• European bourses continue to move further into negative territory after a subdued APAC session as US-China rhetoric ramped up; Stateside, futures are also softer but by a smaller magnitude
• US President Trump suggested China could have stopped the COVID-19 plague and that China’s disinformation and propaganda attack on the US and Europe was a “disgrace”
• Furthermore, diplomatic backchannels between US and China are said to have dried up and some suggest behind the scenes meetings/messages between officials have ground to a halt, SCMP
• FX, sees the USD outperforming all major peers in particular antipodeans given the US-Sino rhetoric
• Looking ahead, highlights include US PMIs, CBRT and SARB rate decisions, US Initial Jobless Claims, Existing Home Sales, Fed's Powell, Williams & Clarida, supply from the US

CORONAVIRUS UPDATE

AFP noted there were 1561 deaths in US from coronavirus in 24 hours citing the Johns Hopkins tracker. CDC’s Director Redfield remarks that the spread of COVID-19 in the southern hemisphere means it is likely to return in the US in autumn/winter, and therefore raises the potential for another lockdown period. (AFP/FT)

US Senate Majority Leader McConnell said that expanded unemployment benefits will not be included in the next bill and that he is comfortable waiting to observe how prior approved coronavirus spending plays out before moving ahead with the next relief bilk. (Politico)

California will reportedly announce plans to reopen the entertainment industry next week, although LA County which is home to Hollywood faces weeks of delay, according to reports citing Governor Newsom. (AFP)

ASIA

Asian equity markets struggled to sustain the impetus from the rebound on Wall St where stocks were underpinned by hopes of a pick-up in economic activity after all US states were said to have at least partially reopened and as the continued recovery in oil prices also supported the risk tone, with sentiment in Asia eventually clouded by ongoing US-China tensions. ASX 200 (-0.4%) was initially led higher by strength in energy names although the index later reversed the moves after its top weighted financials sector dipped into the red and amid the souring ties with China. Nikkei 225 (-0.2%) also failed to hold on to opening gains despite reports Japan is set to lift the emergency declarations in Osaka, Kyoto and Hyogo, but with Tokyo not included in the status lifting, while participants digested mixed trade data that showed Exports at a narrower than expected contraction, which was still the worst decline since 2009. Hang Seng (-0.5%) and Shanghai Comp. (-0.5%) were subdued as the war of words between US and China persisted with US President Trump alleging the incompetence of China was behind the mass worldwide killing and that China’s disinformation and propaganda attack on the US and Europe is a disgrace. Furthermore, the White House released a report blasting China for its actions ranging from predatory economic policies to human rights abuses, and the US Senate recently passed the bill aimed at increasing oversight of Chinese companies that could see them delisted from US exchanges. Finally, 10yr JGBs were higher as they tracked the upside seen in T-notes following the hostile US-China rhetoric and decent results at the new US 20-year auction which disproved the naysayers that had anticipated a lacklustre auction, while the BoJ presence in the market and mild deterioration in risk tone also added to the upside for JGBs.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0868 vs. Exp. 7.0924 (Prev. 7.0956)

US President Trump tweeted criticism on China in which he suggested it is trying desperately to deflect the pain and carnage the country spread throughout the world, while he added disinformation and propaganda attack on the US and Europe is a disgrace and that it all comes from the top. Furthermore, he added they could have easily stopped the plague but they didn’t and that China is on a massive disinformation campaign because they are desperate to have Biden win the presidential race so they can continue to rip-off US as they have done for decades until he (President Trump) came along. (Newswires)

White House released a report which blasted China for predatory economic policies, military build-up, disinformation campaigns and human rights abuses. (Washington Post)

US regulators are open to changes to shut a potential loophole in regulations aimed at curbing global chip sales to Huawei according to sources, while it was also reported that US Democrat Rep. Sherman introduced a House bill to increase oversight of Chinese companies. (Newswires)

China Foreign Ministry’s Hong Kong Office said US actions on Hong Kong is a blatant interference on China's internal affairs, while it added that Secretary of State Pompeo's actions on Hong Kong cannot scare the Chinese people and China will unswervingly safeguard its sovereignty. (Newswires)

Diplomatic backchannels between US and China are said to have dried up and some also suggest behind the scenes meetings and messages between their officials have ground to a halt. (SCMP)

A senior Chinese leader says it will back improvements in the systems and mechanisms related to basic law and the constitution in Hong Kong and Macau. Thereafter, it was reported that China's NPC is to reportedly propose a Hong Kong National Security Law, according to HK01. (HK01)

Chinese Economic Advisor to the Govt says China should set a GDP growth target of 6% for the next two to three years instead of an annual one, via Global Times. (Global Times)

Japanese PM Abe says that the emergency declaration in Tokyo could be lifted on May 25th if the trend continued. (Newswires)

Japanese Trade Balance (JPY)(Apr) -930.4B vs. Exp. -560.0B (Prev. 5.4B). (Newswires) Japanese Exports (Apr) Y/Y -21.9% vs. Exp. -22.7% (Prev. -11.7%) Japanese Imports (Apr) Y/Y -7.2% vs. Exp. -12.9% (Prev. -5.0%)

GEOPOLITICS

Iran has dismissed fresh US sanctions and fruitless and repetitive, recalls the ineffectiveness of prior sanctions. (Newswires)

UK/EU

EU Markit Manufacturing Flash PMI (May) 39.5 vs. Exp. 38.0 (Prev. 33.4)

-        Services Flash PMI (May) 28.7 vs. Exp. 25.0 (Prev. 12.0)

-        Comp Flash PMI (May) 30.5 vs. Exp. 25.0 (Prev. 13.6)

German Markit Manufacturing Flash PMI (May) 36.8 vs. Exp. 39.2 (Prev. 34.5)

-        Services Flash PMI (May) 31.4 vs. Exp. 26.6 (Prev. 16.2)

-        Comp Flash PMI (May) 31.4 vs. Exp. 34.1 (Prev. 17.4)

French Markit Manufacturing Flash PMI (May) 40.3 vs. Exp. 36.1 (Prev. 31.5)

-        Services Flash PMI (May) 29.4 vs. Exp. 27.8 (Prev. 10.2)

-        Comp Flash PMI (May) 30.5 vs. Exp. 32.0 (Prev. 11.1)

UK Flash Services PMI (May) 27.8 vs. Exp. 25.0 (Prev. 13.4)

-        Manufacturing PMI (May) 40.6 vs. Exp. 36.0 (Prev. 32.6)

-        Composite PMI (May) 28.9 vs. Exp. 25.0 (Prev. 13.8)

EQUITIES

European stocks see losses across most major bourses [Euro Stoxx 50 -1.4%], as the negative APAC sentiment reverberated into the region. Bourses see broad-based losses amid the escalating rhetoric between US and China as sentiment between the nations hit a low – with Spain faring slightly better after earlier underperformance on account of its extended State of Emergency, while Switzerland and Scandi markets are closed amid holidays. Broader sectors are all in the red with defensives faring better than cyclicals – suggesting risk aversion across the market, whilst the breakdown pains a similar picture with banks and Travel & Leisure among the laggards. In terms of individual movers, easyJet (+6.3%) holds onto gains after announcing the resumption of flights from 15th June. Co. believes there is sufficient customer demand to support profitable flying. Initial schedule will comprise mainly of domestic flights in UK and France, Further routes will be announced in the coming weeks as customer demand increases. Sticking with the airline sector, Lufthansa (+4.8%)  confirmed it is in advanced talks with the German Govt’s Economic Stabilisation Fund (WSF) on a stabilisation package comprising of measures amounting up to EUR 9bln, with the package subject to approval by the European Commission. On the flip side, Altice (-12%) shares tumble post earnings.

FX

EUR/GBP - Mixed to weaker than forecast French and German PMIs were rather misleading, as the preliminary survey for the bloc as a whole beat on all counts to keep the Euro elevated and more resistant than other majors against a broad Dollar revival. Indeed, Eur/Usd remains underpinned above 1.0950 even though the DXY has pared some losses from Wednesday’s 99.001 low to sit a bit more comfortably within a 99.183-434 range ahead of US PMIs and the latest weekly jobless claims data. Similarly, albeit to a lesser extent, the Pound has regained composure in wake of UK services, manufacturing and composite readings all surpassing consensus, with Cable back above the 1.2200 handle and Eur/Gbp just holding below 0.9000. However, the former still looks bearish from a technical standpoint after breaching one side of an inverse head and shoulders chart formation at 1.2225, while a softer than forecast CBI trends metric did little to spur any action.

AUD/NZD - Renewed risk aversion and further assurances from RBA Governor Lowe about turning up the QE dial again if needed have prompted a pull-back in the Aussie and Kiwi from midweek peaks vs their US counterpart, as Aud/Usd reverses from 0.6600+ and Nzd/Usd is back under 0.6150. Note much in the way of additional impetus gleaned from CBA PMIs overnight, but NZ retail sales could be more pivotal later.

CAD/CHF/JPY - Firm crude prices continue to cushion the Loonie from downturns in broader risk sentiment, but Usd/Cad has further from sub-1.3900 lows into a band up to 1.3946, while the Franc is pivoting 0.9650 and Yen is consolidating between 107.49-84 parameters following a much wider than expected Japanese trade deficit due to exports plunging around 3 times more than imports.

SCANDI/EM - The Scandi Crowns have both lost momentum amidst the aforementioned risk-off mood, with Eur/Sek and Eur/Nok rebounding after forays to fresh multi-month lows towards 10.5000 and 10.8500 respectively, but the overall trend remains bearish in cross terms. Meanwhile, EMs have also handed back some of their recent gains as the clock ticks down to CBRT and SARB rate verdicts that are predicted to reveal matching 50 bp benchmark reductions, but could conceivably culminate in more aggressive easing moves. Usd/Try is straddling 6.7900 at present and Usd/Zar has reversed through 18.0000 after crossing the psychological mark on Wednesday.

RBA Governor Lowe said the future remains unusually uncertain in which one uncertainty is the pace of which restrictions are eased and another source is the level of confidence people have about their future, while he added the RBA remain prepared to scale up bond purchases again if necessary but noted there is a limit to what can be achieved with monetary policy. Furthermore, RBA Governor Lowe added there is no change to thinking on negative rates which are still extraordinarily unlikely and that the costs of negative rates exceed the benefits. (Newswires)

FIXED

Not much to choose between the pan Eurozone and UK PMIs in terms of preliminary prints exceeding expectations, on balance, but Gilts are still clearly ahead in the core bond stakes after correcting higher off the Liffe open and getting to within a tick of Monday’s pinnacle. The 10 year benchmark remains above 138.00 vs 137.96 at worst in wake of a slightly weaker than forecast CBI industrial trends orders balance in contrast to Bunds that have slipped below 173.00 having also shaved the wtd peak by a whisker before retreating to a new 172.66 Eurex low (-6 ticks vs +38 ticks at one stage). Meanwhile, US Treasuries have not deviated much outside relatively thin overnight session ranges in low key volumes due to Ascension Day, but with futures maintaining an ascending profile as the curve flattens after 20 year supply. Ahead, busy pm agenda kicking off with the CBRT policy decision, US claims, Philly Fed, SARB rate call, US Markit PMIs, existing home sales and LEI plus Fed speakers either side of BoC’s Poloz.

COMMODITIES

WTI and Brent front month futures eke mild gains in what is another new-flow light European session. Rising US-Sino frictions weigh on the stock markets but caps gains in the energy market, as the complex still prices in demand from reopening economy alongside lower supply from producers. Regarding OPEC, Russian oil and condensate between May 1-19 was reported to have averaged 9.42mln BPD – although condensate is not part of the OPEC+ deal – its output was reportedly between 700-800mln BPD, meaning Russian oil output was modestly above the agreed cap of 8.5mln BPD, according to ING. WTI July resides just south of USD 34/bbl whilst its Brent counterpart trades on either side of USD 36/bbl – with both benchmarks within a USD 1/bbl or so intraday band. In terms of bank commentary, Citi sees Brent prices averaging USD 39/bbl in Q2 and USD 48/bbl in Q4, expects oil market to move into a deficit from June through Q3 2020 onward. Meanwhile, spot gold remains weighed on by a firmer USD as President Trump ramped up rhetoric against China – with the yellow metal around USD 1735/oz having printed a high of USD 1749.50 thus far. Copper prices have receded in tandem with stocks and the overall protectionism-hit sentiment, but downside action remains limited as the demand prospect from opening economies underpin demand for the red metal.

China is expected to raise crude output by around 2% Y/Y for 2020, according to CNPC Research. (Newswires)