• China's Parliament has voted to approve the Hong Kong National Security Bill, as expected while the US House passed bill calling for sanctions on Chinese officials related to the crackdown on Uighur minorities as expected
• Chinese Gov’t advisors say Beijing is “prepared for the worst case scenario” with the US
• Action in the equity space sees some divergence with European bourses modestly firmer while US futures are mixed as the Nasdaq lags once again
• FX sees the USD stronger as US-China updates escalated while the fixed space is little changed but erring higher
• Looking ahead, highlights include national German CPI (Prelim), US durable goods, US GDP (2nd), IJC, PCE Prices, DoEs, Fed's Williams, supply from the US

CORONAVIRUS UPDATE

US CDC reported total cases of coronavirus rose to 1,678,843mln from 1,662,414 and the death toll rose to 99,031 from 98,261, while AFP tweeted that US coronavirus death toll topped 100,000 citing the Johns Hopkins tracker. (Newswires/AFP/Twitter)

NIH's Fauci said it is safe for states to reopen as long as they do it carefully, while he added testing is improving and hopes to start phase 3 coronavirus trial by July. (Newswires)

South Korea to enhance quarantine measures in the metropolitan area for next 2 weeks, Yonhap reports. (Newswires)

ASIA

Asian equity markets traded mixed as China concerns counterbalanced the momentum from a firm Wall St handover where ongoing reopening efforts and a continued resurgence of cyclicals underpinned the major US indices. ASX 200 (+1.3%) was higher with the top weighted financials sector leading the broad gains in the index although energy lagged following a pullback in oil prices which was exacerbated by bearish inventory data, while Nikkei 225 (+2.3%) benefitted from favourable currency moves and the KOSPI (-0.1%) failed to stay afloat despite the BoK delivering a widely expected 25bps rate cut to bring the 7-Day Repo Rate to 0.50%. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (+0.3%) were choppy with mainland China initially supported after another firm liquidity effort by the PBoC which injected CNY 240bln through 7-Day Reverse Repos. However, the gains were short-lived and Hong Kong markets underperformed due to the ongoing US-China tensions with Trump administration said to be considering suspending Hong Kong's preferential tariff rate for exports to US which means they could face the same tariffs US had imposed on mainland China. Furthermore, Global Times suggested the nuclear option of dumping USD-denominated assets was among the tools for China to exert financial pain on the US and China’s Embassy in US stated that Beijing will take all necessary counter measures for meddling, while the US House passage of the sanctions bill for Uighur human rights abuses and Huawei’s CFO losing a key battle in the extradition case, all added to the ongoing toxic relationship between the world’s top economic powerhouses. Finally, 10yr JGBs were flat amid similar uneventful after-hours trade in T-notes and indecisiveness in stocks, as well as mixed results at today’s 2yr JGB auction.

PBoC injected CNY 240bln via 7-Day Reverse Repos and maintained the reverse repo rate at 2.20%. (Newswire) PBoC set USD/CNY mid-point at 7.1277 vs. Exp. 7.1400-7.1450 (Prev. 7.1092)

US House passed bill calling for sanctions on Chinese officials related to the crackdown on Uighur minorities as expected with the final vote count at 413-1, which sends the bill to US President Trump for signing. (Newswires)

China Embassy in US reiterated Hong Kong affairs are internal, while it added that US Security legislation is very narrow and China will take all necessary counter measures for meddling. Furthermore, it stated that China legislature will vote on security bill today and the law would allow China to establish security bases in Hong Kong to provide stability as per the Basic Law approved between China and Hong Kong. (Newswires)

Beijing is “prepared for the worst case scenario” with the US. Chinese government advisers said China expected tensions with the US to escalate, but Beijing’s retaliation would depend on US action, cited by SCMP. (SCMP) While the Global Times reported that China could strongly retaliate if US takes action on Hong Kong; could target US service industries.

China's Parliament has voted to approve the Hong Kong National Security Bill, as expected. (Newswires) Subsequently, US to reportedly expel Chinese students with military school ties, according to sources via NYT.

Chinese Embassy said it is strongly dissatisfied and firmly opposes the Canadian court's decision on the Huawei CFO, while it added that Canada is an accomplice to the US efforts to harm Huawei and Chinese tech, as well as urged for the immediate release of the CFO. (Newswires)

China's Premier Li says they are open to joining the CPTPP trade agreement. (Newswires)

BoK cut the 7-Day Repo Rate by 25bps to 0.50% as expected, while BoK Governor Lee said the rate decision was unanimous and they will deploy policy tools other than interest rates where appropriate. Furthermore, BoK revised 2020 GDP growth forecast to -0.2% from +2.1% and sees 2021 GDP growth at +3.1%, while it added that growth slowed considerably, consumption remains sluggish and uncertainties to growth path are very high. (Newswires)

Japanese government maintain its overall economic assessment for May unchanged, adding that the economy is in an "extremely severe situation". (Newswires)

US

Boston Fed released loan participation forms for lenders interested in the main street lending program. (Newswires)

US President Trump tweets big tech is doing everything to censor in advance of the 2020 election and if that happens, we no longer have our freedom, while he will never let it happen and suggested to stay tuned, There were also comments from the White House that President Trump will sign an executive order shortly regarding social media companies today. (Newswires)

UK/EU

BoE's Saunders says wouldn't advocate language of aiming to run the economy hot; safer to err on the side of easing too much and then tighten if necessary. (Newswires)

UK PM Johnson will reportedly meet with European leaders in Brussels next month for Brexit talks. (The Times)

German Saxony State CPI MM (May) 0.1% (Prev. 0.4%)

German Saxony State CPI YY (May) 0.9% (Prev. 1.1%)

Since, the Saxony release, other regionals have broadly followed with expectations for the mainland (1300BST) that looks for a Y/Y print of 0.6% (Prev. 0.9%) and M/M reading of -0.1% (Prev. 0.4%)

GEOPOLITICS

US Special Representative to Iran Hook that US policy gives Iran a choice which is negotiate with US or manage economic chaos. (Newswires)

A Senior Russian Senator states that the US decision to end waivers on sanctions, allowing some work at Iranian nuclear sites is an error that could lead to Tehran developing nuclear weapons, according to Interfax. (Newswires)

North Korea described plans to put strategic armed forces on a high alert operation, which a senior researcher suggested means it would be able to immediately launch a nuclear attack anywhere in Northeast Asia. (Newswires)

EQUITIES

European equities (Eurostoxx 50 +0.9%) have started the session on the front-foot once again as optimism surrounding reopening efforts across the continent continues to out-muscle concerns over mounting US-China tensions. HK-exposed HSBC (-2.1%) and Standard Chartered (-1.3%) are trading lower following reports that the Trump administration is reportedly considering suspending Hong Kong's preferential US tariff rate for exports to US in response to China’s (now passed) security law. However, this is yet to have any major follow-through to broader sentiment with price action in Europe taking a similar shape to those of recent sessions with travel & leisure names top of the pile once again. Specifically, for the sector, easyJet (+8.5%) are trading higher after announcing that summer demand indications are improving and the Co. is to consult on a proposal to lower its headcount by up to 30%. In sympathy, Deutsche Lufthansa (+4.2%), Ryanair (+2.8%), IAG (+2.3%) are all trading firmer once again. However, it is worth noting that the Stoxx 600 travel & leisure index is still trading lower by around 30% YTD. In-fitting with the theme of optimism surrounding travel names and reports yesterday that Boeing has resumed production at its Renton facility and will gradually ramp up output over the year, supplier Safran are trading higher by 2.8%. Elsewhere, support has been seen for the tech sector with the likes of Dialog Semiconductor (+3.8%), STMicroelectronics (+3.8%) and Infineon (+3.1%) bolstered by US-listed Micron Technology raising its Q3 revenue forecast yesterday. To the downside, Centrica (-3.3%) are a noteworthy laggard with the Times noting that the Co. could be at risk of losing its place in the FTSE 100. The article also noted that Carnival, easyJet, Meggitt, ITV, M&G and Prudential could also face the chop in what could be one of the largest reshuffles since the GFC.

FX

DXY, Yuan - Little action thus far in the broader Dollar and index as the latter pivots 99.000 having printed an overnight base at 98.773 and a current high at its 100DMA at 99.034. Tensions between US and China will remain a theme with no apparent signs of subsiding for now – with Hong Kong no longer deemed autonomous from China and Beijing reiterating its readiness to retaliate over interference. USD/CNY traded on the softer side of 7.1530-7.1680 band after the PBoC set a firmer CNY fixing than expected, albeit weaker vs. yesterday. CNH meanwhile remains flat around 7.1450 vs. USD after the pair yesterday threatened a fresh record high at 7.1965.  In terms of scheduled events State-side, today’s docket sees US Durable Goods and Q1 GDP (2nd) with the former expected to deteriorate further whilst the latter expects no revisions. Fed’s voter Williams is unlikely to add much meat to the bones following yesterday’s remarks.

AUD, NZD, CAD - All choppy within tight ranges vs. the Buck after earlier sensitivity to the escalating spat between US and China. AUD/USD dipped below 0.6600 despite RBA governor Lowe firmly dismissing negative rate – with some pointing to profit-taking amid trade risk. The pair recovered off lows around 0.6590 vs. high 0.6635. Elsewhere, the RBNZ Financial System Policy chief played down financial stability concerns from negative rates. The Kiwi reversed its earlier move lower but remains sub-0.6200 vs. the Dollar, having had failed to sustain gains above its 100 DMA at the round figure. Meanwhile, the Loonie also tracks softer energy prices with USD/CAD gaining ground above its 100 DMA (1.3709) and eyes a retest of 1.38 to the upside ahead of Q1 Canadian Current account data and stale average weekly earnings for March.

GBP, EUR - Mixed trade with Cable choppy whilst EUR/USD treads water at 1.1000 following an uneventful start to the session. The Single currency side-lined German regional prelim CPIs - largely followed the expectations for the nationwide release – alongside a mixed EZ sentiment survey. EUR/USD sees EUR 960mln opex at 1.0995-1.1000 with a further EUR 900mln between 1.1020-25 ahead of a Fib level around the 1.1050 psychological level. Saunders did little to change the overall narrative by said it safer to err on the side of easing too much and then tighten if necessary. Meanwhile, the wider focus remains on any hiccups over negotiations both regarding the EU Recovery Fund among EU27 and post-Brexit trade FTA between UK and the EU.

JPY, CHF - Safe-haven FX trade on the softer side in daily ranges but more so on Dollar influence amid an indecisive risk tone. USD/JPY prods its 50/55 DMAs at 107.84-86 ahead of session highs 107.89 (low 107.67) and with a chunky USD 1.8bln in options expiring at stroke 107.90. USD/CHF oscillates on either side of 0.9700 but within a tight range of 0.9670-9705 relative to yesterday’s trade.

RBA Governor Lowe said they will maintain expansionary settings until progress is being made towards employment and we are confident on inflation and said there will be a further decline in employment for May but jobs data was not as bad as previously thought. Lowe also stated that 25bps Cash Rate is effectively as low as it can go and that rates are to stay this low for some years and that they could purchase more government bonds if more QE is needed but does not currently see a need to do so, while he suggested that negative rates are extraordinary unlikely which come with a cost to the financial system and that he doesn't think negative rates will work. (Newswires)

Australian Capital Expenditure (Q1) -1.6% vs. Exp. -2.6% (Prev. -2.8%). (Newswires) Australian Private Capital Expenditure 2020-2021 (Estimate 2) 90.9B (Prev. 100.2B) Australian Private Capital Expenditure 2019-2020 (Estimate 6) 115.4B (Prev. 120.3B)

RBNZ Financial System Policy Head Fiennes said negative official cash rate would not pose major stability concerns, while Fiennes added that the RBNZ has scope to increase lending to banks if required and could tweak capital buffer transition period if required. (Newswires)

New Zealand ANZ Business Confidence (May) -41.8 (Prev. -66.6). (Newswires) New Zealand ANZ Activity Outlook (May) -38.7 (Prev. -55.1)

FIXED

Core counterparts are erring towards positive this morning, with USTs seemingly dictating price action so far. The mild strength for bonds emanated after the European cash equity open and following updates out of China’s closing Two-Sessions. While such updates have generated upside the magnitude is relatively minimal with USTs essentially hovering around the U/C mark at present. Within Europe, it’s a similar picture as Bunds followed their US peer’s lead on these reports but have continued to grind higher since, with gains of around 10 ticks at present and residing at the top-end of the session range. Technically, USTs have little in the way of resistance near-term until 139.22; similarly, for Bunds nothing aside from psychological marks resides between their current high at 172.24 and the next technical resistance at 173.16. Within the UK Gilts are modestly subdued as we see another bout of duel-supply, with today’s offering of GBP 2.75bln and GBP 2bln in the 2027 & 2049 lines respectively, the first auction was well received albeit with the b/c a shade below the prior. Looking ahead, attention for the session will remain firmly fixated on US-China developments, particularly the response to the formal passing of the HK securities law. Aside from that, we do have the nationwide German CPIs at 13:00BST, with the state metrics drawing little reaction on release and seemingly chime with the newswire expectations; after which, we get remarks from Fed’s Williams who yesterday remarked that YCC is potentially a tool that could contribute to forward guidance.

COMMODITIES

WTI July and Brent August futures see a session of modest losses thus far with the contracts meandering just around USD 32.60/bbl and USD 35.50/bbl respectively (vs. low of USD 31.14/bbl and USD 34.35/bbl) with some pointing to sentiment-led losses amid the rising tensions between US and China, whilst a surprise build in Private Inventories (+8.7mln vs. Exp. -1.9mln) only added to the bearish tone. Some downside could be emanating from reports that Russian Co's have been raising concerns regarding maintaining cuts with Energy Minister Novak after softly rejecting an extension of current cuts past June – stating that the market could rebalance sometime between June/July. Elsewhere, spot gold sees inflows and investors stock up on the yellow metal ahead of potential US-China tit-for-tat measures. Prices gain a firmer footing above USD 1700/oz and reside around session highs north of USD 1720/oz.

US Private Inventory Crude Stocks +8.7mln vs. Exp. -1.9mln (Prev. -4.98mln). (Newswires)

Kremlin have declined to provide additional remarks on their position on the OPEC+ cuts deal; no change to plans to complete construction of the Nord Stream 2 pipeline - consider sanctions against this pipeline as unfair competition. (Newswires)