• Asian equity markets traded mixed after lacking direction from the US and ahead of upcoming key risk events
• In FX, the DXY remained subdued beneath 90.00, EUR/USD reclaimed 1.22 and GBP/USD reached its highest level since early 2018
• RBA maintained rates as expected, reiterated its guidance that suggests conditions will not be met for a rate hike until 2024 at the earliest
• OPEC+ is not expected to discuss output beyond July and wants to wait and see what happens with Iran, according to sources
• Looking ahead, highlights include EZ, UK, US Final Manufacturing PMI, EZ Flash CPI, US ISM Manufacturing PMI, Fed’s Quarles, Brainard, BoE’s Bailey and JMMC/OPEC+ meetings

CORONAVIRUS UPDATE

German Chancellor Merkel suggested that they do not need to maintain lockdown restrictions which are set to finish at end-June but noted that they can reactivate them if mutations should develop again and warned that the coronavirus is still with us even if incidence is declining. (Newswires)

Turkey President Erdogan announced a further relaxing of COVID-19 restrictions with weekend curfews partially lifted and measures were also eased for restaurants and cafes. Elsewhere, Russia extended its flights ban to Turkey until June 21st but resumed limited flights to other destinations including UK, Austria, Hungary and Croatia. (Newswires)

ASIA

Asian equity markets traded mixed after lacking firm direction in the absence of a lead from the US owing to the Memorial Day holiday and amid tentativeness ahead of this week’s key events culminating with Friday’s US jobs numbers. ASX 200 (-0.1%) was lower as losses in healthcare and the top-weighted financial industry led the declines seen across most sectors and with risk appetite also subdued by prospects of an extension to the Victoria state lockdown. Furthermore, a slew of data releases failed to inspire as Building Approvals, Net Exports Contribution to GDP and Company Q1 Profits were all in contraction territory, despite mostly beating expectations. Nikkei 225 (-0.1%) failed to hold on to opening gains and retreated below the 29k level alongside currency-related pressure, although the KOSPI outperformed after trade data remained solid including a 45.6% jump in Exports. Hang Seng (+0.6%) and Shanghai Comp. (-0.1%) conformed to the mixed picture with the Hong Kong benchmark kept afloat by strength in tech as e-commerce platforms began the 618 Mid-Year shopping extravaganza with early record sales. However, the mainland continued to suffer from a firmer currency despite the PBoC’s attempt to curb the one-way bets on the CNY through an increase in the FX reserve requirement ratio, while marginally better than expected Chinese Caixin Manufacturing PMI data and the recent announcement to allow couples to have three children did little to help the broader market although provided some tailwinds for baby-related stocks. Finally, 10yr JGBs were flat with price action subdued after the BoJ maintained the amount and pace of its intended JGB purchases for June and with the central bank only in the market today for treasury bills.

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 6.3572 vs exp. 6.3556 (prev. 6.3682)

• Chinese Caixin Manufacturing PMI (May) 52.0 vs. Exp. 51.9 (Prev. 51.9)

Japanese Finance Minister Aso said difference of opinions regarding global taxation has narrowed and that he is arranging to conduct a bilateral meeting with US Treasury Secretary Yellen, while he added that the UK has not yet clarified the official agenda for the G7. (Newswires)

UK/EU

French Minister of State for European Affairs Beaune said the EU plans to launch the first COVID-19 recovery plan bond issue with an initial amount of EUR 10bln and that more than EUR 100bln will be injected into the EU economy from this year. (Newswires)

ECB's Knot says that there is no need to believe that increasing inflation rates would be irreversible. (Newswires)

BoE's Ramsden says the BoE will ‘guard against’ risk of sustained price pressure from rapid COVID recovery and is carefully monitoring Britain’s booming housing market. There is a risk that demand gets ahead of supply and that will lead to a more generalised pick-up in inflationary pressure. Ramsden added that it would be something "we are absolutely going to guard against" and the BoE could push the bank rate up from its historically low level of 0.1%. (Guardian)

FX

In FX markets, the DXY was lacklustre following the prior day’s retreat from the 90.00 level. The greenback suffered in the previous European session amid gains in its major counterparts including EUR/USD which reclaimed the 1.2200 handle and with the upside in the single currency exacerbated by thin conditions, while GBP/USD was unfazed by the extended weekend in UK and climbed towards its highest levels since early-2018 before meeting some resistance around 1.4250. USD/JPY and JPY-crosses were mixed with the former pressured by the recent USD softness and risk-aversion, while antipodeans traded higher alongside gains in commodities and after several data releases from Australia which were mostly firmer than expected, despite printing in contraction territory for Building Approvals, Net Exports Contribution to GDP and Company Q1 Profits. Focus for AUD/USD then shifted to the RBA meeting where the central bank maintained its key rates at 0.10%, as expected, reiterated its guidance that suggests conditions will not be met for a rate hike until 2024 at the earliest. AUD/USD was mildly pressured following the announcement despite the statement being pretty much inline with prior rhetoric, which may have disappointed some that were anticipating a more hawkish tone and as the central bank also noted an important ongoing source of uncertainty is the possibility of significant outbreaks of the virus. Elsewhere, CNY was mildly supported by another firmer reference rate setting by the PBoC with the fix set at its strongest since May 2018, despite the central bank’s recent announcement to hike the FX reserve requirement ratio which was seen as an indirect measure to curb the one-way bets on the currency, although the move left some desks unconvinced including Standard Chartered which suggested the move was unlikely to have a material impact.

RBA kept the Cash Rate Target and 3yr Yield Target unchanged at 0.10%, while it also maintained parameters of the QE program, as expected. RBA reiterated the Board will not increase the Cash Rate until actual inflation is sustainably within 2%-3% target range and it is committed to maintaining highly supportive monetary conditions to support a return to full employment and for inflation to be consistent with the target, although it noted that the labour market is unlikely to be tight enough to spur materially higher wage growth until 2024 at the earliest. RBA also stated that Australia's economic recovery is stronger than previously expected which is likely to continue but noted that an important ongoing source of uncertainty is the possibility of significant outbreaks of the virus, while it will decide in July whether to retain the April 2024 bond for the 3yr yield target or switch to next maturity and will also consider future bond purchases.

SNB Vice Chairman Zurbruegg said he welcomes the recent weakening of CHF but added that the currency remains highly valued, while he added that the current expansionary monetary policy is still appropriate. (Newswires)

• Australian Building Approvals (Apr) -8.6% vs. Exp. -10.0% (Prev. 17.4%, Rev. 18.9%)
• Australian Current Account Balance (AUD)(Q1) 18.3B vs. Exp. 17.9B (Prev. 14.5B)
• Australian Net Exports Contribution (Q1) -0.6% vs. Exp. -1.1% (Prev. -0.1%)
• Australian Gross Company Profits (Q1) -0.3% vs. Exp. 3.0% (Prev. -6.6%, Rev. -4.8%)

COMMODITIES

WTI crude futures climbed above 67.50/bbl and Brent crude reclaimed the USD 70/bbl level ahead of today’s OPEC+ meeting in which producers are seen to stock to their existing plan of reducing output curbs through to July with sources also noting the group is not expected to discuss output beyond July and wants to wait and see with what happens with Iran. There were also comments from OPEC Secretary-General Barkindo that they anticipate the expected return of Iran's production and exports, which will occur in an orderly and transparent fashion, thereby maintaining the relative stability, while Iran's Oil Minister Zangeneh noted that they can easily increase oil production to the level of 6.5mln bpd. However, other headlines suggested that a return to the nuclear accord and of Iranian supply is unlikely to be imminent as the Iranian Deputy Foreign Minister said nuclear negotiations are complex and was sure a conclusion can be reached in this round of talks, while an IAEA report also that Iran failed to explain traces of processed uranium discovered at undeclared sites and that it continues to breach many limits set by its nuclear agreement. Gold prices marginally extended above USD 1900/oz with the precious metal kept afloat by a softer greenback and copper also eked mild gains following the firmer than expected Chinese Caixin manufacturing PMI data and reports of China's Tangshan relaxing steel output restrictions.

OPEC+ is not expected to discuss output beyond July and wants to wait and see what happens with Iran, according to sources. (Newswires)

OPEC output in May was said to increase by 280k bpd from the prior month to 25.52mln bpd, according to a Reuters survey which found that the biggest increase was from Saudi which raised output by 340k bpd and Iraq output rose by 70k bpd, while Iran and Nigeria's output declined for the month. (Newswires)

China’s Environmental Authority in Tangshan reportedly decided to relax steel output restrictions with emission reduction targets narrowed for many firms. (Newswires)

GEOPOLITICAL

IAEA report stated that Iran failed to explain traces of processed uranium discovered at undeclared sites and that it continues to breach many limits set by its nuclear agreement, while it added that the IAEA has not been able to verify Iran’s enriched uranium stock. (Newswires)

German Chancellor Merkel stated that it is clear from the meeting between Russian President Putin and Belarusian President Lukashenko that they were struck by Europe’s fast response to the plane diversion, while Merkel added that they strongly condemn what Lukashenko is doing to his civil society and the opposition which will not pay off in the long run and that sanctions will be implemented in a very targeted manner now. (Newswires)