• Asian stocks suffered from spillover selling after the weakness seen in global counterparts amid mounting COVID-19 concerns stateside
• US experienced its largest single day increase in new COVID-19 cases of more than 36,000
• University of Washington IHME study forecasts US coronavirus cases to pick up in August and September with the death toll to reach 180K by October 1st
• The DXY held on to gains above 97.00, EUR/USD hovers around 1.1250, GBP/USD maintains 1.24 status
• ECB policymakers reportedly agreed to provide the Bundesbank documents on proportionality to support its legal case with the German Constitutional Court
• Looking ahead, highlights include German GFK consumer sentiment, CBRT & Banxico rate decisions, ECB minutes, US durable goods, GDP (F), IJC, US bank stress tests, ECB's Schnabel, Mersch, BoE's Haldane, US 7yr note auction

CORONAVIRUS UPDATE

US experienced its largest single day increase in new COVID-19 cases of more than 36,000 vs. Prev. high of 34,203 new cases on April 25th. (Washington Post) University of Washington IHME study forecasts US coronavirus cases to pick up in August and September with the death toll to reach 180K by October 1st. (Newswires) New York, New Jersey and Connecticut are ordering visitors from coronavirus hotspot states to quarantine which covers Alabama, Arkansas, Arizona, Florida, North Carolina, South Carolina, Washington, Texas and Utah. Furthermore, there were comments from New York Governor Cuomo said the federal government has been incompetent in handling the pandemic. (Newswires) Texas Governor Abbott stated that a massive virus outbreak is sweeping the state, while Houston, Texas, is reportedly on pace to exceed intensive care capacity by today, Apple (AAPL) is to re-close 7 stores in Houston due to the coronavirus spike and Disney will delay the Disneyland California reopening that had been set for July 17th. (Newswires)

Australia's Victoria state reported 33 additional coronavirus cases vs. Prev. 20, while it was also reported that Australia is to deploy 1000 troops to the Victoria state capital of Melbourne to help contain the coronavirus outbreak. (Newswires)

ASIA

Asian stocks suffered from spillover selling after the weakness seen in global counterparts as risk appetite took a hit from several fronts including the record COVID-19 infection rates in US, half-year end rebalancing and a US-EU tariff threat after reports of US targeting USD 3.1bln of exports from France, Germany, Spain and UK for new tariffs. ASX 200 (-2.1%) was led lower by underperformance in the energy sector due to lower oil prices and with hefty losses seen in travel stocks after Qantas announced several cost-cutting measures. Nikkei 225 (-1.4%) was pressured by the ill-effects of the predominantly firmer domestic currency and KOSPI (-2.1%) traded downbeat following South Korea’s announcement of a capital gains tax on stock trading from 2023, while trade for the region was also hindered by key holiday closures with mainland China, Hong Kong and Taiwan all closed for the Dragon Boat Festival. Finally, 10yr JGBs were flat as prices failed to take advantage of the risk averse tone, advances in T-notes and with the latest update showing the BoJ’s share of the JGB market increased to 44.2% as of end-March vs 43.7% Q/Q, with participants kept sidelined amid the 20yr auction in which nearly all metrics pointed to a weaker result.

US Pentagon approved the publication of a list of Chinese companies owned or controlled by China's military, including Huawei, Hikvision, China Mobile and other China telecoms, while a source suggested that the designation lays the groundwork for further US financial sanctions. (Newswires)

White House Trade Adviser Navarro said US President Trump signed a proclamation to protect the lobster industry and directed the USTR to observe if China is purchasing US lobsters under the Phase 1 agreement or he may place reciprocal tariffs. (Newswires)

White House National Security Adviser O'Brien warned of China's efforts to hurt our economies and alleged the CPC is a threat to the sovereignty and economies of US and allies. (WSJ)

China is reportedly adding to its trade negotiation team by appointing its chief representative at the World Bank Yang Yingming as head of MoF's international cooperation department, according to sources. (Newswires)

UK/EU

UK government is to ease planning and licensing rules to permit more outdoor drinking and dining in an effort to help the hospitality sector rebound from the lockdown. (Sky News)

ECB's De Cos said that it is important that the EU recovery fund is approved as soon as possible with an adequate size. (Newswires)

ECB policymakers agreed to provide Bundesbank documents on proportionality to support legal case in challenge by the German Constitutional Court, according to sources. (Newswires)

French Government is to reduce income support under reduced time work scheme to 60% from 70% of workers’ wages from October 1st and French companies will have to cover 40% of workers' wages (Prev. 15%). (Newswires)

WTO delayed the decision on potential EU counter tariffs against the US in aircraft subsidy dispute to September or October, according to sources. (Newswires)

FX

The DXY held on to gains above 97.00 after the global stock rout spurred flows into the hard currency and resulted in a broad-based retreat amongst major peers including EUR/USD which extended its pullback from this week’s resistance of 1.1350 and slipped back below its 200-Hour MA of 1.1257. The single currency was also not helped by the recent trade related headwinds with the US said be targeting USD 3.1bln of goods for new export tariffs from several EU members, which despite being a relatively inconsequential amount, could result to an escalation of transatlantic protectionism. GBP/USD was subdued and approached 1.2400 to the downside. Elsewhere, USD/JPY held on to the 107.00 handle due to the strength in the greenback and JPY-crosses were mostly subdued by the downbeat risk tone, while antipodeans also traded lacklustre due to their high-beta properties and after uneventful New Zealand Trade Data, but with downside limited so far by a floor in AUD/USD and NZD/USD at 0.6850 and 0.6400 respectively.

New Zealand Trade Balance (NZD)(May) M/M 1253M vs. Exp. 1290M (Prev. 1267M). (Newswires) New Zealand Exports (NZD)(May) 5.4B vs. Exp. 5.4B (Prev. 5.3B) New Zealand Imports (NZD)(May) 4.1B vs. Exp. 4.1B (Prev. 4.0B)

Fitch downgraded Canada to 'AA+' from 'AAA': Outlook Stable. (Newswires)

COMMODITIES

WTI crude futures languished below USD 38.00/bbl after the bearish headline EIA inventory data and with prices dragged lower by the broad risk averse tone as record increases of US COVID-19 numbers threatens the reopening agenda. Gold was rangebound as pressure from a firmer greenback was offset by the precious metal’s haven status, while Copper languished due to the negative sentiment and with its largest buyer China closed the remainder of the week for the Dragon Boat Festival. Furthermore, prices failed to benefit from reports that Chile's Chuquicamata Copper Mine was shut due to a coronavirus death which is the largest open pit copper mine in the in terms of excavated volume. 

Goldman Sachs lowered Oct. 2020 NYMEX gas price forecasts to USD 1.40/mmbtu from USD 1.75/mmbtu, but maintains Dec. 2020-Mar. 2021 forecast at USD 3.50/mmbtu and Apr. 2021-Oct. 2021 forecast at USD 3.25/mmbtu. (Newswires)

GEOPOLITICS

US President Trump said US is doing very well on work towards an arms control agreement with Russia. (Newswires)

US State Department said North Korea has failed to take actions for its past support of international terrorism, according to reports citing the annual Country Reports on Terrorism. (Newswires)

Iran's Foreign Ministry that Iran and Venezuela remain steadfast in countering US sanctions. In other news, Venezuelan President Maduro said it is possible to hold a referendum regarding his resignation as long as enough signatures are collected to support this from 2022. (Newswires/RIA/Twitter)

US

Despite an exotic session of risk aversion, the TPLEX only modestly bull-flattened. By settlement, 2s unchanged at 19bps, 10s -3bps at 68bps and 30s -4bps at 145bps. Yields had been little changed heading into the US session, although as alarming COVID cases hit the tape, the selling in equities complex bought some duration bidders to the scene, seeing the T-Note gently grind higher through the session and taking the 10-year beneath 70bps. However, the move lower in yields appeared somewhat more contained when compared with the circa. 3% decline in Spooz and chunky declines in the energy complex, with the 10-year yield unable to materially deviate from recent ranges. US T-note futures (U0) settled 4 ticks higher at 138-28.

Fed's Evans (non-voter, dove) said he expects the broad economic recovery will take time and that more fiscal and monetary policy may be necessary. Evans added that no one at the Fed is thinking about negative rates at the moment and he would be surprised if the Fed went down that path, while he suggested before long they will need to make judgement whether more monetary policy support is needed. Furthermore, Evans expects H2 growth to be strong and stated there is a role for more fiscal stimulus especially for local and state governments. (Newswires)

The next COVID19 stimulus package of roughly USD 1tln is reportedly taking shape and individual industries may see some form of relief, while liability protection and individual stimulus checks are losing steam, according to FBN's Gasparino. (Twitter)