I. Yesterday's News
International News
1. U.S. consumer spending, inflation data support Fed rate hike case. U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded, pointing to firming domestic demand that could allow the Federal Reserve to raise interest rates next month. The Commerce Department reported that consumer spending increased 0.4 percent, while the personal consumption expenditures (PCE) price index excluding food and energy rebounded 0.2 percent  last month. Other reports on Tuesday showed confidence among households still at lofty levels despite some slippage this month and strong gains in house prices in March. U.S. stocks lowered, the dollar index slipped and U.S. Treasury bond prices gained.

2. Slowing inflation in Germany, Spain takes pressure off ECB. German consumer inflation eased more than expected in May to fall well below the European Central Bank's 2 percent target, data showed on Tuesday, taking some pressure off the ECB to wind down its monetary stimulus in the near term. German consumer prices rose by 1.4 percent on the year in May, coming in below market consensus forecast of 1.6 percent. Spanish inflation slowed to the lowest rate since December. Together, the two suggest that May euro zone inflation to be reported on Wednesday will fall to at least the 1.5 percent predicted in Reuters polls.

3. European Central Bank policymakers are set to take a more benign view of the economy when they meet on June 8 and will even discuss dropping some of their pledges to ramp up stimulus if needed, four sources with direct knowledge of the discussions told Reuters. With economic growth clearly shifting into higher gear, rate setters are ready to acknowledge the improvement by dropping a long-standing reference to downside risks in the bank's post-meeting opening statement, calling risks largely balanced, the sources said. Growth indicators have been outperforming expectations all year. But they disagree on how quickly the ECB should change its policy stance, including its guidance, with countries on the currency bloc's periphery fearing that a sharp shift in its communication could induce self-defeating market turbulence, they added.

4. A U.S. interest-rate hike is probably coming soon though the Federal Reserve may want to delay if recently soft inflation readings continue, Fed Governor Lael Brainard said on Tuesday, adding she also backs shrinking the central bank's bond portfolio "before too long." Dallas Fed President Robert Kaplan reportedly predicts two more rate hikes for this year as the central bank also begins trimming its balance sheet.
Kaplan also cast some doubt on recent economic data, but still sees growth likely continuing on the path of about 2 percent.

5. Japan's tight labour market offers hope for consumer spending. Labour demand in Japan rose to its strongest in more than 40 years while the unemployment rate held steady at a two-decade low in April, offering hope that a tight labour market will eventually spark a turnaround in weak consumer spending. Separate data showed household spending fell more than expected in April due to lower spending on cars and education fees as consumer spending continues to lag behind improvement in other areas of the economy, such as exports and factory output. Such a tight labour market could temper pessimism about consumer spending and bolster the Bank of Japan's argument that rising demand for workers will eventually spur inflation.

6. South Korean President Moon Jae-in has ordered a probe after his Defence Ministry failed to inform him that four more launchers for the controversial U.S. THAAD anti-missile system had been brought into the country, his spokesman said on Tuesday. "President Moon said it was very shocking" to hear the four additional launchers had been installed without being reported to the new government or to the public, presidential spokesman Yoon Young-chan told a media briefing.

Domestic News
7. China's central bank will continue to maintain neutral under no pressure to shrink its balance sheet. The impact of the three monetary policies on the central bank's portfolio was mixed, meaning that monetary policy cannot be determined merely by the changes on single data, and the bank has no need to temper its balance sheet, People's Bank of China (PBOC) advisor Sheng Songcheng said. The PBOC will continue to keep its monetary policy neutral with a tightening bias to fend off financial risks, Sheng said.

8. The United States and China are negotiating when they should push for further United Nations Security Council action on North Korea and could reach a decision this week, U.S. Ambassador to the United Nations Nikki Haley said on Tuesday.

II. Market Overview
FX
1. Global Market
The dollar fell to two-week lows against the safe-haven yen and Swiss franc on Tuesday, as investors turned cautious amid political worries in Europe as well as weaker stock and commodity markets after a long U.S. holiday weekend. In the euro zone, falls in inflation in Spain and several German regions as well as European Central Bank chief Mario Draghi's commitment to continued emergency stimulus initially pushed the euro lower. Signs that elections in Italy may come as early as September also added to the euro's early pressure. But the euro recovered as the dollar struggled.

2. Home Market
China's market was closed for public holiday.

Precious Metals
Gold prices eased after hitting a one month high on Tuesday as economic data from the United States showed increased signs that the Federal Reserve would raise interest rates next month. Spot gold touched a one-month high of $1,270.47 before pulling back to $1,262.71 per ounce. U.S. gold futures slipped to end the session 0.5 percent lower at $1,262.1 an ounce.

Commodities
1.Crude Oil
Oil prices fell about 1 percent on Tuesday, on signs of resurgent crude output in Libya and concerns that extended production cuts by leading exporting countries may not be enough to drain a global glut. Brent crude ended the session 45 cents, or 0.9 percent, lower at $51.84 a barrel, while U.S. light crude fell 14 cents, or 0.3 percent, to $49.66.

2.Base Metals
Copper edged lower in quiet trade on Tuesday as the market waited for top metals consumer China to return from a public holiday and data on Wednesday that is expected to show a slowdown in Chinese industrial growth. A weaker dollar helped London Metal Exchange copper recoup some of its early losses to finish down $1.50 at $5,656 a tonne.

U.S. Treasuries
1. U.S. Bonds
Yields on most U.S. Treasury bonds and notes fell to their lowest levels in more than a week on Tuesday on month-end buying and after U.S. inflation data reinforced doubts that the Federal Reserve would raise interest rates more than one more time in 2017. The core PCE price index dropped to 1.5 percent in the 12 months through April from 1.6 percent in March. Yields on U.S. Treasuries maturing between three and 30 years hit their lowest levels in 12 days. Benchmark 10-year U.S. Treasury yields touched 2.211 percent and 30-year yields hit 2.881 percent. Three-year yields hit 1.432 percent. Benchmark 10-year Treasuries were last up 11/32 in price to yield 2.212 percent, from a yield of 2.250 percent late Friday

2. Chinese bonds
China's market was closed for public holiday.

Stock Market
1. U.S. Equities
U.S. stocks inched lower on Tuesday, with the S&P 500 retreating slightly from a record, as weakness in the energy and financial sectors outweighed gains in technology shares. The Dow Jones Industrial Average fell 50.81 points, or 0.24 percent, to 21,029.47, the S&P 500 lost 2.91 points, or 0.12 percent, to 2,412.91 and the Nasdaq Composite dropped 7.01 points, or 0.11 percent, to 6,203.19.

2. Hong Kong Equities
Hong Kong's market was closed for public holiday.

3. China Equities
China's market was closed for public holiday.