• European bourses trade mixed as the earlier mild optimism faded; US equity futures have been erring lower
• The White House is planning to submit its rebuttal to the Senate GOP infrastructure offer by Friday; Republicans are concerned that a deal may not be possible
• Iranian President Rouhani said main agreement has been reached in Vienna including the removal of major sanctions; other issues are still being discussed
• In FX, the DXY has been relatively steady on either side 90.00, EUR/USD remains sub-1.22 and GBP/USD sits on a 1.41 handle
• Looking ahead, highlights include US IJC, Philadelphia Fed Business Index, SARB rate decision, ECB's Lagarde, Fed's Kaplan, supply from the US

CORONAVIRUS UPDATE

FDA authorized a longer refrigerator storage time for thawed Pfizer (PFE) / BioNTech (BNTX) COVID-19 vaccines prior to dilution which would increase the availability of the vaccine, whereby it stated that undiluted, thawed Pfizer/BioNTech vaccines are to be stored at 2-8 degrees celsius for up to 1 month. (Newswires)

UK PM Johnson is increasingly optimistic that COVID-19 restrictions could be removed on June 21st as scheduled after early data suggested the Indian variant was not spreading as fast as had been feared. (The Times)

Japan's Health Ministry is likely to approve AstraZeneca (AZN LN) and Moderna (MRNA) COVID-19 vaccines with the Minister to announce this on Friday but may limit recommended groups for the AstraZeneca vaccine due to blood clot concerns. In other news, Japan is reportedly planning a state of emergency for Okinawa. (NHK/FNN)

ASIA

Asian equity markets traded mixed with the region cautious following the mostly negative lead from the US where risky assets took an early hit alongside crypto turmoil and commodity losses. FOMC Minutes which were viewed as hawkish after a number of participants suggested the potential for tapering discussions if rapid progress is made towards the Fed’s goals. ASX 200 (+1.3%) was positive with the index led higher by strength in tech following similar outperformance stateside and with most sectors proving to be resilient aside from the mining and energy industries due to the recent slump in underlying commodity prices. Nikkei 225 (+0.2%) swung between gains and losses with the index indecisive after the recent whipsawing in its currency and despite the mostly better-than-expected data releases in which Machinery Orders were mixed but trade figures topped forecasts and showed the fastest pace of increase in Exports since 2010. Hang Seng (-0.5%) and Shanghai Comp. (-0.1%) were lower amid notable losses in commodity-related shares as metal futures in Shanghai slumped following recent comments from China's Cabinet which stated it is paying great attention to the negative impact from surging commodity prices and will curb unreasonable price increases, as well as a crackdown on abnormal transactions. The PBoC also announced its latest decision on the Loan Prime Rates which were maintained at 3.85% and 4.65% for the 1yr and 5yr benchmarks, respectively, although this was widely expected given that the central bank recently maintained the rate on its Medium-term Lending Facility which is seen as an indicator of the central bank's intentions for the LPR. Finally, 10yr JGBs traded rangebound amid the indecisive risk tone in Japan although have largely ignored the slump in USTs that was triggered by the FOMC Minutes, while the BoJ were also present in the market for nearly JPY 1tln of JGBs consisting mostly of 1yr-3yr and 5yr-10yr maturities.

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 6.4464 vs exp. 6.4482 (prev. 6.4255)

Chinese military said a US warship illegally entered Chinese waters near the Paracel Islands in the South China Sea and that it resolutely opposes US warships entering its territory without permission. In relevant news, there were earlier comments from US President Biden who said they need to defend marine law in the South China Sea, the Arctic and the Gulf of Mexico. (Newswires)

• PBoC 1-Year Loan Prime Rate (May) 3.85% vs Exp. 3.85% (Prev. 3.85%)
• PBoC 5-Year Loan Prime Rate (May) 4.65% vs Exp. 4.65% (Prev. 4.65%)
• Japanese Trade Balance Total (JPY)(Apr) 255.3B vs. Exp. 140.0B (Prev. 662.2B)

US

US White House is planning to submit its rebuttal to the Senate GOP infrastructure offer by Friday; Republicans are concerned that a deal may not be possible despite Senate Republican Capito and the White House making positive noises (PunchBowl)

EU ministers will discuss steel tariffs with US at a meeting today, according to Germany Economy Minister Altmaier. (Newswires)

GEOPOLITICAL

Iranian President Rouhani says main agreement has been reached in Vienna. “They have agreed to lift all major sanctions,” he says, including oil sanctions, petrochemical, shipping, insurance, Central bank, and other banks; other issues are being discussed. (Twitter) UN Nuclear Watchdog says monitoring deal with Iran remains in place, the two sides are currently in consultations over the implementation of current understanding. (Newswires)

A ceasefire between Israel and Hamas could occur as soon as Friday amid increasing pressure for a halt in the conflict from US and other nations, according to reports in WSJ citing people involved in the discussions. It was separately reported that US Secretary of State Blinken discussed efforts to cease the violence with Israeli Foreign Minister Ashkenazi, while Blinken stated that the US expects to see a de-escalation towards a ceasefire. (Newswires/WSJ) Hamas leaders confirm truce with Israel to be announced soon, according to Al Arabiya. (Twitter)

Israeli battleships target Gaza City coast with a number of rockets, according to Al Jazeera. (Twitter)

Saudi-led coalition intercepted and destroyed a drone launched by Houthis towards Jazan in Saudi Arabia. (Newswires)

US Secretary of State Blinken said the US seeks stable and predictable relations with Russia, while he added that it is no secret the sides have their differences but there are many areas where US and Russian interests intersect. Blinken also stated that the US will respond when Russia acts aggressively against the US, its partners or allies and that the world would be a more secure place if US and Russia can work together. Furthermore, a US official said there were no breakthroughs in the meeting between US Secretary of State Blinken and Russian Foreign Minister Lavrov and that work on the relationship will occur in the weeks and years ahead. There were also comments from Russian Foreign Minister Lavrov that the US and Russia have serious differences in assessment of the international situation but added we are ready to discuss all issues in which discussions should be on the basis of mutual respect. Lavrov added that his meeting with US Secretary of State Blinken was constructive and that Blinken showed a desire to sort out relations, while they will both prepare proposals for a Putin-Biden meeting and he hopes both leaders will define the ways for further improvement in relations but declined to answer a question on whether Russia has agreed on a summit with the US. (Newswires)

Russia's Kremlin stated that talks between the US and Russian foreign ministers were constructive and a "positive signal" for a meeting between US President Biden and his Russian counterpart Putin. (Newswires)

UK/EU

BoE's Cunliffe said there may be some reason to believe that the most recent rise in housing demand reflects more persistent factors; very strong reason to keep economy going until after the pandemic has finished. (Newswires)

UK pay growth in April sharply picked up amid the easing of lockdown, according to reports citing XpertHR. (FT)

ECB's Lane said a lot of the inflation rise we are seeing now is due to base effects; bottlenecks are causing price rises and is not real inflation; does not see environment in EZ for persistent inflation. (Newswires)

ECB's Schnabel said the ECB sees no reason to raise interest rates as euro zone inflation is expected to fall next year. (Newswires)

EQUITIES

Bourses in Europe now see mixed trade as the mild optimism seen across the board at the cash open somewhat faded (Euro Stoxx 50 +0.3%) in the aftermath of the hawkishly perceived FOMC minutes and amid a distinct lack of fresh catalysts throughout the European morning, with a similarly mixed session also experienced during APAC hours. US equity futures were treading water overnight and during early European hours, but the contracts have been erring lower in recent trade in a move that coincided with losses in the crude complex. Back to Europe, sectors have also shifted from the positive open to a more mixed picture with defensives largely faring better than cyclicals peers, whilst Tech benefits from the recent pullback in yields and Industrials reap the rewards from the weaker base metal prices whilst Basic Resources reside at the foot of the pile alongside Oil & Gas and Banks. In terms of individual movers, Trainline (-23.0%) plumbs the depths as its leading position has come under trader from a “one-stop” ticket booking app by state-owned Great British Railways. Telecom Italia (-1.5%) and easyJet (-2.5%) are lower post-earnings. Meanwhile, STMicroelectronics (+0.3%) is modestly firmer amid pre-market reports that it was mulling a USD 1.3bln bid for Nordic Semiconductor (+5.1%), albeit the latter downplayed any knowledge of such a deal.

Tesla (TSLA) CEO Must tweets that there will be a Model S Plaid delivery event on June 3rd at the California factory. (Newswires)

FX

USD - Well that didn’t last very long at all in terms of a boost for the Dollar via Fed minutes that were deemed to be hawkish on the basis that a number of members believe it could be apt over the course of coming meetings to start a discussion about scaling back QE, assuming the economy continues to rapidly progress towards its targets for maximum employment and price stability. In truth, this should hardly be a shock let alone surprise given that policy guidance has been premised or contingent on clear evidence of ‘substantial’ movement toward those goals for some time, so after the initial knee-jerk amidst extended bear-steepening in US Treasuries on the back of a tepid 20 year auction, the Buck has already topped out and reversed course in tandem with USTs. The DXY managed to clamber just above Tuesday’s best (90.204), but faded well ahead of the w-t-d peak (90.429) before retreating through 90.000 again and is now hovering within a 90.230-89.965 band awaiting jobless claims data and the Philly Fed survey.

AUD/NZD - The Aussie was labouring in wake of a somewhat disappointing employment report and more pronounced retracement in industrial metals overnight, but has rebounded from the low 0.7700 area vs its US counterpart to 0.7750+ levels between an array of decent option expiries spanning 0.7730-85 – see 7.23GMT post on the Headline Feed for details and other expiry interest rolling off at the NY cut today. Similarly, the Kiwi has regrouped to hover near the upper end of 0.7200-0.7157 parameters, but having gleaned little lasting encouragement from upbeat NZ fiscal forecasts and accompanying comments by Finance Minister Robertson who claims that the longer term (adverse) effects of COVID-19 are not as bad as had been envisaged.

CHF/JPY/EUR - All taking advantage of the Greenback’s rather abrupt fall from grace, with the Franc paring declines almost 0.9050 to retest resistance/offers around 0.9000, the Yen back over 109.00 and Euro eyeing 1.2200 again following a deeper pull-back to circa 1.2169. Eur/Usd is also gleaning more traction via further Eurozone/US yield spread convergence and perhaps 1.3 bn expiries at the 1.2175 strike.

GBP/CAD - The Pound and Loonie maybe feeling the weight of another downturn in Brent and WTI, as Cable seems reluctant or just unable to extract much from the broad Buck wane within a 1.4141-01 range and Sterling is also losing out to the Euro in cross terms with Eur/Gbp forming a firmer base on the 0.8600 handle. Indeed, the Pound has barely reacted to a much better than expected headline CBI trends balance and stronger manufacturing price outlook. Meanwhile, Usd/Cad remains closer to 1.2140 than 1.2100 after holding just above 1.2000 only 2 sessions ago and just a transitory post-Canadian CPI dip yesterday.

SCANDI/EM - Weaker crude prices continue to take a toll on the Nok, though the Sek is also on a softer footing vs the Eur in the run up to a couple of Riksbank speakers (Breman and Skingsley) and the Zar is treading cautiously before the SARB, as the National Union of Mineworkers hands in a 15% across the board pay rise demand for this year through 2032 on behalf of all its members in the gold sector. The Rand is straddling 14.1000 against the Dollar between 14.1100-14.0560 extremes and the break-even via options for the impending SA rate call is a relatively small 1060 pips in keeping with the consensus for no change. On that note, little deviation in the Cnh and Cny after the PBoC set a firmer midpoint rate for the Usd vs the onshore Yuan and maintained 1 and 5 year LPRs as expected.

New Zealand Finance Minister Robertson stated the long-term effects of the pandemic are not as severe as previously thought and weekly benefit rates were increased in the budget by between NZD 32-55 per adult. Furthermore, New Zealand DMO sees 2021/22 bond issuance of NZD 30bln vs prev. forecast of NZD 30bln in the Half-Year Economic and Fiscal Update, while it sees 2021 GDP growth of 2.9% vs prev. forecast of 1.5% in HYEFU. (Newswires)

• Australian Employment (Apr) -30.6k vs. Exp. 15.0k (Prev. 70.7k)
• Australian Full Time Employment (Apr) 33.8k (Prev. -20.8k)
• Australian Unemployment Rate (Apr) 5.5% vs. Exp. 5.6% (Prev. 5.6%)
• New Zealand Economic OBEGAL Forecasts -15.13B (Prev. -21.58B)
• New Zealand Net Debt of GDP Forecast 34.0% (Prev. 39.7%)
• New Zealand Budget Balance (NZD) -25.28B (Prev. -40.18B)

FIXED INCOME

BTPs are clearly leading the recovery mission in Eurozone debt markets, but US Treasuries are doing the heavy lifting for the rest as tempers continue to cool on the Fed taper front and weakness in wake of the tepid 20 year note auction abates. The 10 year Italian benchmark is now above par and the 145.00 mark vs 144.77 at worst, Bunds have cut their arrears to ¼ point from -35 ticks, Gilts are just shy of a new 127.62 Liffe recovery high (-12 ticks vs -36 ticks at the other extreme) and the T-note is much nearer the 132-09 peak than 132-01 trough. Ahead, IJC updates, Philly Fed and yet more Central Bank speakers including ECB President Lagarde, BoC Governor Macklem, Fed hawk Kaplan and 2 Riksbank Board members, plus Usd 13 bn 10 year TIPS issuance.

COMMODITIES

WTI and Brent front month futures have resumed their respective declines after a night of consolidation as further positive/constructive noise emanates from the JCPOA talks, with the Iranian President suggesting that agreements some key issues have been ironed out and the US “have agreed to lift all major sanctions, including oil sanctions, petrochemical, shipping, insurance, Central bank, and other banks”, although other issues will be discussed. The sides will be taking a break today and resume talks next week. In terms of market implication, ING believes that the oil market can handle both Iranian oil alongside OPEC+ supply, "We are assuming that Iranian supply returns to 3mln BPD by 4Q21", whilst the most optimistic scenario (according to reports citing the Iranian National Oil Co), suggests that Iran could ramp up production to almost 4mln BPD in three months. Nonetheless, OPEC+ members will have to consider any deal when tweaking output quotas as Iran, Venezuela, and Libya are currently exempt from the output restrictions – with the group also poised to meet next week. Elsewhere, the COVID situation in Asia remains a grey cloud over the oil complex as India, Taiwan, and Japan see tighter COVID-related measures, and with the vaccine uptake in the East also lagging vs the West. WTI July resides just north of USD 62/bbl (vs high USD 63.95/bbl) while its Brent counterpart dips below USD 65.50/bbl (vs high USD 67.17/bbl). Meanwhile, Precious metals have been uneventful thus far and largely moving in tandem with the Dollar, with spot gold in a tight range near USD 1,875/oz and spot silver similarly constrained north of USD 27.50/oz. Attention overnight turned to base metals after heavy losses were seen in Chinese commodity prices at the reopening of trade, whereby Dalian iron ore futures slumped 7%, and Shanghai Rebar and Hot-Rolled Coil futures also suffering similar losses as China’s Cabinet yesterday stated it will step up efforts to curb the rising prices with CPI follow-through cited as a concern. LME copper meanwhile, has been drifting lower in recent trade as the red metal trades on either side of USD 10,000/t, with threats of prolonged strikes at BHP’s Escondida mine cushioning losses.

Norway's prelim April oil production 1.726mln BPD vs. prev. 1.773mln BPD, according to the Norwegian Oil Directorate. (Newswires)