• APAC stocks picked themselves up from recent losses as risk sentiment improved from the choppy US mood; S&P 500 -0.6%.
• European equity futures are indicative of a higher open with Eurostoxx 50 +1.1% after the cash market closed lower by 1.4% yesterday.
• Russia's Kremlin said Russia will demilitarise regions near the Donbas and forces will take all of the Donetsk and Luhansk regions.
• DXY sits on a 102 handle, EUR/USD briefly rose above 1.06, AUD lags ahead of the upcoming election.
• Looking ahead, highlights include UK Retail Sales, EZ Consumer Confidence (Flash), Speeches from ECB's Lane & BoE's Pill.

US TRADE

• US stocks finished lower in choppy conditions with an intraday push into the black ultimately failing to sustain, while sentiment was also not helped by disappointing data releases.
• SPX -0.58% at 3,901, NDX -0.44% at 11,876, DJIA -0.75% at 31,253, RUT +0.08% at 1,776.
• Click here for a detailed summary.

NOTABLE US HEADLINES

• Fed's Kashkari (2023 voter) said they are removing accommodation even faster than they added it at the start of COVID and have done quite a bit to remove support for the economy through forward guidance. Kashkari stated that he does not know how high rates need to go to bring inflation down and does not know the odds of pulling off a soft-landing, while he is seeing some evidence they are in a longer-term high inflation regime and if so, the Fed may need to be more aggressive, according to Reuters.
• US Treasury Secretary Yellen said G7 finance leaders did not discuss increasing central bank inflation targets and she believes the Fed can achieve a "soft landing" but will require some skill and luck, according to Reuters.
• US Senate GOP blocked the USD 48bln restaurant relief bill with a 52-43 vote, according to Bloomberg's Wasson.

GEOPOLITICS

RUSSIA-UKRAINE

• Russia's Kremlin said Russia will demilitarise regions near the Donbas and forces will take all of the Donetsk and Luhansk regions.
• US is actively working to secure supplies to Ukraine of long-range anti-ship missiles to help defeat Russia's Black Sea blockade, according to US officials cited by Reuters.
• US President Biden is to sign a further USD 100mln in security assistance for Ukraine, including additional radar and artillery munitions, according to Reuters sources.
• US Senate backed the USD 40bln Ukraine aid bill which is being sent to President Biden for signing into law, according to Reuters
• US Treasury Secretary Yellen said no obvious strategy emerged in discussions on Russian oil price caps, tariffs and embargoes to reduce Moscow's oil revenues, according to Reuters.
• US Secretary of State Blinken stated that he and the US Ambassador to the UN met with UN Secretary-General Guterres to reiterate the importance of working together at the UN to prevent Russia's war against Ukraine from worsening global food insecurity, via Twitter.
• European Commission President von der Leyen said the EU has lawyers looking for ways of using frozen assets of Russian oligarchs to fund Ukrainian construction, according to Reuters.
• G7 draft communique said the group recognises Ukraine's urgent short-term financing needs and has mobilised USD 18.4bln of support including EUR 9bln from the EU and USD 3.4bln from the EBRD and IFC.

OTHER

• US National Security Adviser Sullivan said there is a real chance of North Korean aggression during Biden's trip and that they will respond to any threats decisively, while he added North Korea shows no willingness to engage in talks, according to Reuters.
• White House said it told China that the US will respond decisively to North Korean provocations and it believes China is ratcheting up tensions over Taiwan, while it discussed this issue recently with a top official in Beijing and said that US President Biden and Chinese President Xi may talk in the upcoming weeks. White House also said China's step to replenish strategic oil reserves with Russian oil would not contravene US sanctions and it does not expect to revisit the F-16 deal with Turkey as part of NATO negotiations regarding Sweden and Finland, according to Reuters.
• Satellite photos suggest that China is training to attack Japan's aircraft as it has set up an object that appears to be modelled on an airborne warning and control system (AWACS) plane used by the Japan Air Self-Defense Force (JASDF) in a desert area of Xinjiang, according to Nikkei.

APAC TRADE

EQUITIES

• APAC stocks picked themselves up from recent losses as risk sentiment improved from the choppy US mood.
• ASX 200 gained with outperformance in tech and mining stocks leading the broad gains across industries.
• Nikkei 225 was underpinned following the BoJ’s ETF purchases yesterday and despite multi-year high inflation.
• Hang Seng and Shanghai Comp strengthened with a rebound in tech setting the pace in Hong Kong and with the mainland also lifted following the PBoC’s Loan Prime Rate announcement in which it defied the consensus by maintaining the 1-Year LPR at 3.70% but cut the 5-Year LPR by 15bps to 4.45%, which is the reference for mortgages. Nonetheless, this wasn’t much of a shock as the central bank had kept the 1-Year MLF Rate unchanged earlier in the week and effectively cut interest rates for first-time homebuyers by 20bps on Sunday.
• US equity futures edged higher amid the brightened risk tone during Asia trade which saw the E-mini S&P (+0.8%) climb back above 3,900.
• European equity futures are indicative of a higher open with Eurostoxx 50 +1.1% after the cash market closed lower by 1.4% yesterday.

FX

• DXY briefly reclaimed the 103.00 level as it attempted to nurse the prior day’s losses, however, the index has moved back on to a 102 handle ahead of the European open.
• EUR/USD continued the pullback from a brief incursion into the 1.0600 territory although held on to most of yesterday’s spoils.
• GBP/USD retraced some of its recent advances after stalling near 1.2500.
• USD/JPY traded both sides of 128.00 with price action at the whim of the greenback and with inflation at multi-year highs.
• Antipodeans are mixed with AUD weakening ahead of tomorrow’s federal election in Australia where PM Morrison’s Coalition is closing the gap with the Labor party to narrow the opposition’s lead to just 1ppt vs 6ppts a week before and amid some fears of a hung parliament.

FIXED INCOME

• 10yr UST futures took a breather from the prior day’s bull steepening with the improved risk appetite sapping haven demand.
• Bunds were uneventful with price action rangebound after failing to hold above 154.00.
• 10yr JGBs eventually edged higher in the aftermath of the mixed 20yr auction which attracted a firmer b/c amid lower accepted prices.

COMMODITIES

• Crude futures marginally pulled back with Brent and WTI capped by resistance around USD 112/bbl and USD 110/bbl, respectively.
• US House voted to pass the oil and gas price gouging bill, according to Reuters.
• Spot gold traded rangebound overnight with price action contained as the dollar attempted to nurse losses.
• Copper eased off the prior day's best levels as momentum in commodities petered out but with downside stemmed by the constructive risk tone.

CRYPTO

• Bitcoin is marginally lower after fading its initial gains but remained above the 30,000 level.

NOTABLE HEADLINES

• Chinese Loan Prime Rate 1Y (May) 3.70% vs. Exp. 3.65% (Prev. 3.70%)
• Chinese Loan Prime Rate 5Y (May) 4.45% vs. Exp. 4.60% (Prev. 4.60%)
• US and Japanese leaders are to urge China to reduce its nuclear arsenal, according to Yomiuri. It was also reported that Japanese PM Kishida is expected to announce a defence budget increase during the summit with US President Biden, according to TV Asahi.

DATA RECAP

• Japanese National CPI YY (Apr) 2.5% vs. Exp. 2.5% (Prev. 1.2%)
• Japanese National CPI Ex. Fresh Food YY (Apr) 2.1% vs. Exp. 2.1% (Prev. 0.8%)
• Japanese National CPI Ex. Fresh Food & Energy YY (Apr) 0.8% vs. Exp. 0.7% (Prev. -0.7%)

UK/EU

NOTABLE HEADLINES

• UK Chancellor Sunak is under mounting pressure from Tory MPs to cut taxes radically in the coming months, with calls to cut VAT on domestic energy bills, according to FT.

DATA RECAP

• UK GfK Consumer Confidence* (May) -40 vs. Exp. -39.0 (Prev. -38.0)