• Major US indices finished higher although staggered heading into the close after reports the US is considering sanctions on Chinese officials and firms
• US President Trump said we will hear about US actions on China by the end of the week
• The DXY nursed the prior day’s losses to reclaim the 99.00 handle, EUR/USD trade around 1.0950, GBP/USD remains above 1.2300
• UK Chancellor Sunak is set to announce this week that the government will soon stop allowing companies from placing employees on the furlough scheme
• Looking ahead, highlights include EU Commission Recovery Fund Proposal, ECB's Lagarde, de Guindos, Fed's Bullard, supply from the UK & US

CORONAVIRUS UPDATE

US President Trump said coronavirus vaccines and remedies will be here very shortly. President Trump confirmed they reached a deal regarding costs of insulin and stated that Americans will save a minimum of USD 446 per year on insulin, while he added that he will utilize all his power to reduce drug prices. (Newswires)

US CDC reports 24,958 new cases to 1.662mln (prev. 1.637mln); deaths rise 592 to 98,261 (prev. 97,669). (Newswires)

US House Speaker Pelosi said Republicans will come around on the next virus aid, while she added that testing with timetables and milestones is essential. (Newswires)

German Federal Government and State Premiers have reportedly agreed to extend social distancing rules until June 29th, according to a government source. (Newswires)

ASIA

Asian equity markets traded indecisively for most of the session as the broad global rally stalled following the handover from Wall St, where all major indices finished positive although staggered heading into the close after reports the US is considering sanctions on Chinese officials and firms over Hong Kong, while President Trump later noted we will hear about US actions on China by the end of the week. ASX 200 (+0.8%) declined heavily at the open with the index pressured by weakness in the metals complex and underperformance in gold miners, although strength in energy and financials provided a cushion to help the index retrace the initial losses. Nikkei 225 (+0.7%) was temperamental with an improvement in the risk appetite seen after initial details of the 2nd extra budget were announced which is valued at JPY 117.1tln and will include direct spending of JPY 72.7tln, while PM Abe suggested they will provide JPY 140tln in financial support to companies. Hang Seng (-0.5%) and Shanghai Comp. (-0.1%) were cautious amid the heightened US-China tensions but with downside stemmed after a firm liquidity injection by the PBoC and as participants digested the latest Chinese Industrial Profits data for April which showed a decline of just 4.3% compared to the 34.9% slump in the prior month. Finally, 10yr JGBs were lower despite the tentativeness in the region with prices subdued amid the lack of BoJ presence in the markets and anticipation of increased supply with Japan’s 2nd extra budget to involve an additional JPY 31.9tln of JGB issuances to push the total issuances for the current fiscal year to JPY 210tln.

PBoC injected CNY 120bln via 7-Day Reverse Repos with the rate kept at 2.20%, while it stated the fund injection is to counteract the impact from the government bond issuance and is to keep liquidity reasonably ample. (Newswires) PBoC set USD/CNY mid-point at 7.1092 vs. Exp. 7.1220 (Prev. 7.1293)

Chinese Industrial Profits (Apr) Y/Y -4.3% (Prev. -34.9%). (Newswires) Chinese Industrial Profits YTD (Apr) Y/Y -27.4% (Prev. -36.7%)

US President Trump said that the US is doing something about it but didn't provide details when asked about potential sanctions on China regarding Hong Kong, while he added we will hear about US actions on China by the end of the week. It was also reported that US President Trump and US Secretary of State Pompeo met to discuss restricting F and J visas for students and researchers in China from studying in the United States. (Newswires/Fox)

US is reportedly considering sanctions on Chinese officials and firms over Hong Kong although discussions are ongoing, according to sources. Furthermore, reports added the Treasury department could impose controls transactions and freeze assets of Chinese officials and businesses for implementing the new national security law, while the White House earlier stated that President Trump is displeased with China's efforts and it's hard to see how Hong Kong can remain a financial hub if China takes over. (Newswires)

US Senator Rubio tweeted that if China’s rubber stamp legislature moves forward on Thursday with blowing up “One Country, Two Systems” in Hong Kong, the US State Department will have no option but to certify that Hong Kong is no longer autonomous and sanctions should follow. Rubio also commented that the House has put his Uyghur Human Rights bill on the calendar in which they are hopeful it will pass very soon and head to the President for signature to become law, while he suggested that it was another horrifying abuse being perpetrated by the Communist Party of China. (Twitter)

Japanese PM Abe said they will provide JPY 140tln in financial support to companies and will set aside JPY 10tln in budget reserve from the 2nd budget, while he added that the 1st and 2nd extra budgets feature a combined JPY 120tln of fiscal spending and the size of packages are to total JPY 230tln. Furthermore, the draft showed the 2nd extra budge is valued at JPY 117.1tln which will include direct spending of JPY 72.7tln and will involve additional JGB issuance of JPY 31.9tln. (Newswires)

UK/EU

UK Chancellor Sunak is set to announce this week that the government will soon stop allowing companies from placing employees on the furlough scheme. (FT) Furthermore, Sunak is also considering whether or not to axe the self-employment support programme. (Telegraph)

EU Chief Brexit Negotiator Barnier tweeted that they confirmed there will be no FTA without a level playing field & a balanced, sustainable, long-term solution on fisheries. (Twitter)

ECB’s De Guindos said the ECB is committed to addressing bond-market fragmentation and that the ECB is flexible on its timing and the types of asset purchases. (Newswires)

ECB's Schnabel said she thinks it will not come to that situation when asked what would be the impact if the Bundesbank is ordered to stop buying bonds. Schnabel added that the Bank is prepared to expand any of its tools if the medium-term outlook worsens. (FT)

Dutch PM Rutte said the European emergency fund should only provide loans and not grants. (Newswires)

FX

The DXY nursed the prior day’s losses to reclaim the 99.00 handle as the predominantly indecisive risk appetite spurred mild safe-haven flows into the USD, while its major counterparts pulled back from recent gains with EUR/USD testing its 100DMA level at 1.0959 to the downside and with GBP/USD slightly weakened as the latest reports suggested UK Chancellor Sunak is set to announce this week that the government will soon stop allowing companies from placing employees on the furlough scheme. USD/JPY was rangebound and JPY-crosses were pressured as sentiment benefitted both the greenback and its Japanese counterpart, while antipodeans were constrained by their high-beta statuses and with CNH offered on the US-China tensions which saw the CNH weaken to a fresh record low against HKD.

COMMODITIES

WTI crude futures were choppy around the USD 34.00/bbl level with prices also not helped by reports the Russian government tentatively approved plans to drill oil wells to stand ready to pump in 2022. There were also notable comments from the IEA that investment in the energy industry is anticipated to decline 20% and losses of energy revenue will surpass USD 1tln, while focus now turns to the latest stockpile numbers beginning with the private inventory release later today which was delayed due to the Memorial Day holiday. Elsewhere, gold prices are marginally weaker and edged closer to the USD 1700/oz level as the greenback recouped lost ground and copper prices reflected the broad overnight indecision.

Russian government tentatively approved plans to drill oil wells to stand ready to pump in 2022, according to a government statement published Tuesday. (Newswires)

IEA said the coronavirus crisis is causing the biggest decline in global energy investment in history in which it sees global investment in energy to drop 20% or by USD 400bln this year vs. Prev. forecast of 2% growth, while it added governments and the industry is to lose well over USD 1tln in energy revenue this year. (Newswires)

GEOPOLITICS

US President Trump said we can always go back to Afghanistan if needed and that he has no target for when to remove troops from the country but wants to do it as soon as it is reasonable. (Newswires)

US Pentagon official said US nuclear forces are ready and deter all adversaries including potentially North Korea. (Yonhap)

US Navy noted another unsafe Russian intercept of a US Navy P-8 aircraft occurred over international space above the Mediterranean Sea which is the 3rd occurrence in 2 months. (Twitter)

US

The TPLEX sold off on Tuesday after the long weekend, as equity futures rebounded to the upside. By settlement, the curve had bear steepened with yields lower by between 1-6bps across the curve. The sell-off began at the CME open and then accelerated as Spooz broke above its 200dma and above 3000 for the first time since early-March; real money was also reported to be a heavy seller. Further, the souring US-China relations were overshadowed somewhat by new entrants into the COVID vaccine development. Meanwhile, a slew of IG deals came to the dollar market, likely amplifying the pressure on duration. Towards the front-end, the US sold its new, upsized 2-year note, USD 44bln worth, tailing the 0.176% WI by 0.2bp, covered 2.68x (vs average 2.59x), and dealers taking 32.1% (in line with average). T-note (M0) futures settled 6+ ticks lower at 138-30+.

Fed Discount Rate Minutes stated that no sentiment was expressed by the Board for changing the primary credit rate at this time, and the Board approved the establishment of the primary credit rate at the existing level of 0.25%. (Newswires)

US President Trump tweeted that Twitter (TWTR) is interfering in the 2020 Presidential Election and that he will not allow them to stifle free speech after Twitter highlighted two of President Trump's tweets that alleged mail-in ballots would lead to widespread voter fraud and it provided a link to a fact-check page with summaries that refuted President Trump's claims. (Twitter)