• Asian equity markets traded cautiously as the region battled to shrug off the tech-led declines in the US
• US Treasury Secretary Yellen stated that interest rates will have to rise somewhat to ensure the economy does not overheat
• Yellen later clarified that she is not predicting nor recommending a rate increase
• In FX, the DXY retraced some of yesterday's gains, EUR/USD held on to 1.20 status and GBP/USD reclaimed 1.39
• WTI crude futures were lifted above the USD 66/bbl level following bullish private sector inventory data
• Looking ahead, highlights include Eurozone & US services & composite PMIs, ISM services PMI, DoEs, Fed's Evans, Rosengren, Mester, ECB's Lane, supply from the UK & Germany, US quarterly refunding
• Earnings from GM, Barrick Gold, Maersk, Deutsche Post, Intesa Sanpaolo

CORONAVIRUS UPDATE

US CDC reports total COVID-19 cases rose to 32.27mln from 32.23mln the day before and total deaths rose to 574,679 from 574,220 the day before. (Newswires)

US President Biden said 150mln Americans have received at least one COVID vaccine shot and that the rollout of vaccinations is slowing as expected, while he added that the administration is talking to businesses regarding offering tax credits and discounts to help Americans get vaccinated. President Biden also outlined plans to make COVID-19 vaccines more accessible across the US and announced a goal of having 160mln US adults fully vaccinated against COVID-19 and to have at least 70% of the adult population be at least partly vaccinated (at least one shot) by July 4th, while a separate report noted the White House plans to reallocate vaccines by shifting unordered doses to states with higher demand. (Newswires/Washington Post)

Pennsylvania will lift all COVID-19 restrictions, except an order to wear a mask while in public, with capacity restrictions on bars, restaurants, as well as indoor and outdoor gatherings to be removed from Memorial Day on May 31st. It was separately reported that COVID-19 cases in LA and San Francisco are reportedly so low that they can move into California's least restrictive tier for business operations, while Washington State halted its re-opening plan for two weeks. (Newswires)

Britain will offer a 3rd COVID-19 vaccine jab to everyone over 50yrs old in Autumn in an effort to fully eradicate the threat from COVID-19 by Christmas. (The Times)

Canada's Alberta province imposed stricter COVID-19 restrictions which include retail stores to operate at just 10% capacity, while restaurants are to end dining and all students will learn from home. There were also reports that the Alberta chief medical health officer confirmed the death of a woman in her 50s following vaccination of the AstraZeneca (AZN LN) vaccine. (Newswires)

Tokyo and Osaka prefectures are to request an extension of the state of emergency, while it was later reported that Japan's government is considering extending the state of emergency for Tokyo and other areas beyond May 11th. (Newswires/Yomiuri)

ASIA

Asian equity markets traded cautiously as the region battled to shrug off the tech-led declines in the US and amid holiday-thinned conditions due to market closures in China, Japan and South Korea. There was also plenty of attention on recent comments by US Treasury Secretary Yellen who stated that interest rates will have to rise somewhat to ensure the economy does not overheat, which added to the headwinds on Wall Street, although some of the jitters gradually eased given that the comments were taken somewhat out of context and was regarding the future not imminent policy, while Yellen later clarified that she is not predicting nor recommending a rate increase. ASX 200 (+0.6%) brushed aside the early indecision and climbed above the 7,100 level for the first time since early last year helped by much stronger than expected Building Approvals data and with gains in most the big four banks aside from ANZ Bank despite a surge in H1 cash profit which more than doubled to AUD 2.99bln as the CEO also flagged significant uncertainty. Hang Seng (Unch.) was choppy after disappointing Retail Sales data for Hong Kong and continued absence of stock connect trade with the mainland, although downside was also limited after data from MOFCOM showed China’s online retail sales jumped 29.0% in Q1 and the China Iron and Steel Association noted a 15.6% output expansion for the nation’s steel sector. India’s NIFTY (+0.6%) was also mildly supported following RBI Governor Das unscheduled speech in which he eventually announced several measures including another INR 350bln of purchases of government securities and on-tap liquidity facility of INR 500bln for fresh lending to vaccine manufacturers and others.

US Secretary of State Blinken rejected claims of a cold war between the US and China, while he added that countries should not have to pick sides as President Biden takes a tough stance on Beijing and that Taiwan needs the means to defend itself. (FT) Additionally, White House Asia tsar Campbell said that any declaration that the US would defend Taiwan from a Chinese attack i.e strategic clarity, has significant downsides. (FT)

There were initial reports that the EU suspended efforts to ratify the China investment deal citing the EU Commissioner, although it was later reported that the EU denied it had suspended efforts to ratify China investment deal. (AFP/SCMP)

RBI Governor Das said economic situation has changed drastically with increase in infections and that fresh crisis is still unfolding, while he added that they will continue to monitor and deploy all resources as necessary. Governor Das then stated that they will conduct a second purchase of government securities for INR 350bln under G-SAP on May 20th and announced an on-tap liquidity facility of INR 500bln for fresh lending to vaccine manufacturers and others, while banks will create a COVID loan book which will be allowed for priority sector lending and the RBI will also conduct a special 3-yr long term repo operations valued at INR 100bln for small finance banks. (Newswires)

UK/EU

The Times Shadow MPC says that the BoE should leave rates and QE unchnaged but prepare the market for a slowdown in weekly gilt purchases under its QE programme. (Times)

UK new car registrations in April increased 30-fold Y/Y to 141,000. (Newswires)

FX

In FX markets, the DXY retraced some of the prior day’s advances which had been spurred by the negative risk tone on Wall Street and the rhetoric from US Treasury Secretary Yellen on rate hikes which she later clarified. There were also mixed comments from Fed speakers as Fed's Daly stated the US is a long way away from digging out the COVID-19 hole and that it is not the right time to start talking about policy normalisation, while Fed’s Kaplan suggested it will make sense to at least start discussing how the Fed would go about adjusting purchases and to start those discussions sooner rather than later. Nonetheless, the greenback softened in Asia trade after the risk mood slightly brightened to facilitate a mild rebound in EUR/USD which previously found support at 1.2000 and GBP/USD just about reclaimed the 1.3900 status but with gains kept mild by a lack of pertinent news flow. USD/JPY and JPY-crosses were varied amid the improved but tentative overnight risk sentiment and lack of Japanese participants, while antipodeans benefitted from better-than-expected data including Australian Building Approvals and New Zealand Employment figures in which the latter topped forecasts across all components of the release. Furthermore, the RBNZ released its latest Financial Stability Report which noted the financial system is sound although vulnerabilities remain and that if further tightening in policy settings is needed, the most straightforward approach is to tighten LVR restrictions further.

RBNZ Financial Stability Report stated the financial system is sound although vulnerabilities remain and that they are seeing the impact of low global interest rates resulting in increased risk-taking and higher asset prices. RBNZ added that new capital rules will start being implemented from October 1st and they will be watching how market conditions respond to government's recent policy changes, while it noted that if additional tightening in policy settings is needed, the most straightforward approach is to tighten LVR restrictions further. RBNZ also stated that increases in minimum requirements will begin in July 2022 and that the pathway to higher capital requirements under capital review will start from next year. (Newswires)

• New Zealand HLFS Job Growth (Q1) Q/Q 0.6% vs. Exp. 0.2% (Prev. 0.6%)
• New Zealand HLFS Unemployment Rate (Q1) 4.7% vs. Exp. 4.9% (Prev. 4.9%)
• New Zealand HLFS Participation Rate (Q1) 70.4% vs. Exp. 70.3% (Prev. 70.2%)
• New Zealand Labour Cost Index (Q1) Y/Y 1.6% vs. Exp. 1.5% (Prev. 1.5%)
• Australian Building Approvals (Mar) M/M 7.4% vs. Exp. 3.0% (Prev. 21.6%)

COMMODITIES

Commodities were kept afloat overnight with WTI crude futures lifted above the USD 66/bbl level following bullish private sector inventory data which showed a substantial and larger than expected drawdown to headline crude and gasoline stockpiles, with the further easing of COVID-19 restrictions in US is also supportive for the outlook. Gold prices were rangebound despite the greenback retracing some gains and Yellen's clarification regarding her rate hike comments, while copper futures gained overnight amid the slight improved risk tone and as LME prices climbed back towards the USD 10,000/ton level.

US Private Inventory Data (bbls): Crude -7.7mln (exp. -2.3mln), Cushing +0.5mln, Gasoline -5.3mln (exp. -0.7mln), Distillate -3.5mln (exp. -1.1mln). (Newswires)

GEOPOLITICAL

White House reiterated that indirect discussions with Iran on hostages are separate from JCPOA talks. (Newswires)

French Foreign Ministry summoned Russia's ambassador yesterday to dispute the recent measures imposed on several European officials. (Newswires)

Explosions were heard near Latakia and Tartus in Syria, while state media reported that Syrian air defences were engaged near both cities to intercept an Israeli attack on Latakia, Misyaf and Hifa areas. (Newswires/SANA)

Draft conclusions of next week’s EU Foreign Ministers meeting will be viewed by Ambassadors today, draft says the EU remains deeply concerned about the China National Security Law being placed on Hong Kong and will pay increased attention to the situation; note, Hungary is, at present, saying no to the draft in-spite of it being watered down. (Politico)

US

Bonds were bid amid the broader risk-off in lack of fresh catalysts, while some Yellen comments about rates might needing to rise saw a mild pull-back. By settlement, 2s +0.2bps at 0.162%, 3s +0.0bps at 0.322%, 5s -0.9bps at 0.821%, 7s -1.5bps at 1.273%, 10s -1.4bps at 1.592%, 20s -1.9bps at 2.152%, 30s -2.4bps at 2.265%; TYM1 volumes were decent. 5yr TIPS -4.1bps at -1.824%, 10yr TIPS -1.3bps at -0.828%, 30yr TIPS -0.8bps at 0.0%. Fed bought USD 1.734bln 20-30yr Treasuries, O/C 3.2x (prev. 3.0x). US sold USD 40bln of 42 CMBs at 1bp, covered 3.58x. NY Fed RRP op demand at USD 147.806bln across 30 bidders (prev. USD 129.724bln across 26 bidders) - note there was an FT piece today noting that several large banks had been recommending institutional clients park deposits elsewhere. SOFR unch. at 1bp. EFFR rose to 6bps from 5bps as month-end fades, but much attention will be on the figure throughout the week. T-note (M1) futures settled 3 ticks higher at 132-13+.

Fed's Daly (2021 voter) said the US is a long way away from digging out the COVID-19 hole and it will take time for the US economy to recover, while she stated that where the FOMC has positioned policy is perfect. Daly added that we have only had a couple of good months of data, are a long way from our goals and that it is not the right time to start talking about policy normalisation. Furthermore, Daly stated the right time to reduce support for the economy is when we are much closer to our goals and that are a long way from tapering but expects tapering to occur before rate hikes. (Newswires)

Fed's Kaplan (2023 voter, hawk) said it will make sense to at least start discussing how the Fed would go about adjusting purchases and starting those discussions sooner than later, while Kaplan reiterated his view that US GDP growth will be 6.5% this year which is in line with the Fed's median view. (Newswires/MarketWatch)

Fed's Kashkari (2023 voter) said the Fed has powerful tools if inflation surprises to the upside and that the Fed doesn't want to cut off the recovery prematurely. Kashkari stated he is not concerned the fiscal packages so far will create inflation and that the Fed will normalize monetary policy once the labour market has recovered and inflation is back to target, while he added that achieving full employment will take a few years. (Newswires)

US Treasury Secretary Yellen said she does not anticipate that inflation will be an issue in the US economy and that the Fed has tools to address it, while she added that she is not predicting nor recommending a rate increase and does not see the rescue package as overheating the economy. Yellen also commented that they are actively engaged with other countries to end a race to the bottom regarding corporate taxes and stated that asking companies to pay more for investments will be important for their competitiveness. (Newswires/WSJ)

White House said Treasury Secretary Yellen will brief White House reporters on Friday and said it takes any inflation risks very seriously when asked about Treasury Secretary Yellen's interest rate remarks. (Newswires)

US President Biden's administration is reportedly having discussions with lawmakers on state and local taxes, while White House Press Secretary Psaki said direct stimulus cheques to Americans are not free and we will see what Congress proposes. In relevant news, there were also comments from US GOP Senator Blackburn that it will be very difficult to get the proposed tax hike through the Senate. (Newswires)

CME will close most open outcry trading pits although Eurodollar options pit will stay open, while it added that S&P 500 futures and options will be delisted after the September roll and open interest will migrate to E-mini S&P 500 contracts. (Newswires)