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General Trend:

• Asian equity markets trade mostly lower despite earlier gains in the US
• Automakers decline after US President Trump ordered probe into auto imports: Toyota and Kia each trade lower by over 2%
• Japanese Yen (JPY ) is higher for the third straight session amid the equity declines
• Bond yields in Australia, Korea and New Zealand move lower, tracking Wednesday’s trade in US Treasury yields
• Some emerging market (EM) assets remain under pressure after FOMC minutes: Indonesia 2-year yield rises over 15bps
• Malaysian equities decline over 2%; Former government said to have used central bank to pay debts of state investment fund 1MDB, says a US financial press report.
• Equities in Indonesia outperform, rise over 1.5%
• Turkish Lira (TRY) in focus after emergency rate hike
• Bank of Korea (BoK) unanimously left rates unchanged
• BoJ’s Sakurai comments on possible side-effects of easy policy; affirms to continue easing ‘persistently’
• China PBoC said to prioritize issues related to systemic risk (Chinese Press)
• New Zealand April trade surplus supported by fruit exports
• North Korea Foreign Ministry official said the country will not beg for talks with the US

Headlines/Economic Data

Japan

• Nikkei 225 opened -0.3%; closed -1.1%
• TOPIX Marine Transportation index -2.7%, Iron & Steel -2.1%, Electric Appliances -1.8%, Securities -1.8%
• Japanese automakers underperform on trade concerns
• Megabanks decline over 1%
• (JP) Japan Investors Net Buying of Foreign Bonds: +¥948.9B v +¥827.0B prior week; Foreign Net Buying of Japan Stocks: +¥99.1B v +¥126.3B prior week
• (JP) Bank of Japan (BOJ) Sakurai: BoJ must aim to hit price goal at earliest date possible, but that does not mean it will do so recklessly
• (JP) Japan Chief Cabinet Sec Suga: Will watch what US does on auto import tariffs
• (JP) Japan LDP Policy Chief: Seeking to reach primary balance surpluses before FY2025

Korea

• Kospi opened +0.2%
• (KR) BANK OF KOREA (BOK) LEAVES REPO RATE UNCHANGED AT 1.50%; AS EXPECTED
• (KR) North Korea Foreign Ministry Official: Will suggest to North Korea leadership to reconsider US/North Korea summit; future of the summit is entirely up to the US

China/Hong Kong

• Hang Seng opened +0.2%, Shanghai Composite 0.0%
• Hang Seng Materials index -0.8%; Energy +1.2%, Services +0.8%, Industrial Goods +0.4%, Financials flat
• Rusal, [+1.9%], 486.HK Unless US sanctions are lifted or a new license is granted by OFAC, international financial institutions are likely to discontinue operations with the Group after Oct 23 2018; CEO and board resigns
• Samsonite [1910.HK]: Declines over 11% after cautious research report, shares later halted
• Lenovo, 992.HK Reports Q4 Net $33M v $107M y/y, Rev $10.6B v $9.60B y/y
• (CN) China plans measures to increase imports of high-end goods - Chinese Press
• (CN) China PBoC said to prioritize handling issues with systemic risk - Chinese Press
• (CN) China PBoC sets yuan reference rate at 6.3816 v 6.3773 prior
• (CN) China PBoC Open Market Operation (OMO): Injects CNY40B in 7-day and 14-day reverse repos v CNY150B prior; Net: CNY0B drain v CNY30B drained prior
• (CN) China MOFCOM Spokesperson Gao: Will encourage companies to import more from the US; China did not promise a number to US trade surplus cut
• (CN) China Iron and Steel Association (CISA): Steel capacity cuts resulted in 300K job losses
• (CN) China govt said take step to help boost the milk industry
• (CN) China said to revisit policy related to online prescription drug sales - Chinese Press
• (CN) China State Council Member Wang Yi: China and the US should deepen coordination on Korea issue; should open markets to each other
• (CN) China PBOC has asked branches to check accuracy of financial statistics - Chinese press
• (CN) MSCI Exec: Focused on making sure China index inclusion is successful
• (HK) Hong Kong Monetary Authority (HKMA): Pace of interest rate increases should not be too rapid

Australia/New Zealand

• ASX 200 opened -0.0%, closed -0.0%
• ASX 200 Financials index -0.6%, Energy -0.4%, Resources -0.3%, Telecom -0.3%, Utilities -0.3%; Consumer Discretionary +0.9%, REIT +0.9%
• (AU) Australia Trade Min Ciobo: Media is over exaggerating about Australia/China tensions
• (NZ) NEW ZEALAND APR TRADE BALANCE (NZ$): +263M V +198ME; 12-MONTH YTD: -3.76B V -3.77BE
• (NZ) RBNZ Gov Orr: Financial system is not immune to threats
• (NZ) New Zealand sells NZ$200M v NZ$200M indicated in 2.75% April 2025 bonds, avg yield 2.5632% v 2.6218% prior, bid to cover 3.99x v 3.02x prior

Other Asia

• (SG) SINGAPORE Q1 FINAL GDP Q/Q: 1.7% V 1.6%E; Y/Y: 4.4% V 4.4%E; Narrows higher 2018 GDP outlook to 2.5-3.5% (prior 1.5-3.5%)
• (ID) Indonesia Central Bank Gov Warjiyo: Has purchased ~IDR50T in government bonds year to date; Short-term priority is to stabilize Rupiah currency (IDR)
• (ID) Indonesia said to price ¥100B in 3, 5, 7 and 10-year samurai bonds
• (IN) India said to raise import duty on wheat to 30% from 20%
• (MY) On Wednesday, it was reported that Malaysia's former government was said to have used the central bank to pay the debt of the country's 1MDB fund (US financial press)
• (PH) Philippines Central Bank (BSP) Chief Espenilla: Further decline in FX reserves won't hurt economy

North America

• US equity markets ended higher: Dow +0.2%, S&P500 +0.3%, Nasdaq +0.6%, Russell 2000 +0.2%
• S&P500 Utilities +0.9%, Real Estate +0.8%
• (US) US President Trump: Confirms has given Commerce Dept the order to consider probe on auto imports under Section 232 review (as speculated)
• (US) FOMC MINUTES FROM MAY 2ND MEETING: FEDERAL FUNDS RATE COULD REACH NEUTRAL LEVEL 'BEFORE TOO LONG' IF RATE HIKES CONTINUED; OFFICIALS SAW TRADE AND FISCAL POLICIES AS SOURCES OF UNCERTAINTY
• (US) DOE CRUDE: +5.8M V -2ME

Europe

• (UK) UK PM May said to ask EU for new Brexit transition until 2023 - UK Press
• (IT) Italy Pres Mattarella gives PM mandate to Giuseppe Conte; asks Conte to form govt (as expected)
• (EU) China Premier Li comments ahead of Germany Chancellor Merkel's trip to China: Notes 'huge' potential for China-Germany cooperation
• (EU) China MOFCOM Spokesperson Gao: 20 corporate executives from Germany are traveling with Chancellor Merkel to China
• (EU) ECB's Coeure (France): Euro area expansion is strong and broad-based; ECB not too concerned about recent economic slowdown; Too early to comments on Italy govt spending plans
• Paddy Power Betfair [PPB.UK]: Announces combination of Betfair US with FanDuel; to contribute its existing US assets along with $158M in cash
• DB Finalizes equities business review; to reduce headcount in this area by ~25%

Levels as of 02:00ET

• Hang Seng 0.0%; Shanghai Composite -0.3%; Kospi -0.2%
• Equity Futures: S&P500 -0.2%; Nasdaq100 -0.2%, Dax -0.2%; FTSE100 -0.1%
• EUR 1.1713-1.1691; JPY 110.04-109.33; AUD 0.7574-0.7542;NZD 0.6937-0.6906
• Jun Gold +0.4% at $1,294/oz; Jul Crude Oil -0.4% at $71.56/brl; Jul Copper 0.0% at $3.07/lb

Daily Pivots: (S1) 1.1652; (P) 1.1721 (R1) 1.1766; More....

Intraday bias in EUR/USD remains on the downside for the moment. Current decline from 1.2555 would target 50% retracement of 1.0339 to 1.2555 at 1.1447 next. Though, considering bullish convergence condition in 4 hour MACD, break of 1.1829 minor resistance will suggest short term bottoming. And, lengthier consolidation would be seen in this case, before staging another fall.

In the bigger picture, current development suggests that EUR/USD was rejected by 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. And, a medium term top was formed at 1.2555 already. Decline from there should extend further. Break of 38.2% retracement of 1.0339 to 1.2555 at 1.1708 will pave the way to 61.8% retracement at 1.1186. For now, even in case of rebound, we won't consider the fall from 1.2555 as finished as long as 55 day EMA (now at 1.2076) holds.

Daily Pivots: (S1) 1.3289; (P) 1.3366; (R1) 1.3427; More...

Intraday bias in GBP/USD remains on the downside with 1.3441 minor resistance intact. Current fall from 1.4376 is still in progress for 50% retracement of 1.1946 to 1.4376 at 1.3161. Break will target 61.8% retracement at 1.2874. On the upside, 1.3441 minor resistance will turn intraday bias neutral and bring consolidation first, before staging another decline.

In the bigger picture, current development suggests that whole medium term rebound from 1.1936 (2016 low) has completed at 1.4376 already, with trend line broken, on bearish divergence condition in daily MACD, after rejection from 55 month EMA (now at 1.4249). 38.2% retracement of 1.1936 (2016 low) to 1.4376 at 1.3448 should now be firmly taken out. Next target will be 61.8% retracement at 1.2874 and below. Outlook will stay bearish as long as 55 day EMA (now at 1.3761) holds, even in case of strong rebound.

Daily Pivots: (S1) 0.9908; (P) 0.9944; (R1) 0.9993; More...

USD/CHF recovered to 0.9977 and breached 0.9956 minor resistance. But there was no follow through buying. Hence, intraday bias is turned neutral first. On the downside, below 0.9892 will extend the corrective fall from 1.0056. But we'd expect strong support from trend line (now at 0.9825) to contain downside and bring rebound. On the upside, above 0.9977 will suggest that the pull back is finished and bring retest of 1.0056 high.

In the bigger picture, medium term decline from 1.0342 has completed with three waves down to 0.9186. Rise from there is currently viewed as a leg inside the long term range pattern. Hence, while further rally would be seen, we'd be cautious on strong resistance from 1.0342 to limit upside. For now, further rise is expected as long as 38.2% retracement of 0.9186 to 1.0056 at 0.9724 holds.

Daily Pivots: (S1) 109.44; (P) 110.19; (R1) 110.83; More...

USD/JPY's decline from 111.39 extends to as low as 109.32 so far and there is no sign of bottoming yet. Intraday bias stays on the downside for 108.82 cluster support (38.2% retracement of 104.62 to 111.39 at 108.80). We'd expect strong support from there to contain downside and bring rebound. On the upside, above 110.32 minor resistance will argue that the pull back is completed. And, in that case, retest of 111.39 high should be seen. But, decisive break there is now needed to confirm rally resumption. Otherwise, more corrective trading would be seen in near term.

In the bigger picture, corrective decline from 118.65 (2016 high) has completed with three waves down to 104.62. Rise from 104.62 is possibly resuming the up trend from 98.97 (2016 low). This will be the preferred case as long as108.82 support holds. Decisive break of 114.73 resistance will confirm our view and target 118.65 and above. However, decisive break of 108.82 will dampen the bullish outlook and revive the case of a break of 104.62 low before bottoming.

Daily Pivots: (S1) 1.1584; (P) 1.1644; (R1) 1.1706; More....

Intraday bias in EUR/CHF remains on the downside with 1.1668 minor resistance intact. Current fall from 1.2004 should target key support level at 1.1445. We'd expect strong support from here to bring rebound, at least, on first attempt. On the upside, above 1.1668 minor resistance will turn bias neutral and bring consolidations first, before staying another fall.

In the bigger picture, current development suggests solid rejection by prior SNB imposed floor at 1.2000. Considering bearish divergence condition in daily MACD, 1.2004 could be a medium term top. And price action from 1.2004 is correcting the up trend from 1.0629. Hence, for now, deeper fall could be seen back to 1.1445, which is close to 38.2% retracement of 1.0629 to 1.2004 at 1.1479. We'd expect strong support from there to bring rebound to extend the medium term corrective pattern.

Daily Pivots: (S1) 145.59; (P) 147.31; (R1) 148.68; More...

A temporary low is in place at 145.93 after breaching 147.04 resistance. Intraday bias in GBP/JPY is turned neutral first, for some consolidations. but upside of recovery should be limited well below 149.99 resistance to bring fall resumption. Below 145.93 will target 144.97 low first. Break there will resume the fall from 156.59 and target 100% projection of 156.59 to 144.97 from 153.84 at 142.22 next.

In the bigger picture, for now, we're treating price actions from 156.59 as a corrective move. Therefore, while deeper fall is expected, strong support should be seen above 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47) to contain downside and bring rebound. There is still prospect of extending the rise from 122.36. However, considering that GBP/JPY failed to sustain above 55 month EMA (now at 153.94), firm break of 139.29 will confirm trend reversal and turn outlook bearish.

Daily Pivots: (S1) 127.71; (P) 129.27; (R1) 130.32; More....

EUR/JPY's decline continues today and reaches as low as 127.96 so far. 61.8% projection of 137.49 to 128.94 from 133.47 at 128.18 is met but there is no sign of bottoming yet. Intraday bias remains on the downside for 126.61 medium term fibonacci level. We'll be aware of strong support from 126.61 to contain downside and bring rebound. On the upside, above 129.05 minor resistance will turn intraday bias neutral first. But near term outlook will stay bearish as long as 131.34 resistance holds.

In the bigger picture, for now, price actions from 137.49 are viewed as a corrective pattern only. Hence, while deeper decline would be seen, strong support is expected at 38.2% retracement of 109.03 to 137.49 at 126.61 to contain downside and bring rebound. Up trend from 109.03 (2016 low) is expected to resume afterwards. Though, sustained break of 126.61 will be an important sign of trend reversal and will turn focus to 124.08 resistance turned support.

Yen strengthens broadly today and remains the strongest one for the week. New wave of risk aversion trades was triggered by news that US President Donald Trump is using national security as excuse again to study imposition of tariffs on import cars. Nikkei closed down -1.11% at 22437.01 as car maker shares led the markets down. Due to risk aversion, Swiss Franc is also trading generally firmer today, following Yen.

Sterling turned mixed after yesterday's selloff and it will face another data test in UK retail sales today. The Pound remains the weakest one for the week. Euro also turned mixed as markets await ECB meeting accounts. Based on recent comments from ECB officials, the central bank is still on course to end the asset purchase program this year. The meeting accounts could affirm this view and provide some support to the Euro.

Technically, 3.000 in 10 year US treasury yield will remain a key level to watch today. TNX was held above this level throughout regular trading session overnight, despite dipping to as low as 3.003. But in Asian session, TNX dipped to as low as 2.978, before climbing back above 3.007 in early European session. Renewed decline in TNX would push USD/JPY lower.

Trump mulls car tariffs on national security ground

Sentiments are hurt by news that the US is considering to impose as much as 25% tariffs on import cars. Similar to steel and aluminium tariffs, national security is used as the excuse for the investigation under Section 232 of the Trade Expansion Act of 1962.

Commerce Secretary Wilbur Ross said in a statement that "there is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry." And, the department will "conduct a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security."

In a separate statement, Trump said: "core industries such as automobiles and automotive parts are critical to our strength as a Nation."

Some see the the car tariffs as a threat to force concessions in NAFTA talks, which has been in deadlock. This could also be an act to address pressure to EU, in particular on Germany for trade talks. But Japan could be the hardest hit if the tariffs are implemented. Japan is one of the few top 10 steel importers to the US who's not even granted a temporary exemption.

In 2017, US imported 8.3m vehicles, including 2.4 million from Mexico, 1.8 million from Canada, 1.7 million from Japan, 0.9m from South Korea and 0.5m from Germany.

Revisiting Japan April trade data as US threats car tariffs

In response to Trump's probe on auto tariffs, Japanese Chief Cabinet Secretary Suga noted that Japan is closely monitoring the situation and emphasized that any trade steps should be in accordance with WTO rules. Trade Minister Seko said the potential auto tariffs are regrettable and warned that the would cause confusion in the global economy.

As a recap on recent Japanese trade statistics, the Finance Ministry reported JPY 626B surplus in April, up 30.9% from a year ago. Exports jumped 7.8% to JPY 6.8T, up fro the 17th straight months. Import rose 5.9% JPY 6.2T.

Japan's trade surplus with the US rose 4.7% to JPY 616B as export rose 4.3% and import rose 3.9%.

Transport equipment is a major contributor to the export to US, and overall export growth in April. Total transport equipment contributed to 39.4% of exports to the US and grew 5.3% to JPY 507B. Motor vehicles was a large part, at 30.2% of total exports to the US, grew 10.0% to JPY 389B. Despite the steel and aluminum tariffs, iron and steel products exports to the US rose 13.7% in April to JPY 18.2B.

FOMC's May Minutes Shows Some Dovish Tweaks

The FOMC minutes for the May meeting contain some dovish signs from the Fed. The members remained confident over the economic developments, acknowledging strong employment market and improvement in inflation. However, many of them remained wary of limited wage pressures.

The minutes emphasized "the aim of keeping inflation near its longer run symmetric objective", suggesting that a certain degree of inflation overshoot would be tolerable. This signals that the rate hike pace might not need to accelerate to catch up with inflation.

Meanwhile, the Fed appeared to have confirmed that a June rate hike is in place. Yet, it made no indication on the path after that. This came in contrast with market speculations which have overshot three hikes already.

More in FOMC's May Minutes Shows Some Dovish Tweaks

North Korea warns US of nuclear-to-nuclear showdown

Right now, whether the scheduled meeting between North Korean leader Kim Jong-un and Trump on June 12 in Singapore remains uncertain. North Korean Vice Foreign Minister Choe Son-Hui issued a strong statement today in response to US Vice President Mike Pence's recent comments. Choe slammed Pence's unbridled and impudent remarks" that threatens if "if Kim Jong-un doesn't make a deal", North Korea could end up like Libya.

Choe added that "we will neither beg the US for dialogue nor take the trouble to persuade them if they do not want to sit together with us." And she warned, "whether the US will meet us at a meeting room or encounter us at nuclear-to-nuclear showdown is entirely dependent upon the decision … of the US."

She went further and said "we can also make the US taste an appalling tragedy it has neither experienced nor even imagined up to now." And, "as a person involved in the US affairs, I cannot suppress my surprise at such ignorant and stupid remarks gushing out from the mouth of the US vice-president,"

Earlier on Wednesday, Trump said "it could very well happen. Whatever it is, we'll know next week about Singapore. And if we go, I think it will be a great thing for North Korea."

German Merkel welcomed in her visit to China

German Chancellor Angela Merkel is having a fruitful visit to China. Chinese Premier Li Keqiang said, in joint appearance with Merkel, that "China's door is open" and welcome German vehicle makes to invest there. Li also pledged that "if they come across any problems during their investment, especially when it comes to legal protections, I can clearly tell you that China is striding forward to being a country with rule of law."Li also said China has always supported a unified and prosperous Europe and that China and Germany uphold free trade.

Besides, Li also noted "the euro is an important choice in our foreign currency reserves, and so we are continuing to buy European debt." And, "even when certain European countries had sovereign debt crises, China kept the broader picture in mind."

In addition, Merkel also secured the support from China on the current Iran nuclear deal, despite US withdrawal.

On the data front

New Zealand trade surplus came in wider than expected at NZD 253m in April. German GDP was finalized at 0.3% qoq in Q1, unrevised. German Gfk consumer confidence dropped 0.1 to 10.7 in June.

Looking ahead, UK retail sales and ECB meeting accounts are the main focus in European session. US will release jobless claims, house price index and existing home sales later today.

EUR/JPY Daily Outlook

Daily Pivots: (S1) 127.71; (P) 129.27; (R1) 130.32; More....

EUR/JPY's decline continues today and reaches as low as 127.96 so far. 61.8% projection of 137.49 to 128.94 from 133.47 at 128.18 is met but there is no sign of bottoming yet. Intraday bias remains on the downside for 126.61 medium term fibonacci level. We'll be aware of strong support from 126.61 to contain downside and bring rebound. On the upside, above 129.05 minor resistance will turn intraday bias neutral first. But near term outlook will stay bearish as long as 131.34 resistance holds.

In the bigger picture, for now, price actions from 137.49 are viewed as a corrective pattern only. Hence, while deeper decline would be seen, strong support is expected at 38.2% retracement of 109.03 to 137.49 at 126.61 to contain downside and bring rebound. Up trend from 109.03 (2016 low) is expected to resume afterwards. Though, sustained break of 126.61 will be an important sign of trend reversal and will turn focus to 124.08 resistance turned support.

Economic Indicators Update

German Chancellor Angela Merkel is having a fruitful visit to China. Chinese Premier Li Keqiang said, in joint appearance with Merkel, that "China's door is open" and welcome German vehicle makes to invest there. Li also pledged that "if they come across any problems during their investment, especially when it comes to legal protections, I can clearly tell you that China is striding forward to being a country with rule of law."Li also said China has always supported a unified and prosperous Europe and that China and Germany uphold free trade.

Besides, Li also noted "the euro is an important choice in our foreign currency reserves, and so we are continuing to buy European debt." And, "even when certain European countries had sovereign debt crises, China kept the broader picture in mind."

In addition, Merkel also secured the support from China on the current Iran nuclear deal, despite US withdrawal.