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MORNING BID-Shanghai surprise

(A look at the day ahead from EMEA deputy markets editor Sujata Rao. The views expressed are her own.) After big recent rallies, it's quite a disappointing performance from Chinese markets today – gains have fizzled to less than 1%. This month's 14% leap has led to suspicions of a state-orchestrated buying binge that enables President Xi Jinping to show off the local bull market amid global and U.S. criticism over a host of issues.

Overall, the mood is a touch damper, with U.S. equity futures down 0.7% percent, implying the S&P500 will break its five-day streak of gains which was the best since December. Nasdaq futures are down too, after the tech index yesterday continued to do what’s become a habit -- touch another record high.

But world stocks have retreated from four-month peaks while emerging equities snapped a five-day winning streak. The dollar index and the yen are firmer, while oil and copper are both off the multi-month peaks hit on Monday.

Markets have tried to look on the bright side of things, above all economic data that hints at recovery. Yesterday's U.S. ISM non-manufacturing index bounced to 57.1 and today, German data shows a 7.8% rebound in May industrial output (though below the forecast 10%). Monday's 10.4% rise in industrial orders also showed Europe's biggest economy is past the worst of the COVID-linked downturn.

Policymakers also clearly don't intend to take their feet off the stimulus pedal. U.S. Senator Mitch McConnell said he saw Congress passing more fiscal stimulus. We also heard from the Reserve Bank of Australia which kept interest rates steady but pledged to scale up bond-buying if needed.

UK chancellor Rishi Sunak is expected to reveal another spending package on Wednesday, including 3 billion pounds for green projects. And Malaysia has just cut rates to a record low 1.75%.

But it's still a case of policymakers vs the pandemic – Australian stocks ended flat and the Aussie dollar slipped off one-month highs as Victoria state went back into lockdown.

The flow of sobering COVID-19 stats continues – Miami has rolled back restaurant dining, and U.S. infections overall are rising by the tens of thousands each day. India's death toll has crossed 20,000.

COVID-19: The pace of death https://tmsnrt.rs/2VqS5PS

And Japan showed that even ending lockdowns may not bring an economic bounceback -- May household spending fell by 16.2% year- on-year, the biggest fall since at least 2001.

Can Europe be the exception? With no sign of COVID resurgence and even Germany easing restrictions around the meatpacking plant that had an outbreak recently, the euro rose back above 1.13 yesterday.

It's supported also by inflation expectations rising toward the highest since early March. European shares are weaker however, in line with the rest.

Europe's corporate front continues to be dominated by virus-related news. Shares in Heidelbergcement are down after it said it had to book a 3.2 billion euros impairment. Italy's Eni will write off around 3.5 billion euros ($4 billion) from its assets after revising down long-term energy price outlook..

UK retail devastation showed up in Whitbread Q1 sales which slumped 79%, though the Premier Inns owner said most of its hotels would open by the end of July. Motor and cycling products retailer Halfords said underlying sales fell 6.5% in Q1 as car journeys fell.

In emerging markets, aside from the state-sanctioned Chinese bull market, shares are down 0.4% and a currency index slipped for the first time in four sessions. Argentina is awaiting a response from its biggest creditor bloc that includes BlackRock and Fidelity, to its new sweetened debt restructuring offer.

Ecuador meanwhile has reached a deal with institutional holders of its roughly $17.4 billion in outstanding sovereign bonds.

(Editing by William Maclean)