• Equities are contained pre-FOMC, though we have picked up a touch as US participants arrive; ES +0.1%; Euro Stoxx 50 +0.3%
• China said it will release national reserves of copper, aluminium and zinc and ordered state firms to curb overseas commodities exposure
• The USD is lower given inflation-induced GBP strength while core debt has bounced slightly but conviction remains slim
• Oracle is pressured in the pre-market post earnings where its EPS view missed expectations
• Israeli aircraft attacked Hamas targets in the Gaza strip after Gaza launched incendiary balloons
• Looking ahead, highlights include Canadian CPI, FOMC Policy Decision and Fed Chair Powell, US-Russia Summit, UK Economic Update (Treasury)

CORONAVIRUS UPDATE

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)

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 (+0.1%) 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 (-0.7%) and Shanghai Comp. (-1.0%) 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)

Chinese Retail Sales YY (May) 12.4% vs. Exp. 13.6% (Prev. 17.7%); Stats Bureau says the foundation for a domestic economic recovery is not yet consolidated and there are still unstable factors in the recovery and controlling COVID-19.

• Industrial Output YY (May) 8.8% vs. Exp. 9.0% (Prev. 9.8%)
• Urban Investment (YTD)YY (May) 15.4% vs. Exp. 16.9% (Prev. 19.9%)

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 Brexit Negotiator Frost says the most plausible option for the UK is negotiation on Northern Ireland, the UK is not getting a lot of traction from the EU on its ideas. Time is running out. (Newswires)

UK CPI YY (May) 2.1% vs. Exp. 1.8% (Prev. 1.5%); MM (May) 0.6% vs. Exp. 0.3% (Prev. 0.6%)

• "The largest upward contribution to the CPIH 12-month inflation rate came from transport (0.72 percentage points)."
• Core CPI YY (May) 2.0% vs. Exp. 1.5% (Prev. 1.3%); MM (May) 0.8% vs. Exp. 0.3% (Prev. 0.3%)

ECB is reportedly poised to extend the bank leverage ratio relief by nine months and the dividend cap is expected to be lifted in Q4 this year, according to sources. (Newswires) The bank leverage ratio relief programme was set to expire on June 28th, whilst the dividend cap is expire at the end of September 2021

ECB's de Guindos says it is important to withdraw stimulus gradually but without exaggerating; there is light at the end of the tunnel, essential there is no second round effects from higher inflation. (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)

EQUITIES

European equities trade modestly firmer though conviction is slim (Euro Stoxx 50 +0.2%) after the mild upside bias initially dissipated heading into the FOMC announcement and amid a lack of fresh fundamental news-flow; though this has returned somewhat on the arrival of US participants. US equity futures also trade with no firm direction but a slight downside bias. Back to Europe, Germany’s DAX (U/C) mildly underperforms with the index pressured by its Auto & Parts sector and heavyweight SAP (-1.0%). To elaborate, Autos & Parts continue to react to the domino effect emanating from the chip shortages – with Volkswagen (-1.4%) having to further wind down operations at its Wolfsburg factory. SAP meanwhile is sullied by Oracle’s near-5% after-market declines yesterday (-4.5% pre-market), as its guided EPS underwhelmed and fell short of analyst forecasts. Thus, the Auto and Tech sectors reside as the laggards alongside Basic Resources – which bears the brunt of further China intervention (refer to the Commodities section below). This upside meanwhile sees some of the more defensive sectors that were underperforming at the cash open, including Healthcare and Food & Beverage, whilst Oil & Gas continue to reap rewards from elevated oil prices. In terms of individual movers, Santander (-1.0%) lost steam and conformed to the broader losses across banks despite reports that the Co. is to sell its non-performing assets.

The 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)

Oracle (ORCL) guides Q1 Adj. EPS USD 0.94-0.98 (exp. 1.03), expects to double FY cloud capex spend to almost USD 4bln. (Newswires) -4.7% pre-market

FX

NZD/AUD/GBP - The Kiwi is leading the G10 pack, or revival against the Greenback to be more precise, ahead of the Fed and NZ Q1 GDP and irrespective of marginally worse than expected current account data overnight. It’s debatable whether Nzd/Usd also derived impetus to rebound from yesterday’s near 0.7100 lows from another change to the RBNZ’s policy remit that will now include tighter LVR or debt serviceability restrictions aimed at keeping house prices at sustainable levels as this move was flagged in the latest FSR, and indeed Aud/Nzd is holding relatively firm within a 1.0770-95 range amidst resilience in the Aussie before Thursday’s labour report and a speech by RBA Governor Lowe. Moreover, Aud/Usd is defying downward external pressure from steeper retreats in copper and iron ore as China continues its campaign to crackdown on commodity prices via the release of reserves and limiting the amount of overseas exposure by state firms to retest offers/resistance around 0.7700. Elsewhere, Sterling has also staged a partial recovery to reclaim 1.4100+ and 0.8600+ status vs the Buck and Euro respectively, albeit tentatively in wake of firmer than forecast UK CPI data (headline and core). However, the Pound is also weighing up and being hampered by the ongoing rift on NI protocol with the EU, as remarks from Frost indicate little sign of a compromise.

DXY/JPY/EUR/CAD/CHF - Beyond the deviations noted above, Dollar/major pairings look pretty much locked down for the final pre-FOMC countdown, and the lack of movement in the index is testament to the rangebound trend, if not quite reluctance to veer to far before the main mid-session event (for which a full preview is available via the Research Suite). In fact, the DXY has recoiled into an even narrower 90.576-437 band awaiting US housing starts, building permits and import/export prices that might prompt a bit more price action pre-Fed, SEP and chair Powell’s post-policy meeting press conference. Accordingly, the Yen is straddling 110.00, Euro 1.2125 with eyes on 1.2 bn option expiry interest between 1.2120-15 and the 50 DMA (at 1.2104 today), the Loonie pivots 1.2080 in advance of Canadian CPI and Franc is hovering just above 0.9000 ahead of the SNB on Thursday.

SCANDI/EM - The Nok looks somewhat apprehensive into the Norges Bank tomorrow circa 10.1100 against the Eur, with the key question to be answered is will the repo rate path be brought forward again, while the Sek is also showing caution around the same level in cross terms even though Sweden’s Labour Agency has revised its 2021 jobless forecast down markedly. Conversely, EM currencies are reclaiming lost ground vs the Usd, including the Cnh and Cny after sub-consensus Chinese data and more retaliation from the Foreign Ministry against US-EU criticism, but especially the Rub heading into the Putin-Biden Summit, with underlying support from oil as Brent extends further above Usd 74/brl and WTI towards Usd 73 to the benefit of the Mxn. Meanwhile, the Try is treading water before the CBRT tomorrow.

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)

FIXED

UK and German supply did not generate the high level of investor interest that 20 year US issuance aroused last night, but the sales were solid enough to nudge Gilts and Bunds to new intraday highs, with Treasuries tagging along before attention returns to the pm agenda and what might be described as the warm up acts for the FOMC and Fed chair Powell, bar Canadian CPI that could overshadow US building permits, housing starts, import and export prices. Looking at price movement in more detail, the core Eurozone bond is hovering closer to the top of a 172.53-28 range vs Tuesday’s 172.32 Eurex close, its Liffe peer is nearer 127.76 than 127.44 having settled at 127.64 yesterday and the 10 year T-note has been up to 132-19+ compared to 132-15+ at worst (+2/32+ to -1/32+ around par).

COMMODITIES

WTI and Brent front-month futures have waned off the best levels seen during the US session yesterday, whereby the contract notched highs of around USD 72.80/bbl and 74.75/bbl respectively. The benchmarks now reside around just above USD 72/bbl and USD 74/bbl apiece – with news flow also light in the run-up to the FOMC meeting. Before that, the weekly EIA crude stocks will be eyed, especially in the wake of the much larger-than-expected draw in Private stockpiles last night (-8.54mln vs exp. -3.3mln), which alongside technical factors and bullish commentary provided a further tailwind for the complex. On the Iranian front, updates have been quiet in terms of progress, although reports did the rounds suggesting that Iran could renew its extended pact with the IAEA if needed – which expires on June 24th after the June 18th Iranian elections. Analysts have warned that a new Iranian government could shift the dials in terms of negotiation. Elsewhere, spot gold and silver remain caged within recent ranges in anticipation of the Fed, with the former still in proximity to its 200 DMA (1,838) and 50 DMA (1,830) – with technicians still on watch for a golden cross. Elsewhere, industrial metals remained in focus overnight after China confirmed yesterday’s speculations that it will release national reserves of copper, aluminium, and zinc in the near term. 3M LME copper has pared back earlier losses in which it briefly dipped below USD 9,500/t – but the red metal holds onto a bulk of yesterday’s losses. Overnight, Dalian iron ore futures also saw downside in light of China’s intervention coupled with rising shipments from Australia and Brazil.

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)

Vitol's Research Head sees an accelerating in the shift of the oil growth centre to EM post-COVID and given the energy transition, oil capital expenditure cuts have seen an acceleration and will not recovery post-COVID. (Newswires)