• Asian equity markets began the week mostly higher following last Friday’s recovery on Wall St. where the US major indices gradually clawed back opening losses
• Thousands of protesters rallied in Hong Kong on Sunday against China’s national security law
• US announced it will include 33 Chinese firms and institutions in an economic blacklist
• The Oxford University COVID-19 vaccine has only around a 50% chance of success, according to the Professor leading the development of the drug
• DXY was lacklustre with price action rangebound beneath the 100.00 level owing to the absence of key global markets
• US administration officials reportedly held discussions on Friday about the possibility of conducting a nuclear test
• Looking ahead, highlights include German GDP (detailed), German IFO. Note, today is a UK & US market holiday

CORONAVIRUS UPDATE

US CDC reported coronavirus cases rose by 26,229 to a total of 1,622,114 and death toll rose by 1,047 to a total of 97,049, while AFP tweeted that US coronavirus death toll rose by 638 citing the Johns Hopkins tracker. (Newswires)

US President Trump tweeted that schools in the US should be opened ASAP and suggested there was plenty of very good information now available. In other news, the state of Nevada is setting June 4th as the reopening date for casinos. (Twitter/Newswires)

US will reportedly test experimental coronavirus vaccines in 100k people or more from July in which the vaccine candidate from Oxford University may be tested side by side with Moderna's (MRNA), while Johnson & Johnson, Merck and Sanofi vaccines could be added in summer. (Newswires) Other reports note, as a result of how quickly the virus is fading and the subsequent impact on testing samples, the Oxford University COVID-19 vaccine has only around a 50% chance of success, according to the Professor leading the development of the drug. (Telegraph)

US White House suspended travel to the US for foreigners that have visited Brazil in past 14 days. (Newswires)

UK PM Johnson confirmed the UK will be in a position to move to step 2 of the plan and that reception, year 1 and year 6 students will return to school on June 1st, while he added we are making good progress although the progress is provisional. (Newswires)

China’s Global Times stated that a research team led by Peking University is taking the lead by unsheathing neutralizing antibodies, which will likely lay the foundation for potent treatment against the coronavirus and that it would hopefully be available as early as this winter. (Twitter)

ASIA

Asian equity markets began the week mostly higher following last Friday’s recovery on Wall St. where the US major indices gradually clawed back opening losses after encouraging comments from NIH’s Fauci and US plans for large Phase 2 trials, spurred vaccine-related optimism. ASX 200 (+1.5%) and Nikkei 225 (+1.5%) traded positively with tech and energy front-running the broad gains seen across Australia’s sectors, while sentiment in Tokyo was underpinned by expectations the state of emergency will be lifted today in all remaining areas including the capital and with the government reportedly considering compiling a new package mostly consisting of financial support to companies which would be funded by a second supplementary budget valued more than JPY 100tln. Hang Seng (-1.0%) and Shanghai Comp. (Unch.) lagged their regional peers with the mainland bourse choppy amid ongoing US-China tensions and with the Hong Kong benchmark extending on last Friday’s near-6% slump after thousands of protesters rallied on Sunday against China’s national security law, while the protests were met heavy handed by the police which used pepper spray and a water cannon to disperse the crowd. Finally, 10yr JGBs were marginally lower amid gains in Japanese stocks but with downside stemmed by the BoJ ‘s presence in the market for nearly JPY 1.1tln of JGBs mostly concentrated in 1yr-10yr maturities.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.1209 vs. Exp. 7.1205 (Prev. 7.0939)

Chinese President Xi said the country’s economy will prove resilient in the long term and that it will stand on the right side of history amid the rise of protectionism. There were also separate comments from the NDRC that it expects domestic consumption to show signs of an improvement this month as new forms of consumption such as e-commerce are encouraged. (SCMP/Newswires)

China State Council Research Office Director Huang said there was intense debate on whether to drop the GDP target for this year or not and that the final decision was made to free local governments from burden of a numeric target and to encourage them to focus on protecting jobs, livelihoods and small businesses. (Newswires)

China’s Global Times noted that Chinese experts predict the PBoC is highly likely to announce interest rate or RRR cuts in H2 to fuel an economic recovery due to blows stemming from the coronavirus pandemic and amid external uncertainties. (Global Times)

China's Global Times tweeted that the US is now unilaterally pushing decoupling with China and warned that in the post-pandemic world, it might find it is decoupling with the rest of the world citing a Chinese expert. (Global Times)

China’s Securities regulator, in response to US proposals which would force Chinese Co’s to delist from US exchanges, says this would ‘weaken confidence’ in American Markets and politicises securities regulation. (Newswires)

US National Security Adviser O’Brien stated that the US government will likely impose economic sanctions on Hong Kong and China if China moves forward with national security law for Hong Kong. There were also separate reports that US announced it will include 33 Chinese firms and institutions to an economic blacklist for actions including assisting Beijing spy on the minority Uighur population or allegations of ties to China's military and WMDs. (Newswires/NY Times)

UK Conservative MPs have called for PM Johnson to speed up new legislation to make it more difficult for overseas SOEs, such as Chinese firms, to take over struggling UK companies. In other news, UK PM Johnson was reportedly planning to reduce Huawei’s involvement in UK 5G network within the next three years. (FT/Telegraph)

Japan is reportedly to lift the state of emergency declaration in Tokyo, Kanagawa, Saitama and Hokkaido today. There were also comments from Japanese Economic Minister Nishimura that the emergency declaration is no longer needed in any of Japan's regions and the expert panel also agreed the state of emergency can be lifted for all areas. (Nikkei/Newswires)

Japan’s government is considering compiling a second supplementary budget valued more than JPY 100tln which will consist of JPY 60tln for interest loan scheme for businesses and JPY 27tln for other financial support measures. (Newswires)

UK/EU

UK PM Johnson said he has looked at the allegations regarding adviser Cummings who he said acted responsibly and legally, while he added that he understands his situation and thinks that many do, but also noted he gets why people may feel confused and offended. This follows news that his top adviser Cummings was reported to Durham Police regarding breaking lockdown rules and PM Johnson is said to face cabinet revolt for supporting Cummings regarding the lockdown breach. (The Sun)

UK Chancellor Sunak authorised a bailout plan to save strategically important companies in which the government will acquire stakes in important companies experiencing acute financial difficulties, in which he widened the capacity of the Treasury to handle bespoke bailouts of viable companies that have exhausted all options. (FT/Newswires) UK Gov’t is reportedly to ask employers to fund 20-30% of employees wages on the furlough scheme as of August alongside their national insurance contributions. (Times)

UK Home Secretary Patel said they are bringing in quarantine measures now to prevent a second wave and protect our gains, while the UK announced a 14-day quarantine for arrivals in the country to prevent imported cases of coronavirus with measures to begin on June 8th and be reviewed every 3 weeks. (Newswires)

UK government is said to be a in new disagreement with Brussels over delays in granting full diplomatic status to the EU’s representation in London. (FT)

Netherlands, Austria, Denmark and Sweden have tabled an alternative proposal for the EU recovery fund that would have a two year limit and provide loans, not grants. (FT)

FX

In FX markets, the DXY was lacklustre with price action rangebound beneath the 100.00 level owing to the absence of key global markets at the start of the week with both London and New York closed, while the early optimism at the beginning of Asia trade also contributed the greenback’s lack of appeal. Nonetheless, its major counterparts failed to capitalize on this with EUR/USD subdued after it relinquished the 1.0900 handle to the downside and with GBP/USD restrained below 1.2200 as PM Johnson was said to face Cabinet revolt after supporting senior adviser Cummings who faced calls to resign after breaching the lockdown. Elsewhere, USD/JPY was choppy amid the uneventful greenback and lack of global FX participants, which also resulted to drab price action for antipodean currencies and follows the weakest CNY reference rate setting by the PBoC since early 2008.

Australia preliminary exports for April fell 12% M/M and imports fell 5% M/M. (Newswires)

New Zealand government was said to be mulling a national unemployment insurance program and to make temporary tax-free payments to those that lost their jobs due to the coronavirus. (Newswires)

Turkey raised the tax on individual FX purchases to 1.0% from 0.2% and increased the withholding tax on banks’ commercial paper to 15% from 10% as it seeks to raise more funds to help address the economic fallout from the coronavirus pandemic. (Newswires)

COMMODITIES

WTI crude futures were pressured at the open and briefly fell below the USD 33.00/bbl level but then recovered amid the mostly positive tone in Asia, while the latest Baker Hughes rig count showed further declines in oil rigs and reports also noted that US production was declining at a faster than expected pace. Elsewhere gold prices were marginally lower amid the slight positive risk tone which also underpinned copper prices but with gains capped amid underperformance in its largest buyer China.

Baker Hughes (22/05): Total rigs -21 at 318; oil rigs -21 to 237; nat gas. unchanged at 79. (Newswires)

OPEC Secretary General Barkindo said OPEC+ members must remain committed to production cuts despite signs oil demand is starting to recover, while he added that there are tentative signs of recovery and we believe the worst is behind us according to Energy Intel. (Twitter)

US oil output is reported to be declining faster than anticipated with production by May 20th said to be down by almost 20% or 2.3mln bpd, while further declines are expected for the year according to reports citing Genscape. (FT)

Russian President Putin ordered a bailout of the nation’s oil industry. (Newswires)

GEOPOLITICS

US administration officials reportedly held discussions on Friday about the possibility of conducting a nuclear test which would be the first test explosion since 1992. This was after some officials asserted the China and Russia are conducting low yield nuclear tests, although the meeting concluded without any agreement. (Washington Post)

US

The TPLEX bull-flattened to end the week as participants withdrew risk exposure ahead of the long weekend, rising US-China tensions over Hong Kong, and disappointing China growth/stimulus targets. By settlement, 2s unchanged at 0.17% and 30s -3bps at 1.37%. Yields made their lows overnight, alongside equity futures, on the tails of the lacklustre China deficit target and lack of concrete GDP target. However, as the US session came into the horizon, equity futures and yields began to climb back higher finding support from Fauci comments and after the US equity open, yields traded rangebound through till settlement. T-Note futures (M0) settled 3 ticks higher at 139-05.

NY Fed cut Treasuries/TIPS purchases to USD 20bln (prev. 30bln) for the upcoming week. (Newswires)