• European Indices [Euro Stoxx 50 -0.3%] are somewhat subdued following the lacklusture Asia-Pac handover
• Iran Foreign Ministry spokesman Mousavi states that the US sanctions mean the permanent closure of the diplomatic channel
• AbbVie (ABBV) is looking to buy Allergan (AGN) for in excess of USD 60bln in a cash and stock deal
• Looking ahead, highlights include US Richmond Fed, ECB’s Coeure, Fed’s Williams, Bostic, Powell, Barkin, Bullard, supply from the US, earnings from FedEx and Micron

ASIA-PAC

Asian equity markets followed suit to the lacklustre performance among global peers as geopolitical concerns remained in the limelight after the US announced fresh sanctions on Iran. ASX 200 (-0.1%) and Nikkei 225 (-0.4%) were subdued although losses in Australia were stemmed by strength in the miners amid continued gains across the metals complex, while Tokyo sentiment was clouded by a stronger currency. Hang Seng (-1.1%) and Shanghai Comp. (-0.8%)underperformed overnight after the PBoC continued to refrain from liquidity operations and due to ongoing trade uncertainty heading into the G20, while banks were among the worst hit in a continued fallout from the Baoshang Bank failure and Citic Securities also suggested domestic liquidity conditions could be volatile next month if PBoC citing increased corporate cash demand for tax payments. Finally, 10yr JGBs were slightly higher as they benefitted from the cautious sentiment and following similar gains in T-notes but with upside limited after a mixed 20yr JGB auction in which the b/c substantially retreated from the prior month’s record high.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set CNY mid-point at 6.8580 (Prev. 6.8503)

US senior administration official says President Trump will likely meet Chinese President Xi on Saturday at the G20 but still needs to be confirmed, while the suggested it is an opportunity to see where China is on the trade dispute and that President Trump is happy with any outcome. (Newswires)

China Mofcom stated that Vice Premier Liu He conducted a phone call with USTR Lighthizer in which they exchanged views, while it added that China and US trade teams have agreed to keep communication. (Newswires)

India is reportedly mulling offering incentives to attract companies shifting from China amid the trade war with the US, according to sources cited by SCMP; ‘Financial incentives such as preferential tax rates and the tax holiday provided by Vietnam to lure companies are among measures being considered, the person said’. (SCMP)

BoJ Minutes from April 24th-25th meeting stated it will take time to reach 2% target and that it is appropriate to persistently continue with easing. Minutes also reiterated that financial conditions in Japan remain highly accommodative and that Japan’s economy had been on a moderate expanding trend although exports have shown weakness recently. Most members shared view that medium to long-term inflation expectations were likely to gradually converge to 2%, although one member said the BoJ should flexibly and decisively conduct additional easing if inflation momentum was lost, while another member said it was necessary to strengthen monetary easing at this point to achieve the price target as soon as possible.  (Newswires)

US

US President Trump said Fed Chair Powell is "incorrect" that he is entitled to serving a four-year term that expires in 2022 and stated that he thinks he has the power to remove Powell if he wanted to but has no plans to do anything. (The Hill)

US National Security Advisor Bolton says all Iran has to do is negotiate with the US over the nuclear program. (Newswires)

US Disarmament Ambassador states that if Iran continues to attack the US, then there will be a decisive response; US will not initiate a conflict against Iran and US President Trump is keeping a diplomatic path open. (Newswires)

GEOPOLITICS

Iran Foreign Ministry spokesman Mousavi said the latest US sanctions means closing channel of diplomacy forever. Subsequently, Iranian President Rouhani says US sanctions on Iran will fail, reported via state TV. And the Economy Minster states that Iranis prepared to tackle the US sanctions. (Newswires/Tasnim)

US senior administration official said President Trump will meet Russia President Putin at the G20 and will discuss topics including Iran, Ukraine, Middle East, Syria and arms control issues, while the official added that Trump will not meet North Korea's Kim during his visit to Seoul. (Newswires)

North Korean newspaper stated the US should not misjudge the current situation and warned that Washington will face defeat and humiliation if it sticks to its old way of thinking, according to South Korea press reports. Elsewhere, US Defense Intelligence Agency chief said the intelligence community assesses that North Korea’s leader is not ready to denuclearize. (Yonhap/Newswires)

Turkish Court has ruled to release US consulate worker who is on trial from house arrest, but they will not be allowed to leave the country. (Newswires)

UK/EU

UK PM candidate Boris Johnson said he will ensure a plan to deliver Brexit by end of October and pledged to leave EU on Oct. 31st. Johnson stated that the UK needs to prepare for Brexit under WTO rules even though he does not believe we will end up there, while he also thinks he can get a no-deal Brexit through parliament and that there should be creative ambiguity over how and when the EU divorce bill gets paid. (BBC) Separate reports suggest that Former Conservative Chancellor Clarke would be willing to bring down a Boris Johnson-led government in order to avert a no deal Brexit. (Telegraph) Ireland is facing demand by other EU countries to set out detailed plans how it will manage a no-deal Brexit amid increasing fears it may be unavoidable. (Telegraph)

EU leaders assume that UK MP’s would trigger a general election rather than allow the UK to leave the EU in a no-deal scenario; with EU figures being cynical towards UK PM candidate Johnson’s approach to the Brexit negotiation with the EU., ITV’s Peston. (Twitter)

ECB's de Guindos banks’ profitability prospects could be dampened by deteriorating growth expectations, adding to structural weaknesses, adds that the overall effect of our monetary policy on bank profitability has so far been broadly neutral. (Newswires)

Italian Economy Minister Tria says he does not foresee any obstacles with the EU in striking an agreement, for a zero growth economy such as Italy, a 2.1% deficit/GDP ratio represents a more than prudent fiscal policy. (Newswires)

EQUITIES

A relatively subdued start for European stocks [Eurostoxx 50 -0.3%] following on from a lacklustre performance in Asia amid geopolitical tensions, month/quarter/HY rebalancing and caution ahead of the G20 summit. Major bourses are mostly lower with no clear standouts. Sectors are largely mixed albeit some strength is seen in material names as copper rebounds and gold extends on 6yr highs. Thus, Anglo American (+0.6%), Rio Tinto (+1.0%), Fresnillo (+0.6%) shares are all supported. Looking at individual movers, Capgemini (+7.0%) shares spiked higher at the open after the Co. agreed to purchase Altran Technologies (+21.3%) in an attempt to tap into the engineering outsourcing services market. Meanwhile. KPN (-2.2%) shares declined following the announcement of its CEO’s departure. Finally, broker-driven movers include CRH Hansen (-2.1%), Telenor (-1.3%), and Iliad (-5.1%).

AbbVie (ABBV) is looking to buy Allergan (AGN) for in excess of USD 60bln in a cash and stock deal, at USD 188 per share, according to WSJ. (WSJ)

FX

NZD/JPY/GBP - The standout majors and outperformers, albeit with the aid of ongoing Usd weakness as the DXY struggles to keep tabs on the 96.000 level. The Kiwi has received a timely boost just ahead of Wednesday’s RBNZ policy meet in the form of NZ trade revealing moderately better than expected m/m and y/y balances, with Nzd/Usd extending gains above 0.6600 to just over 0.6650 at one stage, while the AUD/Nzd cross has retreated through 1.0500 as the Aussie continues to meet resistance/offers recent highs and the psychological 0.7000 mark. Meanwhile, the Yen rallied through 107.00 on heightened risk-aversion sparked by US sanctions against Iran and Tehran’s response that the move means no return to lines of diplomatic communication before losing some steam and retreating back below the big figure towards decent option expiries at 107.25 (1 bn). Elsewhere, the Pound finally breached a key Fib at 1.2768 and Cable advanced to 1.2780+ after stops around 1.2770 were tripped, while Eur/Gbp pulled back from just above 0.8950 to sub-0.8920 as the single currency stalled across the board rather than anything more fundamentally supportive for Sterling.

EUR/CHF - As noted above, the Euro has faded after making more headway against the Dollar and forging above 1.1400, with several weekly chart levels spanning 1.1416-85 capping the rally on top of a Fib at 1.1460. However, the Franc has reversed even further from best levels circa 1.1060 and 0.9695 vs the Buck amidst vague market talk or speculation about official intervention to curb demand for one of the other traditional safe-havens. On that note, GOLD has seen more upside having breached Usd1400/oz and spiked to fresh multi-year highs only a few cents shy of Usd1440.

NOK/SEK - Marked divergence between the Scandi Crowns as Eur/Nok remains in bear retracement mode after last week’s hawkish Norges Bank hike and underpinned within 9.6910-6645 parameters, but Eur/Sek continues to retreat on a more technical and pre-emptive basis through 10.5500, as the Riksbank maintains its tightening bias in wake of firmer Swedish inflation data and not really fazed by a slowdown in PPI that is largely oil-related. Back to the charts, 200 DMA support may cushion the Nok from further losses as the line comes in at 9.949.

New Zealand Trade Balance (NZD)(May) M/M 264M vs. Exp. 250M (Prev. 422M, Rev. 383M). (Newswires) New Zealand Exports (NZD)(May) 5.81B vs. Exp. 5.61B (Prev. 5.55B, Rev. 5.50B) New Zealand Imports (NZD)(May) 5.54B vs. Exp. 5.40B (Prev. 5.11B, Rev. 5.12B)

Notable FX Expiries:

- USD/JPY: 107.25 (1BLN), 108.00-10 (1BLN)

- AUD/JPY: 74.50 (655M), 75.50-55 (500M)

FIXED INCOME

Marginal new intraday lows for Gilts at 130.50 (-13 ticks vs +18 ticks earlier) as investors shied away from long-dated DMO issuance at depressed and seemingly less attractive yields given the sparse subscription and lengthy tail at the 2049 sale. Indeed, the UK offering was arguably weaker than Germany’s Schatz that saw a relatively large retention and was technically uncovered, although that is not uncommon of course. Hence, 2 year futures are holding around parity, albeit just, while Bunds have not quite revisited their previous Eurex session base. Elsewhere, US Treasuries have been dragged down from overnight peaks alongside EU counterparts and the curve is now essentially steady vs considerably flatter at one stage amidst spurious talk that the US and China may call a trade truce, though this could be alluding to the recent WTO suspension of appeals until December 31. Note also, some consolidation likely ahead of a packed pm agenda, including data, a raft of Fed speakers and prominently chair Powell plus the 1st of this week’s supply remit.

COMMODITIES

WTI and Brent futures are choppy with the both benchmarks relatively flat below USD 58/bbl and USD 65/bbl as eyes are kept on the rising tensions between US and Iran and G20 developments ahead of next week’s OPEC+ meeting. Participants expect the cartel and allies to roll over the output cut pact into the second half of the year after nearly all members (ex-Russia) stated that it is in the best interest of the market. Immediate headline risks aside, tonight will see the release of the weekly API crude stocks as the street looks for a headline inventory decline of 2.9mln barrels, albeit price action may be short-lived given the aforementioned reasons. Elsewhere, gold prices remain buoyed after hitting levels last seen in August 2013 (intraday high USD 1439/oz). The yellow metal has been supported by the safe haven demand amid geopolitical tensions, and a weaker Dollar post-FOMC. Thus, Gold traders today will be eyeing any further Iran/US escalation and Fed Chair Powell’s speech scheduled for 1800BST/1300EDT which will touch on monetary policy and the economic outlook. Powell aside, other 2019 Fed voters on the docket include Fed’s Williams, and Bullard (dissenter). Turning to base metals, copper prices rebounded and reclaimed USD 2.7/lb to the upside as the red metal as extended strikes at Coldeco’s Chuquicamata copper mine roused supply concerns. Finally, China Rebar prices surged to the nearly 8yr highs as steel mill continue to curb production amid pollution warnings.