• Asian equity markets traded somewhat indecisively after the mostly negative lead from global peers amid cautiousness heading into the FOMC
• China's Global Times tweeted that China may restrict use of Qualcomm (QCOM) chips in government bodies and key sectors related to national security
• The DXY was rangebound after another failed effort yesterday to snap its recent downtrend. FX markets were largely uneventful overnight
• WTI crude futures pulled back from resistance at USD 39/bbl after the latest EIA STEO reduced world oil demand growth forecasts for this year
• Looking ahead, highlights include US CPI, DoEs, FOMC policy announcement & press conference, ECB''s Schnabel, de Guindos, Muller, Kazimir, Knot

CORONAVIRUS UPDATE

US COVID case count rose by 17,598 vs. Prev. increase of 17,919 and the death toll rose 550 vs. Prev. increase of 474. There were also separate reports that Texas coronavirus hospitalizations hit the highest since the pandemic began. (Newswires) New Jersey Governor Murphy lifted the stay at home order effective immediately but still urged social distancing. (Newswires)

UK COVID-19 case count rose by 1,387 vs. Prev. 1,205 increase and death toll rose to 40,883 (Prev. 40,597) which is an increase of 286 vs. Prev. increase of 55. (Newswires)

Germany is to extend virus-related travel warnings for non-European countries until August 31st, according to sources. (Newswires)

ASIA

Asian equity markets traded somewhat indecisively after the mostly negative lead from global peers amid cautiousness heading into the FOMC, which saw all major indices on Wall St stall aside from the Nasdaq as tech resilience boosted it briefly above the historic 10K milestone. ASX 200 (+0.5%) declined at the open with Australia dragged by weakness in financials and energy but with the losses gradually pared amid gains in defensives and improved consumer sentiment, while Nikkei 225 (+0.1%) was also initially pressured due to a firmer currency and larger than expected contraction in Machine Orders before staging a rebound to take back the 23K level. Hang Seng (+0.2%) and Shanghai Comp. (-0.5%) were varied with Hong Kong lifted at the open after the government’s bailout of Cathay Pacific which saw the airline’s shares take-off at the open, while the mainland lagged from the get-go as participants digested a somewhat tepid PBoC liquidity operation and softer than expected Chinese inflation data. Furthermore, tensions also lingered in the background as the Global Times suggested China could restrict the use of Qualcomm chips in government entities and key sectors related to national security, while it may also conduct anti-monopoly investigations and impose tariffs on US firms. Finally, 10yr JGBs were choppy around 152.00 amid similar indecision seen in the regional stock markets and with prices failing to benefit from today’s Rinban announcement in which the BoJ were present in the market for JPY 800bln of JGBs heavily concentrated in the belly.

PBoC injected CNY 60bln via 7-day reverse repos and maintained the rate at 2.20%. (Newswires) PBoC set USD/CNY mid-point at 7.0703 vs. Exp. 7.0683 (Prev. 7.0711)

Chinese CPI (May) Y/Y 2.4% vs. Exp. 2.7% (Prev. 3.3%) Chinese PPI (May) Y/Y -3.7% vs. Exp. -3.3% (Prev. -3.1%)

China is said to begin work on the Hong Kong security bill on June 18th. (Nikkei)

China's Global Times tweeted that China may restrict use of Qualcomm (QCOM) chips in government bodies and key sectors related to national security, while it may also conduct anti-monopoly investigations and impose tariffs on US firms. (Twitter)

Huawei is reportedly struggling to shift key parts of its production into China as suppliers want to avoid making bold movements at a time when there is "low visibility over future demand", sources said. (Nikkei)

Japanese Machinery Orders (Apr) M/M -12.0% vs. Exp. -8.6% (Prev. -0.4%). (Newswires) Japanese Machinery Orders (Apr) Y/Y -17.7% vs. Exp. -14.0% (Prev. -0.7%)

UK/EU

UK is reportedly looking to reduce its reliance on China for key imports. (FT)

EU member states are urging Brussels to take into account Brexit shocks when discussing the Commission's EUR 750bln Recovery Fund proposal. (FT)  

FX

The DXY was rangebound after another failed effort yesterday to snap its recent downtrend but with price action uneventful overnight amid tentativeness heading into today’s FOMC. This resulted to humdrum trade for the greenback’s major counterparts with the momentum in EUR/USD stalled by resistance circa 1.1350-60 but with the pullback in the single currency limited by a floor at its 50-month and 200-week MA levels at 1.1334 and 1.1335 respectively. GBP/USD consolidated at the 1.2700 handle which follows recent comments from BoE’s Cunliffe who seemingly opted to remain on the fence regarding negative rates as he suggested NIRP is a possible option to support demand but noted mixed views regarding the evidence in favour of negative rates and that they have created confusion among businesses and households where they have been deployed. Elsewhere, USD/JPY was subdued firmly below the 108.00 level and antipodeans mirrored the non-committal tone with AUD/USD contained by soft China inflation data and with NZD/USD bouncing off support at the 0.6500 level.

Australian Westpac Consumer Confidence Index (Jun) 93.7 (Prev. 88.1). (Newswires)

COMMODITIES

WTI crude futures pulled back from resistance at the USD 39/bbl level after the latest EIA STEO reduced world oil demand growth forecasts for this year. Furthermore, prices were also pressured following a bearish private inventory report which showed a substantial surprise build in headline crude stockpiles, while natgas saw a brief moment of volatility in which prices spiked lower before paring most of the mini flash crash leading to speculation of a fat finger. Gold prices were steady although there were some bullish calls from Goldman Sachs on the metals complex in which it reaffirmed its view the precious metal will reach USD 1800/oz on a 12-month basis, while copper marginally extended on its gains with notable support seen as Shanghai metals trade got underway. 

US Private Inventory Crude Stocks +8.4mln vs. Exp. -1.7mln (Prev. -2.1mln). (Newswires)

EIA STEO cut 2020 world oil demand growth forecast by 120k BPD to 8.34mln BPD and raised 2021 forecast by 190k BPD to 7.18mln BPD, while it sees US crude output falling 670k BPD (Prev. 540k BPD) to 11.56mln BPD in 2020 and in 2021 sees it falling 720k BPD (Prev. 790k BPD) to 10.84mln BPD. (Newswires)

Production at Libya's Sharara oil field (300k BPD) was reportedly shut-off again and the NOC later confirmed the continuation of a force majeure at the Sharara oil field. (Newswires)

At least two US tankers that had been sailing to Venezuela have changed course amid the US mulling new shipping sanctions according to sources and data, while it was separately reported that Chinese oil companies are said to be mulling stopping the use of oil tankers which have travelled to Venezuela in the past 12 months. (Newswires)

Goldman Sachs raised its 3-month copper price forecasts to USD 6000/tonne from USD 4400/tonne and raised it 12-month forecast to 6500/tonne from USD 6000/tonne, while it also raised aluminium forecasts with the 3-month forecast raised to 1700/tonne from USD 1400/tonne and 12-month aluminium forecast increased to USD 1800/tonne from USD 1700/tonne. Furthermore, it stated that gold should withstand the near-term cyclical rotation and they continue to see prices reaching USD 1800/oz on a 12-month basis. (Newswires)

GEOPOLITICS

Republicans in Congress are reportedly set to introduce the “biggest-ever sanctions” bill on Tehran, which will target Lebanon aid and Iraq waivers although the proposal does not have enough support to pass yet. (Newswires)

North Korea is ablaze with fury regarding anti-Pyongyang leaflets, according to reports in Yonhap citing North Korean newspaper Rodong Sinmun, while the South Korea Defense Ministry said will fully implement military tension reduction agreement with North Korea despite the latter's threat to scrap it. (Yonhap)

US

Yields fell further on Tuesday as cyclical/value strength in equities came to a pause, supporting bonds and bond proxies (NDX), although the weak 10-year Treasury auction halted the strength. Yields had been falling heading into the US session amid weakened risk appetite following Monday’s broad equity rally, and seemingly not allowing for any concession into the Treasury supply; analysts had not expected any concession anyway in the context of last week’s sell-off. The T-Note made its highs around the cash equity open in the US, seeing the 10-year yield hover around 82bps into the Treasury 10-year reopening auction (USD 29bln), which tailed the .819% WI by 1.3bps, saw a feeble 2.26x b/c ratio, leaving the Dealers to pick up a larger share of the tab (31.5% vs avg. 25.8%) due to weaker than average direct/indirect demand. Aside from the FOMC meeting, the 30-year auction and US CPI could also serve as volatility events for the rates market today. At settlement, 2s -2.4bps, 5s -4.7bps, 10s -5.5bps, 30s -7.4bps. T-Note futures (U0) settled 13+ ticks higher at 137-23.

White House Economic Adviser Hassett expects 3.5mln to 4mln jobs being added in June and that even if data is better than expected, some stimulus will be needed, while he sees another stimulus bill from congress before the August recess. (Newswires)

CME will reopen the eurodollar trading pit on August 10th and will reconfigure pit to meet social distancing guidelines and place additional safety measures, while all other open outcry pits will remain shut until Chicago and Illinois reaches phase 5 reopening. (Newswires)