• Asian equity markets were subdued following the lacklustre performance in the US where the DJIA suffered its worst day in over two months
• Losses in the Nasdaq were only marginal after the tech sector spent most of the session nursing its recent underperformance
• In FX, the DXY is firmer, EUR/USD retreated further below 1.2150 and GBP/USD maintains 1.41 status
• WTI crude futures were flat after finding support at the USD 65.00/bbl level. Focus remains on the Colonial Pipeline outage
• Looking ahead, highlights include UK GDP and production data, Swedish & US inflation, DoEs, BoE's Bailey, Fed's Clarida, Bostic, Harker, supply from the US, earnings from Commerzbank, Bayer, Allianz and Dialog Semiconductor

CORONAVIRUS UPDATE

Brazilian health regulator Anvisa said it suspended the use of the AstraZeneca (AZN LN) COVID-19 vaccine in pregnant women after the death of a 35-year-old woman that was 23 weeks pregnant on May 10th due to a hemorrhagic stroke which was seen as possibly related to the vaccine although has not been informed of any other adverse events involving pregnant women. In relevant news, Canada's Ontario province was also reported to pause the first doses of AstraZeneca's COVID-19 vaccine amid blood clot concerns. (Newswires)

Pfizer (PFE) reportedly asked the UK regulator for approval of its COVID-19 vaccine for teenagers following the recent FDA approval for 12- to 15-year-olds. (Newswires)

Sinovac's (SVA) COVID-19 vaccine was found to be highly effective in a real-world study involving over 25k Indonesian health workers in which 100% were protected from death and 96% from hospitalization as early as 7 days after vaccination. (Newswires)

ASIA

Asian equity markets were subdued following the lacklustre performance in the US where the DJIA suffered its worst day in over two months and sentiment remained hampered by ongoing inflationary concerns ahead of the looming US CPI data, although losses in the Nasdaq were only marginal after the tech sector spent most the session nursing its recent underperformance. ASX 200 (-1.0%) traded negative with nearly all sectors on the backfoot aside from tech as it found some solace from the rebound in US counterparts, while a jump in CBA’s March quarter profits and the recent budget announcement including spending of AUD 589.3bln for next fiscal year did little to spur risk appetite. Nikkei 225 (-1.4%) failed to hold on to opening gains as focus centred on a deluge of earnings releases with Nissan among the biggest decliners with double-digit percentage losses after it reported another substantial FY net loss and guided it will remain in the red for its next FY results. Conversely, Sharp and SoftBank Corp were underpinned after posting improved results and Toyota clawed back initial losses and then some, following its earnings and a JPY 250bln share buyback announcement, while focus now turns to SoftBank Group which is reportedly set to post a record JPY 4.9tln fiscal year profit. Hang Seng (-0.2%) and Shanghai Comp. (Unch.) attempted to shrug off the losses in their regional peers with both indexes initially kept afloat following the recent PBoC Q1 Monetary Policy Implementation Report which stated the central bank will further guide real lending rates lower, while reports also noted that China’s Sinovac COVID-19 vaccine was found to be highly effective in a real-world study with 100% effectiveness against preventing deaths and the UN also upgraded its Chinese GDP growth forecast for this year to 8.2% from 7.2%. TAIEX (-4.3%) was today's biggest mover with intraday losses of 8% and selling exacerbated by reports that stricter COVID measures could be announced in the coming days and after the index slipped into correction territory. Finally, 10yr JGBs were subdued despite the mostly negative risk tone with prices constrained following the bear steepening stateside and amid the lack of BoJ presence in the market, while Australian government 10yr bond yields were also firmer after the recent budget announcement and with the RBA just purchasing semi-government bonds today. PBoC injected CNY 10bln via 7-day reverse repos at rate of 2.20% for a CNY 10bln net daily injection. (Newswires) PBoC set USD/CNY mid-point at 6.4258 vs exp. 6.4306 (prev. 6.4254)

Senior US GOP Senators reportedly asked the CEO's of Toshiba America, Seagate (STX) and Western Digital (WDC) if they are improperly selling Huawei hard disk drives, while there were separate comments from Western Digital (WDC) that it stopped shipping to Huawei in September 2020 to comply with commerce rules and that its application to ship products to Huawei remains pending. (Newswires)

Taiwan reportedly may continue to tighten COVID-19 restrictions in the coming days, while it was later reported that the Taiwan government fund is to discuss market support if required and Taiwan's Deputy Finance Minister also stated that they have not ruled out calling of the national stabilization fund to discuss the stock market. (Newswires)

UK/EU

ECB's Knot (hawk) said ground for Euro Area recovery is getting firmer and firmer and that high frequency data shows the service sector is catching up, while he added that downside risks will gradually fade and there is still significant upside risk from pent up demand. Furthermore, Knot added that winding down emergency support would mean rotating to other ECB tools but added that they still have the APP and negative rates. (Newswires)

USTR Tai and Ireland's Deputy PM Varadkar discussed unfair trade practices including those by China and excess production capacity for steel and aluminium, while they also discussed the need to quickly resolve large civic aircraft subsidies dispute and finish OECD negotiations on global tax corporate reform. (Newswires)

UK Brexit Minister Frost has cautioned that the Northern Ireland protocol will not be sustainable for long under its current form and the protocol is presenting significant challenges to business, calling on the EU to take a common sense approach to its implementation. (gov.uk)

FX

In FX markets, the DXY was firmer after yesterday’s initial weakness was stemmed by another rebound from support near the 90.00 level and as yields recovered during Wall St trade, with the haven currency also underpinned by the risk-averse mood. Furthermore, there was an abundance of central bank rhetoric again from Fed officials including Brainard, Bullard, Harker, Williams, Daly, Mester, Bostic and Kashkari, and although there wasn't much incremental from the latest deluge of comments, Brainard and Bullard suggested the possibility that inflation may not fully be transitory. EUR/USD retreated beneath the 1.2150 level again with the single currency pressured as a counterparty to the USD strength and despite recent optimism from ECB's Knot who stated the ground for the Euro Area recovery is getting firmer, that downside risks will gradually fade and that there is still significant upside risk from pent up demand, while GBP/USD also retraced its recent advances but has so far retained the 1.4100 status. USD/JPY and JPY-crosses were mixed with advances in the former as price action was mostly driven by their base currencies, while the declines for antipodeans have been exacerbated by the uninspired mood with AUD/USD also not helped after S&P maintained its negative outlook on Australia’s sovereign rating and with CBA forecasting the country to lose its AAA status.

COMMODITIES

WTI crude futures were flat after finding support at the USD 65.00/bbl level and amid concerns regarding the Colonial Pipeline outage, which has forced Virginia and Florida to declare a state of emergency and reports also noted that 20% of Atlanta gasoline stations had run out of fuel, although the Colonial Pipeline has reiterated that it is working with the Energy Department and targets to have the pipeline up and running by end of the week. Nonetheless, price action in the energy complex was restricted amid the broad risk-aversion and somewhat bearish private sector inventory report which showed a narrower than expected draw in headline crude stockpiles and surprise build in gasoline. Gold suffered marginal losses as the greenback strengthened but with price action light heading into the CPI data and copper also kept afloat as its largest buyer China mostly weathered the stock sell-off.

US Private Energy Inventories (w/e May 7th): Crude -2.53mln (exp. -2.8mln), Cushing -1.21mln (exp. -0.45mln), Gasoline +5.64mln (exp. -0.6mln), Distillate -0.87mln (exp. -1.1mln). (Newswires)

EIA STEO cut 2021 world oil demand growth by 80k BPD and now sees a 5.42mln BPD Y/Y increase but raised 2022 world oil demand growth forecast by 80k BPD to a 3.73mln BPD Y/Y increase. EIA sees 2021 US crude output to fall 290k BPD to 11.02mln BPD (prev. forecast was for a fall of 270k BPD) and 2022 US crude output to rise 820k to 11.84mln BPD (prev. forecast was for a rise of 820k BPD).

US Energy Secretary Granholm said the Colonial CEO indicated they will make a decision on Wednesday regarding a full restart which will take a few days to be up and running, while the Co. later reiterated that it is working with the Energy Department and targets to have the pipeline up and running by end of the week. In relevant news, the US Transportation Department is conducting a survey to evaluate what assets are available in the Jones Act Fleet to carry petroleum products from the Gulf of Mexico up the Eastern Seaboard and the US also announced more waivers to speed up fuel supplies. Furthermore, the Governors of Virginia and Florida declared a state of emergency due to the pipeline outage and reports noted that 20% of Atlanta gasoline stations had run out of fuel. (Newswires)

Kuwait National Petroleum Company said some production units at the Mina Abdullah refinery stopped working although it noted that oil exports were not affected. (KUNA)

Brazil's Santos Port, which is one of LatAm's largest ports, is seeing workers plan a 24-hour strike due to lack of vaccination schedule, according to SA Commodities/Unimar Shipping. (Newswires)

GEOPOLITICAL

A large barrage of rockets were fired at Tel Aviv and various areas of Israel and Hamas said it was firing more than a hundred rockets at Tel Aviv and the Ben Gurion International Airport, while reports also noted that a rocket attack had hit an Israeli energy pipeline. Furthermore, the IDF later stated that key Hamas intelligence figures were neutralized by Israeli fighter jet strikes and there were comments from a UN official that Israel and Palestine are escalating towards a full scale war. (Newswires)

US

The Treasury curve continued to bear-steepen as the long-end leads losses amid concession into the refunding auctions, while inflation chants add pressure. By settlement, 2s +0.6bps at 0.159%, 3s +0.6bps at 0.303%, 5s +1.5bps at 0.797%, 10s +1.8bps at 1.620%, 30s +2.8bps at 2.347%; TYM1 volumes were lacklustre. Short TIPS unchanged, although 30-year TIPS yield +3bps. SOFR and EFFR unchanged at 1bp and 6bps, respectively. Bonds were already on the back foot out of APAC amid Aussie and Japanese supply and further inflation woes after the strongest pace rise in Chinese PPI since 2017 (6.8%, vs exp. 6.5% and prev. 4.4%) - volumes in USTs O/N were above average with a few block trades printing. Approaching US refunding supply, a 0.4 UK Gilt auction tail, and a solid German ZEW survey kept govvies better offered in European trade too - note that cash Bund yields hit a new cycle peak today at -15bps. US yields hugged their peaks into the futures settlement, with a mixed reception at the new issue 3-year auction not altering the dial - tailed 0.2bps (vs avg. stop through of 0.1bps), covered 2.42x (in line with avg.), while there was healthy participation among the non-dealer community. Given the duration difference, and the associated investor bases, between the 3-year and the long-end, it is hard to gauge too much ahead of Wednesday and Thursday's 10- and 30-year offerings. T-note (M1) futures settled 5 ticks lower at 132-14+.

Fed's Brainard (voter) said the outlook is bright but Fed is far from its goals and that inflation is tough to predict and could be transitory, while they will remain attentive to risk that inflationary pressures could prove persistent. Brainard also said she will be looking for employment to be closer to assessment of full employment and for inflation to be sustainably closer to 2%, while she expects to make progress on both employment and inflation fronts. Brainard added that market surveys suggest the Fed's reaction function has been communicated quite well and that the Fed is aiming for broad-based and inclusive maximum employment, as well as eliminating shortfalls. Furthermore, she stated that labour demand and supply are recovering at different paces and that there are frictions although she anticipates a surge in hiring this summer and stated that asset prices are elevated, but cannot hold back support just because the stock market is rising. (Newswires)

Fed's Daly (2021, 2024 voter) is confident the US will get more and more people vaccinated and that people are ready to get out and spend, while she is very hopeful that we will feel we are moving out of the deep hole caused by COVID-19 by next year. (Newswires)

Fed's Bostic (2021, 2024 voter) stated they are on the road to recovery but there is still a long way to go and that it is appropriate for Fed policy to stay in accommodative mode, while he added the US labour market is 8mln jobs shy of pre-pandemic levels. (Newswires)

Fed's Bullard (2022 voter) said the US will see inflation in 2021 and some will hang on in 2022, while he added that inflation through 2022 could be 2.5% and that not all will be transitory because the Fed is trying to raise expectations. Furthermore, Bullard responded that it is a bit too early to expect strong job growth when asked about the April NFP report and said he would like to see the US get more out of the pandemic than it is today when asked about tapering. (Newswires)

Fed's Harker (2023 voter) upgraded 2021 US GDP growth forecast to 7.0% (prev. 5-6%, median 6.5%) before moderating to 3.0% growth next year and stated that Fed policy is going to hold steady for now, while he added that April jobs report was extremely disappointing but probably an outlier and he expects labour force to return to pre-pandemic levels next summer. Harker also stated that 3% inflation is about the maximum he would like to see and that it makes sense to let inflation run a little above 2%, while he added that the Fed has tools to deal with inflation that is accelerating and would pare back asset purchases before raising rates. (Newswires)

Fed's Kashkari (2023 voter) said the US is a long way away from maximum employment but added the US is poised for a very strong recovery if the virus is beat. (Newswires)

US President will speak regarding COVID-19 today at 15:30EDT/20:30BST and the White House will have a briefing regarding the pipeline hack at 18:00EDT/23:00BST. (Newswires)

US Republican Senator Thune reportedly sees some flexibility on infrastructure, while it was separately reported that top Republican senators are said to be hoping the administration will make a counteroffer to their infrastructure counterproposal when they meet with President Biden on Thursday. (Newswires/Axios)

US Senate voted to repeal the 'True Lender' banking rule issued during the prior administration with consumer advocates and Democrats stating that the rule would allow to bypass state usury laws and consumer protections. In other news, FBN's Gasparino suggested there was progress in reinstating the SALT deduction following pressure from NY business groups and congressional leaders vowing not to vote for Biden spending packages without reinstatement, while banks monitoring talks believe President Biden could compromise by raising the cap to USD 30K more now. (Newswires/Twitter)