• US President Trump is to announce actions against China today in response to the HK bill – timing currently unknown
• POTUS is reportedly to cancel visas of some Chinese students with links to the PLA, WSJ
• China's Foreign Ministry reiterates they are determined to take countermeasures against the US in relation to its actions over Hong Kong; prepared to take all necessary measures
• Sentiment remains tentative, with month-end flows also playing a role, aiding EUR/GBP and fixed income most notably thus far
• FX sees the USD softer and erring closer to the 98.00 in DXY terms while the Treasury curve, in contrast to yesterday, is bull-flattening
• Looking ahead, highlights include US personal income, PCE & core PCE, Canadian GDP, Chicago PMI, Uni. of Michigan (F), Baker Hughes, Fed Chair Powell & President Trump (Timing TBC)

CORONAVIRUS UPDATE

South Korea have approved Gilead's (GILD) remdesivir as an emergency treatment for COVID-19, Yonhap.

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 (-1.6%) 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 (-0.2%) 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. (+0.2%) 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 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)

US President Trump is expected to announce today that the US will be cancelling visas of some Chinese students with links to the PLA, according to WSJ citing sources. (WSJ) Similar to recent NY Times reports

China's Foreign Ministry reiterates they are determined to take countermeasures against the US in relation to its actions over Hong Kong; prepared to take all necessary measures. (Newswires)

China's Foreign Minister says that the US is trying to bring down Huawei and that Canada has been an accomplice with regards to the Co.'s CFO arrest. China urges Canada to release the Huawei CFO with immediate effect. (Newswires)

China Foreign Ministry says it reserves the right to take countermeasures against the UK if Britain offers permanent residency to Hong Kong citizens. (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%)

US

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)

Twitter (TWTR) Communications have placed a public interest notice on a tweet from President Trump, stating it violates policies regarding glorification of violence. The tweet “....These THUGS are dishonoring the memory of George Floyd, and I won’t let that happen. Just spoke to Governor Tim Walz and told him that the Military is with him all the way. Any difficulty and we will assume control but, when the looting starts, the shooting starts. Thank you!”. (Twitter)

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)

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

EZ HICP Flash YY (May) 0.1% vs. Exp. 0.1% (Prev. 0.3%)

-        X-Food & Energy Flash YY (May) 1.1% vs. Exp. 1.1% (Prev. 1.1%)

-        X Food, Energy, Alcohol & Tobacco Flash YY (May) 0.9% vs. Exp. 0.80% (Prev. 0.90%)

German Foreign Minister Maas says we are a long way off agreeing the EU recovery fund. (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. 

EQUITIES

European equities (Eurostoxx 50 -0.6%) have bucked their recent trend of starting the session off on the front-foot as stocks stage a pullback heading into month-end. Despite being a key theme throughout the week (where stocks have gained), US-China tensions are hampering sentiment early doors in Europe as markets brace themselves for US President Trump’s press conference later today (time TBC) on China. Ahead of this press conference, China has been on the offensive this morning reiterating that they are willing to take countermeasures against the US in relation to its actions over Hong Kong, urged Canada to release the Huawei CFO immediately and threatened to take countermeasures against Britain if it offers permanent residency to Hong Kong citizens. Sectoral performance in Europe thus far has seen a reversal of some of the trends throughout the week with travel & leisure names underperforming today with Tui (-7%) a notable laggard after the Co’s UK unit has cancelled all its foreign holidays until 1 July, and some that were not due to depart until November. Other movers in the sector include Carnival (-6.3%), Deutsche Lufthansa (-4.3%), easyJet (-4.2%), IAG (-4.2%) and Air France (-2.8%); note, the travel & leisure sector trades higher by 7.8% for the week. Elsewhere, to the downside, Rolls Royce (-9.1%) sits at the foot of the Stoxx 600 after the Co. was downgraded to junk by S&P amid disruptions from COVID-19. Renault (-4.9%) shares are hampering the Automobile sector after the Co. announced it is to reduce its headcount by 14.6k over three years in an attempt to save over EUR 2bln, but with the plan implementation costing EUR 1.2bln. Also, in a reversal of trends seen throughout the week, the Stoxx 600 banking sector is trading lower by 1.8%, albeit holds onto gains of 7.8% since Monday.

FX

DXY, Yuan - The Dollar index continues to descend with month-end flows cited as one of the main factors. DXY again fell below its 200 DMA (98.505) from a high of 98.549 and thereafter dipped below the 55 WMA (98.191) before printing a current base just under at 98.170. The State-side data slate sees April PCE Price Index, but Fed Chair Powell’s webcast (1600BST) and President Trump’s announcement on China (time TBC) will likely garner today’s focus and set the themes. On that note, tensions between the two largest economies see no signs of subsiding, and rhetoric remains harsh. Nonetheless, the Yuan has nursed its overnight losses with the USD/CNH sub-7.1700 having printed an APAC high at 7.1766.

JPY, AUD, SEK - All beneficiaries of the USD pullback with the Yen outperforming potentially on safe-haven tailwinds. USD/JPY sees itself on the softer side of the current 107.06-71 daily band, having briefly dipped below its 21 DMA at 107.19 as it inches closer towards the 107.00 psych mark. AUD/USD probes 0.6650 as it eyes its 200 DMA (0.6656), albeit pair topped but failed to close above the level for four consecutive sessions. SEK also trades on the firmer side after shrugging off a QQ Q1 GDP beat as the annualised figure missed. EUR/SEK dipped below 10.5100 to session lows from a high of 10.5500.

EUR, GBP - Mixed trade in the core European currencies with some attributing month-end demand propping up EUR/GBP past 0.9000 to a high of 0.9030 (vs. low 0.8980). As such, Cable briefly took out 1.2300 to the downside, exposing the 21 and 55 DMAs at 1.2290 and 1.2272 respectively. Meanwhile, the Single currency gleans support from an offered Dollar and has extended its move above 1.1100 after probing a short-term Fib level at 1.1111, with little initial reaction to in-line EZ flash CPI. EUR/USD opex today sees some EUR 1.1bln between 1.1145-55 – formidable against the month-end background.

CAD, NOK, NZD - The G10 laggards with CAD and NOK failing to reap rewards from the softer Buck amid weaker oil prices – USD/CAD posts mild gains above 1.3750 in a contained range as the pair eyes Canadian Q1 GDP figures. Similarly, EUR/NOK trades flat at 10.8400 in a 10.8170-8500 parameter. The Kiwi’s underperformance meanwhile could be a function of AUD/NZD regaining ground above 1.0700. NZD/USD trades on either side of 0.6200 awaiting the next catalyst.

FIXED

Core counterparts look set to end the week on a marginally positive tone, with potential further upside to come as the session continues given the ever-increasing tensions between the US-China as well as domestic US affairs escalating. In addition to these potential risk catalysts, desks note that performance for the month could imply (assuming the 60/40 stock/bond allocation target is utilised) approximately USD 30bln worth of rotation out of stocks and into bonds. Currently USTs are firmer, albeit largely range-bound ahead of US entrance and what is likely the final Fed speech from Chair Powell today at 16:00BST/11:00ET ahead of the June FOMC, with the curve bull flattening – in contrast to the quite pronounced bear steepening we saw during yesterday’s session, particularly after the US cash open. Within Europe, price action for core counterparts paints a similar, largely rangebound, picture. EZ data this morning, via flash CPI for May, prompted little reaction as the headline came in at 0.1% as expected given oil prices. For Bunds specifically, the sessions high currently resides at 172.37, after which and in the event of a breach of the psychological 172.50 mark potential resistance lies at 172.53; following this, there’s little of note until 173.00. The BTP-Bund yield spread continues to tighten this morning, and remains within striking distance of the weeks low around the 183bps region given this week’s promising EU recovery fund updates. Although, a number of nations have already indicated their opposition and, as it requires unanimous consent, a length decision process could see BTPs, and other periphery debt, surrender some of this week’s upside.

COMMODITIES

WTI and Brent crude futures continue to ebb lower in early European trade. However, losses remain modest thus far with WTI July eyeing USD 33/bbl (vs. high 33.77/bbl) to the downside whilst Brent August drifts lower towards USD 35.50/bbl – having already dipped below the level to a base at 35.41/bbl (vs. high 36/bbl). Again, fundamentals largely surround US-China tensions in the absence of OPEC updates and in the run-up to the JMMC/OPEC/OPEC+ meetings on June 8th, 9th and 10th respectively, whilst reports yesterday alluded to Russian companies hesitant to extend current curtailments past the agreed-upon end-June. Furthermore, Russia's Rosneft reportedly told the Russian Energy Ministry that it would be hard to maintain cuts to the end of the year as it does not have enough crude to ship to customers part of long-term supply deals, sources state. Elsewhere, spot gold meanders around yesterday’s levels having had seen a session of gains on the back of potential trade-related allocations. The yellow metal resides in mildly positive territory around USD 1720/oz ahead of yesterday’s USD 1728/oz high. Copper prices remain subdued amid the broader risk aversion as prices threaten a test of USD 2.4/lb to the downside.