• A choppy start to a potentially pivotally week for global trade [Euro Stoxx 50 -0.4%], with Trump & Xi due to meet at the G20 summit
• US President Trump has stated that they will move ahead with additional sanctions on Iran; Iran’s Navy Commander said the downing of a US Spy drone was a ‘firm response’ and can be repeated
• In FX, the USD remains subdued with Antipodeans leading G10 gains; while the TRY has rebounded post Istanbul election re-run
• Looking ahead, highlights include NZ Trade, ECB’s Lautenschlager, Fed’s Harker

ASIA-PAC

Asian equity markets began the week somewhat choppy with participants tentative ahead of the Trump-Xi meeting at the G20 this week and following the mild pullback last Friday on Wall St where all majors ended slightly lower on the day, but still notched gains of more than 2% for the week. ASX 200 (+0.2%) was initially led lower by underperformance in Consumer Staples and as comments from RBA Governor Lowe appeared to question the impact easing could have on the economy, while a non-committal tone was seen in the Nikkei 225 (+0.1%) amid a mixed currency. Hang Seng (+0.2%) and Shanghai Comp. (+0.1%) were indecisive after the PBoC refrained from open market operations and as global markets await the latest developments in the trade war saga including the Trump-Xi showdown this week, while the US recently added 5 Chinese entities to its blacklist barring them from buying US parts without government approval. Finally, 10yr JGBs were subdued with after recent similar moves in T-notes and as yields bounced back from multi-year lows, while demand was also dampened after stocks in Tokyo pared opening weakness and amid the absence of the BoJ in the market.  

PBoC skipped open market operations for a net neutral daily position. (Newswires) PBoC set CNY mid-point at 6.8503 (Prev. 6.8472)

China Vice Commerce Minister Wang Shouwen said China and US trade teams are having discussions, while he added that both sides should make compromises and hopes G20 sends a clear signal on fighting against trade protectionism. (Newswires)

China Vice Finance Minister Zou Jiayi has been appointed as a PBoC MPC member, according to China State Council. (Newswires)

China Assistant Foreign Minister Zhang Jun said the world economy faces increasing risks and the international community recognizes harm from protectionism, while he added that G20 should ensure unity and cooperation but also stated that China will safeguard its fundamental interests and will not allow anyone to interfere with its internal affairs no matter what forum. (Newswires)

US

Fed stress test results on Friday showed all banks exceeded minimum capital requirements and at strong levels that would allow them to remain above minimum required level after being tested against a severe hypothetical recession scenario. (Newswires)

China Foreign Ministry says that Fedex (FDX) should present a full explanation over the Huawei matter. (Newswires)

GEOPOLITICS

US President Trump also said that they are moving ahead with additional sanctions on Iran aimed at preventing it from getting a nuclear weapon and that military action is still on the table, while other reports also noted the White House is pressing for additional options including in cyberspace and other additional clandestine plans to counter Iranian aggression in the Persian Gulf. (Newswires/NYTimes) Subsequently, Iranian Navy Commander says the downing of the US Spy drone was a "firm response" and can be repeated, according to Tasmin News. (Newswires)

Russian Deputy Foreign Minister says Russia and allies will counteract US sanctions on Iran. Additionally, Russia’s Deputy Foreign Minister stated that ther US is deliberately increasing tensions with Iran. (Tass/Ria)

US President Trump administration’s Middle East peace plan reportedly proposes USD 50bln investment in Palestinian territories, Egypt, Jordan and Lebanon. Subsequently, Iranian Foreign Ministry spokesman says US' Middle East peace plan is "shameful" and "doomed to failure", according to Fars News. (Newswires/Fars)

Iran said it believes EU lacks the will to salvage the multinational 2015 nuclear deal, while its Deputy Foreign Minister said the decision to decrease its commitment to nuclear deal is a national decision and irreversible as long as its demands are not met. (Newswires)

Saudi Arabia’s Abha civilian airport located in the south of the country was attacked by Yemen's Houthi rebels which killed one person and wounded seven others, while the Arab Coalition stated that the attack by the Iranian-backed terrorist Houthi militia and the targeting of civilians is a brutal terrorist act. (Newswires)

North Korea confirmed that its leader Kim received a letter from US President Trump in which the contents of the letter were described as excellent. (Newswires)

UK/EU

Conservative Party is reportedly making plans that would permit the next PM to hold off from putting their Brexit plans to Parliament until Autumn which could limit the time to reach a deal to just over 3 weeks before October 31st. (Independent)

Conservative leadership hopeful Hunt has accused Boris Johnson of being a coward for avoiding public scrutiny as pressure mounts on the Tory frontrunner to address the row with his girlfriend that led to police being called. (Times)

EY ITEM Club forecasts 2019 UK GDP growth at 1.3% Y/Y, sees consumer spending growth at 1.6% which is the slowest since 2013. (Newswires)

German Ifo Business Climate New (Jun) 97.4 vs. Exp. 97.2 (Prev. 97.9)

- German Ifo Curr Conditions New (Jun) 100.8 vs. Exp. 100.2 (Prev. 100.6, Rev. 100.7)

- German Ifo Expectations New (Jun) 94.2 vs. Exp. 94.5 (Prev. 95.3, Rev. 95.2)

- IFO state that the economy is heading toward the doldrums, though they maintain their GDP outlook and do not forsee a recession adding that the US-China conflict is currently the main source of uncertainty.

EQUITIES

A choppy day for European equities thus far [Eurostoxx 50 -0.4%] following on from a similar Asia-Pac session as markets await the Trump-Xi showdown later this week. Major bourses are mostly in the red, losses for the DAX (-0.5%) stem from declining auto names after Daimler (-4.7%) issued its third profit warning in 12 months, citing losses caused by the diesel emission scandal; hence, Volkswagen (-1.2%) and BMW (-1.2%) have fallen in sympathy. Sectors are also lower with consumer discretionary names pressured by Daimler’s profit warning. In terms of individual movers, Leonardo (+2.4%) shares spiked higher at the open amid speculation that the Co. is considering bidding for Maxar Technologies’ space robotics business, which sources state could be valued over USD 1bln. Meanwhile, Carrefour (+1.6%) shares are underpinned after it reached an agreement to sell 80% of its Chinese operations with the transaction representing an enterprise value of EUR 1.4bln. Finally, Morphosys (+7.2%) shares are bolstered amid news that a treatments primary endpoint was met.

US companies are looking for legal loopholes to help avoid or reduce duties without shifting production amid the US-China trade war. (FT)

FX

USD - The Greenback has fallen further following last week’s dovish Fed policy meeting and Friday’s relatively weak PMIs, with the DXY faltering after a fleeting attempt to pare losses and probe above 96.200. The 96.000 handle looks under threat and could be relinquished amidst strength elsewhere, with Gold edging back over Usd 1400/oz and Eur/Usd eyeing 1.1400. Note also, the pressure could build as the week unfolds with at least one currency rebalancing model flagging a strong sell signal for the end of June, Q2 and H1, not to mention the G20 where US President Trump is due to meet his Chinese counterpart Xi for extensive trade talks.

NZD/AUD - Perhaps surprisingly given ongoing global trade and geopolitical uncertainty, the Antipodean Dollars are outperforming major peers, or rather deriving most momentum from their US rival’s demise. The Kiwi is pivoting 0.6600 and Aussie 0.6950 ahead of this week’s RBNZ meeting on Wednesday with rates widely tipped to remain unchanged before another cut in August, while comments from RBA’s Lowe may have dampened some dovish expectations as he questioned the effectiveness of easing to support the economy in the context of moves by other Central Banks aimed at sustaining growth and reaching inflation targets.

CAD/EUR - The next best G10 currencies, as the Loonie consolidates recovery gains through 1.3200 after its post-Canadian retail sales wobble, with some support from firmer crude prices, and the Euro draws encouragement from the latest German Ifo survey that was not as weak as forecast overall. Moreover, the institute maintained its 2019 GDP estimate and played down the prospect of a recession even though the economy is in the doldrums, or heading that way. However, Eur/Usd has tested the 50 DMA (1.1390) after clearing 200 DMA and WMAs, but falling just short barriers at the next big figure where the top end of 2 bn option expiries lie (from 1.1390 coincidentally).

CHF/GBP/JPY - All narrowly mixed vs the Buck as the Franc stalls ahead of 0.9750 and Pound meets resistance above 1.2750 in the form of a 38.2% retracement of the fall from 1.3185 to 1.2506 at 1.2766. Meanwhile, the Yen has retreated a bit further from 107.00 and into a 107.29-48 band with technical support seen a fraction under (107.27 Fib) and decent expiry interest a whisker above (1.3 bn at the 107.50 strike).

EM - The Lira has rebounded further from recent lows and in large part on the back of a resounding result at the 2nd Istanbul election that will not be contested this time. Indeed, President Erdogan congratulated the victor after the landslide saw Imamoglu defeat ex-PM Yildirim by whopping 800k votes. Usd/Try is hovering towards the bottom of a 5.7085-8200, with additional support for the Lira from an improvement in Turkish manufacturing sentiment.

RBA Governor Lowe said risks to global economy are tilted to the downside and that it is legitimate to question how effective monetary easing would be globally, while he also suggested that if everyone is easing, the impact on exchange rates is offset. Lowe added that more infrastructure investment would benefit the Australian economy and that government can borrow at historic lows but it must be projects that can make a return, while other Twitter sources reported that Lowe suggested it is unclear what further impact easing could have on the economy. (Newswires/Twitter)

Westpac revised its RBA cut call to July (Prev. August). (Newswires)

Turkish opposition candidate Imamoglu beat former PM and Erdogan ally Yildirim in the rerun of the Istanbul mayoral election.(Newswires)

RBI confirms that Deputy Governor Acharya submitted his resignation a few weeks ago, citing personal reasons. (Newswires)

FIXED INCOME

Bunds are nudging new Eurex highs after easing back in wake of the Ifo survey that held up better than anticipated in 2 out of the 3 metrics, and with renewed buying interest perhaps prompted by a downturn in BTPs and other peripheral bonds. The 10 year Germanbenchmark just traded at 172.52 (+45 ticks vs -5 ticks), and from a chart perspective the next upside objective is 172.57, before 172.65-70 and the 172.88 contract peak. Meanwhile, Gilts remain just shy of their Liffe best for the day so far amidst a blank UK agenda, but US Treasuries are firmer and the curve somewhat flatter ahead of a relatively light slate with just a couple of survey releases and a sole Fed speaker. Note, USTs may already be making room for this week’s auctions that are weighted towards the short end and total Usd113 bn (via 2s, 5s and 7s).

COMMODITIES

WTI and Brent futures have retreated from highs in recent trade as the upside momentum seen in the complex somewhat wanes ahead of this week’s US-Sino meeting. Over the weekend, US President Trump announced the intention of further tariffs on Iran to stem the country’s nuclear developments, although Russia’s Deputy Foreign Minister noted that the US is deliberately raising tensions with Iran and stated that Moscow and allies will counteract US sanctions on Tehran. WTI futures hover around USD 58/bbl (having hit an intraday high of USD 58.20/bbl) whilst its Brent counterpart trades just below the USD 65.50/bbl mark and closer to the bottom of today’s range. Elsewhere, gold prices hover around 6yr highs amid dovish central banks and rising tensions in the Middle East. Meanwhile, copper prices declined back below the USD 2.7/lb level as the red metal side-lines strikes at Chile's Chuquicamata copper mine and takes the cue from the subdued risk tone heading into the G20 summit. Finally, Chinese Rebar steel traded near eight-year highs as demand picks up while output curbs have been extended in an attempt to reduce air pollution.

At least 8 people were killed after an oil pipeline exploded in the southeast of Nigeria. (Newswires)

Iranian Oil Minister has denied reports which state that Iran's oil exports have recently fallen. (Newswires)

Kazakh Energy Minister is comfortable with oil in the range of USD 60-70/bbl, prices over USD 70/bbl will encourage higher US production, Kashagan oil field production to be increased by 20k BPD to 420kBPD by year-end. (Newswires)

Azeri Energy Minister states that he supports a rollover of the current oil output pact. (Newswires)