• European bourses are softer in-spite of a modestly firmer open, given APAC performance, as sentiment has faded throughout a quiet session – US futures exhibiting similar pressure
• US source familiar with recent discussions stated US officials acknowledged China was largely delivering its pledges on structural issues, reports noted that a Chinese government adviser suggested the deal itself was fragile
• French Finance Minister said the Eurogroup have reached a deal on a EUR 240bln Treasury line for countries that wish to use it
• European Commission President von der Leyen has said that the bloc could take legal action against Germany following last week’s constitutional court ruling.
• Looking ahead, highlights include ECB asset purchases, Fed's Evans & US 3yr Note Auction

CORONAVIRUS UPDATE

US CDC reported total coronavirus cases as of previous day increased to 1,300,696 (Prev. 1,274,036) and total death toll was at 78,771 (Prev. 77,034), while AFP tweeted that there were 776 deaths in US from coronavirus in 24 hours, citing the John Hopkins tracker. (Newswires/AFP/Twitter)

NEC Director Kudlow stated that formal talks on next stimulus package are paused and won’t resume till late-May or early June, while prior reports also noted that the White House hopes to have a Phase 4 Covid-19 stimulus package soon and encourages the House of Representatives to reconvene. (Newswires)

New Zealand PM Ardern said coronavirus case numbers remain low and the country is ready to move to level 2 lockdown from level 3 on May 14th, with retail, malls and cinemas to start reopening that day. PM Ardern stated they will further ease restrictions and that schools will reopen May 18th, while bars will reopen May 21st and most businesses will be open in the next 10 days. (Newswires)

Japan is reportedly considering lifting the state of emergency declaration in most prefectures this month in which 34 out of the 47 prefectures could be removed from the state of emergency status but it will continue to urge caution in some areas including Tokyo. Furthermore, Economic Minister Nishimura later confirmed they will mull lifting the state of emergency in many of the mildly hit prefectures although it could be reinstated if there are signs of overshooting following the cancellation. (Newswires/Nikkei) Tokyo has 15 new cases of COVID-19, according to media reports.

UK PM Johnson outlined a conditional 3-step plan to reopen the economy in which the stay at home message was adjusted to stay alert, control the virus and save lives although he added this was not a plan to end lockdown this week but instead were the first careful steps to modify measures. The first step is a message that those that cannot work from home should be actively encouraged to go to work but should avoid public transport if possible as social distancing must be maintained. PM Johnson added they may be able to begin a phased reopening of shops and schools under step 2 which will be on June 1st at the earliest, while some of the hospitality industry and other public places will be able to reopen in step 3 at the earliest by July subject to conditions. Furthermore, UK PM Johnson unveiled a 5-level Covid alert system. PM Johnson also stated that he will provide more details regarding his announcement on Monday in Parliament and that they will impose a quarantine on people flying in from abroad. (Newswires) Details expected 14:00BST today.

SNB COVID-19 refinancing facility expanded to include cantonal loan guarantees as well as joint and several loan guarantees for startups. (Newswires)

ASIA

Asian equity markets begun the week on the front foot after last Friday’s gains on Wall St where stocks were underpinned by the easing of US-China trade tensions to help the major indices disregard the abysmal US jobs data In addition, efforts to ease coronavirus restrictions and a slowing pace of deaths from the pandemic have added to the optimism. ASX 200 (+1.3%) and Nikkei 225 (+1.1%) were higher as earnings updates were also in focus for Australia and with risk appetite in Tokyo stoked amid reports the Japanese government will compile a 2nd extra budget to address the coronavirus and may lift the state of emergency declaration early in many prefectures. Hang Seng (+1.5%) and Shanghai Comp. (U/C) were also positive after the PBoC pledged to resort to more powerful policies and step up counter-cyclical adjustments to support the economy and fend off risks, with outperformance in Hong Kong led by a surge in tech and gambling names. Finally, 10yr JGBs were lower on spillover selling from T-notes and amid the upside in risky assets, but with downside cushioned due the BoJ’s presence in the market in which the central bank upped purchases of 3yr-5yr JGBs by JPY 50bln to a total of JPY 350bln.

PBoC skipped open market operations and are net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0769 vs. Exp. 7.0784 (Prev. 7.0788)

Chinese Outstanding Loan Growth* (Apr) 13.1% vs. Exp. 12.9% (Prev. 12.7%)

Chinese New Yuan Loans* (Apr) 1700B vs. Exp. 1400.0B (Prev. 2850.0B)

Chinese M2 Money Supply YY* (Apr) 11.1% vs. Exp. 10.2% (Prev. 10.1%)

US source familiar with recent discussions stated US officials acknowledged China was largely delivering its pledges on structural issues such as opening market access and improving IP protection but they have yet to agree in some details including IP action plan and easing equity caps for foreign investors. Furthermore, the source stated fallout from the virus meant agreement on purchasing US goods has become much more important and that many believe China needs to increase pace on purchases, while reports also noted that a Chinese government adviser suggested the deal itself was fragile. (SCMP)

Chinese Foreign Ministry urges US to immediately correct its mistakes regarding new US visa rule for Chinese journalists, otherwise China will have to take countermeasures. (Newswires)

BoJ Summary of Opinions from April 27th meeting stated Japan’s economy is likely to remain in a severe state for the time being and that it is appropriate for the Bank to further enhance monetary easing. BoJ also stated that further easing measures, mainly to provide liquidity, are necessary this time as well and that is important to fully prepare for a possible further worsening of the situation. Furthermore, it noted that policymakers must act boldly to avoid repeating the Great Depression and that there is room for more fiscal and monetary policy coordination as Japan faces risk of deflation. (Newswires)

Japan government will compile a 2nd extra budget to combat coronavirus pandemic and pass through in current Diet session, which is to mainly fund rent assistance, students facing falling income and expansion of corporate subsidies. (Nikkei)

US

US President Trump announced the US will purchase USD 3bln in agricultural products from US farmers beginning in early in the approaching week. (Newswires)

US Vice President Pence is reportedly to self-isolate after an aide tested positive for coronavirus, although other sources dismissed this. (Newswires)

UK/EU

UK ministers are expected to extend the job retention scheme until end-September although at a reduced rate of 60% in which Chancellor Sunak could announce the changes to the furlough scheme as early as this Monday. (Telegraph)

EU Officials have reportedly warned that progress in Brexit talks needs to be made in parallel on all areas or talks will slow; specifically, fishing issues. Additionally, EU diplomats say they have now accepted that the UK is unlikely to extend the transition period – as such, any deal probably needs to be achieved by October to be implemented in time. (FT) UK is drawing up plans to bypass the French port of Calais by developing ports on the UK's East Coast which is said to be due to COVID and Brexit, as well as reduce dependence on France. (FT)

French Finance Minister said the Eurogroup have reached a deal on a EUR 240bln Treasury line for countries that wish to use it and that ESM credit line will be operational on June 1st, while reports also noted ESM coronavirus credit line loan is to be for up to 10-years maturity. (Newswires)

ECB's Schnabel reiterates that the ECB stands ready to adjust the size and duration of PEPP as is necessary; yet to discuss the impact of potential rating downgrades on purchase programme; OMTs were designed for a different type of crisis, but they remain an important part of our toolbox. (ECB)

European Commission President von der Leyen has said that the bloc could take legal action against Germany following last week’s constitutional court ruling. Subsequently, German Chancellor Merkel says that the constitutional court ruling on the ECB has great importance, however, the ruling is "solvable" if the ECB explains its OMT programme. (Newswires)

Italian Gov't are reportedly nearing an accord on an additional EUR 55bln deficit in decree, Il Sole. Italian PM Conte said EU aid is insufficient and recovery fund is needed. (Il Sole/Newswires)

EQUITIES

European equities have given up earlier gains [Euro Stoxx 50 -0.9%] as the mostly positive APAC sentiment deteriorated throughout the session. Fundamental news-flow remain light, but initial signs of a potential resurgence of the COVID-19 outbreak in so-called “success countries” may weigh on investors’ minds. Italy’s FTSE MIB (+0.1%) currently remains the sole bourse in the green as the index is propped up by broad-based gains across Italian Banks amid reports the Italian Gov’t is said to be mulling state guarantees for up to EUR 15bln of bonds issued by banks, according to a draft decree. This would offer banks support from the economy ministry for six months, which could be extended by a further six months if needed but requires the green light from the European Commission. Sectors are mostly in the red with the exception of Consumer Stables; broad sectors reflect risk aversion, whilst Energy underperforms amid price action in the complex. The sector breakdown also paints a similar picture, with Travel & Leisure incurring losses to sit as a laggard. In terms of individual movers, Wirecard (+7.5%) holds onto a bulk of its gains after appointed a new Chief Compliance Officer and raising total board members to seven. French Auto names, namely Renault (+3.7%), see support from the French Finance Minister who said the state is ready to help the auto industry, but production must be brought back to France in exchange. Ericsson (Unch) shaved most of its gains but remains cushioned after upping its 2025 global 5G subscriptions forecast to 2.8bln vs. Prev. 2.6bln.

FX

JPY - Risk sentiment has soured in early EU trade, but Usd/Jpy has breached resistance at the psychological 107.00 level that kept the headline pair in check during the Asia-Pac session amidst broad strength in Yen crosses and to the benefit of the Dollar in general. Indeed, the DXY edged just above 100.000 at best after stalling on Friday post-NFP, with the index also acknowledging a rebound in US Treasury yields alongside curve re-steepening as FFFs unwind negative pricing from end 2020 contracts to April next year at the earliest. Back to the Jpy, latest reports about another supplementary budget follow the BoJ’s April Summary of Opinions noting further room for coordinated fiscal and monetary policy stimulus as Japan remains at risk of deflation, and Usd/Jpy has consolidated about the 21 DMA (107.16).

NZD/AUD - The Kiwi is treading cautiously into the RBNZ policy meeting that is expected to see QE boosted even though NZ is preparing to scale down its lockdown status by Thursday and continue to reopen the economy, while ANZ business sentiment and the activity outlook both improved somewhat per preliminary survey readings for May. However, Nzd/Usd is testing 0.6100 from 0.6150+ at one stage overnight and the Aud/Nzd cross has bounced firmly between 1.0612-78 parameters as the Aussie derives some underlying traction from PBoC guidance pointing at stronger measures to support the Chinese economy including stepping up counter-cyclical adjustments. Nevertheless, Aud/Usd has also pulled back from best levels towards 0.6500 awaiting this week’s jobs data.

EUR/GBP/CHF/CAD - All conceding ground to the Greenback, with the single currency unable to clear 1.0850 and subsequently drifting back down to the low 1.0800 area, but perhaps cushioned by decent option expiry interest from 1.0810-00 ahead of the NY cut, while Cable has been unable to maintain 1.2400+ status again before the resumption of UK-EU trade talks and with little support from PM Johnson’s 3-point plan to remove COVID-19 restrictions. Elsewhere, the Franc has retreated from circa 0.9700 after commentary from SNB chief Jordan confirming that intervention has increased to curb Chf appreciation and backed up by increases in weekly sight deposits, and the Loonie has reversed from around 1.3900 alongside crude prices after outperforming its US counterpart in wake of last Friday’s Canadian-US employment report face-off.

SCANDI - Rather mixed starts to the new week for the Norwegian Krona and its Swedish peer as the former revisited support in Eur/Nok ahead of 11.0000 on the back of significantly firmer than forecast inflation metrics, but the latter bounced from near 10.5700 to 10.6100+ following Riksbank minutes that appear less intransigent on the subject of lowering the repo rate, if required, while maintaining that QE can be scaled up further if necessary.

EM - Far from out of the woods, but the Lira has managed a feat of sorts with its recovery momentum continuing (towards 7.0700 vs almost 7.2700 at the new ATH) after spill-over from the ban on 3 foreign banks trading the Try resulted in a depressed volume volatility spike stopping some of Turkey’s biggest brokers taking orders from retail customers. However, reports suggest the banking regulator may reverse the ban if the banks adhere to regulations regarding lending to local institutions.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.0800-10 (1BLN), 1.0850 (1BLN), 1.0885-90 (500M), 1.0900-05 (425M)

-        EUR/GBP: 0.8600-10 (1.3BLN), 0.8685 (290M), 0.8700 (1BLN), 0.8800 (902M)

SNB Chairman Jordan stated they are making a substantial commitment regarding FX intervention, while he stated they stepped up intervention and are staying course on negative rates to ease the upward pressure on CHF. (Newswires)

New Zealand ANZ Business Confidence (May P) -45.6 (Prev. -66.6). (Newswires) New Zealand ANZ Activity Outlook (May P) -42.0 (Prev. -55.1)

FIXED

Bunds and Gilts have pared some losses, but not before succumbing to fresh intraday lows at 173.22 and 137.22 respectively, even though EU stocks have erased all and more of their early gains and Eurozone periphery bonds likewise. The core 10 year benchmarks may have found underlying bids ahead of round numbers below and the former ahead of technical support in the form of a rising trend-line at 173.16, but the bearish tone and current selling in to upticks suggests caution if not concession for impending supply as fiscal and funding factors override stimulus and back-stops provided by global Central Bank QE, while the front end of the US curve normalises. Ahead, US employment trends and more CB speakers.

COMMODITIES

WTI and Brent front-month futures remain on the backfoot, albeit off lows seen earlier in the trade. Prices see more consolidation from last week’s rise, albeit concerns are resurfacing regarding a potential second wave in COVID-19 cases – with reported cases in Wuhan and South Korea alongside Germany’s R0 climbing to 1.1 from ~0.7. Elsewhere, following Saudi Aramco upping their OSPs across all regions – UAE’s ADNOC and Kuwait’s KPC followed suit. Otherwise, news-flow has been light for the complex in early EU trade, with eyes on this week’s monthly oil market report releases – which will incorporate reopening economies as a factor when deciding revisions to global demand forecasts. Furthermore, Oklahoma’s oil and gas regulators will be meeting later today to discuss mandated state-wide oil cuts, albeit no fireworks are expected from the confab. WTI June resides towards mid-range after printing a base under USD 23.75/bbl and a roof at USD 24.80bbl, whilst Brent July also trades towards the middle of its current intraday USD 29.80-30.96 band. Meanwhile, spot gold moves in tandem with the Buck, moving within a tight band between USD 1702-1712/oz for much of the session; however, the yellow metal has subsequently dropped beneath this and the USD 1700/oz mark. Copper remains contained around flat levels for the session amid a lack of drivers.

Saudi Arabia announced to increase its VAT to 15% from 5% and it cancelled the cost of living allowance, while it noted that low oil demand and prices, as well as impact from the coronavirus pressured state finances to a level that will be difficult to address without impacting the economy on a medium to long-term. Furthermore, Saudi Arabia Finance Minister later commented that the VAT increase will not have much of an impact this year and that the measure is to prepare finances for post-coronavirus phase. (Newswires)

Iraq’s Finance Minister Ali Allawi has been named as acting Oil Minister until the position is filled. (Newswires)