• Sentiment remains strong after a positive APAC handover, US futures firmer but have been drifting
• Saudi Arabia and Russia reportedly agreed on a preliminary 1-month extension on existing OPEC+ oil cuts, according to sources; meeting conditional on countries compensating for compliance ahead
• Crude was firmer in-line with overall sentiment; however, above remarks knocked the benchmarks into negative territory
• US President Trump reportedly appeared to be backing away from invoking the Insurrection Act and is pleased with how protests were handled last night
• 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
• German government coalition discussions on stimulus finished without an agreement made, while talks will resume today
• Looking ahead, highlights include US Services & Composite PMIs (F), US ADP, Factory Orders, ISM non-manufacturing, BoC Rate Decision, DoEs

CORONAVIRUS UPDATE

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 (+1.8%) 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 (+1.3%) was firmer as exporters benefitted from currency effects and the KOSPI (+2.9%) was bolstered on stimulus efforts after South Korea announced a KRW 35.3tln third supplementary budget. Hang Seng (+1.4%) and Shanghai Comp. (U/C) largely 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 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. (SCMP) Subsequently, China's Foreign Ministry say they have lodged stern representations with the UK regarding remarks from the UK's Foreign Secretary regarding Hong Kong, and stating the UK has no jurisdiction or supervision over Hong Kong. (Newswires)

US

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)

UK/EU

US Republican Senator Cotton says that Huawei will have to be a part of trade deal discussion with the UK. (Newswires)

City sources say the BoE Governor Bailey has told banks to step up plans for the UK to leave the EU without a trade deal, according to Sky News. (Sky News)

German government coalition discussions on stimulus finished without an agreement made, while talks will resume today. Subsequently, the Labour Minister expressed confidence in the discussions agreeing a big stimulus package. (Newswires)

UK Markit/CIPS Services PMI Final (May) 29.0 vs. Exp. 28.0 (Prev. 27.8); Composite PMI Final (May) 30.0 vs. Exp. 28.9 (Prev. 28.9)

EU Markit Comp Final PMI (May) 31.9 vs. Exp. 30.5 (Prev. 30.5); Services Final PMI 30.5 vs. Exp. 28.7 (Prev. 28.7)

-        German Markit Comp Final PMI (May) 32.3 vs. Exp. 31.4 (Prev. 31.4); Services PMI 32.6 vs. Exp. 31.4 (Prev. 31.4)

-        French Markit Comp PMI (May) 32.1 vs. Exp. 30.5 (Prev. 30.5); Markit Services PMI 31.1 vs. Exp. 29.4 (Prev. 29.4)

EU Unemployment Rate (Apr) 7.3% vs. Exp. 8.2% (Prev. 7.4%, Rev. 7.1%)

EQUITIES

European equities continue to edge higher in mid-week trade [Euro Stoxx 50 +2.0%] in a continuation of gains seen yesterday as sentiment remains on an upward trajectory despite a number of looming uncertainties, including the risk of a second coronavirus wave, US and China trade war and flaring riots across Western economies (alongside Hong Kong). Sectors remain in a sea of green with cyclicals outpacing defensives – signaling risk appetite. Energy and Financials outperform amid favourable price action in the energy and bond complexes. The breakdown paints a similar picture with Insurance and Banks topping the charts and healthcare the laggard. Chip names are seeing broad-based gains amid the risk appetite and the upbeat sectorial performance State-side. In terms of individual movers and shakers, Hammerson (+20.5%) is the top Stoxx 600 gainer with reports noting that hedge funds scramble to cover short positions. Tui (+8.3%) is among the winners after reaching an agreement with Boeing to resolve the 737 MAX grounding impacts but financials details have not been disclosed. Tui said the agreement will strengthen its liquidity. Furthermore, the group is to commence its summer flight plan on June 17th following Germany lifting its travel warning – a move supporting the likes of Lufthansa (+5.0%) despite reporting dismal earnings as expected. Renault (+8.0%) holds onto upside seen at the open after finalising the EUR 5bln credit line with the French State – which is not contingent on major compromises. BASF (+4.8%) continues to gain ground amid positive broker moves at Jefferies and Pareto Securities. On the flip side, Iliad (-1.9%) failed to recover from a downgrade at Morgan Stanley.

FX

USD - The Buck has not stopped falling, but the DXY is off worst levels within a 97.283-610 range as selling abates. However, risk-on sentiment remains prevalent to the detriment of the Greenback and other safe-havens as attention turns to latest pre-NFP proxies in the form of ADP and jobs components in the services PMI and non-manufacturing ISM, while the index and Dollar in general are still deeply entrenched in bearish trends following heavy selling for month end rebalancing and the ongoing US riots that are hampering efforts to re-open from COVID-19 lockdown.

EUR/GBP/NZD/NOK - All vying for top spot in the major rankings, partly on the aforementioned Usd weakness, but also amidst more encouraging signs of economic recovery via EU services and composite PMIs, though the Euro has faded into key resistance at 1.1237 against the backdrop of hefty option expiry interest between 1.1210-20 in 2 bn, and with a further 1.3 bn sitting below 1.1200 at 1.1180-75. Similarly, Cable waned just above 1.2600 and is now hovering under the big figure in wake of reports that BoE Governor Bailey has advised UK banks to step up preparations for a no deal Brexit, with Eur/Gbp back above 0.8900 in response. Meanwhile, the tables have turned down under, as the Kiwi unwinds more post-RBA underperformance relative to its Antipodean peer through 1.0800 and Nzd/Usd maintains more momentum around 0.6400 than AUD/Usd that has reversed more sharply after approaching 0.7000 following significantly better and firmly back above 50.0 Caixin Chinese services and composite PMIs rather than bang in line Aussie GDP data overnight. Elsewhere, the Norwegian Krona continues its winning streak and is inching closer to 10.6000 vs the Euro, in contrast to the Swedish Crown that has pared back somewhat from a brief 10.4000+ break on the back of a slightly firmer services PMI, with Eur/SEK now hovering around 10.4300.

CAD/CHF/JPY - The relative G10 laggards, as the Loonie treads cautiously either side of 1.3500 pre-BoC and the first policy meeting under the helm of new Governor Macklem that could see corporate QE increased – check our headline feed at 10.30BST for a full preview of the event. Usd/Cad has marginally extended to the upside in recent trade (to 1.3541 from 1.3480 at one stage) as crude prices retreat on reports that OPEC+ may not meet this week (tomorrow has been widely touted) due to disputes over claims of compliance cheating, but the extremes are expected to reach circa 100 pips depending on BoC actions, guidance and/or the tone of the accompanying statement, according to break-even implied volatility via options. Meanwhile, the Franc is weaker again, with Usd/Chf up to 0.9636 and Eur/Chf touching 1.0800 after worse than forecast Swiss Q1 GDP, and as the cross breached the 200 DMA (1.0770) before surpassing the next line of resistance at 1.0788 (January 22 peak). In the same vein, Usd/Jpy has maintained bullish impetus having cleared several upside chart hurdles on Tuesday, but the Yen has found some support into 109.00.

EM - The Lira is deflated despite more extensive/expansive efforts by Turkey’s Trade Minister to forge FX swap lines, while CPI halted a 2 month sequence of declines with a sharp rebound in May, as the country takes more action to curb Try speculation via a 15% tax on hedge funds that hold 80% in FX-based assets.

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)

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1135-50 (1.1BLN), 1.1175-80 (1.3BLN), 1.1210-20 (2BLN)

FIXED

Bunds, Gilts andUS Treasuries to a lesser degree, have all pared more losses even though the overall risk tone remains negative for core bonds, and the former has now closed the gap to yesterday’s Eurex close to just 10 ticks with assistance from 5 year futures rebounding on a well received Bobl sale. However, BTPs are still sub-142.00 awaiting sizing of Italy’s 10 year syndication given record-breaking demand, while UK debt is 20 ticks shy of Tuesday’s Liffe close in wake of latest DMO issuance and the 10 year T-note is mid-range with the curve retaining a steeper bias ahead of ADP, PMI and ISM surveys.

COMMODITIES

WTI and Brent futures initially saw a session of gains before the complex was knocked off course by reports that OPEC+ meetings are said to be in doubt due to haggling over oil-quota cheating. The reports noted that OPEC will not meet on June 4th unless nations comply with cuts, whilst the June 10th meeting is also contingent on compliance. Energy Intelligence estimated that OPEC+ achieved an 86% May compliance rate with the production cuts of 9.7mln. Traders expected the producers to extend current cuts of around 10mln BPD for a further 1-3 months, reports noted Saudi and Russia are haggling over extension timeframes, with the latter opting for one month – albeit Saudi Arabia and Russia reportedly agreed on a preliminary 1-month extension on existing OPEC+ oil cuts, according to sources. As a reminder, sources note that Russian oil producers are hesitant to extend current cuts as they posit that the market could re-balance itself as soon as June/July. Elsewhere, yesterday’s Private Inventory report last night also provided underlying support late doors after printing a surprise draw of 500k barrels. Exp. build of 3mln barrels, whilst Cushing inventories also declined by some 2.2mln barrels. Brent August printed a ceiling at around USD 40.50/bbl before briefly retreating sub-39/bbl, whilst WTI July topped USD 38/bbl in APAC trade prior to the OPEC-induced selloff to USD 36.50/bbl. Elsewhere, spot gold trickles lower but remains north of USD 1700/oz (vs. high USD 1730/oz) as stocks hold onto gains and the DXY drifts off loses. Copper meanwhile reclaimed the USD 2.50/lb handle following better-than-forecast Chinese PMIs, but gains remain limited with the US-Sino trade war still in play.

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

Saudi Arabia and Russia reportedly agreed on a preliminary 1-month extension on existing OPEC+ oil cuts, according to sources; discussed implementation of criteria for compliance with oil cuts; OPEC+ June 4th Meeting is conditional on countries which have not fully complied in May to compensate over the next few months. Followed reports that the OPEC+ meetings are said to be in doubt due to haggling over oil-quota cheating, OPEC will not meet on June 4th unless nations comply with cuts, June 10th meeting also depends on the compliance issue. (Newswires)

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)

NHC reports that Cristobal is strengthening somewhat as it moves South-Easterly towards the Mexico coast; life threatening flooding threat remains. (Newswires)