• A risk-off tone was seen overnight. Nikkei 225 lost the 28k level but Mainland China bucked the trend
• US equity futures drifted lower overnight in which the NQ and YM declined under 14k and 33k respectively
• Yields continued to pull back; the US 10yr and 30yr cash yields dipped below 1.40% and 2.00% respectively
• In FX, the DXY was choppy but remained firm, EUR/USD traded sub-1.1900, JPY and Antipodeans outperformed
• Looking ahead, highlights include ECB weekly purchases, Swedish no-confidence vote, Fed’s Williams, Bullard, Kaplan and ECB’s Lagarde

CORONAVIRUS UPDATE

Individuals who come into contact with a COVID-19 carrier but have been double vaccinated would be spared ten days in quarantine under plans to use daily tests. (Times)

The UK may make an announcement this week on the new travel green list. (Politico)

UK ministers will not bring forward the lockdown lifting date to July 5th. Sources said the UK is “probably not in the place” to end restrictions at two-week review stage. (Telegraph)

South Korea will relax its social-distancing rules starting next month as coronavirus cases slow. (Newswires)

The US has extended the ban on non-essential travel at the Canadian and Mexican land borders through July 21st. (Newswires) Note, Canada announced this on Friday.

ASIA

APAC equities were mostly negative as the downbeat mood from Wall Street reverberated into the region following the hawkish Friday remarks from the Fed’s 2022-voter Bullard, with both the Dow and S&P 500 hitting session lows in the final minutes of trading and the former posting its worst weekly loss since October. US equity futures extended on Friday’s losses ahead of a week teeming with Fed speakers – including Fed Chair Powell’s testimony to Congress tomorrow. From a technical standpoint, the ES (-0.5%) sees its 50 DMA at 4,177 and 100 DMA at 4,043.25 whilst the YM (-0.5%) breached its 100 DMA to the downside at 33,051 before losing its 33k handle. Losses in the NQ (-0.3%) meanwhile were slightly less pronounced as yields continue to retreat, with the US 30yr cash yield dipping below 2% for the first time since February whilst the 10yr cash yield lost its 1.40-handle. Nonetheless, the Nasdaq contract also momentarily dipped below the 14k level. The RTY (-0.7%) narrowly underperformed but just about retained its 2200-status. Back to APAC, the ASX 200 (-1.7%) was under pressure from its heavyweight mining and financials sectors, whilst the Nikkei 225 (-3.7%) plumbed the depths in early trade before dipping below the 28k mark – with underperformance seen across its industrial and auto sectors. Losses in South Korea’s KOSPI (-1.2%) were somewhat cushioned in early trade as the country is poised to relax its social-distancing rules starting next month amid slowing COVID cases, whilst prelim trade figures were also constructive. Hang Seng (-1.2%) and Shanghai Comp (+0.1%) were mixed after both initially conformed to the soured risk tone with the latter more composed after finding buyers at around the 3,500 level and amid reports on Friday that Chinese officials are reportedly drafting plans to further loosen birth restrictions by 2025. Finally, 10yr JGB futures tracked gains across US and German counterparts as the fixed-income complex remains underpinned by the soured risk tone.

Australia said it was lodging a formal complaint with the WTO over China's imposition of anti-dumping duties on Australian wine exports. (Newswires)

Several Bitcoin mines in SW China’s Sichuan closed as of Sunday after a local ban on cryptocurrency mining. The latest move means that over 90% of China’s Bitcoin mining capacity is estimated to be shut down in the short term. (Global Times) Crypto markets sold off over the weekend - BTC fell under 35k

China's interest rate self-regulation body said that the ceiling on banks' deposit rates with maturity of over a year show declines after the regime reform; whilst maturity of six months and under show rises. The new regime reform will have limited impacts on financial institutions and depositors. (Newswires)

Taiwanese staff will be leaving Taiwan's representative office in Hong Kong after the government there asked its officials to sign a document supporting Beijing’s claim to Taiwan. (Newswires)

• PBoC set USD/CNY mid-point at 6.4546 vs exp. 6.4518 (prev. 6.4361) (Newswires)
• PBoC injected CNY 10bln via 7-day reverse repos for a net daily injection of CNY 10bln
• PBoC 1-Year Loan Prime Rate (Jun) 3.85% vs. Exp. 3.85% (Prev. 3.85%)
• PBoC 5-Year Loan Prime Rate (Jun) 4.65% vs. Exp. 4.65% (Prev. 4.65%)

UK/EU

The Times reports of tensions within the government over how to repair the public finances after coronavirus. Sources suggest there is also a row over who will be paying for PM Johnson’s Royal Yacht Britannia and how to fund his green growth plan. (Times/Politico/Mirror) Other reports note that the Treasury is drawing up plans for a pensions raid in the autumn to help pay for increased public spending during the pandemic. (Telegraph)

Times analysis shows that the UK Conservative party risks losing 23 seats in the south or east of England if the Lib Dem performance in Chesham & Amersham is repeated in a general election. (Times)

WM Morrisons (MRW LN) is expected to see interest from rival bidders such as PE firm Lone Star and Amazon (AMZN) after it rejected a GBP 5.5bln takeover offer by US buyout firm CD&R. (Telegraph) For refence, Morrisons closed Friday’s trade with a GBP 4.3bln market cap.

Fitch affirmed the United Kingdom's at AA-; outlook revised to “Stable” from “Negative”. (Newswires)

• UK Rightmove House Prices MM (Jun) 0.8% (Prev. 1.8%) (Newswires)
• UK Rightmove House Prices YY (Jun) 7.5% (Prev. 2.1%, Rev. 6.7%)

The ECB retreat on the strategic review addressed the definition and measurement of price stability, the underlying analytical framework, the medium-term orientation, the role of climate change in formulating monetary policy, and the modernisation of policy communication. ECB President Lagarde said the discussions were “in-depth” and “we made good progress.” (ECB) No further details were released.

ECB's Holzmann said rates would need to rise if inflation approaches 2% on a sustained basis. (Newswires)

ECB Survey of Monetary Analysts: The median vote showed that the ECB will end its PEPP as scheduled next March and will not increase APP purchases to compensate for lost stimulus. The survey shows that ECB is not expected to use the entire PEPP envelope and APP to remain at EUR 20bln per month and end in December 2023. The first hike in the Deposit Rate is seen in May 2024. (ECB)

France's Marine Le Pen's Rassemblement National party fell short of expectations in the first round of French regional elections due to a low turnout of around 33%. Les Républicains party and other centre-right politicians were left in strong positions ahead of the second and final rounds next weekend. (FT)

Moody’s affirmed Luxembourg at Aaa; outlook stable. (Newswires)

FX

In FX, the DXY traded within a tight range for a large part of the session after waning from Friday’s best at 92.408, but the index experienced some late strength despite the yield sell-off, with some suggesting potential risk-related flows. Participants look ahead to a slew of Fed speakers scattered throughout the upcoming week - with the majority set to speak about the economy in remarks that will be eyed closely following Bullard’s hawkish commentary on Friday. EUR/USD remained sub-1.1900 and traded in tandem with the Buck, with Markit PMIs and German Ifo for traders to look forward to, whilst ECB speakers are also plentiful following the ECB weekend retreat on the strategic review, which was said to have made good progress, but details were scarce. GBP/USD breached support around the 1.3800 mark, with UK ministers reportedly ruling out the full easing of lockdown measures at the two-week mark on July 5th, whilst the BoE also gears up for its policy announcement this week. EUR/GBP meandered under 0.8600 - which also coincides with its 21 DMA - and technicians note that an upside break will open the door to the 50 and 100 DMAs at 0.8628 and 0.8632 respectively. USD/JPY traded on either side of the 110.00 level with USD 1.2bln in option expiries reported at the psychological mark, although the pair came under some more pronounce pressure as US yields continued declining. Antipodeans initially outperformed amid increasingly hawkish central bank bets. AUD/USD gained above 0.7500 after shrugging off sub-par Retail Sales figures whilst NZD/USD stayed under 0.7000 as the AUD/NZD cross tested 1.0800 to the upside. Elsewhere, the Yuan saw some late USD-related pressure following another softer CNY fix by the PBoC, and as the central bank maintained its LPR rates as expected.

• Australian Retail Sales (May P) M/M 0.1% vs. Exp. 0.5% (Prev. 1.1%). (Newswires)

COMMODITIES

WTI and Brent front-month futures drifted higher in early trade, with the former testing USD 72.00/bbl to the upside and the latter initially extending gains above USD 74/bbl before the complex succumbed to the risk tone. The supply and demand balance for the complex remains bullish heading into the summer period, whilst Tropical Depression Claudette made its way over the US Gulf Coast and is expected to re-strengthen to a Tropical Storm before as it crosses the East Coast. Furthermore, Iranian nuclear talks continue to drag on after a meeting on Sunday failed to iron out the remaining sticking points. Elsewhere, spot gold and silver benefited from the pullback in yields, albeit the precious metals remain within recent ranges, whilst technicians eye a golden cross in the yellow metal. LME copper was relatively stable overnight as the red metal consolidated from last week's losses, whilst some reports suggested that Chinese exports of copper surged last month in a rare move as the country took advantage of the higher LME prices.

Russian Deputy PM Novak will hold a meeting on June 22nd with Russian oil companies and believes there is no need to negotiate agreements with fuel producers. (Newswires)

Tropical Depression Claudette is expected to re-intensify to a tropical storm on Monday. Tropical Storm warning has been issued for much of Coastal North Carolina. Claudette is still producing heavy rains with possible flash floods. NHC notes that Tropical Depression Claudette is a little stronger and is expected to regain tropical storm strength before reaching the coast (NHC)

GEOPOLITICAL

The Biden administration is sharply reducing the number of US antimissile systems in the Middle East in a major realignment of its military footprint there as it focuses the armed services on challenges from China and Russia. (WSJ)

Ebrahim Raisi secured victory on Saturday in Iran’s presidential election as expected. Raisi is a hardline judge who is currently under US sanctions for human rights abuses. (Newswires) Note, some suggests the new president will not impact nuclear talks as the Iranian Supreme Leader has the final say.

The Biden administration wants to finalise a nuclear deal with Iran in the six weeks remaining before a new Iranian president is inaugurated, according to officials. (Axios)

Iranian nuclear talks resumed on Sunday. Sources suggest that US sanctions on the Iranian Supreme leader is currently a sticking point. (Iran International) Some diplomats claim the same difficult issues remain unresolved, including how the US can guarantee it will not leave the deal again. Some western diplomats claim Iran was stalling in the months-long talks to ensure the outgoing reformist government could not claim credit for restoring the deal. Senior diplomats from China, Germany, the UK, France and Russia will now return to their capitals for consultations to take stock of developments. US national security adviser Sullivan said the arrow was pointing in the right direction. (Guardian) EU Foreign Affairs Chief Borrell suggested an agreement was “very close” and was still possible following the Iranian elections. (euronews)

Following Raisi’s win in the Iranian elections, an Israeli government source said there will be no choice now but to prepare attack plans for Iran’s nuclear programme, which will require reallocation of budget and resources. (Times)

Iran’s Bushehr nuclear power plant has undergone a temporary emergency shutdown for “three to four days”, state TV reported. (Newswires) Sputnik reports suggested it was due to a technical issue, although an official reason was not given. (Sputnik)

The Biden administration is preparing to impose additional sanctions against Russia over the poisoning of imprisoned opposition leader Navalny, US National Security Adviser Sullivan said. (CNN)

US envoy said North Korean leader Kim's mention of dialogue is positive; the US will be ready for both dialogue and confrontation. US is ready to meet with North Korea "anywhere, anytime without preconditions", US will continue to carry out UN sanctions against North Korea, according to the US envoy (Yonhap)

A Saudi-led coalition said it destroyed a drone launched by Yemeni Houthis towards the city of Kahmis Mushait, Saudi Arabia. (Newswires)

Armenian PM claims victory in snap polls. according to AFP. (Twitter)

US

Treasuries had been rather uneventful overnight and in the European morning, with T-Notes holding a mild bid as the dust settled from Thursday's volatility. Fed's Bullard (2022 voter) came onto CNBC to give the first Fed official interview post Wednesday's FOMC and managed to double down on hawkish sentiment - the St Louis Fed President stressed his eagerness to get taper discussion going, whilst also saying he sees a hike late in 2022 amid inflation now at target. The fresh comments brought the curve to life, with the long-end catching a bid amid a further squeezing of steepeners as participants priced out inflation/growth amid a tighter policy outlook, whilst also selling the short-end as the Fed's comments added to near-term rate hike risk. The belly of the curve was caught between a rock and a hard place. Note, Fed's Kashkari stuck to his usual dovish tone and revealed he is against the dot plots and believes rates should stay at the current level through at least 2023. Cash 30s hit resistance at 2.004%, the lowest since February, while cash 2s has risen above 0.28% for the first time since early April 2020. The 5s30s spread also hit lows of 110.60, the lowest since early September 2020. T-Note (U1) Futures settled 9+ ticks higher at 132-10.

Fed's Kashkari (2023 voter, dove) stated that the Fed's interest rate should remain unchanged at least through 2023. Kashkari noted that the labour market is still in deep hole and it will take some time to get people reattached to workforce. Kashkari added that inflation readings have been higher than expected but should be short-lived and that they are not observing evidence of un-anchored inflation expectations, but if that does occur, the Fed would have to adjust. Kashkari believes that the Fed is in a good place with its balance sheet and is fine to discuss taper of monthly asset purchases and it may take longer than September to judge progress on labour supply. Kashkari said the Fed's interest rate 'dot plot' has given too-hawkish guidance in the past and is in favour of killing it. (Newswires)

Biden administration officials are insisting that the recent inflation spike will be temporary. (The Hill)

US President Biden is to meet with Financial Regulators at 18:45BST/13:45EDT. (Newswires) On Friday, White House Press Secretary Psaki said "the meeting will cover regulatory priorities including climate-related financial risk and agency actions to promote financial inclusion and to responsibly increase access to credit"