• European stocks gave up earlier gains on quadruple witching day, sectors are mostly in the red
• Dollar trades within a tight range above 95.50, EUR is supported by encouraging EZ PMIs
• US President Trump reportedly pulled back from launching attacks on Iran hours after approving strikes on a handful of targets
• Looking ahead, highlights include US PMIs, Canadian retail sales, Baker Hughes, Fed’s 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 (-1.0%) 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the Hang Seng (-0.3%) subdued after further disruptions from protesters discontent the extradition law wasn’t fully withdrawn by their set deadline and who also demanded that all charges against those involved in last week’s protests are dropped.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. (+0.5%) 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) – Strongest fix since February 21st

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%)

US

US President Trump and Canadian PM Trudeau instructed officials to develop a joint action plan for collaborating on critical minerals. (Newswires)

CENTRAL BANKS

Fed's Clarida (Voter) said the Fed will act appropriately to sustain the expansion; the US is close to its 2% inflation target; trends overseas might affect the US outlook, adding that the borad agreement is that the case for looser Fed policy has increased. (Newswires)

GEOPOLITICS

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. Furthermore, US President Trump delivered Iran a message via Oman, warning of an imminent attack, with the message also noting "we do not want war but talks" and gave Tehran a deadline to start discussions, according to officials.(Newswires) 

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)

US FAA issues emergency order prohibiting all US flights in overwater area of Iran-controlled airspace above Persian Gulf and Gulf of Oman. (Newswires)

EU Commission President 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)

UK/EU

EU Council President 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)

EU Markit Manufacturing Flash PMI (Jun) 47.8 vs. Exp. 48.0 (Prev. 47.7) (Newswires) - Services Flash PMI (Jun) 53.4 vs. Exp. 52.9 (Prev. 52.9) - Composite Flash PMI (Jun) 52.1 vs. Exp. 51.8 (Prev. 51.8)

EQUITIES

European equities are mixed [Eurostoxx 50 Unch] as the region received a lacklustre handover from Asia on quadruple witching day. The European cash open was relatively uninspiring with most bourses flat/lower before receiving some impetus from encouraging French and German flash PMIs, albeit the EZ metrics were mixed. Sectors are now mostly in the red but energy names lead the gains amid the this week’s price action in the complex. In terms of individual movers, Natixis (-4.0%) shares fell amid a downgrade at HSBC. On the flip side, Elior (+4.3%) shares are bolstered due to a positive broker move at Goldman Sachs. Elsewhere, Telecom Italia (+1.6%) shares rose amid reports that the Co. signed a non-disclosure agreement to start talks regarding a TIM and Open Fiber network integration. Finally, looking at analysis from Nomura Quant, the bank believes that dips in stocks ahead of G20 pose good buying opportunities as it sees signs of increased equity exposures by speculators , “Judging from the pattern of market sentiment and supply-demand among hedge funds, we still expect the risk rally to sustain into July”, Nomura says.

FX

EUR - The single currency has gleaned support from above forecast French and German preliminary PMIs that appear to have offset weakness elsewhere in the Eurozone and underpinned the pan prints to an extent. However, Eur/Usd has stalled well ahead of major resistance in the 1.1347-50 area where 200 WMA and DMAs reside as the Greenback attempts to stabilise following its Fed induced sell-off and the DXY holds just above 96.500 vs 96.492 lows. Note also, hefty 2.5 bn option expiry interest at the 1.1300 strike is keeping the headline pair contained, while Eur/CHF remains top heavy and technically bearish around 1.1100 even though the Franc is fading vs the Buck within a 0.9808-38 range.

CAD/SEK - Also relative G10 outperformers as the Loonie holds above 1.3200 against its US counterpart and looks towards Canadian retail sales data for more independent direction, while the Swedish Krona seems to be benefiting from Scandi cross flows as its Norwegian peer loses some Norges Bank momentum, with Eur/Sek hovering just above 10.6100 and Eur/Nok rebounding from the low 9.6500 region to 9.6850+ at one stage.

NZD/AUD/GBP/JPY - All weaker vs the recovering Usd, as the Kiwi fails to sustain gains above 0.6600 and Aussie wanes ahead of 0.6950 alongside a pull-back in the Yuan after a strong PBoC midpoint fix overnight. Meanwhile, Cable has been unable to retain grip of the 1.2700 handle yet again after topping out close to yesterday’s 1.2727 high for the week so far and the Yen has pulled up short of 107.00 with decent expiries between the figure and 107.05 (1.4 bn) adding to psychological resistance, as Japan’s monetary authorities monitor currency moves closely. On the flip-side, 1.3 bn options at 107.50 and a further 2.8 bn from 107.70-80 may well keep Usd/Jpy in check into the NY cut, if not beyond.

EM - Widespread declines as the Dollar regains a degree of composure, and with the Lira also wary about the weekend election rerun in Istanbul following all the rumpus after the first vote. Usd/Try is back over 5.8000, while the Rand and Rouble are also handing back a chunk of their recent gains but not quite to the same extent, with Usd/Zar and Usd/Rub straddling 14.4100 and 63.1000 respectively. Note, MS has reportedly shorted the latter pair at 63.3000, looking for 60.0000 and placing a stop at 65.0000.mitigation.

FIXED INCOME

Bunds and Gilts have staged relatively decent recoveries from post-Eurozone PMI lows that were exacerbated by technical and stop-selling once near term chart supports and recent lows gave way. The 10 year EU benchmarks are currently around 172.26 and 130.39 vs 171.95 and 130.13 Eurex and Liffe lows as equities retreat amidst ongoing US-Iran accusations and counterclaims over the downed drone and following what appears to have been a last minute decision by the White House to refrain from physical retaliation. Meanwhile, Italian bonds have bounced even more impressively after the BTP swap, but US Treasuries are still hemmed near overnight session lows and the curve is steeper ahead of Markit PMIs, existing home sales and more Fed speakers following lone rate cut dissenter Bullard.

German Debt Agency has lowered its Q3 issuance by EUR 2bln; total now seen at EUR 197bln. (Newswires)

COMMODITIES

WTI and Brent futures continue to advance as tensions in the Middle East escalate, with NYT reporting that the Trump administration considered a strike in Iran following the downing of the US spy drone yesterday. Furthermore, officials stated that US President Trump delivered Iran a warning of an imminent attack, with the message noting "we do not want war but talks" and gave Tehran a deadline to start discussions. Brent is poised for it biggest weekly gain since April and inches closer to the USD 65/bbl level ahead of its 100 WMA at 67.10. Meanwhile, WTI  futures reclaimed the USD 57.00/bbl handle before hitting resistance close to USD 58.00/bbl. ING believes “oil prices  will trend higher over the second half of the year” due to the flaring tensions in the Middle East, coupled with expectations for an OPEC+ extension. Elsewhere, gold topped USD 1400/oz in Asia trade (albeit now back below the figure) and reached a high of USD 1411/oz, levels last seen in September 2013. Upside in the yellow metal has been driven primarily by the dovish tilts in major central banks, a weakening Buck and fears of potential war between the US and Iran. Gold remains near to the top of this week’s 1333-1411 range thus far. Elsewhere, copper pared some of yesterday’s gains as the FOMC-led momentum waned overnight, although the red metal is off lows. Finally, Dalian iron ore futures continued to advance as concerns persisted over tight supply, strong demand and declining shipments from Rio Tinto.

A fire has been reported at Philadelphia Energy refinery [332k-335k BPD], according to the fire department, the largest refinering on the East Coast. (Newswires)

Japanese Petroleum Association are studying possibles measure for potential supply disruptions from the Middle East including use of reserves and buying oil from Western Africa or US. (Newswires)