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Daily Pivots: (S1) 1.1305; (P) 1.1321; (R1) 1.1342; More......

Intraday bias in EUR/USD remains neutral as consolidation from 1.1347 is extending with another falling leg. With 1.1251 minor support intact, further rise is mildly in favor. On the upside, above 1.1347 will target 1.1448 key resistance next. Decisive break there will carry larger bullish implications. On the downside, break of 1.1251 minor support will suggest that recovery from 1.1107 has completed. Intraday bias will be turned back to the downside for retesting 1.1107 low.

In the bigger picture, current development argues that a medium term bottom could be in place at 1.1107, on bullish convergence condition in daily MACD. Decisive break of 1.1448 resistance would confirm this case. And stronger rebound would be seen to 38.2% retracement of 1.2555 to 1.1107 at 1.1660. At this point, it's early to judge whether rise from 1.1107 is a corrective move or the start of an medium term up trend. We'd look at the structure of the rebound to decide later. But in any case, for now, risk will remain on the upside as long as 1.1107 low holds.

The forex markets are rather mixed today. Dollar suffered very brief selling after CPI miss. But the greenback quickly regains footing as the readings are not bad enough to push Fed for a cut. For now, Sterling is the strongest one for today, followed by Yen and then Dollar. Swiss Franc is the weakest, followed by Aussie and then Kiwi. There is no clear theme for the moment.

Technically, EUR/USD's failure to take out 1.1347 temporary top suggests more consolidative trading could be seen for now. Though, further rise is expected with 1.1251 minor support holds. Also, near term outlook in USD/CHF, USD/JPY and USD/CAD remains bearish with 1.0008, 109.02 and 1.3363 resistance levels intact respectively. MO re downside remains in favor in Dollar, except versus Aussie.

In Europe, currently, FTSE is down -0.70%. DAX is down -0.37%. CAC is down -0.66%. German 10-year yield is down -0.0007 at -0.231. Earlier in Asia, Nikkei dropped -0.35%. Hong Kong HSI dropped -1.73%. China Shanghai SSE dropped -0.56%. Singapore Strait Times dropped -0.06%. Japan 10-year JGB yield dropped -0.0006 to -0.111.

US CPI slowed to 1.8%, core CPI to 2.0%

US CPI rose 0.1% mom in May while core CPI rose 0.1% mom. Annually, headline CPI slowed to 1.8% yoy, down from 2.0% yoy and missed expectation of 1.9% yoy. Core CPI slowed to 2.0% yoy, down from 2.1% yoy and missed expectation of 2.1% yoy.

While consumer inflation slowed mildly, there was no marked deterioration. Fed shouldn't be having much urgency to cut interest unless there is further escalation in trade war between US and other countries like China. Indeed, Fed could hold their bullets at least until Trump decides to tariff all untaxed Chinese imports, or even when he starts auto tariffs on EU and Japan.

ECB Draghi: CEE economies disproportionately affected by global trade headwinds

ECB President Mario Draghi said in a speech that "general slowdown is being felt in all economies in the region. The so called "central and eastern European (CEE) economies" model has become "vulnerable to shocks to international trade and financial conditions".

He added that "global trade has faced headwinds in recent years as trade-restrictive measures have outpaced liberalizing measures." CEE economies have been "disproportionately affected" by this for two reasons. Firstly, trade in CEE economies is "especially responsive cyclical developments", with "trade elasticity" higher than the rest of EU. Secondly, they have "increasingly specialised in certain industries: which made the "more exposed to industry-specific shocks."

ECB de Galhau: ECB can do more if slowdown becomes a real slamming of the brakes

ECB Governing Council Member Francois Villeroy de Galhau said as inflation falls short of the central bank's target, monetary policy must be kept "active and accommodative".

Also, "if the current slowdown becomes a real slamming of the brakes, we can do more than we are doing currently". However, he also warned that "they can temporarily attenuate the consequences of a weaker global economy, but they cannot take care of the cause." De Galhau referred to uncertainty created by trade tensions.

EU said no-deal Brexit very much remains a possible, although undesirable, outcome

European Commission warned in a statement released today that "In light of the continued uncertainty in the United Kingdom regarding the ratification of the Withdrawal Agreement – as agreed with the UK government in November 2018 – and the overall domestic political situation, a 'no-deal' scenario on 1 November 2019 very much remains a possible, although undesirable, outcome.

The Commission said it has screened all the no-deal preparation measures. And it "concluded that there is no need to amend any measures on substance and that they remain fit for purpose. The Commission does not plan any new measures ahead of the new withdrawal date. "

EU Moscovici wants credible path from Italy

European Commissioner for Economic and Financial Affairs Pierre Moscovici said the ball is in "Italy's court" regarding the country's excessive budget that could lead to disciplinary procedure. He added, "We need to see a credible path for 2019 as well as 2020. We stand ready to take into account any new elements that Italy may put forward, but let's not waste time."

On the other hand, Italian Deputy Prime Minister Matteo Salvini said "we're not asking Europe for money ... what we ask for is to be able to cut taxes for Italians... We definitely won't introduce new taxes, we won't increase the value added tax, we won't introduce a wealth tax, we won't touch Italians' bank savings... We want to free up resources".

RBA rate cuts failed to lift consumer sentiments

Australia Westpac Consumer Confidence dropped -0.6 to 100.7 in June. Westpac noted that it's a "disappointing result" given the RBA's rate cut on June 4. Also, the results suggests "deepening concerns about the economy have outweighed the initial boost from lower rates. " Looking at some details, economic expectations for the next 12 months dropped -4.7 to slightly pessimistic territory at 99.3. Though, House Price Expectations Index rose notably by 22.7 to 109.7, in clear response to the rate cut.

Westpac also said "initial sentiment reaction to the June rate cut will be somewhat disappointing for the Bank". After disappointing Q1 GDP, RBA will need to "make a further downgrade to its growth forecasts". And "the case for further policy easing remains clear". Westpac expects another 25bps cut in August.

Elsewhere, China CPI accelerated to 2.7% yoy in May, up from 2.5% yoy. PPI slowed to 0.6% yoy, down from 0.9% yoy. Both matched expectations. Japan domestic CGPI rose 0.7% yoy in May, matched expectations. Machine orders rose 5.2% mom in April, much better than expectation of -0.8% mom contraction.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1305; (P) 1.1321; (R1) 1.1342; More......

Intraday bias in EUR/USD remains neutral as consolidation from 1.1347 is extending with another falling leg. With 1.1251 minor support intact, further rise is mildly in favor. On the upside, above 1.1347 will target 1.1448 key resistance next. Decisive break there will carry larger bullish implications. On the downside, break of 1.1251 minor support will suggest that recovery from 1.1107 has completed. Intraday bias will be turned back to the downside for retesting 1.1107 low.

In the bigger picture, current development argues that a medium term bottom could be in place at 1.1107, on bullish convergence condition in daily MACD. Decisive break of 1.1448 resistance would confirm this case. And stronger rebound would be seen to 38.2% retracement of 1.2555 to 1.1107 at 1.1660. At this point, it's early to judge whether rise from 1.1107 is a corrective move or the start of an medium term up trend. We'd look at the structure of the rebound to decide later. But in any case, for now, risk will remain on the upside as long as 1.1107 low holds.

Economic Indicators Update

• Both headline and core CPI rose 0.1% in May
• Headline inflation slowed to 1.8% year-over-year and core dipped to 2.0%; both were a tick below consensus
• Higher food prices helped to offset a dip in energy prices in May
• Among the core components, an increase in medical care services prices was offset by a further decline in goods prices
• Core CPI inflation has been within 0.4 ppts of the 2% mark since 2011. The PCE deflator, the Fed’s preferred price measure, has been a few ticks lower on average and stood at 1.6% in April.

Today’s inflation report keeps the Fed’s options open. With the US economy showing few signs of inflationary pressure (at least from a consumer price standpoint), the central bank has leeway to respond to any slowdown in growth caused by tariffs and trade policy uncertainty. We don’t think the data makes enough of a case for rate cuts at this stage, though we are beginning to see cracks in the industrial sector and business investment. Greater evidence of trade headwinds impacting the broader economy would help build the case for a move. The near-term direction of monetary policy might also depend on whether the Trump administration announces additional trade action following the G20 summit later this month. Further escalation of the US-China trade dispute would increase the likelihood of a pre-emptive move from the Fed. Markets don’t appear to have high hopes for a potential Trump-Xi meeting, fully discounting a rate cut at the Fed’s July meeting and pricing in another move by October.

US CPI rose 0.1% mom in May while core CPI rose 0.1% mom. Annually, headline CPI slowed to 1.8% yoy, down from 2.0% yoy and missed expectation of 1.9% yoy. Core CPI slowed to 2.0% yoy, down from 2.1% yoy and missed expectation of 2.1% yoy.

Full release here.

EUR/USD spikes higher after the release but is quickly under pressure again. Deeper fall could be seen towards 1.1251 minor support. But for now, there is no confirmation of short term topping yet with 1.1251 support intact. Rise from 1.1107 could still extend higher through 1.1347.

USDMXN has dropped considerably over the previous couple of days, after the negative gap, remaining within the 200- and 50-day simple moving averages (SMAs). Currently, the pair is also hovering in the Ichimoku cloud and is trying to surpass the 23.6% Fibonacci retracement level of the downleg from 20.6540 to 18.7440 near 19.1938.

Looking at the technical indicators, the stochastic oscillator is turning higher in the oversold zone, giving the impression for a bullish crossover of the %K and %D lines in the daily timeframe. The RSI is pointing north around the 50 level, supposing the end of the negative rally.

If the 23.6% Fibonacci region of 19.1938 proves easy to overcome, the spotlight would turn to the 200-SMA, which stands near 19.3470 before challenging the 38.2% Fibonacci of 19.4750. More gains could open the door for the 50.0% Fibonacci mark of 19.6966.

A failure to overcome the immediate resistance (19.1938) could drive prices lower, below the 50-SMA and towards the 18.9545 support. More declines could give the green light for a retest of the 18.7440 hurdle.

In the medium-term picture, USDMXN turned neutral as it has been developing within the congestion area of 18.7440 – 19.8744 over the last six months. In the short-term, traders should wait for a jump above the 200-SMA or a decline below the 50-SMA.

European Commissioner for Economic and Financial Affairs Pierre Moscovici said the ball is in "Italy's court" regarding the country's excessive budget that could lead to disciplinary procedure. He added, "We need to see a credible path for 2019 as well as 2020. We stand ready to take into account any new elements that Italy may put forward, but let's not waste time."

On the other hand, Italian Deputy Prime Minister Matteo Salvin said "we're not asking Europe for money ... what we ask for is to be able to cut taxes for Italians... We definitely won't introduce new taxes, we won't increase the value added tax, we won't introduce a wealth tax, we won't touch Italians' bank savings... We want to free up resources".

The DAX has lost ground on Wednesday, after gaining close to 1.0% on Tuesday. Currently, the index is at 12,084, down 0.60% on the day. In economic news, there are no major events out of Germany or the eurozone. In the U.S., the focus will be on consumer inflation reports for May. CPI is expected to dip to 0.1%, while core CPI is projected to improve to 0.2%. On Thursday, Germany releases Final CPI and the eurozone posts industrial production.

In China, consumer inflation rose at an annualized rate of 2.7% in May, matching the forecast. However, producer price inflation slowed to 0.6% in May, down from 0.9% in April. As well, Chinese auto sales plunged 16.4% in May, its worst monthly decline on record. This marked a 11th successive decline and comes after a 14.6% drop in April. The soft numbers are reflective of the slowdown which has gripped the Chinese economy, as the bitter trade war with the U.S. shows no signs of easing.

There were fears that President Trump would slap Mexico with new tariffs, opening up another trade war front. The tariffs were set to take effect on Monday, but the U.S. suspended the tariffs, after talks between U.S. and Mexico helped defuse the latest crisis. Although the U.S. has said that the tariffs could be imposed if the illegal immigration crisis continues, investors are pleased that Trump has backtracked. There are also hopes that the ongoing trade dispute between the U.S. and China will ease. At a G-20 meeting, finance ministers agreed on a joint communique to reduce trade tensions. There are hopes that progress towards a trade agreement will be made before President Trump and President Xi of China meet at the G-20 summit in Japan in late June. Risk appetite has improved, and the DAX has gained 3.6% in June, recovering most of the losses seen in May.

Notes/Observations

• Spain and Italy open books for bond syndications in bid to cut borrowing costs amid decline in yields
• Focus on US May CPI data due out in session for growing confidence of potential Fed rate cut bets
• Protests continue in Hong Kong over extradition bill; HKMA noted that both FX and money markets were operating in 'orderly' manner’

Asia:

• China May CPI was inline with expectation but at its fastest pace since early 2018 (YoY: 2.7% v 2.7%e)
• More speculation that PBOC has room for further targeted RRR cuts
• Singapore Central Bank (MAS) June Economist Survey cut 2019 GDP outlook from 2.5% to 2.1%
• BOK Gov Lee reiterated that would make appropriate policy response to economic changes; BOK needed to prepare various policy scenarios for timely response
• Australia Jun consumer confidence declined despite easing by RBA, deepening economic concerns noted (100.7 v 101.3 prior)
• Global Times editor Hu Xijin tweet: No sign that China was relaxing its countermeasures against US trade war. Chinese basically had no trust in the mild signals the US side sent occasionally

Europe/Mideast:

• EU Deputy Finance Ministers reportedly support Commission view that disciplinary action was needed against Italy rising debt levels
• Italy’s Tria stated that he expected EU officials to ask EU commission to continue to negotiate with country on budget; final decision on Italy budget to be with EU finance ministers
• Bank of France cut its 2019 GDP growth forecast from 1.4% to 1.3% (Note: in-line with IMF’s view)
• Italy's govt preparing to support a French candidate to replace Draghi as ECB chief
• UK Labour Party said to make motion that would block new Tory PM from suspending parliament to force through no-deal

Energy:

• UAE Energy Min (OPEC president) Mazrouei stated that OPEC+ was very close to an agreement extension; it's 'not a challenge' to reach a deal
• Weekly API Oil Inventories: Crude: +4.9M v +3.5M prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 -0.52% at 378.92, FTSE % at #, DAX -0.57% at 12,088.32, CAC-40 -0.68% at 5,371.61, IBEX-35 -0.28% at 9,254.00, FTSE MIB -0.83% at 20,442.50, SMI -0.03% at 9,822.30, S&P 500 Futures -0.30%]

Market Focal Points/Key Themes:

• European Indices trade mostly lower consolidating some of the gains seen over the past few days, following a mixed session in Asia and weaker US futures.
• On the corporate front shares of Spanish retail giant Inditex trades higher following mixed earnings, as EBIT came ahead of consensus and Revenue missed forecasts, while Eckoh ticks higher with mixed earnings.
• Online fashion retailer Boohoo.com declines after inline Q1 Revenues and affirmed outlook; Pendragon declines sharply on a profit warnings, while British American Tobacco also declines following its trading update, as the company affirmed its full year outlook, but YTD market share declines weigh on the stock.
• On the M&A front, Axel Springer rises sharply as KKR confirmed a takeover offer for the company at €63.00/shr and Medidata confirms to be acquired by Dassault Systems for $92.25/shr in $5.8B all cash deal.
• Elsewhere Taptica outperforms as rising over 19% as the company provided an update on its lawsuit with Uber as well as proposing a share buyback.
• Looking ahead notable earners include Summit Therapeutics and Hooker Furniture Group.

Equities

• Consumer discretionary: Inditex [ITX.ES] +1% (earnings), Pendragon [PDG.UK] -25% (profit warning), Adidas [ADS.DE] -2% (placement)
• Consumer staples: British American Tobacco [BATS.UK] -3.5% (trading update)
• Telecom: TKH Group [TK.NL] +5.5% (raises mid-term targets)
• Industrials: Kloeckner [KCO.DE] +2% (analyst action)
• Technology: Axel Springer [SPR.DE] +12.5% (to be acquired; cuts outlook), Dassault Systems [DSY.FR] -1% (confirms acquisition in U.S.), Taptica International [TAP.UK] +17.5% (lawsuit update; share buyback), De La Rue [DLAR.UK] +2.0% (divestment)
• Materials: LafargeHolcim [LHN.CH] -2.5% (stake sold)

Speakers

• ECB’s Draghi: Global trade has faced headwinds in recent years and needed to find ways to grow out from vulnerabilities
• ECB's Villeroy (France) reiterated Council view that to maintain accommodative policy as long as needed; had yet to achieve price stability. Reiterated Council view that ECB coluld do more if economic situation worsened and had effective instruments at its disposal
• ECB’s Muller (Estonia): Still room to go to reach 2% inflation goal but no sign of deflation in any Euro member (**Note: replaced Hansson as Estonia's rep)
• Banks in Spain said to consider charging companies for deposits after ECB signaled rates would be lower for longer
• China Foreign Ministry spokesperson Geng Shuang urged the US to speak and act with caution on Hong Kong and added that it should stop interfering on China's domestic matters. He stressed that China would continue to support Hong Kong govt on extradition question
• Japan said to propose TPP-level tariff cut on U.S. farm goods and to seek concessions on autos in return
• Indonesia Fin Min Indrawati stated that the central bank (BI) might adjust its monetary policy stance due to latest global development (**Note: BI currently in a tightening cycle)
• Hong Kong Monetary Authority (HKMA): FX and money markets operating in 'orderly' manner' as domestic banks were well capitalized and highly liquid
• Hong Kong policy chief on protests: Currently in a riot situation as demonstrators were beyond a peaceful protest; confident to put situation under control. Would not call People Liberation Army (PLA) for help or on Chinese military

Currencies/ Fixed Income

• USD: The US dollar index futures continued its trading lower as it approaches the lower level to be in the region of 96.4. Now that we have the US Mexico trade deal sorted we look to the US/China trade war where many are hoping that Trump and Xi are able to meet to get talks started back up. Focus on US May CPI data due out in session for growing confidence of potential Fed rate cut bets.
• EUR: The Euro traded higher yesterday as talks about ECB head Mario Draghi’s replacement started to take shape. We also have talks continuing between Italy and the EU that could send Euro volatility flying. At the present time we are trading just above 1.13 with likes of getting up to the next upper level of 1.14 slim. To the downside we have the 1.11 handle level holding.
• GBP The cable continues to trade slightly above 1.27 as we look to the first vote for the Tory leadership set out tomorrow, which could get the cable moving with volatility as candidates begin to outline their plans for Brexit and the UK. Levels to the upside are in the 1.2750 region which could be approached today if not this week.

Economic Data

• (FR) France Q1 Final Private Sector Payrolls Q/Q: 0.5% v 0.3% prelim; Total Payrolls: 0.4% v 0.2% prior
• (RO) Romania May CPI M/M: 0.5% v 0.4%e; Y/Y: 4.1% v 4.1%e
• (ES) Spain May Final CPI M/M: 0.2% v 0.2%e; Y/Y: 0.8% v 0.8%e
• (ES) Spain May Final CPI EU Harmonized M/M: 0.2% v 0.2%e; Y/Y: 0.9% v 0.9%e
• (ES) Spain May CPI Core M/M: 0.1% v 1.1% prior; Y/Y: 0.7% v 0.9% prior
• (ES) Spain Apr House Transactions Y/Y: % v 6.8% prior
• (CN) China May M2 Money Supply Y/Y: 8.5% v 8.6%e
• (CN) China May New Yuan Loans (CNY) 1.180T v 1.300Te
• (CN) China May Aggregate Financing (CNY): 1.40T v 1.450Te

Fixed Income Issuance

• (ES) Spain Debt Agency (Tesoro) opened its book to sell €6.0B in 10-year bond via syndicate; guidance seen +37bps to mid-swaps
• (IT) Italy Debt Agency (Tesoro) opens book to sell EUR-denominated Mar 2040 BTP bond via syndicate; guidance seen +16bps to mid-swaps
• (EU) Croatia to sell EUR-denominated 10-year note; guidance seen +135bps to mid-swaps
• (DK) Denmark sold total DKK11.74B in 3-month and 6-month Bills
• (IN) India sold total INR200B vs. INR200B indicated in 3-month, 6-month and 12-month bills
• (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 6-month Bills; Avg Yield: -0.4902% v -0.4739% prior; bid-to-cover: 1.83x v 1.95x prior
• (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 12-month bills; Avg Yield: 0.069% v 0.122% prior; Bid-to-cover: 1.54x v 1.60x prior
• (CH) Switzerland sold CHF206.75M in new Jun 2034 bonds; Yield: -0.122%, bid-to-cover: 1.44x

Looking Ahead

• (PE) Peru Apr Trade Balance: No est v $0.4B prior
• 05:30 (DE) Germany to sell €3.0B in 0.25% Feb 2029 Bunds
• 05:30 (UK) DMO to sell £700M in 0.125% 2048 Inflation-linked Gilts (UKTei)
• 05:30 (PT) Portugal Debt Agency (IGCP) to sell 2029 and 2034 OT bonds
• 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 12-month bills
• 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays)
• 06:00 (IL) Israel May Consumer Confidence: No est v 134 prior
• 06:00 (IL) Israel May Trade Balance: No est v -$2.2B prior
• 06:00 (CZ) Czech Republic to sell 2026 and 2033 bonds
• 06:00 (RU) Russia OFZ bonds auction (cancelled due to holiday)
• 06:45 (US) Daily Libor Fixing
• 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 24.00%
• 07:00 (US) MBA Mortgage Applications w/e Jun 7th: No est v +1.5% prior
• 07:00 (ZA) South Africa Apr Retail Sales M/M: 0.0%e v -0.7% prior; Y/: 1.2%e v 0.2% prior
• 07:00 (UK) Weekly PM May question time in House of Commons
• 08:00 (HU) Hungary Central Bank May Minutes
• 08:00 (IN) India May CPI Y/Y:3.1%e v 2.9% prior
• 08:00 (IN) India Apr Industrial Production Y/Y: +0.8%e v -0.1% prior
• 08:00 (BR) Brazil Apr Retail Sales M/M: -0.1%e v +0.3% prior; Y/Y: +2.1%e v -4.5% prior
• 08:00 (BR) Brazil Apr Broad Retail Sales M/M: 0.3%e v 1.1% prior; Y/Y: +3.1%e v -3.4% prior
• 08:00 (BR) Brazil Apr IBGE Services Sector Volume Y/Y: -0.6%e v -2.3% prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:30 (US) May CPI M/M: 0.1%e v 0.3% prior; Y/Y: 1.9%e v 2.0% prior
• 08:30 (US) May CPI (ex-food/energy) M/M: 0.2%e v 0.1% prior; Y/Y: 2.1%e v 2.1% prior
• 08:30 (US) May CPI Index: 256.180e v 255.548 prior; CPI Core Index: 262.280e v 261.735 prior
• 08:30 (US) May Real Avg Hourly Earning Y/Y: No est v 1.2% prior; Real Avg Weekly Earnings Y/Y: No est v 0.9% prior
• 08:30 (CA) Canada May Teranet Bank House Price Index M/M: No est v 0.0% prior; Y/Y: No est v 1.2% prior; HPI: No est v 222.22 prior
• 10:30 (US) Weekly DOE Oil Inventories
• 10:30 (TR) Turkey May Cash Budget Balance (TRY): No est v -14.3B prior
• 12:00 (CA) Canada to sell 3 Year Bonds
• 13:00 (US) Treasury to sell 10-Year Notes Reopening
• 14:00 (US) May Monthly Budget Statement: -$200.0Be v $160.3B prior
• 19:01 (UK) May RICS House Price Balance: -21%e v -23% prior

One country, two systems appears at risk as for Hong Kong residents as protests grew chaotic. Thousands of protesters marched on major highways attempting to storm the Legislative Council in protest of the extradition bill that would allow Hong Kong residents to be sent to the mainland. The situation remains tense as tear gas is being used by police and some protesters allegedly are growing violent, throwing various objects and bricks. The riot situation at the legislative complex appears contained, but it is unsure how long this will go into the night. The protest leader Jimmy Sham noted demonstrators will remain in the streets until the government withdraws the proposed bill.

Hong Kong is a city of slightly over seven million people, technically part of China but operating like a free nation that has free speech and rights to protests. If the proposed extradition bill gets passed, Beijing’s influence will continue to encroach on Hong Kong resident’s way of life. Last we heard from Chief Executive Carrie Lam was that it is still expected to move forward, though we have not heard from her since Monday.

China appears to be increasing its hold and Democratic ways of life could be ending in Hong Kong. China’s crackdowns have worked before and its hard to imagine a situation where this does not end poorly for Hong Kong without international help.

Market turbulence could grow for Hong Kong markets as business investors are adamant in not having this extradition bill passed. The Hang Seng fell 1.7% and could see further weakness as investors become skeptical of Beijings influence. The Japanese yen has a modest bid all night, while the Australian dollar softened on the day as over 100,000 Aussies reside in Hong Kong.

• Hong Kong Dollar – Surges on funding squeeze
• Boris – Not aiming for a no-deal Brexit outcome
• Oil – Crude sinks after API shows 4.85 million barrels build
• Gold – Softer on positive trade developments

HKD

The protests over the extradition bill is delivering a squeeze in local lending rates, which makes it more expensive to borrow the Hong Kong dollar in the front end, which has strengthened HKD today. The Hong Kong currency is at its strongest levels since December. Expectations are for HKD to return to the weaker part of the band after the funding squeeze ends. The Hang Seng Index is the worst performing index, closing -1.7% on the day.

The Hong Kong Monetary Authority (HKMA) noted their currency and money markets are operating in an orderly manner.

GBP

Boris Johnson kicked off his partly leadership campaign and assuaged cable traders after stating, “I am not aiming for a no-deal Brexit outcome.” The candidate that was supposed to be the one leading the charge for a hard Brexit appears to be trying to win over votes with a slightly softer stance. The front-runner dodged questions about his inflammatory banter and spotty track record.

Cable regained firm footing and is attempting at recapturing the highs made last week.

Oil

Crude prices steadily declined overnight following yesterday’s API report that showed American crude inventories rose 4.85 million barrels last week. Cushing was up 2.37 million barrels and if the EIA report confirms the rise, that would be the biggest gains since February. If the EIA report confirms another strong build, oil prices will struggle to stabilize here as supplies appear ample. Another key part of the global outlook on oil will depend on OPEC and allies decision on what to do with production cut levels. Many OPEC oil ministers remain confident production cuts will be extended, but nothing should be priced in until we have firm commitments from the Russians and Iranians.

Gold

Gold prices remain supported on trade uncertainty, rising Fed rate cut bets, which could coincide with a pullback with the US dollar.

European Commission warned in a statement released today that "In light of the continued uncertainty in the United Kingdom regarding the ratification of the Withdrawal Agreement – as agreed with the UK government in November 2018 – and the overall domestic political situation, a 'no-deal' scenario on 1 November 2019 very much remains a possible, although undesirable, outcome.

The Commission said it has screened all the no-deal preparation measures. And it "concluded that there is no need to amend any measures on substance and that they remain fit for purpose. The Commission does not plan any new measures ahead of the new withdrawal date. "

Full statement here.