• Asian equities traded mostly positive as the region shrugged off the negative lead from Wall Street
• In FX, the DXY remains subdued, EUR/USD extended gains above 1.2150 and GBP/USD trades at its best level in over two months
• WTI crude futures eked marginal gains to trade around the USD 66.50/bbl level
• US Senator Capito said the Republican infrastructure proposal is on track to be sent to President Biden on Tuesday
• Looking ahead, highlights include the UK Labour Market Report, EZ Flash GDP (2nd), US Building Permits and Housing Starts, ECB’s Lagarde, BoE’s Bailey, Broadbent, Ramsden, Fed’s Bostic, Kaplan
• Earnings from Generali, Vodafone, Imperial Brands, Walmart, Home Depot

CORONAVIRUS UPDATE

US President Biden will send vaccines authorised in the US abroad for the first time with the US to share an additional 20mln doses of the Pfizer (PFE), Moderna (MRNA) or Johnson & Johnson (JNJ) vaccine by the end of June on top of 60mln AstraZeneca (AZN) doses. (Newswires)

Johnson & Johnson (JNJ) cut its vaccine deliveries to the EU by half this week and has so far delivered less than 10% of vaccines for Q2 although maintains its target of delivering 55mln doses, according to an EU official. (Newswires)

UK Health Minister Hancock said the new variant is not tending to penetrate into older and vaccinated groups, while evidence suggests vaccines are effective against the Indian variant (B.1.617). (Newswires)

UK ministers are reportedly discussing contingency arrangements for local lockdowns or delay to reopening after June 21st and the COVID-19 tiers system could return if the Indian variant takes hold, according to reports in The Times. In relevant news, ITV’s Peston reported that the prospect of the final easing of lockdown restrictions in England going ahead precisely as planned on June 21st are close to nil, citing ministers and officials; this was later disputed by a government source via a Daily Mail journalist. A government adviser stated that it is clear some social distancing will have to be retained and not everything we've set out for June 21st is likely to happen, while it was also stated that it is possible some of the latest easing will have to be reversed with the situation to be dependent on data that will become available in around a fortnight, although the final decision is still about a month away. (Times/ITV)

British holidaymakers are reportedly set to be given approval by the EU on Wednesday to visit Europe using vaccine passports. (Telegraph)

ASIA

Asian equities traded mostly positive as the region shrugged off the negative lead from Wall Street where sentiment was dragged lower by lingering inflationary concerns and following somewhat mixed NY Fed Manufacturing data, while US equity futures also staged a rebound after-hours. ASX 200 (+0.8%) was underpinned as the mining-related sectors benefitted from the continued strength in underlying commodity prices and amid reports that Australian PM Morrison is pushing states to remove domestic restrictions on vaccinated citizens as part of a plan to boost travel freedom. Nikkei 225 (+2.3%) notched firm gains with the index unfazed by the wider than expected contraction in Japan’s Q1 GDP which printed -1.3% vs exp. -1.2% Q/Q and -5.1% vs exp. -4.6% for the annualized reading. The decline in the world’s 3rd largest economy was widely anticipated due to the state of emergency for nearly a dozen prefectures including Tokyo which lasted for almost the entirety of Q1, although there was also plenty of jawboning from Economic Minister Nishimura who stated the decline was smaller than during last year's state of emergency as spending on durable goods was solid and that the economy still has potential to recover with exports continuing to increase due to the overseas recovery. Furthermore, Nishimura suggested that job and income conditions are improving, consumer spending appetite appears strong and that the government will take flexible action including using reserves set aside to address the virus as required. Hang Seng (+1.5%) and Shanghai Comp. (+0.1%) were varied whereby the mainland lagged despite a lack of direct catalysts, but there were reports that the US Senate voted overwhelmingly to open the debate on the bill that would provide USD 110bln for technology research to address China competition, while the TAIEX (+4.4%) was the outperformer in an aggressive resurgence from yesterday’s COVID-triggered slump. Finally, 10yr JGBs languished amid strength in Japanese stocks and following the recent pullback in T-notes, while the lack of BoJ purchases also contributed to the subdued demand with the central bank only in the market today for treasury discount bills.

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 6.4357 vs exp. 6.4399 (prev. 6.4307)

China NDRC said Australia should halt wrong actions of interfering with bilateral trade and should take responsibility for the suspension of bilateral economic dialogue, while it hopes Australia will treat Chinese companies fairly and view cooperation in an objective and reasonable manner. (Newswires)

Japanese Economic Minister Nishimura said Japan's economy still has the potential to recover and that they will take flexible action as needed, while he added that the decline was smaller than during last year's state of emergency as spending on durable goods was solid. Furthermore, Nishimura expects solid growth in capex partly due to rapid shifts to digitalization and noted that job and income conditions were improving and that consumer spending appetite appears strong. (Newswires)

Japanese Chief Cabinet Secretary Kato said they will aim to restore Japan's economy to pre-pandemic level in the current fiscal year and that the main reason for the contraction was a fall in consumption which was largely for services amid the state of emergency curbs. (Newswires)

• Japanese GDP (Q1 P) Q/Q -1.3% vs. Exp. -1.2% (Prev. 2.8%)
• Japanese GDP Annualised (Q1 P) -5.1% vs. Exp. -4.6% (Prev. 11.7%, Rev. 11.6%)
• Japanese GDP Capital Expenditure (Q1 P) Q/Q -1.4% vs. Exp. 1.1% (Prev. 4.3%)

UK/EU

BoE's Vlieghe said growth this year should not be viewed as a boom, but as a return to normal and that QE cannot deliver a great amount of extra stimulus at a time of normal market conditions and low rates. BoE’s Vlieghe added that the neutral rate of interest is very low relative to past decades and that if the UK economy does not grow very fast, significant spare capacity will open up when the furlough scheme ends. (Newswires)

UK ministers are said to be divided on whether to sign off on a trade deal with Australia granting tariff-free access to Australian farmers and risk pushback from the UK farming industry, according to sources. (FT)

German Chancellor Merkel's ruling conservatives lead election with 25.5% of support vs Greens with 23%, according to the latest INSA poll. (Newswires)

FX

In FX markets, the DXY remained subdued after the prior session’s losses where the greenback was restrained amid flat yields and quiet newsflow. There were several comments from Fed speakers again although the message remained the same as Fed’s Bostic reiterated that he expects a lot of inflation in the next couple of months and Clarida suggested the Fed must be attuned to incoming inflation data to make sure it is transitory and that the Fed would not hesitate to act if inflation expectations were to move higher, while Kaplan repeated the view that it would be healthy to discuss the efficacy of Fed's asset purchases sooner rather than later and that he still expects first rate increase could occur in 2022. EUR/USD extended on recent gains above 1.2150 owing to the lacklustre USD and amid the reopening efforts for the bloc with Italy to phase out its COVID curfew and the Netherlands is also to further ease lockdown restrictions from mid-week. GBP/USD outperformed with the pair at its best levels in two and a half months and JPY mostly softened amid the gains in regional stocks, as well as the weak GDP data from Japan, while antipodeans were kept afloat by the resilience in commodities and following the uneventful RBA minutes which repeated the view that a rate increase is unlikely until 2024 at the earliest.

RBA minutes stated that conditions for a rate increase is considered unlikely until 2024 at the earliest and that there will be no rate increase until inflation is sustainably in the 2%-3% target, while the board is willing to extend bond purchases if required although there is no need to change the yield target. RBA stated they will decide in July on whether to roll over to the November 2024 bond and whether to extend bond purchases. Furthermore, it stated that a return to full employment is a high priority for monetary policy and that wage growth would need to be sustainably above 3% to meet the inflation target. (Newswires)

COMMODITIES

Commodities were kept afloat amid a subdued greenback and improved risk appetite during Asia trade which helped WTI crude futures eke marginal gains to trade around the USD 66.50/bbl level but with upside limited amid lack of solid catalysts and with the EIA forecasting a slight increase in shale output for next month. Furthermore, Colonial Pipeline noted its transportation of refined products has returned to normal level but added that it will take time for the supply chain to fully catch up, while focus for the energy complex turns to the latest inventory reports beginning with the private sector stockpile data later this evening. Gold prices held on to their inflationary-driven gains amid a lacklustre USD and copper continued its advances helped by the constructive tone, as well as ongoing disruption concerns surrounding the Escondida copper mine in Chile, which is the world's largest, although BHP are said to seek mediation to avert a strike.

US total shale regions oil production for June seen +26,000 BPD at 7.733mln BPD (prev. -2,800 BPD in May), according to EIA. (Newswires)

Colonial Pipeline said it is transporting refined products at normal levels and is fully operational but noted that it will take some time for the fuel supply chain to fully catch up. (Newswires)

CME raised natural gas Henry Hub future margins by 2.5% to USD 2,050/contract. (Newswires)

China's NDRC said it is to support domestic firms to increase domestic iron ore exploration and development, as well as actively develop overseas iron ore resources. NDRC added that it is looking into the steel and iron ore market with the regulator, while it will increase monitoring and adopt measures to safeguard market stability for iron ore and steel. In relevant news, it was also reported that China's April crude steel production rose 14.2% Y/Y, according to the China Iron and Steel Association. (Newswires)

GEOPOLITICAL

US President Biden reaffirmed Israel's right to defend itself during a call with Israeli PM Netanyahu and expressed support for a ceasefire, while Israeli PM Netanyahu told US President Biden in the call that he wants to complete all the goals of the Gaza operation. Furthermore, US Secretary of State Blinken spoke with Israeli Foreign Minister Ashkenazi regarding the need to calm tensions in Israel, the West Bank and Gaza, while Blinken stated that we must find a way to stop the conflict that has claimed Israeli and Palestinian lives. (Newswires/Twitter)

Turkish President Erdogan said that US President Biden is 'writing history with blood on his hands' in response to the US approach to Israel/Palestine. (Newswires)

White House National Security Adviser Sullivan stated during calls with Armenia's PM and Azerbaijan's President that military movements near un-demarcated borders are irresponsible and provocative. (Newswires)

US

Treasuries were marginally softer in the belly on Monday as APAC strength was faded into the US session alongside commodity strength. By settlement, 2s +0.2bps at 0.153%, 5s +1.3bps at 0.829%, 10s +0.5bps at 1.640%, 20s +1.4bps at 2.263%, 30s -0.1bps at 2.354%; TYM1 volumes were light. 5yr TIPS -2.2bps at -1.911%, 10yr TIPS -1.3bps at -0.920%, 30yr TIPS -0.3bps at -0.018%. SOFR and EFFR unchanged at 6bps and 1bp, respectively. Bonds were grinding higher in APAC trade amid mixed China data, worsening regional COVID outbreaks, and a paring of recent losses, particularly in EGBs after Bund yields had a decent rise last week further towards positive territory. The lows for yields were made as Europe arrived for the week, however. It was essentially one-way traffic lower on both sides of the pond for bonds as bids were hit right into the US session, seeing German 10yr Bund yields test their cycle peaks from last week at -10bps. There weren't any particular fresh catalysts for the selling pressures, seemingly "flow-driven" and not induced from risk appetite given stocks had been trending lower. Participants were pointing to over-arching bearish bond factors such as inflation woes and central bank tightening. There was little sustained price action after the NY Fed Empire survey came in above expectations, with another chunky Prices Paid subindex, although that should not come as a surprise at this stage given the dearth of inflation gauges that have come in hot. And from then on, yields trundled sideways in choppy trade for the rest of the session. T-note (M1) futures settled 2 ticks lower at 132-11.

Fed's Kaplan (2023 Voter) said it would be healthy to discuss the efficacy of Fed's asset purchases sooner rather than later and noted the housing prices are at historically high levels, while he wondered if increased investor interest in single-family homes is a side effect of Fed asset purchases. Furthermore, Kaplan stated he still expects the first rate increase could occur in 2022 and suggested it would be wise to assume USD supremacy may not last forever. (Newswires)

US Senator Capito said the Republican infrastructure proposal is on track to be sent to President Biden on Tuesday, while CNN's Manu Raju tweeted that GOP senators plan to meet with senior administration officials on Tuesday afternoon regarding the new GOP offer on infrastructure although he added that senators signalled it’s not clear if they will have that plan together by their meeting. (Newswires/CNN)

USTR Tai emphasised the requirement for Canada to fully carry out USMCA trade deal commitments on dairy and e-commerce during a meeting with Canadian Trade Minister Ng, while they agreed to collaborate on softwood lumber, WTO reform, strengthening North American supply chains and COVID recovery. (Newswires)