• Major bourses in Europe trade with little conviction whilst US equity futures remain contained with a downside bias
• Chinese industrial production printed inline with estimates and retail sales disappointed but still showed respectable growth
• China will extend tariff exemption for some US imported products from May 19th, according to the Finance Ministry
• In FX markets, DXY remains soft under Friday's lows; EUR/USD reclaimed 1.2150, GBP/USD meanders around 1.4100 and USD/JPY eyes 109.00
• AT&T (T) is in discussions to merge content assets with Discovery (DISCA) which would create a USD 150bln streaming giant
• Looking ahead, highlights include US NY Fed Manufacturing, BoE's Haldane, Vlieghe, Tenreyro, Fed's Bostic, Clarida, Kaplan

CORONAVIRUS UPDATE

UK Health Secretary Hancock said the government will decide on June 14th regarding whether to go ahead with the final lifting of COVID-19 restrictions as the spread of the Indian variant threatens to delay the end of lockdown measures set for June 21st. Furthermore, Hancock also stated that people should "certainly not" go on holiday to countries such as Spain, Italy, France & Greece amid the risk posed by mutant strains of COVID-19. (Newswires/FT/Telegraph)

Portugal’s Tourism Minister said they expect the EU to support the reopening of borders to tourists from the UK following Portugal’s recommendation to reopen borders to British tourists. In other news, French Junior Minister for European Affairs Clement Beaune stated that a health travel pass in the EU will be available from around June 20th. (Newswires/FT)

Turkey will relax its virus restrictions from Monday as new cases decline following a 3-week lockdown, offering a glimmer of hope for the summer tourist season. (Newswires)

Taiwan announced a tightened COVID-19 measures including closing down movie theatres and entertainment venues. It was also reported that the Ministry of Finance urged investors to remain calm following a spike in domestic COVID-19 cases and stated that Taiwan’s economic fundamentals remained sound. Furthermore, the Taiwan Premier said demand for export orders are still strong and production activities remain normal, while the Premier said they have asked relevant departments to make preparations to stabilize stock and FX markets. (Newswires)

Sanofi (SAN FP) and GlaxoSmithKline (GSK LN) COVID-19 vaccine candidate in Phase 2 trials has demonstrated strong immune response across all age groups; Phase 3 trials expected to start in the coming weeks. (Newswires)

ASIA

Asian equities traded somewhat mixed and only partially benefitted from last Friday’s rebound on Wall St. where the major indices gained as weaker than expected US Industrial Production and Retail Sales data supported the narrative for prolonged Fed accommodation, although further pandemic-related concerns and fresh restrictions have left some regional markets in the lurch. ASX 200 (+0.1%) was kept afloat by outperformance in gold miners after the recent advances in the precious metal and with energy also underpinned following the government announcement of a AUD 2.3bln support package to keep Australia's two remaining refineries open which are being run separately by Ampol and Viva Energy. Nikkei 225 (-0.9%) failed to hold on to opening gains with sentiment subdued by the recent widening of the state of emergency to three additional prefectures lasting through to month-end and with some of the biggest movers driven by earnings releases, while the TAIEX (-3.0%) slumped 3% at the open due to a record increase of domestic cases and tightened COVID-19 measures. Hang Seng (+0.6%) and Shanghai Comp. (+0.8%) were positive after the PBoC injected funds through a CNY 100bln MLF operation but with gains capped as participants digested mixed Chinese activity data in which Industrial Production printed inline with estimates and Retail Sales disappointed but still showed respectable growth. Finally, 10yr JGBs were supported by the weakness in Japanese stocks and following similar upside in T-notes, while the results of the 10yr inflation-indexed auction from Japan were inconclusive with a higher b/c than previous but lower accepted prices.

China will extend tariff exemption for some US imported products from May 19th, according to the Finance Ministry. Products include rare earths, gold ore, silver ore and concentrate from US. (Newswires)

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% and CNY 100bln via 1-year MLF with rate at 2.95%, while it will also sell CNY 10bln in 3-month and CNY 15bln in 1-year bills in Hong Kong this Friday. (Newswires)PBoC set USD/CNY mid-point at 6.4307 vs exp. 6.4318 (prev. 6.4525)

• Chinese Industrial Production (Apr) Y/Y 9.8% vs. Exp. 9.8% (Prev. 14.1%)
• Chinese Retail Sales (Apr) Y/Y 17.7% vs. Exp. 24.9% (Prev. 34.2%)
• Chinese Urban Investment YTD (Apr) Y/Y 19.9% vs. Exp. 19.0% (Prev. 25.6%)
• Chinese China House Prices (Apr) Y/Y 4.8% (Prev. 4.6%)

China's securities regulator launched a probe into alleged stock manipulation and vowed to crack down on illegal acts to protect investors' interests. (Global Times)

Senior Chinese sources told SGH Macro that they hope the talks between USTR Tai and her Chinese counterpart may be held by the end of this month. (SGH Macro Advisers)

UK/EU

UK reportedly faces a labour shortage due to the pandemic and Brexit which has fuelled an exodus of foreign workers, while experts suggested that this puts the recovery at risk. (The Guardian)

UK PM Johnson’s EU adviser Frost said that Brussels should stop “point-scoring” and work with the UK to implement the Brexit trade deal, while it was also reported that Frost stated the Northern Ireland Protocol was “dead in the water” and is said to have privately set a deadline of July 12th to make the system work. Furthermore, Lord Frost warned that the EU needs to rethink Northern Ireland rules as the new leader of the DUP has vowed to not rest until the rules are torn up. (Newswires/Telegraph/FT)

New DUP leader Poots said they will try to “strip away” parts of the Brexit trade agreement covering Northern Ireland amid the increasing tensions in the region. (Newswires)

EQUITIES

Major European bourses kick the week off relatively contained and with little conviction (Euro Stoxx 50 -0.2%), following on from a mixed APAC handover with news-flow also on the lighter side once again. US equity futures are similarly caged but with a mild downside bias following Friday’s rally, with no significant outliers in terms of performance as participants await this week’s risk events, including the FOMC minutes and flash PMIs. Back to Europe, the FTSE 100 (-0.3%) narrowly underperforms as the GBP remains elevated while base metal miners unwind some recent gains, oil & gas names also remain pressured. Sectors see a mixed picture after a primarily positive open with defensives now faring better than cyclicals. The Telecoms sector outpaces peers, led by Telefonica (+3.3%), BT (+2.4%) and Deutsche Telekom (+2.5%) – with the latter also underpinned by a broker upgrade at Barclays. Travel & Leisure has made its way to the bottom of the pile despite the UK kick-starting travel to designated countries, with COVID developments in Asia potentially providing some sectorial headwinds as the Hong Kong-Singapore travel bubble has been deferred again. However, Ryanair (+1.2%) bucks the overall trend in the sector after earnings topped forecasts whilst providing a rosy outlook contingent on vaccination efforts. In terms of commentary, analysts at JPM have revisited their equity strategy for the Euro Stoxx 50. They maintained their overall bullish view and reaffirmed the medium-term positive growth-policy trade-off. The bank reiterated their tactical call favouring defensives vs manufacturing cyclicals during this current consolidative phase which is expected to last 1-3 months before the next run higher, according to the analysts. “We think that better tactical showing of lower beta will ultimately end up a good staging post for the renewed Value and Cyclicals rally in 2H.” Contrary to a widespread view, JPM disagrees that UK will be the most profitable exposure this year and suggests that overweight EZ vs the UK makes more sense and is backed by current performance.

AT&T (T) - Co. is in discussions to merge content assets with Discovery (DISCA) which would create a USD 150bln streaming giant. (Newswires/FT)

Tesla (TSLA) CEO Musk tweets that Tesla has not sold any bitcoin. (Twitter)

FX

DXY/XAU - The Dollar is somewhat mixed against G10 counterparts, but lagging vs precious and base metals, like Gold and Copper, albeit the latter partly due to heightened prospects of strike action at BHP’s Spence and Escondida mines in Chile following the rejection of a contract offer. Conversely, spot bullion has taken advantage of softer US Treasury yields and a flatter curve that are keeping the Greenback capped in wake of last Friday’s disappointing retail sales data to breach a key technical level that was protecting Usd 1850/oz (200 DMA at Usd 1845.98), with bulls (or bugs) now eyeing another upside objective in the form of a declining trend-line that crosses the y axis around Usd 1858.40. Back to the Buck, 90.500 in the index has not been reclaimed and 90.153 may offer some support ahead of 90.000 on any further pull-back through the prior session low (90.278) as this represents the midweek base outside of the 90.429-220 range thus far. Ahead, NY Fed manufacturing, NAHB and 3 Fed speakers including hawk and current FOMC voter Bostic twice.

JPY/GBP - Both holding up better than other majors, though only marginally firmer against the Dollar as the Yen meanders between 109.15-50 in the absence of anything Japanese specific ahead of Q1 GDP tomorrow, while the Pound is pivoting 1.4100 in the run up to several BoE speeches and a packed UK data agenda this week, also kicking off from Tuesday. However, Sterling is losing a bit more traction vs the Euro below 0.8600 amidst the ongoing post-Brexit rift over NI Protocol and some concerns that Britain may want to rewrite the agreement that PM Johnson’s advisor Frost has already said is dead in the water.

EUR/CHF/CAD - The Euro is sitting comfortably enough above 1.2100, but could struggle to clear 1.2150 convincingly ahead of the NY cut given the fact that 1.9 bn option expiries reside at the half round number, while the Franc is rangebound just under 0.9000 and straddling 1.0950 vs the single currency following firmer Swiss producer and import prices compared to previously and a decline in weekly domestic bank sight deposits and the Loonie is also hovering shy of a big figure at 1.2100 amidst flattish crude prices before Canadian housing starts.

NZD/AUD - Having run into offers bang on 0.7250 against its US rival, the Kiwi has waned to test bids ahead of 0.7200 and derived little lasting traction via a rise in NZ’s services PMI, but the Aussie is showing more resilience around 0.7750 after mixed Chinese ip and retail sales releases and a foray above 1.4 bn option expiry interest from 0.7755-60 that may yet tether Aud/Usd in advance of RBA minutes.

SCANDI/EM - Not a great start to the new week for the Nok and Sek in the face of wavering sentiment, and for the former also fading oil, but the Try’s fortunes have improved a tad irrespective of worrying Turkish budget developments given a sharp swing from surplus to deficit between March and April, and the Huf is gleaning support from hawkish NBH guidance via the Deputy Governor flagging a potential hike next month. Elsewhere, the Cnh is treading water following the aforementioned conflicting Chinese data vs consensus and reports from the Finance Ministry that import tariff exemptions for some US goods will be extended wef May 19.

Major FX expiry options for today's NY cut:

• EUR/USD: 1.2150 (1.9BLN)
• AUD/USD: 0.7755-60 (1.4BLN)

FIXED INCOME

Bunds are only just keeping sight of parity amidst more pronounced weakness at the Eurozone margins and having retreated further from Eurex highs to 168.93 (-5 ticks vs +37 ticks at best), and the downside pressure is reverberating across the board as Gilts hover just beneath 127.50 between 127.77-48 (vs a prior 127.43 Liffe settlement) extremes and the 10 year T-note trims gains to only 2/32 at 132-15 from 9/32+ at the 132-21+ overnight peak. In terms of bearish catalysts, nothing really new stands out aside from a simple loss of recovery momentum, but the marked underperformance in BTPs amidst latest Italian political divisions that may derail new PM Draghi’s efforts to push through the reforms required to access EU recovery funds, according to Repubblica citing Salvini. Ahead, a host of Central Bank speakers, NY Fed manufacturing PMI, ECB weekly QE updates and NAHB.

COMMODITIES

WTI and Brent front-month futures remain within tight ranges in early European trade, in-fitting with the indecisive mood across the markets and as participants weigh the global recovery with the worsening COVID situation in Asia – which has seen a considerable slower inoculation drive vs the UK, US and now the EZ. COVID remains the overarching theme, but geopolitics has also been increasingly in vogue amid the tensions between Israel/Gaza, prompting the US, EU, Russia and China to take opposing sides, with these developments worth keeping on the radar against the backdrop of JCPOA talks and a potential US-Sino meeting by month-end. Further on Iran, reports over the weekend suggested that state-controlled National Oil Co. has begun priming oil fields and customers in a bid to swiftly increase exports if a JCPOA deal is clinched, according to officials – with the most optimistic scenario pointing to pre-sanction production levels of almost 4mln BPD in as little as three months. COVID and geopolitics aside, the Colonial Pipeline has restarted operations after last week’s ransomware attack. Still, last week’s shuttering is expected to be reflected in this week’s EIA release, which is seen printing a significant draw in PADD1 (East Coast) product stocks alongside builds in crude and products from PADD3 (US Gulf Coast) alongside a decline in refining activity. WTI Jun meanders around USD 65.50/bbl (vs USD 65.12-74/bbl range) while Brent July trades just under USD 69/bbl (vs USD 68.34-69.07/bbl range). Russian Deputy PM Novak meanwhile suggested that prices around USD 62-66/bbl reflects the current market conditions. Elsewhere, spot gold and silver trade firmer in tandem with the softer Buck and yields, with the yellow metal hovering around USD 1,850/oz (vs low 1,822/oz) and the latter marginally above USD 27.50/oz (vs low USD 27.35/oz). In terms of base metals, LME copper prices have been edging higher amid Chilean strike action at two BHP mines after contract offers were rejected. Iron ore futures overnight nursed some of Friday’s losses after Chinese steel producers were warned about price manipulation. However, the recent surge in prices has not convinced Vale’s CEO of a supercycle as he expects demand to flatten out after a couple of years of tightness.

BHP (BHP LN) union workers at the Spence and Escondida copper mines in Chile rejected the labour contract offer, raising the risk of a strike. (Newswires)

China April natural gas output rose 7% Y/Y to 16.9bcm, aluminium output rose 12.4% Y/Y to a new monthly record of 3.35mln tonnes and April steel crude output rose 13.4% Y/Y to a record 97.85mln tonnes. (Newswires)

Vale CEO said iron ore is not on the cusp of a new supercycle and expects demand to flatten out after a couple of years of tightness. (FT)

German Watchdog has granted approval to start the construction of a segment of the North Stream 2 pipeline in German waters in May, according to TASS. (Newswires)

GEOPOLITICAL

Israel PM Netanyahu said the Gaza campaign is continuing with all force and will take time, while he added that Israel wants to exact price from the “aggressor” and restore deterrence. PM Netanyahu also commented that Israel will do whatever it takes to restore order and hopes it doesn’t take long. Furthermore, he stated that the building housing AP and Al Jazeera offices was a perfectly legitimate target and that civilian casualties from Israeli strikes are because Hamas is attacking Israel from civilian neighbourhoods. There were also comments from the Israeli military that civilian deaths from air strikes in Gaza on Sunday were unintentional and noted that it had targeted a military tunnel system that collapsed, causing homes to collapse as well. (Newswires)

US President Biden said the US will continue to engage Israelis and Palestinians to work towards a sustained calm, while it was also reported that China said the US blocked a joint statement regarding the Middle East after a US Security Council emergency session on Sunday where members condemned the current violence but failed to reach a unified position. (Newswires/WSJ)

UN Secretary-General Guterres told the Security Council that hostilities in Israel and Gaza are utterly appalling and that fighting must stop immediately, while the UN is actively engaging all sides towards a ceasefire and calls for them to allow mediation efforts to intensify and succeed. There were also comments from UN Middle East Envoy Wennesland that the international community must take action now to enable parties to step back from the brink. (Newswires)

Saudi Foreign Minister condemned Israel for flagrant violations of Palestinian rights and forcible evictions of Palestinians from homes in east Jerusalem, while he also called US Secretary of State Blinken to discuss the developments in Palestine and the region. Furthermore, there were separate reports that Jordan’s King stated that diplomatic contacts are underway to halt Israel’s military campaign. (Newswires)