• Asian equity markets were mostly negative following the late slump on Wall St. with sentiment soured over second wave fears and US-China tensions
• Republican Senators proposed legislation which would empower President Trump to impose sanctions on China if it does not provide a "full accounting" for the coronavirus outbreak
• US House Democrats are reportedly moving ahead with a new stimulus bill worth more than USD 3tln
• UK is on course for a budget deficit of GBP 337bln this year compared to the GBP 55bln forecast in March’s budget, via Telegraph
• RBNZ kept the OCR at 0.25% and boosted its Large Scale Asset Purchases programme to NZD 60bln as expected
• Looking ahead, highlights include UK GDP & output, Swedish CPI, US PPI, DoEs, OPEC monthly oil report, ECB's Lane, de Guindos, Fed's Powell, supply from Italy, UK, Germany and the US

CORONAVIRUS UPDATE

US COVID-19 cases rose by 18,106 (+1.4%) to 1,342,594 (Prev. +1.3%) and the death toll rose by 1,064 (+1.3%) to 80,820 (Prev. +1.1%), while AFP tweeted there were 1894 deaths in US from coronavirus in 24 hours citing the Johns Hopkins tracker. (Newswires/AFP/Twitter)

University of Washington's coronavirus mortality model now projects 147k deaths in US by August which is 10k higher than previous forecast. (Newswires)

US House Democrats are reportedly moving ahead with a new stimulus bill worth more than USD 3tln, although it was later reported that the House Democrats Progressive Caucus asked House Speaker Pelosi to delay planned Friday vote on a new stimulus bill to next week. Furthermore, US Senate Majority Leader McConnell stated that he will insist on a narrow coronavirus response bill if there is to be one and Republican Senator Thune said the House relief bill will not advance in the Senate. (CNN/Newswires) White House Advisor Hassett said the consensus among the White House is to wait to see the effects of reopening the economy before finalising a decision on the final stage of COVID-19 legislation. (Newswires)

German Chancellor Merkel and French President Macron have agreed to open the Franco-German border again, according to reports citing information from the Elysée Palace. Furthermore, reports added they are still working on the details of a return to the normal Schengen system without controls and Federal Interior Minister Seehofer still has yet to agree to this. (Handelsblatt)

ASIA

Asian equity markets were mostly negative following the late slump on Wall St. and with sentiment soured by fears of a 2nd coronavirus wave, as well as efforts in the US Senate to impose sanctions on China. ASX 200 (-0.1%) and Nikkei 225 (-0.4%) were lower as the Australian benchmark suffered from the withered ties with China and amid initial losses in financials after the largest bank CBA reported a drop in cash profit and spike in loan impairment expenses, while sentiment in Tokyo was pressured by a firmer currency and with a slew of earnings releases dominating newsflow. Hang Seng (+0.2%) and Shanghai Comp. (-0.2%) were both lacklustre as US-China concerns were stoked by reports of several measures in the US Senate against China including proposed legislation by Republican Senators that would empower President Trump to impose sanctions on China if it does not provide a "full accounting" for the coronavirus outbreak and with the Senate is also planning to move on legislation that would impose sanctions on Chinese officials over human rights abuses against Uighur Muslims. India markets bucked the trend with the Sensex (+2.0%) and Nifty (+2.0%) both surging at the open after PM Modi’s recent announcement of a special economic support package totalling INR 20tln, but with some of the gains pared amid the broad cautious tone in the region. Finally, 10yr JGBs were flat with the gains in T-notes, weakness in stocks and the BoJ presence in the market for JPY 810bln of JGBs all failing to spur prices.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0875 vs. Exp. 7.0867 (Prev. 7.0919) US Republican Senators proposed legislation which would empower President Trump to impose sanctions on China if it does not provide a "full accounting" for the coronavirus outbreak. In related news, the US Senate is planning to move on legislation that would impose sanctions on Chinese officials over human rights abuses against Uighur Muslims, while US Senator Cruz introduced legislation to incentivize mining companies to produce in the US and electronic manufacturers to use US based rare earths over China imports. (Newswires/The Hill/AFP)

UK/EU

UK MPs have been instructed to return to Westminster at the start of June to set an example as lockdown is eased. (Sky News)

UK is reportedly on course for a budget deficit of GBP 337bln this year compared to the GBP 55bln forecast in March’s budget, according to reports citing a government document. As such, reports note that the Treasury could have to set out a proposed “policy package” of spending reductions and tax increases within weeks. (Telegraph)

COVID-19 has "removed any prospect" of a full UK and US trade deal being finalised this year, according to a Harvard Kennedy School paper. The report notes that a "mini" deal could be reached but it would be of limited economic benefit to the UK and carry political costs. (Times) 

Barclaycard said UK consumer spending fell 36.5% Y/Y in April which was the largest decline since the survey began in 2015, while UK supermarket spending rose 14.3% Y/Y in April. (Newswires)

UK BRC Sales Like-For-Like (Apr) Y/Y 5.7% (Prev. -3.5%) excludes temporarily closed stores but includes online sales. (Newswires)

A judge who drafted the legal opinion for the German Constitutional Court on the ECB's bond-buying scheme has said that the ECB "shouldn't see itself as the master of the universe". (Newswires) 

FX

The DXY nursed the prior day’s weakness and tested the 100.00 level, with the greenback also not helped by the temperamental US-China headlines and concerns of a second coronavirus wave after NIH’s Fauci warned of serious consequences from opening too soon. EUR/USD traded rangebound near 1.0850 with the pair surrounded by several moving average levels and GBP/USD languished near the prior day’s lows after Chancellor Sunak extended the furlough scheme for 4 months and with the UK reportedly on course for a GBP 337bln budget deficit this year. Elsewhere, USD/JPY was restricted by the lack of risk appetite which also hampered antipodeans currencies, while losses in NZD/USD were exacerbated after the RBNZ policy decision in which it kept the OCR at 0.25% and boosted its Large Scale Asset Purchases programme to NZD 60bln as expected, which will now include inflation-indexed government bonds. The central bank also struck an overtly dovish tone and noted that negative rates will become an option in the future and that it preferred an approach of delivering stimulus sooner rather than later.

RBNZ kept the OCR unchanged at 0.25% and boosted the Large Scale Asset Purchases programme to NZD 60bln from NZD 33bln as expected, while it stated the LSAP programme will now include NZ government inflation indexed bonds and it expects retail interest rates to decline further. The Committee reaffirmed forward guidance that the OCR will remain at 0.25% until early 2021 but noted negative OCR will become an option in the future and that discussions with financial institutions regarding a negative OCR are ongoing. Furthermore, the central bank stated that financial institutions are not operationally ready for negative rates but they have asked banks to be ready by end of the year for negative rates and they agreed that a least regrets monetary policy approach is needed, delivering stimulus sooner rather than later. (Newswires)

COMMODITIES

Commodities were subdued overnight in which WTI crude futures retreated from resistance at USD 26/bbl level following a larger than expected build in the latest private inventories crude stockpiles and following a bearish EIA forecasts which now sees demand to contract by 8.13mln bpd this year. Copper was also pressured due to the risk averse tone amid the temperamental US-China headlines and gold was kept range bound amid a marginally firmer greenback and as the USD 1700/oz level continued to provide a base for prices, although there were some bullish forecast from Citi which continues to forecast the precious metal breaching the USD 2000/oz level next year.

US Private Inventory Crude Stocks (w/e 8th May) +7.6mln (exp. +4.1mln, prev. +8.4mln). (Newswires)

Saudi Arabia is committed to support stability of global oil markets and its cabinet urged OPEC+ countries to adhere to reduced rates to contribute to restoring balance in global oil markets, according to Saudi Press Agency. (Newswires)

EIA cut 2020 world oil demand growth forecast by 2.9mln BPD to a decline of 8.13mln BPD Y/Y and its 2021 world oil demand forecast was cut by 580k BPD to 6.99mln BPD Y/Y increase, while it sees inventories to begin drawing in July 2020 and with draws continuing through the end  of 2021. (Newswires)

CME raised crude oil NYMEX maintenance margins by 20% to USD 12000/contract from USD 10000/contract. (Newswires)

Citi upgraded Q2 average gold price outlook to USD 1710/oz and said its base case market outlook continues to forecast a breach of USD 2000/oz next year, while it expects platinum prices supported through H2 this year on improved economic sentiment and investment demand. (Newswires)

US

The TPLEX traded firmer on Tuesday amid the duration bazooka Treasury supply, lacklustre risk appetite, and China risk. Treasuries had been richening ahead of the record size 10-year auction, supported by a 0.8% M/M decline in April CPI, in addition to equity downside as US futures struggled to break key resistance levels after the cash open. The USD 32bln 10-year auction stopped through the 0.712% WI by 1.2bps, covered 2.69x (vs average 2.46x), while dealers took just 20.52% (vs average 26.3%) – a successful all-round auction amid the new record refunding. Note that concession for the auction may have already taken place in prior sessions, in which the 10-year yield had risen from lows of 61bps on Friday to 70bps at the time of today’s auction. The Fed’s activeness in the market may have also limited pushing yields much further, despite the 30-year auction on Wednesday and the continued deluge of corporate deals; not to mention the new 20-year maturity arriving next week. Post the auction, duration continued to catch a bid after reports that GOP Senators had introduced new China sanctions legislation due to its treatment of Uighur Muslims. By settlement, the curve had firmly bull flattened. US T-note futures (M0) settled 10+ ticks higher at 138-30+.

Fed's Mester (voter, hawk) said this is the worst and speediest deterioration in the labor market many of us have ever seen and that Q2 will show most severe impact on the economy but added the baseline outlook is for economy to begin growing again in H2. Mester also said she would like to stay away from negative rates because it would impact money markets and suggested that negative rates won’t work in the US economy due to effects on banking system and mutual funds, while she noted that no tool is off the table but her preference is to use forward guidance and other measures first. (Newswires)

Fed Quarles (voter, hawk) said he expects the 2020 stress test results to be completed sooner than the end of June "given the current environment" and that the unemployment rate will be extremely high in the near-term. (Newswires)

Fed's Barkin (non-voter, hawk) said he thinks we are at the bottom and headed up, while he reckons a clear plan to manage risks around the pandemic will inspire confidence to begin a recovery. (WSJ)