• Sentiment remains downbeat in a quiet session thus far after a negative APAC handover
• DXY is subdued around the 96.00 mark weighed on by safe-havens while UST yields continue to bull-flatten
• China reportedly continues to purchase US soybeans despite toughening rhetoric, least 10 cargoes purchased by state-run & private buyers in June
• SCMP article suggested that nuclear arms control could be the next battleground in US-China rivalry after Beijing rejected invitation to join treaty talks
• Looking ahead, highlights include US Initial Jobless Claims, PPI, EuroGroup Meeting, supply from the US

CORONAVIRUS UPDATE

AFP reports US topped 2mln coronavirus cases citing the Johns Hopkins tracker and Texas reported 2504 new positive coronavirus cases which was the largest increase since the outbreak began. (Newswires)

UK PM Johnson plans to scrap two-metre social distancing rule by September so schools can fully reopen in the new school year. (Newswires/Telegraph)

The COVID-19 pandemic is accelerating in Africa (currently accounts for under 3% of global cases), according to the WHO's Africa Regional Director. (Newswires)

ASIA

Asian equity markets ended the session lower as the region took its cue from the underwhelming performance on Wall St where the spotlight was on the FOMC which maintained rates as expected and projected no change in rates through to 2022, while members forecast a 6.5% contraction in the economy this year and Fed Chair Powell also struck a cautious tone during the press conference. This resulted to a choppy reaction in US stocks and most major indices finished negative with energy and financials resuming their underperformance, although tech continued to buck the trend to lift the Nasdaq to its first ever close above the 10k landmark. ASX 200 (-3.1%) and Nikkei 225 (-2.8%) were lower as Australia’s financials and energy sectors mirrored the hefty losses seen in their counterparts stateside, while sentiment in Japan was pressured by a firmer currency and further deterioration of large business surveys in which the BSI Large Manufacturing Index slumped to -52.3 from -17.2. Hang Seng (-2.3%) and Shanghai Comp. (-0.8%) were mixed following another drab PBoC liquidity effort and with participants mulling mixed Chinese financing data, with focus also on IPO developments after NetEase shares surged around 10% at the open on its Hong Kong debut. 10yr JGBs edged higher and broke above the 152.00 level amid gains in T-notes and weakness in stocks, while the results of the enhanced liquidity auction in the long- to super-long end were mixed but attracted a slightly higher b/c.

PBoC injected CNY 80bln via 7-day reverse repos for a net injection of CNY 10bln with rate kept at 2.20%. (Newswires) PBoC set USD/CNY mid-point at 7.0608 vs. Exp. 7.0684 (Prev. 7.0703)

US Vice President Pence said the US will continue to stand strong against China on trade and China will continue to buy goods from the US including agriculture goods. In related news, there were separate reports that noted China continues to purchase US soybeans despite toughening rhetoric with at least 10 cargoes purchased by state-run and private buyers so far this month. (Newswires)

SCMP article suggested that nuclear arms control could be the next battleground in US-China rivalry after Beijing rejected invitation to join treaty talks. China's Global Times tweeted the Chinese Embassy in UK said we all know which country frequently coerces others, interferes in internal affairs and subverts legitimate governments, which was in response to the “coercive bullying tactics” accusations made by US Secretary of State Pompeo. (SCMP/Twitter)

China's Cabinet Advisor says that it is not easy for China and the US economies to decouple, countries should resume timely communication on trade and other issues; PBoC should provide liquidity and interest rate environment to support gov't issuance & no need to monetise fiscal deficit. (Newswires)

UK/EU

EU Chief Brexit negotiator Barnier has reportedly ruled out UK's plan to enter intensive secret negotiations over a trade agreement in July, Telegraph reports citing sources. (Telegraph)

ECB’s Lane says that the central bank is ready for anything to revive the economy. (Il Sole)

UK RICS Housing Survey (May) -32 vs. Exp. -24.0 (Prev. -21.0, Rev. -22). RICS said near-term sales expectations are now broadly neutral and the 12-month outlook improved. (Newswires)

GEOPOLITICS

South Korean Unification Ministry revoked 2 activist group licenses due to violations of rules by dropping anti-North Korean leaflets over North Korean cities, while it was also reported that North Korea has “iron will” to punish South Korea for anti-Pyongyang leaflets according to North Korea newspaper Rodong Sinmun. In separate news, North Korea stated that the US has no standing to comment on inter-Korean affairs and warned for US not to interfere if it wants smooth presidential elections. (Newswires/Yonhap)

EQUITIES

European equities continue to bleed as the session is underway [Euro Stoxx 50 -2.2%], following a similarly downbeat APAC handover as sentiment takes a hit post-Fed with investors weighing the prospect of resurging COVID-19 cases in the US – with Texas seeing the highest one-day total since the pandemic began, Florida cases rising above key recent averages and California hospitalisations at the highest since early May. Add to that the background tensions brewing between US and China, geopolitical tensions in the Korean peninsula, Brexit risk and disagreement over EU member states over the Recovery Fund proposals. Major European bourses trade with losses deeper than 2% at the time of writing, with Netherland’s AEX (-1.5%) faring somewhat better as Unilever (+2.3%) cushioned the index as the group is to combine its Anglo-Dutch arms to streamline M&As. UK’s FTSE 100 (-2.3%) fails to glean much support from the stock as exporters bear the brunt of a firmer Sterling. Sectors all reside in the red with defensives outpacing cyclicals – Energy, Financials and Consumer Discretionary lag. The detailed breakdown paints a similar anti-cyclical picture with Travel & Leisure taking a hit on the prospect of a second wave. In terms of individual movers, Lufthansa (-6.5%) pared back a bulk of opening losses after plunging 12% at the open after stating they have a surplus of 26k employees and said job cuts would be “significantly more” than the 10k figure previously estimate. Meanwhile, PSA (-6.3%) and Fiat Chrysler (-5.6%) are subdued amid reports the merger is facing a full-scale antitrust probe as they have failed to provide the necessary concessions to EU Officials regarding the van units which they have reportedly been reluctant to sell, according to sources.

Amazon (AMZN) - EU is reportedly mulling formal antitrust charges against the Co. in the next week or two over treatment of third-party sellers, according to WSJ citing sources. (WSJ)

Tesla (TSLA) have secured approval to produce China made Model-3 vehicles with LFP batteries, China's Industry Ministry. (Newswires)

FX

USD - The DXY has been choppy in wake of the FOMC, but ultimately still more inclined to extend its losing streak within a 96.503-95.946 range as the Greenback underperforms G10 counterparts with a greater weighting in the basket. For the record, no new policy changes emerged from the Fed, but maintaining accommodation via QE was reaffirmed and the new dot plots signalled no change in rates until the end of 2022, albeit not indicating any chance of NIRP either. However, beyond a nod to last Friday’s gravity-defying headline payrolls count the FOMC’s prognosis of the economic situation and tone of Chair Powell’s presser was largely downbeat. Hence, no real respite for the Buck aside from recovery gains vs high beta and more risk sensitive rivals, especially as doubts about reopening from COVID-19 have been subsequently compounded by reports of 2nd waves of the pandemic in several US states that have lifted restrictions.

CHF/JPY/EUR - All extending advances against the Dollar, with the Franc now on the cusp of 0.9400 and testing 1.0700 vs the Euro even though Eur/Usd is rebounding towards Wednesday’s 1.1400+ spike highs. Meanwhile, the Yen continues to grind higher and has now soaked up offers ahead of 107.00 to expose another prior peak at 106.74 that was last seen on May 13 and constituted a higher low for the headline pair.

GBP/SEK/CAD/NZD/AUD/NOK - The Pound remains top heavy around 1.2750 in Cable terms and above 0.8900 on the Eur/Gbp cross due to rising Brexit no deal probability and coronavirus contagion, but the Swedish Krona has gleaned some protection from broad risk aversion following firmer than forecast inflation data rather than Riksbank remarks, as Jansson contends that the near term contraction in GDP may be a bit worse than envisaged in April’s projections. Indeed, Eur/Sek is holding below 10.5000 whereas Eur/Nok has rebounded much further from recent lows to 10.7000+ at one stage amidst a deeper retreat in crude prices that is also weighing on the Loonie, with Usd/Cad firmly above 1.3400 again between 1.3398-1.3498 parameters. Similar story down under where the Kiwi and Aussie have recoiled from best levels to trade sub-0.6500 and close to 0.6900 vs their US peer, albeit with Aud/Usd holding just above stops said to be sitting in wait at 0.6898, while Nzd/Usd is now eyeing US weekly claims and PPI before Westpac’s Q2 NZ consumer survey, May manufacturing PMI and FPI for further direction.

EM - Risk-off positioning undermining most regional currencies, but the Yuan and Lira weathering outflows better than others after another dip in the PBoC Usd/Cny fix and Usd/Try is capped by chart resistance circa 6.7900-50.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1250 (900M), 1.1325-35 (1BLN), 1.1350 (650M), 1.1375 (230M), 1.1395-1.1400 (500M)

FIXED

Core bonds have lost a bit of their vigour, but the post-FOMC extension of prior bull re-flattening remains firmly intact ahead of potentially key US data and the final leg of this week’s Treasury supply. Bunds have drifted down from 174.73 as the Eurozone periphery and French OATs outperform, while Gilts have found further advances beyond 137.00 too tough to build on. However, USTs are hovering closer to overnight session highs after key/psychological breaks in cash yields, with 10 and 30 year benchmarks back under 75 bp and 1.50% respectively.

COMMODITIES

WTI and Brent front month future conform to the overall risk aversion post-Powell with added weight from a resurgence in cases State-side and ongoing questions regarding the enforcement of OPEC compliance among laggard producers. Fresh news-flow has been light for the complex this morning with price action more-so a continuation of downside from the US and APAC sessions. WTI Jul briefly breached USD 38/bbl to the downside (vs. high 39.09) multiple times but USD 37.90/bbl held as a support throughout the session thus far. Meanwhile, Brent Aug trickles lower in tandem as it hovers around USD 40.50/bbl having found a mild base at USD 40.10/bbl and having waned off highs a touch above USD 41.00/bbl. Spot gold sees muted price action relative to the melt-down in stocks and bounce in bonds – with the yellow metal stable north of USD 1725/oz (USD 1727-40/oz intraday range) as it juggles USD action with the risk aversion in the market. Copper meanwhile retraces some of recent supply-led gains, with the risk-off tone also possibly providing the red metal with downside impetus as prices retreat from the USD 2.7/lb mark and closer to USD 2.65/lb.