• EU Commission are reportedly to mobilise EUR 750bln for the recovery fund, with EUR 500bln in grants & EUR 250bln in loans; additionally, to propose a budget of EUR 1.1trl
• Sentiment strengthened on these reports with stocks, alongside US futures, climbing to session highs alongside EU periphery bonds surging higher as the core pulled back
• FX sees the EUR continuing to strengthen on such reports which, alongside the improving sentiment, is weighing on the USD
• 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
• US President Trump said coronavirus vaccines and remedies will be here very shortly
• Looking ahead, highlights include EU Commission Recovery Fund Proposal, Fed's Bullard, supply from the 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 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)

EU RECOVERY FUND

European Commission is to reportedly mobilise EUR 750bln for the European Recovery Fund, comprising of EUR 500bln in grants and EUR 250bln in loans, according to DPA; Commission could borrow up to EUR 750bln on financial markets to fund this. Additionally, EU Commission to propose an EU budget worth EUR 1.1tln along with the Recovery Fund, sources state. (DPA/Newswires)

Reported breakdown via sources citing an Official:

-        Italy: EUR 82bln in grants & EUR 91bln in loans

-        Spain: EUR 77bln in grants & EUR 63bln in loans

-        France: EUR 39bln in grants

-        Greece: EUR 22.5bln in grants

Note, EU Commission President von der Leyen is scheduled to speak from 12:30BST/ 07:30ET onwards

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 (U/C) 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 (-0.3%) and Shanghai Comp. (-0.3%) 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. (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)

China's Foreign Ministry says that HK legislation is entirely and internal affair for China and will take all necessary countermeasures against foreign interference. (Newswires)

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)

BoJ says its break-even level for ETF holdings is forecast around 18,500 for Nikkei stock average. (Newswires)

Hong Kong Police are reportedly firing pepper pellets in the heart of its financial centre; witnesses say. (Newswires)

UK/EU

20% of the EUR 500bln EU recovery fund could reportedly be allocated to Italy, La Repubblica; Plan will be greater than the original Franco-German proposal of EUR 500bln. La Repubblica).

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)

ECB's Lagarde says the mild growth scenario has already become outdated, adding that, growth is likely in the range of the medium and severe scenarios. Note, in the ECB's scenario analysis real GDP was set to fall in 2020 by around 5%, 8% and 12% under the mild, medium and severe scenarios, respectively.

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)

EQUITIES

European equities have kicked the session off on the front-foot once again (Eurostoxx 50 +1.9%) in a continuation of recent gains with mounting US-China tensions unable to curtail momentum; and further support arising most recently from reports around the EU recovery fund proposal – to be formally unveiled later today. Instead, the composition of today’s movers and shakers across the continents takes a similar form to those yesterday with travel & leisure names continuing to benefit from ongoing reopening optimism with recent easing of lockdown measures not currently triggering any material pick-up in COVID-19 cases/deaths in the region. As such, Tui AG (+20.4%) sit at the top of the leaderboard once again with IAG (+4.2%) shares also extending on yesterday’s gains and the troubled cruise-line sector seeing some reprieve with Carnival shares up over 8%. Elsewhere, banking names are firmer this morning, in-fitting with price action in their transatlantic counterparts yesterday on Wall St. with upside seen for the likes of RBS (+8.6%), BNP Paribas (+8.4%), SocGen (+9.4%), Barclays (+7.8%), Commerzbank (+7.7%), BBVA (+4.6%). Renault (+15.2%) and Peugeot (+8.2%) are benefiting from yesterday’s announcement of a EUR 8bln support package from the French government with the former also reportedly mulling potential cost savings of EUR 2bln by 2024. To the downside, underperformance can be seen in defensive names with health care the laggard in Europe, whilst IT names are also seen lower with Infineon (-2.0%) shares hampered by the Co.’s decision to raise capital.

FX

DXY, CNY/CNH - Consolidation saw the DXY back with a 99.000 handle in APAC trade following yesterday’s heavy selling. The index remains choppy throughout the session as it hit a high of 99.350 before declining on initial details of European Recovery Fund, with losses prompting the DXY to relinquish the round figure to a low of 98.710. Meanwhile, the Yuan continued to decline through late APAC hours after US President Trump said US actions regarding China will be unveiled by the end of the week, whilst sources noted US is mulling sanctions on Chinese officials and firms over Hong Kong. USD/CNY rise to a whisker from 7.1600 (vs. low 7.1350) with the PBOC issued a firmer fix after the dollar decline. USD/CNY sees its 2019 peak at 7.1844 whilst its offshore counterpart resides north of 7.1700 (vs. low 7.1430) ahead of its record high at 7.1965. Focus today will remain on US-Sino developments alongside the unveiling of the EC Recovery Fund proposal.

EUR, GBP - The Single Currency fought back against the Dollar after reports emerged the European Commission is to propose EUR 750bln for the European Recovery Fund, comprising of EUR 500bln in grants and EUR 250bln in loans. ECB President Lagarde did little to dent the EUR but posited that the ECB’s mild GDP scenario of -5% is outdated – with the metric likely in the range of the medium (-8%) to severe (-12%) scenarios. ECB aside, eyes are on the unveiling of the European Recovery Fund later in the day, with focus on sentiment across EU members, namely the North and South, as the Commission’s proposal is unveiled. EUR/USD took out the 1.1000 handle alongside its 200 DMA (1.1011) having topped its 100 DMA (1.0957) and with EUR 1bln option expiries scattered between 1.0950-60, with a further EUR 1.8bln around 1.0990-1.1000.  Meanwhile, Sterling remains lethargic around 1.2300 vs. the USD as overnight weakness emanated from reports UK Chancellor Sunak is set to announce this week that the government will soon stop allowing companies from placing employees on the furlough scheme. Cable trades in the middle of a 1.2290-1.2350 parameter ahead of a potential barrier at 1.2360 (50% Fib from 30 Apr-18 May move).

AUD, NZD, CAD - High-beta FX largely mirrors USD action, but the Kiwi outperforms as the AUD/NZD cross homes in on the 1.0700 mark to the downside. Meanwhile the Loonie and Aussie initially eke mild gains before the Dollar saw broad losses. NZD/USD reclaimed 0.6200 and topped its 100 DMA around 0.6203 (vs low 0.6175). The Aussie hoverd on either side of 0.6650 before taking out its 200 DMA (0.6658) to the upside and matching yesterday’s high prints at 0.6675. USD/CAD holds onto a bulk of yesterday’s losses and remains sub-1.3800, with the next support point seen at the psychological 1.3750 ahead of 1.3700 mark which coincides with the pair’s 100DMA.

JPY, CHF - Mixed trade for the traditional safe-haven FX with considerable weakness seen in the Franc relative to the peers amid potential SNB presence. EUR/CHF eyes 1.0650 to the upside whilst USD/CHF trades north of 0.9700 vs. lows of 1.0587 and 0.9650 respectively. The JPY meanwhile remains flat on either side of 107.50 and within a tight 25-pip or so range awaiting fresh fundamental developments and a clear risk tone.

FIXED

After a relatively contained start to the session for core counterparts, which for the most part saw some choppiness across the debt space but ultimately nothing too drastic. However, price action was spurred more recently, initially largely within the periphery, on reports that the Commission are to mobilise EUR 750bln for the fund, with EUR 500bln in grants and EUR 250bln in loans; such a proposal exceeds the original EUR 500bln Merkel-Macron proposal and unsurprisingly has been beneficial to the periphery with BTPs and Bonos printing session highs around 142.00 (as such, sending the yield below 1.5% -albeit, relatively short lived) and 156.00 respectively. Focus ahead will now be on whether the reports hold true, reception amongst the EU nations (particularly the ‘frugal four’, as this appears to be a compromise between their proposal and the Franco-German one) and the allocation of funds. On this last topic, earlier reports highlighted that 20% of the EUR 500bln was earmarked for Italy. Within the core, and referring to Bunds in particular, significant downward price action was subsequently seen as overall sentiment strengthened as well as conflicting, and ultimately corrected, reports relating to associated debt issuance. Technically speaking, Bunds dropped into negative territory on the day but still remain firm above the 172.00 handle, which also coincides with near-term support at 172.01. From a spread perspective, BTP-Bund differential has narrowed further to 192bp so far compared to circa 200bp region earlier in the session; a spread which takes us back to early April/late March. Note, timings for the formal unveiling are still unknown but Commission President von der Leyen is due to speak at 12:30BST. Stateside, USTs are weighed on in sympathy with their EU counterparts – with not too much to shout about on the US schedule itself for the session, with further supply via a 5-year note after yesterday’s well received 2-year perhaps the highlight; alongside, Fed’s Bullard. Currently, the curve us essentially unchanged on the day.

COMMODITIES

WTI and Brent front month futures see a session of modest losses thus far as the July contracts hover around USD 34/bbl and USD 35.75/bbl respectively – both within tight ranges of less that USD 1/bbl, and seemingly deriving support from general sentiment. Eyes now turn to the upcoming OPEC meeting starting June 9th, a day after the proposed JMMC meeting – with focus on the producer’s assessment of the oil market and effectiveness of the current output pact. Participant will also be on the lookout for countries that voice for an extension of current curtailments. Aside from that, US-China developments remain in focus whist the EC Recovery Fund proposal could prove a sentiment risk for complex, whilst the weekly Private Inventory figures will be released later today on account of Monday’s Memorial Day Holiday. Spot gold prices mirrors USD action and threatens a test of USD 1700/oz to the downside (vs high USD 1715/oz). Copper prices tracked Chinese stocks and the yuan as US-China tensions continue to mount.

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)