• Sentiment has slipped in a relatively quiet session as focus turns to today’s FOMC
• DXY is softer but off lows while fixed has maintained a grinding bid; UST yield curve bull-flattening as such
• China's Global Times tweeted that China may restrict use of Qualcomm (QCOM) chips in government bodies and key sectors related to national security
• ECB is said to be drawing up a "bad bank" scheme to warehouse unpaid EUR debt from the pandemic, sources
• Dutch Foreign Minister, regarding the EU Recovery Fund, says there is a lot of work to do and believes a number of points in the Commission’s proposal will need significant change
• Looking ahead, highlights include US CPI, DoEs, FOMC policy announcement & press conference, ECB's Schnabel, de Guindos, Knot

CORONAVIRUS UPDATE

Texas coronavirus hospitalizations reportedly hit the highest since the pandemic began. (Newswires)

GLOBAL

OECD Economic Forecasts

Real GDP Growth:

-        World: 2020 -6.0%, -11.5% (Prev. 2.4%).         2021 +5.2%, +2.8% (Prev. 3.3%)

-        US: 2020 -7.3%, -8.5% (Prev. 1.9%).                2021 +4.1%, +1.9% (Prev. 2.1%)

-        Euro Area: 2020 -9.1%, -11.5% (Prev. 0.8%).   2021 +6.5%, +3.5% (Prev. 1.2%)

-        UK: 2020 -11.5%, -14.0% (Prev. 0.8%).            2021 +9.0%, +5.0% (Prev. 0.8%)

-        Note, figures in Italics are in the scenario that there is a second-wave of COVID-19 & priors are from the March interim release where the OECD did not provide forecasts contingent on COVID-19 second-wave occurrence.

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 (+0.1) 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 (U/C) and Shanghai Comp. (-0.4%) 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%)

Chinese Outstanding Loan Growth* (May) 13.2% vs. Exp. 13.2% (Prev. 13.1%)

Chinese New Yuan Loans* (May) 1480B vs. Exp. 1500.0B (Prev. 1700.0B)

Chinese M2 Money Supply YY* (May) 11.1% vs. Exp. 11.3% (Prev. 11.1%)

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)

BoJ reportedly sees no need for major action at next week's meeting, adding that super-long bond yields are not too high and movement will be permitted if 10yr JGB remain stable, sources state. (Newswires)

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%)

US

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)

UK/EU

ECB is said to be drawing up a "bad bank" scheme to warehouse unpaid EUR debt from the pandemic, sources state; the plan could see the ESM act as a guarantor for the "bad bank"; major European commercial banks could be called on to join forces to underpin the scheme. (Newswires)

ECB's Muller says that changes to the tiering multiplier was not considered at the most recent meeting; PEPP must be a temporary programme. (Newswires)

ECB's Kazimir says that it his wish that the PEPP is concluded as soon as possible. (Newswires)

Dutch Foreign Minister, regarding the EU Recovery Fund, says there is a lot of work to do and believes a number of points in the Commission’s proposal will need significant change; very serious concerns with the size and funding, Politico. A structural increase of contributions must be avoided and rebates should be maintained - as well as other modernisation steps. Separately, EU member states are urging Brussels to take into account Brexit shocks when discussing the Commission's EUR 750bln Recovery Fund proposal. (Politico/FT)  

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

GEOPOLITICS

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)

Russia says US fighters have intercepted and escorted four Russian nuclear-capable bombers over neutral waters near the US, according to RIA. (Newswires)

EQUITIES

European equities have given up earlier gains and fall deeper into negative territory [Euro Stoxx 50 -0.8%] as stocks market failed to sustain the mostly positive APAC lead as players take some chips off the table ahead of some key risk events including the latest FOMC decision (full preview available on the newsquawk research suite) alongside the Eurogroup meeting later this week. News-flow has been light for the session but nonetheless bourses broadly post mild losses. Sectors are mostly in negative territory with more of an anti-cyclical bias and thus pointing to a more risk averse session. The detailed breakdown paints a picture in a similar vein and sees Travel & Leisure underperforming the region. In terms of individual movers, Spanish giant Inditex (+2.8%) erased earlier earning-induced downside of around 3% amid a jump in online sales. Commerzbank (+0.3%) holds its head above water but has waned off prior highs of c.3% which initially emanated from reports its second largest shareholder Cerberus (5% holding) demanded a fix-up of the group’s board. Shares thereafter drifted lower in tandem with yields. Elsewhere, Julius Baer (-1.5%) extended on losses amid reports the firm is facing another enforcement proceeding by FINMA over proper anti-money-laundering procedures.

FX

USD - The Dollar continues to depreciate amidst increasingly bearish price action as the index falls further from early June recovery highs in a declining pattern of daily ranges. Indeed, after a couple of attempts to revisit 97.000+ post-NFP peaks, the DXY has faded on each occasion, and the latest effort to bounce fell short of 96.500 to leave the index precarious above the round number below and eyeing the FOMC for fresh direction. However, Fed expectations do not suggest much in the way of a reprieve for the Greenback even though the aforementioned US jobs data was encouraging in terms of hopes for a relatively speedy rebound from the deep COVID-19 depths of unemployment, with the economic outlook still shrouded in uncertainty and hardly helped by violent protests or renewed global trade tensions. From a technical perspective, nearest support for the DXY comes in at 95.914 (March 11 low), while resistance remains at 97.069 (Monday’s apex) and the current range is 96.460-057.

NZD/CHF/AUD - All vying for top G10 ranking, with the Kiwi firmly back above 0.6500 and not far from Tuesday’s best, while the Aussie is testing 0.7000 amidst reports of bids under the big figure from exporters and leverage accounts. Elsewhere, the Franc has forged more gains towards 0.9450 and 1.0750 vs the Euro, albeit still not cleanly or convincingly through the 200 DMA as the single currency maintains its bullish momentum against the Buck.

JPY/GBP/EUR/CAD - The next best majors in descending order, with Usd/Jpy extending its marked retreat from circa 109.85 last Friday through more apparent supports, including the 30 DMA (107.54) to expose the only real downside chart level left before 107.00, at 107.09 (May 29 reaction low). Similarly, if Cable can sustain a break above Fib resistance around 1.2778 then 1.2800 beckons ahead of 1.2849 (March 12 high) and a more meaningful technical trendline at 1.2860, while Eur/Usd is inching closer to its post-NFP pinnacle (1.1384), but may find 1.1400 protected by decent option expiry interest between 1.1390-95 (1.2 bn). Turning to Usd/Cad, 1.3400 is still proving pivotal as crude prices consolidate off post-OPEC+ peaks and the pair looks to US CPI data before the Fed for additional impetus in the absence of anything scheduled on the Canadian front.

SCANDI/EM - Waning risk sentiment and softer oil has thwarted another sub-10.5000 Eur/Nok move aided by firmer than expected Norwegian inflation metrics, while Eur/Sek has bounced from just shy of 10.4100 following further declines in Swedish household consumption and awaiting commentary from Riksbank Governor Ingves. Conversely, ongoing Dollar weakness has kept the HKMA active in defence of the currency peg and the Turkish Lira has derived traction from closer FX position monitoring by the CBRT rather than a fall in the jobless rate.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1300 (1BLN), 1.1390-95 (1.2BLN)

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

FIXED

It has been a steady and measured rebound, partly on a paring of overall risk exposure ahead of the FOMC, but not always in lock-step or inverse correlation as EU bourses drift down a bit further from recent peaks. Nonetheless, Bunds and Gilts are both on a firmer footing after initial/early wobbles and extended gains to 30 and 17 ticks respectively at 173.76 and 135.87, more in keeping with the tone in US Treasuries ahead of CPI data and the FOMC.

COMMODITIES

WTI and Brent futures remain subdued in early mid-week trade as sentiment across the market erodes alongside a number of bearish narratives for the complex. Yesterday’s EIA STEO report cut 2020 world oil demand growth forecast by 120k BPD to 8.34mln BPD but noted it sees US crude output declining 670k BPD (vs. Prev. 540k BPD) this year. In-fitting with the global 2020 contraction viewpoint, OECD forecasts a 2020 contraction of 6.0%, whilst the scenario with a second wave sees global GDP -11.5%. Elsewhere, the weekly Private Inventory data also proved to add to the bearish bias with the headline having printed a surprise build of 8.4mln barrels vs. Expectations for a draw of 1.7mln. Meanwhile in Libya, production at the El-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. WTI July extends losses below USD 38/bbl (vs. high) and Brent August moves in tandem below USD 40.50/bbl (vs. high) as traders await the weekly EIA inventory data ahead of the FOMC rate decision. In terms of metals, spot gold ekes mild gains amid the risk-reversal from the APAC session coupled with a softer USD, but price action remains somewhat muted in anticipation of the Fed policy decision. Copper prices are underpinned by a weaker USD despite the deteriorating sentiment – Shanghai copper rose to near 20-week highs amid strong demand from China. Dalian iron meanwhile failed to benefit from the China demand as rising shipments from miners pressure prices.

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

NOC confirm the continuation of a force majeure at the El Sharara (300k BPD) oil field. (Newswires)

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)