GBP Strengthens On Report UK Will Stay In Customs Union Beyond 2021

General Trend:

• Asian equities trade mixed
• Hang Seng pares 1% gain amid post earnings trade in Tencent and various ex-dividends
• USD trades generally weaker in Asia
• The pound (GBP) outperforms: Reportedly, the UK plans to tell EU it is prepared to stay in a customs union beyond 2021, says the London Telegraph
• Australia April unemployment rate hits 9-month high, as participation rate rises; Employment increase continued recent slowing of jobs growth (Australia Stats Agency)
• New Zealand sees higher budget surpluses in budget statement; raised bond issuance plans for FY18/19, FY19/20 and FY20/21; Kiwi gains, bond yields move higher
• US and China trade talks in focus
• Japan government downplays press report regarding possible retaliatory trade measures vs. US
• China said to set standards on implicit debt definition amid recent questions about implicit guarantees for local government debt
• Australia 3-month bank bill rate rises for the first time since mid-April
• Fitch: In China, the shift in credit cycle is coinciding with a peak in corporates’ domestic bond refinancing needs
• Singapore exports to China recover in April
• South Korea 3-year bond yields decline after cautious comments from BoK Chief
• South Korea plans to sell additional 50-year bonds following issuance in March
• Indonesia Central Bank is expected to raise rates by 25bps at meeting later today (would be first hike since late 2014)
• Japan April CPI data due for release on Friday

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened +0.1%, closed -0.4%
• ASX 200 REIT index -1.1%, Financials -0.6%, Utilities -0.6% ; Resources +0.8%, Energy +0.2%
• (NZ) NEW ZEALAND Q1 PPI INPUT Q/Q: 0.6% V 0.9% PRIOR; PPI OUTPUT Q/Q: 0.2% V 1.0% PRIOR
• (AU) Australia 3-month bank bill fixed 1.9200% v 1.9000% prior (first rise since mid-April)
• (AU) Australia May Consumer Inflation Expectation: 3.7% v 3.6% prior
• (AU) AUSTRALIA APR EMPLOYMENT CHANGE: 22.6K V 20.0KE; UNEMPLOYMENT RATE: 5.6% V 5.5%E
• Treasury Wine Estates,[-8.6%], TWE.AU Said to be facing an over supply issue on some brands in China – AFR; Responds to press: comfortable with operating model in China, have some delays in shipments clearing China
• Kidman Resources [KDR.AU] announced lithium supply agreement with Tesla
• (NZ) NEW ZEALAND RELEASES ANNUAL BUDGET: Total budget for period NZ$11.4B, NZ$2.8B/yr on avg; total new capital investment in budget NZ$3.8B; raises bond issuance
• (NZ) Moody’s: New Zealand budget shows commitment to strong public fiscal prudence

China/Hong Kong

• Shanghai Composite opened 0.0%, Hang Seng +1%
• Hang Seng Financials index -1.1%, Property/Construction -0.7%, Materials -0.3%; Info Tech +3.9% (Tencent +4.8%)
• (CN) China can ease credit on private companies to help with debt payments – Chinese Press
• (CN) China said to set standards on implicit debts definition – Chinese press; Reminder: China credit spreads had hit the widest level in about 2 years amid new regulations that raised questions about implicit guarantees on debt linked to local governments.
• (CN) Fitch: Bond refinancing risk is rising for corporates in China, notes tightened credit conditions and gov’t efforts to contain leverage
• (CN) China PBoC sets yuan reference rate at 6.3679 v 6.3745 prior
• (CN) China PBoC Open Market Operation (OMO): Injects CNY50B in 7-day and 14-day reverse repos v CNY260B injected with 7-day and 14-day reverse repos prior; Net: CNY30B injection v CNY200B injection prior
• (CN) China Apr Foreign Direct Investment (FDI) YTD y/y: +0.1% v 0.5% prior
• Tencent, [+7%], 700.HK Reports Q1 (CNY) Net 23.3B v 17.4Be; Rev 73.5B v 70.8Be
• (HK) HKMA purchases to defend HK$ peg have reached HK$9.499B
• (CN) China said to plan to end purchase tax breaks for ~320 NEV models – US financial press
• (CN) China President Xi Top Economic Adviser Liu He meets with US lawmakers as part of trip to Washington D.C: Liu He says China and US should view trade issues ‘objectivley’. – Xinhua

Japan

• Nikkei 225 opened +0.5%; closed +0.5%
• Topix Iron & Steel index +1.2%, Marine Transportation +0.6%
• Megabanks trade generally higher
• (JP) JAPAN MAR CORE MACHINE ORDERS M/M: -3.9% V -3.0%E; Y/Y: -2.4% V +0.3%E
• (JP) Japan Investors Net Buying of Foreign Bonds: +¥827.0B v -¥363.7B prior week; Foreign Net Buying of Japan Stocks: +¥126.3B v -¥0.3B prior week
• (JP) Japan said to inform WTO about retaliatory steps related to US tariffs – Japanese Media
• (JP) Follow Up: Japan said to be considering retaliatory tariffs against the US totaling $409M; Measures would be the equivalent value to duties imposed by US via its tariffs – NHK
• (JP) Japan MoF sells ¥2.0T v ¥2.0T indicated in 0.10% (prior 0.10%) 5-yr bonds; avg yield -0.1030% v -0.1200% prior; bid to cover 4.22x v 4.40x prior

Korea

• Kospi opened +0.4%
• (KR) South Korea Ministries said to have discussed measures to increase transparency related to FX policy
• (KR) South Korea Fin Min Kim: Employment market continues to be difficult
• (KR) South Korea: Not reviewing changing FX intervention disclosure period; disclosing FX intervention has little impact on market
• (KR) Bank of Korea Gov Kim: Difficult to be optimistic about the economy, sluggish employment is a concern domestically

Other Asia

• (MY) Malaysia Q1 GDP Q/Q: 1.4% v 0.9% prior; Y/Y: 5.4% v 5.6%e
• (MY) Malaysia Finance Ministry: To restore sales tax in near-term, to introduce sales and services tax [Reminder: Earlier this week, it was reported that the new Malaysia government might revise the goods and services tax (GST) from 6% to 0%]
• (MY) Moody’s: Malaysia removal of GST is a credit negative if there are no offsets
• (SG) Singapore Apr Non-Oil Domestic Exports M/M: 6.5% v +0.8%e; Y/Y: 11.8% v +7.3%e; Electronic Exports Y/Y: -6.9% v -7.5% prior; Balance of Trade $6.0B v $5.5B prior
• Singapore Telecom, STEL.SG Reports Q4 (S$) underlying net 807M v 820Me; EBITDA 1.24B v 1.2Be; Rev 4.3B v 4.3B y/y
• (SL) Sri Lanka Central Bank: To curb unwarranted depreciation of Rupee currency (LKR)

North America

• US equities markets ended higher: Dow +0.3%, S&P500 +0.4%, Nasdaq +0.6%, Russell 2000 +1%
• S&P 500 Materials +1.2%
• (US) Fed Williams: not concerned about the yield curve yet or inflation; do not expect prices to jump
• (US) Fed’s Bullard (dove, non-voter): Additional rate hikes may depress inflation expectations; Fed action that inverts yield curve is a very negative sign
• (US) Fed’s Bostic (voter, dove): Repeats 2-4 rates hikes this year is correct; Personally I am at 3 rate hikes this year due to the additional stimulus
• (US) US Trade Rep Lighthizer said to be not optimistic on an imminent agreement related to NAFTA – US Press
• (US) Trump Lawyer Giuliani said Special Counsel Mueller told Trump’s legal team he would follow DoJ guidance that a president cannot be indicted; Giuliani suggested that the DoJ can only write a report, as they cannot indict. – CNN
• (US) DOE CRUDE: -1.4M V -0.5ME

Europe

• (UK) Reportedly UK plans to tell EU it is prepared to stay in a customs union beyond 2021 – Telegraph
• (UK) UK trade body EEF: Customs plan backed by Johnson has major flaws – FT
• (UK) Former Reserve Bank of India (RBI) Gov Raghuram Rajan said he will not apply for BoE Governor position – FT
• Mothercare [MTC.UK]: With chairman Parker gone, former CEO Newton-Jones expected to be brought back on board as the company announces its results and a CVA that will see it close 50 doors in the next year – UK press
• Telecom Italia [TIT.IT]: Reports Q1 EBITDA €1.8B v €2Be, Rev €4.7B v €4.7Be

Levels as of 02:00ET

• Hang Seng -0.1%; Shanghai Composite -0.2%; Kospi -0.3%
• Equity Futures: S&P500 +0.0%; Nasdaq100 -0.1%, Dax +0.0%; FTSE100 -0.1%
• EUR 1.1805-1.1837 ; JPY 110.08-110.40 ; AUD 0.7509-0.7548 ;NZD 0.6895-0.6937
• Jun Gold -0.0% at $1,291/oz; Jun Crude Oil +0.3% at $71.69/brl; Jul Copper +0.1% at $3.08/lb