• President Trump said tariffs would be the ultimate punishment on China and warned that that if China doesn't buy US goods, the US will end the trade deal
• US Secretary of State Pompeo stated that there is enormous evidence that the coronavirus outbreak originated in a laboratory in Wuhan
• Sentiment is subdued following President Trumps remarks while European bourses catch-up from Labour Day holiday
• US President Trump said he is not doing stimulus without a payroll tax cut
• UK are reportedly looking to ease lockdown measures as soon as May 26th, with an announcement potentially on Thursday
• FX, sees USD firmer this morning with GBP the most subdued this morning afflicted by the firmer USD and vs. a comparatively better EUR
• Looking ahead, highlights include ECB asset purchases, US factory orders, ISM New York

CORONAVIRUS UPDATE

US President Trump said during virtual town hall that we can have it both ways with opening the economy and staying safe, while he sees 75k-100k deaths from coronavirus and again questioned China and warnings of the virus. Furthermore, President Trump said tariffs would be the ultimate punishment on China and warned that that if China doesn't buy US goods, the US will end the trade deal. (Newswires)

US President Trump said he is not doing stimulus without a payroll tax cut, although there were previous comments from White House Press Secretary McEnany that US wants to negotiate the next stimulus bill immediately, while other reports noted that senior sources in the US Republican Senate Conference want to wait before approving another coronavirus stimulus package. (Newswires)

US Secretary of State Pompeo stated that there is enormous evidence that the coronavirus outbreak originated in a laboratory in Wuhan although he didn’t provide evidence to support the claims, while he accused China of stonewalling investigations and refusing to co-operate with experts. (Newswires/BBC) New US intelligence analysis claimed that China intentionally concealed severity of coronavirus pandemic to stock up on critical medical supplies needed to combat the outbreak. (AP)

US CDC reported total coronavirus cases as of previous day at 1600EDT increased to 1,133,486 (Prev. 1,092,815), while total death toll was at 65,735 (Prev. 64,283). (Newswires)

UK is looking to relax the lockdown measures beginning May 26th according to The Sun (other reports have suggested the plan could be unveiled as soon as Thursday), while it was also reported that PM Johnson’s plan will include workplace proposals such as staggered shifts, curtailing hot desking and face-to-face meetings, while staff canteens will remain shut and lifts kept half empty. (The Sun/FT) UK Cabinet Minister Gove commented that a staged easing of the lockdown would mean restrictions could be imposed to tackle localized outbreaks and also stated that the UK will be piloting a new test, as well as trace and track procedures in the Isle of Wight. (Newswires)

UK coronavirus death toll rose by 315 to 28,446 vs. Prev. increase of 621 deaths, while France’s death toll rose by 135 to 24,895 vs. Prev. increase of 166 deaths and Italy’s death toll rose by 174 to 28,884 vs. Prev. increase of 474 to represent its lowest daily death toll since the lockdown began on March 9th. (Newswires)

German Health Minister says the COVID-19 R0 is at 0.74. (Newswires)

Spain's coronavirus deaths rise by 164 to 25,428 (Prev. 25,264), according to the Health Ministry; deaths at 19,478 (Prev. 19,310)

Japanese PM Abe confirms state of emergency will be extended nationwide until May 31st. Abe says the nation wishes to consider lifting the state of emergency before May 31st if experts conclude that this is possible based on analysis of regional infection rates. Additionally, Abe says the clinical trial of Avigan is going ahead smoothly and the application for Gilead's (GILD) Remdesivir was filed in Japan on Monday. (Newswires) Tokyo reports 87 (vs. 165 on Friday) new COVID-19 cases on Monday, according to local media. (Newswires)

India extended its nationwide lockdown from May 4th for two weeks but will permit "considerable relaxations" in districts marked as Green and Orange Zones. (Newswires)

ASIA

Asian equity markets began the week mostly lower amid several holiday closures in the region and cautiousness ahead of this week’s risk events, with sentiment also dragged by a flare up at the inter-Korean border and as US-China trade tensions simmered with President Trump stating that tariffs would be the ultimate punishment for China and warned to end the trade deal if China doesn't buy US goods. ASX 200 (+1.4%) was choppy with notable weakness in energy as crude prices resumed the rout brought on by oversupply concerns and with banking names initially pressured after Westpac reported a 62% drop in H1 net, although the big 4 bank eventually reversed its losses which helped the turnaround in the largest weighted financials sector and the index as a whole. KOSPI (-2.6%) gapped lower by over 2% at the open on geopolitical concerns after South Korea and North Korea exchanged gunfire at the demilitarized zone for the first time since 2014 which comes a day after North Korea Leader Kim made his first public appearance since rumours circulated that he may have died or was incapacitated, although the index is off its lows as reports also noted there were no casualties from the incident which could have been accidental. Hang Seng  (-4.2%) slumped as it played catch up from the extended weekend and ahead of today’s GDP which could show the largest contraction on record with Financial Services Secretary Chan suggesting GDP data could be worse than the GFC and Asian Financial Crisis which saw economic contractions of 7.8% and 8.3% respectively. The lack of participants added to the uninspired mood for Hong Kong and the region, with markets in mainland China to reopen on Wednesday due to Labor Day holidays and with Japanese participants returning on Thursday after Golden Week. Finally, Indian markets were the worst performers with the NIFTY and SENSEX both collapsing by as much as 5% after the government extended the nationwide lockdown for two weeks but will permit "considerable relaxations" in certain districts.

Hong Kong civil servants began to gradually return to work from today and it was also reported that Hong Kong is to raise the limit on public gatherings to 8 people from 4, while it may open gyms and cinemas this week. (Newswires)

UK/EU

UK is to start trade talks with the US in the upcoming week. The first round of negotiations will last for two weeks with future discussions taking place every six weeks. (FT)

Deloitte UK CFO survey: COVID-19 has caused the biggest quarterly drop in confidence since the survey started in 2007, furlough scheme to be used by 59% of large Co's. BoE CCFF to be used by 30% of large Co's.

-        CFO's risk appetite at lowest since 2008, seeing a record amount of 84% less confident; on average, predicting revenue to be 22% lower than pre-COVID estimates. Do not expect a quick snap-back in activity.

EU Markit Manufacturing Final PMI (Apr) 33.4 vs. Exp. 33.6 (Prev. 33.6)

German Markit/BME Manufacturing PMI (Apr) 34.5 vs. Exp. 34.4 (Prev. 34.4)

GEOPOLITICS

North Korean leader Kim visited a factory in his first public appearance in 20 days which follows conflicting reports that suggested he may have died or was incapacitated. In related news, North Korea and South Korea exchanged shots at the demilitarized zone, although there were no reported injuries and US Secretary of State Pompeo suggested the gunfire exchange was probably accidental. (Newswires)

Iran's Foreign Ministry spokesman says that Tehran are not looking to withdraw from the 2015 nuclear deal; response to the illegitimate US plan to extend arms embargo will be proportionate. (Newswires)

EQUITIES

European equities opened with significant losses [Euro Stoxx 50 -3.3%], as the region catches up to Friday’s developments, namely on the US-China trade front, after its Labor Day holiday. US equity futures also post losses of ~1%, with the contracts pressured by a potential rollback in the US-China Phase One trade deal should China not adhere to purchases. UK’s FTSE 100 (-0.2%) index outperforms the region having had its Friday session whilst some downside could be cushioned by a softer Sterling. Sectors are lower across the board – with IT and Consumer Discretionary the laggards, albeit most of this overall downside would be on account of a chunk of Europe catching up to Friday’s trade. In terms of individual movers, BT (-1.4%) opened softer (but nursed some losses) amid reports Telefonica (+3.4%) is said to be in discussions with Liberty Global to combine their UK assets, O2 and Virgin Media, in a joint venture to challenge BT and Sky in the UK – Telefonica states that the Cos are in a negotiating phase and the group is currently not able to guarantee either the terms or probability of its success. Sources added that Liberty Global also reportedly approached Vodafone (-1.1%) regarding a merger, but talks are not currently active. Meanwhile, Fincantieri (+15.8%) was halted limit up after receiving a US Navy contract valued at USD 5.5bln. SocGen (-6.2%) shares see extra pressure as it expects to have provisions of EUR 3.5-5bln this year amid losses caused by the pandemic. CEO also sees CET1 ratio to drop to between 11-15%. Similarly, Thyssenkrupp (-14.5%) plumbs the depths as the Co. anticipates a cash-squeeze despite the lift unit sale. Elsewhere, Roche (+0.3%) remains resilient to the losses in the region after the group was awarded emergency approval in the US for a COVID-19 antibody test and expects production to hit high double-digit millions by June and 100mln later in the year. Finally, Royal Mail (+6.2%) is buoyed by reports that Czech billionaire Kretinsky reportedly bought a 5.35% stake in the Co., sparking speculation he could launch a takeover bid.

Berkshire Hathaway (BRK) – Q1 revenue USD 61.3bln. Posted their largest recorded profit loss amidst exiting the entirety of their stake in Airline names; conference call confirmed exiting of American Airlines (AAL), Delta (DAL) Southwest (LUV) and United Airlines (UAL). Co. could see layoffs at its manufacturing business. 

Loews (L) Q1 2020 (USD): EPS -2.20; Revenue 3.099bln (prev. 3.757bln); Net loss 632mln; expects to report a significant non-cash loss in Q1 in connection with de-consolidation of Diamond offshore

Roche (ROG SW) - Co. chairman said the group is to investor over EUR 400mln in German facilities, including the aid of antibody test development; have been awarded emergency approval in the US for a COVID-19 antibody test and expects production to hit high double-digit millions by June and 100mln later in the year. (Newswires)

FX

USD - The Greenback is back on a firmer footing after succumbing to somewhat more than the usual month end selling and remaining under pressure on Friday when US President Trump upped the ante against China via recriminations over the source of COVID-19 and the threat of retaliation. However, risk aversion has spread to the extent that the Buck has resumed a degree of safe-haven premium vs currency counterparts bar the Yen, with the DXY retaining a firmer grasp of the 99.000 handle within a 99.239-477 range.

JPY - As noted above, the Yen is resisting the broad trend of underperformance relative to the recovering Dollar, albeit in holiday-thinned trade due to Japan’s Greenery Day amidst the longer Golden Week vacation, as Usd/Jpy meanders in a tight band below 107.00.

GBP/EUR/CHF/NZD/CAD/AUD - Sterling has lost more of its seasonal bid, as the sell in May trend looks set to continue for a second day with Cable teetering above 1.2400 and Eur/Gbp testing resistance/psychological offers around 0.8800 ahead of the 50 DMA (0.8825) even though the Euro is struggling to keep hold of the 1.0900 handle vs the Greenback in wake of weak Eurozone manufacturing PMIs, ECB SPF downgrades and a worse than forecast Sentix survey. Technically, Eur/Usd is currently close to a Fib retracement at 1.0938 and supported ahead of the big figure that also coincides with the 30 DMA. Elsewhere, the Franc remains well shy of recent highs near 0.9600 circa 0.9650, but on the rebound in Eur/Chf cross terms around 1.0550 following mixed Swiss inputs from yet another big rise in bank sight deposits and better than expected, albeit still sub-50 manufacturing PMI. Meanwhile, the Kiwi, Aussie and Loonie are all nursing losses after conceding ground to their US rival with Nzd/Usd hovering just under 0.6050, Aud/Usd straddling 0.6400 and Usd/Cad pivoting 1.4100 amidst renewed declines in oil prices. The Kiwi has not gleaned much from S&P reaffirming NZ’s AA rating and positive outlook or more moves towards lifting lockdown, awaiting Q1 jobs data, while the Aussie appears hesitant ahead of the RBA, retail sales and the SOMP.

SCANDI/EM - The aforementioned downturn in crude is weighing on the Norwegian Crown alongside the ongoing PMI manufacturing contraction, though not as pronounced as in Sweden where the Krona is also unwinding more post-Riksbank gains. However, the Rand has derived some comfort from SA’s PMI beating consensus and deflecting attention away from bleak economic projections out of the Treasury Director, while the Lira is trying to pare losses off another multi-month low on the back of firmer than anticipated Turkish CPI in contrast to a deeper sub-50 manufacturing PMI.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.0865-70 (1BLN), 1.0900 (340M), 1.0955 (1BLN), 1.1010-15 (400M)

New Zealand PM Ardern will join Australia Cabinet meeting tomorrow and she was said to have discussed with PM Morrison the reopening of trans-Tasman travel, as well as easing restrictions on economies. (Newswires)

S&P affirmed New Zealand at AA; Outlook Positive, while it stated the positive outlook reflects strong fundamentals and that fiscal profile should strengthen after coronavirus outbreak subsides. Furthermore, it believes New Zealand’s economy is in recession and forecasts a 2.4% contraction in the economy in fiscal 2020 but then growing 1.7% fiscal 2021 and 4.4% in fiscal 2022. (Newswires)

FIXED

Gilts have maintained their outperformance vs Pound underperformance in FX, and extended gains to match last Friday’s Liffe intraday high to the tick, at 137.86 before drifting back again so close to reaching the April 30 apex that looks increasingly stubborn ahead of 138.00 and circa 20 bp in cash yield terms. However, Bunds delved a tad deeper below 174.00 to 173.92 before finding underlying bids, and a couple of bearish bank strategies post-April’s ECB policy meeting could be keeping a lid on the 10 year German benchmark along with a broader unwinding of the month end bid. Elsewhere, US Treasuries are still comfortably above par, though in low-key trade and with the curve flatter ahead of NY ISM and factory orders.

COMMODITIES

WTI and Brent front-month futures remain subdued but trade just off recent lows of USD 18.05/bbl and USD 25.50/bbl respectively. Desks note that the sentiment surrounding the complex is showing signs of improvement, with economies gradually reopening alongside a phase of lower global supply. “A combination of demand edging higher as we move through the remainder of the year, while supply is expected to slip, will likely push the global oil market into deficit over the second half of this year, allowing it to draw down the significant stock builds from the first half of this year.”, ING writes. That being said, markets have begun to factor in a potential escalation in US-China tensions – with President Trump floating an end to the trade pact should China not purchase US goods – which could weigh on sentiment as well as hit demand. WTI June lost further ground after hovering around USD 18.50/bbl and briefly breached support at USD 18.10/bbl, Brent July trades on either side of USD 26/bbl for a large part of the morning and holds onto losses of over 2%. Elsewhere, spot gold sees an underlying bid as losses across equities prompts inflows into the yellow metal – trading towards the top of its current USD 1693-1707/oz band. Copper prices meanwhile resumed its decline amid the broader risk-aversion and some producers are poised to resume operations.

Texas Railroad Commission Chairman Christian said the state will not be reducing output and noted that he and Commissioner Craddick oppose proration, while he thinks the issue is settled and is disturbed seeing it viewed as a big question heading into the commission meeting this week. (Energy Intel)