• European bourses are modestly firmer though there are a number of closures given Whit Monday while US futures outperform modestly in quiet trade
• The USD has been downbeat for much of the morning to the benefit of EUR in particular though the DXY did stage a short-lived resurgence
• China's NDRC reportedly held discussions with major commodity firms and pledged to have zero tolerance on commodity futures violations
• US Secretary of State Blinken stated there was no sign yet that Iran is willing to comply with nuclear commitments needed to lift sanctions; Iran & IAEA have agreed a one-month monitoring extension
• Looking ahead, highlights include Fed's Brainard, Mester, Bostic, George, BoE's Bailey, Saunders & Cunliffe. Note, today is Whit Monday

CORONAVIRUS UPDATE

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

The 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; pact could be achieved as soon as Friday given recent progress. (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 (+0.2%) 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 (-0.2%) and Shanghai Comp. (+0.3%) 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)

US

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)

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)

Russian Foreign Minister Lavrov says that Moscow is putting together a potential agenda for a possible summit between President Putin and US President Biden; Russia supports cooperation and ending the deteriorating relations. (Ifx)

US Senator Warren is intending to introduce legislation during this Congressional session which would ban members of Congress and other top gov't officials from buying/selling individual stocks. (Business Insider)

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)

Russian Foreign Ministry is accusing the US of violating that new START arms control treaty, according to Ifx; US allegedly has 101 more launch platforms/bombers than they are allowed under the treaty

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)

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; however, since then and as expected, a one-month extension to the monitoring agreement has been announced. 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. In response, the UK Parliament Foreign Affairs Committee head says that airlines should alter their flight path to avoid flying over Belarus; must put very strict sanctions on Lukashenko and that this is a 'warlike act'. Furthermore, Ryanair CEO says he believes there were KGB Agents on board the flight that Belarus diverted, speaking on Newstalk radio. (Newswires)

Saudi coalition says it has stopped an attack by a Houthi militia boat in the Southern Red Sea, according to Al Arabiya. (Twitter)

EQUITIES

Europe sees a raft of cash closures in observance of Whit Monday, with Germany and Switzerland among those away. The rest of the bourses trade relatively flat (FTSE 100 (+0.4%), CAC 40 (+0.2%), AEX (+0.1%), IBEX (+0.1%)) whilst the FTSE MIB (-0.4%) narrowly lags its peers. US equity futures also see broad-based gains to the tune of around 0.5% at the time of writing with Fed speak the main State-side highlight today. JPM highlights some factors that could lead to US inflation getting hotter before normalising is due - 1) global logistics and supply chain disruptions (cited by recent PMIs), 2) transitory factors like restrained labour supply, 3) oil price recovery, 4) release of pent-up consumer demand, 5) base effects of weak 2020 price prints. Meanwhile, Morgan Stanley suggests that correlations are breaking down amid the economic shift from early to mid-cycle, and this "should translate to a) dampened volatility for many investor portfolios (which can justify continued high leverage) and b) more dispersion driven by single-names instead of factors and themes (i.e. a good environment for stock picking)." Back to Europe, sectors are mixed with no clear overarching theme and with the breadth of the action shallow, although miners reside towards the bottom of the pile amid hefty losses in the Chinese base metals complex overnight - with Fresnillo (-3%) and Antofagasta (-1.2%) among the laggards in the UK. In terms of individual movers, Cineworld (+3.6%) is firmer after announcing a strong opening weekend in the UK, whilst anticipating most of its cinemas will be open by month-end. Co. has also received the full USD 203mln in tax refunds under the US CARES Act. Finally, given last week's focus on cryptos' ripple effect across other markets, it's worth noting that the crypto market saw another notable selloff over the weekend after China reiterated its stance whilst crypto exchange Huobi suspended some services and stopped miners from hosting services.

FX

USD - The charts will record that the Dollar index managed to ‘close’ above the psychological, if not key technical 90.000 mark last Friday having pared some losses and successfully defending multiple waves of downside pressure, but the last traded price was still below the prior week’s final level to keep the Buck in a clear bear trend awaiting today’s lean data agenda that puts the focus firmly on another raft of Fed speakers including Brainard, Mester, Bostic and George. Back to the DXY, rather aimless trade either side of the round number within a tight 90.108-89.861 band in the absence of many European participants out of action due to Whit Monday and the start of Pentecost.

NZD/AUD - A much more robust recovery in NZ retail sales than most were anticipating in the run up to trade data and this week’s RBNZ policy meeting, is keeping the Kiwi underpinned between 0.7187-58 parameters vs its US counterpart alongside the NZIER shadow board noting that tightening is more appropriate likely over the year ahead than previously envisaged. Meanwhile, the Aud/Nzd cross has backed off from the high 1.0700 area as the Aussie feels the heat coming off Chinese commodity prices again, such as iron ore that plunged 5% overnight. Hence, Aud/Usd is languishing below 0.7750 and nearer 0.7700 amidst another ‘outbreak’ of COVID-19 in Melbourne, Victoria, albeit confined to just 2 cases at this stage.

EUR - The Euro has peered above 1.2200 against the Greenback, but not been able to extend much beyond and perhaps heavy option expiry interest at the strike (1.3 bn) is keeping a lid on the headline pair on top of offers with a more psychological leaning. However, by the same token Eur/Usd could remain supported around 1.2150 given expiries spanning the half round number between 1.2145-60 (1 bn), and as Eurozone yields rebound from earlier lows to marginally narrow spreads vs USTs.

GBP/JPY/CHF/CAD - All softer vs their US rival, with Sterling losing further momentum and sight of 1.4150 as Eur/Gbp tests 0.8650, while the Yen is slipping back to retest support circa 109.00 and the Franc is trying to stay afloat of 0.9000 in wake of some verbal intervention from SNB chair Jordan. Note, Switzerland is also observing Whit Monday so weekly sight deposit balances will be posted tomorrow, while Canada is celebrating Victoria Day, but the Loonie is deriving impetus to a degree from a rebound in crude prices to keep its head above 1.2100.

SCANDI/EM - The Nok is also benefiting from the partial recovery in Brent to an extent, but is still relatively weak across the board having recoiled to almost 10.2200 vs the Eur and further beneath parity against the Sek, while the Zar has unwound more of its recent gains through 14.0000 against the Usd in tandem with Gold easing back from Usd 1885+/oz again and irrespective of S&P maintaining SA’s BB- rating with a stable outlook. Elsewhere, the Cnh and Cny are fractionally firmer around 6.4300 in wake of comments from PBoC Deputy Governor Liu on the onshore Yuan that will be guided to remain basically stable and balanced at a ‘reasonable’ level, but more prone to fluctuations due to supply, demand and changes in the international market.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.2145-60 (1BLN), 1.2200 (1.3BLN), 1.2260-70 (400M)

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)

FIXED

It could well be largely technical, and is almost certainly due to a lack of depth in part, but Bunds have recoiled quite sharply from best levels alongside their Eurozone debt peers after topping out at 169.41 (+27 ticks on the day) and subsequently probed support just before 169.00 to register a fresh 169.02 Eurex low (vs a Fib at 169.03). However, the core bond is back up around par amidst an underlying bid in UK Gilts and US Treasuries, albeit off best levels for the respective 10 year benchmarks in lighter turnover on Whit Monday and Victoria Day in Canada. Ahead, April’s US National Activity Index before the latest batch of Fed speakers that flank BoE Governor Bailey and 3 of his MPC colleagues at the TSC to present and face questions on May’s MPR.

COMMODITIES

WTI and Brent front-month futures continue the grind upwards adopted at the European entrance, with WTI now eyeing USD 65/bbl (vs low 63.63/bbl) and Brent inching towards USD 68/bbl (vs low 66.46/bbl). The focus for the energy complex this week remains on Iran, with a one-month technical agreement between Iran and the IAEA announced as expected - this is separate from the broader JCPOA deal. Meanwhile, assuming gaps are narrowed, participants expect an official nuclear deal to be announced later this week. "If and when the US re-joins the Iranian nuclear deal, this will likely hit sentiment in the oil market, however, we are still of the view that the market will be able to absorb this additional supply, so would expect price weakness to be short-lived.", ING says. Meanwhile, Citi continues to expect an early agreement on some aspects of the nuclear agenda between Iran and the US, though this would only be a partial return of Iranian supply to the market. The bank expects strong summer demand, with markets tight enough for mid-USD 70/bbl. Elsewhere, spot gold and silver move in tandem to the Buck and yields in the absence of any fresh catalysts, with the former back to levels around USD 1,875/oz and the latter meandering USD 27.50/oz. Finally, base metals overnight were back under pressure after China's NDRC reiterated zero tolerance on price manipulation, with Dalian iron ore ending daytime trading with losses of 5%, whilst the Singapore contract fell as much as 7.5%. LME copper fell in tandem but has since recouped most of its earlier losses as it sets its sights on USD 10,000/t to the upside once again.

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)

Citi continues to expect an early agreement on some aspects of the nuclear agenda between Iran and the US, though this would only be a partial return of Iranian supply to market. Expect strong Summer demand, with markets tight enough for mid-USD 70/bbl; track/forecast Iranian oil output at 2.1mln BPD in April/May'21; rising to 2.6mln BPD for July-August'21 and then 2.7mln BPD in Q4-21, under the base case scenario. (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)

The UK has commenced a consultation on rebalancing measures regarding steel, according to Politico's Isaac; consultation is in response to the US' 232 tariffs. (Newswires)