• China is reportedly to halt some US Soy imports as tensions are increasing, according to sources; with Beijing reportedly waiting to see what steps Trump takes before deciding its next move
• US futures dropped into, and remain in, negative territory on these reports which also bolstered the USD and USTs
• China's Foreign Ministry, responding to the US ending preferential treatment for Hong Kong, will have firm countermeasures. Adding, they firmly oppose such actions and it is an interference in internal affairs
• OPEC are reportedly to bring their meting forward to June 4th, a decision is expected today on this
• OPEC and Russia are heading closer towards striking a compromise on the duration of an extension to the oil output cut pact; 1-2 month extension being discussed
• Official Chinese Manufacturing PMI missed expectations but remained in expansionary territory, Non-Manufacturing PMI and Caixin Manufacturing PMI topped estimates
• Looking ahead, highlights include US PMIs (F), US Construction Spending, US ISM Manufacturing

CORONAVIRUS UPDATE

US CDC reported total coronavirus cases rose by 23553 to 1,761.503 and the death toll rose by 915 to 103,700, while AFP tweeted the US coronavirus death toll rose by 598 citing the Johns Hopkins tracker. (Newswires/Twitter)

US President Trump is planning to delay the next G7 meeting until September and wants to include Australia, India, Russia and South Korea. (Newswires)

South Korea based Celltrion (068270 KS) reported positive preclinical trials for coronavirus treatment which showed 100-fold reduction in the viral load and the Co. will begin human trials in July. (Business Wire)

Sunday: UK COVID-19 death toll rises to 38,489 (Prev. 38,376); deaths rise by 113 vs. yesterday's 215. Case count rises 1,936 vs. prev. 2,445 increase. (DHSC)

The UK Government's plans to enact quarantine measures for all international travellers and returning Brits are likely to face a Conservative revolt when they hit the HoC this week due to fears over the impact on the economy. (Telegraph) 

ASIA

Asian equity markets began the new month higher across the board as the region sustained the late relief seen last Friday on Wall Street where the S&P 500 capped off its strongest 2-month performance in over a decade after US President Trump’s press conference, where he announced to revoke Hong Kong’s special status but refrained from any ‘nuclear’ action on China which could have derailed the Phase One trade deal. This underpinned sentiment in Asia and helped US equity futures recoup the initial losses that were triggered by nationwide violent protests and mixed Chinese PMI data over the weekend. ASX 200 (+1.1%) declined at the open led by real estate stocks after the latest data showed a contraction in home prices, although the index later recovered in tandem with the overall constructive risk tone and as various states in Australia further eased lockdown restrictions, while Nikkei 225 (+0.8%) was underpinned as exporters welcomed the recent favourable currency moves. Hang Seng (+3.4%) and Shanghai Comp. (+2.2%) were also higher after US President Trump’s slap on the wrist retaliation to China and with the outperformance in Hong Kong fuelled by dip buying, while participants also digest the latest varied Chinese PMI data which showed Official Manufacturing PMI missed expectations but remained in expansionary territory and both Non-Manufacturing PMI and Caixin Manufacturing PMI topped estimates. Finally, 10yr JGBs were lower with demand subdued by gains in riskier assets and amid a similar lacklustre tone in T-notes, as well as a reserved BoJ Rinban announcement with the central bank in the market for a total of just JPY 400bln of JGBs mostly concentrated in 1yr-3yr maturities.

PBoC skipped open market operations and are net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.1315 vs. Exp. 7.1380 (Prev. 7.1316)

Chinese Manufacturing PMI (May) 50.6 vs. Exp. 51.1 (Prev. 50.8) Chinese Non-Manufacturing PMI (May) 53.6 vs. Exp. 53.5 (Prev. 53.2) Chinese Composite PMI (May) 53.4 (Prev. 53.4) Chinese Caixin Manufacturing PMI (May) 50.7 vs. Exp. 49.6 (Prev. 49.4)

US Secretary of State Pompeo tweeted that Chinese Communist Party has come to view itself as intent upon the destruction of Western ideas, democracies and values, while he added that it puts Americans at risk whether it’s stealing IP or destroying US jobs. (Twitter)

US lawmakers are to unveil a bill which bans investment in firms with ties to China's military. (Newswires)

China's Foreign Ministry, responding to the US ending preferential treatment for Hong Kong, will have firm countermeasures. Adding, they firmly oppose such actions and it is an interference in internal affairs. (Newswires)

China is reportedly to halt some US Soy imports as tensions are increasing, according to sources; an unspecified number of US pork orders have been cancelled. (Newswires)

-        Gov't Officials informed state-run agricultural Co's to pause purchases of some US farm goods, which would include soybeans, as an evaluation into the escalating trade tensions is made; according to sources

-        Beijing is reportedly waiting to see what steps Trump takes before deciding its next move & private Co’s have reportedly not been given any such instructions regarding imports

US

US riots following the death of George Floyd have widened to over 30 cities forcing a deployment of the National Guard which have responded with firing rubber bullets and tear gas, as well as other measures. Furthermore, it was reported that curfews were imposed across the country including in Atlanta, LA County, Tampa and Washington DC where the DC National Guard was also activated. (Newswires)

US President Trump was reportedly urged by numerous advisers during the past few days to tone down his violent rhetoric amid concern it could escalate racial tensions and hurt him politically after he recently tweeted "When the looting starts, the shooting starts". (Axios)

According to the latest Washington Post-ABC News poll Democrat Joe Biden now holds a 10-point lead (53 vs. 43) over US President Trump amongst registered voters for the November election. (The Hill) Note, the poll in March saw Biden and Trump level. 

UK/EU

EU Markit Manufacturing Final PMI (May) 39.4 vs. Exp. 39.5 (Prev. 39.5)

-        German Markit/BME Manufacturing PMI (May) 36.6 vs. Exp. 36.8 (Prev. 36.8)

-        French Markit Manufacturing PMI (May) 40.6 vs. Exp. 40.3 (Prev. 40.3)

-        Italian Markit/IHS Manufacturing PMI (May) 45.4 vs. Exp. 37.0 (Prev. 31.1)

-        Spanish Manufacturing PMI (May) 38.3 vs. Exp. 38.0 (Prev. 30.8)

UK Markit/CIPS Manufacturing PMI Final (May) 40.7 vs. Exp. 40.6 (Prev. 40.6)

Reported that UK Chancellor Sunak is working on an emergency budget statement which will be unveiled in July and which targets saving 2mln jobs at risk due to the coronavirus outbreak. (Newswires)

UK reportedly accuses EU of stretching out trade discussions until November in the hope UK will cave in at the last minute, while there were separate reports of comments from EU Brexit Negotiator Barnier who suggested the UK need to be more realistic regarding trade demands and that the EU wants an agreement but it cannot be at any cost and they will never accept anything which makes the single market more fragile. (Telegraph/Sunday Times)

UK PM Johnson is looking at options to increase state investment into domestic telecoms companies to help them be more competitive in the 5G market, according to The Times. (Times) This would be part of a strategy aimed at lowering the nation's reliance on Huawei.

European Budget Commissioner Hahn has called on EU members to support new taxes as there are no practical alternatives but to give the Commission a new source of direct revenue to service debt under the proposed EUR 750bln Recovery Fund. (FT)    

GEOPOLITICS

Beijing has reportedly been making plans for an air defence identification zone in the South China Sea since 2010 which would cover Pratas, Paracel and the Spratly Islands in the contested region, according to PLA source. (SCMP)

EQUITIES

Stocks in Europe kicked the week off on a firmer footing before reports that China is to halt some imports of US soy and pork knocked the bourses off-course, albeit the region still ekes mild gains. US equity futures immediately gave up overnight gains and now reside in negative territory – with rising social unrest State-side also afflicting sentiment across the pond. Back to European cash – Euro Stoxx 50, DAX, ATX are all closed in observance of Whit Monday, while other core bouses post gains between 0.5-1.0%. Sectors all reside in positive territory with cyclicals outpacing defensives – reflecting risk appetite, and with energy outperforming the bunch. In terms of the breakdown, Travel & Leisure tops the charts, closely followed by Banks and Oil & Gas. The other end of the spectrum sees Health Care and Chemicals lagging. Looking at individual movers and shakers – AB Foods (+7.0%) holds onto gains after noting that early trading indicators from recently reopened stores have been encouraging and reassuring, but it remains too early to provide guidance. Mediobanca (+7.0%) also resides among the top gainers amid reports Del Vecchio’s Delfin is reportedly looking to boost stake in Co. to 20% from around the current 10%. Hong Kong exposed HSBC (+1.7%), and Standard Chartered (+6.0%) benefit from President Trump refraining from announcing more stringent measures against Mainland China and Hong Kong.

FX

USD - The Greenback remains under pressure amidst George Floyd related US riots, but the DXY has pared some losses from sub-98.000 lows on the back of reports that the Chinese Government has instructed firms to halt the purchase of certain US agricultural goods including soybeans and pork. The index has bounced within 97.849-98.242 parameters, while Usd-CNH has retested 7.1500+ from the low 7.1230s in wake of a firmer than forecast and back above 50.0 Caixin manufacturing PMI that seemed to overshadow mixed official surveys overnight. Moreover, risk sentiment has soured across the board to the detriment of high-beta currencies that were outperforming to the detriment of safer havens, naturally.

AUD/NZD - The Aussie is still comfortably above 0.6700 and markedly outperforming G10 rivals ahead of tomorrow’s RBA policy meeting, albeit off 0.6770+ peaks and just under 1.0800 vs the Kiwi on the aforementioned China news that will no doubt prompt some further US retaliation after President Trump’s rather reserved response to Hong Kong national security legislation last Friday than many were anticipating or feared. Meanwhile, Nzd/Usd is holding relatively firm on the 0.6200 handle in holiday-thinned volumes awaiting NZ trade data for Q1 and April building consents after a hefty decline in the previous month.

GBP/CAD/EUR/JPY/CHF - All firmer vs the Buck, but also off best levels as Cable hit some resistance around 1.2425 following a breach of the 50 DMA (1.2350) and largely shrugged off an essentially in line final UK manufacturing PMI. Elsewhere, the Loonie continues to glean impetus from firm oil prices and probed 1.3700 at one stage amidst more headlines suggesting OPEC+ will meet this week to discuss an extension to the May-June production pact, while the Euro briefly extended gains to 1.1150+ following Eurozone manufacturing PMIs revealing an especially encouraging recovery in Italy, but waned before key upside chart levels at 1.1163 and 1.1167 (March 30 high and a Fib retracement respectively). Similarly, the Yen is struggling to maintain momentum on a break of 107.50 and Franc beyond 0.9600 on Whit Monday in Switzerland, though Eur/Chf has also faded within a 1.0705-1.0670 range.

SCANDI/EM - Crude is also keeping the Norwegian Crown afloat vs the single currency over 10.8000, but the Swedish Krona is marginally lagging around 10.4500 even though the manufacturing PMI improved slightly in keeping with the broader trend extending from Turkey through the Czech Republic to Russia. However, the Rouble is gleaning extra traction from Brent and positive results from an anti-viral drug, while the Rand is digesting supportive SARB commentary and a SAA rescue package including a minimum Zar2 bn for restructuring and additional working capital. Usd/Try is pivoting 6.8000, Eur/Czk is towards the bottom of a 26.900-8200 band, Usd/Rub is sub-70.0000 and Usd/Zar is either side of 17.5000.

FIXED

Italian BTPs have extended advances to 60 ticks from their end of month closing level in contrast to the broad trend in wake of the decent headline manufacturing PMI beat vs consensus, while Bunds have managed to reclaim 172.00+ status from a 171.78 low, but are still lagging behind Gilts (more comfortably above 137.00) and US Treasuries (keeping tabs on 139-00) in wake of the latest escalation in US-China trade angst and a downward revision to Germany’s manufacturing PMI. However, core bonds remain leggy overall amidst an unwinding of positions at the start of June and hopes that reopening from coronavirus lockdowns revive economies and do not prompt 2nd waves resulting in a return to restrictions. Ahead, NA manufacturing PMIs, the US ISM and construction spending plus weekly ECB QE updates.

COMMODITIES

Choppy trade in WTI and Brent futures early doors with initial downside exacerbated by reports of China halting some US pork and soy imports in what marks an escalation, while upside thereafter emanated from source reports that OPEC and Russia are heading closer towards striking a compromise on the duration of an extension to the oil output cut pact, with 1-2 months is being discussed. On that front, a date still has not been officially cemented as the cartel touts bringing forward the scheduled June 9/10 meeting closer to June 4th – with a date to be decided on later today according to EnergyIntel.  The above source reports follow reports week that Russia could support an extension of current oil cuts for another two months, according to Energy Intel's Bakr citing Russian press but some oil majors, notably Rosneft,  reportedly told the Russian Energy Ministry that it would be hard to maintain oil output cuts to the end of the year as it does not have enough crude to ship to customers as part of long-term supply deals, sources state. The energy contracts have since pared back a bulk of the move with the WTI July trading with losses under USD 35.50/bbl vs. a sub-35/bbl overnight low, whilst Brent August remains below USD 38/bbl. Meanwhile, spot gold saw pressure amid the US-Sino headline given investors piling into the yellow metal for a better part of last week in anticipation for an escalation. Furthermore, the firming USD also weighed on prices which receded from a 1744/oz high to below USD 1740/oz ahead of session lows around USD 1730/oz. Copper prices initially mimicked the optimistic tone seen in equities before waning off highs on the US-China headlines amid the prospect of lower demand for the red metal – which prices still holding ground above USD 24/lb.

OPEC+ is reportedly close to bringing the next meeting forward to June 4th following a proposal from the Algerian Energy Minister, while Russia is said to have no objection to the proposal. Additionally, a decision on the OPEC+ meeting should be made today, according to EnergyIntel's Bakr. (Newswires/Twitter)

OPEC+ source said OPEC will discuss extending the current 9.7mln bpd cuts for 1-2 months and will also discuss option of holding JMMC monthly to help maintain a stringent grasp on compliance levels, according to Energy Intel's Bakr. (Twitter) This was then followed by reports suggesting that OPEC and Russia are heading closer towards striking a compromise on the duration of an extension to the oil output cut pact, according to sources; 1-2 months is being discussed. (Newswires)

Iranian Foreign Minister Mousavi says Iran is ready to continue oil shipments to Venezuela if demand is there. (Newswires)