I. Yesterday’s News
International News

1. Italy may hold repeat elections as early as July after the man asked to be prime minister failed to secure support from major political parties for even a stop-gap government, sources said on Tuesday, as markets tumbled on the growing political turmoil. But sources close to some of Italy’s main parties said there was now a chance that President Sergio Mattarella could dissolve parliament in the coming days and send Italians back to the polls as early as July 29. Yields on Italy’s two-year bonds, the most sensitive to political upsets, were set for their biggest one-day jump since 1992. The euro also hit multi-month lows, as credit rating agency Moody’s signaled a possible downgrade for Italy if the next government failed to address its debt burden.

2. A top North Korean official was headed to New York on Tuesday for talks with U.S. Secretary of State Mike Pompeo, the latest indication that an on-again-off-again summit between President Donald Trump and North Korean leader Kim Jong Un may go ahead next month. Kim will meet with Pompeo later this week, according to White House press secretary Sarah Sanders. "We have put a great team together for our talks with North Korea," Trump said in a Twitter post on Tuesday. "Meetings are currently taking place concerning Summit, and more. Kim Young (sic) Chol, the Vice Chairman of North Korea, heading now to New York. Solid response to my letter, thank you!"

3. Consumer confidence rebounded in May, but households were a bit pessimistic about their short-term income prospects even as they expected strong job growth to persist, which could restrain consumer spending. The Conference Board said on Tuesday its consumer confidence index rose 2.4 points to a reading of 128.0 this month from a downwardly revised 125.6 in April. The index was previously reported at 128.7 in April. A separate report on Tuesday showed the S&P CoreLogic Case-Shiller composite index of home prices in 20 metropolitan areas increased 0.5 percent in March after rising 0.8 percent in February. House prices gained 6.8 percent in the 12 months to March after rising by the same margin in February.

4. The European Central Bank could decide next month to end its stimulus programme this year and hike interest rates towards the middle of 2019, ECB board member Sabine Lautenschlaeger said on Tuesday. "June might be the month to decide once and for all to gradually end net asset purchases by the end of this year," Lautenschlaeger told a university lecture. "A first hike around the middle of 2019 is not entirely out of the ballpark."

5. The U.S. Federal Reserve will have difficulty raising interest rates significantly beyond the settings of its Japanese and European counterparts, which are still pursuing accommodative policy, St. Louis Fed President James Bullard said on Tuesday. Bullard, who has previously flagged the need for a caution in raising rates, told reporters on the sidelines of a seminar in Tokyo on Tuesday the Fed had enough tools and policy options to respond if the U.S. economy falls into a recession.

Domestic News

6. The United States said on Tuesday that it still holds the threat of imposing tariffs on $50 billion of imports from China and will use it unless Beijing addresses the issue of theft of American intellectual property. Washington will also press ahead with restrictions on investment by Chinese companies in the United States as well as export controls for goods exported to China, the statement from the White House said. Details of the investment and export controls will be announced by June 30 and the final tariff list will be published by June 15. "We are surprised by the strategic statement released by the White House, but, at the same time, it is somewhat expected," China's Ministry of Commerce said in a statement said. "It is obviously against the consensus reached by the US and China in Washington recently." "No matter what the actions that the US plans to take, China has the confidence, the capability, and the experience to defend the core interests of the people and the nation," the statement said. China urges the United States of meet us halfway with the spirit of our joint statement.

7. China’s president Xi Jinping on Monday urged courageous moves to reach for the "commanding heights" in scientific and technological competition and future development. Xi called for courage to explore the uncharted courses and realize the goal that key and core technologies are self-developed and controllable, and to move China's industries up to the middle and high-end in the global value chain.

8. China is to expand a tax cut program on qualified technologically advanced service firms nationwide. The rate of enterprise income tax will be cut to 15 percent for businesses in the service trade sector which are qualified as technologically advanced, according to a statement released by the Ministry of Finance.

9. The Canadian International Trade Tribunal (CITT) said on Monday it has initiated a preliminary dumping inquiry into steel imported from China, South Korea and Vietnam. CITT said it will determine the results of the investigation on July 24 and will provide the reasons for the same on August 8.

II. Market Overview
FX
1. Global Market

Investors piled into safe-haven bets on Tuesday as political turmoil in Italy sparked fears of another euro crisis, driving up the Japanese yen and pushing the U.S. dollar to a 10-month high against the euro. The dollar rose on Tuesday to its highest against the euro since July 2017 at 1.1506, after a sell-off in Italy's debt market drove investors to dump the single currency. The greenback dropped about 1.2 percent on Tuesday to a five-week low of 108.10 yen. The dollar index, which measures the greenback against a basket of six major currencies, was up half a percent on the day at a high of 95.025, hitting a 6-1/2 month top.

2. Home Market

China's yuan stumbled to its weakest in more than four months on Tuesday, falling almost 240 bps. Political turmoil in Italy pushed the U.S. dollar crossing above 94, the highest since mid-November last year, and drove China’s central bank's to soften fixing. Despite of some forex-selling demand in the early session, onshore yuan extended losses dragged down by sharp decline in offshore yuan.

Precious Metals

Gold prices rose on Tuesday, but gains were limited as traders weighed a buoyant dollar against a deepening political crisis in Italy that provoked a second day of heavy selling on European financial markets. Spot gold closed at $1,297.96 per ounce, earlier hitting a five-day low of $1,293.40, while U.S. gold futures for June delivery settled down $4.70, or 0.4 percent, at $1,299 per ounce.

Commodities
Crude Oil

U.S. crude futures fell more than $1 on Tuesday on worries that Saudi Arabia and Russia will pump more crude to boost supplies after more than a year of reducing worldwide inventories. U.S. West Texas Intermediate (WTI) crude futures fell $1.15 to settle at $66.73 a barrel, a 1.7 percent loss. Brent crude futures settled up 9 cents to $75.39 a barrel.

U.S. Treasuries
1. U.S. Bonds

U.S. benchmark 10-year Treasury yields posted their largest one-day drop on Tuesday since Britain voted to exit the European Union nearly two years ago, as a political crisis in Italy, the third-largest euro zone economy, fueled a flight to safe-haven assets. In afternoon trading, U.S. 10-year yields dropped to seven-week lows of 2.759 percent and were last at 2.788 percent. U.S. 30-year yields fell to 2.954 percent, the lowest level since Feb. 1 and last traded at 2.98 percent. On the short-end of the curve, U.S. 2-year yields tumbled to seven-week troughs of 2.311 percent.

2. Chinese bonds

China’s cash bonds in the inter-bank market rose slightly in the early session amid recent cautious sentiment. The auction of 10-year CDB reissued bonds was better than expected, paring losses of T-bonds and gains of cash bonds.

Stock Market
1. U.S. Equities

The S&P 500 and the Dow Jones Industrial Average registered their biggest one-day percentage drops in a month on Tuesday as political turmoil in Italy sparked concerns about the stability of the euro zone and shares of U.S. banks tumbled. The Dow Jones Industrial Average fell 391.64 points, or 1.58 percent, to 24,361.45, the S&P 500 lost 31.47 points, or 1.16 percent, to 2,689.86 and the Nasdaq Composite dropped 37.26 points, or 0.5 percent, to 7,396.59.

2.Hong Kong Equities

Hong Kong stocks ended lower on Tuesday, led by financials, as risk appetite was curbed by market volatility in Europe, where fresh elections in Italy stirred fears of euro zone break-up. The Hang Seng index ended 307.68 points or 1 percent lower at 30,484.58, while the China Enterprises Index closed 1.29 percent lower at 11,959.08 points. The sub-index of the Hang Seng tracking energy shares dipped 0.98 percent, while the IT sector slipped 0.72 percent, the financial sector was 1.32 percent lower and property sector lost 0.72 percent.

3. China Equities

Shanghai Composite Index closed down 14.62 points or 0.47 percent at 3,120.46 points on Tuesday, posting a fifth straight session of losses to an over three-week low. Individual stocks fell across the board. Some financial heavyweights breached below key marks, weighing on the index. A rebound is expected after recent sharp losses. The buying of financial stocks by MSCI funds is likely to stabilize the market.