• Asia-Pac stocks traded higher after taking the impetus from the encouraging performance in the US
• Major US indices gained, led by outperformance in tech amid a decline in yields and alongside a rebound in crypto
• The DXY remained subdued beneath 90.00, EUR/USD extended on advances above 1.22 and GBP/USD above 1.4150
• EU leaders have agreed on a set of sanctions to be imposed on Belarus
• US Republican Senator Wicker said the GOP could support a total USD 1tln infrastructure package
• Looking ahead, highlights include German IFO, US Consumer Confidence, Fed's Evans, Barkin, Quarles, ECB's Lane, BoE's Tenreyro, US 2yr note auction

CORONAVIRUS UPDATE

US State Department raised the travel advisory for Japan and Sri Lanka to "do not travel" due to COVID-19. In relevant news, Japanese Chief Cabinet Secretary Kato said they will keep in contact with the US and gather info on the travel ban, while he added that they believe there is no change in US support for Japan holding the Olympics and the Japanese Olympics Minister noted they do not expect an impact on the Olympics from the US travel advisory. (Newswires)

Japan is reportedly preparing to extend the state of emergency to June 20th and Japanese Finance Minister Aso confirmed that they will extend the no-interest loan scheme to firms impacted by the pandemic to year-end, while Japan will also impose a mandatory 3-day quarantine period for travellers from Britain, Denmark, Kazakhstan and Tunisia. (Newswires/Kyodo)

ASIA

Asia-Pac stocks traded higher after taking the impetus from the encouraging performance in the US where all major indices gained, led by outperformance in tech amid a decline in yields and rebound in crypto. ASX 200 (+0.6%) benefitted from the constructive mood with tech, real estate and miners spearheading the advances for the benchmark which briefly reclaimed the 7,100 level, although the index has since met resistance with gains also capped by mixed data releases. Nikkei 225 (+0.5%) was positive amid reports the Japan's government plans to maintain support measures for firms impacted by the pandemic with 0% interest loans extended to the year-end and although the US announced a ‘do not travel’ advisory against Japan, officials suggested this is unlikely to have implications on the Olympics, while the KOSPI (+0.8%) was lifted after recent data showed South Korean Consumer Sentiment at its highest in almost 3 years. Hang Seng (+1.2%) and Shanghai Comp. (+1.6%) conformed to the upbeat mood across the region amid strength in tech and biopharmaceuticals, as well as a recovery in mainland commodity prices from the recent China crackdown-induced selling, with Xiaomi among the biggest gainers in Hong Kong after FTSE Russell announced it will reinstate Xiaomi and Luokong Technology to its global indices. Finally, 10yr JGBs were rangebound with upside capped by the gains across regional stock markets and mixed results in the enhanced liquidity auction for longer-dated bonds, while the Aussie 10yr yield was slightly softer in the aftermath of Australia’s 2040 treasury indexed bond offering.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC sets USD/CNY mid-point at 6.4283 vs exp. 6.4260 (prev. 6.4408)

PBoC is to increase tolerance of bad loans in the agricultural sector and will encourage banks to issue agricultural financial bonds. (Newswires)

A Chinese senior official source said there is no doubt that this time we have cracked down on encrypted virtual currency more severely than in September 2019 and the price of virtual currency will be hit even harder than the last time, while the source added that "We must provide an absolutely safe financial environment for the pilot and promotion of the digital RMB in China". (SGH Macro Advisers)

UK/EU

BoE Governor Bailey said employment data has shown that a corner has been turned and that if we were to see more general price pressures, the BoE would re-evaluate guidance. Bailey also stated that GBP has appreciated which will exert downward pressure on trade prices, while he added that he is content with current policy settings. (Newswires)

BoE Chief Economist Haldane (outgoing, dissenter) said the upside surprise to inflation could require policy action that takes the legs out of the recovery. (Newswires)

BoE’s Saunders stated that the implication of forecasts is that the yield curve is roughly in the right place and that he does not see evidence that the economy is recovering strongly enough to move into sustained excess demand. (Newswires)

European Commission President von der Leyen said there is no alternative to a full and correct implementation of the Irish protocol and that the problems stem from Brexit not the Irish protocol. (Newswires)

A cross-party group of MEPs is, according to a draft statement, reminding the EU Commission that it needs to take the first steps in relation to rule of law conditionality by June 1st or they will be pushing for legal action via the European Parliament. (Politico)

UK Trade Secretary Truss said she aims to prise open the protectionist Indian economy with a trade agreement more ambitious than India's agreement with Japan, while she added that Britain wants a deal with India particularly in areas such as digital, data and legal services with the government looking for an interim deal in 2022. (Telegraph)

FX

In FX, the DXY remained subdued following its recent retreat beneath the 90.00 level amid a decline in yields and upside in equities. Furthermore, the latest central bank commentary stateside stuck to the script as Fed’s Brainard reiterated expectations for price pressures linked to bottlenecks and the reopening to subside over time, while Bullard reaffirmed that we are going to see more inflation but thinks it is mostly temporary and suggested it is not the time to think about changing policy as they would need to exit the crisis first. EUR/USD marginally extended above the 1.2200 level with the softness in the greenback the main story for price action for the currency space, especially in Europe where several countries had observed an extended weekend, although focus for the bloc now shifts to incoming data with German GDP and IFO figures scheduled today. GBP/USD was slightly firmer after it gradually broke out of yesterday's range which was largely confined near 1.4150, with the slew of BoE rhetoric doing little to spur price action including comments from BoE Governor Bailey who suggested that employment data showed a corner has been turned but added that he is content with current policy settings. USD/JPY and JPY-crosses were uneventful despite the constructive risk tone and antipodeans traded sideways after somewhat mixed preliminary data figures from Australia which showed Exports were flat M/M in April, as well as a decline in weekly jobs and wages figures. NZD/USD was also kept stable ahead of tomorrow’s RBNZ meeting where the central bank is expected to maintain its policy settings, while there were also noteworthy comments from the New Zealand Foreign Affairs Minister who stated that exporters should diversify and suggested they cannot ignore what is happening in Australia regarding the trade dispute with China as it may only be a matter of time before the storm gets closer to New Zealand.

Australian Bureau of Statistics reported that preliminary April Trade Balance was at a surplus of AUD 10.1bln, while Exports were flat M/M and Imports fell 7% M/M. Furthermore, the ABS reported total weekly payroll jobs change for April 24th-May 8th fell by 0.5% (prev. +0.4%) and wages declined by 1.3% (prev. +0.3%). (ABS)

Turkey replaced one of the four central bank deputy governors with Oguzhan Ozbas replaced by Semih Tumen. (Newswires)

COMMODITIES

WTI crude futures marginally extended on yesterday's gains above the USD 66.00/bbl level amid the constructive risk tone and softer greenback, although upside was limited during Asia trade amid a lack of pertinent drivers for oil and with attention shifting to the latest weekly stockpile reports beginning with the private sector inventory data later today. Gold prices were choppy as tailwinds from a subdued greenback and softer yields were offset by a lack of haven demand, while copper outperformed alongside the upbeat risk sentiment and as Chinese commodity prices nursed the losses from China's recent crackdown warning.

China NDRC unveiled a 5-year price mechanism reform plan in which it will strengthen management of market expectation on prices and is making plans to handle abnormal changes in commodity prices including iron ore, copper and corn. (Newswires)

BHP (BHP AT) reportedly reached a wage agreement with supervisors at its smallest mine in Chile. (Newswires)

Nigeria raised June Bonny Crude OSP to minus 75 cents/bbl (vs Dated Brent) and raised June Qua Iboe OSP to minus 76 cents/bbl (vs Dated Brent). (Newswires)

GEOPOLITICAL

Israel Prime Minister Netanyahu warned that Israel will act to counter the Iranian nuclear threat and stated that "With or without an agreement, we will do everything to prevent Iran from arming itself with a nuclear weapon, because that is our existence". (Jerusalem Post)

US President Biden and Russian President Putin are likely to hold their first summit next month in Geneva, Switzerland, according to Politico citing US sources. (Politico)

US President Biden said the US condemns the plane diversion and arrest of the journalist by Belarus in the strongest possible terms and called for an international investigation. Furthermore, President Biden welcomed the EU announcement of sanctions and has asked advisers to develop appropriate options to hold accountable those responsible, while it was earlier reported that the EU agreed to adopt more individual sanctions as soon as possible and agreed to cut air links with Belarus, with EU-based carriers asked to avoid overflight of Belarus. (Newswires)

US

Treasuries bull-flattened on Monday amid cyclical stock underperformance and China's increasing scrutiny on runaway commodity prices. 2s -0.4bps at 0.153%, 5s -2.1bps at 0.807%, 7s -2.5bps at 1.263%, 10s -2.7bps at 1.605%, 20s -3.5bps at 2.209%, 30s -3.3bps at 2.300%; TYM1 volumes were average, but expect distortions amid the roll. 5yr TIPS -3.6bps at -1.838%, 10yr TIPS +5.8bps at -0.850%, 30yr TIPS unch. at -0.002%. SOFR and EFFR unchanged at 1bp and 6bps, respectively, while 3m USD Libor sits at fresh record lows just above 14bps. Note, CME to introduce futures based on the Bloomberg Short-Term Bank Yield Index, or BSBY, in Q3. Bonds were on the upside out of APAC, with metals on the backfoot as reports noted China's NDRC has been holding discussions with commodity firms to stamp out monopolies and price violations, echoing the sentiment seen last week. There was some weakness stemming in USTs at the Europe/US handover, coming amid the announcement of corporate offerings from the likes of AstraZeneca (AZN LN), JPMorgan (JPM), and Bank of America (BAC), with the quiet morning trade feeling the impact. Fed's Brainard gave some familiar comments, reaffirming her view of transitory inflation, to little excitement from markets. However, as cash equity trade got underway in New York, the upside in govvies resumed, taking yields back to session lows - perhaps as corporate supply hedging flows subsided, in addition to the outperformance of tech stocks, and underperformance of cyclical/value, supporting the bid for duration. T-note (M1) futures settled 6 ticks higher at 132-20; t-note (u1) settled 6 ticks higher at 131-23+.

Fed's Bullard (2022 voter) reiterated that we are going to see more inflation and that he thinks it is mostly temporary, but some will flow through to expectations, while he expects 2% inflation this year and next. Bullard also said there will come a time when we can talk more about changing monetary policy, but it is not the time while we are still in a pandemic. Furthermore, he added we will get there in the months ahead and can start thinking about altering asset purchases, but reiterated that when in a crisis, they need to exit it before thinking about changing policy. (Newswires)

Fed's George (2022 Voter) said it is difficult to distinguish between one-off bottlenecks and a broad lack of capacity, but added that she does not dismiss the risk of higher inflation and noted the Fed should not be rigid in its policy approach nor should it lose sight of potential changes to the economy amid the reopening. George also stated that she anticipates strong employment in the approaching months and expects labor constraints to ease with time but added that supply and shipping shortages could persist beyond this year. Furthermore, she stated that Fed policy will stay highly accommodative for some time and it will take time for the economy to establish its new normal. (Newswires)

US Senate Majority Whip Dick Durbin indicated Democratic leaders are tiring of infrastructure talks with GOP in which he stated that we're getting down to decision time and cannot put this off indefinitely, so hopes they can reach an agreement but added that they're still pretty far apart and that he would be reluctant to go lower than USD 1.7trln. (Politico)

US Republican Senator Wicker said the GOP could support a total USD 1tln infrastructure package and there were separate comments from Republican Senator Capito that the GOP will not walk away from infrastructure discussions, although Republican Senator Toomey commented that he is disappointed regarding infrastructure discussions. (Newswires)

US Commerce Secretary Raimondo suggested that USD 52bln funding for chips could result in 7-10 additional US factories. (Newswires)

US Deputy Treasury Secretary Adeyemo said he expects unified G7 support for a proposed 15%+ global minimum corporate tax and that broad international backing will build support in US Congress for domestic corporate tax increase, while he added that the final agreement on the international corporate tax deal may wait until G20 Leaders' summit in October. In relevant news, UK Ministers are refusing to back a global overhaul of corporation tax championed by US President Biden unless the White House supports their demands to crack down on US tech titans. (Newswires/Telegraph)