• Asian equity markets traded higher across the board as the region took impetus from the energy-led gains on Wall St.
• Chinese Caixin Services and Composite PMIs printed their largest expansions in nearly a decade
• DXY continued to weaken and fell below the 97.50 level, EUR/USD breached 1.1200 and GBP/USD briefly took 1.2600 to the upside
• OPEC+ oil cut extension talks are said to be complicated by Saudi and Russia haggling
• US President Trump reportedly appeared to be backing away from invoking the Insurrection Act and is pleased with how protests were handled last night
• Looking ahead, highlights include EZ, UK, US Services & Composite PMIs (F), German Labour Market Report, EZ Unemployment, US ADP, Factory Orders, ISM non-manufacturing, BoC Rate Decision, DoEs, supply from Germany & the UK

CORONAVIRUS UPDATE

US COVID-19 cases rose by 14,790 to 1,802,470 and the death toll rose by 761 to 105,157. (Newswires)

US Army is planning to test vaccines from Moderna (MRNA), J&J (JNJ), AstraZeneca (AZN) and Sanofi (SAN FP), while it is also planning to test its own vaccine candidate in human trials later this summer, according to a US Army vaccine researcher. (Newswires)

US Senate Majority Leader McConnell did not commit to do a coronavirus bill over the next few weeks although he suggested that the Senate would tackle another bill in a month, according to Fox's Pergram. (Twitter)

UK COVID-19 cases rose by 1,613 vs. prev. 1,570 increase and the death toll rose by 324 to 39,369 vs. Monday’s 111 increase. (Newswires)

UK PM Johnson is to take direct control of the government's handling of the coronavirus pandemic in which a shake-up will see the government's full approach managed by two centrally managed committees involving strategy and operational delivery. (Telegraph) UK government’s plan to reopen pubs within weeks would see customers ordering drinks through an app to avoid having direct contact with staff, while the plan involves tables being 2 metres apart and would permit restaurants to reopen. (The Sun)

G7 Finance Ministers will conduct a teleconference regarding coronavirus measures. (Jiji)

ASIA

Asian equity markets traded higher across the board as the region took impetus from the energy-led gains on Wall St. where participants looked through the US-China tensions and civilian unrest stateside, while participants also digested encouraging Chinese PMI data. ASX 200 (+1.5%) was positive with top-weighted financials front running the advances and with the sector tracked closely by firm gains in energy amid a continued rebound in oil prices. Nikkei 225 (+1.1%) was firmer as exporters benefitted from currency effects and the KOSPI (+3.0%) was bolstered on stimulus efforts after South Korea announced a KRW 35.3tln third supplementary budget. Hang Seng (+1.4%) and Shanghai Comp. (+0.5%) conformed to the upbeat tone after Chinese Caixin Services and Composite PMIs printed their largest expansions in nearly a decade, but with gains limited by ongoing tensions and after a CNY 120bln liquidity drain. Finally, 10yr JGBs declined as the gains across stocks sapped demand for safe haven assets and amid spill over selling from USTs, while the BoJ’s presence in the market failed to support prices as the central bank reduced its purchases of 3yr-5yr maturities to JPY 320bln from JPY 350bln.

PBoC skipped reverse repo operations for a net daily drain of CNY 120bln. (Newswires) PBoC set USD/CNY mid-point at 7.1074 vs. Exp. 7.1094 (Prev. 7.1167)

Chinese Caixin Services PMI (May) 55.0 vs. Exp. 47.3 (Prev. 44.4); highest since October 2010. Chinese Caixin Composite PMI (May) 54.5 (Prev. 47.6); highest since January 2011

US officials stated that China is becoming more aggressive in targeting US technology through researchers and academics. In related news, Global Times noted that the latest US move to target the Chinese defence sector could lead to more escalation in the China-US trade and tech war, as the US’s opening of a new front to crack down on more Chinese firms will prompt Chinese retaliation, citing experts. (Twitter)

US posted a new travel advisory for Hong Kong due to the China national security law in which it stated to exercise increased caution due to civil unrest, risk of surveillance and arbitrary enforcement of laws other than for maintaining law and order. (Newswires)

UK PM Johnson said he is prepared to change UK immigration laws if China imposes national security law in Hong Kong, while other reports stated PM Johnson will offer a route to citizenship to 3mln Hong Kong people. In other news, UK is reportedly mulling a Huawei 5G ban amid increasing anti-China sentiment. (SCMP/Times/Nikkei)

UK/EU

UK Ministers are set to unveil a GBP 10bln trade credit scheme in which an announcement could be as soon as this week. (Sky)

German government coalition discussions on stimulus finished without an agreement made, while talks will resume today. (Newswires)

Spanish government source said the planned digital tax does not discriminate against any country and is based on objective criteria, while this followed reports the USTR initiated a probe of digital services taxes by trading partners. (Newswires)

FX

In FX markets, the DXY continued to weaken and fell below the 97.50 level as prices remained pressured by lack of safe-haven demand and as the US braced for another night of protests. As such, its major counterparts benefitted but with momentum in EUR/USD stalled by resistance at 1.1200 and after the lack of breakthrough in the German ruling coalition discussions on stimulus to drag talks out for another day, while GBP/USD also extended on gains before hitting a ceiling circa 1.2600. USD/JPY pulled off intraday highs but held on to most its recent gains at the 108.00 handle after having broken through last month’s highs, as well as its 100- and 200-DMA levels. Elsewhere, antipodeans benefitted from the greenback’s continued demise, positive risk tone and commodity-related strength, although AUD/USD has since retraced some of the gains after Australian Q1 GDP printed at a contraction of 0.3% Q/Q as expected.

Australian Real GDP QQ SA (Q1) -0.3% vs. Exp. -0.3% (Prev. 0.5%) Australian Real GDP YY SA (Q1) 1.4% vs. Exp. 1.4% (Prev. 2.2%)

Australian Treasurer Frydenberg said health measures to contain the coronavirus have come at a considerable cost and that the decline in Q1 consumption was the biggest drop in 34 years. Frydenberg also stated that the Q2 contraction will be more substantial than Q1, while he will provide a detailed update on economic numbers in July and suggested that Australia is in recession today. (Newswires)

COMMODITIES

Commodities were mixed with oil prices outperforming in an extension of the rebound which saw WTI crude futures approach USD 38.00/bbl and pushed Brent crude to above USD 40/bbl for the first time since March. The gains in oil were due to several factors including the global heightened risk appetite, surprise draw in headline crude inventories and ahead of a potential early OPEC+ meeting, although final date has not been scheduled yet and extension talks are said to be complicated by Saudi and Russia negotiations with OPEC+ reportedly to consider a 1 or 2-month extension to the output cut deal in which Russia favours a shorter extension of just 1 month. Elsewhere, gold prices were steady as the effects of the weaker greenback were counterbalanced by the lack of safe haven demand, while copper failed to hold on to early momentum despite the positive risk tone and slipped back below the USD 2.50/lb level. (Newswires)

US Private Inventory Crude Stocks -0.5mln vs. Exp. +3.0mln (Prev. -7.93mln). (Newswires)

OPEC+ oil cut extension talks are said to be complicated by Saudi and Russia haggling. (Platts)

Energy Intelligence estimated that OPEC+ achieved an 86% May compliance rate with the production cuts of 9.7mln according to Energy Intel’s Amena Bakr, while it also noted that a final date for the OPEC+ meeting has not been scheduled yet. (Twitter)

GEOPOLITICS

US Secretary of Defense Esper and Russian Defence Minister Shoigu and discussed arms control in a phone call. (RIA)

EU spokesperson said Russia’s participation in G8 was suspended until a meaningful discussion is possible which is currently not the case and noted the US can invite guests but cannot change membership or format on a permanent basis. (Newswires)

US

Treasuries sold off again on Tuesday, albeit less so than Monday, amid decent risk appetite and continued corporate supply; the curve bear-steepened, with yields rising between 1-3bps. Yields very much correlated to major equity futures, with the turbulence around the US cash equity open proving temporary as CTAs were said to have been sellers on the brief Treasury strength. Further supporting the selling pressure was reported rate locking and the continued slew of IG deals coming to the dollar market, with a dozen or so separate issuers. Furthermore, the SSA market also played its part, including a USD 5bln offering from the EIB. Nordea also came along with USD 3bln supply. The strength of the dollar market is beginning to allure those down the quality structure too, where the HY market saw its first post-COVID offering from an energy E&P name (Endeavor Energy USD 500mln), which could support a primary issuance return from the credit market’s ominous corner. T-note (U0) futures settled 5 ticks lower at 138-27+.

US President Trump tweeted that chaos, lawlessness, and destruction has taken over New York and he questioned when will Governor Cuomo call the Federal Government for help, while he also tweeted that the media falsely claimed violent riots were peaceful and that tear gas was used against rioters. (Twitter)

US President Trump reportedly appeared to be backing away from invoking the Insurrection Act and is pleased with how protests were handled last night, although aides stated that he hasn't ruled out its use at some point. (Axios)

US Defense Department deployed about 1600 Army troops to the Washington D.C. region to provide support to civil authorities according to a statement, while it was also reported that the Arkansas Governor declared a state of emergency in response to continued protests. (Newswires/NBC News)

Reuters/Ipsos poll showed former VP Biden leads US President Trump 47% to 37% among registered voters, while almost two-thirds are sympathetic to protesters and over 55% disapprove of President Trump's handling of protests. (Newswires)