• Asian equities traded cautiously as the initial tailwinds from last week’s US jobs report eventually faded amid softer than expected Chinese trade data
• In FX, the DXY remains above 90.00, EUR/USD consolidated above 1.2150 and GBP/USD pulled further away from 1.42
• President Biden rejected the Republican infrastructure proposal although still plans to meet with Republican Senator Capito today
• Treasury Secretary Yellen suggested that a slightly higher interest rate environment would be positive
• Yellen also noted that President Biden’s USD 4tln spending plan is beneficial for the US even if it spurs an increase in inflation
• G7 Finance Ministers reached an agreement to commit to a global minimum tax of 15%
• Looking ahead, highlights include Eurozone Sentix and ECB asset purchases

CORONAVIRUS UPDATE

California Governor Newsom said most California pandemic restrictions will be lifted on June 15th and that the state is keeping the emergency status in place because the pandemic isn't over. (Newswires)

UK PM Johnson has reportedly been warned not to "move the goalposts" regarding the final phase of the lockdown exit on June 21st after MPs became concerned that the criteria for COVID-19 unlocking have changed. (Telegraph)

UK Health Secretary Hancock stated that it is too early to make a final decision on lifting the lockdown and that cases are rising slightly but hospitalizations are flat. Hancock added that they have seen a significant impact of the Delta COVID variant over the past month and the advice he has is that the Delta variant is 40% more transmissible, while he also stated that they are absolutely open to not reopening on June 21st if that is what is required. (Newswires)

In the UK, it was reported that second vaccinations were being stepped up in a bid to end COVID-19 restrictions and that over-25s will be offered first doses from next week as the Government looks to beat virus variants. (Sky News/Telegraph)

China approved the emergency use of Sinovac Biotech’s COVID-19 vaccine for children to become the first major country to grant approval for vaccinations of children as young as three. (Newswires)

ASIA

Asian equity markets traded cautiously as the initial tailwinds from last week’s US jobs report eventually faded amid softer than expected Chinese trade data. ASX 200 (-0.2%) was choppy as the strength in tech and mining names was offset by underperformance in financials and with NAB among the worst performers as it faces an anti-money laundering investigation by AUSTRAC for potential serious and ongoing breaches. Nikkei 225 (+0.4%) rallied at the open and reclaimed the 29k level but then wiped out most of the gains amid the recent counterproductive moves in the local currency and broad cautious tone. Hang Seng (-0.7%) and Shanghai Comp. (-0.2%) were lacklustre as participants digested the latest Chinese trade data which mostly missed expectations and following punchy rhetoric from US officials on China including Secretary of State Blinken who said the Biden administration will get to the bottom regarding the origins of COVID-19 and that the US will hold China accountable, while US Trade Representative Tai commented that the US-China trade relationship has “significant imbalance” and that the Biden administration is committed to levelling it. The declines in Hong Kong were led by casino names after reports that Macau is to block non-residents entering from Guangdong beginning June 8th, although the world’s largest pork producer WH Group is at the other end of the spectrum with firm gains following the announcement of a USD 1.93bln share buyback. Finally, 10yr JGBs held on to Friday’s after-hour gains amid a surge in T-notes following the NFP miss but with further upside in Japanese bonds capped as Japanese stocks just about remained afloat and with the absence of the BoJ’s Rinban operations today, while the Aussie 10yr yield was lower by about 6bps after it tracked recent downside in global peers and with the RBA also conducting its regular QE operations.

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 6.3963 vs exp. 6.3943 (6.4072)

• Chinese Trade Balance (CNY)(May) 296.0B vs. Exp. 276.0B (Prev. 276.5B)
• Chinese Exports (CNY)(May) Y/Y 18.1% vs. Exp. 19.5% (Prev. 22.2%)
• Chinese Imports (CNY)(May) Y/Y 39.5% vs. Exp. 44.2% (Prev. 32.3%)
• Chinese Trade Balance (USD)(May) 45.53B vs. Exp. 50.5B (Prev. 42.86B)
• Chinese Exports (USD)(May) Y/Y 27.9% vs. Exp. 32.1% (Prev. 32.3%)
• Chinese Imports (USD)(May) Y/Y 51.1% vs. Exp. 51.5% (Prev. 43.1%)

US Trade Representative Tai commented that the trade relationship between US and China has “significant imbalance” and that the Biden administration is committed to levelling it. (Newswires)

US Secretary of State Blinken said President Biden's administration will get to the bottom regarding the origins of COVID-19 and stated that the US will hold China accountable. (Axios)

Japanese government draft economic blueprint stated they will strive for fiscal reform and take flexible policy action without hesitation, while the government will seek to return the economy to pre-COVID levels with a determination to avoid a return to deflation and aims to achieve a demand-driven economic recovery by prodding firms to boost productivity and raise wages. (Newswires)

UK/EU

BoE's Cunliffe said the BoE is seeing a strong bounce back as COVID restrictions ease and he is hearing reports of businesses struggling to deal with a surge in demand, while he added that face to face retail in the high street has been quite slow to come back. (Newswires)

UK PM Johnson is reportedly set to face a rebellion today from over 30 Tory MPs which are seeking to force the PM to reverse the GBP 4bln annual reduction to the country's aid budget. (FT)

US President Biden is said to increase the pressure on UK PM Johnson regarding Northern Ireland and will warn him this week at the G7 summit not to renege on the Brexit agreement regarding Northern Ireland. (The Times)

UK Brexit Minister Frost commented that the UK takes no lectures on where it is implementing the Northern Ireland Protocol and suggested that the EU must revisit the Northern Ireland protocol. Frost also stated that the EU needs a new playbook for dealing with neighbours and that time is running out with progress needed soon in which he hopes it can come this week. (FT)

EU Ambassador to the UK Joao Vale de Almeida said there is no alternative to the Northern Ireland Protocol and that commitments should be respected, while he added that the UK needs to be constructive in negotiations regarding Northern Ireland and that there are limits to the EU’s capacity to accept behaviour that is not coherent with past commitments. Furthermore, he stated that levels of trust are low right now and that they urgently need to re-establish a minimum level of trust which he is confident they can achieve. (Newswires)

EU diplomats said they preferred working with Cabinet Minister Gove and blamed Lord Frost for politicising disagreements over the NI Protocol, which prevents a hard border on the island of Ireland, while it was separately reported that Brexit European leaders are drawing up plans to impose trade sanctions on Britain and accused UK PM Johnson of “taking them for fools” over the Northern Ireland protocol. (Telegraph/The Times)

Pubs in Britain continued to sell fewer pints in the first week that venues reopened indoor hospitality with a 20% slump in trade compared with pre-pandemic levels. (Guardian) Reports note that the UK is seeing Labour shortages in the retail sector amid a hiring crisis that has impacted the day-to-day running of pubs, bars and restaurants. (Telegraph)

German Chancellor Merkel’s CDU won 36% (prev. 29.8%) of votes in the Saxony-Anhalt state election, while far-right party AFD won 22.5% (prev. 24.3%) and Linke party won 11% (prev. 16.3%), according to an exit poll. (Newswires)

French Finance Minister Le Maire said France’s economy will return to pre-COVID level by Q1 2022 and reiterated 5% growth target for this year. (Newswires/JDD)

FX

In FX, the DXY steadied above 90.00 but remained constrained near Friday's lows in the aftermath of the US jobs data which subsequently sent yields lower on expectations that the Fed may need to maintain easy policy for longer. In terms of other pertinent stories for the US, President Biden rejected the Republican infrastructure proposal although still plans to meet with Republican Senator Capito today, while there were also recent comments from Treasury Secretary Yellen who suggested that a slightly higher interest rate environment would be positive and that President Biden’s USD 4tln spending plan is beneficial for the US even if it spurs an increase in inflation. EUR/USD consolidated just north of the 1.2150 level in which it retained its post-NFP gains and with exit polls from the Saxony-Anhalt state election pointing to a firmer win by German Chancellor Merkel’s CDU against the far-right in what was the last big test before the September federal election. GBP/USD continued to retreat further away from resistance at 1.4200 amid ongoing frictions regarding the Northern Ireland protocol and lingering concerns that the Delta variant could force a delay to the final phase of the lockdown exit set for June 21st. USD/JPY was subdued following a slump beneath the 110.00 handle and with JPY-crosses not helped by the cautious risk mood, while antipodeans were quiet amid the cautious tone, miss on Chinese trade data and with New Zealand participants away for holiday.

S&P affirmed Australia at AAA; Outlook revised to Stable from Negative. S&P stated the outlook revision is due to a swift economic recovery, while it added that Australia's response to contain the pandemic and limit long-term economic scarring has seen the economy recover quicker and stronger than previously anticipated. (Newswires)

COMMODITIES

Commodities were lacklustre overnight amid the cautious risk tone and although WTI crude futures initially advanced to touch the USD 70/bbl level for the first time since October 2018, it then met resistance and fully retraced its gains as risk appetite soured. Furthermore, newsflow for the energy complex was light with the latest Baker Hughes oil rig count unchanged and with comments from Rosneft's largely overlooked despite warning of a potential acute shortage of oil due to underinvestment. Elsewhere, gold prices were rangebound amid a steady greenback and copper gradually retreated as sentiment was clouded by the ongoing US-China tensions and disappointing Chinese trade data.

Baker Hughes US Rig Count (w/e June 4th): Oil unchanged at 359 and Nat gas -1 at 97, Total -1 at 456. (Newswires)

Rosneft chief commented that the world was facing an acute shortage of oil due to underinvestment amid a drive for alternative energy. (Newswires)

Turkish President Erdogan announced that Turkey found 135 BCM of natural gas in the Black Sea. (Newswires)

GEOPOLITICAL

Yemen’s Houthis stated that they only struck a military camp in Marib City, Yemen on Saturday although the Yemen government stated that an explosion from a Houthi strike near a petrol station killed at least 17 people. (Newswires)

GLOBAL NEWS

G7 Finance Ministers reached an agreement to commit to a global minimum tax of 15%, according to the communique. There were also comments from US Treasury Secretary Yellen who urged G7 and others to provide more fiscal support for the recovery and investments to fight climate change, as well as inequality. Yellen also stated that after the G7 tax deal, the Biden administration continues to pursue a minimum 21% domestic corporate tax rate and timing remains to be worked out regarding taxing multinationals. (Newswires)

El Salvador President is planning to introduce legislation that will make it the world’s first sovereign nation to adopt bitcoin as legal tender. (CNBC)

According to forecasts, in Mexico, the National Electoral Institute projected the ruling coalition of President Lopez Obrador to win between 265 and 292 out of 500 seats, thus falling short of the two thirds majority required to make amendments to the constitution. (Newswires)

US

Treasuries rallied hard after the disappointing NFP report, led by the belly as traders walked back hike pricing and taper expectations amid the path to recovery becoming murkier. By settlement, 2s -0.9bps at 0.151%, 3s -2.7bps at 0.303%, 5s -6.0bps at 0.785%, 7s -6.8bps at 1.231%, 10s -6.5bps at 1.562%, 20s -6.0bps at 2.158%, 30s -5.4bps at 2.241%; TYU1 volumes were above recent averages. Inflation breakevens narrowed: 5yr TIPS -4.4bps at -1.790%, 10yr TIPS -4.5bps at -0.867%, 30yr TIPS -4.3bps at -0.076%. Eurodollars rallied: Z2 +3bps at 99.635, Z3 +6.5bps at 99.070, Z4 +9bps at 98.490, Z5 +10.5bps at 98.080. SOFR and EFFR unchanged at 1bp and 6bps, respectively. : Bonds were subdued and lifeless overnight/out of Europe on Friday, with little major catalysts to find impetus from ahead of the US payrolls report. The disappointing 559k jobs added (exp. +650k) saw a kneejerk lower in yields, only to reverse within 5/10 minutes after the release, perhaps as inflation concerns weighed on the +0.5% M/M AHE earnings print. However, once the dust settled, the strength in USTs resumed, sustaining through into the afternoon, seeing yields hug lows into the futures settlement. The lacklustre report knocked expectations for the May print being the start of a string of strong employment reports, something which is considered crucial to the Fed's "substantial progress", and has diminished expectations of taper discussions getting going in the upcoming meetings as participants recalibrate their smooth recovery outlooks. Given tapering is a prerequisite to hiking, we also saw traders pare back their aggressive Fed rate hike bets, with a strong bid across the Eurodollar strip, particularly the blue pack (EDZ5 +10bps). Participants are now looking to next week's CPI print, especially after last month's print stoked a large market reaction. Furthermore, Treasury refunding is on the radar, where we could see some concession early next week ahead of the 3s, 10s, and 30s auctions on Tuesday, Wednesday, and Thursday, respectively. A lack of Fed speak - due to the blackout period - should reduce headline risk for dealers looking to make room for the chunky supply. T-note (U1) futures settled 19+ ticks higher at 132-06+.

US President Biden rejected the Republican infrastructure proposal although still plans to meet with Republican Senator Capito on Monday. There were also comments from the White House that President Biden believes the corporate tax rate should be higher than 15% and that he is talking to the House Committee on Transportation and Infrastructure Chair DeFazio, as well as Republican Senator Capito on infrastructure. Furthermore, there was said to be ‘runway' left in infrastructure talks and that a range of pathways were being kept open. Newswires)

US Treasury Secretary Yellen suggested that a slightly higher interest rate environment would be positive for society and the Fed, while she added that monetary policy can handle inflation risks and that President Biden’s USD 4tln spending plan is beneficial for the US even if it spurs an increase in inflation. (Newswires)

US Energy Secretary Granholm said the House will begin the mark-up of an infrastructure bill on Wednesday, with or without Republican support. (CNN)

US National Economic Adviser Deese stated the administration is to discuss supply chain review next week and has recognised concrete solutions on semiconductor supply chains. Deese also stated the White House will address short-term bottlenecks observed this year from housing and construction materials to transportation and logistics, while he added that a lot of supply bottlenecks are transitory. (Newswire)