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General Trend:

• Financial shares are among the gainers in Hong Kong
• Banks in Shanghai outperform, second phase of May RRR cut by PBOC took effect today
• Asian chipmakers trade generally weaker after US declines, ongoing Huawei-related concerns
• Samsung said to not expect memory chip recovery until end of 2019 (previously said H2 chip demand improvement seen despite uncertainties)
• Japan Display’s (Huawei supplier) rescue plan faces hurdle
• Tokyo Steel announced price cut for July
• PBOC continues to mix up daily reverse repo instruments amid focus on Baoshang Bank and month-end liquidity conditions
• PBOC confirmed increase to standing lending facility (SLF) for smaller banks
• Most of Baoshang Bank’s corporate creditors said to have received full repayment after bailout, but some interbank creditors said to thus far have received less than 100% (Chinese Press)
• China regulators said to consult with brokers on liquidity risks (Chinese)
• China bond yields decline amid weaker May industrial production data, monetary easing expectations
• Aussie and Australian yields rise ahead of Tuesday’s release of RBA minutes; RBA policy outlook remains unclear following June policy statement
• Decline in Singapore exports to China accelerated in May
• Japan’s MOF is expected to name a new top currency official (press)
• US Fed policy meeting in focus (June 18-19th)
• Bank of Japan (BOJ) due to hold policy meeting on June 19-20th
• US public hearing on $300B in additional tariffs on China starts Monday (June 17th)
• L’Occitane expected to report results after today’s close in Hong Kong

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.1%
• ANZ.NZ Names Antonia Watson acting CEO of ANZ New Zealand after the departure of David Hisco
• (NZ) New Zealand May Performance of Services Index: 53.6 v 51.8 prior
• (NZ) New Zealand Institute of Economic Research (NZIER): Economists now see 2019-20 GDP growth of 2.5% (prior 2.8%)
• VOC.AU AGL Energy stops due diligence, withdraws non-binding A$4.85/shr offer
• FMS.AU Completes internal review to identify best path forward [+36% in session]

Japan

• Nikkei 225 opened -0.1%
• (JP) Japan will not suspend US wheat imports; will no require additional GMO testing on US wheat imports
• 6740.JP TPK Holding withdraws from investment in Japan Display
• 6740.JP Says will still seek up to ¥80B in funds, have interested parties both domestically and overseas in making investment
• 5423.JP Cuts July hot-rolled steel prices 6.8% to ¥69K/t (prior ¥74.0K/t) - first cut in prices in Sept 2016 and first price change since Jan 2018
• (JP) Japan to name Takeuchi a new Vice Fin Min for FX replacing Asakawa, announcement expect mid-July - Japan press

Korea

• Kospi opened -0.2%
• 005930.KR Do not expect memory chips to recovery until end of 2019; Cuts 2019 guidance, DRAM shipments up mid-10%, company shipments to be slightly above overall market estimate of 15% (prior high teens) - South Korean Press
• (KR) North Korea main newspaper Rodong Sinmu, calls for sticking to self-reliance without giving in to sanctions, "hostile forces" are blocking N. Korea from "normal trade activities" and bringing in daily necessities

China/Hong Kong

• Hang Seng opened +0.5%; Shanghai Composite opened flat
• (HK) In response to mass street protests Hong Kong Chief Executive Carrie Lam says will delay extradition bill indefinitely; says the bill has 'caused a lot of division
• (CN) CHINA MAY RETAIL SALES Y/Y: 8.6% V 8.1%E
• (CN) CHINA MAY INDUSTRIAL PRODUCTION Y/Y: 5.0% V 5.4%E (weakest reading since 2002) (Friday after the close)
• (CN) China NDRC spokesperson: Will study and roll out relevant policies on rare earth as soon as possible; Willing to satisfy global demand for rare earth; will research rare earth more and promote high quality development of rare earth sector; will oppose anyone's attempt to use China rare earth products to suppress China's development
• (CN) China PBoC: Aim to increase liquidity support to medium-sized and small banks; to keep liquidity ample; Increases rediscount quota by CNY100B to help increase liquidity in smaller banks; To increase Standing Lending Facility (SLF) by CNY100B (Friday after the close)
• (HK) In response to mass street protests Hong Kong Chief Executive Carrie Lam says will delay extradition bill indefinitely; says the bill has 'caused a lot of division' – press
• (CN) China PBOC: Regulators have completed debt repayment and transfer for Baoshang Bank's big institutional and interbank clients as of June 7th; net asset outflows from Baoshang were less than expected
• HUAWEI.CN Preparing to see a decline of 40-60% in overseas phone shipments – press
• (CN) China PBoC sets yuan reference rate: 6.8940 v 6.8937 prior
• (CN) China PBoC Open Market Operation (OMO): Injects CNY150B in 14-day reverse repos v CNY100B in 28-day prior; Net CNY120B injected v CNY100B drain prior
• (CN) Reminder China PBOC second phase of RRR cut went into effect today, releasing CNY100B of funds
• (CN) China PBOC to offer CNY5.0B of bonds in Hong Kong on June 20th

Other Asia

• (SG) SINGAPORE MAY NON-OIL DOMESTIC EXPORTS M/M: 6.2% V 4.9%E; Y/Y: -15.9% V -18.7%E; Electronic Exports Y/Y: -31.4% v -19.3%e ; Exports to US +0.2% y/y; Europe -10% y/y; China -23.3% y/y
• (IN) India to levy retaliatory tariffs on 28 US goods in response to US Pres Trump suspending India's GSP - Financial Press

Americas

• (US) Commerce Sec Ross plays down the chances of a US China trade deal reached at G20 - financial press
• (US) US said to ask WTO to pause China IP investigation until Dec; follow up: WTO dispute panel: US and China have agreed a suspension of legal proceedings in intellectual property dispute until Dec 31st (Friday after the close)
• (IR) Sec of State Pompeo: The US does not want to go to war with Iran, but will take every action necessary, including diplomacy, to guarantee safe navigation through vital shipping lanes in the Middle East – press
• (AR) Blackout in Argentina left tens of millions without power, also cut power to parts of Uruguay and Paraguay and closed down YPF's La Plata refinery
• (US) Holders of Puerto Rico 'valid' constitutional debt and creditors reach agreement on restructuring, the plan supports agreement covering about $35B in claims - US financial press
• (BR) Brazil Foreign Min: South America is very close to signing trade deal with EU - FT

Europe

• LHA.DE Updates guidance to make €340M provision for tax risk: Guides FY19 Rev "low single digit growth" (prior "mid single digit growth); adj EBIT €2.0-2.4B; adj EBIT margin 5.5-6.5% (prior 6.5-8.0%)
• (DE) Mayor runoff vote in the German town of Goerlitz (considered a marker for state elections in Saxony and Brandenburg Sept 1) goes to Merkel party Christian Democrat (CDU) candidate beating out anti-immigration Alternative for Germany party
• (EU) ECB Nowotny said ECB still has instruments to support euro zone economy in case of a recession or deflation risk, additional instruments are not needed in foreseeable future - German press (update)
• (EU) ECB De Guindos says ECB will act if inflation expectations are de-anchored - financial press
• (SA) Saudi Energy Min Al-Falih: hope to get oil market into balance before 2020; hope OPEC agrees to extend production cut at expected meeting in early July - speaking from sideline of a G20 energy and environment ministerial meeting

Levels as of 01:20ET

• Hang Seng +0.9%; Shanghai Composite +0.2%; Kospi -0.2%; Nikkei225 +0.6%; ASX 200 -0.2%
• Equity Futures: S&P500 +0.3%; Nasdaq100 +0.5%, Dax +0.2%; FTSE100 +0.3%
• EUR 1.1208-1.1225; JPY 108.47-108.70; AUD 0.6871-0.6885; NZD 0.6490-0.6511
• Commodity Futures: Gold +0.02% at $1,344/oz; Crude Oil +0.2% at $52.87/brl; Copper +0.4% at $2.64/lb

The EUR/JPY needs a break above the resistance trend line (dark red) to confirm the bullish reversal whereas a break below the bottom (blue box) and 100% Fibonacci level invalidates the current wave 1-2 pattern (pink). For a larger uptrend to be confirmed, price needs to break above the other resistance lines (red).

The EUR/JPY seems to have completed 5 waves up (blue) within a bullish channel. The break below the support (blue) of the channel could indicate a bearish retracement and possible wave 2 (purple) pattern as long as price stays above the 100% Fib of wave 2 vs 1. A breakout above the resistance (red) line is likely to end the wave 2 correction and could start an impulsive wave 3 (purple) pattern towards the Fibonacci levels of wave 3 vs 1.

Asian currencies began the new week on a mixed note against the Dollar Index (DXY), with the DXY holding on to gains around the 97.5 mark following better-than-expected US retail sales and manufacturing output data. The mixed economic indicators out of the world’s largest economy are threatening to erode the case for a rate cut, even as markets cling on to expectations for some measure of US monetary policy easing over the coming months.

All eyes will be on the Federal Reserve’s policy announcement on Wednesday, where any hint of waning patience from policymakers could undermine the Greenback’s recent gains.It remains to be seen which part of the economic equation will hold most of the Fed’s attention – confidence that the US economy’s record-breaking expansion has more room to run, or the growingdownside risksstemming from President Donald Trump’s trade conflicts with global economies. Should markets detect the Fed’s bias towards an “insurance” rate cut, the DXY could retrace towards its 100-day moving average of 97.0, with stronger support potentially coming at its 200-day moving average of 96.59.

Is market pessimism overdone?

As strong headwinds continue to swirl around the global economic outlook, coupled with geopolitical risks that are keeping investors on edge, safe haven assetsappear cocooned in a supportive environment. So far this month, the Japanese Yen has mostly traded around the 108handle against the US Dollar, Gold has remained supported above the $1320 level, while 10-year Treasury yields have stayed mostly below 2.15 percent, around its lowest levels since 2017.

Amid the thick cloud of risk aversion evident in the markets, investors may be underpricing the likelihood of a positive surprise out of the G20 summit later this month. A Trump-Xi meeting that marks a resumption of US-China trade talks isn’t the base case for many investors at this point in time. However, a positive surprise on this front could significantly alleviate risk sentiment and move USDJPY back towards the 110 handle while Gold could trade back below the psychological $1300 mark.

Oil traders reminded of fragile demand outlook amid supply-side risks

Brent crude is holding above the $62/bbl at the time of writing, as OPEC continues to stoke market confidence that the ongoing supply cuts will be extended through 2019; with the decision potentially made in early July. OPEC+ producers’ attempts to rebalance the markets could also get a boost by the seasonal pickup in demand in the second half of the year.

Oil bulls may also point to geopolitical tensions in the Middle East as further justification to reclaim gains, as supply risks make a return to investors’ radars. However, markets have been reminded of the fragility of the demand outlook, following the International Energy Agency’s forecasts that supply will outgrow demand in 2020. This could quickly tip markets into oversupplied conditions and limit gains for Oil prices over the course of this year.

Mixed start to the week ahead of Fed meeting

We're seeing mixed trade across Asian markets at the start of the week and while Europe is eyeing a slightly positive start, gains may be limited by the events to come later in the week.

The most obvious of these is of course the Fed meeting on Wednesday. Expectations may still be low when it comes to a rate cut but that by no means is a given. The timing of the meeting, coming just before Trump and Xi's meeting at the G20, is clearly a good reason to hold off with the outcome of that potentially strongly influencing the path to come. That said, the central bank has favoured these quarterly meetings in the past for monetary policy changes as they're accompanied by new economic projections which can justify the moves. Either way, this weeks meeting will be interesting.

Even in the absence of a rate cut, the Fed will release new economic projections and the dot plot of interest rate expectations at a time of considerable uncertainty. If the markets are correct and they're planning to cut in July - currently 82% priced in vs only 18% this week - we should expect a clear signal of such this week, one which policy makers may be forced to act on regardless of the outcome of next weeks talks at the G20 in Japan. The outcome of the meeting this week though is far from certain, which may feed into the feeling of wariness at the start of the week.

UK leadership race heats up

The number of MPs vying for Conservative leaders - and therefore UK Prime Minister - has already shrunk considerably ahead of last night's debate, although there is one more than it appeared after Boris Johnson decided, as frontrunner, it wasn't in his best interest to show up and be targeted by so many colleagues at the same time. That pleasure will be saved for the second debate on Tuesday, after the second ballot has whittled down the numbers a little further when Johnson will no doubt feel a little safer from being ganged up on.

The leadership race is not the only point of focus in the UK this week - although as far as the markets are concerned it's by far the most important and will likely have the greatest impact. The Bank of England meets and announces its latest decision on Thursday. You can be forgiven for not getting too excited about this in the current climate and with there being considerable uncertainty over Brexit. Even markets don't much any time soon - 75% chance of no change between now and August next year - so we probably shouldn't expect too much from Thursday. Retail sales and inflation data will also keep things interesting this week.

Oil higher but traders remain calm

It's quite clear that last week's events in the Gulf of Oman have heightened geopolitical tensions at a time when the US is trying to crush the Iranian economy and force change to the nuclear deal negotiated by Trump's predecessor. The suggestion that the attack on the two tankers was a case of Iran lashing out and reminding the US that it can respond strongly and effectively to the sanctions has not fallen on deaf ears but traders aren't panicking just yet.

The spike on Thursday was quickly pared and the highs haven't been topped just yet, even if prices have remained slightly elevated. Oil also failed to reach the highs of a week ago which suggests this market remains under pressure despite the now increased levels of geopolitical risk. Traders will continue to monitor the situation closely given the important of the Strait of Hormuz to global oil markets but clearly don't view current events as being evidence that the situation is going to significantly escalate.

Market movers today

A busy week is coming up where the main focus will be on the Fed meeting on Wednesday , where we look for the Fed to prepare markets for a July cut and a total of 75bp cuts in H2.

Before that the ECB will take centre stage at the ECB Forum in Sintra , which starts today with opening remarks by ECB President Mario Draghi. Pressure is increasing on the ECB following a steep decline in market inflation expectations, weak growth data and soft inflation numbers. Later this week important decisions loom at the EU Summit.

Today we will get the first indication from the US of the Empire index for June. It surprised to the upside in May but the consensus expectation is a drop back in the June reading to 11.0 from 17.8. The US NAHB housing index is also up for release today.

In the UK, the Conservative Leadership contest continues with Boris Johnson being the favourite to become new Conservative leader and prime minister.

Selected market news

Asian stocks traded mixed at the beginning of a big central bank week. On Wednesday, we have the FOMC, where we expect Powell to open the door wide open for a July rate cut. We also look for September and December cuts.

On Thursday, the Bank of Japan (BoJ) wraps up a two-day policy meeting. It is one of the small meetings, with no new forecasts on GDP and inflation. We expect the BoJ to keep its 'QQE with yield curve control' policy unchanged.

In Norway, we expect Norges Bank to raise its policy rate by 25bp to 1.25% at Thursday's rate-setting meeting, as indicated clearly both in its March monetary policy report and even more so at its May meeting.

On Thursday, the Bank of England meeting is probably not important. In our view, the bank is firmly on hold.

Sentiment regarding positive news on a China-US trade deal remains sour. US Commerce Secretary Wilbur Ross repeated that a trade deal is unlikely to emerge after a possible meeting between US President Donald Trump and Chinese President Xi Jinping at the G20 summit in Osaka later this month. As the US is collecting billions in tariffs, Trump said he is in no rush to reach a deal with China and "it doesn't matter" if Xi agrees to meet him at the G20 summit. Meanwhile, trade war escalation continued on other fronts as India imposed higher tariffs on 28 US goods in response to Washington's withdrawal of key trade privileges for New Delhi. The US goods affected by the newest Indian tariffs are iron and steel products, tube and pipe fittings, etc. The increase also hit food.

Crude saw support as Saudi Arabia's energy minister stated he was confident that OPEC and its partners are likely to approve further output cuts into H2 19 during a meeting scheduled for the first week of July.

For the 24 hours to 23:00 GMT, the EUR declined 0.64% against the USD and closed at 1.1207.

The US dollar gained ground against major currencies, amid upbeat domestic retail sales data.

In the US, data showed that advance retail sales climbed 0.5% on a monthly basis in May, signalling a rise in consumer spending and undershooting market expectations for a rise of 0.6%. Advance retail sales had recorded a revised climb of 0.3% in the prior month. Moreover, the US manufacturing (SIC) production rose 0.2% on a monthly basis in May, meeting market expectations. In the prior month, manufacturing production had recorded a decline of 0.5%. Also, the nation’s industrial production rebounded 0.4% on a monthly basis in May, compared to a revised drop of 0.4% in the prior month. Market had anticipated industrial production to register a rise of 0.2%.

On the other hand, the US preliminary Reuters/Michigan consumer sentiment index fell more than expected to a level of 97.9 in June, amid tariff concerns and lower domestic job opportunities. In the prior month, the index had recorded a level of 100.0.

In the Asian session, at GMT0300, the pair is trading at 1.1221, with the EUR trading 0.12% higher against the USD from yesterday’s close.

The pair is expected to find support at 1.1186, and a fall through could take it to the next support level of 1.1152. The pair is expected to find its first resistance at 1.1272, and a rise through could take it to the next resistance level of 1.1324.

Amid lack of macroeconomic releases in the Euro-zone today, investors would focus on the US empire manufacturing index and the NAHB housing market index, both for June, slated to release later in the day.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP declined 0.77% against the USD and closed at 1.2581 on Friday.

In the Asian session, at GMT0300, the pair is trading at 1.2598, with the GBP trading 0.14% higher against the USD from Friday’s close.

The pair is expected to find support at 1.2558, and a fall through could take it to the next support level of 1.2519. The pair is expected to find its first resistance at 1.2659, and a rise through could take it to the next resistance level of 1.2721.

In absence of key economic releases in the UK today, investor sentiment would be determined by global macroeconomic events.

The currency pair is trading below its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.18% against the JPY and closed at 108.55.

In the Asian session, at GMT0300, the pair is trading at 108.62, with the USD trading 0.06% higher against the JPY from yesterday’s close.

The pair is expected to find support at 108.28, and a fall through could take it to the next support level of 107.95. The pair is expected to find its first resistance at 108.83, and a rise through could take it to the next resistance level of 109.05.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.53% against the CHF and closed at 0.9990 on Friday.

In the Asian session, at GMT0300, the pair is trading at 0.9992, with the USD trading marginally higher against the CHF from Friday’s close.

The pair is expected to find support at 0.9947, and a fall through could take it to the next support level of 0.9902. The pair is expected to find its first resistance at 1.0016, and a rise through could take it to the next resistance level of 1.0040.

With no macroeconomic releases in Switzerland today, investors would look forward to global macroeconomic releases for further direction.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD rose 0.65% against the CAD and closed at 1.3411 on Friday.

In the Asian session, at GMT0300, the pair is trading at 1.3407, with the USD trading slightly lower against the CAD from Friday’s close.

The pair is expected to find support at 1.3349, and a fall through could take it to the next support level of 1.3291. The pair is expected to find its first resistance at 1.3444, and a rise through could take it to the next resistance level of 1.3481.

Amid lack of economic releases in Canada today, traders would focus on global macroeconomic events for further direction.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.