BONDS: NZGBS: Closed Subdued Session Modestly Cheaper

Oil prices have defied the pullback in risk appetite from the increase in trade tensions and have rallied in relief that OPEC increased output as expected. There had been fears that it would be larger than the previous rises. The increase in geopolitical friction may also be providing some support with the relaxation of sanctions against Russia looking unlikely anytime soon. 

• WTI has trended higher through the session and is up 2.8% to $62.50/bbl, close to the intraday high of $62.70, holding around initial resistance at $62.54, 50-day EMA. Brent is 2.5% higher at $64.33/bbl after reaching $64.49 earlier (50-day EMA $65.41). The USD index is down 0.1%.
• OPEC agreed on Saturday to increase output 411kbd from July, the third increase of this size which is believed to be a message to overproducers. Apparently Russia, Oman and Algeria wanted a pause in output normalisation, according to Bloomberg. The next meeting is on July 6.
• Bloomberg reported that Morgan Stanley expects OPEC to increase production three more times. It is forecasting Brent to average $57.50 in H2 2025 and $55 in H1 2026. Goldman Sachs though is forecasting only one more output rise. They both continue to project excess supply.
• Ukraine attacked Russian airbases with drones destroying at least 40 bomber planes, according to the BBC. It appears to be in response to larger Russian attacks on Ukraine including Kyiv. Talks are due to take place today.
• Later the Fed’s Logan, Goolsbee and Chair Powell appear as well as ECB President Lagarde, BOE’s Mann & Greene. US May manufacturing PMI/ISM and April construction and European May manufacturing PMIs print. The focus this week will be on Friday’s US payrolls. 

With China closed today, it was left to the Hang Seng to give an indication as to sentiment and it was definitely a risk off day.  With uncertainty prevailing around the trade war, the US President had said over the weekend that China had violated a big part of the agreement made in Geneva whilst China hit back Beijing called on the US to correct 'discriminatory' measures and uphold the consensus reached in Geneva.  Adding further to the uncertainty is the news of further tariffs on steel and aluminium and plans to target China's tech sector.  

• With mainland bourses closed, the Hang Seng had centre state and fell  -2.20%to be the worst performer out of its regional peers.  
• The KOSPI had tried to rally early on but that faded away to be down by -0.35%.  
• In Singapore the FTSE Straits Times fell by -0.50% whilst the PSEi in the Philippines was one of the few gainers, up +0.35%
• After a negative week last week, the NIFTY 50 in India is opening weak again, down -0.65% despite better than expected GDP figures out for Q1.  

The BBDXY has had a range of 1213.45 - 1216.54 in the Asia-Pac session, it is currently trading around 1215. MNI: Italy Eyes Transition To New NATO Target-Treasury Sources: The Italian government is confident that changes in both European Commission and NATO frameworks will allow for a smoother transition towards a higher defence spending target expected to be announced after the transatlantic summit on June 24, Treasury sources told MNI. Rome believes that a defence spending target of 5% of GDP – a figure currently circulating in policy discussions – would be “almost impossible to meet” given the country’s tight public finances. MNI SOURCES: ECB Set To Lower 2026 Inflation Projection: The European Central Bank is likely to lower its inflation projection for 2026 to 1.7% or 1.8% in its June exercise, one or two tenths below the 1.9% seen in March, Eurosystem sources told MNI, adding that there could be a pause in rate cuts after a further 25-basis-point reduction next week.

• EUR/USD -  Asian range 1.1347 - 1.1382, Asia is currently trading 1.1365. EUR has drifted higher during the Asian session as US stock futures trade weaker. Dips should continue to find support, the demand back towards 1.1200 proved to be solid last week.
• GBP/USD - Asian range 1.3454 - 1.3506, Asia is currently dealing around 1.3490. The GBP could not hold above the pivotal 1.3500 area last week, the market is likely to give it another try. Look for an opportunity to buy again back towards the 13300/3400 area.
• USD/CNH - Asian range 7.2016 - 7.241, Asia is currently dealing around 7.2170. Sellers should be around from here all the way back to the 7.2500 area. 
• Cross asset : SPX -0.45%, Gold $3315, US 10-Year 4.41%, BBDXY 1215, Crude oil $62.47
• Data/Events : Spain, Italy, Germ, France, ECB HCOM Manu PMI’s