US equity futures dipped in the red, following European and Asian shares lower, amid renewed Iran tensions and trade jitters ahead of this week's G-20 meeting... ... while the risk of more easing from the Federal Reserve and its central bank peers inflated gold to six-year highs, its price surging as high as $1,440 and stoked demand for safe-harbor currencies like the yen and Swiss franc and pushed bitcoin to new highs. Investor mood soured overnight when in the aftermath of the latest US sanctions, this time targeting Iran's Supreme Leader Ayatollah Ali Khamenei and other top officials, Iran said the path to a diplomatic solution with the U.S. had closed. “The futile sanctions against the Iranian leader and the country’s chief diplomat mean the permanent closure of the diplomatic path with the government of the United States,” the Foreign Ministry’s spokesman, Abbas Mousavi, was quoted as saying by semi-official Iranian Students News Agency. “The Trump government is in the process of destroying all the established international mechanisms for maintaining global peace and security.” Treasury futures rose and most global stock markets slipped as the increasing Gulf tensions rattled investors. Oil steadied after rallying almost 8% in three days as investors weighed mixed signals from the White House on Iran and signs that an extension of the OPEC+ production cuts may not be assured. The move was a further concern for investors waiting anxiously to see if anything comes of Sino-U.S. trade talks later this week, with sentiment not helped after a senior U.S. official said president Donald Trump would be happy with “any outcome” from the trade talks with China, suggesting Trump was not in a concessionary mood. “Our view is that because of the very high global economic uncertainty markets have become very twitchy and can move a long way on not much news like Trump’s meeting with Xi at the G20,” Gerry Fowler, global multi-asset strategist at Aberdeen Standard Investments, told Reuters. “At the moment, the data looks okay but the sentiment has deteriorated and we expect that to continue in the second half of the year,” he added. As a result, the European STOXX 600 index fell 0.3%, with the technology sector bucking the trend on the back of Capgemini’s purchase of engineering and digital services company Altran for 3.6 billion euros ($4.10 billion). Capgemini shares rose 7% and those in rival SAP SE 0.3%, pushing the sector around half a percent up. Altran surged 21%. European pharma shares rose following news that Abbvie would acquire botox maker Allergan for $63 billion. Earlier in the session Asian stocks retreated, as Chinese banks led financials lower following a U.S. media report that some of them were involved in a probe on alleged violation of sanctions against North Korea. Most markets in the region fell, with China and Hong Kong driving losses. Japan's Topix closed 0.3% lower as the yen strengthened against the dollar and as investors weighed the latest developments surrounding Iran and U.S.-China talks. Sony and Daiichi Sankyo were among the biggest drags. The Shanghai Composite Index dropped 0.9%, snapping a six-day rising streak, with large banks and insurers dragging down the gauge. China Merchants Bank Co., Bank of Communications Co. and Shanghai Pudong Development Bank Co. fell in Shanghai and Hong Kong trading after the Washington Post said that a U.S. judge found three unidentified Chinese lenders in contempt for refusing to comply with subpoenas related to the probe. The S&P BSE Sensex Index advanced 0.7%, driven by Reliance Industries and HDFC Bank, as India is said to consider offering incentives to attract companies moving out of China. Japanese stocks were also spooked after Bloomberg reported President Donald Trump has recently mused to confidants about withdrawing from a longstanding defense treaty with Japan that he thinks treats the U.S. unfairly. Emerging-market stocks slipped while currencies were mixed as geopolitical tensions before the upcoming G-20 summit weighed on investor sentiment. The MSCI Emerging Markets Index of stocks fell by the most in more than a week, while its currency counterpart was little changed as the dollar steadied after five days of decline. South Africa’s rand gained, while the Hungarian forint was the biggest decliner versus the greenback ahead of a central-bank interest rate decision. “We continue to see a 75% chance that the summit will resume negotiations but also a 60% chance that the negotiations will fail,” said Eddie Cheung, a Hong-Kong based strategist at Credit Agricole. “The key in the near run is the detailed outcome of the presidents’ meeting, which we believe will be short-term positive for sentiment.” In rates, yields on 10-year Treasuries have dived 120 basis points since November and, at 1.99%, are almost back to where they were before Trump was elected in late 2016. German 10-year bund yields hit a new record low of 0.332%, down 2 basis points on the day. In FX, the dollar stabilized after falling for four sessions in a row against a basket of other currencies to stand at a three-month low of 95.989. “USD DXY now looks likely to break through the March low of 95.76 and below there 95.0,” said Tapas Strickland, a markets strategist at NAB. “The drivers here continue to be heightened expectations of the Fed cutting rates - now 3.1 cuts priced by years’ end,” he said, noting that a number of index trackers showed the dataflow from the United States was now showing more disappointing misses than Europe. The euro hit a three-month high of $1.1412, before retracing some gains having gained 2.0% from a two-week low of $1.1181 touched a week ago as the dollar has lost steam. It last stood at $1.1396. Against the safe-harbor yen, the dollar hit its lowest since the January flash crash at 106.79. Dealers also noted a report from Bloomberg that Trump had privately mused about ending the postwar defense pact with Japan. Against the Swiss franc, the dollar fell to its lowest in nine months and was last at 0.9755. In commodities, oil prices lost some ground on Tuesday, after rising sharply last week in reaction to tensions between the United States and Iran. Brent crude futures eased 0.4% to $64.58 while U.S. crude fell 0.3% to $57.75 a barrel Looking at today's events, there are no fewer than five Fed policy makers speaking on Tuesday, including Chair Jerome Powell, and markets assume they will stick with the recent dovish message. “It’s always possible the chair could walk back some of the market’s dovish interpretation of last week’s FOMC meeting...but we suspect he will reinforce the message laid out last week,” said Kevin Cummins, a senior U.S. economist at NatWest Markets. “By the end of July, we believe the Fed will have seen enough to decide that action to counter downside economic risks and low inflation/inflation expectations is warranted, and so we look for a 25 basis point rate cut at the next FOMC meeting.” For now, markets are running well ahead of that with futures pricing in a quarter-point easing and imply around a 40% chance of a 50bps move. Market Snapshot S&P 500 futures down 0.2% to 2,946.25 STOXX Europe 600 down 0.09% to 383.44 MXAP down 0.3% to 159.35 MXAPJ down 0.4% to 523.94 Nikkei down 0.4% to 21,193.81 Topix down 0.3% to 1,543.49 Hang Seng Index down 1.2% to 28,185.98 Shanghai Composite down 0.9% to 2,982.07 Sensex up 0.6% to 39,360.47 Australia S&P/ASX 200 down 0.1% to 6,658.03 Kospi down 0.2% to 2,121.64 German 10Y yield fell 1.0 bps to -0.317% Euro down 0.1% to $1.1385 Italian 10Y yield rose 0.5 bps to 1.791% Spanish 10Y yield fell 1.1 bps to 0.397% Brent futures down 0.1% to $64.79/bbl Gold spot up 0.8% to $1,430.39 U.S. Dollar Index little changed at 96.00 Top Overnight News from Bloomberg U.S. officials sought to play down expectations for a highly- anticipated meeting between President Donald Trump and China’s Xi Jinping this week, insisting the U.S. wasn’t prepared to compromise on its demands for meaningful Chinese economic reforms U.S. Trade Representative Robert Lighthizer spoke by phone with Chinese Vice Premier Liu He on Monday, a USTR spokesman said. President Trump plans to meet with Xi, Putin, Erdogan this week at G-20 Trump has recently mused to confidants about withdrawing from a longstanding defense treaty with Japan, according to three people familiar with the matter. He regards the accord as too one-sided because it promises U.S. aid if Japan is ever attacked, but doesn’t oblige Japan’s military to come to America’s defense Iran said the path to a diplomatic solution with the U.S. had closed after the Trump administration imposed sanctions against its supreme leader and other top officials, raising tensions days after the downing of an American drone brought the Middle East to the brink of war China banks dropped after the Washington Post reported they may face the fallout from a U.S. probe into North Korean sanctions violations. The lenders’ China-listed shares slumped as much as 8.5% on Tuesday, led by China Merchants Bank Co., which dropped the most since 2015 Boris Johnson, the favorite to succeed Theresa May as prime minister, said he believed the British Parliament would now support a no-deal Brexit, even as senior figures in his Conservative Party warned they had the numbers to stop him if he tried to push one through Fed Bank of Dallas President Robert Kaplan sounded a note of caution about cutting rates Oil slipped after rallying almost 8% in three days as investors weighed mixed signals from the White House on Iran and signs an extension of the OPEC+ production cuts may not be a fait accompli Asian equity markets followed suit to the lacklustre performance among global peers as geopolitical concerns remained in the limelight after the US announced fresh sanctions on Iran. ASX 200 (-0.1%) and Nikkei 225 (-0.4%) were subdued although losses in Australia were stemmed by strength in the miners amid continued gains across the metals complex, while Tokyo sentiment was clouded by a stronger currency. Hang Seng (-1.1%) and Shanghai Comp. (-0.8%) underperformed overnight after the PBoC continued to refrain from liquidity operations and due to ongoing trade uncertainty heading into the G20, while banks were among the worst hit in a continued fallout from the Baoshang Bank failure and Citic Securities also suggested domestic liquidity conditions could be volatile next month if PBoC citing increased corporate cash demand for tax payments. Finally, 10yr JGBs were slightly higher as they benefitted from the cautious sentiment and following similar gains in T-notes but with upside limited after a mixed 20yr JGB auction in which the b/c substantially retreated from the prior month’s record high. Top Asian News China Banks Drop After Report on Alleged North Korea Violations It May Just Be a Matter of Time Until Pig Plague Hits Thailand Nomura CEO Sheds Shareholder Votes En Route to Reappointment China’s Increasing Wealth Is Changing the Way People Die A relatively subdued start for European stocks [Eurostoxx 50 -0.3%] following on from a lacklustre performance in Asia amid geopolitical tensions, month/quarter/HY rebalancing and caution ahead of the G20 summit. Major bourses are mostly lower with no clear standouts. Sectors are largely mixed albeit some strength is seen in material names as copper rebounds and gold extends on 6yr highs. Thus, Anglo American (+0.6%), Rio Tinto (+1.0%), Fresnillo (+0.6%) shares are all supported. Looking at individual movers, Capgemini (+7.0%) shares spiked higher at the open after the Co. agreed to purchase Altran Technologies (+21.3%) in an attempt to tap into the engineering outsourcing services market. Meanwhile. KPN (-2.2%) shares declined following the announcement of its CEO’s departure. Finally, broker-driven movers include CRH Hansen (-2.1%), Telenor (-1.3%), and Iliad (-5.1%). AbbVie (ABBV) is looking to buy Allergan (AGN) for in excess of USD 60bln in a cash and stock deal, at USD 188 per share, according to WSJ. Top European News Merkel’s Furious Allies Vow to Stop Macron’s EU Power Grab KPN CEO Ibarra Leaving Dutch Firm to Run Comcast’s Sky Italia Danone Is Said to Plan Sale of China Water Brand Danone Yili Danske Loses Its Most Experienced Executive in New Scandal In FX, NZD/JPY/GBP are the standout majors and outperformers, albeit with the aid of ongoing Usd weakness as the DXY struggles to keep tabs on the 96.000 level. The Kiwi has received a timely boost just ahead of Wednesday’s RBNZ policy meet in the form of NZ trade revealing moderately better than expected m/m and y/y balances, with Nzd/Usd extending gains above 0.6600 to just over 0.6650 at one stage, while the AUD/Nzd cross has retreated through 1.0500 as the Aussie continues to meet resistance/offers recent highs and the psychological 0.7000 mark. Meanwhile, the Yen rallied through 107.00 on heightened risk-aversion sparked by US sanctions against Iran and Tehran’s response that the move means no return to lines of diplomatic communication before losing some steam and retreating back below the big figure towards decent option expiries at 107.25 (1 bn). Elsewhere, the Pound finally breached a key Fib at 1.2768 and Cable advanced to 1.2780+ after stops around 1.2770 were tripped, while Eur/Gbp pulled back from just above 0.8950 to sub-0.8920 as the single currency stalled across the board rather than anything more fundamentally supportive for Sterling. EUR/CHF - As noted above, the Euro has faded after making more headway against the Dollar and forging above 1.1400, with several weekly chart levels spanning 1.1416-85 capping the rally on top of a Fib at 1.1460. However, the Franc has reversed even further from best levels circa 1.1060 and 0.9695 vs the Buck amidst vague market talk or speculation about official intervention to curb demand for one of the other traditional safe-havens. On that note, GOLD has seen more upside having breached Usd1400/oz and spiked to fresh multi-year highs only a few cents shy of Usd1440. NOK/SEK - Marked divergence between the Scandi Crowns as Eur/Nok remains in bear retracement mode after last week’s hawkish Norges Bank hike and underpinned within 9.6910-6645 parameters, but Eur/Sek continues to retreat on a more technical and pre-emptive basis through 10.5500, as the Riksbank maintains its tightening bias in wake of firmer Swedish inflation data and not really fazed by a slowdown in PPI that is largely oil-related. Back to the charts, 200 DMA support may cushion the Nok from further losses as the line comes in at 9.949. In commodities, WTI and Brent futures are choppy with the both benchmarks relatively flat below USD 58/bbl and USD 65/bbl as eyes are kept on the rising tensions between US and Iran and G20 developments ahead of next week’s OPEC+ meeting. Participants expect the cartel and allies to roll over the output cut pact into the second half of the year after nearly all members (ex-Russia) stated that it is in the best interest of the market. Immediate headline risks aside, tonight will see the release of the weekly API crude stocks as the street looks for a headline inventory decline of 2.9mln barrels, albeit price action may be short-lived given the aforementioned reasons. Elsewhere, gold prices remain buoyed after hitting levels last seen in August 2013 (intraday high USD 1439/oz). The yellow metal has been supported by the safe haven demand amid geopolitical tensions, and a weaker Dollar post-FOMC. Thus, Gold traders today will be eyeing any further Iran/US escalation and Fed Chair Powell’s speech scheduled for 1800BST/1300EDT which will touch on monetary policy and the economic outlook. Powell aside, other 2019 Fed voters on the docket include Fed’s Williams, and Bullard (dissenter). Turning to base metals, copper prices rebounded and reclaimed USD 2.7/lb to the upside as the red metal as extended strikes at Coldeco’s Chuquicamata copper mine roused supply concerns. Finally, China Rebar prices surged to the nearly 8yr highs as steel mill continue to curb production amid pollution warnings. US Event Calendar 9am: FHFA House Price Index MoM, est. 0.2%, prior 0.1% 9am: S&P CoreLogic CS 20-City MoM SA, est. 0.1%, prior 0.09%; YoY NSA, est. 2.5%, prior 2.68% 10am: Richmond Fed Manufact. Index, est. 2, prior 5 10am: New Home Sales, est. 683,750, prior 673,000; New Home Sales MoM, est. 1.6%, prior -6.9% 10am: Conf. Board Consumer Confidence, est. 131, prior 134.1 Central Bank Speakers 8:45am: Fed’s Williams Makes Opening Remarks at Finance Forum 12pm: Fed’s Bostic Speaks on Housing 1pm: Powell Discusses Economic Outlook and Monetary Policy 3:30pm: Fed’s Barkin Speaks in Ottawa 6:30pm: Fed’s Bullard Gives Welcoming Remarks at Lecture in St. Louis DB's Jim Reid concludes the overnight wrap The only thing I’ll start with this morning is that if you’re out for a peaceful life, don’t give twin boys aged 1.75 years old a recorder each. The noise was deafening when I got home last night. It reminded me of the Vuvuzelas in the World Cup in South Africa in 2010. It was certainly as monotone. After the deafening roar of markets last week, yesterday saw a little peace and quiet return. A lull in news-flow, broad fatigue and a general wait and see mode ahead of the G-20 all appeared to play a role with the end result for equities being a -0.17% decline for the S&P 500 in a range of just 0.37%, the fourth narrowest of the year. The DOW and NASDAQ ended +0.03% and -0.32%, respectively. The DOW’s range was 0.33%, second smallest of the year, while in Europe the STOXX 600 (-0.25%) ended a smidgen lower with a marginally wider trading range of 0.65%. Asian markets are a little more exciting though and are generally heading lower with Chinese bourses leading the declines. The Shanghai Comp (-1.82%), CSI (-2.10%), and the Shenzhen Comp (-2.04%) are all down c. 2%. China Merchants Bank stock is weighing on the Chinese and Hong Kong market (-6.80%) on a Washington Post report that the bank is subject to a US investigation into sanctions violations with regards to North Korea. The Hang Seng (-1.31%), Nikkei (-0.52%) and Kospi (-0.19%) are also trading lower. Elsewhere, futures on the S&P 500 are down -0.19%. In other news, Bloomberg reported overnight that Trump has recently mused to confidants about withdrawing from a longstanding defense treaty with Japan that he thinks treats the US unfairly. On the upcoming meeting between Trump and Xi at the G20, various media reports are saying that it will take place on Saturday, the final day of the two-day summit which is also the day when President Trump is scheduled to fly to Seoul from Osaka. To lay the ground work ahead of the meeting, the US trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke with Chinese Vice Premier Liu He yesterday with a statement from China’s commerce ministry suggesting that they had agreed to continue communicating. Meanwhile, Bloomberg has reported overnight (citing US officials), that in a briefing call yesterday Trump was focused above all else on securing real structural reforms in China to address US complaints about intellectual property theft and the widespread use of industrial subsidies among other things. So the hurdle rate for any breakthrough at the weekend talks remain high but the G-20 was always going to be about a continuation of talks rather than the final destination. Returning to markets and the bond rally has recommenced over the last 24 hours as 10yr Treasuries ended -4.0bps lower yesterday and are another -2bps this morning at 1.995% (the lowest since November 2016). US 2yrs were –3.5bps (-1.4bps this morning), leaving 2s10s a touch flatter at 27.6bps this morning, still around 3bps off the year’s highs though. Meanwhile, 10yr Bunds were -2.2bps lower at -0.307%. Staying with rates, there are still 36bps of cuts priced in for the Fed at the July meeting and 101bps over the next 12 months, with the next test for markets likely to be today’s speech by Fed Chair Powell at 6pm BST at the Council for Foreign Relations in New York. The discussion is on the economic outlook and monetary policy so expect markets to be on the lookout for any divergences or extra nuances to last week’s narrative. We should note that it’s a fairly busy day for Fedspeak with no fewer than five separate speakers due at various stages during the day. Yesterday, Dallas Fed President Kaplan said he’s “concerned that adding monetary stimulus, at this juncture ” could fuel imbalances “which may ultimately prove to be difficult and painful to manage.” Our economists believe he is one of the FOMC members who favours 50bps of cuts this year, so his comments provide a new benchmark for how the doves are thinking. It could be that Kaplan wants to push back against the current market pricing, or that he wants to buy time to analyse more information before deciding “whether it is appropriate to make changes to the stance of U.S. monetary policy.” He went on to say that job growth of 60-120,000 would be sufficient for a “strong” jobs markets, suggesting that last months’ weak figure was not necessarily a warning sign for him. Back to markets where WTI oil rose ‘just’ +0.68% yesterday (down -0.78% this morning). That follows a near $5/bbl price rise last week. The broader US-Iran tensions continue to remain elevated though, especially after President Trump announced new sanctions yesterday, directly targeting Iran’s Supreme Leader Khamenei and eight senior military officials. While the actual measures are only marginal additions to the current sanctions regime, which already covers 80% of Iran’s economy according to the US State Department, they are symbolically significant and mark another degree of escalation. Staying with oil, OPEC and its partners are scheduled to meet on July 1-2, though there is probably less pressure for action after the recent uptick in prices. As well as dealing with Iran, Mr Trump also renewed his criticism of the Fed over twitter again yesterday, suggesting that the Dow could be “thousands of points higher” and GDP growth “in the 4’s or 5’s” if the Fed had “gotten it right” while in an interview with the Hill, Trump reiterated that he has the power to fire the Fed Chair but has no plan to do so and added that Powell is “incorrect” that he’s entitled to serve a four-year term that expires in 2022. In other markets Gold (+1.41%) showed no signs of giving up any of its recent gains while EM FX finished marginally stronger at +0.13%. Credit spreads, like equities, were also a touch weaker, with HY cash spreads +1bps and +3bps in Europe and the US, respectively. There were no real surprises in the June German IFO yesterday with the headline reading dropping 0.5pts as expected to 97.4 and the lowest since 2014. The current assessment component actually nudged up 0.1pts to 100.8, however there wasn’t quite as good news for the expectations component which slid 1pt to 94.2 and more than expected. Across the pond, the Dallas Fed manufacturing survey for June was the latest regional survey to show weakness at a headline level, with the print dropping 6.8pts to -12.1 (vs. -2.0 expected) and to the lowest since June 2016. This follows the surprise weakness in both the Empire and Philly Fed surveys last week, with the former dropping by the most on record into negative territory. These readings may serve to heighten concern and focus ahead of next Monday’s ISM manufacturing report. To the day ahead now, where this morning we’ll get June confidence indicators in France followed by the June CBI survey data in the UK. The data due out in the US this afternoon includes April FHFA and S&P CoreLogic house price data, the June Richmond Fed survey, May new home sales and the June consumer confidence report. As mentioned earlier it’s a busy day for Fedspeak headlined by Powell, with Williams, Bostic, Barkin and Bullard also due to speak. The ECB’s Guindos and Coeure are also scheduled to make comments.