• European bourses are contained but experiencing some slight divergence and have waned off initial best levels though the NQ remains the narrow outperformer
• US Republican Senator Wicker said the GOP could support a total USD 1tln infrastructure package
• Reports note speculation of intervention by China state banks in USD/CNY and USD/CNH around the 6.4000 level
• DXY remains depressed and sub last week's trough to the benefit of peers across the board ex-JPY while core debt is bid though the Bund was seemingly capped by strong Ifo
• China NDRC unveiled a 5-year price mechanism reform plan in which it will strengthen the management of market expectation on prices
• Looking ahead, highlights include US Consumer Confidence, Fed's Evans, Barkin, Quarles, ECB's Lane, BoE's Tenreyro, US 2yr note auction

CORONAVIRUS UPDATE

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)

The US has called for a phase 2 investigation into the origins of COVID-19 with the purpose of the investigation being not to find blame. (Newswires)

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 (+0.9%) 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 (+0.7%) 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 (+0.9%) was lifted after recent data showed South Korean Consumer Sentiment at its highest in almost 3 years. Hang Seng (+1.8%) and Shanghai Comp. (+2.4%) 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)

US

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 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 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. (Newswires)

UK/EU

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)

ECB's Stournaras says the Eurozone economy is still fragile, sees no risk of an era of high inflation and it is too early to shift from PEPP to APP. (Newswires)

German Ifo Business Climate New (May) 99.2 vs. Exp. 98.2 (Prev. 96.8, rev. 96.6); Expectations New (May) 102.9 vs. Exp. 101.4 (Prev. 99.5, rev. 99.2)

• Current Conditions New (May) 95.7 vs. Exp. 95.5 (Prev. 94.1, rev. 94.2)
• Rising costs for raw materials are increasingly being passed on, more companies are saying that they are planning price increases; the construction sector is well-positioned but a rapid rise in raw material prices is becoming a serious problem

GEOPOLITICAL

Iranian government spokesperson is optimistic that outstanding issues in JCPOA talks will be resolved while nuclear talks will resume at 15:00BST/10:00EDT today, according to Fars. (Newswires/Twitter)

Russia's Kremlin says it will soon make an announcement regarding a summit between US President Biden and Russian President Putin and separately allegations they are involved in the Belarus plane incident are driven by anti-Russian sentiment. (Newswires)

EQUITIES

Major bourses across Europe see somewhat of a divergence as Germany and Switzerland play catchup after yesterday’s Whit Monday holidays, but broadly speaking the region ekes mild gains. Cash markets aside, European equity futures have been waning from best levels before finding a floor in what coincided with the release of an upbeat German Ifo survey - which noted that the upswing is picking up pace but warned that the rising costs for raw materials are increasingly becoming a problem, whilst more companies say they have price hikes on the table. US equity futures meanwhile hold onto modest gains following yesterday’s bull run, with the NQ narrowly outperforming peers as yields remain suppressed. Back to cash, the DAX (+0.8%) and SMI (+0.7%) outpace regional peers after the long weekend, with the former also seeing tailwinds from Deutsche Wohnen (+15%) after the Co. confirmed Vonovia’s (-4%) EUR 18bln takeover offer at around an 18% premium to Friday’s closing price. Thus, the Real Estate sector outperforms, closely followed by Tech which sees a continuation of the sectorial performance seen on Wall Street and in APAC. The other end of the spectrum sees Basic Resources as a laggard as base metal prices bear the brunt of further jawboning by China. In terms of some individual movers, BHP (-0.1%) gave up earlier gains despite resolving a union issue at its small Cerro Colorado copper mine, as the recent losses in the red metal fed through to the miner, and with eyes also on union developments BHP’s larger Escondida mine. Positive broker moves see L’Oreal (+0.2%) and Royal Mail (+7%) on firmer footings. Finally, FTSE-listed Aveva (+4.4%) gains on the back of strong earnings.

China has commenced an antitrust probe into KE Holdings (BEKE) who are backed by Tencent (0700 HK), according to sources. (Newswires)

German cartel office opens a probe into Alphabet's (GOOG) Google Germany and Google Ireland, looking into Google's significance for competition across markets and its data processing terms. (Newswires)

FX

USD - It’s looking increasingly ominous for the Dollar and index, as recoveries become fewer and farther between as well as less pronounced. Indeed, the DXY has descended into yet another lower range after only managing a tame or lame rebound to 89.867 and is desperately trying to stay above 89.500 amidst almost all round Greenback weakness against G10 contemporaries and EM currencies, like the Yuan that has extended gains through 6.4000 irrespective of reports suggesting that the PBoC was defending that line overnight having set a 6.4283 midpoint fix for the Cny. The index has been down to 89.533 and the half round number is now the only real or tangible prop left before the y-t-d trough appears on the radar, at 89.206 from January 6.

EUR/CHF/GBP - All reaping the rewards of their rivalry with the Buck, but the Euro not actually getting much in the way of an additional boost from IFO’s latest survey that beat consensus on all counts having breached barriers at 1.2250 before the release and then losing some momentum. Meanwhile, the Franc scaled 0.8950 ahead of delayed weekly Swiss sight deposit balance updates that revealed a Chf 4+ bn rise at domestic banks and Sterling briefly popped over 1.4200, though remained under pressure vs the Euro around 0.8640 in advance of a speech from BoE’s after seeing no reaction to sub-par CBI distributive trades .

AUD/NZD/JPY/CAD - The Aussie and Kiwi are maintaining 0.7750+ and 0.7200+ status against their US peer respectively, albeit off best levels in wake of somewhat mixed data for the former via preliminary trade, weekly payrolls and wages, while the latter awaits NZ trade before attention switches to the RBNZ on Wednesday with option pricing implying a 45 pip break-even for the policy meeting event. Conversely, the Yen has stalled just above 108.60 again and the Loonie remains hesitant on approaches towards 1.2000 following retracement from circa 1.2013 last week.

SCANDI/EM - A bit more respite for the Nok as it consolidates off worst levels against the Eur and back over 10.2000, but further underperformance/divergence beneath parity vs the Sek that might be taking note of stronger Swedish PPI prints in context of follow-through to headline inflation. Elsewhere, the Try might be on the back foot due to a decline in Turkish manufacturing sentiment and/or latest changes at the CBRT after the replacement of a Deputy Governor.

Reports note speculation of intervention by China state banks in USD/CNY and USD/CNH around the 6.4000 level; furthermore, major state-owned Chinese banks have been purchasing USD at around USD/CNY 6.40 in order to stem the rapid CNY appreciation, according to sources. (Newswires)

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)

FIXED

Only a knee-jerk and shallow pull-back in Bunds post-IFO, even though the survey was almost entirely upbeat, bar building constraints in the construction sector caused by the spike in raw material costs, as the 10 year German benchmark regains poise to hover just below its Eurex high, while Gilts have recovered well from a dip below par amidst book building for the 2039 UK linker that has now been set at Gbp 4bln and US Treasuries hug overnight session peaks. Still to come, CBI trades, US Redbook, house prices, consumer confidence, new home sales and Richmond Fed survey plus more Central Bank rhetoric and Usd 60 bn 2 year note issuance.

COMMODITIES

WTI and Brent front month futures are softer on the day as the complex gives up some of yesterday’s gains amid the tentative trade and as JCPOA negotiations continue (at 15:00BST), whilst some downbeat sentiment may also be seeing in via China’s concerns regarding soaring commodity prices feeding into inflation. WTI resides around USD 65.50/bbl (vs high USD 66.34/bbl) whilst its Brent counterpart trades on either side of USD 68/bbl (vs high USD 68.90/bbl) with the US and Iran both noting that gaps remain in nuclear deal negotiations, but Iran has been cautiously optimistic in what is hoped to be the final round of talks. Elsewhere, precious metals have been moving in tandem with yields and the Dollar with spot gold within reaching distance of USD 1,900/oz (USD 1,872-87 range) and spot silver extending gains above USD 27.50/oz (USD 27.47-80 range). One narrative to keep in mind - some participants have also cited the detreating sentiment surrounding bitcoin as a possible bullish factor for spot gold as investors turn to a physical (and less volatile) “store of value”. Meanwhile, attention has once again been on base metals with LME copper losing the USD 10,000/t handle amid reports that China's Premier Li has discussed solutions to tackle the commodity price surge and reiterated that China is to stabilise commodity prices and fight against commodity hoarding. Copper also eyes developments regarding Chilean mine workers – BHP managed to strike a deal at its Cerro Colorado mine, although attention remains on union developments at its Escondida mine which has the world’s largest copper deposits. Dalian iron ore futures were subdued overnight following four straight sessions of losses after China intervened in the bull-run last week with commodity follow-through to inflation cited as a concern.

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; subsequently, China's Premier Li has discussed solutions to tackle the commodity price surge, reiterated that China is to stabilise commodity prices and fight against commodity hoarding. (Newswires)

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