• US futures are firmer, ES +0.5%, after bouncing from overnight pressure as APAC players reacted to Friday's hawkish Fed remarks; Euro Stoxx 50 +0.4%
• FX has been choppy though the DXY is ultimately subdued but still holds 92.00 to the benefit of peers across the board
• Core debt remains firmer though nearing the U/C mark as sentiment improves with yields now only marginally lower after dipping below 1.40% and 2.00% overnight for the 10 & 30yr respectively
• US President Biden is to meet with Financial Regulators at 18:45BST/13:45EDT
• Looking ahead, highlights include ECB weekly purchases, 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; however, as the European morning progresses US equity futures pared back this underperformance and are now firmer on the session, ES +0.5%. Back to APAC, the ASX 200 (-1.8%) was under pressure from its heavyweight mining and financials sectors, whilst the Nikkei 225 (-3.3%) 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 (-0.8%) 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 (-1.0%) 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) Subsequently, the PBoC has summoned some banks and payment institutions regarding cryptocurrency speculation, asking banks and Alipay not to involve themselves in crypto operations BTC is pressured on the session having lost the 35k mark overnight, currently near session lows of circa 32k.

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%)

BoJ purchased JPY 70.1bln of stock ETFs today; first purchase since April 21. (Newswires)

US

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"

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)

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)

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)

GEOPOLITICAL

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.

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) Subsequently, Iran's Foreign Ministry spokesperson says a new JCPOA will 'never be negotiated'. (Twitter)

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. Subsequently, the Russian Kremlin, on potential new sanctions from the US, says Washington is demonstrating both continuity and unpredictability with its sanctions in spite of saying it want a predictable relationship. (CNN/Newswires)

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)

EQUITIES

European equities kicked the session off on the backfoot, in-fitting with losses seen on Wall Street on Friday and overnight during the APAC session. The moves in equity markets took place in the wake of hawkish remarks from 2022 voter Bullard last Friday who cautioned that a quicker pace of tightening policy would be a natural response to economic growth and inflation. Note, developments in the rates market ahead of the European entrance hinted more of a potential policy mistake/ focus on the growth implications for the economy from a faster pace of Fed tightening as the US 10yr and 30yr cash yields dipped below 1.40% and 2.00% respectively. This prompted more of a preference towards safe-haven assets and helped explain the combination of softer equities/lower yields. That said, as the European session progressed price action reversed and indices are now firmer on the session (Euro Stoxx 50 +0.6%) – seemingly taking the lead from a resurgence in US futures, ES +0.5%. From a sector standpoint, the bias is towards a more anti-cyclical stance as Travel & Leisure, Basic Resources, Banks and Oil & Gas lag peers and indeed remain in the red in-spite of the general pick up in performance. As the reflation trade pauses for breath, direction for the market this week will likely be determined by the tone of Fed rhetoric amid a busy speaker slate. In terms of stock specifics, Morrisons (+32%) is the notable outperformer in Europe after receiving a GBP 2.30/shr (vs. Friday close of GBP 1.78/shr) takeover offer from CD&R. Morrisons rejected the bid, however, speculation remains that a higher offer will be presented at some stage with some reports touting potential interest from rival bidders such as Lone Star and Amazon. The prospect of sector consolidation has also provided support to the likes of Ocado (+3.8%), Sainsbury’s (+3.9%) and Marks & Spencer (+2.7%). Other deals to be aware of in the region include Vivendi (+0.3%) selling a 10% stake in Universal Music Group to Pershing Square, CNH Industrial (+1.8%) acquiring Rave Industries for USD 2.1bln and Generali (+1.3%) filing an offer document with CONSOB for a takeover bid for Cattolica.

The German cartel office has initiated a probe against Apple (AAPL), following various complaints against apple of anticompetitive practices. (Newswires)

Goldman Sachs (GS) - To begin offering transaction banking services within the UK market from this week. (FT)

McDonald's (MCD) - Co. is to, over the next year, open an additional 50 restaurants in the UK and Ireland alongside hiring 20k new workers. (Telegraph)

FX

USD - An unusually volatile start to the week following heavy declines in APAC equities, base metals and crypto currencies overnight that prompted a pronounced rally in US Treasuries and other safe haven assets like the Greenback and Yen to varying degrees. However, the Buck lost momentum as yields descended through key or psychological levels, like 1.40% in the 10 year benchmark and 2% in long bonds. Moreover, the DXY may have faded on technical grounds after reaching 92.375 and falling short of last Friday’s 92.408 peak, but retains an underlying bid just ahead of 92.000 as USTs drift down from best levels and rates tick up. Looking ahead, only May’s national activity index is scheduled on the data front, but Fed’s Bullard, Harker, Kaplan and Williams are all slated to speak and the former certainly gave the Dollar a boost last time out with some particularly hawkish comments.

NZD/GBP/AUD/EUR/JPY - All things considered, the Kiwi is holding up quite well around 0.6950 against its US counterpart and has clawed back losses vs its Antipodean peer after defending 1.0800 on the cross in the run up to Westpac’s Q2 NZ consumer survey tonight, while the Aussie is straddling 0.7500 against its US rival in wake of weaker than forecast prelim retail sales and against the backdrop of the aforementioned slide in copper, iron ore etc. Elsewhere, Sterling has reclaimed 1.3800+ status and is still trading mostly above 0.8600 vs the Euro even though the latter has rebounded from just under 1.1850 against the US Dollar again and is now eyeing offers/resistance into 1.1900 on the back of a firmer rebound in EGB yields. Meanwhile, the Yen is pivoting 110.00 where decent option expiry interest sits (1.2 bn) having contained losses to circa 110.26 before testing an upside chart level at 109.70.

CHF/CAD - The Franc has recovered some post-dovish SNB losses between 0.9237-07 parameters, but with little reaction to the Bank expanding the range of mortgage market indicators and providing a selection to the public as the number of housing loans offered by banks rises, or to latest weekly sight deposits showing a small rise in domestic balances. Similarly, the Loonie is off worst levels within a 1.2487-36 range, though still not getting a lot in the way of impetus from oil in advance of Canadian retail sales data on Wednesday.

SCANDI/EM - The Nok continues to underperform following only a fleeting or knee-jerk rise when the Norges Bank tightened rate hike guidance and raised its depo path profile last Thursday, but the Sek is displaying some resilience and patience given the latest vote of no confidence in Swedish PM Lofven who will provide an update within one-week on whether he will resign or call for snap elections. Elsewhere, the Zar and Mxn are bucking a broadly weaker trend vs the Usd on relative strength in Gold and WTI respectively, but the Cnh/Cny are softer after a lower PBoC midpoint fix and unchanged LPRs, the Try is back down near record lows and Rub off recent recovery highs amidst more Russian-US strains on potential further sanctions.

Swedish PM Lofven lost the no-confidence vote, as expected. He will update within one-week as to whether he will resign or hold snap elections. (Newswires)

Notable FX Expiries, NY Cut:

- AUD/JPY: 78.00 (1.24BLN), 81.00 (1.2BLN)

- USD/JPY: 109.50 (260M), 110.00 (1.2BLN), 110.50 (860M)

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

FIXED

Bunds are now underperforming, albeit marginally following their failure to sustain gains beyond 173.00 and have subsequently been down to 172.41 (-19 ticks on the day vs +43 ticks at best), while Gilts have also lost momentum after flirting with 128.00 in early Liffe trade and ducked 2 ticks below par at 127.67 before finding a base having been 39 ticks ahead at one stage. Similar story for USTs as risk sentiment improves appreciably over the course of the European am compared to relatively pronounced aversion overnight, though futures remain a tad firmer and the curve fractionally flatter awaiting the national activity index and a host of Fed speakers.

COMMODITIES

WTI and Brent have commenced the European session with modest gains after somewhat choppy performance overnight throughout which newsflow has been quite light aside from geopolitical updates. Currently, the benchmarks post gains of USD 0.30/bbl each with this marginal upside following similar performance in US futures which, as mentioned, recuperated from overnight losses. On the geopolitical front Raisi secured victory in the Iranian Presidential elections as expected though this appointment should not have much, if any, impact on nuclear negotiations due to the Supreme Leader having the final say. In terms of the latest tone of discussions the US National Security Advisor Sullivan said talks are going in the right direction and EU representatives believe an agreement is very close. However, bear in mind an Iranian spokesperson has stated that a new JCPOA can never be negotiated placing the impetus very firmly on ongoing talks. Returning to crude itself and following similar bullish commentary from other desks BofA says that oil could briefly hit USD 100/bbl in 2022 and looks for Brent to average USD 75/bbl throughout that year, given tighter balances between supply and demand. Moving to metals, spot gold and silver are firmer benefitting from an initially choppy but now notably subdued USD alongside a very modest pullback in yields; posting gains of circa 1.0% but off respective highs of USD 1785/oz and USD 26.13/oz. Elsewhere, base metals are pressured but stable when compared to recent price action particularly for the likes of LME copper given last week’s losses.

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)

BofA Global Research says oil could, briefly, hit USD 100/bbl in 2022 and Brent is set to average USD 75/bbl next year; given tighter supply and demand balances. (Newswires)