• Asia-Pac equities began the week choppy following on from last Friday’s mixed performance on Wall Street, light weekend newsflow and heading into month-end
• China's NDRC reportedly held discussions with major commodity firms and pledged to have zero tolerance on commodity futures violations
• DXY trades sub-90.0, EUR/USD and GBP/USD sit on 1.21 and 1.41 handles respectively, USD/JPY was capped by 109.00
• US Secretary of State Blinken stated there was no sign yet that Iran is willing to comply with nuclear commitments needed to lift sanctions
• The White House offered a counterproposal on infrastructure spending valued at USD 1.7trln, although this failed to appease Republicans
• Looking ahead, highlights include Fed's Brainard, Mester, Bostic, George, BoE's Bailey, Saunders & Cunliffe. Note, today is Whit Monday

CORONAVIRUS UPDATE

White House said it is not planning on requiring foreigners to have proof of a COVID-19 vaccine when travelling to the US. (Newswires)

California State Health officials stated that CA will lift COVID-19 related capacity limits and physical distancing requirements on June 15th. (Newswires)

AstraZeneca (AZN) CEO said its COVID-19 vaccine was only slightly less effective against the Indian variant of the virus compared with the Kent variant. (FT)

UK government research suggested that two doses of a COVID-19 vaccine are needed to provide strong protection against symptomatic infections from the Indian variant of the virus, according to two people briefed on the preliminary data. (FT)

Germany reportedly imposed fresh restrictions on travellers from the UK from Sunday due to the rapid spread in Britain of the Indian COVID-19 variant. (Newswire)

Italy’s civil protection chief Fabrizio Curcio said the country may consider making COVID-19 vaccinations mandatory which he stated is an option that needs to be thoroughly assessed, given the need of annual booster shots. (La Stampa)

GLOBAL

G7 is reportedly close to an agreement on taxation for multinationals which paves the way for a global agreement later this year, according to the FT. (FT)

ASIA

Asia-Pac equity markets began the week choppy following on from last Friday’s mixed performance on Wall Street, light weekend newsflow and heading into month-end. ASX 200 (+0.2%) swung between gains and losses with the index underpinned by strength in healthcare, tech and gold miners although gains in the broader market were briefly reversed alongside pressure in other commodity-related sectors after China’s NDRC vowed a zero-tolerance approach on commodities futures violations and with property names initially constrained after the recent increases in home loan rates among the big 4 banks. Nikkei 225 (+0.3%) shrugged off opening losses although was contained by the indecisive mood in the local currency and with Japan planning an extension to the virus state of emergency beyond May 31st. Hang Seng (-0.3%) and Shanghai Comp. (+0.2%) were mixed with risk appetite sapped by crackdown concerns after China’s State Council said it will prevent financial risks and crackdown on Bitcoin mining, while the NDRC also pledged zero tolerance on commodities futures violations and warned to severely punish commodity monopolies and price violations. Furthermore, it was also reported that the CSRC approved 6 companies for an IPO on the ChiNext board and that the Hang Seng Index compiler added 3 companies to the Hong Kong benchmark in its quarterly review to take the total constituents to 58 effective June 7th, which is part of the overhaul announced in March that would raise the total number of components to 80 by mid-next year and therefore, dilutes the individual stock weightings. Finally, 10yr JGBs were relatively flat with marginal gains due to the cautious mood in stocks and with the BoJ also present in the market for JPY 925bln in 1yr-5yr JGBs, while the Aussie 10yr yield was down about 1.5bps amid the RBA’s regular QE purchases.

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 6.4408 vs exp. 6.4422 (prev. 6.4300)

PBoC Deputy Governor Liu stated that fluctuations in either direction for the CNY will become the norm and that the future trend of the CNY exchange rate will remain dependent on market supply and demand, as well as changes in the international market. Furthermore, Liu added that the PBoC will guide expectations to keep the CNY basically stable on a reasonable and balanced level. (Newswires)

UK/EU

CBI is calling for the UK government to cooperate with British businesses to help with the economic recovery post-pandemic and has proposed a GBP 700bln plan to assist in the recovery following the shocks from Brexit and the coronavirus. (FT)

A trade deal between the UK and Norway is facing the risk of collapse amid objections from Norway's Christian Democrats party over opening up the Norwegian market to British beef and cheese. (CityAM)

ECB’s VP de Guindos stated that the recent data has been much more positive and that the monetary policy decision in June will be based on data, but also noted that policy must remain accommodative. (Newswires)

EU27 leaders will reportedly set Foreign Policy Commissioner Borrell and Commission President von der Leyen with the task of presenting an EU-Russian report at the June summit, in-light of the deterioration in relations between the Czech Republic and Russia, according to a draft. (Politico)

FX

In FX markets, the DXY drifted lower ahead of the European open to slip below 90.00 after last Friday’s rebound stateside where the greenback was helped by the lacklustre mood on Wall Street and alongside a slew of Fed commentary including from Fed’s Barkin who stated the Fed will taper when there is substantial further progress and suggested that the US is currently on the "backside" of this crisis, while Fed’s Harker joined in on calls by Fed’s Kaplan for the Fed to begin having conversations about tapering sooner rather than later. Focus was also on infrastructure after the White House offered a counterproposal on infrastructure spending valued at USD 1.7trln although this failed to appease Republicans who viewed it as not much of an improvement, while the latest data releases from the US were mixed with strong Manufacturing and Services PMI figures offset by disappointing Existing Home Sales which printed at a surprise contraction. EUR/USD traded sideways after its recent pullback and comments over the weekend from ECB’s de Guindos who stated that the recent data has been much more positive and that the monetary policy decision in June will be based on data, but also noted that policy must remain accommodative, while price action for GBP/USD was steady around 1.4150 with the pair contained after Germany imposed fresh restrictions on travellers from the UK and the EU delayed its decision whether to exempt vaccinated UK travellers amid concerns regarding increasing cases of the Indian COVID variant. USD/JPY mirrored the choppy risk tone in the region and with upside capped by resistance at 109.00, while antipodeans were also lacklustre due to the subdued sentiment and early wobble in commodity prices.

SNB President Jordan has said that the SNB can further expand its balance sheet if needed and reiterated that the CHF is still "highly valued". (Neue Zuercher Zeitung)

S&P affirmed South Africa rating at BB-; Outlook Stable. (Newswires)

COMMODITIES

Commodities were mixed in which WTI crude futures marginally extended on Friday's rebound with prices helped by the recent firmer than expected Manufacturing PMI data on both sides of the Atlantic, while the expectations of an imminent return to the Iranian nuclear deal were also tempered after the monitoring agreement with the IAEA expired and with suggestions from US Secretary of State Blinken that there was no sign yet that Iran is willing to comply with nuclear commitments needed to lift sanctions. Gold prices were uneventful overnight after having notched a 3rd consecutive weekly gain and copper prices were pressured as Shanghai metals trade got underway with early losses across mainland commodity prices including a 5% slump for Dalian iron ore futures after China's state planner vowed zero tolerance and crackdown on commodities futures violations.

Baker Hughes US rig count (w/e 21st May): Oil +4 at 356, NatGas -1 at 99, Total +2 to 455. (Newswires)

Goldman Sachs affirmed its argument for higher oil prices citing a vaccine-driven increase in demand and it lowered non-OPEC+ output forecasts by 250k bpd, while it continues to forecast Brent reaching USD 80/bbl in Q4 this year. (Newswires)

China's NDRC reportedly held discussions with major commodity firms and pledged to have zero tolerance on commodities futures violations, while it noted that excessive speculation pushed up commodity prices and warned it will severely punish commodity monopoly and price violations. (Newswires)

GEOPOLITICAL

Iran's parliament speaker said a 3-month monitoring agreement with the UN's International Atomic Energy Agency has expired so inspectors will no longer have access to images of nuclear sites, although other reports noted that Iran is likely to extend the UN nuclear monitoring deal by a month. In relevant news, US Secretary of State Blinken responded that there was no sign yet that Iran is willing to comply with nuclear commitments needed to lift sanctions, when asked if a decision was made to lift sanctions on Iran. (Newswires/Axios)

A Ryanair (RYA LN) plane from Greece to Lithuania was diverted to Belarus for several hours after fighter jets were scrambled to force a diversion which Belarus media claimed was due to a bomb scare. However, no explosives were found and opposition blogger Roman Protasevich was detained before the plane was allowed to continue its flight to Lithuania. Following the incident, European Council President Michel stated that European leaders will discuss possible sanctions against Belarus on Monday and French Foreign Affairs Minister Le Drian said the diversion is unacceptable and that a firm response by Europeans is necessary, while the US State Department said the US strongly opposes the forced flight diversion and arrest of the journalist in Minsk which endangered the lives of over 120 passengers including US citizens. (Newswires)

US

Treasuries were flat after strength out of Europe, amid disappointing EZ PMIs, was faded on the back of decent US PMI figures, although ranges were thin and choppy. By settlement, 2s +0.4bps at 0.155%, 5s +1.1bps at 0.826%, 10s -0.4bps at 1.630%, 20s -1.2bps at 2.242%, 30s -0.8bps at 2.333%; TYM1 volumes were average. TIPS yields were little changed. SOFR and EFFR were unchanged at 1bp and 6bps, respectively. Fed bought USD 3.2bln of 7-10yr Treasury Coupons, O/C 3.37x. NY Fed RRP demand rose to a new YTD peak of USD 369bln across 52 bidders (prev. USD 351bln across 48 bidders). Continued YTD peaks in RRP facility demand is coming as an increasing amount of cash chases a falling amount of collateral. The surge in usage in the Fed's RRP facility is being accompanied by downward pressure on repo rates (which SOFR is exhibiting) and other money market rates (T-Bills, Commercial Paper, etc...). However, this is unlikely to be a concern as of yet for the Fed given its key EFFR has been buoyed (just) above the 5bps figure - which is seen as a line in the sand to which the Fed would consider a tweak to its IOER/RRP rate. Furthermore, the fact the RRP demand is surging is likely to be seen as a positive development for the Fed after it has said it sees the RRP facility as becoming a more central part of policy implementation. T-note (M1) futures settled 1+ ticks lower at 132-14.

Fed's Barkin (2021, 2024 voter) said the Fed will taper when we get to substantial further progress and suggested that the US is currently on the "backside" of this crisis. Barkin added that there is a lot more room to run in the labour market and that we are closer to substantial further progress than we were in January. (Newswires)

Fed's Daly (2021, 2024 voter) reiterated that policy is in a "really" good place, despite some "frothy" spots in financial markets and sees bright things happening across the economy, while she added that policymakers need to be patient in light of the more than 8mln people who are still unemployed compared with pre-pandemic levels. (Newswires)

Fed's Harker (2023 voter) said the Fed should start having a conversation about tapering sooner rather than later and that the Fed needs to follow the playbook of removing accommodation carefully and methodically so that we do not surprise the market. Harker also stated that he is looking for continued strength in the labour market before the Fed starts the tapering process, while he added they can start the taper discussion if they see progress on prices and jobs. (Newswires)

Fed's Kaplan (2023 voter) sees a lot of uncertainty about inflation and he intends to keep an open mind, while he reiterated he is concerned about excesses and imbalances in the housing market. Kaplan also reiterated that he does not want to act too soon or too late on policy and that he would rather gently take foot off the accelerator than slam the brakes later down the road. Furthermore, he stated the next jobs report may also be "odd" or unusual given that tensions around the labour market are not going away. (Newswires)

White House staff offered a counterproposal on infrastructure from USD 2.25tln to 1.7trln and said the counteroffer reflects the view that the Republican offer excludes proposals that are key to US growth. Furthermore, US President Biden proposed cutting the supply chain from its infrastructure plan and is revising investment in broadband to USD 65bln from USD 100bln, while roads and bridges funding is said to be lowered to USD 120bln from USD 159bln. It was also separately reported that US Senate Republicans do not see the new USD 1.7trln infrastructure proposal as a significant improvement, according to a source. (Newswires)

US Republican Senator Blunt stated that he believes Republicans and the White House have 7-10 days to resolve differences on infrastructure and that the largest gap in discussions is not spending levels but instead is the definition of what constitutes as infrastructure. (Newswires)

White House budget will reportedly not include key campaign pledges, such as the public option, prescription drugs reform, or student debt relief, while it is said to be squarely focused on USD 4trln in jobs/infrastructure and families plans, according to WaPo citing sources. (Washington Post)