• German Constitutional Court did not find ECB's PSPP to be in violation of prohibition on monetary financing
• Sentiment has been dented by the German Court ruling, but remains firmer following a strong APAC handover
• However, GCC ruled that some actions are not valid in Germany relating to the proportionality of PSPP; ECB now has 3-months to demonstrate this – will meet at 17:00BST/12:00ET to discuss
• EUR, Bunds and BTPs were the biggest losers on this; EUR weakness propelled DXY to new session high of 99.977
• Senior Trump administration aides have eased up on China with officials signaling there will not be any economic punishment for China they adhere to the US-China trade deal
• Looking ahead, highlights include Canadian Trade Balance, US Composite & Services PMI, ECB’s Mersch, Fed’s Evans & Bostic.
• Earnings from: Walt Disney, Allergan

CORONAVIRUS UPDATE

University of Washington Institute for Health Metrics and Evaluation (IHME) updated model predicted the number of US deaths from coronavirus could reach over 134k by August which is nearly double than its last projection, citing easing of lockdown restrictions and increased mobility. (Newswires)

US Ways and Means Committee Chairman called for a 90-day suspension of all tariffs on products related to coronavirus and urged the Trump administration to conduct steps needed to raise domestic production and resolve shortages of medical supplies and drugs. (Newswires)

German state premiers are to agree on further measures to ease lockdown restrictions with Chancellor Merkel on Wednesday including reopening of shops likely from May 11th, school resumptions with rotating classes and to allow Bundesliga matches from May 15th under strict conditions without fans in stadiums according to sources. (Newswires) German RKI says the COVID-19 R0 is currently estimated at around 0.71. (Newswires)

ASIA

Asian equity markets traded positively as the region took impetus from the rebound on Wall St where all major indices spent the session gradually paring earlier losses from the renewed US-China trade tensions and geopolitical concerns in the Korean peninsula, with the upside led by strength in tech and energy. As such, ASX 200 (+1.6%) is higher with the energy names mirroring the outperformance of the sector stateside on continued gains in oil prices and with strength seen across all of the big 4 banks, while Afterpay Touch extended on its rally after Tencent recently became a substantial shareholder in the Co. Hang Seng (+1.1%) was also underpinned by the improved risk tone and following comments from Chief Executive Lam who stated the time has come to ease social distancing measures and that she will announce the easing of restrictions as soon as possible. However, gains were limited by GDP data which showed Hong Kong fell deeper into a recession with the largest contraction on record for Q1 and as mainland China remained shut, alongside holiday closures in Japan and South Korea.

Senior Trump administration aides have eased up on China with officials signalling there will not be any economic punishment for China if it sticks to the trade agreement made in January. (WSJ)

Hong Kong Chief Executive Lam said the time has come to ease social distancing measures and she will announce easing of restrictions as soon as possible. (Newswires)

US

US House Minority Leader Hoyer said that the house is not expected to be in session this week and that there is not timetable yet for a return to Washington. (Newswires)

UK/EU

German Constitutional Court did not find ECB's PSPP to be in violation of prohibition on monetary financing; Some ECB actions held illegal and not valid in Germany; ECB's decisions are not backed by EU Treaty

VERIDCT

-        The Senate was unable to find a violation of the ban on monetary budget financing on the basis that it cannot be conclusively assessed whether the Federal Government and the Bundestag have violated their responsibility to integrate by not pushing for an end to the PSPP

-        However, the European Central Bank (ECB) has neither examined nor demonstrated in the decisions adopted for the introduction and implementation of the PSPP that the measures taken are proportionate. As such, it is in violation of German law

-        The Bundesbank is therefore prohibited from participating in the implementation and implementation of the resolutions referred to after a transitional period of no more than three months, which is necessary for voting in the Eurosystem, unless the Governing Council of the ECB clearly explains in a new resolution that the monetary policy objectives aimed at by the PSPP are not out of proportion to the associated economic and fiscal effects.

-        Furthermore, the same applies to the reinvestment phase of the PSPP that began on January 1, 2019 and its resumption on November 1, 2019.

-        Current financial aid measures by the European Union or the ECB in connection with the current corona crisis are not the subject of the decision.

ECB spokesperson acknowledges the German Court ruling and will comment in due course; Governing Council are to meet at 17:00BST/12:00ET to discuss this.

US Chamber of Commerce said it is vital for Britain to secure a comprehensive deal with EU ASAP to remove uncertainty for US firms and suggested that the lack of certainty on UK-EU ties will impact inbound investment and risks limiting prospects for US-UK trade negotiations. Furthermore, it stated that US and UK should work to remove all tariffs and barriers to boost long-term outlook for both sides, while it urged the completion of comprehensive US-UK trade deal and not a phased approach. (Newswires)

US is reportedly reviewing whether spy planes, intelligence officials and other assets need to be pulled out of Britain after the UK government permitted Huawei to help build its 5G network. (Newswires)

Analysis of official figures has revealed that over half of the British adult population is being bankrolled by the state amid warnings that the current furlough scheme could start costing as much as the NHS. Chancellor Sunak has attempted to provide some reassurance to people using the scheme by stating that there "will be no cliff-edge" to those using it. (Telegraph) Furthermore, nearly 110k small businesses have applied for the government's Bounce Back Loan Scheme. (Telegraph) 

UK new car sales in April fell to the lowest level since 1946, according to the Society of Motor Manufacturers & Traders. (Newswires)

GEOPOLITICS

Venezuelan President Maduro said authorities captured 13 'terrorists' involved in a failed incursion plot with 2 US citizens among the detained. (Newswires)

EQUITIES

Stocks remain positive territory [Euro Stoxx 50 +1.0%] following on from a similarly positive APAC session, albeit stocks saw substantial downside on the release of the German Constitutional Court verdict which issued a three-month ultimatum to the ECB in order to demonstrate proportionality – i.e. the monetary objectives of PSPP are not disproportionate to the economic and fiscal policy effects. Should the ECB fail to show this, then the Bundesbank may no longer participate in PSPP. On the release, DAX cash slipped from around 11,700 to around 10,6200 before continuing to trickle lower before finding a recent base just above 10,500. Sectors are all in the green with outperformance in the energy sector as the oil market continues its upwards trajectory. Some defensive sectors also lag cyclicals – with the exception of Healthcare. The sector breakdown also paints a similar picture with Oil & Gas and Basic Resources the top performers – whilst Household Goods and Food & Beverages reside on the other side of the spectrum. In terms of individual movers Infineon (+2.5%) rises post-earnings despite mixed numbers as the group issued earnings following its withdrawal earlier in the year. SAP (-0.8%) is weighted on after it identified that some of its cloud products did not meet one, or more, of the contractually, agreed or statutory IT security standard conditions – this affects 9% of customers. Total (+5.4%) is supported post-earnings amid the rise in oil prices alongside announcing that new measures taken will allow organic cash breakeven to remain below USD 25/bbl in 2020. Finally, Pandora (+6%) resides towards the top of the Stoxx 600 after noting in its earnings that it has the liquidity to sustain a stress-test scenario where all physical stores are temporarily closed throughout 2020.

FX

EUR - The single currency was already on the verge of relinquishing 1.0900+ status vs the Dollar ahead of the German Constitutional Court’s judgement on ECB QE and only got a fleeting fillip when the verdict went in favour on the grounds of insufficient evidence support the motion that the policy measure violates the prohibition of monetary financing. However, some of the Bank’s actions are deemed to be illegal and not backed by the EU Treaty, so the Senate has set a 3 month deadline for the GC to clearly define PSPP proportionality in the context of associated economic and fiscal effects, after which time the Bundesbank may not be permitted to participate in the asset purchase scheme, or reinvestment following the transition period. Eur/Usd has subsequently slumped towards 1.0800 and support seen around 1.0800, with the DXY eyeing 100.000 given the Euro’s hefty weighting in the index.

CHF - The Franc has extended declines against the Greenback to sub-0.9700 in wake of downbeat Swiss data and survey releases in the form of CPI and consumer confidence both turning more negative, but Eur/Chf has retreated further towards 1.0500 on the aforementioned Euro depreciation that may also have implications for the PEPP.

NOK/SEK/AUD/CAD - Relative G10 outperformers, as the Norwegian Crown draws more momentum from oil’s continued recovery and the aforementioned Euro weakness to retest 11.2000, while the Swedish Krona takes some encouragement from preliminary Q1 GDP metrics showing resilience the economy before the anticipated COVID-19 demise, with Eur/Sek hovering just above 10.7000. Elsewhere, the Aussie is holding a portion of its post-RBA gains following unchanged rates, albeit off overnight peaks when stops were tripped beyond 0.6450, and the Loonie is also benefiting from the more pronounced rebound in crude prices within a 1.4030-95 range ahead of Canadian and US trade reports.

GBP/NZD/JPY - All struggling to contend with Buck’s revival at the expense of the Euro in large part, but Cable has taken comfort from an upward tweak to the UK’s services PMI and Eur/Gbp’s reversal through the 200 DMA to stay afloat between 1.2420-85 parameters. Conversely, the Kiwi is being hampered somewhat by cross-winds given upside in Aud/Nzd from the low 1.0600 area to just shy of 1.0650 after the RBA, but pivoting 0.6050 vs its US counterpart in advance of NZ Q1 labour data tonight. Meanwhile, the Yen remains entrenched in Japanese holiday trade within a 106.50-90 band and waiting for the end of Golden Week that ends just in time for NFP on Friday.

EM - Little respite for the Lira as attempts to pare losses become less compelling and shallower into the 7.0000 handle, with Usd/Try increasingly more inclined to extend the break and target record peaks not seen since Turkey’s economic, fiscal and currency crisis in 2018.

RBA kept rates at 0.25% as expected and maintained 3yr yield target at 0.25%, RBA said the board will not raise the cash rate target until the economy meets inflation and employment goals, while it will maintain efforts in keeping funding costs low and credit available. RBA stated that containment measures have reduced infection rates across countries and if this continues, a recovery in the global economy will start later this year. Furthermore, it sees output falling 10% in H1 and by around 6% for the year before rebounding 6% next year in its baseline scenario but noted that a stronger recovery is possible if there is further substantial progress in containing coronavirus in the near-term. (Newswires)

Australian Treasurer Frydenberg said they will continue to do what is necessary to support the economy but added the government has already committed a significant amount and the support provided will be sufficient. In other news, Australian Bureau of Statistics said employee jobs declined by 7.5% from week ending March 14th to week ending April 18th and that total wages paid declined 8.2%. (Newswires)

Argentina is ready to consider a 9th sovereign default unless investors engaged in negotiations to ease the burden, according to the Finance Minister following rejection of counteroffer from group of creditors led by BlackRock. (Newswires)

FIXED

No real surprise that the German 10 year benchmark bore the brunt of initial debt disappointment over GCC reservations against the ECB’s PSPP, but the potential wider repercussions for the PEPP and bond buying in general have spread to the Eurozone margins, withBTPs under pressure in particular. Bunds have subsequently bounced from 173.42 by over 30 ticks as Italian futures flounder below 137.50 vs 139.02 at best, while Gilts have resumed their recovery after a minor blip to 137.49 and recently peered a few ticks above parity at 137.77. Elsewhere, US Treasuries remain near overnight session lows and the curve continues to re-steepen amidst heavy corporate issuance and the glut of UST supply to come. More immediately, trade data, final Markit services PMI, ISM non-manufacturing and a couple of Fed speakers all slated.

COMMODITIES

WTI andBrent front month futures continue their grinds higher amid optimism of a rebalancing market as oil producers curtail output and economies gradually come back online. Further on the supply side, the Texas Railroad Commission is to convene today at 15:30BST to discuss and vote on mandated oil cuts. Markets largely expected the Commission to vote against the production limit –called “pro-rationing”. Texas is the largest US oil-producing state, with an output of around 5.4mln BPD, accounting for around 41% of the nation’s production. The State of Oklahoma (557k BPD) is expected to discuss quotas on May 11th followed by North Dakota (1.425mln BPD) on May 20th. In terms of bank commentary, UBS expects oil markets to be balanced in Q3 followed by a period of undersupply in Q4. The Swiss bank expects Brent proves to recover to USD 43/bbl by end-2020 but notes that global travel restrictions are likely to keep the market oversupplied in Q2. WTI June resides at the top of its current USD 21.13-22.77/bbl range while Brent July also sees itself at the top-end of its intraday USD 27.77-29.41/bbl band. Later today, eyes will be on the API data for back the storage decline narrative, with extra focus on Cushing. Some traders warn that although the metric may print a smaller build, this does not mean storage capacity is expanding – but rather less room for larger builds. Elsewhere, spot gold is on the backfoot amid the risk-appetite in the market and trades on either side of 1700/oz. Copper meanwhile remains underpinned by the risk-tone alongside the prospect of demand spurred by the reopening of global economics.

Some OPEC+ states are already in pain because of the cuts and are calling for G20 countries outside the alliance to formally commit to production cuts, rather than letting privately owned companies make their own decisions, according to Energy Intel. (Twitter)