• Asian equity markets were pressured following on from the losses in the US post-CPI
• The S&P 500 and DJIA posted their worst 3-day performance in over 6 months
• USD held on to most of yesterday's gains, EUR/USD is subdued beneath 1.21 and GBP/USD remains on a 1.40 handle
• Colonial Pipeline has announced that it is to restart operations; could take several days for operations to return to normal
• The Bipartisan Policy Center proposed a compromise USD 1tln infrastructure bill, paid for with user fees and a corporate tax hike to 25%
• Looking ahead, highlights include US IJC, PPI, Banxico rate decision, BoE's Cunliffe, Bailey, Fed's Barkin, Waller, Bullard, supply from Italy and the US, earnings from Disney, Burberry, BT

CORONAVIRUS UPDATE

US CDC Advisory Panel recommended the use of Pfizer (PFE) BioNTech (BNTX) COVID vaccine in Americans aged 12-15 through votes of 14-0 in favour with 1 abstention, while CDC Director later stated that they now recommend the Pfizer (PFE) / BioNTech (BNTX) COVID-19 vaccine to be used in 12- to 15-year-old adolescent population and has adopted the CDC's ACIP recommendation that endorsed the safety effectiveness of the vaccine for the age group. (Newswires)

UN Secretary General said they need to double the capacity of COVID vaccine production and believes Russia's Sputnik V vaccine can tackle the pandemic challenges. (Newswires)

An Oxford Vaccine Group study found that mixing doses of the AstraZeneca (AZN LN) and Pfizer (PFE) vaccines was likely to result to more fatigue and headaches. (Newswires)

UK SAGE member said that it is ‘possible’ the final lifting of UK lockdown could be delayed beyond 21 June due to the threat of the highly transmissible variant. (iNews)

ASIA

Asian equity markets were pressured following on from the losses in the US as US CPI printed its highest reading since 2009 which spurred a rise in yields and extension of the losses across the major indices with both the S&P 500 and DJIA posting their worst 3-day performance in over 6 months. ASX 200 (-0.8%) traded negatively with the index weighed on by underperformance in tech and weakness in property names although the downside for the local benchmark was stemmed by strength in healthcare after reports that Australia agreed to purchase a total 25mln doses of the Moderna (MRNA) COVID-19 vaccine through to next year and the Health Minister also noted they are in discussions with Moderna to locally manufacture its vaccine. Nikkei 225 (-2.0%) spearheaded the declines in the region once again as earnings releases failed to lift the mood with SoftBank investors disappointed by the lack of extension to the share buyback program and after the Co. announced it is to self-finance its Vision Fund to cut big investor pay-outs but would also expose the group to heavy losses in the event of a major downturn. Hang Seng (-0.9%) and Shanghai Comp. (-0.8%) conformed to the subdued picture across the region with risk appetite not helped after further criticism from the US regarding human rights abuses by China including in the annual International Religious Freedom Report, and after the latest Chinese lending and financing data also fell short of estimates, while the TAIEX (-0.7%) briefly recouped early losses after local reports stated that Taiwan sees a smaller chance of raising the COVID-19 alert although the recovery was only brief. Finally, 10yr JGBs were lower amid spillover selling from the vicious treasury sell-off that was triggered by the highest US inflation reading in more than a decade and after a decent US 10yr auction did little to help claw back losses. Nonetheless, Asia-Pac yields were relatively stable overnight following mixed results at the 30yr JGB auction and with Aussie yields unmoved by the RBA’s regular QE purchases.

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 6.4612 vs exp. 6.4592 (prev. 6.4258)

US cited reports of torture and forced disappearance in Tibet and stated that China has increased the use of forced sterilisation in Xinjiang, while the annual Religious Freedom Report noted that China has detained over 1mln in Xinjiang since 2017. There were also comments from US Secretary of State Blinken that China continues to commit genocide and that it criminalizes religious expression, while he also announced sanctions on a Communist Party official for gross violation of human rights. (Newswires/SCMP)

US Senate Commerce Committee voted 24-4 to approve bill to authorize in excess of USD 110bln for research against tech threats from China.(Newswires)

UK/EU

BoE's Haskel said he expects to see a bounce back in the short term but need to keep in mind the effect of scarring on the medium-term outlook and that scarring could create supply constraints, while he added that he is not that worried about inflation and that the BoE is keeping a close eye on supply constraints, as well as shipping difficulties. Furthermore, Haldane stated it is realistic to expect double-digit growth for the UK a year from now and that inflation is likely to be above 2% target by year-end, but noted there are still some large risks including from the virus or debts accumulated during lockdown that could derail the recovery and suggested that now is the time to start tightening the tap to avert the risk of an inflationary flood. (Newswires/Daily Mail)

• UK RICS Housing Survey (Apr) 75 vs. Exp. 62.0 (Prev. 59.0, Rev. 62)

FX

In FX markets, the DXY held on to most of the prior day’s gains in the aftermath of the firmer than expected CPI data which pushed yields higher and resulted in US money markets pricing in a 100% possibility of a 25bps Fed rate hike by December 2022 vs 88% possibility prior to the data release. Fed’s Bostic suggested that the economy is still in a 'transitional' phase and that it is too soon to judge whether inflation is on a worrying trend, while he later added that 'noise' around inflation could last four to five months before the trend becomes clearer. Focus in the US was also on the bipartisan infrastructure talks with President Biden at the White House which was said to be positive and the Bipartisan Policy Center proposed a compromise USD 1tln infrastructure bill which would be paid for with user fees and a corporate tax hike to 25%. However, House Minority Leader McCarthy later stated that the House GOP will put out their own infrastructure proposal of less than USD 800bln and repeated that no Republicans will vote to increase taxes. EUR/USD remained lacklustre beneath the 1.2100 handle as the major currencies took a back seat to the recent USD strength, while GBP/USD languished but found a floor near at 1.4050 with the pair unmoved by optimistic remarks from BoE’s Haskel who sees a bounce-back in the short-term and stated that it is realistic to expect double-digit growth for the UK a year from now. USD/JPY was kept afloat by the USD strength and JPY crosses traded relatively flat despite the risk aversion, while antipodeans were constrained by their high-beta properties, lack of pertinent data releases and subdued picture across the commodities complex.

COMMODITIES

Commodities were mostly lower overnight with the energy sector pressured following the announcement to restart the Colonial Pipeline which saw WTI crude futures retreat further beneath the USD 66.00/bbl level and resulted in underperformance in RBOB futures, although the operator noted that it could take several days to return to normal and that intermittent service interruptions could persist. Furthermore, President Biden announced the lifting of restrictions on fuel transportation and will deliver remarks on the Colonial Pipeline today at 11:50EDT/16:50BST. Gold prices were kept rangebound as the greenback held on to most of its post-CPI advances, while copper prices languished amid the broad risk aversion and alongside a continued pullback in Chinese commodity prices.

US Energy Secretary Granholm announced that Colonial Pipeline were to restart the pipeline yesterday, while the Colonial Pipeline stated that following the restart, it will take several days for fuel delivery to return to normal and that some markets served by the pipeline may continue to experience intermittent service interruptions during the start-up. In relevant news, Colonial Pipeline earlier stated that it had no plans to pay a ransom to decrypt the data file and it was separately reported that the hacking group DarkSide claimed responsibility for three more attacks on global companies situated in the US, UK and Brazil although it did not name which companies, according to sources. (CNBC)

US President Biden suggested there will be good news regarding the Colonial Pipeline in the next 24 hours and that they have lifted restrictions on fuel transportation, while President Biden will deliver remarks on the Colonial Pipeline today at 11:50EDT/16:50BST. Furthermore, he signed an executive order to improve federal cyber security capabilities and digital security standards for the private sector in which the order requires providers that sell to the government to report breaches and it also establishes a cyber incident review board. (Newswires)

US Coast Guard closed part of lower Mississippi River near I-40 where there were 16 vessels with a total of 229 barges in the queue amid bridge repairs. (Newswires)

GEOPOLITICAL

Senior Hamas official said they are ready to halt actions against Israel on a mutual basis, although other reports noted that Israel vowed to increase its campaign against Hamas in which PM Netanyahu said "we'll hit them where they've never dreamt possible" and that the operations were just the beginning. Furthermore, the Israeli Army said around 1,500 rockets were fired at Israel from Gaza this week and Israel diverted an incoming flight from Ben Gurion Airport to Southern Ramon Airport amid rocket attacks from Gaza. (Newswires/RIA/FT)

Russian Foreign Minister Lavrov and US Secretary of State Blinken are to meet in Reykjavik, Iceland on May 20th. (IFX)

US

The belly led a vicious Treasury sell-off on Wednesday after a decent 10-year auction failed to heal the damage from a record-breaking hot CPI print. 2s +0.4bps at 0.165%, 5s +5.4bps at 0.855%, 10s +6.6bps at 1.690%, 20s +6.3bps at 2.289%, 30s +5.6bps at 2.408%; TYM1 volumes were well above average. 5yr TIPS +2.6bps at -1.888%, 10yr TIPS +4.4bps at -0.871%, 30yr TIPS +7.4bps at 0.039%. SOFR and EFFR unchanged at 1bp and 6bps. Treasuries were modestly bid overnight, clawing back some losses from Tuesday amid COVID concerns in Asia, particularly out of chip supply fulcrum Taiwan, while the geopolitical risk flare in Israel didn't exactly embolden the risk tone. It wasn't till the Europe/US handover that offers resurfaced, building into approaching refunding auctions. The selling was at first slow, then all of a sudden, as April CPI printed the highest core Y/Y figure since the mid-90s, while even the core M/M rose at an eye-gouging 0.9% pace. The well above forecast print saw 700k TYM1 traded in the hour after it (around half the volume of a whole average day) as the belly of the curve led the sell-off, seeing Eurodollars and USTs mark a complete reversal of the post-NFP bid, re-embedding term premia as participants begin to question the nerve of the Fed's "look through all inflation as transitory". While employment may not be where the Fed wants it, as Clarida reiterated today, there is now a relatively higher chance of inflation running too hot to force a Fed cave before the labour market's healing is complete. As the dust settled from the report, USTs saw further downside, with bulls cautions to reengage ahead of the approaching 10-year auction - the spillover pressures saw German Bund yields continue to print new cycle peaks. Bulls will have made a sigh of relief after the decent 10-year auction, which stopped though by 1.3bps, covered more than average, and saw decent participation from the non-dealer community for the USD 41bln new issue, particularly from Indirects, which are often seen as a proxy for foreign demand. While a solid auction, it was not enough to see a meaningful pare back in yields, with TYM1 contracts rising by just a few ticks, before chopping around lower into the futures settlement. Participants now look to Thursday's 30-year auction to see if that 10-year demand from today sustains. T-note (M1) futures settled 17 ticks lower at 131-29+.

Fed's Bostic (2021, 2024 voter) said the US is in a turbulent time and would expect volatility in inflation, while he added that the Fed would notice if inflation developed in troubling ways. Bostic also commented that most businesses do not expect price pressures to persist, that the economy is still in a 'transitional' phase and that it is too soon to judge whether inflation is on a worrying trend, while he later stated that 'noise' around inflation could last four to five months before the trend becomes clearer. (Newswires)

US President Biden said he wants to get a bipartisan deal on infrastructure on as much as they can get a deal on but added that he is not going to give up on a whole range of things that point to the question of raising productivity and increasing jobs. Furthermore, he wants to find out if a bipartisan agreement can be reached to 'kick start' infrastructure then fight over what is left. (MSNBC)

US House Speaker Pelosi is more optimistic about being able to pass a bipartisan infrastructure bill after the White House meeting, while House Majority Leader Hoyer said Democrats will continue to work towards Bipartisanship on infrastructure and that there is a basis for infrastructure in which he hopes they can get there. (Newswires)

US Senate Minority Leader McConnell said there is bipartisan desire for an outcome on infrastructure and reiterates there is a need to decide what "infrastructure" is. McConnell added that Republicans are not interested in reopening the 2017 tax bill and made that clear to US President Biden that a red line for GOP's in infrastructure talks is revisiting the 2017 tax cuts. There were also comments from House Minority Leader McCarthy that the meeting with US President Biden on infrastructure was positive and he thinks bipartisan cooperation on infrastructure is possible. Furthermore, McCarthy said he raised concerns about rising inflation with the President and stated that no Republicans will vote to increase taxes, while he added there was a productive discussion on where agreement could be reached on infrastructure and later stated that the House GOP will put out their own infrastructure proposal of less than USD 800bln. (Newswires)

The Bipartisan Policy Center proposed a compromise USD 1tln infrastructure bill, paid for with user fees and a corporate tax hike to 25%. (Newswires)

USTR Tai reportedly came under pressure during Senate negotiations aimed at involving the US in the TPP and was said to have faced a backlash for her support for COVID vaccine patent wavers. (SCMP)