• Asian equity markets traded with cautious gains following the positive performance on Wall St but with upside limited after US President Trump’s latest speech
• Trump stated he is mobilizing civilian and military resources to stop the rioting and warned he will deploy the military to states if local law enforcement cannot curb protests
• UK could signal a willingness for a compromise on fisheries and level playing field trade rules if the EU drops its maximalist approach
• The DXY remained lacklustre below the 98.00 level with price action relatively contained in the FX space
• RBA kept the Cash Rate Target unchanged at the record low 0.25% as expected, while it maintained the 3yr bond yield target at 0.25%
• Looking ahead, highlights include ECB purchases, ISM New York, supply from the UK & Germany

CORONAVIRUS UPDATE

US COVID-19 cases rose 26,177 to 1,787,680 and the death toll increased by 696 to 104,396. (Newswires)

UK COVID death toll rose to 39,045 (prev. 38,489) which includes extra 445 deaths between April 24th and May 31st that were matched to positive COVID tests. (Newswires)

UK Government is reportedly eyeing exempting some countries from plans to quarantine people coming to the UK amid growing anger among MP's that the damage the controls will cause to the UK travel and hospitality industries. (FT)

Spanish health officials said they have recorded no new COVID-19 deaths in a 24-hour period for the first time since March. (Newswires)

ASIA

Asian equity markets traded with cautious gains following the positive performance on Wall St but with upside limited after US President Trump’s announcement that he will deploy military forces in response to the riots which triggered a mild pull-back in US equity futures. ASX 200 (+0.1%) and Nikkei 225 (+1.2%) were positive but with the gains in Australia capped by weakness in mining names and amid a largely uneventful RBA rate decision where the central bank kept rates unchanged and provided no major fireworks as expected, while Japanese exporters were bolstered by recent favourable currency flows. KOSPI (+0.7%) was also underpinned despite the weak Final Q1 GDP data which was revised higher from the preliminary reading but still showed the worst contraction since 2008 with Q/Q at -1.3%, although notable strength was seen in the top shipbuilders after Qatar Petroleum signed  a KRW 23.6tln agreement with Daewoo Shipbuilding, Hyundai Heavy Industries and Samsung Heavy Industries for more than 100 ships. Elsewhere, Hang Seng (+0.5%) and Shanghai Comp. (-0.1%) were mixed with the mainland indecisive after the PBoC liquidity drain and due to ongoing US-China tensions, although it was also reported that the PBoC will purchase some bank loans issued to small firms in an effort to bolster lending, which it expects could spur about CNY 1tln of new unsecured loans. Finally, 10yr JGBs were initially marginally higher after a rebound off support near 152.00 and amid a similar recovery observed in T-notes from the prior session’s bear steepening and Amazon’s USD 10bln offering where the order book rose to above USD 30bln, although weaker results from the 10yr JGB auction later hampered prices.

PBoC skipped reverse repo operations for a net daily drain of CNY 10bln. (Newswires) PBoC set USD/CNY mid-point at 7.1167 vs. Exp. 7.1284 (Prev. 7.1315)

South Korea says talks to resolve the dispute with Japan have failed to make progress - South Korea decided to resume WTO dispute settlement proceedings over export controls. (Newswires)

UK/EU

UK Chancellor Sunak is looking at whether or not to provide National Insurance holidays to companies as part of his stimulus package set to be announced in July, according to sources. (Telegraph) 

UK is expected to signal willingness for a compromise on fisheries and level playing field trade rules if the EU drops its maximalist approach on regulatory alignment and fishing access, according to reports citing EU sources. (The Times) The Telegraph reports that negotiators from both sides are set to clash over the terms of a new extradition treaty with the UK expected to demand that its judges have greater powers to refuse extradition requests than under the current scheme that it will have to leave at the end of the year. (Telegraph)

British Growth Fund proposed a public-private fund valued at GBP 15bln to support thousands of businesses that face difficulties in repaying coronavirus-related loans. (FT)

FX

The DXY remained lacklustre below the 98.00 level after its recent losses with ongoing nationwide riots providing no favours for the currency. The greenback’s major counterparts were also uneventful with EUR/USD contained within this week’s tight ranges after rebounding off a floor at 1.1100 but with the single currency also restricted by resistance circa 1.1140-50. GBP/USD initially extended on gains after reports the UK is willing to compromise on fisheries and a level playing field if the EU backs off from its maximalist approach to negotiations on regulatory alignment and fishing access, although the pair has since retraced some of the early advances after failing to hold on to the 1.2500 handle. Elsewhere, USD/JPY and JPY-crosses were kept afloat by the mostly positive risk tone, while AUD/USD and NZD/USD retraced some of their gains after hitting resistance at the 0.6800 and 0.6300 levels respectively, but with the reversal cushioned by stronger than expected Australian Current Account and Net Exports Contribution to GDP, while the RBA rate decision also spurred minimal upside after the central bank kept rates unchanged at the record low 0.25% as expected and largely stuck to its script.

RBA kept the Cash Rate Target unchanged at the record low 0.25% as unanimously expected, while it maintained the 3yr bond yield target at 0.25% and reiterated it will not raise the cash rate until progress is made towards full employment and the inflation target. RBA also stated it will maintain efforts to keep funding costs low and credit available to households and businesses. Furthermore, it stated accommodative approach will be maintained for as long as necessary but also stated it is possible the depth of the downturn will be less than previously anticipated. (Newswires)

Australian Current Account Balance SA (AUD)(Q1) 8.4B vs. Exp. 6.3B (Prev. 1.0B). (Newswires) Australian Net Exports Contribution (Q1) 0.5% vs. Exp. 0.3% (Prev. 0.1%)

COMMODITIES

WTI crude futures marginally extended on the prior gains heading to a potential early OPEC+ meeting this Thursday and with OPEC and Russia said to be heading closer towards striking a compromise on the duration of an extension to the oil output cut pact, while focus also shift to the latest stockpile figures with the private inventory report due later. Gold prices were steady amid the lacklustre greenback and were kept indecisive by the cautious gains in stocks.

OPEC+ have not yet decided on a meeting date, according to Energy Intel's Bakr. (Twitter) 

Global Times tweeted that the PBoC and China's customs amended import and export regulations for gold and gold products, in which they asked financial institutions to provide additional internal gold business risk control materials. (Twitter)

US

The Treasury curve bear steepened on Monday as stocks made tentative gains, meanwhile, corporate supply weighed on it further – 2s unchanged at 16bps, 10s +3bps at 67bp and 30s +6bp at 146bps. USTs were offered from the open as month-end rebalancing strength was pared, with the less hawkish than feared China presser from President Trump on Friday afternoon likely supporting the yield back up as participants digested the announcements over the weekend. The selling pressure found some reprieve shortly after the US cash bond open following sources reporting that China was halting US agriculture purchases amid rising trade tensions, although the move soon pared as US participants came into the session. The rate back-up accentuated further after Amazon announced it would be pricing a six-part offering today; it ultimately launched USD 10bln (3s, 5s, 7s, 10s, 30s, 40s), where orders books rose above USD 30bln. There was a handful of other USD corporate deals to price too, marking a strong start for June – indicative of the widely observed extreme debt raising as corporates run into COVID-induced economic headwinds. T-NOTE (U0) futures settled 1+ ticks lower at 139-00+.

US President Trump said his first duty is to defend country and its people and that they cannot allow the angry mob to drown out peaceful protestors, while Trump stated he is mobilizing civilian and military resources to stop the rioting and warned to deploy the military to states if local law enforcement cannot curb protests. Furthermore, he recommended for state governors to deploy the national guard and noted he is dispatching thousands of armed soldiers with a 7PM curfew to be strictly enforced in Washington DC. (Newswires)

US senior defence official said the National Guard has been fully activated in Washington DC, while the officials added that some active US military forces have been moved to national capital region but not yet in Washington DC and have been placed on heightened alert status. (Newswires)

New York AG responded to President Trump's threat to deploy the military in which the AG stated he is not a dictator and we will guard the right to peaceful protest, while we will not hesitate to go to court to protect our constitutional rights. (Newswires)

NY Governor Cuomo stated there will be a curfew in New York City with an increase in the police force which will double to 8k from 4k, while the Chicago Business Commissioner Escareno separately commented that the city faces the possibility of a delayed reopening. (NYT/Newswires)

US Senate Majority Leader McConnell said the Senate is likely to approve the House-passed small business loan bill soon. (Newswires)

US CBO said the economy could take 10 years to catch up after the coronavirus and that the virus is to reduce real GDP by 3% or USD 7.9tln between 2020-2030. (Newswires)