• Asia-Pac stocks were mostly higher as the region took impetus from the firm performance in the US
• Major US indices recovered from the recent inflation-triggered sell-off and snapped a 3-day losing streak
• In FX, the DXY traded within a narrow range overnight, EUR/USD remains sub-1.21 and GBP/USD sits on a 1.40 handle
• President Biden told Republicans that he wants to see real progress on a possible bipartisan deal by Memorial Day
• Looking ahead, highlights include ECB minutes, US retail sales, industrial production, Uni. of Michigan, Fed's Kaplan

CORONAVIRUS UPDATES

US CDC will loosen indoor mask-wearing guidance for fully vaccinated people, in which they will allow them not to wear masks inside a lot of places and will no longer call for people to wear masks outdoors in crowded areas, according to sources. In relevant news, New York state reported a positivity rate of 1.08% which was the lowest since October 10th. (Newswires)

UK PM Johnson said he is anxious about the spread of the Indian variant and ruled nothing out to control the virus, while Public Health England stated they have seen a total 1,313 confirmed cases of the Indian variant (prev. 520 last week). There were also comments from the Department of Health which stated that ministers are mulling a range of options to increase the response to the COVID-19 variant first detected in India including earlier 2nd doses for eligible groups. Furthermore, The Times' Political Editor Swinford tweeted that 10mln could receive 2nd jabs early and a rollout for over 50s could be accelerated to protect the most vulnerable, while added there is concern the June 21st phase of the roadmap could be delayed. (Newswires/Sky News/The Times)

UK COVID vaccine passport plans have reportedly been scaled back as ministers question their benefits amid a decline in infections and hospitalization numbers. (Telegraph)

Extending the gap between the first and second doses of the Pfizer (PFE)/BioNTech (BNTX) COVID-19 vaccine to 12-weeks vs 3-weeks prompts a better antibody response in the elderly, according to a Birmingham University study. (FT)

Japanese Economic Minister Nishimura said they are to add three additional prefectures to the state of emergency and reports noted that Hokkaido, Hiroshima and Okayama will be added to the emergency declaration list. There were also comments from Japanese Finance Minister Aso that they will use JPY 512bln of reserve funds to pay for vaccines and that around JPY 4tln of reserve funds remain but noted that they are not considering immediately compiling a new extra budget to address the pandemic. (Newswires)

Taiwan Premier said there is no need to raise the COVID-19 alert level for the time being and that the island already has more experience and resources to fight the pandemic compared with last year, while they will also spend more to assist people and sectors impacted by the pandemic. (Newswires)

ASIA

Asia-Pac stocks were mostly higher as the region took impetus from the firm performance in the US where the major indices recovered from the recent inflation-triggered sell-off and snapped a 3-day losing streak, with sentiment helped by data releases including pandemic-low jobless claimant numbers and although PPI printed firmer than expected, it remained within the range of analysts’ estimates unlike the recent blow out CPI. ASX 200 (+0.7%) was led higher by commodity-related stocks and with the energy sector atoning for the underperformance in US counterparts despite the continued retreat of oil prices from cyclical highs, while Treasury Wine Estates was among the biggest gainers as it plans to pivot to the US market and focus on its profitable Penfolds brand in an effort to spur profit growth amid the impact from Chinese tariffs. Nikkei 225 (+2.3%) benefitted from recent favourable currency moves and the global stock rebound, which has helped participants look past the ongoing COVID concerns and looming inclusion of 3 additional prefectures to the state of emergency list. Hang Seng (+0.9%) and Shanghai Comp. (+1.2%) were also firmer but with gains initially moderated as US-China tensions lingered following comments from US Secretary of State Blinken who reiterated support for Australia against economic coercion from China and USTR Tai suggested new trade laws are required to address the anti-competitive threats from China against key high-tech US industries. Earnings releases also provided a catalyst for price moves with Alibaba shares the biggest laggard in the Hang Seng. Finally, 10yr JGBs were positive as they tracked the rebound in T-notes and with the BoJ also present in the market for nearly JPY 1.4tln of JGBs with 1yr-10yr maturities, although gains in the 10yr benchmark were capped amid the outperformance in Japanese stocks.

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 reference rate at 6.4525 vs exp. 6.4499 (prev. 6.4612)

US Secretary of State Blinken said the US has raised coercion concerns with China both publicly and privately, while it has made clear how actions will hinder improvements in the relationship. Blinken also reaffirmed the unshakeable commitment of the US to Australia in a meeting with Foreign Minister Payne and reiterated the US will not leave Australia on its own against economic coercion from China. (Newswires)

USTR Tai said section 301 tariff exclusions for Chinese imports will be part of the Biden administration’s top-to-bottom China trade review and suggested that they know time is of the essence, while she noted that the US needs new trade law tools to address anti-competitive threats from China against key high-tech US industries. (Newswires)

UK/EU

BoE Governor Bailey said we are already seeing a strong UK economic recovery and expect inflation to pick up around about now, while he added that the BoE does not think higher inflation will persist but are watching it very carefully and will also be carefully observing how much savings are spent by households. Furthermore, Governor Bailey does not think the situation with low interest rates is going to change markedly and said that we will learn to live without equivalence with the EU on finance rules if the situation is not sorted out. (Newswires)

FX

In FX markets, the DXY traded steady and was tightly confined to within yesterday’s ranges near 90.75 where prices had oscillated throughout US trade. There was further commentary from central bank officials including Fed’s Barkin who suggested that expectations and business outlook are not pointing to a persistent multi-year jump in inflation, while Fed’s Waller stated the Fed will not respond to inflation as much as it would have in the past and does not want to move too quick chasing inflationary ghosts. Furthermore, the NY Fed made technical adjustments to its asset purchases including the maturity ranges in which it extended WAM somewhat to align purchases with outstanding debt, although this failed to garner a reaction as the adjustments had been flagged by Fed officials recently and the total purchase amount remained the same at USD 80bln of Treasuries and TIPS per month. Analysts also noted that while the duration has been modestly extended to match Treasury issuances, this should not be misconstrued as an "operation twist" or "tapering", nor any other deviation of Fed policy. EUR/USD was rangebound at a sub-1.2100 level amid the uneventful greenback and lack of solid drivers for the single currency. GBP/USD was little changed with price action stuck near 1.4050 as the currency largely ignored concerns regarding the increased cases of the Indian COVID-19 variant in UK which is said to threaten the June 21st phase of the lockdown exit roadmap. USD/JPY and JPY-crosses were kept afloat amid the positive risk tone and antipodeans were also contained due to the lack of tier-1 data releases and uninspired commodity prices.

BoC Governor Macklem said we expect inflation to rise to around 3% in the next few months due to base effects but expects it to come down after that as large parts of the economy remain weak. Macklem also stated that government's fiscal policy has been very necessary and that there is a plan to stabilise the debt to GDP ratio. Furthermore, he added that if CAD continues to appreciate, it could be more of a headwind to export projections, while the BoC is looking at this and that if it moves a lot higher, it could have a material impact on the outlook and how we set monetary policy. (Newswires)

Mexican Central Bank kept interest rates at 4.0% vs. Exp. 4.0% (Prev. 4.0%) through a unanimous decision and stated that in a highly uncertain environment, the risks for inflation, economic activity and financial markets pose major challenges for monetary policy. It also stated that given the recent shocks that have affected inflation, it is necessary for the adjustment in relative prices to take place in an orderly manner so that an impact on price formation and inflation expectations is avoided. Furthermore, the Governing Board will take the necessary actions based on incoming information in order for the policy rate to be consistent with the orderly and sustained convergence of headline inflation to the 3% target within the time frame in which monetary policy operates. (Newswires)

COMMODITIES

Commodities were subdued overnight in which the energy complex languished near this week's lows following the prior day's 3.5% slump in WTI crude futures and a more than 3.0% drop in RBOB gasoline, as oil prices continued to fade their recent cyclical highs and amid the restart of the entire Colonial Pipeline system. Nonetheless, the losses during Asia-Pac trade were only marginal with the broad constructive mood helping to provide a floor for oil prices. Gold traded flat overnight as it mirrored the uneventful greenback and copper underperformed amid a slump in Chinese commodities including Dalian iron ore futures which fell around 9% in a continuation of the pullback from record levels and with Shanghai steel rebar futures hitting limit down, while reports also noted that China's steel hub of Tangshan is reportedly requiring firms to control price surges will severely punish price violations.

Colonial Pipeline said it restarted its entire pipeline system and product delivery has commenced to all markets, but added it will take several days for the product delivery supply chain to return to normal following the restart. (Newswires)

US President Biden said the colonial pipeline should be reaching full operational capacity right now but stated resuming fuel supplies will take some time and that there may be some hiccups although expects to see fuel normalcy this weekend. Furthermore, he does not rule out retaliation for the cyber-attacks, while the White House said there is still some responsibility for Russia, even if the Government was not involved in the Colonial Pipeline attack. (Newswires)

China's top steel-producing city of Tangshan warned mills to maintain market order and that local authorities will examine illegal practices, as well as punish those that manipulate prices. (Newswires)

CME raised COMEX copper futures maintenance margins by 8.2% to USD 6,600 per contract for May 2021 and raised RBOB gasoline futures maintenance margins by 7% to USD 6,100 per contract for June 2021. (Newswires)

GEOPOLITICAL

US objected the request for a public UN security council meeting on Friday to discuss the Israel and Gaza conflict, according to diplomats. In relevant news, there were later reports of rockets fired from Lebanon at Israel and that Israeli air and ground troops were conducting a strike on the Gaza strip. (Newswires)

US

Treasuries rallied, led by the belly, as the market pared back some of Tuesday's CPI-induced sell-off in light of a relatively more tame PPI print; sloppy 30yr auction had little sway. By settlement, 2s -0.8bps at 0.159%, 5s -2.5bps at 0.839%, 10s -3.2bps at 1.671%, 30s -1.6bps at 2.400%; TYM1 volumes were decent, but not as strong as Wednesday. 5yr BEI -5.3bps at 2.738%, 10yr BEI -2.6bps at 2.517%, 30yr BEI -0.3bps at 2.374%. SOFR and EFFR unchanged at 1bp and 6bps, respectively. NY Fed made technical adjustments to its asset purchases; adjusted maturity ranges of asset purchases, extending WAM somewhat to align purchases with outstanding debt; reduces short-end and TIPS purchases modestly. Allocations across 7-30yr coupons will increase by 3%. Will distribute monthly purchases across eight sectors based on 12-month average of the proportional amount of Treasury securities outstanding. These adjustments had been flagged by Fed officials recently and thus come as little surprise to market participants, who have been expecting these tweaks to purchases for a few months now. Furthermore, it is worth stressing that the total purchase amount remains the same at USD 80bln of Treasuries and TIPS per month, and while the duration has been modestly extended to match Treasury issuance, this should not be misconstrued as an "operation twist" or "tapering", nor any other deviation of Fed policy. T-note (M1) futures settled 8+ ticks higher at 132-06.

Fed's Waller (voter) said the US economy is going gangbusters despite the "thud" of weak jobs report, while he stated that now is the time to be patient and we need several more months of data to know if economy has made substantial further progress. Waller added he expects the FOMC to maintain accommodative policy for some time and that factors putting upward pressure on inflation are temporary. Furthermore, he said the Fed will not respond to inflation as much as it would have in the past and does not want to move too quick chasing inflationary ghosts, while he added that the Fed will not raise rates until they see inflation above target for a long time and has not seen anything that should cause a reversal in forward guidance, as of yet. (Newswires)

Fed's Bullard (2022 voter) said US output will hit a new high by end-June and a return to the pre-pandemic peak far ahead of predictions from last year, while he added that fiscal policy to sustain households worked well beyond initial hopes and that the low ratio of unemployed to job openings means labour market is tighter than headline payroll and unemployment levels indicate. Furthermore, Bullard stated that monetary policy is in a good position today and don't want to shift policy in a crisis, as well as noted that it is too soon to worry about tapering bond purchases. (Newswires)

NY Fed announced technical adjustments to QE in which it adjusted maturity ranges of asset purchases and is extending WAM somewhat to align purchases with outstanding debt. Furthermore, it reduced short-end and TIPS purchases modestly, while allocations across 7-30yr coupons will increase by 3%. (Newswires)

US President Biden said they didn't compromise on anything in the meeting with Republicans on infrastructure and is very optimistic a reasonable agreement will be reached, while he will talk to Republicans again next week. There were also comments from the White House that President Biden told Republicans that he wants to see real progress on a possible bipartisan deal by Memorial Day and a spokesman separately noted that President Biden is to release first detailed budget proposal on May 27th. (Newswires)

US Republican Senator Capito stated that President Biden asked Senators to come back and re-work an offer, while she added that President Biden's attitude was 'very supportive' of making a deal and that they were encouraged. There were also comments from GOP Senator Blunt who reiterated that a revised infrastructure offer is coming next week and that we will know by Memorial Day if there is an infrastructure deal. (Newswires)

USTR Tai said she will meet with her Mexican and Canadian counterparts next week to discuss implementation of the USMCA trade deal and will raise concerns over US corn access to Mexican market. (Newswires)