• Asian equity markets traded mostly higher, benefitting from the mild tailwinds from US, E-Mini S&P briefly topped the 3000 level
• White House Economic Adviser Kudlow said the next round of US-China face-to-face talks will take place soon
• In FX markets, the DXY was slightly softer, EUR/USD and GBP/USD were stuck below the 1.1300 and 1.2600 handles respectively
• Looking ahead, highlights include EZ Retail Sales, ECB's Lane & de Guindos, supply from Spain and France, US Market Closure for Independence Day

ASIA-PAC

Asian equity markets traded mostly higher as the region benefitted from the mild tailwinds from US where stocks notched record levels and the E-Mini S&P briefly topped the historic 3000 level due to a jubilant tone heading into the Independence Day holiday and expectations of looser central bank policy. ASX 200 (+0.5%) and Nikkei 225 (+0.2%) were positive with Australia lifted after reports the government secured enough support to pass its AUD 158bln tax package and with the largest-weighted financials sector among the index frontrunners, while gains in Tokyo were limited by recent currency flows and amid an ongoing dispute with South Korea in which the latter warned of countermeasures for Japan’s export curbs. Elsewhere, Hang Seng (-0.1%) and Shanghai Comp. (-0.3%) were indecisive with the mainland subdued by another PBoC liquidity drain and as participants await the next developments in the US-China trade saga. In terms of the latest trade headlines, White House Economic Adviser Kudlow said the next round of face-to-face talks between US and China will take place soon and that the US will not lift existing tariffs during trade discussions, while there were separate reports that China is considering US agricultural purchases as a show of goodwill but with the volume likely to be smaller than before. Finally, 10yr JGBs were uneventful as they took a breather from recent gains and with demand also dampened by mixed 30yr auction results.

PBoC skipped open market operations for a net daily drain of CNY 30bln. (Newswires)

PBoC set CNY mid-point at 6.8705 (Prev. 6.8640)

White House Economic Adviser Kudlow said the next round of face-to-face talks between US and China will take place soon and that the US will not lift existing tariffs during trade discussions, while he hopes that China keeps its commitments to make big purchases of US goods and there were also reports that the Trump administration is in the process of scheduling a call next week between US and China trade principles. (Newswires)

UK/EU

UK Brexit Secretary Barclays said a no-deal could result to a recession and shortages, while he also noted that government departments have been told to step up no-deal preparations. (Sky News)

UK Foreign Minister and PM candidate Hunt warned that MPs may be forced to cancel their summer holidays to pass the necessary laws next month for a no-deal Brexit. (Telegraph)

FX

In FX markets, the DXY was slightly softer with US participants away for 4th July celebrations and after the recent mixed bag of data including ADP National Employment which missed estimates ahead of Friday’s key US NFP jobs numbers. Nonetheless, its major counterparts across the pond have failed to take advantage of the softer greenback with EUR/USD and GBP/USD stuck within the prior day’s ranges below the 1.1300 and 1.2600 handles respectively. Elsewhere, CAD traded at its strongest against USD since November and antipodeans also remained afloat due to their high-beta characteristics, in which AUD/USD printed a 2-month high and with weaker than expected Retail Sales doing little to dent the currency’s recent swagger. USD/JPY and JPY crosses were mixed as price action largely exhibited a non-committal tone and due to a lack of volatility in their base currencies.

Australian Retail Sales MM (May) 0.1% vs. Exp. 0.2% (Prev. -0.1%). (Newswires)

COMMODITIES

Commodities were uneventful overnight due to the absence of US participants for Independence Day and the somewhat cautious optimism in the Asia-Pac region, with WTI crude futures slightly lower after failing to break through resistance at the USD 57.50/bbl level and following this week’s narrower than expected drawdown in EIA crude stockpiles. Elsewhere, gold prices flatlined due to a lack of catalysts and as the impact from the risk sentiment was counterbalanced by slight USD softness, while copper languished amid indecision in China and recent pullback in iron ore prices.

US Baker Hughes Rig Count: oil rigs fell by 5 to 788, Nat gas rigs rose by 1 to 174, total rigs fell by 4 to 963. (Newswires)

Iraqi fire crews put out a fire on a strategic oil pipeline south of Mosul (which links Kirkuk to Turkey's Ceyhan Port) according to a security source, while reports noted that the fire was started by six explosive devices. (Newswires)

GEOPOLITICS

US President Trump tweeted that Iran has just issued a new warning and suggested that Iran should be careful with the threats as “They can come back to bite you like nobody has been bitten before”. (Twitter)

North Korea mission to the UN accused the US of being hell-bent on hostile acts towards North Korea despite the US stating that it wants talks. (Yonhap)

US

The European fixed income environment was influential; EGB yields were lower, with Italian BTPs particularly standing out, as the 10-year rate differential vs Bunds declined to around 200bps, as Italian 10-year yields dropped by over 20bps. It was confirmed today that Italy will not face disciplinary procedures by the EU due to its high debt levels, which helped BTPs. EGB’s have also been very well supported by dovish ECB remarks, as well as the prospect of Christine Lagarde heading the central bank after Draghi’s departure. Treasury trade had a thin feel to it, ahead of the July 4th market holiday on Thursday; the curve bull-flattened, with yields falling across the curve, despite strength in equities. US 10-year yields made further ground under 2.00%, with the US curve seeing yields fall to two-and-a-half year lows. There was also some influence from US President Trump’s nomination of Christopher Waller and Judy Shelton to the Fed Board of Governors; both are considered dovish candidates. T-note futures finished electronic trade 3 ticks higher at 128.07+.