• Sentiment is subdued as yesterday’s rally failed to continue into EU hours, with downside exacerbated after the cash open – e-mini S&P around 1% lower
• US yields are bull-flattening with European yields seeing similar downside, to the detriment of banking names in Europe
• JPY is the morning’s outperformer with the DXY still stronger nonetheless and in proximity to the 97.00 mark; antipodeans lag on China developments
• North Korea will cut off communication lines with South Korea completely from noon today according to state media
• Libya’s El Sharara oil field (300k BPD) has halted production and force majeure has been declared, following reports of armed militia entering the site
• Looking ahead, highlights include US JOLTS, BoE's Cunliffe, supply from the US

CORONAVIRUS UPDATE

WHO’s head of emerging diseases and zoonosis unit Dr. Van Kerkhove who suggested the data shows it is rare that an asymptomatic person actually transmits the coronavirus onward to a secondary individual. (Newswires)

China's Global Times tweeted that Chinese experts predict a global second wave of virus as the West rushes to loosen border controls and Southern Hemisphere countries become hot spots, while the spread of protests is also seen to make things worse. (Twitter)

ASIA

The risk tone across the Asia-Pac region was mostly positive with the regional bourses spurred by the firm handover from Wall St where the DJIA led the respectable gains across the major indices and the Nasdaq printed a fresh record high as there wasn’t much to derail the ongoing reopening and recovery narrative. Furthermore, the S&P 500 turned positive YTD and all sectors closed in the green with substantial gains seen in energy names following the OPEC+ output cut extension, despite an actual pullback in oil prices that was attributed to participants selling the news and concerns regarding compliance issues. ASX 200 (+2.4%) and Nikkei 225 (-0.4%) traded mixed with Australia the outperformer as it played catch up on return from the holiday closure and with gains spearheaded by financials and energy, while the Japanese benchmark lagged as exporters suffered from the ill effects of a stronger currency. The KOSPI (+0.2%) was subdued after North Korea announced to sever communication with South Korea completely from today and with index heavyweight Samsung Electronics failing to hold on to most the opening gains despite the court ruling to reject the arrest of de facto head Jay Y. Lee. Elsewhere, Hang Seng (+1.1%) climbed back above the 25k milestone with the government planning to bailout Cathay Pacific through a HKD 30bln loan and the Shanghai Comp. (+0.6%) conformed to the predominantly upbeat tone after the PBoC resumed its liquidity efforts, albeit with a reserved CNY 60bln injection. Finally, 10yr JGBs extended on this week’s rebound amid a similar recovery in USTs and underperformance of Japanese stocks, but with upside capped amid the lack of BoJ presence in the market today.

PBoC injected CNY 60bln through 7-day reverse repos in which it maintained the rate at 2.20%. (Newswires) PBoC set USD/CNY mid-point at 7.0711 vs. Exp. 7.0626 (Prev. 7.0882)

S&P Global revises Japan's sovereign rating outlook revised to stable from positive

UK/EU

UK government reportedly assured travel and hospitality industry heads that 'air bridges' which will facilitate international travel will be permitted from June 29th. (Telegraph)

UK PM Johnson has been warned by senior Conservative MPs that he must set a legally-binding date to remove Huawei from the nation's 5G network or face a defeat in the House of Commons. (Telegraph)

The UK and Japan are to begin trade talks today with a view to replace Britain’s existing FTA with the EU. (Newswires)

EU reportedly proposed holding its high-level meeting with the UK where they'll take stock of trade negotiations for Monday June 15th, but the two sides are still yet to agree on the date and are in discussions. (BuzzFeed/Twitter)

ECB's Rehn says that the European spending spree must be a one-off as some EZ members are already struggling with debt; additionally, noted there has not been a serious discussion on the purchase of ‘fallen angels’. (Newswires)

EU GDP Revised YY (Q1) -3.1% vs. Exp. -3.2% (Prev. -3.2%)

EU GDP Revised QQ (Q1) -3.6% vs. Exp. -3.8% (Prev. -3.8%)

French Gov't, on Aerospace industry assistance, say such measures are to total EUR 15bln for the sector; with French Finance Minister Le Maire declaring a state of emergency for the industry. (Newswires)

Norges Bank Regional Network Report Q2: Sharp decline in activity from COVID-19, alongside the deterioration in oil prices which has exacerbated this decline

-        Contacts expect a broadly unchanged activity level over the next half-year. Enterprises have substantially cut their investment plans, and they expect considerably lower wage growth than they did prior to the outbreak.

-        Large share of contacts expect the weaker krone to pull up prices even more, and a majority are planning for higher inflation ahead

UK BRC Retail Sales YY (May) 7.9% (Prev. 5.7%). However, BRC said that May total sales fell 5.9% Y/Y vs. 19.1% decline in April which was the 2nd largest drop on record, while it added that weak consumer confidence and social distancing is likely to limit sales when non-essential stores reopen on June 15th. (Newswires)

UK Barclaycard May consumer spending fell 26.7% Y/Y vs. decline of 36.5% Y/Y in April. (Newswires)

GEOPOLITICS North Korea will cut off communication lines with South Korea completely from noon today according to state media, while South Korea press suggested North Korea is to shift inter-Korean work into 'one against enemy'. (Newswires/Yonhap)

China has reiterated that it has no intention of participating in the so-called trilateral arms control negotiations with US and Russia, according to Chinese Foreign Ministry spokesperson cited by Global Times.

Rockets have reportedly hit an area near Baghdad airport according to the Iraq military cited by Press TV. (Newswires)

EQUITIES

European stocks continue to deteriorate with downside exacerbated since the European cash open [Euro Stoxx 50 -2.0%] as investors side-line the recent Central bank/reopen-induced rally and fixate on the backdrop of skittish US-Sino rhetoric, potential second wave as lockdown measures ease and amid Western protests/riots. An argument could also be built for profit-taking at near pre-COVID highs ahead of immediate risk events such as the FOMC meeting and the Eurogroup summit. Sectors are mostly in the red with underperformance in energy and financials amid the deterioration in energy prices and yields, whilst broader sectors point to a more risk averse session and defensives fare better – particularly healthcare. The detailed breakdown paints a similar picture Travel & Leisure also bearing the brunt of risk aversion. In terms of individual movers, the session kicked off with the French aerospace sector significantly higher amid France unveiling a EUR 15bln package for the sector vs. Exp. EUR 10bln, albeit the likes of Airbus (-6.6%), Thales (-2.9%) and Safran (-3.5%) have since conformed to the broader risk tone. Meanwhile, British American Tobacco (-4.5%) extended on losses after trimming its FY guidance and pointing to low growth.

Tiffany & Co (TIF) Q1 2020 (USD): Adj EPS -0.53 (exp. 0.03); revenue 0.556bln (exp. 0.701bln). US comps declined 44% (exp. -38%). APAC comps declined 42% (exp -42%). while sales in key markets like the US and Japan were down significantly during the first quarter, our business performance in Mainland China, which was the first market impacted by the virus, is indicative that a robust recovery is underway.

EU's Competition Commissioner Vestager says they want to investigate foreign state-owned or state-backed companies which are acquiring European Co's; suspect Co's already within Europe could be investigated as well. (Newswires)

FX

JPY/XAU/CHF - Not the biggest G10 move today, but Usd/Jpy has now reversed in excess of 2 big figures from post-NFP highs alongside similar pronounced retracements in Eur/Jpy and other Yen crosses as risk appetite evaporates amidst further re-flattening in debt markets. The headline pair is back down below 108.00 and a key technical level (200 DMA at 108.44), with the 50 DMA (107.65) exposed ahead of last Tuesday’s 107.51 low as safe-haven demand picks up generally to the benefit of Gold (over Usd 1700/oz again) and the Swiss Franc (Usd/Chf testing 0.9550 and Eur/Chf 1.0750 after breaching its 200 DMA - 1.0769). Back to the Yen, no adverse reaction to S&P cutting Japan’s A+ ratings outlook to stable from positive.

AUD/NZD/CAD - The aforementioned deterioration in risk sentiment on rising Chinese-US/Australian tensions, NK terminating official lines of communication with SK and crude prices unwinding more OPEC+ extension gains, has hit the high beta Aussie and Kiwi particularly hard, even though independent impulses via improvements in NAB and ANZ business surveys overnight may otherwise be supportive. Indeed, Aud/Usd has pulled back around 150 pips to sub-0.6900 and Nzd/Usd is losing grip of 0.6500 after extending gains on the handle to around 0.6580, albeit Aud/Nzd still trending lower towards 1.0750 in the run up to NZ Q1 manufacturing sales. Meanwhile, the Loonie has handed back a chunk of its recent oil-powered upside vs the Greenback with Usd/Cad rebounding from circa 1.3359 to 1.3487 ahead of the FOMC on Wednesday, and this along with an element of broader risk-off positioning is keeping the DXY afloat near 97.000.

NOK/GBP/SEK/EUR - All weaker, albeit to varying degrees, as the Norwegian Krona underperforms in wake of another bleak Norges Bank regional survey and the correction in crude, while Sterling and the Swedish Crown are undermined by cross selling against the Yen and the overall bearish tone, but the Euro holds up bit better vs the Dollar in consolidative trade. Eur/Nok has bounced firmly following a more concerted test of the 200 DMA, Cable is back under 1.2650 after failing to sustain 1.2750+ status, Eur/Sek is back above 10.4000 and Eur/Usd is trying to keep afloat within a 1.1314-1.1242 range.

EM - In contrast to widespread reversals vs the Usd, the Try is just staying north of 6.8000 by virtue of Turkey finally ending years of isolation from Euroclear for bond settlements and joining the international platform.

Australian NAB Business Confidence (May) -20 (Prev. -46). (Newswires) Australian NAB Business Conditions (May) -24 (Prev. -34)

New Zealand ANZ Business Confidence (May) -33.0 (Prev. -41.8). (Newswires) New Zealand ANZ Activity Outlook (May) -29.1 (Prev. -38.7)

FIXED

It may be too premature for a turnaround Tuesday shout at this stage, but risk sentiment has faded appreciably alongside or fuelled by the latest downturn in oil prices to the benefit of safe-haven debt and other assets. However, reports about heavy receiving interest at the long end of the Japanese IRS curve already prompted another bounce and realignment along the US Treasury curve overnight to give Bunds and Gilts a bullish lift-off, with the 10 year EU benchmarks subsequently extending rebounds to 174.02 and 135.90 respectively before running out of steam, perhaps on technical grounds and with issuance also potentially hampering further upside even though syndicated offerings in particular remain sought after. Ahead, JOLTs, BoE’s Cunliffe and more US supply as the Fed kicks off its June policy meeting.

COMMODITIES

The energy complex continues to leak in the aftermath of the OPEC+ meeting as players question the enforcement (or not) of the agreed upon output cuts with laggards such as Iraq already hinting as difficulties on overcompliance. Further, some traders also cite a “buy the rumour, sell the fact” playbook given the rally in the complex heading into the meeting. Meanwhile, BP’s demand-driven job cuts yesterday added further weighed on prices. Elsewhere, in Libya, source reports noted that El-Sharara’s production has again been shuttered by armed men ordering employees to stop working – which comes just two days after the restart and lift of force majeure on exports (now reimposed), albeit the oilfield was only producing at a tenth of its 300k BPD full capacity – which was expected to be reached within 90 days. All-in-all, the OPEC fallout and deteriorating risk sentiment sees WTI July back below USD 38/bbl and closer to USD 37/bbl (vs. high USD 38.86/bbl) , whilst Brent suffers and has breached USD 40/bbl to the downside (vs. high 41.45/bbl). Participants today will be eyeing the monthly EIO STEO – with focus on their estimates for US oil production – the prior report estimated an average output of 11.7mln BPD in 2020 and 10.9mln BPD in 2021. Meanwhile, the weekly Private Inventory data could also offer some short-term volatility in prices. Turning to metals, spot gold continues to gain ground above USD 1700/oz amid risk aversion despite the firmer Buck as investors flee to the safe haven metal, with geopolitical tensions between North Korea/South Korea coupled with Aussie-Sino strains also underpinning the yellow metal. Copper prices are pulling back in tandem with the stock markets and broader sentiment, but prices remain comfortably north of USD 2.5/lb at present.

Libya's NOC have declared a force majeure for the El Sharara (300k BPD) field, following reports that armed forces entered El Sharara oil field and told employees to stop working. Subsequently, Libya's 300k BPD El Sharara Oilfield has closed down just days after its restart, however, efforts are underway for it to restart once again, according to a field engineer. (Newswires)

Iran oil and energy journalist Reza Zandi tweeted that the idea within OPEC+ is to try to push near-term or spot prices higher than forward contracts, otherwise known as backwardation citing a delegate, while he suggested OPEC wants oil today to be more sought after than oil for future deliveries to encourage refiners and traders to take crude out of inventories. (Twitter)

New Iraq Oil Minister Ismaeel affirmed to the Saudi Energy Minister full commitment to the OPEC+ output cut agreement and commented that Iraq is also fully committed to the deal after June and July. (Newswires)

Goldman Sachs said updated Brent short-term price forecasts is now at USD 35/bbl and year-end spot forecast now at USD 45/bbl, while it noted a similar USD 6/bbl average forecast increase through H2 for WTI to USD 45/bbl, Furthermore, Goldman Sachs sees Brent crude prices at USD 37/bbl in Q3 and USD 43/bbl in Q4, as well as WTI crude at USD 34/bbl in Q3 and USD 40/bbl in Q4. (Newswires)