• Sentiment remains positive on trade updates in quiet markets so far ahead of NFP
• Chinese Vice Premier Liu He, US Treasury Secretary Mnuchin and USTR Lighthizer spoke over the phone and agreed to keep communications, strengthen cooperation and vowed efforts to implement the phase 1 deal
• Chinese Gov't Adviser, on the US-China phone call, suggested that the fact that “the dialogue has now gone straight to ministerial level may indicate the problem is quite severe, SCMP
• France are reportedly proposing a EU recovery fund for an extra EUR 150-300bln/yr for three years; from one off bond issuance and distributed via grants & loans
• White House is reportedly considering actions it could take to stimulate the economy without requiring legislation
• Looking ahead, highlights include US & Canadian Labour Market Reports, Baker Hughes Rig Count, Moody's on Italy & Greece, DBRS on Italy. Note, UK markets are closed today

CORONAVIRUS UPDATE

Reported that the White House is considering actions it could take to stimulate the economy without requiring legislation and considering a possible delay in tax filing deadline, as well as moratorium on new regulations. (Newswires/NBC)

White House Trade Adviser Navarro said China vacuumed up all the world's personal protective equipment. In other news, US FDA reportedly withdrew approval for various companies making respirators in China and determined many N95 style masks made in China filtered out less than 95% of particular matter. (Newswires/SCMP)

Australian PM Morrison said today we will move ahead with reopening the economy and that the next step is to build confidence in the economy. PM Morrison added the cabinet agreed a 3-step plan to achieve COVID-safe economy by July and that the Treasury estimates 850k jobs will be restored under the plan in which retail, small cafes and restaurants will reopen, while it will allow the gathering of up to 10 people, with step 2 to allow gatherings up to 20 people and step 3 to allow gatherings of up to 100 people. (Newswires)

UK PM Johnson could ease aspects of the lockdown every two weeks, according to plans currently being discussed by ministers. (Telegraph) Other reports suggest that Britain will remain in lockdown until next month at the earliest. (Times)

France are proposing a EU recovery fund with at least 1-2% of EU gross national income/year for the next 3-years, to give the EU budget an extra EUR 150-300bln/year for the period, according to a document; Propose one-off bond issuance from EU Commission to finance the fund, with money to be spent through a combination of both grants (through EU budget) and loans with a very long maturity. (Newswires)

ASIA

Asian equity markets were higher across the board and US equity futures extended on gains overnight in which the Emini S&P and Mini Dow futures breached the 2900 and 24000 milestones respectively as global sentiment was underpinned amid renewed dialogue between US-China trade negotiators, whilst Fed Fund Rate futures began to price in negative rates for the US from December. ASX 200 (+0.5%) and Nikkei 225 (+2.6%) were positive as they take impetus from their Wall St peers and with risk appetite spurred by loosening of coronavirus-related restrictions after Australia’s cabinet agreed to relax some of its social distancing measures in a 3-step phase and with Japan touting the early lifting of the state of emergency in some regions, while Japan is also said to mull additional measures including proposal to subsidize rents for small businesses for up to 6 months. Hang Seng (+1.0%) and Shanghai Comp. (+0.8%) joined in on the upbeat tone as Hong Kong reopens its bars and other venues from today, and due to the easing of trade tensions following a conference call between USTR Lighthizer, Treasury Secretary Mnuchin and China Vice Premier Liu He in which the sides agreed to work together to create a beneficial environment for carrying out the trade deal and to strengthen cooperation on the macro economy. Finally, 10yr JGBs initially tracked upside in T-notes as US yields declined amid the pricing of future negative rates although the price action in JGBs was relatively tepid and the gains were later reversed following the 10yr inflation indexed bond auction which saw attracted weaker prices despite the amount sold just being half of the previous auction.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0788 vs. Exp. 7.0821 (Prev. 7.0931)

PBoC and China's SAFE finalized rules to cancel quotas under QFII and RQFII investor foreign investor schemes effective June 6th with the changes aimed at further opening up of China's financial markets. (Newswires)

Chinese Vice Premier Liu He, US Treasury Secretary Mnuchin and USTR Lighthizer spoke over the phone and agreed to keep communications, strengthen cooperation and vowed efforts to implement the phase 1 deal. The sides reportedly agreed to work together to create beneficial environment for carrying out trade deal, while they agreed good progress was made to make deal a success and that both sides fully expect obligations to be met. (Newswires/Xinhua) Subsequently, a Chinese Gov't Adviser, on the US-China phone call, suggested that the fact that “the dialogue has now gone straight to ministerial level may indicate the problem is quite severe”, via SCMP.

US

Fed's total balance sheet size rose to USD 6.77tln from USD 6.70tln W/W and Treasury holdings increased to USD 4.02tln from USD 3.97tln W/W, while central bank liquidity swaps rose to USD 444.90bln from USD 438.95bln W/W. (Newswires)

Fed's Harker (voter, hawk) said there could be robust growth in H2 if the US economy reopens in June and that banks should not issue large dividends at the moment, while he sees brutally painful Q2 and noted that factories could bounce back but damage to travel and hospitality could be long. Fed's Harker also stated that negative interest rates would not have an effect on the economy in this crisis and evidence on effectiveness of negative rates globally is mixed, while he suggested he has a high hurdle for it. (Newswires)

UK/EU

UK GfK Consumer Confidence (Apr)-33 (Prev. -34). (Newswires)

Eurogroup head Centeno says there are discussions for an ESM credit line with maturity of up to 10yrs. (Newswires)

EQUITIES

European stocks see modest gains [Euro Stoxx 50 +0.8%] after a positive APAC handover – with sentiment supported by Fed Fund futures pricing negative rates from December, alongside the developments in the US-China trade saga in which the two sides vowed efforts to implement the Phase One deal. European bourses see a broad-based performance, whilst the FTSE 100 is closed on account of UK’s Early May Bank Holiday. Sectors in Europe are mostly in the green, with the exception of Financials amid a rebound in bonds. Industrials outperform on the prospect of factories and other industrial operations resuming post-lockdown. In terms of individual movers; ING (+4%) rose some 6% at the open on the back of lower than expected loan-loss provisions. Siemens (+5%) are higher despite dismal earnings as the group moves to accelerate its cost-savings programme to deal with the impacts of the virus. On the flip side, Rheinmetall (-3.0%) holds onto losses as the group warned of a significant negative impact in Q2 earnings.

FX

USD - The DXY is back below the psychological 100.000 level and some distance down from its new early May high (100.400) within a narrow 99.880-627 range amidst widespread Greenback declines vs major and EM counterparts. Nerves ahead of the monthly US jobs data may be weighing on the Buck alongside buoyant risk sentiment after a seemingly constructive call between the US and China on the Phase 1 trade deal that is keeping the YUAN off recent lows and offsetting some COVID-19 economic headwinds. However, the looming payrolls number and unemployment rate are widely expected to highlight the adverse impact of measures taken to mitigate the fallout, while markets are starting to price in or hedge for even lower short term rates in response to even worse contagion from the pandemic in the months to come and this is also weighing on the Dollar.

NZD/AUD - The Kiwi is flying high again, and back on the 0.6100 handle awaiting lift-off from lockdown, but also benefiting from favourable cross-flows as the Aussie reflects on the latest RBA SOMP that essentially repeated the policy meeting assessment and guidance, though also reiterated that QE can be scaled up again if necessary. Aud/Usd is holding above 0.6500 after fading into 0.6550, while Aud/Nzd has pulled back under 1.0650 from around 1.0686 awaiting next week’s RBNZ policy convene and Aussie labour market report.

GBP - Not quite zero to hero, but the early signs are looking considerably better for Sterling after a far from super Thursday, with Cable retesting 1.2400 compared to deep sub-1.2300 levels yesterday and Eur/Gbp pivoting 0.8750 on UK May/VE Bank holiday. No specific or new catalyst for the Pound’s rebound, so the recovery looks more technical and positional ahead of the weekend and Sunday’s update from PM Johnson on plans to remove coronavirus restrictions.

CAD/CHF/EUR - All firmer against the Greenback, as the Loonie extends well beyond 1.4000 to 1.3925 in the run up to Canadian and US jobs data, the Franc pares losses towards 0.9700 and Euro forms a firmer base above 1.0800 following its fall to a fresh multi-week trough. However, the single currency looks somewhat hampered by hefty option expiry interest at 1.0850 (1.9 bn) having attempted a breach earlier.

JPY - The G10 laggard, albeit marginally, with the Yen boxed in from 106.23-46 vs its US peer in wake of 2 efforts to clear 106.00, but no success before the return of Japanese participants from Golden Week.

SCANDI/EM - A positive start to Friday’s session across the board, as firmer oil prices and the aforementioned risk-supportive backdrop keeps the Scandinavian Krona’s in bullish mode, while the Turkish Lira claws back more losses from record lows and SA Rand retains its position as best or most improved EM.

RBA Statement on Monetary Policy stated it will maintain efforts to keep funding costs low and credit available to households and businesses, while it will not raise the cash rate target until progress is being made towards full employment and is confident inflation will be sustainably within 2%-3% target range. Furthermore, it noted that package of measures has been working broadly as expected so far and is prepared to scale up bond purchases again if necessary to achieve yield target but also stated that market functioning has improved and central bank bond purchases and market operations have been scaled back accordingly. (Newswires)

FIXED

Not much to add to the narrative, and not just because UK markets are shut. Nevertheless, Bunds did continue to their recovery from overnight Eurex lows to set a new apex at 174.24, but in low-key and cautious trade ahead of NFP did not trip stops of follow-through buying to get anywhere near Monday’s best (174.69). Perhaps the more pronounced rebound at the Eurozone margins amidst that the EU is contemplating a 10 year ESM credit line has boosted BTPs and Bonos to the relative detriment of the German benchmark or merely the prospect of ECB President Lagarde launching another defence of QE and apply more pressure on the Eurogroup to resolve fiscal differences and deliver a joint rescue fund. However, Italian debt may stall/reverse ahead of Moody’s ratings review after hours. Meanwhile, US Treasuries remain firm and the curve flatter again before the aforementioned jobs data and with FFFs from end 2020 still implying sub-zero rates.

COMMODITIES

WTI and Brent front month futures continue to track sentiment higher, with the benchmarks underpinned on US-China trade optimism, and with the outlook for the complex less dire – reflected by Saudi’s OSP increases yesterday for most oil grades into most of the regions for June. Aside from that, fresh fundamental news-flow has been light. WTI and Brent meander around mid-range, with the former’s June contract having printed an intraday band of USD 23.26-25/bbl whilst the latter clocked a parameter of USD 29.43-30.66/bbl thus far. Elsewhere, spot gold remains steady within a tight USD 1712-1720/oz range ahead of a detrimental US labour market report. Copper prices move higher in tandem with sentiment and amid the prospect of economies returning from lockdown – the red metal briefly topped its recent high at USD 2.4150/lb. Finally, Shanghai iron ore and steel futures posted weekly gains of over 2.5% each on a rosier demand outlook.

CME raised natgas Henry Hub futures maintenance margins by 11.1% to USD 2000/contract from 1800/contract. (Newswires)