• European bourses are mixed/flat in a relatively quiet EU session while US futures have been unmoved for the morning
• Chinese CPI missed forecasts while PPI continued to surge and registered the fastest pace of increase in factory gate prices since 2008
• Talks between US President Biden and Senator Capito have officially ended with Biden moving onto talks with a bipartisan group of senators
• DXY is sub-90 with peers firmer across the board and GBP supported by hawkish-Haldane commentary; US 10yr yield still holds 1.50%
• Looking ahead, highlights include BoC rate decision, DoEs, supply from the US

CORONAVIRUS UPDATE

Restrictions in Melbourne, Australia are set to be eased on Thursday night with a 25KM travel bubble to be imposed for the city's residents. (Newswires)

ASIA

Asian equities traded mixed with price action confined to within relatively tight ranges as the tentative mood in global markets persisted heading closer to this week's risk events, with sentiment also clouded by lingering China-related frictions and following a breakdown of US infrastructure talks. ASX 200 (-0.2%) lacked conviction with upside in mining names and tech offset by underperformance in consumer staples and financials. In addition, Consumer Confidence data in Australia continued to dwindle and the confirmation that Melbourne lockdown measures will be eased on Thursday evening did little to spur the index. Nikkei 225 (-0.3%) was subdued after meeting resistance just shy of the 29k level although downside was limited and participants continued to await the reopen of Eisai shares which remained untraded for a 2nd consecutive day amid heavy buy order, while the KOSPI (-0.2%) remained uninspired despite the upward revisions to South Korea’s final Q1 GDP data. Hang Seng (Unch.) and Shanghai Comp. (+0.4%) were indecisive after mixed Chinese inflation data in which CPI missed forecasts, but PPI continued to surge and registered the fastest pace of increase in factory gate prices since 2008. Risk appetite for the region was also hampered by ongoing frictions after the US Senate voted to pass the sweeping China competition bill and with the US to launch a "strike force" targeting trade abuses including from China, while the US Commerce Department was reportedly considering a Section 232 investigation on the national security impact of neodymium magnets which are largely imported from China. Finally, 10yr JGBs marginally extended on yesterday’s advances which were in tandem with the global bond rally, to test resistance at 151.50 and with upside helped by the BoJ’s presence in the market for more than JPY 1.4tln of JGBs heavily concentrated in 1yr-10yr maturities.

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 6.3956 vs exp. 6.3980 (prev. 6.3909)

• Chinese PPI YY (May) 9% vs. Exp. 8.5% (Prev. 6.8%); highest since 2008
• Chinese CPI MM (May) -0.2% vs. Exp. -0.1% (Prev. -0.3%)
• Chinese CPI YY (May) 1.3% vs. Exp. 1.6% (Prev. 0.9%)
• South Korean GDP (Q1 F) Q/Q 1.7% (Prev. 1.6%)
• South Korean GDP (Q1 F) Y/Y 1.9% (Prev. 1.8%)

China NDRC said it is determined to ensure supply and keep prices stable for goods linked to livelihoods and will improve pork reserve mechanism, stabilise hog output and ensure effective supply of pork, while China will set up a pork market alert system. There were also comments from the China Commerce Ministry which suggested to not be blindly optimistic about China's foreign trade in 2021 and said it will step up foreign trade firms' ability to manage FX risks. (Newswires)

A COVID-19 outbreak in southern China is reportedly curbing some activity in the nation's largest ports which has stoked concerns further disruption of international trade could lift export prices. (FT)

US Senate voted 68-32 to pass the sweeping China competition legislation valued at USD 250bln. It was separately reported that the US House Foreign Affairs Committee will likely be delaying the markup of their own version of the bill called the EAGLE Act next week (originally June 15), while members are hopeful for a bipartisan agreement with more time. (Newswires/Politico) Subsequently, China's Parliament has expressed strong indignation and resolutely opposes the US bill targeting the tech threat from China; US competition bill may hurt ties and cooperation according to Xinhua. (Newswires)

Japanese Defence Minister Kishi said unilateral attempts to alter the status quo with force in East and South China Seas are becoming increasingly serious, while Japanese Foreign Minister Motegi later commented that they agreed with the Australian view regarding the importance of peace and stability in the Taiwan Strait. (Newswires)

US

Talks between US President Biden and Senator Capito have officially ended with President Biden moving onto talks with groups of Republicans and Democrats. Furthermore, President Biden spoke with Republican Senator Cassidy and Democrats Sinema and Manchin in which he urged them to continue work developing a bipartisan infrastructure proposal and he will contact them while on the upcoming European trip. (Newswires/Punchbowl)

US Senator Capito was said to be extremely disappointed talks ended and suggested that they missed a real opportunity for 20 Republicans on infrastructure, while she added the second track the administration took with other senators was disappointing to her, according to Fox's Pergram. (Twitter)

EU and US is to commit to lifting steel tariffs by December 1st 2021 and finding a solution to their civil aircraft dispute by July 11th 2021, according to a draft document; will commit to cooperation on Chinese policy and stand together against Russia. Have called for a "transparent" and "evidence-based" study into the origins of COVID-19 "without interference". (Newswires)

UK/EU

UK Chancellor Sunak is reportedly pushing for a financial services carve out in the UK from the proposed G7 global tax plan amid concerns over global banks with head offices in the UK being affected, while Sunak is to push for adjustments at G20 next month. (FT)

Chief Negotiator of Task Force Europe Frost has insisted that Brussels must drop threats of legal action and tariffs on Britain as he prepares to meet with EU Commission VP Sefcovic in a bid to unlock the impasse on the Northern Ireland Protocol. (Times)

Germany and France are reportedly leading the effort to dilute EU's stricter bank capital requirements. (FT)

BoE's outgoing Chief Economist Haldane says the UK economy is going "gang-busters"; we are already seeing "pretty punchy" price pressures; we could start tightening the tap on QE and could ultimately start to turn QE around. Risk is that we could overshoot 2% inflation for longer than intended. (Newswires) Haldane will leave the BoE after the June 24th meeting

ECB policymakers are reportedly to hold a three-day retreat between June 18th-20th, to discuss the strategic review, according to sources; to potentially resolve key issues around the strategic review. Conclusion not seen as certain. (Newswires)

The European Commission has commenced infringement procedures against Germany regarding the ECB ruling. (Newswires) Referencing the ruling in May 2021 where the German Constitutional Court said that the ECB's programme would be illegal under German law unless the ECB could prove that the purchases were justified - regarding the APP.

GEOPOLITICAL

Syrian air defences responded to Israeli aggression following reports of explosions heard over Damascus. (Newswires)

EQUITIES

Another mixed and directionless session thus far in Europe (Euro Stoxx 50 -0.1%) as the tentative tone reverberated from APAC, with catalysts light and powder kept dry ahead of tomorrow’s ECB and US CPI. US equity futures are similarly contained around the flat mark. Sectors in Europe vary with no overarching theme nor bias. Basic Resources underperform amid jitters seen across base metals following the firm Chinese PPI print and subsequent jawboning from the Chinese government. The banking sector also lags and financials are dented by the slide in yields. Meanwhile, Travel & Leisure resides at the top of the pile as the EU parliament approves the COVID-19 Vaccine Passport legislation. Healthcare outperforms amid gains across some heavyweights including Roche (+1.3%), Novartis (+0.6%), and AstraZeneca (+0.9%), whilst Smith & Nephew (+3%) is supported by a positive broker move at Credit Suisse. In terms of individual movers, Aviva (-1.8%) is lower following reports that new investor Cevian Capital is pushing for a seat at the board alongside the return to shareholders GBP 5bln in excess capital it gained from selling eight non-core businesses. Stellantis (-0.8%) meanwhile is pressured as the Co's Brazilian plant has reached a "production ceiling" below pre-pandemic levels due to the chip shortage – an issue experienced across the global Auto sector.

FX

GBP, HUF - The main movers of the morning and both on the back of hawkish rhetoric from their respective central banks. Cable gained impetus as outgoing Chief economist Haldane sang from his hawkish hymn sheet – suggesting the BoE could start tightening the tap on QE and could ultimately start to turn QE around. The remarks bolstered GBP/USD to a 1.4181 high (vs 1.4148 intraday base) with the pair now probing 1.4200 at the time of writing. However, it is worth bearing in mind that Haldane has recently been the hawkish outlier and is set to leave the MPC after the June 24th meeting. The focus is on whether any remaining MPC members come round to his viewpoint - which does not seem evident yet. Similarly, the Forint was spurred by central banker Virag noting it’s time to normalise policy and that ultraloose policy will end. EUR/HUF dipped below 347.50 from its 348.30 high.

DXY - A combination of a slide in yields and persisting Sterling strength has pressured the Dollar index back below its 21 DMA (90.083) and under the 90.00 mark from its 90.139 best – with another empty State-side docket until the 10yr Note auction later today as the US 10yr cash yield threatened to breach 1.50% to the downside.

EUR, NZD, AUD, CAD, JPY - All experiencing broad-based gains (ex-JPY) as a function of the Buck. EUR/USD now eyes 1.2200 to the upside (vs low 1.2172), but with upside hampered by EUR/GBP holding sub-0.86 and with a host of sizeable OpEx for today’s NY cut, including EUR 2.2bln between 1.2135-55, EUR 1bln at strike 1.2165 and EUR 1.8bln between 1.2200-15. NZD/USD meanders near the 0.7200 mark whilst AUD/USD trades on either side of 0.7750 – both within narrow intraday parameters. The Loonie meanwhile resides around session lows amid tailwinds from the Greenback and crude prices after WTI futures topped USD 70/bbl for the first time since 2018 – and heading into the BoC policy announcement, which is expected to be a holding meeting and statement-only affair with a small risk of some allusion to a taper signal (full preview available in the Newsquawk Research Suite). USD/JPY meanwhile remains in a holding pattern around the 109.50 marks and the middle of a 20-pip range awaiting fresh catalysts.

• Australian Westpac Consumer Confidence Index (Jun) 107.2 (Prev. 113.1)
• Australian Westpac Consumer Confidence (Jun) M/M -5.2% (Prev. -4.8%)
• New Zealand ANZ Activity Outlook (Jun P) 29.1% (Prev. 27.1%)
• New Zealand ANZ Business Confidence (Jun P) -0.4 (Prev. 1.8)

Australian Bureau of Statistics reported that total weekly payroll jobs change for May 8th-22nd rose 0.3% (prev. -0.5%), wages rose 0.6% (prev. -1.3%). (Newswires)

Notable FX Expiries, NY Cut:

• EUR/USD: 1.2135-55 (2.2BLN), 1.2165 (1BLN), 1.2200-15 (1.8BLN), 1.2240-50 (2.1BLN)
• USD/CHF: 0.8975 (1.2BLN), 0.9035-50 (350M)
• AUD/USD: 0.7690 (306M), 0.7750 (779M)
• USD/JPY: 108.50 (1BLN), 109.00-10 (1.25BLN), 109.50 (270M), 109.85 (335M)

India has increased the purchase price of local rice, according to a Minister. (Newswires)

US VP Harris said economic dialogue in September will focus on how to expand US-Mexico economic relationship. In other news, the Mexican Deputy Finance Minister said they are not planning tax hikes in the upcoming fiscal reform and that the government aims to raise the tax take to 15% of GDP from a current level of just above 14%, while the fiscal plan will include steps to improve taxing efficiency and close loopholes. (Newswires)

FIXED

Core debt features a modest bid but is still relatively contained with the US 10yr yield yet to mount a test of 1.50% before the May 7th low of 1.469% which marks the April NFP spike lower, though USTs themselves did marginally eclipse the early-May high of 132-20+ (current peak 132-21). Note, volumes were relatively low overnight and at the start of the European session but have picked up since. Fixed is firm across the board with no signs of any real concession making its self known ahead of the US 10yr outing later today following yesterday’s solid 3yr sale. Peripheries remain the clear outperformers, though off highs of 151.42 in BTPs for instance, which have been leading the fray following the well-received 10yr Italian syndication yesterday. As such, the BTP-Bund spread continues to tighten though is yet to fall below the 100bp mark (current low 100.2bp); although, all eyes remain firmly fixated on the ECB decision tomorrow – particularly as the April-May bimonthly PEPP data showed a marginal uptick in the weighting to Italy, though still well below their capital key. Returning to issuance, the mornings 2050 German sale was notably stronger than the prior though the amount was relatively slim and prompted little movement with Bunds similarly off-highs of 172.40 at present; early-May resistance lies at 172.60. Separately, the EU Commission yesterday announced that they will be undertaking two syndicated sales for the June-July period as part of the NGEU fund. Issuance that comes on top of the outing expected next week as part of a ~EUR 80bln goal for the year. Finally, and following Italy, Greece’s 10yr syndication has thus far received demand in excess of EUR 26bln for an indicative sale of EUR 3.5bln on which guidance has been set at MS+83bps from the initial +90bp. As a reminder, the announcement of this yesterday caused some modest widening of periphery spreads, though this was short-lived as the periphery was dominated by the Italian outing, therefore, it will be interesting to see what further effect, if any, the final demand tally has on the already supported periphery. Outside of the EZ, Gilts remain marginally bid in-fitting with performance of peers with initial attention on hawkish remarks from the outgoing-Chief Economist Haldane; though, perhaps not too surprising given his prior dissent on maintained the Gilt remit.

COMMODITIES

WTI and Brent front month futures hold onto a bulk of their recent gains with the former around the USD 70.50/bbl mark (vs low 69.95/bbl) and the latter inching towards USD 73/bbl (vs low 72.12/bbl) at the time of writing. Fresh catalysts have remained light throughout the European morning but yesterday saw the release of a somewhat mixed Private Inventory data whilst the EIA STEO incrementally revised lower its 2021 and 2022 demand growth forecast ahead of the OPEC’s and IEA’s takes due on Thursday and Friday respectively. Meanwhile, JCPOA talks seem to be hitting a bump with Iran stating that oil sanctions are not resolved in discussions whilst WSJ’s Norman suggested that the next round of Iranian nuclear talks are unlikely to start before Saturday - six days before Iran’s presidential elections. It's also worth keeping in mind that Libya's Waha output has fallen to 130k BPD vs full capacity of 350k BPD due to a pipeline leak. In terms of commentary, ING acknowledges the recent narrowing of the WTI/Brent spread with the discount at its narrowest since November 2020 – “A further narrowing in the spread could see crude oil exports from the US come under pressure”, the Dutch bank suggests. Elsewhere, spot gold and silver have been drifting lower unorthodox price action against the dip in the Buck and yields. The yellow metal remains sub- USD 1,900/oz heading into tomorrow's CPI, although volatility in the yellow metal cannot be discounted as US participants enter the fray and take stock of the environment. Turning to base metals, LME copper pared overnight gains after briefly reclaiming USD 10k/t as high factory gate prices in China raised concerns of price curbs by the government. Subsequently, China’s State Planner said China will step up monitoring of commodity prices and commodity market supervision. Dalian iron ore futures gained around 5% with some citing supply woes as inventories at Chinese ports slumped to the lowest since February.

US Private Inventory Data (bbls): Crude -2.1mln (exp. -2.0mln), Gasoline +2.4mln (exp. +0.7mln), Distillate +3.8mln (exp. +1.4mln), Cushing -0.4mln. (Newswires)

Russia's Transneft says it will halt supplies of oil from the Druzhba pipeline to Poland for four days; cites maintenance. (Newswires)

Libya's Waha Oil Company output has fallen to 130k BPD amid a pipeline leak, according to a source at the Es Sider port. Seperately, the NOC Chair says they lost 50k BPD of production from Akakus oil and additional losses from the Waha oil Co. (Newswires)

Chinese State Planner said it will step up monitoring of commodity prices and commodity market supervision. (Newswires)

Next round of Iranian nuclear talks unlikely to start before Saturday - six days before Iran’s presidential elections, according to WSJ's Norman. Iran states that oil sanctions are yet to be resolved in talks. (Twitter)