• Asian equity markets traded mostly higher following the late ramp up on Wall St. and encouraging data from China
• Gains were capped ahead of US NFP data and as increased US-China hawkish rhetoric contributed to the tentativeness
• The Biden administration is likely to go ahead with former President Trump's China investment ban
• In FX, the DXY languished beneath 91.00, EUR/USD held on to gains above 1.2050 and GBP/USD reclaimed 1.39
• Looking ahead, highlights include UK construction PMI, US and Canadian labour market reports, ECB's Lagarde, BoE's Haldane, Broadbent, Fed's Barkin
• Earnings from Adidas, BMW, Credit Agricole, IAG, Siemens

CORONAVIRUS UPDATE

US CDC reported total COVID-19 cases rose to 32.36mln from 32.31mln the day before and total deaths rose to 576,238 from 575,491 the day before. (Newswires)

Clusters of the Indian variants of COVID-19 have been found across England including in care homes, while there are growing fears about the speed with which they are spreading in communities. (Telegraph/Guardian)

UK Health Department spokeswoman said the position of MHRA and JCVI continues to be that the AstraZeneca (AZN LN) COVID-19 vaccine's benefits outweigh the risks for a vast majority of adults, adds on track to offer a jab to all adults by end-July. It was separately reported that people in the UK under the age of 40 are to be offered an alternative to the AstraZeneca (AZN LN) vaccine as evidence grows that younger people are more likely to be affected by rare blood clots linked to the jab, although a government source insisted that policy change won’t impact UK’s target of offering a first vaccine dose to every adult by the end of July. (Newswires/Independent)

German Health Minister Spahn announced they will allow use of the AstraZeneca (AZN LN) vaccine for all adults and will shorten the time gap between the first and second doses. (Newswires)

Japanese Economic Minister Nishimura said the government is seeking an extension to the state of emergency for Tokyo, Osaka, Kyoto and Hyogo until May 31st, while the government is also seeking to add Aichi and Fukuoka to the emergency declaration. Furthermore, the government will continue to ask that bars and karaoke parlours serving alcohol to remain closed and for people to avoid taking unnecessary trips outside, while Japanese PM Suga is to hold a news conference at 11:00BST/06:00EDT today. (Newswires)

ASIA

Asian equity markets traded mostly higher following the late ramp up on Wall St. and encouraging trade data from China, but with gains capped ahead of the key risk US NFP jobs data and as increased US-China hawkish rhetoric contributed to the tentativeness. ASX 200 (+0.3%) was lifted by strength in mining names after gold prices reclaimed the USD 1800/oz level and with Dalian iron ore prices at record highs, while the latest RBA Statement on Monetary Policy saw upgrades to the central bank’s economic growth forecasts with GDP seen at 9.25% in June and 4.75% in December this year. Nikkei 225 (+0.1%) was kept afloat after yesterday’s outperformance although upside was limited as Japan braces for an extension of the state of emergency for four key areas including Tokyo and with the government seeking to add Aichi and Fukuoka to the emergency declaration. Hang Seng (+0.7%) and Shanghai Comp. (+0.4%) benefitted from firm Chinese Caixin Services and Composite PMI data in which the former printed a 4-month high, while the latest Chinese trade data mostly topped expectations. However, risk appetite in the mainland was tempered by the hawkish US-China rhetoric in which sources noted that top US and Chinese trade negotiators may hold talks soon to review the Phase 1 trade deal and that the Biden administration is likely to go ahead with former President Trump's China investment ban, while there were also comments from President Biden that the Chinese are "eating our lunch" economically and officials noted that Secretary of State Blinken is to keep pressure on China in his UN speech today. Finally, 10yr JGBs were flat amid the mild positive mood across stocks and after the choppy lead in T-notes, while firmer demand at the enhanced liquidity auction for 2yr, 5yr, 10yr and 20yr JGBs was also largely ignored by prices.

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 6.4678 vs exp. 6.4685 (prev. 6.4895)

US President Biden said the Chinese are "eating our lunch" economically and that if it keeps going that way, China will own the global electric car market. It was also reported that the Biden administration is likely to go ahead with former President Trump's China investment ban although officials are still in preliminary discussion, according to sources. (Newswires)

US Secretary of State Blinken is to keep pressure on China in UN speech this Friday and will defend rules-based order, according to US officials who also noted that US Secretary of State Blinken, Chinese Foreign Minister Wang Yi and Russian Foreign Minister Lavrov are to speak at the event. Furthermore, Blinken tweeted that the US stands with people in Hong Kong and rejects the sentencing of activists for attending the Tiananmen commemoration, while he called for the release of those imprisoned for non-violent exercise of freedoms. (Newswires/Twitter)

• Chinese Trade Balance (USD)(Apr) 42.85B vs. Exp. 28.1B (Prev. 13.8B)
• Chinese Exports (USD)(Apr) Y/Y 32.3% vs. Exp. 24.1% (Prev. 30.6%)
• Chinese Imports (USD)(Apr) Y/Y 43.1% vs. Exp. 42.5% (Prev. 38.1%)
• Chinese Trade Balance (CNY)(Apr) 276.5B vs. Exp. 129.5B (Prev. 88.0B)
• Chinese Exports (CNY)(Apr) Y/Y 22.2% vs. Exp. 12.5% (Prev. 20.7%)
• Chinese Imports (CNY)(Apr) Y/Y 32.2% vs. Exp. 33.6% (Prev. 27.7%)
• Chinese Caixin Services PMI (Apr) 56.3 (Prev. 54.3); 4-month high
• Chinese Caixin Composite PMI (Apr) 54.7 (Prev. 53.1)

UK/EU

England local council elections early results with 10 out of 143 councils declared, showed Conservatives gaining 34 and opposition Labour losing 35, while the Labour candidate in Hartlepool (which Labour has held since 1974) has conceded defeat. (Guardian/BBC) Note, results of the Scottish election will likely not be known until over the weekend

UK PM Johnson and French President Macron intend to conduct talks regarding the fishing dispute in Jersey. In other news, the EU envoy to the UK said that the bloc is committed to resolving the Northern Ireland dispute swiftly. (The Times/FT)

UK employers' demand for workers surged by the fastest pace since 1990s due to the reopening of the economy from the lockdown, according to an REC/KPMG survey. (Newswires)

FX

In FX, the DXY languished beneath the 91.00 level following yesterday’s selling pressure amid softer yields and mixed jobless claims figures. There were further comments from Fed officials including Fed’s Bostic who stated that he cannot say whether substantial progress towards the Fed's goals and if triggering a debate over bond purchases will occur this year or not, while Fed’s Kaplan reiterated his preference to begin discussions on tapering sooner rather than later and suggested they don't want to be pre-emptive but also don't want to be late. Furthermore, the Fed released its semi-annual Financial Stability Report which warned of booming stocks, internet-driven "meme" investments and hedge fund financing as posing increasing risks to the US economy as it emerges from the pandemic. EUR/USD held on to its gains after breaking above the 1.2050 level and nearby 100DMA owing to the USD weakness. GBP/USD was positive and reclaimed the 1.3900 handle overnight with price action now stable in comparison to the post-BOE fluctuations. USD/JPY found some mild support at the 109.00 level and JPY-crosses were kept afloat by their base currencies, while antipodeans traded steady despite the mostly better than expected Chinese trade data and with only brief support in AUD/USD from the RBA’s forecast upgrades in its quarterly SoMP.

RBA Statement on Monetary Policy noted that the economy is beating forecasts although policy needs to remain highly accommodative and that they will not raise rates until inflation is in target range which is unlikely until 2024. RBA raised its growth forecasts and stated that GDP was expected to reach pre-pandemic levels in Q1 2021. RBA also stated wage growth has been especially slow and expected to remain low, while it will be some years before wage growth is fast enough to lift inflation to target and stated that household consumption and savings was an important source of uncertainty. Furthermore, RBA forecasts GDP Y/Y growth at 9.25% in June 2021 and 4.75% (prev. 3.5%) in December 2021, sees the Unemployment Rate at 5.25% for June 2021 and 5.0% (prev. 6.0%) for December 2021, while Underlying Inflation is seen at 1.5% for June 2021 and 1.5% (prev. 1.25%) for December 2021. (Newswires)

• New Zealand Business Inflation Expectations (Q2) 2.1% (Prev. 1.9%)

COMMODITIES

WTI crude futures climbed back above USD 65.00/bbl to atone for the prior day's lacklustre performance that was attributed to profit-taking and demand concerns in Asia after the streak of record daily infection rates in India. Nonetheless, oil prices have mildly rebounded with upside helped by the mild positive risk tone and encouraging data from China. Gold prices remained at its best levels in more than two months after having reclaimed the USD 1,800/oz level amid a lacklustre greenback but with further upside contained ahead of the looming US jobs data, while copper prices probe fresh record highs as iron ore prices in China also rose to unprecedented levels and amid firm China data.

Indian state refiners offered to lift regular oil volumes from Saudi Arabia in June after steep cuts in May, according to four sources, who noted they were incentivised by the lower prices. (Newswires)

Chile Chamber of Deputies approved a royalty bill to hike taxes on copper and lithium miners, which moves the legislation to the Senate. (Newswires)

CME lowered COMEX 100 gold and gold enhanced delivery futures initial margins for speculators by 10% to USD 9,900/contract, while it lowered COMEX 5000 silver futures initial margins by 9.1% to USD 16,500/contract and platinum futures NYMEX initial margins for speculators by 9.1% to USD 4,400/contract. (Newswires)

GEOPOLITICAL

US official said the pace in Iran talks would have to accelerate for us to get there in the coming weeks and that Iran has a pretty good picture of sanctions relief it would get but we are not at the final stage of talks. The official added there could be an understanding on mutual US/Iran return to the JCPOA in the coming weeks and a deal is "absolutely" possible before the Iranian elections but it is dependent on how quickly Iran decides. Furthermore, we will have to see whether the next round moves things forward or we're still faced with unrealistic demands, while nothing has been agreed at this point in the talks and there is still a lot of work to do on sanction steps and sequencing. (Newswires)

South Korean Unification Minister Lee said North Korea is unlikely to conduct major provocations prior to US-South Korean summit talks later this month. (Yonhap)

US

Treasuries were bid for the fifth consecutive session as BoE taper spill-over reverses in choppy and thin trade. By settlement, 2s -0.4bps at 0.155%, 5s -0.5bps at 0.798%, 10s -1.8bps at 1.566%, 30s -1.8bps at 2.240%; TYM1 volumes were on the light side. Fed bought USD 1.201bln 7.5-30 year TIPS, O/C 2.22x (prev. 1.48x). US sold USD 43bln 1-month bills at 1bp (prev. 0bps), covered 3.48x; USD 43bln 2-month bills at 1bp, covered 3.59x. SOFR and EFFR unch. 1bp and 6bps. NY Fed RRP op demand falls to USD 154.92bln across 20 bidders (prev. USD 162.8bln across 29 bidders). Bonds were modestly bid overnight as Asia returned from Golden Week, but there was no massive influx of buying (seasonally, the week after Golden Week sees higher than normal foreign bond-buying by Japanese investors) as some might have expected, especially given some of the disappointing ISMs and employment proxies seen earlier this week ahead of Friday's jobs report. However, the bid out of APAC reversed amid the BoE meeting after the Old Lady confirmed a tapering of its QE programme, seeing Gilts offered and spillover across the pond. There was another wave of selling on the back of a smaller than forecast Initial Jobless Claims print (498k vs exp. 540k), although the weakness didn't last long as buyers surface in wake of a shaky start for stocks at the NY cash open, taking yields back to little changed - Kaplan was back on the wires reiterating his lone-position (among Fed members) for bringing forward tapering talks, potentially keeping the bid somewhat capped. Nonetheless, duration sits modestly richer, marking the 5th consecutive session of lower yields. On a positioning basis, many analysts have noted a lot more neutral positioning after the recent wave of short-covering, which is likely being amplified by the range-bound trade seen recently, seeing shorts lose rolldown and carry every day, and thus, their patience. T-note (M1) futures settled 4 ticks higher at 132-21+.

Fed Semi-Annual Financial Stability Report warned of booming stocks, internet-driven "meme" investments and hedge fund financing as posing increasing risks to the US economy as it emerges from the pandemic, while it noted that some measures of risk compensation have fallen to levels that are low relative to historical norms and stated that "structural fixes" are needed in money market funds that faced redemptions. Furthermore, it noted that potential risks ahead include a worsening of COVID, falling asset prices particularly for highly leveraged hedge funds and life insurance companies, as well as a run on money funds. (Newswires)

Fed's Bostic (2021, 2024 voter) said cannot say whether substantial progress towards the Fed's goals and if triggering a debate over bond purchases will happen this year or not, while he added it is hard to get a clear signal on inflation for the next couple of months due to base effects and uncertainty over the duration of supply shocks. Bostic said he sees PCE inflation at 2.4%-2.5% this year before dipping to 2.2% in 2022 and that they would have to take changes in firms’ and households’ behaviour regarding wages and prices "on board" if there is a fundamental shift. Furthermore, he said he would not be surprised for Friday's jobs report to show a million jobs were added in April but added that more is needed to count as substantial progress. (Newswires)

Fed's Mester (2022, 2024 voter) said the international virus situation makes it clear the virus still poses a risk to the outlook and that economic growth will be in the range of 6-7% this year. Mester added that Housing is surpassing pre-pandemic levels, but commercial real estate continues to struggle, and that fiscal support has been important to consumer spending. (Newswires)

US President Biden would like to see the corporate tax rate between 25-28% which would help pay for US investments. In relevant news, the White House said that President Biden will meet with bipartisan congressional leaders next week on the infrastructure plan and noted that it sees little evidence that enhanced jobless benefits are affecting Americans willingness to work. (Newswires/CNBC)