• Asia-Pac markets end the week with a cautious tone as regional bourses failed to sustain the early momentum from the tech-led gains in the US
• Sentiment in the US was underpinned as yields eased and Fed Chair Powell stuck to the dovish script
• Fed Chair Powell said there is a brighter outlook for the US economy but reiterated that the Fed needs to keep supporting the economy
• In FX, the DXY maintains 92.00 status, EUR/USD holds onto the 1.19 handle and GBP/USD enters the EU session near the unchanged mark
• Looking ahead, highlights include US PPI, Canadian labour market report, ECB's de Guindos, Fed's Kaplan

CORONAVIRUS UPDATE

US COVID-19 cases +74,860 (prev. +61,258): deaths +871 (prev. +781), total vaccines administered 175mln (prev. 171mln), those fully vaccinated 66.2mln (prev. 64.423mln). (Newswires)

Some North Carolina vaccination sites were reported to have halted Johnson & Johnson (JNJ) vaccine shots following adverse reactions including fainting. (Newswires)

UK travel taskforce said it will announce early next month which countries will be included in the red, amber or green categories as part of a new traffic light system based on virus risk and will also confirm early next month if travel can resume from May 17th. The task force added that restrictions for inbound passengers including 10-day hotel quarantine, home quarantine and testing will vary differently for arrivals depending on their category in the traffic light system, while key factors in assessing category will include % of the population vaccinated, rate of infection and prevalence of variants of concern. Furthermore, it recommended removing the 'permission to travel form' which means passengers will no longer be required to provide a valid reason for travelling and it stated that the UK government is working on certification for both inbound and outbound international travel. (Newswires)

Italian PM Draghi called for a stop to vaccinations of people below 60 years old and said focus must be on vaccinating the elderly, while he has no doubt about reaching their vaccination goal and stated there will be enough vaccine doses in April to vaccinate all over 80s, as well as a large part of the over 70s. Furthermore, he has no date for when COVID restrictions can be eased which depends on infection rates and vaccinations although he does not rule out easing COVID restrictions before the end of April if the data allows it and is very optimistic regarding the vaccination campaign. (Newswires)

Australian PM Morrison said they have secured an additional 20mln Pfizer (PFE) vaccines and will now get 40mln doses this year with additional doses in Q4, while he also announced that large ticketed gatherings can operate at 100% capacity and that they are discussing how to permit vaccinated Australians to travel abroad and return without quarantine. Furthermore, the Australian Health Minister stated the vaccine rollout is relatively unchanged and that Pfizer (PFE) plans an expansion of vaccine deliveries in April and May. (Newswires)

Portugal is to suspend use of AstraZeneca's (AZN LN) COVID vaccine for people under 60. (Newswires)

ASIA

Asia-Pac markets end the week with a cautious tone as regional bourses failed to sustain the early momentum from the tech-led gains in the US where sentiment was underpinned as yields eased and Fed Chair Powell stuck to the dovish script. US equity futures thereafter pulled back from session highs after the E-mini S&P briefly breached the 4,100 level for the first time. ASX 200 (-0.2%) was lacklustre with strength in tech, telecoms and gold miners offset by a subdued broader market amid concerns that the vaccination programme could be hindered after Australia recommended to halt the use of the AstraZeneca (AZN LN) vaccine for people under the age of 50 which also placed doubts on local partner CSL that has a contract to produce 50mln doses of the AstraZeneca vaccine. Nikkei 225 (+0.7%) was positive after an attempt to reclaim the 30k level although has partially retraced the advances with the government and expert panel set to discuss COVID-19 measures for Tokyo today. There were also mixed earnings from retailers as Seven & I posted a decline in its full year net and although Fast Retailing reported improved results, its shares were subdued with the Co. said to be facing pressure from the US to take a clear stand against the human rights abuses in Xinjiang. Hang Seng (-0.8%) and Shanghai Comp. (-0.7%) weakened amid continued US-China tensions after the US Commerce Department added 7 Chinese supercomputing bodies onto its entity list for alleged support to the Chinese military and with the US Senate’s legislation draft stating that the US must encourage allies to do more in balancing and checking China’s aggressive behaviour, while the latest Chinese inflation data was mixed as CPI and PPI topped estimates Y/Y with factory gate prices at its highest in more than 2 years amid rising commodity prices, but CPI M/M was at a wider than anticipated contraction. Finally, 10yr JGBs were flat as they took a breather from the prior day’s gains with demand subdued as Japanese stocks remained afloat and amid the absence of the BoJ purchases in the market today, while Australian yields were relatively unmoved following the 2025 Aussie government bond auction.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.5409 vs exp. 6.5415 (prev. 6.5463)

• Chinese CPI (Mar) M/M -0.5% vs. Exp. -0.4% (Prev. 0.6%)
• Chinese CPI (Mar) Y/Y 0.4% vs. Exp. 0.3% (Prev. -0.2%)
• Chinese PPI (Mar) Y/Y 4.4% vs. Exp. 3.5% (Prev. 1.7%)

US Secretary of State Blinken and Philippines Foreign Affairs Secretary Locsin expressed concerns regarding Chinese militia vessels in the South China Sea and Blinken reaffirmed the applicability of the US-Philippines Mutual Defense Treaty to the South China Sea. (Newswires)

UK/EU

ECB's Schnabel fears an economic disaster for Europe if the EU recovery fund is halted, but sees no problem regarding the growing national debt levels arising from the Recovery Fund as an increase in public debt is inevitable and sensible in crisis. (Spiegel)

France sees public debt rising from 117.8% of GDP in 2021 to peak at 118.3% in 2025 and public deficit is seen falling from 9.0% in 2021 to 2.8% in 2027, while GDP seen at 5% in 2021, 4% in 2022, 2.3% in 2023, 1.5% in 2024 and 1.4% afterwards, according to sources. (Newswires)

FX

In FX, the USD nursed the prior day’s wounds after the currency was pressured amid the constructive mood on Wall Street and recent softening in yields which briefly saw the DXY test the 92.00 level to the downside. There was also plenty of Fed commentary including from Fed Chair Powell who stated that there is a brighter outlook for the US economy from fiscal support and vaccines but also noted that there are still 8.5mln out of work and reiterated that Fed needs to keep supporting the economy. EUR/USD gained during the prior session as the main benefactor of the recent USD weakness and following the ECB Minutes which downplayed concerns regarding higher real rates, although the single currency has since pulled back overnight and just about holds on to the 1.1900 status. GBP/USD was rangebound with the pair contained amid this week’s surge in EUR/GBP and after the travel taskforce noted that they will confirm early next month if travel can resume from May 17th. USD/JPY and JPY crosses traded mixed amid the cautious mood in the Asia-Pac region and antipodeans were also rangebound due to their high beta statuses and as greenback attempted to recoup lost ground.

RBA Financial Stability Review stated that housing price growth is being observed by regulators and that it is important for banks to refrain from excessive risks amid the low-rate environment. RBA also stated that Australian banks are in a strong position exiting the pandemic with abundant liquidity and funding, as well as adequate provisions for non-performing loans, while it added that the committed liquidity facility for banks may no longer be needed due to increase of bond issuances. (Newswires)

COMMODITIES

Commodities were uneventful overnight amid the cautious risk tone and lack of fresh catalysts for the complex which kept WTI crude futures within a tight range above USD 59.50/bbl, while the ongoing geopolitical theme remains in the backdrop with talks regarding the Iranian nuclear deal set to continue despite neither side seeming willing to compromise first. Gold held on to yesterday's gains above the USD 1750/oz level which were mostly due to the USD weakness, while copper prices pulled back as risk appetite soured overnight and with underperformance seen in its largest purchaser China.

CME increased COMEX copper maintenance margins by 10.9% to USD 6,100/contract. (Newswires)

GEOPOLITICAL

White House stated the US is increasingly concerned by escalating Russian aggression in Ukraine but Russia sanctions will not come this week. In relevant news, the US is reportedly considering sending warships to the Black Sea amid Russia-Ukraine tensions, according to reports citing a US Defense official who added that the US Navy routinely operates in the Black Sea but a deployment of warships now would send a specific message to Moscow that the US is closely watching. (CNN)

US State Department stated it does not want expectations to go quicker than we are regarding Vienna Iran Nuclear talks, while it added that Iran talks in Vienna are anticipated to continue in coming days potentially next week. In other news, Iran released the South Korean ship the captain of the ship that was detained earlier in the year. (Newswires)

Turkey summoned the Italian Ambassador to the Foreign Ministry regarding Italian PM Draghi's remarks about President Erdogan in which Italian PM Draghi criticized Turkish President Erdogan as being a “dictator” and for relegating European Commission President von der Leyen to a sofa during an official earlier this week. (Newswires)

US

At settlement, yields were just off lows across the curve, with the complex catching a mild bid in wake of higher-than-expected weekly initial jobless claims data. Fed’s Powell didn’t add anything incremental to the narrative, and like the post-FOMC minutes reaction, this seemingly allowed the doves to retain control, and yields gradually inched lower in wake of the Fed chair’s copy/paste job; he was speaking on an IMF panel, and is due to give remarks next week, where he will have an opportunity to speak about the US policy outlook specifically (should he chose – although we are not holding our breath, since he has stuck to a familiar script of late). Strategists therefore said that there is little to deviate away from the ‘consolidation’ theme being seen in Treasuries (some desks identify a 1.60-1.80% range for the 10-year yield). Next week’s events may contain more to get our teeth into: the Treasury will be auctioning USD 58bln in 3-year notes, USD 38bln in 10-year notes and USD 24bln in 30-year bonds, all sizes as expected; we’ll also be getting the monthly CPI and retail sales reports next week, and another generous dose of Fed speak.

Fed Chair Powell said there is a brighter outlook for the US economy from fiscal support and vaccines, while monetary policy is still supportive and that they want to see a string of job reports like the March jobs report to see progress as there are still 8.5mln out of work. Powell added that substantial further progress means actual progress and wants to see actual improvement before tapering, while he reiterated that we need to keep supporting the economy and we will. Fed Chair Powell also reiterated that one time increases in prices is different from persistent inflation and that he does not expect price increases from tight supply to be repeated year after year. Furthermore, he sees upward pressure on prices to be transitory and stated that they have the tools to deal with inflation if needed, while he added that a traditional tool to deal with inflation is to raise rates and that they will be monitoring inflation expectations closely. (Newswires)

Fed's Bullard (non-voter) said the Fed is looking to the end of the pandemic but we are not there yet so policy remains in place, while he is encouraged by recent jobs data and expects blockbuster numbers ahead. Bullard also said the Fed should not even discuss changes in policy while US is still in the health care phase of the crisis and that it is possible US is moving towards a period of higher productivity. Furthermore, he added that they may see an elevated savings rate until families view the pandemic as truly over and noted the Fed is facing a tricky communications challenge in an effort to lift inflation expectations. (Newswires)

Fed's Daly (voter) said she is seeing a lift to the economy and anticipates a sharp rebound for activity but also noted that risks remain and that there are areas of vulnerability and concern around the US. (Newswires)

Fed's Kashkari (non-voter) stated the headline unemployment rate plays down slack and real unemployment rate is 9.1%, while he added that the Fed will not raise rates pre-emptively and that we will see an inflation uptick this year, but it will only be temporary. Kashkari also stated that the Fed will shrink its large balance sheet at some point when the pandemic is behind us although it will be larger than in the past, while he added that if higher government debt resulted in inflation, the Fed would need to tap brakes but does not see that in the immediate future. (Newswires)

NY Fed's SOMA manager Logan said the Fed may mull adjusting administered rates in the event of undue downward pressure to overnight rates and that the Fed is planning minor tweaks to Treasury purchase sectors to remain roughly proportional to outstanding coupon and TIPS supply. Furthermore, she added that an environment of increased reserves will likely become the new normal and that updates to purchase allocations will be unveiled with the normal purchase calendar release in approaching months. (Newswires)

US President Biden is said to seek USD 715bln for the Pentagon in his discretionary request today which would be an increase from the USD 704bln the prior year. (Newswires)

US President Biden said we should ban assault weapons and high-capacity magazines, while gun manufacturers should not have immunity and the White House stated that the administration will be taking further action on gun safety although did not provide specifics. (Newswires)