• Asian equity markets traded higher as US-China dialogue helped the region shrug off early cautiousness
• US and Chinese commerce chiefs reportedly agreed to push forward with trade and investment ties
• The DXY maintains 90.00 status, EUR/USD sits on a 1.21 handle and GBP/USD eyes 1.41 to the downside
• A bipartisan House group unveiled an 8-year package valued at USD 1.25tln which would avoid corporate and income tax increases
• US House Budget Chairman Yarmuth said the bipartisan infrastructure deal looks unrealistic
• Looking ahead, highlights include Swedish and Norwegian CPI, ECB policy announcement & press conference with President Lagarde, US CPI & IJC, OPEC MOMR, BoE's Haldane, BoC's Lane, supply from Italy & the US

CORONAVIRUS

US President Biden’s administration is to buy 500mln Pfizer (PFE) COVID vaccine doses to donate to the world, while it was also reported that the US is in talks with Moderna (MRNA) to receive more doses for other countries. In other news, Moderna (MRNA) intends to expand manufacturing capabilities to potentially supply as much as 3bln doses of its COVID-19 vaccine next year. (Newswires/Washington Post)

UK PM Johnson said cases are going up and we need to assess the extent to which the vaccine rollout has built up enough protection to ease restrictions further. There were also separate reports that UK PM Johnson and US President Biden will vow to restart air travel between their countries as soon as possible. (Newswires/Telegraph)

G7 draft communique will commit to paying for 1bln additional COVID-19 vaccine doses and call for a new study into the origins of the virus, while it will also call on Russia to crackdown on ransomware and cyber-attacks. Furthermore, G7 is to support common travel standards on testing and vaccines, while the document outlines the plan to end the COVID-19 pandemic by December next year. (Newswires)

ASIA

Asian equity markets traded higher as US-China dialogue helped the region shrug off the early cautiousness that had stemmed from the losses on Wall Street, although the gains in Asia were modest heading towards the US CPI data. ASX 200 (+0.5%) was lifted back above the 7,300 level and to within proximity of its record highs led by outperformance in the real estate and tech industries, with domestic banks also set to swoop in for the remaining AUD 64bln in low-cost funds from the RBA during the next 3 weeks before the Term Funding Facility expires. Nikkei 225 (+0.4%) was encouraged following the recent rebound in USD/JPY and with the government said to be mulling major economic stimulus as early as the summer prior to a snap election in September. Hang Seng (+0.3%) and Shanghai Comp. (+0.8%) were underpinned with the PBoC mulling additional support for small companies and following a call between US and China’s commerce chiefs in which they agreed to push forward with trade and investment ties, while it was also reported that President Biden revoked Trump-era executive orders to ban TikTok and WeChat but instructed the Commerce Department to conduct a broader evaluation on the security risk such foreign apps could pose for Americans and their data. Finally, 10yr JGBs were higher as they followed suit to the rally in global counterparts which resulted in the Japanese 10yr yield printing its lowest since early February, while the enhanced liquidity auction for longer-dated JGB also attracted a higher b/c than previous.

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 6.3972 vs exp. 6.3971 (prev. 6.3956)

US and China commerce chiefs reportedly spoke over the phone regarding pragmatic solutions and are to manage differences properly, while they agreed to push forward with trade and investment ties. (Newswires)

US President Biden is to use the G7 to encourage allies to take a tougher stance on China, while UK PM Johnson and US President Biden are set to concentrate on China in a new UK-US cooperation agreement. In relevant news, China is said to have hurried work on anti-sanctions legislation after US President Biden disappointed Beijing by continuing to take a tough stance, according to reports citing government advisers. (FT/SCMP)

PBoC Governor Yi said China's potential economic growth will slow and that an aging society will help curb inflation, while he sees China's CPI below 2% this year and expects China's GDP expansion to be close to potential growth rate. Governor Yi also stated that monetary policy should focus on impact from structural changes on prices and that they will stick with implementing normal monetary policy, as well as deepen interest rate market reforms. Furthermore, they will improve market-based floating exchange rate mechanism with reference to basket currencies, will keep CNY FX rate basically stable and noted that Chinese rates are at appropriate levels. (Newswires)

China Banking and Insurance Regulatory Commission Chairman said China will regulate online platforms, promote fair competition and speed up financial system restructuring. China's banking regulator also said some local real estate bubbles remain serious and debt service pressure is high on many government financing platforms, while default rate for large and medium enterprises has risen which exacerbates credit risks at financial institutions. (Newswires)

US and Taiwanese trade officials are expected to meet as early as today, according to sources. (WSJ)

Chinese police have arrested over 1,000 people on money-laundering charges, alleging they used cryptocurrency to help them evade the law. (CoinDesk)

UK/EU

White House said President Biden will "convey his deep-seated belief" that the Good Friday Agreement needs to be protected to UK PM Johnson, while the White House also stated that Nordstream 2 pipeline will come up in discussions with Germans and wants to discuss implications of the pipeline for Ukraine. (Newswires) US President Biden reportedly accused the UK government of inflaming tensions in Ireland and Europe with its opposition checks at ports, while America's most senior diplomat in the UK Yael Lempert was to issue London with a demarche. (Times)

• UK RICS Housing Survey (May) 83 vs. Exp. 77.0 (Prev. 75.0, Rev. 76); highest since 1988.

FX

In FX markets, the DXY showed composure heading into the much-awaited CPI data and after having recovered from yesterday’s brief decline to beneath the 90.00 level which had been in tandem with a softer yield environment. In terms of the latest infrastructure-related headlines, a bipartisan House group unveiled an eight-year plan on Wednesday valued at USD 1.25tln which would not raise corporate taxes nor income taxes, although House Budget Chairman Yarmuth commented that the bipartisan infrastructure deal looks unrealistic, while the bipartisan Senate group effort is also said to avoid raising corporate or income taxes. EUR/USD languished slightly beyond the prior day’s lows amid light newsflow for the bloc, as well as pre-ECB tentativeness, and GBP/USD was also lacklustre despite recent hawkish comments by BoE's outgoing Chief Economist Haldane. Nonetheless, the currency failed to benefit as tensions surrounding the Northern Ireland protocol persisted with Chief Negotiator Frost noting that the protocol is causing issues and that the UK is considering all options. USD/JPY was flat after its recent rebound to above 109.50 level which has since acted as a floor for the pair, while antipodeans were kept subdued by a lack of pertinent data releases, weakness in commodity prices and with Australia planning to seek WTO resolution on China wine tariffs.

COMMODITIES

Commodities were softer overnight in which WTI crude futures extended on its retreat after recently giving back the USD 70/bbl level with pressure from this week's EIA inventory report whereby a wider than expected draw in headline crude stockpiles was overshadowed by the larger than anticipated builds in gasoline and distillate products. On the geopolitical front, Iran noted that oil sanctions are still not resolved in nuclear talks although they could fully restore oil output three-months following the removal of sanctions with the majority in the first month, while the discussions are set to resume this weekend. Gold prices were marginally lower amid a composed greenback heading into today's US CPI data and copper prices trickled lower overnight despite the constructive mood in the region following the renewed US-China dialogue.

Keystone XL Pipeline sponsor TC Energy said it is terminating the project after Canadian officials failed to persuade US President Biden to reverse his cancellation of the permit. (AP)

GEOPOLITICAL

US President Biden stated the US will respond in a robust and meaningful way when Russia engages in harmful activities, while he added that US commitment to NATO is 'rock solid'. It was also reported that a Russian court declared Kremlin critic Navalny's anti-corruption foundation as 'extremist', while both the UK and US condemned the ruling. (Newswires)

US Deputy Secretary of State Sherman said Iran nuclear negotiations will resume this weekend and that a lot of progress has been made in talks but we won't know if we have an agreement until the last detail is "nailed down". In relevant news, the US warned Venezuela and Cuba to turn away Iranian ships, while it was separately reported that the White House believes there is scope for follow-on negotiations for an Iran nuclear deal once they are back in it. (Newswires)

US Pentagon is reportedly considering possibility of air strikes to support Afghan forces in the event that Kabul is in danger of falling to the Taliban, although no decisions have been made. (NYT)

Rocket attacks reportedly targeted US troops at the Balad airbase in Baghdad, Iraq although Iraqi military stated there have been no casualties. (Newswires)

North Korea removed references in its laws to philosophies revolving around "military first" with its leader Kim Jong Un shifting to a "people first" stance, while it also removed references to "juche" which is an idea that North Korea must stay separate from the rest of the world. (Newswires)

US

Treasuries were well bid amid a big short squeeze with position closing touted ahead of key risk events, although end slightly off highs amid auctions. By settlement, 2s +0.0bps at 0.153%, 3s -1.3bps at 0.313%, 5s -2.1bps at 0.745%, 7s -3.5bps at 1.166%, 10s -3.7bps at 1.491%, 20s -3.3bps at 2.098%, 30s -3.7bps at 2.172%; TYU1 volumes were average. 5yr TIPS +6.5bps at -1.702%, 10yr TIPS +0.2bps at -0.843%, 30yr TIPS -1.8bps at -0.109%. SOFR and EFFR both unchanged at 1bp and 6bps, respectively. The strength saw 10yr yields hit lows of 1.472%, just failing to breach the post-April NFP low of 1.469%, with a big gap of air below there before familiar trading ranges not seen since the tail-end of last year. The move lower in yields was also accompanied by a pare back of hawkish Fed bets, with some chunky Eurodollar midcurve puts being sold, with several participants suggesting the sales being position closes (at losses) rather than fresh positions - one participant highlighted that the move lower in yields is all the more painful for some of these option structures given that many funded their put positions by selling the calls which are now at risk of being in the money. The movies are also painful for participants who are (or were) holding short positions into Thursday's CPI, as well as 10yr and 30yr Treasury auctions. Note that lows of the day were made in the morning, and as US trade got underway, as did concession into the 10yr offering this afternoon. The USD 38bln sale was another all-around solid auction, with solid non-dealer participation, indicative of strong foreign demand, a recurring theme in recent auctions, as opposed to April and March, coming as broader rates vol pulls lower. Rates participants now look ahead to Thursday's ECB and US CPI, and of course the 30yr bond offering. T-note (U1) futures settled 10 ticks higher at 132-24+.

US House Budget Chairman Yarmuth says bipartisan infrastructure deal looks unrealistic, while it was earlier reported that a bipartisan House group unveiled an 8-year package valued at USD 1.25tln which would not raise corporate taxes nor income taxes. (Newswires)

US SEC’s Gensler said the SEC is mulling changing rules that govern how US stocks are priced and traded, including pricing incentives that trading venues use to attract orders. (WSJ)

US Senator Warren said cryptocurrencies need increased regulation and that Congress should conduct more hearing regarding crypto. In relevant news, Coinbase (COIN IS) is to increase the number of states where customers can borrow cash using Bitcoin as collateral, while eligible customer can now borrow as much as 40% of Bitcoin holdings in cash without having to sell their Bitcoin holdings. (Newswires)

US House Democrats are planning to introduce five bills as soon as this week to address the dominance of big tech companies. (Politico)