UKRAINE: No Progress In Trump/Putin Call As Major Drone Attack Launched On Kyiv

EU Trade Commissioner Maros Sefcovic posts on X: "Had a productive and constructive discussion with [USTR Jamieson Greer] on the margins of the OECD Trade Ministerial. We're advancing in the right direction at pace - and staying in close contact to maintain the momentum." Following US President Donald Trump's announcement of a 50% tariff on the EU (delayed until 9 July), Sefcovic has pledged that calls would take place between EU and US teams at least every other day in order to try and reach an agreement. However, Trump's signing of a directive raising steel and aluminium tariffs to 50% as well as the 'reciprocal' tariffs could further muddy the waters. 

• Speaking on 3 June, European Commission trade spox Olof Gill claimed that technical-level talks on 2 June were "very constructive", but that the Commission "would not be providing a running commentary" on talks. 

• The USD Index remains either side of the 99.00 handle, but is holding the majority of the rally off lows yesterday. Despite this recovery, the dollar remains well inside the downtrend drawn off the mid-May highs, with the firm downward bias in the 50-dma cementing the recent momentum lower.
• EUR trades off the overnight lows, either side of 1.1400 headed into the NY crossover having failed to make progress above 1.1455 yesterday. A stabilisation in the long-end of the EGB curve is helping contain the currency, although trade tensions and the risk of headlines remain at the forefront. EU's Sefcovic this morning stated that talks with the US are going in the right direction "at pace" - however markets are growing increasingly used to the slow progress made in negotiations with the White House.
• Similarly, Trump posted overnight that the Chinese President Xi is "extremely hard to make a deal with" - hampering sentiment somewhat, but the lack of follow through for currency markets is the latest signal that expectations for a near-term breakthrough are limited.  
• The Bank of Canada rate decision takes focus going forward, with markets expecting no change on rates from the Bank although a not insignificant minority see risks of a further dovish tilt at the Bank. Markets see the BOC in a position to wait for further developments in the US-Canada trade dispute before pulling the trigger on further moves, incoming economic data have tilted toward a further hold. In particular, better-than-expected GDP and a pickup in core inflation should tilt the balance toward a hold.
• US ADP Employment Change is a calendar highlight, with the ISM services index for May set to follow. Markets continue to watch for any signals ahead of Friday's nonfarm payrolls print from the data, particularly in the context of yesterday's stronger-than-expected job openings numbers. Fed's Bostic & Cook are set to moderate a session at the Fed Listens event series.

• Spanish industrial production surprisingly fell -0.8% M/M in April (cons 0.0, INE index calculates at -0.85%) in seasonally and working day adjusted terms.
• It follows a 0.9% M/M increase in March although monthly changes are volatile.
• Production of consumer goods increased 1.0% M/M but capital (-0.5%) and intermediate (-0.7%) softened whilst energy (-5.5%) slumped.
• Looking through the monthly noise, IP only increased 0.6% Y/Y swda (-5.7% Y/Y in nsa terms, in part because of the later Easter this year) as the production trend remains bleak.
• Monday’s manufacturing PMI increased to 50.5 after three sub-50 readings including 48.1 in April, although even the 53-54 readings seen in most months through 2H24 only saw modest translation into positive IP growth trends.   
• The latest manufacturing PMI increase came in contrast to today's surprisingly weak service PMI earlier today at 51.3 (vs 52.9 cons, 53.4 prior) for the lowest in 18 months, with the latter potentially seeing some delayed impact from trade and broader uncertainty.
• The manufacturing report noted "several panellists noted a relative improvement in European and US demand, albeit still characterised by some hesitation in committing to new work amid the uncertain tariff outlook".