Bulletin Headline Summary from RanSquawk

• Summit between Trump and Kim ends
• UK front-bencher resigns ahead of House of Commons EU Withdrawal Bill vote
• Looking ahead, highlights include, US CPI, APIs and UK House of Commons debates EU Withdrawal Bill

Markets shrugged off the the much anticipated historic” Singapore summit, with the global stock rally fading, US futures and Asian currencies falling amid a buoyant dollar, and the S. Korea won reversing an earlier gain after the Trump-Kim summit didn’t result in any major breakthroughs and culminated with a document signed by the two leaders including unspecified security guarantees and a vague, unenforceable denuclearization commitment.

“Despite the historic event, the markets haven’t moved much because they’ve already discounted the risk of military conflict,” Goldman’s co-head of Korea research Goohoon Kwon told Bloomberg Television. What’s more important going forward is the “follow-through, execution, implementation” of any agreements, he said.

There is some doubt about that: none other than Iran was quick to troll the US and warn North Korea that the agreement isn’t worth the paper it was signed on:

• IRAN GOVERNMENT SPOKESMAN WARNS NORTH KOREA THAT TRUMP COULD CANCEL THEIR AGREEMENT BEFORE RETURNING TO WASHINGTON – IRNA

Commenting on the overnight session’s muted trading, Bloomberg notes that “markets are waiting for bigger things” with most asset classes remained within tight ranges. The big surprise was the lack of any real reaction to any of the Trump/Kim summit.

As Bloomberg also notes, there was never much prospect of the U.S.-North Korea summit triggering a large market reaction, except perhaps in the event of a shock outcome. A seemingly certain Federal Reserve rate increase on Wednesday, plus the prospect of a hawkish ECB tilt on Thursday, tease far more concrete developments for traders.

Meanwhile the relief rally in BTPs continues, with the spread against bunds continuing to tighten from blow-out levels seen previously.  European equity markets initially open higher before fading back to flat, mining stocks underperform; defensive sectors such as utilities support. Crude and metals markets also relatively flat

Europe’s Stoxx 600 Index opened higher, but pared its advance after modest gains for many Asian gauges failed to ignite the MSCI Asia Pacific Index, with mining stocks underperforming. S&P 500 futures were flat after posting another increase on Monday. Safe-haven assets including the yen and gold slipped in the aftermath of the Singapore agreement.

The pound reversed a decline before Theresa May’s landmark Brexit legislation goes to Parliament, after data showed a surprise moderation in the pace of wage growth.

As a reminder, today the UK faces a historic vote on Brexit, with PM May reportedly heading off a Conservative rebellion ahead of today’s key Brexit vote by reaching out to Remainers in her party according to the Telegraph. Furthermore, UK Brexit Secretary Davis is said to back deal to buy-off Tory rebels on both wings of the party ahead of the EU Withdrawal Bill vote in the UK’s lower house. UK solicitor general Baker that the government is discussing with lawmakers the replacement of an Upper House amendment on EU’s customs union and that it is appropriate to have a customs arrangement with the EU. UK Conservative MP Grieve said to have tabled a compromise amendment on the Brexit deal and would likely rebel if it is rejected. However, UK government sources indicated that they have no intention of backing MP Grieve’s amendment to try to buy off rebels over the meaningful vote. In other words, look for more sterling drama in just a few hours.

Ahead of the Fed announcement tomorrow, today we will get a critical CPI print: the consensus today is for a +0.2% mom core and headline print. The former is also expected to nudge up one-tenth to +2.2% yoy. That +0.2% monthly consensus estimate should be fairly familiar as this is now the 32nd consecutive month that we’ve had such a forecast on the street. For those wondering, only 17 of them have proven to be correct with most missing on the downside. Deutsche economists expect the core to come in at +0.2% as they anticipate some payback from unusual weakness last month in categories such as airfares as well as new and used vehicles. In fact, the German bank expects the annual rate to rise to +2.3% yoy which would be the highest since January 2017. All that to look forward to later.

Putting the Korean drama in the rearview mirror, the dollar was little changed as investors turned their attention toward today’s CPI report and this week’s central bank policy meetings after the deal signed by the U.S. and North Korea was seen as a “sideshow” given the lack of specific commitments. The Bloomberg Dollar Spot Index erased an earlier advance to be steady on the day; Treasury 10-year yields held the gains from the previous two sessions and was at 2.96%

The yen drifted lower against all its Group-of-10 peers as the agreement still was seen as easing global tensions and reducing demand for haven assets. Norway’s krone rallied to a seven-month high against the euro after a survey by the central bank suggested growth outlook remains intact, strengthening the case for a rate hike after the summer

In other geopolitical news, the Russian deputy foreign minister says the nation will retaliate to the latest US sanctions.

In commodities, oil was unable to hold onto initial gains resulting from softer USD coming from the historic US-North Korean summit. WTI currently trading above the USD 66.00 handle, and Brent trading above the USD 76.00 level, with the fossil fuel flat on the day. In the metals scope, Gold is also seeing some follow through from an improved risk tone, with the yellow metal down 0.2% on the day. Steel is positive after two sessions in the red as price increases in large Chinese firms has offered support to the metal. Copper has shed losses earlier in the day and is  now up on the day as the metal is benefiting from the improved risk tone.

A handful of companies are set to report earnings, including Oxford Industries and John Wiley. On the macro side, data is expected on NFIB Small Business Optimism and on CPI.

Market Snapshot

• S&P 500 futures down 0.04% to 2,782.00
• STOXX Europe 600 up 0.03% to 388.05
• MXAP up 0.07% to 175.18
• MXAPJ up 0.1% to 574.11
• Nikkei up 0.3% to 22,878.35
• Topix up 0.3% to 1,792.82
• Hang Seng Index up 0.1% to 31,103.06
• Shanghai Composite up 0.9% to 3,079.80
• Sensex up 0.6% to 35,679.14
• Australia S&P/ASX 200 up 0.2% to 6,054.44
• Kospi down 0.05% to 2,468.83
• German 10Y yield rose 2.0 bps to 0.513%
• Euro up 0.2% to $1.1802
• Italian 10Y yield fell 28.9 bps to 2.569%
• Spanish 10Y yield rose 2.2 bps to 1.463%
• Brent Futures up 0.5% to $76.84/bbl
• Gold spot down 0.2% to $1,298.00
• U.S. Dollar Index down 0.1% to 93.50

Top Headline News from Bloomberg

• President Donald Trump and Kim Jong Un expressed optimism that the U.S. and North Korea could find a path toward peace, opening a highly anticipated summit between two adversaries that only last year had seemed on the brink of nuclear war
• The Fed will likely deliver an expected interest-rate increase on Wednesday but still has plenty of topics to dissect — from a falling unemployment rate to emerging-market pain
• Italian Finance Minister Giovanni Tria’s expression of commitment to the euro are “far-sighted and create confidence,” European Union Budget Commissioner Guenther Oettinger said
• German investor confidence tumbled to its lowest level since 2012 as U.S. trade tariffs and Italy’s political turmoil added to concerns that the economy is slowing. German Jun. ZEW Expectations: -16.1 vs -14.0 est; Current Situation 80.6 vs 85.0 est.
• The U.K. economy continued to create jobs faster than forecast, even though basic wage growth unexpectedly slowed. U.K. Apr. Average Weekly Earnings ex-bonus 2.8% vs 2.9% est; Unemployment Rate 4.2% vs 4.2%; Employment Change 146k vs 120k est.
• Brexit: vote today on whether Parliament can direct Brexit negotiations if final deal is rejected by MPs; pro-remain govt. rebels have put forward compromise amendment vs govt’s own compromise agreement; one govt minister resigns to join rebels
• IMF Managing Director Christine Lagarde said the risks to the global economy are rising as major industrial nations sharpen threats of a trade war
• Bond traders have their work cut out for them before they get to the pivotal event for U.S. financial markets this week — Wednesday’s announcement from the Federal Reserve. The Treasury is about to pack $193 billion of debt sales into the next two days. That potentially puts the onus on Wall Street to absorb the deluge if investors are reluctant to choke it down before the central bank’s decision
• Theresa May’s govt is in advanced talks to head off a rebellion by pro-European members of her Conservative Party, edging toward a deal on Brexit that could hold her divided party together through a week of perilous voting
• Irish Prime Minister Leo Varadkar said he won’t accept the return of a hard border on the island of Ireland after Brexit even if Britain crashes out of the European Union without a deal on its future relationship with the bloc
• Oil held gains near $66 a barrel as a divide between OPEC and allies deepened over whether to ease production curbs and sell more crude into global markets
• President Donald Trump’s top economic adviser, Larry Kudlow, was “doing well” on Monday night after suffering a “very mild heart attack,” a White House spokeswoman said
• U.K. Justice Minister Phillip Lee resigns and says he will vote with rebels on an amendment that would give Parliament the power to direct negotiations if lawmakers reject May’s Brexit deal

Asian equity markets mostly traded with modest gains following a similar performance on Wall St. and with focus fully centred on the historical summit between US President Trump and North Korean Leader Kim Jong Un. The meeting between the 2 leaders was seen as amicable in which the leaders shook hands several times and exchanged pleasantries, although the initial face-to-face was somewhat less awe-inspiring than that of the inter-Korean summit in April. In addition, after one-on-one discussions Trump suggested a ‘very very good, good relationship’ and Kim stated there will be challenges ahead but will work with US President Trump, although reports also noted that Kim refrained from answering questions on denuclearisation. ASX 200 (+0.2%) and Nikkei 225 (+0.3%) were positive with early outperformance seen in Japan amid a weaker currency, although some of the gains were pared due to pessimism that a swift agreement could be reached for the Korean peninsula. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (+0.9%) have swung between gains and losses alongside a broad tentative tone across the region and after a tepid liquidity effort by the PBoC. Finally, 10yr JGBs were subdued amid a lack of conviction in the region and with an enhanced liquidity auction for longer-dated bonds largely ignored, which showed slight decline in the bid to cover and tighter accepted spreads.

Top Asian News

• TV Maker Blames India’s Modi, Court and Brazil for Bad Debt Pile

European bourses are mixed (Euro Stoxx 50 -0.2%) after failing to hold onto initial gains spurred on by an improved risk sentiment in the wake of the Trump-Kim summit. The underperforming bourse is currently the FTSE (-0.2%) as a stronger GBP is pressuring the index amid reports that UK PM May has struck a compromise with Conservative rebels. Carrefour (+2.5%) is up on the news that Google will begin to sell their products online in France through their  platforms. This is offering support to the consumer staples sector, which is the current sector outperformer (+0.44%) Casino (+6%) is leading the gains in Europe after the co. announced an asset sale plan in order to reduce debt. Daimler has recalled 238,000 vehicles in Germany due to illegal emission device concerns; a total of 774,000 vehicles are affected in Europe.

Top European News

• U.K. Employment Rises More Than Forecast But Wage Growth Slows
• Euro Mauled by Political Risk Is Ready to Be Revived by Draghi
• May Seeks to Head off Rebellion With Hours To Go: Brexit Update
• ABB CEO Says U.S. Tariffs Put Jobs at Risk: FT

In currencies, the DXY index and Usd in general has drifted back from peaks seen in wake of the Trump-Kim meeting that climaxed in an historic signing of significant documents to herald a new dawn and more concerted pledge to work towards peace via denuclearisation. The DXY remains supported around 93.500, but off highs just shy  of 93.900 as attention shifts to US CPI ahead of the Fed. GBP – A marginal outperformer going in to the latest UK labour/wage data, which was somewhat mixed in the event, and only prompted a knee-jerk retreat in the Pound as the spotlight switches back to the Brexit vote amid reports that PM May has quelled a faction of Tory rebels. Cable currently holding close to 1.3400 and Eur/Gbp pivoting 0.8800 even though the single currency is firmer overall. NZD/CHF/EUR/AUD – All modestly firmer vs the Greenback with the Kiwi consolidating above 0.7000 and Franc still rangebound either side of 0.9850, while Eur/Usd is retesting offers and resistance at 1.1800 just above its 100 HMA (1.1786) and a band of option expiries from 1.1775-90 in 1.5 bn. Note, disappointing ZEW sentiment indicators sapped some of the single currency’s pre- ECB momentum. Aud/Usd has recovered 0.7600+ status after a dip on mixed Aussie data overnight (housing loans not as weak as forecast, but business sentiment and conditions both declined). JPY/CAD – The G10 laggards once again, with Usd/Jpy up through its 200 DMA (110.21) to test offers at 110.50 and Eur/Jpy absorbing residual supply at 130.00 to trip some 130.25 stops in wake of the Summit, while the  Loonie is still smarting from the G7 squabble between Trump and Trudeau and just holding off 1.3000+ lows vs its US rival.

In commodities, oil was unable to hold onto initial gains resulting from softer USD coming from the historic US-North Korean summit. WTI currently trading above the USD 66.00 handle, and Brent trading above the USD 76.00 level, with the fossil fuel flat on the day. In the metals scope, Gold is also seeing some follow through from an improved risk tone, with the yellow metal down 0.2% on the day. Steel is positive after two sessions in the red as price increases in large Chinese firms has offered support to the metal. Copper has shed losses earlier in the day and is  now up on the day as the metal is benefiting from the improved risk tone.

Looking at the day ahead, the big highlight in terms of data comes with the May CPI report. The May NFIB small business optimism reading and May monthly budget statement will also be out in the US. Prior to this in Europe we’ll get the June ZEW survey in Germany and April/May employment data in the UK including average weekly earnings. Meanwhile, UK Parliament is due to hold a 12-hour session on Brexit legislation with various amendments due.

US Event Calendar

• 6am: NFIB Small Business Optimism, est. 105, prior 104.8
• 8:30am: US CPI MoM, est. 0.2%, prior 0.2%; CPI Ex Food and Energy MoM, est. 0.2%, prior 0.1%
  • US CPI YoY, est. 2.8%, prior 2.5%; US CPI Ex Food and Energy YoY, est. 2.2%, prior 2.1%
• 8:30am: Real Avg Weekly Earnings YoY, prior 0.42%; Real Avg Hourly Earning YoY, prior 0.2%
• 2pm: Monthly Budget Statement, est. $139.5b deficit, prior $214.3b

DB’s Jim Reid concludes the overnight wrap

In the decades and centuries to come, will this date go down in history as a big turning point for the history of mankind, a date future generations can celebrate, a new beginning, and a day used to remember that one person can really make a big difference. Yes 44 years ago today I was born. On the more mundane subject of whether world peace gets a step closer today, President Trump and Kim Jong Un’s mission to Singapore seems to be off to a positive start, with Trump noting he had forged a “good relationship” with Kim, while Kim indicated “there will be challenges ahead” but he vowed to work with Trump. As we go to print Trump has declared that the meeting with Kim is “going great ”. We shall find out more at President Trump’s news conference at 4pm local time (9am London time).

Notably, Kim is scheduled to head back home at 2pm today. Meanwhile, earlier yesterday Secretary of State Pompeo reaffirmed that complete and irreversible denuclearisation is the “only outcome that the US will accept”, but unnamed US officials have told Bloomberg that Trump was willing to offer “unique guarantees” to North Korea to consummate a potential deal.

This morning in Asia, markets are trading modestly higher with the Nikkei (+0.42%), Hang Seng (+0.28%) and Shanghai Comp. (+0.46%) all up while the Kospi is broadly flat. Datawise, Japan’s May PPI print was well above consensus at 0.6% mom (vs. 0.2% expected) and 2.7% yoy will be out this afternoon and along with tomorrow’s PPI are the last big data prints that the Fed will have before their meeting. The consensus today is for a +0.2% mom core and headline print. The former is also expected to nudge up one-tenth to +2.2% yoy. That +0.2% monthly consensus estimate should be fairly familiar as this is now the 32nd consecutive month that we’ve had such a forecast on the street. For those wondering, only 17 of them have proven to be correct with most missing on the downside. Our US economists also expect the core to come in at +0.2% as they anticipate some payback from unusual weakness last month in categories such as airfares as well as new and used vehicles. Our colleagues actually expect the annual rate to rise to +2.3% yoy which would be the highest since January 2017. All that to look forward to later.

Also today and tomorrow we have the important parliamentary Brexit votes in the House of Commons. As DB Oli Harvey pointed out yesterday there are three important amendments to look out for. The first, amendment 4, requires the UK government to keep the UK in a customs union with the EU. The government could lose this vote, but as it is quite vaguely drafted, it’s not widely expected that this would prove fatal to May’s Brexit strategy. The second, amendment 7, requires the UK to remain in the EEA. A defeat here would be significant, but the government is less likely to lose as it’s not official Labour Party policy. The third, amendment 49, is probably the most important. This amendment gives more powers to Parliament over the final Brexit outcome. Most importantly, if Parliament rejects the government’s final deal (which it has to put before the Commons by 30th November), Parliament can effectively take over the Brexit negotiations. In these circumstances, the baseline is likely to be that the UK goes straight to a very soft Brexit due to the make-up of MPs being very pro remain. From a market perspective, a government defeat on amendment 49 could therefore either be very bullish or very messy. On the former, if the government loses the amendment and May continues, the tail risk of a hard Brexit would be substantially removed (if Parliament didn’t like the deal, it could instruct the government to go straight to EEA membership). On the latter, by losing the vote, hard Brexit MPs could trigger a vote of no confidence in May. If this was the case, the question is how much of the support of the Conservative Party May would lose. If only 30-odd MPs voted against her, she is likely to survive and be in a stronger position. If it was more like 80, May could resign and things could get very messy. The bottom line is that amendment 49 is the one to look out for. Baseline would be that government offers more concessions today and wins the vote. But if the outcome was more uncertain, the crucial vote is likely to occur on either Tuesday evening or Wednesday morning/lunchtime, based on the parliamentary schedule as it stands. Thanks again to Oli for guidance on the above.

Now recapping other markets performance from yesterday. The focus was on Italian risk assets which rallied after the country’s new Finance Minister noted the coalition was committed to remaining in the Eurozone and wanted to boost growth through structural reforms. The FTSE MIB jumped +3.42% while the banks index posted its biggest one-day gain in 13 months as Intesa (+6.6%) and Unicredit (+6.2%) both rallied. Meanwhile, the yields on 2y and 10y BTPs dropped 61.8bp and 28.9bp respectively, with the former now down to 1.02% vs. its recent peak of 2.64%. The risk on sentiment also lifted the Stoxx 600 (+0.73%) and credit markets (EU Main -3.3bp; iTraxx sub-Financial -13.9bp). Across the pond, the S&P pared back earlier gains to close marginally higher (+0.11%) as utilities and financials stocks.

Elsewhere core European government bonds weakened modestly with the yields on Bunds (+4.5bp) and Gilts (+1.6bp) both higher, while UST 10y were little changed (+0.6bp) after the Treasury Department successfully sold $54bln of 3y and 10y notes with solid investor demand. In FX, the US dollar index and Euro both firmed c0.1% while Sterling weakened -0.19% following softer than expected IP and manufacturing production prints. In commodities, WTI oil rose 0.55% to $66.10/bbl, in part as the Iraqi oil Minister al-Luaibi noted his disagreement with Saudi Arabia’s proposal to unwind oil output caps, while a key pipeline crack was thought to risk oil exports from Nigeria.

Away from the markets and onto some trade rhetoric, President Trump has fired off tweets to his G7 allies yesterday, noting that “fair trade is now to be called fool trade if it’s not reciprocal” and that “sorry, we cannot let our friends, or enemies, take advantage of us on trade anymore”. Meanwhile, IMF Managing Director Ms Lagarde has warned “the clouds on the horizon that we have signalled about six months ago are getting darker by the day” and that “the biggest and darkest cloud” over the global economy is the risk of deterioration of confidence “by attempts to challenge the way in which trade has been conducted….” Meanwhile, a spokesman for Germany’s Ms Merkel noted that EU retaliatory tariffs against the US are ready and can take effect from 1 July, but Germany remains ready to resolve the trade tensions via dialogue.

Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the UK, both the April IP and manufacturing production were below consensus, at -0.8% mom (vs. 0.1% expected) and -1.4% mom (vs. 0.3% expected) respectively. The latter represents the largest monthly decline since October 2012. DB’s Harvey noted that manufacturing is a relatively small part of the UK economy (10%) and so stronger demand in services could offset this, but does show that domestic demand needs to pick-up as the windfall from a strong external environment is fading. Elsewhere, the UK’s April trade deficit widened more than expected at -£5.3bln (vs. -£2.5bln expected), with exports down -3.2% mom. Over in France, the May Bank of France industrial sentiment index edged down 2pts mom to 100 (vs. 102 expected), which is the lowest reading since October 2016. Meanwhile, Italy’s April IP also fell more than expected to -1.2% mom (vs. -0.5% expected), slowing annual growth to 1.9% yoy.

Looking at the day ahead, the big highlight in terms of data comes in the afternoon in the US with the May CPI report. The May NFIB small business optimism reading and May monthly budget statement will also be out in the US. Prior to this in Europe we’ll get the June ZEW survey in Germany and April/May employment data in the UK including average weekly earnings. Meanwhile, UK Parliament is due to hold a 12-hour session on Brexit legislation with various amendments due.