• Asian equity markets were subdued following the losses on Wall St; US equity futures traded flat overnight
• In FX, the DXY was rangebound, EUR/USD remained above 1.2100, Cable traded under 1.4100 and USD/JPY held onto 110.00
• The US is considering establishing a permanent naval task force in the Pacific region as a counter to China’s growing military strength, sources stated
• China said it will release national reserves of copper, aluminium and zinc and ordered state firms to curb overseas commodities exposure
• Israeli aircraft attacked Hamas targets in the Gaza strip after Gaza launched incendiary balloons
• Looking ahead, highlights include Chinese Industrial Output and Retail Sales, UK inflation, Canadian CPI, FOMC Policy Decision and Fed Chair Powell, US-Russia Summit, UK Economic Update (Treasury), ECB’s Elderson, de Guindos, and supply from the UK and Germany

CORONAVIRUS UPDATE

US and EU said they aspire to vaccinate at least two thirds of the world's population by the end of 2022. In relevant news, New York Governor Cuomo lifted the New York pandemic limits after the 70% vaccine benchmark was met. (Newswires)

UK ministers will be advised by the Joint Committee on Vaccination and Immunisation against launching mass COVID-19 vaccinations on children until there is more data regarding the risks. (Daily Telegraph)

South African President Ramaphosa announced a return to virus lockdown Level Three from Tuesday. (Newswires)

ASIA

Asian equity markets were subdued and US equity futures traded flat overnight following the losses on Wall St, where the S&P 500 and NDX pulled back from record highs amid cautiousness heading into today's FOMC announcement where participants will be eyeing the latest Fed dot plots, as well as any clues regarding future tapering discussions. Nonetheless, ASX 200 (Unch.) was kept afloat for most of the session and posted another record high with gains led by the energy sector after further upside in oil. Nikkei 225 (-0.5%) was lacklustre following mostly disappointing data releases including weaker than expected Machinery Orders and Exports, despite the latter printing its fastest pace of growth since 1980 largely due to base effects. Hang Seng (-0.3%) and Shanghai Comp. (-0.8%) were pressured ahead of the latest activity data from China, with Industrial Production and Retail Sales rescheduled to the European morning hours. There was also further criticism from the West in which the US-EU summit statement noted they remained "seriously concerned" about the situation in the East and South China Seas and oppose any unilateral attempts to change the status quo and increase tensions. Furthermore, the Pentagon is mulling setting up a permanent naval task force in the region to counter China's growing military strength. China later responded that it firmly opposes the content of US-EU statement and accused the US of using the G7 to interfere in Taiwan affairs. Finally, 10yr JGBs were slightly lower after recent pressure in global counterparts and despite the cautious picture in regional bourses, while the BoJ's presence in the market for nearly JPY 1.4tln of JGBs with 1yr-10yr maturities did little to spur price actions as global markets looked ahead to the FOMC meeting later.

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 6.4078 vs exp. 6.4047 (prev. 6.4070)

US and EU statement noted that they remain "seriously concerned" about the situation in the East and South China Seas, and that they oppose any unilateral attempts to change the status quo and increase tensions. The statement added that they intend to enhance cooperation for use of sanctions for shared foreign policy and security objectives, while they are ready to respond "decisively" to Russia's repeating pattern of bad behaviour. Furthermore, there were comments from European Commission’s Dombrovskis that the EU is ready to work with the US on China. (Newswires)

US Pentagon is considering establishing a permanent naval task force in the Pacific region as a counter to China’s growing military might, according to sources. (Newswires)

Ten GOP Senators urged the US Commerce Department to identify US technologies that may be used by Chinese military or intelligence services, according to a letter. (Newswires)

China's Taiwan Affairs Minister said Japan should stop meddling in Taiwan affairs, while China also alleged that the US is using the G7 to interfere in Taiwan issues. Furthermore, China's Global Times tweeted that China firmly opposed the content of the US-EU statement regarding China and that it is clear to see who is using disinformation and unilateral sanctions to impose pressure on other countries, citing comments from China's Mission to the EU. (Newswires)

Japanese Chief Cabinet Secretary Kato said the government panel will discuss COVID measures for mass gathering events today and that the decision on Olympic spectators will be made this month considering the COVID situation including variants. (Newswires)

• Japanese Machinery Orders MM (Apr) 0.6% vs. Exp. 2.7% (Prev. 3.7%)
• Japanese Machinery Orders YY (Apr) 6.5% vs. Exp. 8.0% (Prev. -2.0%)
• Japanese Trade Balance (JPY)(May) -187.1B vs. Exp. -91.2B (Prev. 255.3B, Rev. 253.1B)
• Japanese Exports YY (May) 49.6% vs. Exp. 51.3% (Prev. 38.0%)
• Japanese Imports YY (May) 27.9% vs. Exp. 26.6% (Prev. 12.8%)

UK/EU

UK Chancellor Sunak reportedly faces a GBP 4bln bill for the government to maintain their triple-lock pension pledge next year. (FT)

UK is in discussions with Ford (F), Nissan (7201 JT), LG (003550 KS), Samsung (005930 KS), Britishvolt and InoBat Auto on building gigafactories in the UK to manufacture batteries for EVs. (FT)

French President Macron said after the agreement reached with US on subsidies, US tariffs on French products including wine, have been lifted and that this effective cooperation is good for French wine producers. (Newswires)

FX

In FX, the DXY was rangebound around 90.50 amid flat yields and tentativeness heading into the FOMC later today. EUR/USD was uneventful but remained above 1.2100 after finding support around that level where its 50DMA of 1.2104 resides nearby and following the recent agreement to resolve the US-EU jet subsidies dispute, while GBP/USD traded sideways after giving up the 1.4100 handle. USD/JPY was little changed amid the cautious mood but with near-term support at 110.00 providing a floor for the pair and antipodeans eked marginal gains with NZD/USD slightly outperforming after the RBNZ announced that debt serviceability restrictions had been included in the policy toolkit, which looks to be another measure to supplement LVR restrictions in the effort to curb the rampant property sector.

RBNZ announced that debt serviceability restrictions have been included in the policy toolkit and stated that financial policy tools can help ensure housing prices do not deviate too far from sustainable levels. (Newswires)

CBRT said swap agreement with China increased by TRY 35.1bln and CNY 23bln to reach a total of TRY 46bln and CNY 35bln, while the swap was to facilitate bilateral trade and support financial stability. (Newswires)

COMMODITIES

WTI crude futures extended above the USD 72.00/bbl level amid bullish calls by several desks, including Trafigura, which sees a good chance for oil prices to climb to USD 100/bbl due to falling reserves before a peak in global demand is hit, while the latest private sector inventory report provided further tailwinds for oil with headline crude stockpiles at a much larger than expected draw. Gold was indecisive with price action contained by a relatively steady greenback amid pre-FOMC tentativeness, and copper remained subdued due to the risk aversion, with prices not helped by China's announcement to release national reserves for copper, aluminium and zinc, as well as its order for state firms to curb overseas commodities exposure - confirming speculation doing the rounds yesterday.

US Private Inventory Data (bbls): Crude -8.54mln (exp. -3.3mln), Cushing -1.53mln (exp. -1.7mln), Gasoline +2.85mln (exp. -0.6mln), Distillate +1.96mln (exp. +0.2mln). (Newswires)

China National Reserve Administration said China will release national reserves of copper, aluminium and zinc in the near-term which will be released to non-ferrous producers through public bidding, while China also ordered state firms to curb overseas commodities exposure. (Newswires)

US and EU committed to ensure long-term viability of their steel and aluminium industries to address excess capacity. (Newswires)

GEOPOLITICAL

Israeli aircraft attacked Hamas targets in the Gaza strip after Palestinians in Gaza launched incendiary balloons which caused fires in southern Israel. (Newswires/AP News)

US

Treasuries were little changed in thin trade after a solid 20yr bond auction failed to sustain a rally after stronger than expected PPI. By settlement, 2s +0.6bps at 0.167%, 3s +0.8bps at 0.342%, 5s -0.2bps at 0.785%, 7s -0.2bps at 1.194%, 10s -0.2bps at 1.499%, 20s +0.0bps at 2.117%, 30s +0.9bps at 2.199%. TYU1 volumes were weak. 5yr TIPS -3.8bps at -1.714%, 10yr TIPS -2.5bps at -0.894% and 30yr TIPS -0.6bps at -0.152%. SOFR and EFFR both unchanged at 1bp and 6bps, respectively. US yields hugged lows most of Europe, failing to find much spillover selling from EGBs that saw pressure amid a flurry of supply from Germany and EU joint issuance. However, a larger-than-expected US May PPI print, and some upwardly revisions to US Retail Sales to offset the miss on the latest headline print saw USTs best offered. After paring overnight strength into US trade, yields hugged unchanged levels into the 20yr auction. The USD 24bln offering from the Treasury was a solid auction on all metrics. The 1.7bps stop-through, as opposed to an average 0.2bp tail, was accompanied by a 2.40x cover ratio vs avg. 2.33x. The strong participation from last week's Treasury offerings clearly extended into this week, despite the event risk for the unloved 20yr maturity ahead of a potential taper nod at Wednesday's FOMC. That broad-based demand was seen as Primary Dealers took down 17.53% of the auction, well below the average 24.5%, and the lowest since the US began selling 20yr paper last May, thanks again to a strong show-up from both Directs and Indirects. The auction saw a fleeting bid for bonds however, with IG dollar supply in the background weighing and likely as participants are cautious in building exposure ahead of tomorrow's Fed meeting, and whether or not Powell will give a nod to some sort of preliminary taper discussions. It's worth noting that the JPM Treasury Client Survey showed shorts rose 7ppts entering this week, matching the highest level since 2005, creating some positioning risk into the event. T-note (U1) futures settled half a tick higher at 132-17.

US Senate Majority Leader Schumer said infrastructure discussions are progressing on two tracks and he hopes for July vote on bipartisan infrastructure bill. Furthermore, Schumer will meet tomorrow with all 11 Democrats on the Senate Budget Committee regarding the FY2022 budget resolution, while other reports stated that the Democrat leadership budget is to include, among other things, clean energy tax incentives such as rebates for EVs, clean energy funds for manufacturers and farmers, White House "families plan" which includes paid leave, childcare, universal pre-k, free community college and health care expansion. (Newswires/Axios/Washington Post)

US Senator Romney commented that he is 'very optimistic' he will get at least ten republicans to support the infrastructure plan. (Newswires)

CBOE is to extend global trading hours for VIX and SPX options to nearly 24 hours from November 21st, 2021 with a new curb session planned to go live on September 27th, 2021. (Newswires)