• Asian equity markets eventually traded mostly positive as the region gradually broke free from the mundane tone from Wall Street
• President Biden is to amend former President Trump's China blacklist to target key industries
• Fed announced plans to offload its corporate bond and ETF holdings that were purchased last year
• In FX, the DXY remains sub-90.00, EUR/USD hovers around 1.22 and GBP/USD sits just above 1.4150
• White House said US President Biden had a constructive and frank discussion with Republican Senator Capito and that they agreed to talk again on Friday
• Looking ahead, highlights include EZ, UK and US Services and Composite Final PMIs, US ADP, IJC, ISM Services PMI, DoEs, ECB’s Elderson, BoE’s Bailey, Fed’s Bostic, Kaplan, Harker, Quarles, supply from France and Spain

CORONAVIRUS UPDATE

US President Biden is to announce steps to boost COVID-19 vaccinations, according to a White House aide. (Newswires)

FDA asked Johnson & Johnson (JNJ) and AstraZeneca (AZN LN) to assess any potential health risks from minor cross-contamination of their COVID-19 vaccines, as it cannot rule out low-level of contamination of doses being manufactured by Emergent BioSolutions (EBS). (Newswires)

UK government has started negotiations with AstraZeneca (AZN LN) regarding a vaccine variant that can address the South African COVID-19 variant, according to reports citing Health Minister Hancock. (Sky News) Elsewhere, the government is set to maintain tight limits on international travel in the coming weeks, according to sources. (Newswires) UK is struggling to persuade the US to lift the travel ban between the countries, sources stated. UK PM Johnson will likely bring this up with US President Biden at next week's G7. (FT)

India's government ordered 300mln COVID-19 vaccine doses from local manufacturer Biological E, while it noted that the vaccines are likely to be available in the next few months and are currently undergoing Phase 3 clinical trials. (Newswires)

Australian PM Morrison announced the government will provide support for COVID-19 hotspots that are in lockdown for over 7 days and will produce a national framework for lockdowns, while he announced a temporary COVID disaster payment of up to AUD 500/week for each person that meets the criteria but must have less than AUD 10k in liquid assets and cannot be receiving another form of pandemic or income support. (Newswires)

EU governments reportedly reach a deal to allow leisure travel from Japan. (Newswires)

ASIA

Asian equity markets eventually traded mostly positive as the region gradually broke free from the mundane tone from Wall Street, where stocks finished relatively flat and participants remained tentative heading closer to Friday’s all-important jobs data. ASX 200 (+0.6%) notched a fresh record high with the advances spearheaded by the commodity-related sectors and in particular, energy names after oil prices extended on best levels since 2018. Nikkei 225 (+0.5%) recovered opening losses with the help of a slight rebound in USD/JPY, as well as reports that Japanese PM Suga is likely to call a snap election in Autumn and that the government is considering a new stimulus package beforehand. Hang Seng (-0.4%) and Shanghai Comp. (+0.4%) were choppy as participants digested the latest Caixin Services PMI data which missed expectations and Caixin Composite PMI also weakened from the prior despite both printing firmly in expansion territory, while continued tensions with the US remained a headwind for Chinese stocks after reports noted that President Biden is to amend former President Trump's China blacklist to target key industries and is likely to sign an order this week that will change the criteria for blacklisting entities to include those that operate in the defense and surveillance technology sectors which could be seen as an escalation from the current order that targets companies owned, controlled or affiliated with the Chinese military. Finally, 10yr JGBs edged mild gains after reclaiming the 151.50 level and following the gradual upside seen in T-notes, but with advances limited by the positive tone in Japanese stocks and with some brief pressure after weaker results across all metrics of the 10yr auction.

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 6.3811 vs exp. 6.3798 (prev. 6.3773)

PBoC is expected to increase liquidity injections this month to meet reasonable demand from institutions. (China Securities Journal)

• Chinese Caixin Services PMI (May) 55.1 vs. Exp. 56.2 (Prev. 56.3)
• Chinese Caixin Composite PMI (May) 53.8 (Prev. 54.7)

US President Biden is to amend former President Trump's China blacklist to target key industries and is likely to sign an order this week that intends to crackdown on investment in China's defence and surveillance technology sectors, according to sources. Furthermore, the Treasury Department will compile a list of companies that could face financial penalties for their connection to China’s defense and surveillance technology sectors, while the order will reportedly change the criteria for blacklisting entities to include those that operate in the aforementioned sectors vs. Trump's order that targets companies owned, controlled or affiliated with the Chinese military. (Newswires/Twitter)

Japanese PM Suga is likely to call a snap election in autumn following the Olympic and Paralympic games, while the government is mulling compiling a new stimulus package prior to the snap election. In other news, Japan will reportedly pull out every policy stop to court overseas semiconductor companies including generous financial incentives under a draft growth strategy released on Wednesday. (Asahi/Nikkei)

UK/EU

UK and EU reached a deal on 2021 fishing rights for joint stocks, according to sources. Whitehall sources have warned that the agreement would not "please everyone". (Newswires/Telegraph)

UK senior officials said talks are coming to a conclusion between the UK and Australia with an agreement 'pencilled in' following the G7 meeting. (FT)

The reopening of indoor hospitality in England has failed to lift retail traffic in May with visitor numbers to retail destinations down 27% compared to May 2019 levels. (FT)

ECB President Lagarde said strong policy support will continue to provide a bridge over the pandemic and well into the economic recovery, while she added that the ECB is committed to preserving favourable financing conditions throughout this period. (Newswires)

ECB's Weidmann said the ECB would have to cap bond maturities or amount for certain sectors in the monetary portfolio to incorporate climate risk if no other solution is found. (Newswires)

EU is reportedly considering a carbon levy on cement, steel and electricity imports. (Newswires)

FX

In FX, the DXY traded sideways overnight as price action settled down from yesterday’s failed incursion above 90.00 with a non-committal tone ahead of looming data releases including ISM Services PMI later today and Non-Farm Payrolls on Friday. In terms of the latest central bank rhetoric, Fed’s Harker suggested that it may be time to "at least think about thinking about tapering" and that they will remove accommodation carefully and methodically as the economy continues to strengthen, but added the time frame for tapering talks has not been decided and they have to be careful with communication to avoid a taper tantrum, while the Fed also announced plans to offload its corporate bond and ETF holdings that were purchased under the now-closed Secondary Market Corporate Credit Facility valued at USD 13.8bln. EUR/USD was stuck near the 1.2200 level following the recent mixed data releases from the bloc and with comments from ECB President Lagarde doing little to shift the dial as she noted that strong policy support will continue to provide a bridge over the pandemic and that the ECB is committed to preserving favourable financing conditions throughout this period. GBP/USD was flat despite reports that the UK and EU reached a deal on 2021 fishing rights for joint stocks. USD/JPY rebounded from support at around 109.50 although JPY-crosses were contained by the non-committal tone, while antipodeans were slightly lower following the Chinese Caixin PMI data miss and weaker reference rate setting by the PBoC.

Israeli opposition leader Lapid informed the President that he has a coalition for a government after having completed coalition deals to unseat Netanyahu's government. Furthermore, reports noted that Yamina Party leader Bennett will be Israeli Prime Minister and Lapid will be the alternate PM, while after roughly two years, Lapid will then become PM and Bennett will become alternate PM. (Newswires)

• Australian Retail Sales (Apr F) M/M 1.1% vs. Exp. 1.1% (Prev. 1.1%)
• Australian Trade Balance (AUD)(Apr) 8.0B vs. Exp. 7.9B (Prev. 5.6B)
• Australian Exports (Apr) M/M 3% (Prev. -2%)
• Australian Imports (Apr) M/M -3% (Prev. 4%)

COMMODITIES

WTI crude futures extended on the gains seen in the prior session and reclaimed the USD 69/bbl level to the upside amid continued momentum following this month’s OPEC+ meeting and with the latest private sector inventory report showing a larger than expected draw to headline crude inventories. Furthermore, there were mixed headlines regarding the Iranian talks which have been adjourned to next week as President Rouhani noted the issues have been resolved and EU's Mora believes a deal will be found in next round discussions, although US sources later warned the JCPOA is not by any means a done deal and suggested caution on the idea that Iran deal talks will be easily wrapped up in a few days next week as there are still differences on important question and with gaps remaining on the key areas. Gold prices were lacklustre amid an uneventful greenback although the precious metal has maintained the USD 1900/oz status, while copper traded sideways alongside the somewhat tentative gains seen in Asia-Pac stocks.

US Private Inventory Data (bbls): Crude -5.36mln (exp. -2.4mln), Gasoline 2.5mln (exp. -1.5mln), Distillate 1.6mln (exp. -1.5mln), Cushing 0.7mln

BHP's Chile Escondida copper production (Apr) -16.5% Y/Y to 85,700 and Chile's Collahuasi copper mine production (Apr) +5.4% Y/Y to 57k tonnes, according to Cochilco. (Newswires)

GEOPOLITICAL

Diplomats stated that Iran nuclear deal talks are currently planned to resume on Thursday, June 10th. There were also separate comments from the Iranian Deputy Foreign Minister that key issues are outstanding in nuclear deal talks, while EU's Mora believes a deal will be found in the next round of Iran nuclear deal talks. However, US sources later warned the JCPOA deal is not by any means a done deal and should take real caution on the idea that Iran deal talks will be easily wrapped up in a few days next week as there are still core differences on important questions and the real gaps on all three main areas - nuclear, sanctions and above all sequencing - still need to be closed, according to WSJ’s Norman. (Newswires/WSJ)

White House said US President Biden has launched a rapid strategic review to address the increased threat of ransomware and thinks Russian President Putin and the Russian government have a role to play in stopping cyber attacks. Furthermore, President Biden commented that he is looking closely at that issue when asked about whether he would retaliate against Russia. (Newswires)

US

USTs caught a modest, gradual bid on Wednesday in quiet trading conditions ahead of key employment data. By settlement, 2s +0.0bps at 0.147%, 3s -0.3bps at 0.303%, 5s -1.4bps at 0.795%, 7s -1.9bps at 1.257%, 10s -2.4bps at 1.591%, 20s -1.7bps at 2.204%, 30s -1.5bps at 2.281%. 5yr TIPS -0.7bps at -1.826%, 10yr TIPS -1.0bps at -0.873%, 30yr TIPS +0.0bps at -0.052%. SOFR unchanged at 1bp, but note EFFR rose back to 6bps as month-end factors fade. Sovereigns were on the front foot out of APAC trade overnight, but volumes were very light, as were catalysts aside from an upside surprise to Australian Q1 real GDP. The gentle trend firmer in bonds continued into European trade, with EGBs finding a few tailwinds from the weak April German retail sales print, although the volatility of the activity data makes it hard to infer too many conclusions. As US players arrived, they continued to lift the offer, with no tier 1 data points out of the US today and attention instead shifting to Friday's May jobs report. One desk noted the break of resistance at 1.59% for 10s triggered new algo buy programmes. Indeed, the latest JPM Client Survey showed Treasury shorts jumped to their highest since December 2017 coming into the week, so seemingly plenty of shorts to cover. But, a combination of an afternoon rally in oil prices to new cycle peaks, alongside some nods to tapering from Fed's Harker coincided with T-Notes paring slightly from highs. T-note (U1) futures settled 4+ ticks higher at 131-30.

Fed Beige Book stated that the national economy expanded at a moderate pace from early April to late May and at a somewhat faster rate than the prior reporting period, while several Districts cited the positive effects on the economy of increased vaccination rates and relaxed social distancing measures but also noted the adverse impacts of supply chain disruptions. Beige Book stated the effects of expanded vaccination rates were perhaps most notable in consumer spending in which increases in leisure travel and restaurant spending augmented ongoing strength in other spending categories. Furthermore, manufacturers reported that widespread shortages of materials and labour along with delivery delays made it difficult to get products to customers. (Newswires)

Fed said it will begin to unwind corporate bond holdings purchased last year through an emergency lending facility that was rolled out to calm markets amid the pandemic, while it added the portfolio sales will be gradual and orderly. Furthermore, it stated that sales will aim to curb potential for adverse impact on market functioning and that it intends to offload the full portfolio from the now-closed Secondary Market Corporate Credit Facility by year-end, which is valued at USD 13.8bln. (Newswires)

Fed's Harker (2023 voter) said US GDP could grow by 7% in 2021 before moderating to 3% in 2022 and sees inflation close to 3% for 2021 (prev. 2.3%), while he added that it may be time to "at least think about thinking about tapering" and that they plan to keep the Fed Funds low for a long time. Harker also stated they will remove accommodation carefully and methodically as the economy continues to strengthen, while the time frame for tapering talks has not been decided and his view is if one of the purposes of asset purchases is to help smooth market functioning, the Fed is pretty much there. Furthermore, he said the Fed has to be careful with communication about asset purchases to avoid a taper tantrum and need to discuss when the appropriate time to adjust asset purchases is. (Newswires)

White House said US President Biden had a constructive and frank discussion with Republican Senator Capito and that they agreed to talk again on Friday, while US Senator Capito said she is encouraged that negotiations on infrastructure continue following her meeting with President Biden. (Newswires)

US Treasury official said G7 finance ministers are expected to endorse the US proposal for global minimum tax and that the meeting will spur momentum for tax negotiations heading into the G20 finance meeting in July. There were separate comments from UK Chancellor Sunak that US proposals on global tax reform appear to satisfy the UK's objectives and any deal must mean appropriate tax for large digital firms in countries where they conduct operations, while he added that G7 are making good progress on tax reform ahead of June 4th-5th meeting and Canada's Finance Minister Freeland also said she supports getting a global corporate minimum tax in place. (Newswires)