 154.00 amid the subdued risk tone in Japan and BoJ presence in the market for JPY 1.23tln of JGBs in 1yr-10yr maturities, while yields continued to decline in which Japanese 10yr yields fell to the lowest since July 2016.

PBoC injected CNY 30bln via 14-day reverse repos for a weekly net injection of CNY 285bln vs. Prev. CNY 65bln. (Newswires) PBoC set CNY mid-point at 6.8472 (Prev. 6.8805)

US and China negotiating teams could meet as soon as Tuesday. (SCMP)

China Banking and Insurance Regulatory Commission said the effect of US tariffs on China's economy will be very limited, while there were separate reports from Global Times that China urged the US to halt the abuse of state power to suppress Chinese companies. (Newswires/Global Times) 

Japanese National CPI (May) Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.9%) Japanese National CPI Ex. Fresh Food (May) Y/Y 0.8% vs. Exp. 0.8% (Prev. 0.9%) Japanese National CPI Ex. Fresh Food & Energy (May) Y/Y 0.5% vs. Exp. 0.5% (Prev. 0.6%) 

UK/EU

Boris Johnson maintained the lead after the 5th round of the Tory leadership ballot with 160 votes, while Jeremy Hunt received 77 votes and Michael Gove was eliminated with 75 votes, which sets up a runoff between Johnson and Hunt. (Newswires)

EU's Tusk said there was no majority for any candidate for any of the EU's top jobs and EU's Juncker commented that he doesn’t expect it will be easy to reach deal regarding the top jobs, while EU leaders agreed to conduct another summit on assigning the bloc's top positions on June 30th. (Newswires)

Italian Deputy PM Salvini says he is ready to quit if the government cannot cut taxes for EUR 10bln, according to Corriere Della Sera. (Newswires)

FX

DXY remained soft and traded around the 96.50 level as it resumed the fall-out from the dovish FOMC. The weakness in the greenback continued to support its transatlantic counterparts in which EUR/USDjust about reclaimed the 1.1300 level where there is a large option expiry of EUR 2.4bln for today’s New York cut. GBP/USD also marginally extended above 1.2700 to recoup most the losses from the somewhat dovish rhetoric from the BoE, while the latest round of the Conservative leadership vote provided no help for the currency as hardcore Brexiteer Boris Johnson maintained a considerable lead over Jeremy Hunt as they prepare to square off in a final 2-way runoff involving up to 160,000 Conservative Party members next month. USD/JPY remained on the backfoot due to the USD-woes and eyed a test of the 107.00 level to the downside with inline CPI data failing to spur price action and antipodeans were slightly firmer as they benefitted from the upside in commodities and China currency strength. 

COMMODITIES

Commodities were mixed overnight with a mild pullback seen in WTIcrude futures following the prior day’s considerable gains, in which prices rallied nearly 6% to briefly above USD 57.00/bbl due to a weaker greenback and heightened geopolitical tensions surrounding Iran. Elsewhere, gold extended on its post-FOMC rally with the gains exacerbated as the precious metal broke above USD 1400/oz for the first time since September 2013, while copper traded sideways as the risk momentum stalled in the region.

CME raised NYMEX Crude Oil August futures margins by 5.8% to USD 3650/contract and raised NY Harbor July Heating Oil futures margins by 4% to USD 3925/contract, while it also increased June COMEX 100 Gold futures margins by 8.8% to USD 3700/contract. (Newswires)

GEOPOLITICS

US President Trump answered "you'll soon find out" when asked if the US will strike Iran. However, President Trump later added that he does not feel like his administration is pushing him toward conflict and in some cases it’s the opposite, while he suggested the drone shooter could have been someone who was "loose and stupid". (Newswires/Twitter)

US President Trump reportedly pulled back from launching attacks on Iran hours after approving strikes on a handful of targets including radar and missile batteries, while an official noted that planes were in the air and ships were in position but no missiles had been fired when the word came to stand down. (New York Times)

Several top US House Republicans said there must be a measured response to Iran actions, although there were separate comments from US House Speaker Pelosi that the US needs to do everything in its power to de-escalate situation with Iran. (Newswires)

Iran Foreign Minister Zarif alleged that the US wages economic terrorism on Iran and stated we don't seek war, but will zealously defend our skies, land and waters. There were also comments from Iran's UN Ambassador that the US unmanned drone entered Iranian airspace despite repeated radio warnings in a blatant violation of international law. (Newswires)

Iranian-backed Houthi's launched large-scale drone attacks on UAVs and military targets at Saudi's Jizan Airport, although Saudi air defences were said to have intercepted a Houthi drone strike in Jizan. In other news, Saudi Arabia warned there will be a very strong reaction if the Strait of Hormuz is ever closed by Iran. (Newswires/ELINT News)

EU’s Juncker commented that what Turkey is doing in territorial waters of Cyprus is unacceptable and that proposals against Turkey over the drilling will not be soft. (Newswires)

US

The T-plex continued to trade higher on Thursday, sending yields even lower, in the wake of a now non-patient Fed with an eye for rate cuts. The Fed-sensitive front end of the curve saw the most bidding seeing the 2-year yield drop c. 3bps at settlement. The curve itself saw some modest flattening where the 2s/10s contracted by c. 2bps. The US also sold USD 15bln in 5-year TIPS on Thursday at a high yield of 0.152%, with a chunky indirects takedown (75.73%), a B/C of 2.55x, and tailing by 0.2bps. US T-note futures (U9) settled 6+ ticks higher at 128-02.

US President Trump said Fed chair Powell will eventually "do what is right". In other news, President Trump also commented that US and Canada have come a long way on the USMCA agreement and that he hopes for bipartisan support, while reports also noted that US President Trump and Canadian PM Trudeau instructed officials to develop a joint action plan for collaborating on critical minerals. (Newswires)