• Asia-Pac indices mostly declined following the late selling pressure on Wall St. after President Trump announced a press conference on China later today
• NEC Director Kudlow reiterated that the Phase One US-China trade deal is still on for now
• US President Trump signed an executive order on social media companies which means they will no longer have a liability shield
• UK reportedly seeks to form an international alliance of 10 democracies or “D10” to create alternative suppliers of 5G equipment
• In FX markets, the DXY languished at the prior day’s lows after its recent failed attempt to reclaim the 99.00 level
• Looking ahead, highlights include German retail sales, EZ CPI, US personal income, PCE & core PCE, Canadian GDP, Chicago PMI, Uni. of Michigan (F), Baker Hughes

CORONAVIRUS UPDATE

US COVID-19 cases rose 1.2% to 1.7mln and total deaths rose by 1415 to 100,446, while AFP tweeted US coronavirus death toll rose by 1297 in 24 hours citing the Johns Hopkins tracker. (Newswires)

UK COVID-19 death toll rose to 37,837 (Prev. 37,460) which is an increase of 377 vs. prev. 412 increase and the case count rose by 1,887 vs. prev. 2,013 increase. UK Scientific Adviser Vallance said the UK R level is between 0.7 and 0.9 (Prev. 0.7 to 1.0). UK PM Johnson said fourth test relating to testing and protective equipment supply has been met, while he added they can ease the lockdown from Monday to reopen schools and shops. Additionally, family and friends will be able to meet outdoors in groups of six with social distancing. (Newswires)

French PM Phillipe said France will be favourable to reopening borders with other EU countries from June 15th. (Newswires

ASIA

Asia-Pac indices mostly declined following the late selling pressure on Wall St. after President Trump announced to conduct a press conference regarding China later today, while weak data releases and month-end factors added to the lacklustre risk tone. ASX 200 (-0.8%) underperformed with the declines led by Financials and Industrials although gold miners bucked the overall trend after the recent rebound in the precious metal. Nikkei 225 (-0.4%) was also negative after a slew of data releases including the largest Y/Y decline in Retail Sales since 1998 and a wider than expected contraction in Industrial Production, that forced the government to cut its assessment on industrial production which it labelled as ‘decreasing rapidly’ for the first time since November 2008. In addition, large Japanese automakers suffered after output in the sector fell by a record 33% M/M and Nissan posted its worst loss in 2 decades. Elsewhere, Hang Seng (-0.7%) and Shanghai Comp. (Unch.) began subdued ahead of President Trump’s press conference on China which follows the NPC passage of the Hong Kong national security legislation, but with the mainland showing signs of resilience after another firm liquidity operation by the PBoC which injected CNY 670bln of funds this week through reverse repos following a near 2-month hiatus. Finally, 10yr JGBs were rangebound with prices uninspired despite upside in T-notes and the mostly negative risk tone, as well as the BoJ’s presence in the market for JPY 840bln of JGBs with 3yr-25yr maturities.

PBoC injected CNY 300bln via 7-Day Reverse Repos for a weekly net injection of CNY 670bln. (Newswires) PBoC set USD/CNY mid-point at 7.1316 vs. Exp. 7.1355 (Prev. 7.1277)

US President Trump stated that he will give a press conference on China on Friday. (Newswires/Twitter)

NEC Director Kudlow said that China is making a big mistake in taking control of Hong Kong, while he added that they may need to treat HK the same as China regarding tariffs but reiterated that the Phase One US-China trade deal is still on for now. (Newswires)

US Senators Van Hollen and Toomey are reported to be bringing the China sanctions bill for its action regarding Hong Kong forward to next week. (Newswires)

Japan’s government cut the assessment of industrial production and noted that industrial production is decreasing rapidly, while an official stated auto production in April fell 33.3% M/M in April which was the largest decline since comparable data was available in 2013. (Newswires)

Japanese Industrial Production (Apr P) Y/Y -14.4% vs. Exp. -11.2% (Prev. -5.2%). (Newswires) Japanese Retail Sales (Apr) Y/Y -13.7% vs. Exp. -11.5% (Prev. -4.6%, Rev. -4.7%); largest decline since 1998.

Tokyo CPI (May) Y/Y 0.4% vs. Exp. 0.1% (Prev. 0.2%). (Newswires) Tokyo CPI Ex. Fresh Food (May) Y/Y 0.2% vs. Exp. -0.2% (Prev. -0.1%) Tokyo CPI Ex. Fresh Food & Energy (May) Y/Y 0.5% vs. Exp. 0.1% (Prev. 0.2%)

UK/EU

UK reportedly seeks to form an international alliance of 10 democracies or “D10” to create alternative suppliers of 5G equipment and other tech to avoid reliance on China. (The Times)

UK PM Johnson's senior adviser Dominic Cummings is reportedly considering quitting later this year. (Daily Mail)

EU Brexit Negotiator Barnier said it will be extremely difficult but it is possible to reach a deal with the UK by the end of the year, while he suggested there should be more realism in London if they want an orderly deal to leave the single market and customs union. (Newswires)

UK Lloyds Business Barometer (May) -33 (Prev. -32); matches record low. (Newswires)

FX

In FX markets, the DXY languished at the prior day’s lows after its recent failed attempt to reclaim the 99.00 level with the ongoing China tensions, month-end flows and downward revision for US Q1 GDP ensuring the lacklustre tone for USD. The greenback’s major counterparts benefitted in which  EUR/USD held on to most its gains although has met resistance just shy of the 1.1100 handle, and GBP/USD was rangebound above 1.2300 as the UK is set to further ease the lockdown from Monday with schools and shops set to reopen. Elsewhere, USD/JPY was pressured by the risk averse tone and antipodeans remained afloat due to the recent USD-woes but with gains limited after the PBoC continued to adjust the reference rate to its weakest in more than 12 years.

COMMODITIES

Commodities lacked firm direction overnight with WTI crude futures giving back some of the gains seen during the prior session where source reports that Saudi Arabia and some other OPEC+ nations want to extend current output cuts transcended over this week’s bearish inventory data to push prices briefly above USD 34.00/bbl. However, some of the gains have been retraced due to cautious overnight risk tone and Fed’s Kaplan (Dallas Fed President) also suggested it could take to H2 next year for the global excess inventory to come off. Elsewhere, gold prices were uneventful but  remained above USD 1700/oz level and copper was marginally softer amid the ongoing US-China concerns.

UAE's ADNOC plans to cut its crude nominations for July by 5% for all grades, according to an industry source. (Newswires)

Fed's Kaplan said it will take until H2 2021 to work off the global excess inventory and sees US oil production down by 2mln BPD Y/Y to 10.8mln in December 2020. Kaplan also stated that some smaller oil producers and leveraged firms will not survive and expects there to be consolidation in the sector, while he added that oil drillers will face challenges ramping up again after layoffs. (Newswires)

GEOPOLITICS

China’s Parliament Chief said they will never let any force in any way separate Taiwan from China and that pro-independent forces in Taiwan must be struck down, while the official added that non-peaceful action is option of last resort for Taiwan. There were also comments from a Chinese Senior General that the military will use all ways to ensure completeness of territory if chance for peaceful reunification is gone and suggested that they need to keep both peaceful and military options to resolve the Taiwan problem. (Newswires) 

US

The UST curve resumed bear steepening as stocks added to recent gains, supported by further indications of economic recovering. Heading into the US session, the curve lacked direction, however, following weekly jobless claims – which showed the first drop in continued claims since the crises began – duration was offered, seeing the benchmark 10-year Treasury yield gravitate to the 70bp region. Yields remained close to highs in the latter part of the session, with the USD 38bln new 7-year auction likely sustaining the pressure, which tailed the 0.544% by 0.9bp, covered 2.55x (average), and dealers took slightly more than usual. Note, month-end Treasury rebalancing would not have supported this week’s auctions due to settlements occurring in June. Looking ahead, the Fed will announce its week ahead asset purchases schedule on Friday afternoon, where it will again likely cut its purchases (currently at USD 5bln per day this week, or USD 20bln across the whole week). US T-note futures (u0) settled 6 ticks lower at 138-21.

Fed's Williams (voter, neutral) reiterated that inflation is falling not rising and expects inflation to run below levels seen in the last year or two, while he added the Fed has other tools more effective than negative rates to stimulate the economy and that negative rates don't make sense. (Newswires)

Fed's Kaplan (voter, dove) said the economy has bottomed and expects growth in H2 and in 2021, while the baseline forecast of unemployment falling to 10%-11% by year-end and to under 7% by end-2021, assuming that consumers are willing to travel, eat-out and resume activity. (Newswires)

Fed's Daly (non-voter, dove) said unemployment has risen astoundingly high and suggested the fiscal bridge needs to be longer to get through the pandemic crisis. (Newswires)

US President Trump signed an executive order on social media (FB, TWTR, SNAP) which means they will no longer have a liability shield and stated they will pursue legislation, as well as litigation in addition to the executive order. President Trump added he is directing the Attorney General to cooperate with states to enforce their own laws against the deceptive business practices of social media companies, while he added that social media companies are tantamount to a monopoly and that Twitter should be shut down if it is not honourable. (Newswires)