• Sentiment remains strong with the e-mini S&P above the 3k handle as US futures outperform their European bourses in a relatively quiet session
• Novavax (NVAX) reports that it has begun a clinical Phase 1 trial of a COVID-19 vaccine candidate
• On Brexit, the EU are preparing to drop its "maximalist" approach to negotiations on fisheries, according to sources
• BoE’s Haldane says the BoE have not remotely come to a view on NIRP
• FX sees the USD softer weighed on by general sentiment and exacerbated by recent GBP strength on the aforementioned Brexit remarks
• Looking ahead, highlights include US Consumer Confidence, New Home Sales, ECB's Lane, Fed's Kashkari, supply from the US

NOTABLE HOLIDAY/WEEKEND UPDATES

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. (NY Times) Subsequently, Chinese Foreign Ministry says China will take necessary countermeasures if US insists on undermining China's interests in regards to Hong-Kong related sanctions. (Newswires)

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)

Novavax (NVAX) reports that it has begun a clinical Phase 1 trial of a COVID-19 vaccine candidate, with the first trial participants enrolled as well; preliminary results are expected to be released in July. (Newswires)

Russian energy ministry sees global market in balance by June-July, according to a source cited by RIA; sees current market global surplus at between 7-12mln BPD (prev. 20-30mln BPD) Separately, Russia are reportedly to impose a temporary ban on oil product imports (IFX)

CORONAVIRUS UPDATE

US CDC reported coronavirus cases rose by 15,342 to a total of 1,637,456 and the death toll rose by 620 to 97,699 while AFP tweeted the US coronavirus death toll rose by 532 citing the Johns Hopkins tracker. (Newswires/Twitter)

UK COVID-19 death toll rose by 112 to 36,914 vs. Prev. increase of 118 and the case count rose by 1,625 vs. Prev. increase of 2,409. (Newswires) UK PM Johnson said the government plans to allow car showrooms and outdoor markets to reopen from June 1st and will allow all non-essential retail to open from June 15th, while he added that he hopes the UK economy will bounce back in the coming months. (Newswires)

German government wants to end travel warnings for tourists from 31 European countries on June 15th but only if the coronavirus situation allows it. (Focus)

WHO temporarily suspended hydroxychloroquine in its COVID19 'solidarity trials' pending safety data, while it will study potential harms and benefits. In other news, Novavax began enrolling participants for a phase 1 study of its COVID-19 vaccine candidate in Australia and stated that if initial results are promising, it plans to conduct phase 2 of the study across multiple countries including the US. (Newswires/WSJ)

ASIA

Asian equity markets were higher across the board and US equity futures also extended on gains in which the E-mini S&P prodded the 3000 focal point, as trade picked up from the holiday lull and given the lack of fresh catalysts to force a shift in the recent constructive narrative. ASX 200 (+2.9%) was lifted as all sectors traded positive and with notable gains seen in both financials and energy, while Nikkei 225 (+2.6%) outperformed as exporters cheered a weaker currency and after PM Abe formally lifted the nationwide state of emergency. Hang Seng (+1.8%) and Shanghai Comp. (+1.0%) also conformed to the positive tone with the surge in Hong Kong attributed to dip buying and with sentiment underpinned after the PBoC injected liquidity through reverse repos for the first time in almost 2 months, while PBoC Governor Yi reiterated that prudent monetary policy will be more flexible and that they will strengthen macro policy, as well as counter cyclical adjustments. Finally, 10yr JGBs were range bound with prices marginally higher amid mixed results at the 40yr JGB auction and despite the gains in stocks, while there were comments from BoJ Governor Kuroda who reiterated the central bank stands ready to act further through various policy tools and suggested that they will conduct appropriate easing measures after the coronavirus is contained.

PBoC injected CNY 10bln via 7-Day Reverse Repos and maintained the rate at 2.20% and announced a CNY 5.0bln central bank bill swap operation today. (Newswires) PBoC set USD/CNY mid-point at 7.1293 vs. Exp. 7.1286 (Prev. 7.1209)

PBoC Governor Yi Gang said prudent monetary policy will be more flexible and that economic fundamentals are unchanged despite many uncertainties, while he added they will strengthen macro policy and counter cyclical adjustments. Furthermore, Governor Yi Gang said they will attract more foreign and private institutions into the Chinese market and support banks, especially small and medium-sized banks to replenish capital. (Newswires) 

Chinese companies listed in US have started seeking listings in Hong Kong and mainland China and will speed up doing so as China-US relations sour. Regulators are likely to launch reforms to accelerate the trend according to experts. (Global Times)

BoJ Governor Kuroda said they are ready to ease via steps such as expanding the loan scheme, rate cuts, increased ETF buying or other new measures, while he added they will take necessary and appropriate easing steps once pandemic is contained and the economy is back on a recovery track. Furthermore, Kuroda said the board forecasts show deflation is not expected but won't see inflation accelerate much and that he personally expects Japan's economy to show a larger contraction in current quarter than in Q1. (Newswires)

Singapore GDP (Q1 F) Q/Q -4.7% vs. Exp. -7.4% (Prev. -10.6%). (Newswires) Singapore GDP (Q1 F) Y/Y -0.7% vs. Exp. -1.5% (Prev. -2.2%)

Singapore cut its 2020 GDP outlook to range of between -4.0% to -7.0% from a forecast range of -1.0% to -4.0%. Furthermore, the Monetary Authority of Singapore said the monetary policy stance remains unchanged and appropriate, while it affirmed the next policy review will be in October. (Newswires)

US

US President Trump's administration is reportedly signalling a broader crackdown for China's communications sector. Citing a senior DoJ Official that the Gov'ts past objections to such firms could provide a guide to pursue other firms as well, Politico

UK/EU

Eurogroup chief Centeno said EU deputy finance ministers have found common ground on the details of the EIB’s pan European guarantee fund which paves the way for a formal approval by the EIB board tomorrow, while he added that it is well on track to become operational by June 1st. (Newswires)

ECB’s Villeroy said the ECB will very probably need to go even further and will not allow unwarranted rate hikes in some nations, while he added that the ECB is clearly prepared to exceed its inflation target. In a later interview, Villeroy noted the ECB can be even more open regarding the flexibility of its PEPP and he is not sure if purchases of equities belongs in the ECB’s toolbox. (Newswires)

BoE's Haldane says the UK economy likely contracted by over 20% in Q2; recent data "just a shade" better than BoE's scenario; BoE has not reached remotely yet a view on NIRP.

-        Perhaps still a V-shaped recovery, but a lopsided V and risks are of protracted recovery

-        Key issues with negative rates are regarding financial sector and confidence in the economy

The UK government is to launch a review into Huawei Tech as officials look to provide a roadmap to reduce the Co.’s involvement in the UK’s 5G network over the next three years. (Newswires)

EU are preparing to drop its "maximalist" approach to negotiations on fisheries with Britain in the next round of negotiations, according to sources. EU hopes that discussions with the UK next week could reduce differences on negotiations and enable momentum for broader talks on trade. (Newswires)

EQUITIES

European indices have extended on yesterday’s gains (Eurostoxx 50 +0.8%) with the FTSE 100 (+1.4%) top of the pile as UK participants return from their extended weekend. In terms of over-arching macro themes, there hasn’t been much in the way of fresh fundamental catalysts since yesterday’s close, however, from a technical perspective, market participants may seek some encouragement from the e-mini moving back above the psychological 3000 mark. Additionally, looking at some of the top gainers thus far, the reopening narrative appears to be playing a key role once again. The main source of traction thus far has been in the travel & leisure sector with UK-listed IAG (+15.4%), Intercontinental Hotels (+12.4%), easyJet (+11.6%) and Ryanair (+7.6%) all showing substantial gains from Friday’s close with optimism for the sector buoyed by ongoing border reopenings across the continent, whilst Deutsche Lufthansa (+5.3%) shares remain elevated after agreeing to a rescue deal with the German government. Asides from the travel & leisure sector, reopening optimism can also be seen in names such as Cineworld (+18.7%), JD Sports (+9.7%) and Hammerson (+7.9%) with UK PM Johnson’s latest update noting that the government plans to allow car showrooms and outdoor markets to reopen from June 1st and will allow all non-essential retail to open from June 15th. Elsewhere, other notable movers include Rolls-Royce (+11.4%), who, asides from benefiting from recent optimism surrounding travel, are looking to negotiate price cuts with certain supplier. Finally, Wirecard (-1.6%) are off worst levels but lower nonetheless after delaying their earnings from 4th June to the 18th June on the basis that audits of annual financial statements for 2019 will not be completed by the planned date.

FX

DXY - The Dollar continues its pullback early EU-doors, with little by way of fresh fundamental catalysts, but some estimates of month-end FX flows favour modest USD selling heading into the May 29th month-end fix.  Looking ahead to the session, month-end factors are likely to influence the Buck in the current absence of fresh macro developments. Meanwhile, State-side data is unlikely to sway the Dollar much, but Fed’s Kashkari (2020 vote) is slated for 1800BST – who stated two weeks ago that there is unanimous opposition against NIRP, but refrained from ruling it out in the future. DXY has retreated further below the 99.500 mark (vs. high 99.979), with its 21 DMA coinciding with the psychological 99.000 mark.

CNH, HKD - Notwithstanding Dollar softness, little action is seen in the currencies thus far. Political tensions remain elevated as Hong Kong’s special status assessment deadline at month-end, and with China threatening retaliation should US impose HK-related sanctions. Meanwhile, PBoC opted for another softer CNY fixing which participants should keep on the radar amid the looming US Currency Manipulation report. Offshore Yuan trades flat around 7.1450 vs. the USD and within a tight band. USD/HKD dipped below yesterday’s low at 7.7530 in early trade. 

EUR - EUR gains remain dimmed after dovish Villeroy alluded to a longer period of negative rates and posited possible further measures – ahead of the June 4th meeting. EUR/USD keeps its head above 1.0900 and eyes its 21 DMA at 1.0958 to the upside, having found an overnight base at 1.0890. Option expiries see EUR 720mln at 1.0900 and a some 1.3bln between 1.0935-45. Traders eye comments from ECB’s Chief Economist Lane (1345BST) and VP de Guindos (1630BST) for signs of agreement with Villeroy’s remarks.

GBP, AUD, NZD, CAD - All beneficiaries of the USD pullback but the Aussie, Kiwi and Sterling outpace as risk appetite intensifies.  Cable topped 1.2300 (vs. low 1.2175), after taking out its 50 DMA at 1.2275, 55 DMA at 1.2288 and a Fib 1.2292 (38.2% of the Apr-May fall) on the back of source reports that EU are preparing to drop its "maximalist" approach to negotiations on fisheries with Britain in the next round of negotiations. Furthermore, BoE’s Haldane said the UK economy likely contracted by over 20% in Q2, "just a shade" better than BoE's scenario of around 25%. The MPC member said the BoE has not reached remotely yet a view on NIRP. Elsewhere Aussie and Kiwi extended on APAC gains and surpassed 0.6600 and 0.6150 against the USD respectively vs. lows of 0.6535 and 0.6092 apiece. CAD meanwhile lags its high-beta peers but remains underpinned on favourable oil prices. USD/CAD gave up 1.3900 to the downside with support seen around the 1.3860 mark for the pair – whilst BoC’s outgoing Governor Poloz and Deputy Governor Wilkins are slated for a text release at 2200BST.

CHF, JPY - Mixed trade among the safe-haven FX – the Yen fails to benefit from the Dollar descend as risk appetite prompts haven outflows, whilst BoJ Governor Kuroda sung from the same hymn sheet regarding readiness to further loosen policy. USD/JPY failed to breach its 50 DMA (107.91) overnight but remains underpinned by the risk-on tone as focus remains on reopening economies and vaccine hopes in the absence of fundamental developments. The Franc ekes modest gains in a consolidation of yesterday’s weakness, USD/CHF dipped below 0.9700 and eyes its 55 DMA (0.9684) to the downside.

New Zealand Trade Balance (Apr) 1267M vs. Exp. 1235M (Prev. 672.0M, Rev. 722M). (Newswires) New Zealand Exports (Apr) 5.26B vs. Exp. 5.30B (Prev. 5.81B, Rev. 5.82B) New Zealand Imports (Apr) 3.99B vs. Exp. 4.00B (Prev. 5.14B, Rev. 5.09B)

FIXED

As markets are back in full swing after yesterday’s holiday closures in the UK and Stateside, core counterparts find themselves under sizeable pressure as risk sentiment remains strong after US equity futures rallied overnight; perhaps driven by the continued re-opening of global economies and updates on potential COVID-19 vaccines in focus. Bunds have slipped through several technical levels including mid-May lows at 172.26 at worst; albeit, the downside does appear to be capped by 172.00 itself with support also residing just below this at 171.95. Separately, today’s Schatz auction saw the strongest demand in 13-years with a bid-to-cover of 3.3x. Sticking with Germany, but also encapsulating the periphery, as the BTP-Bund spread has moved back below the 200bp mark for the first time since early-April. With attention on, and the spread assisted by, tomorrow’s presentation of the Franco-German recovery fund, which does present some risk given the clear opposition from the ‘Frugal Four’ alongside remarks overnight/this morning from ECB’s Villeroy intimating further PEPP related action is probable. Moving to the UK, which played catchup to the market holiday but is now similarly subdued given the overall risk tone and perhaps weighed on by positive source reports relating to the longstanding sticking point of fishing rights in Brexit talks. Crossing the pond to the US, price action is very similar to the aforementioned EU peers with focus for the session, and indeed the week, on the chunky supply out of the US which begins today with a USD 44bln 2-year note sale; currently, the curve is bear steepening.

COMMODITIES

WTI and Brent front month futures continue to post gains, albeit the benchmarks have waned off highs in recent trade. Eyes remain on the wider implications on global trade and sentiment from the fallout of the US-Sino trade spat threatening a cold war, whilst investors must not be distraction from the prospects of reinstated lockdowns should COVID-19 cases rise again. On the supply front- Russian Energy Minister Novak is to reportedly meet with Russian oil majors to discuss an extension of current cuts past the end of June – the checkpoint for OPEC to reduce output curbs. Aside from that, news flow for the complex remained light in early EU hours. On the data front, the weekly Private inventories will be watched today – particularly in regards to Cushing storage. WTI and Brent July remain north of USD 34/bbl and USD 36/bbl respectively having printed bases at USD 32.50/bbl and USD 35.50/bbl apiece. Spot gold succumbs to the risk appetite and see modest outflows, with losses cushioned by the weaker Buck as the yellow metal straddles USD 1725/oz. Copper prices post decent gains amid the risk tone and softer Dollar – with prices eyeing USD 2.45/lb to the upside.

Russian Energy Minister Novak is to reportedly discuss today with Russian oil majors the implementation of the OPEC+ output pact, sources state. The energy minister will reportedly be discussing a potential extension of the current oil output cut agreement. (Newswires)

Saudi Arabia permitted domestic flights to resume after taking precautionary measures, while it lifted the ban on workplace attendance for the government and public sector. (Newswires)

Wood Mackenzie said China’s oil demand is expected to recover to 13mln bpd in Q2 which will be a 16.3% increase from Q1, while it added China’s oil demand is expected to increase 2.3% Y/Y to 13.6mln bpd during H2. (Newswires)

China's Global Times tweeted 100mln tons of oil reserves were detected in CNOOC-owned Kenli 6-1 oilfield which is the first 100mln ton oilfield in Bohai Bay area, guaranteeing China's energy security and boosting the economy of regions around the sea. (Twitter)