• Major bourses in Europe have drifted off best levels; US equity futures traded sideways with the NQ narrowly outperforming
• In FX, the DXY lost its 90.00 handle whilst EUR/USD and GBP/USD topped 1.2200 and 1.4200 respectively and USD/JPY dipped below 109.00
• Bent July futures rose above USD 70/bbl for the first time since March while WTI July tested USD 67/bbl to the upside
• US Senator Capito said the Republican infrastructure proposal is on track to be sent to President Biden on Tuesday
• Looking ahead, highlights include US Building Permits and Housing Starts, ECB’s Lagarde, BoE’s Bailey, Broadbent, Ramsden, Fed’s Bostic, Kaplan
• Earnings from Walmart

CORONAVIRUS UPDATE

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. (Times)

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 (+0.6%) 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 (+2.1%) 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 (+1.4%) and Shanghai Comp. (+0.3%) 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 (+5.2%) 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%)

US

Fed's Kaplan (2023 Voter) 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)

BofA May Fund Manager Survey: reveals the first signs of "peak optimism" on growth. Tech stocks overweight is at a 3 year low as investors load up on bank and resource stocks. Long Bitcoin is the most crowded trade. Allocation to UK equities was at its highest level since March 2014. The biggest tail risk for markets is inflation, second is a bond taper tantrum. (Newswires)

Amazon (AMZN) is subject to an investigation from the German antitrust watchdog. (Newswires)

UK/EU

ECB's Villeroy says the Eurozone sees no risk of durable inflation and monetary policy should remain accommodative. (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 Constitutional Court has rejected complaints against bond purchases under the ECB's PSPP. (Newswires) The ruling refers to whether its previous judgement on the PSPP has been respected by the German government and parliament. (ING)

GEOPOLITICAL

US President Biden reaffirmed Israel's right to defend itself during a call with Israeli PM Netanyahu and expressed support for a ceasefire (Newswires)

Military sources expected Israel to intensify strikes in the next 24 hours and the continued targeting of Hamas leaders, according to Al Arabiya. (Twitter)

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)

EQUITIES

Major bourses in Europe have drifted off best levels but still hold onto modest gains (Euro Stoxx 50 +0.4%) amid a distinct lack of catalysts throughout the European morning and as earning seasons simmers down. US equity futures meanwhile hold onto a bulk of overnight gains but have lost momentum as Europe wanes alongside a pickup in the EUR. Bank of America’s May Fund Manager survey suggested the first signs of “peak optimism” on growth, whilst tech stocks overweight is at a three-year low as investors load up on resources and banking names, whilst suggesting that the most prominent tail risks include inflation and a taper tantrum. Back to Europe, major bourses largely see broad-based gains with some mild outperformance in the FTSE MIB (+0.7%) and AEX (+0.7%) with the former lifted by banks and the latter underpinned by its tech exposure. In fitting with this, Tech and Banks reside as top performers, but Oil & Gas and Basic Resources outpace amid price action in those respective complexes (see commodities section). Meanwhile, the Telecoms sector is the marked laggard following its outperformance yesterday as Vodafone (-10%) and Iliad (-9.0%) shares slump after earnings underwhelmed. Healthcare resides at the bottom of the pile, pressured by Novartis (-0.8%) after the US supreme court rebuffed the Co’s appeal over its arthritis drug. Overall, the sectors are portraying a pro-cyclical bias. In terms of individual movers, BT (+1.8%) bucks the telecoms trend amid reports its CEO has purchased another GBP 2mln worth of shares, whilst Vivendi (+1.7%) is also firmer on the back of news that it could offload a further 10% of its Universal Music Group business.

Home Depot Inc (HD) Q1 21 (USD): EPS 3.86 (exp. 3.08), Revenue 37.5bln (exp. 34.96bln). Home Depot: 31% (exp. 18.6%). Home Depot (US): 29.9% (exp. 20.0%). (PR Newswire) Shares +2% pre-market

FX

USD - The Greenback has now given up all and more of its post-US CPI recovery gains amidst almost universal declines and a resumption of the bear trend that was prevalent prior to last Wednesday’s inflation data. Indeed, the DXY has fallen to a new sub-90.000 multi-month low at 89.751 to expose the only remaining trough ahead of 89.500 from late February (89.677 on the 25th of that month) and before Buck bears train crosshairs on the current 2021 trough (89.206 from January 6). The negative narrative for the Dollar remains the same and is compounded by renewed strength in commodities on the ROTW reopening bandwagon, bar recent/latest COVID-19 outbreak hotspots, as vaccine rollouts catch up to the US, while the Fed continues to hold back on tapering and policy normalisation in contrast to other Central Banks that have started the process of removing pandemic levels of accommodation. Ahead, housing data and more from Fed hawks Bostic and Kaplan, but it’s hard to imagine anything that might turn the tide for the index and Greenback in general at present.

CHF/NZD/AUD/EUR/GBP - Not much to pick between the best performing majors, or the ones extracting most from Buck’s downfall to be more precise. However, the Franc and Kiwi are just about edging it relative to fellow G10 currencies and perhaps in quid pro quo fashion following heavier depreciation when the boot was on the other foot, with the former up over 0.8975 and latter back above 0.7250, albeit facing formidable option expiry interest between 0.7260-70 in 1.4 bn before attention switches to NZ PPI later today. Conversely, the Aussie appears to have pulled far enough away from 1.2 bn expiries at the 0.7750 strike to probe 0.7800 irrespective of yet another set of dovish RBA minutes overnight ramming home the no rate hike likely before 2024, at the earliest. Elsewhere, the Euro has breached 1.2200 and Pound has climbed beyond 1.4200, as the single currency and Sterling tussle either side of the 0.8600 handle in cross terms.

CAD/JPY - The major ‘laggards’, though the Loonie continues to set almost daily highs against its US rival and has been close to 1.2000 as the clock ticks down to Canadian CPI tomorrow, while the Yen has rallied through 109.00 even though Japanese Q1 GDP and Capex fell short of expectations and subsequent coronavirus restrictions will take more toll on the economy.

SCANDI/EM - Somewhat conflicting impulses for the Nok as Brent finally overcomes resistance to scale Usd 70/brl, but Norway’s trade surplus narrows to leave the Crown under 10.0000 vs the Eur, while the Try has given up post-Turkish holiday corrective gains in stark contrast to the rest of the community that are reaping rewards of strength in underlying crude, metals and raw material prices plus Usd weakness and relatively buoyant risk sentiment overall. Note also, the Brl could well get an extra fillip from Brazilian Federal tax revenues beating consensus by some distance in March.

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)

FIXED INCOME

Not much reaction to German or UK auctions, and perhaps perversely no real relief from Gilts that the 2024 DMO sale was relatively well received and could bode well for the looming 2041 tap, while Bunds have not been unduly ruffled by a sluggish Schatz offering on the basis that a technically uncovered issue is far from uncommon. Nevertheless, the respective 10 year benchmarks have been down to deeper intraday lows on Eurex and Liffe during the am session, at 168.71 and 127.20 (-15 and -22 ticks on the day compared to +8 and +2 ticks at best), while US Treasuries are straddling the unchanged line with a slightly steeper bias ahead of housing data and latest remarks from 2 of the more hawkish Fed contingent via Bostic and Kaplan.

COMMODITIES

WTI and Brent July contracts have been choppy but ultimately firmer, with Brent topping USD 70/bbl (vs low 69.44/bbl) alongside the European cash open in what seemed to be a tech-driven move at the time, whilst WTI tested USD 67/bbl to the upside (vs low 66.24/bbl). News flow for the complex has again been on the lighter side, with eyes remaining on the fallout of COVID across the globe, whilst geopolitical risks also remain heightened. Meanwhile, the private inventory data later today will be followed for any hints towards tomorrow’s DoEs, which is expected to be distorted by the Colonial Pipeline outage. As a reminder, a significant draw is expected in PADD1 (East Coast) product stocks alongside builds in crude and products from PADD3 (US Gulf Coast) and a decline in refining activity. Elsewhere, spot gold and silver see sideways trade as upside from softer Dollar is countered by elevated yields. LME copper meanwhile eyes USD 10,500/t to the upside with the aid of risk appetite alongside the weaker Dollar. On this front, BHP sees a rise in average copper production over the next five years of over 300k tonnes per year and predicts that there will be strong demand in steel-making as the world decarbonises. Overnight, Dalian iron ore and Shanghai zinc surged, with traders citing robust domestic demand and expectations for overseas demand to rise significantly.

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)