• Asian equity markets suffered losses following a steep sell-off on Wall Street amid fears of a second wave
• US CDC reported that COVID-19 cases rose by 20,486 vs. Prev. 17,376; NYC positive test rate 1.7% vs. Prev. 1.5%; California case rate +2.3% vs. 7-day average +2.1%
• Chinese PLA officer was reportedly arrested and charged with visa fraud as he tried to leave the US
• UK government reportedly will formally rule out a Brexit deadline extension today and plans temporary light-touch customs checks with EU
• DXY trades flat below 97.000 heading into the European open, Antipodeans are subdued, GBP/USD is pressured
• Looking ahead, highlights include UK GDP, EZ Industrial Production, US University of Michigan (Prelim) & Import/Export Prices

CORONAVIRUS UPDATE

US CDC reported that COVID-19 cases rose by 20,486 to 1,994,283 vs. Prev. increase of 17,376 and the death toll rose by 834 to 112,967 vs. Prev. 1208. (Newswires)

New York Governor Cuomo said NYC positive test rate was at 1.7% vs. Prev. 1.5% and it was also reported that California COVID-19 cases increased by 2.3% vs. 7-day average of 2.1%. Furthermore, Houston might reopen its virus hospital at the stadium as cases rise, while Twitter reports also noted that the Houston area is said to be 'getting close' to reimposing the stay-at-home order. (Newswires/Twitter)

ASIA

Asian equity markets suffered losses after the bloodbath on Wall St where risk appetite collapsed due to several factors including coronavirus 2nd wave fears triggered by a surge in cases and following the recent glum outlook from the Fed, while a push back in stimulus hopes added to the depressed mood with the White House and Republicans said to not be planning formal negotiations on a fourth coronavirus stimulus package until late July. As such, the DJIA slumped by nearly 1900 points and the S&P 500 posted its worst day since March 16th with almost all its constituents closing in the red, although futures nursed some of the losses overnight after the E-Mini S&P and Mini Dow futures found a floor at the 3K and 25K levels respectively. Nonetheless, ASX 200 (-2.3%) and Nikkei 225 (-1.2%) weakened from the open with energy and financials front running the declines in Australia and with sentiment also not helped by the souring ties with China which reportedly moved to curb coal imports by stepping up customs checks, while the Japanese benchmark briefly retreated below the 22K level before paring the majority of losses in late trade with price action at the whim of currency fluctuations. Hang Seng (-1.4%) and Shanghai Comp. (-0.4%) conformed to the widespread negativity after another net liquidity drain by the PBoC and ongoing tensions between the global powerhouses as reports noted a Chinese PLA officer was arrested and charged with visa fraud as he tried to leave the US after having documented an incorrect rank on the visa application, while KOSPI (-2.4%) was also dragged by geopolitical concerns in which North Korea stated relations with US have currently shifted to despair and that it will build up a more reliable force to confront the US military threat. Finally, 10yr JGBs traded marginally higher amid the broad losses in global stock markets and following the bull flattening seen in US, while the BoJ were also present in the market today for nearly JPY 700bln of JGBs heavily concentrated in 1yr-5yr maturities.

PBoC injected CNY 100bln via 7-day reverse repos at rate of 2.20% for a net daily drain of CNY 50bln. (Newswires) PBoC set USD/CNY mid-point at 7.0865 vs. Exp. 7.0941 (Prev. 7.0608)

China Vice Finance Minister Xu said will set up special transfer payments on CNY 2tln of funds from special treasury bonds and increased budget deficit and will ensure fiscal funds will directly reach city and county levels under special transfer payments. Furthermore, Xu added the funds will help employment and expand consumption, as well as investment. (Newswires)

US Treasury Secretary Mnuchin said the US may restrict capital flows through Hong Kong, regarding the national security law. (SCMP)

Chinese PLA officer was reportedly arrested and charged with visa fraud as he tried to leave the US, while reports added that the officer with a similar rank to that of a major, had documented an incorrect rank on his visa application. (SCMP)

UK/EU

UK government reportedly will formally rule out a Brexit deadline extension today and plans temporary light-touch customs checks with EU from next year, according to sources. The customs regime is expected to be detailed by Cabinet Minister Gove. (Twitter/Newswires)

UK and EU high level talks are to take place on June 15th between UK PM Johnson, EU Commission President von der Leyen and EU Council President Michel according to a spokesperson, while other reports also noted that UK and EU reportedly agreed to hold intensified timetable for FTA negotiations in July according to a Eurasia analyst. (Newswires/FT/Twitter)

Outgoing Eurogroup head Centeno said the negotiations on the European Recovery Fund will be conducted by leaders at the European Council. Centeno added that finance ministers will focus on the quality of expenditure and work on the complementarity of national and EU level recovery plans. (European Council)

FX

In FX markets, the DXY was firmer throughout the bulk of the session and edged closer towards the 97.00 level on the safe-haven bid but with gains limited by the increased growth concerns and downbeat Fed outlook which resulted to some Fed Fund Futures 2021 contracts closing with a negative implied yield for the first time in a week. However, there was also renewed criticism on the Fed from US President Trump who suggested the Fed is wrong so often and that the US will have a very good Q3 and a great Q4, as well as one of the best ever years in 2021. The gains in the greenback pressured its major counterparts in which EUR/USD gave up the 1.1300 handle to briefly test its 200-Hour MA level of 1.1284 and GBP/USD extended its pullback to a sub-1.2600 status with the UK government reportedly to formally rule out a Brexit deadline extension today and is planning temporary light-touch customs checks with the EU from 2021. USD/JPY and JPY-crosses were initially subdued by the downbeat risk appetite before recouping some of the losses in late trade and antipodeans were weighed by their high-beta attributes, coupled with the decline in oil prices and a weaker CNY reference rate setting.

COMMODITIES

Commodities were mixed in which WTI front-month crude futures extended on the prior’s over-8% slump and briefly fell below the USD 35/bbl level with the losses triggered by the broad risk averse tone due to coronavirus 2nd wave fears and growth concerns. However, oil prices are off session lows helped by support at USD 34.50/bbl level and amid reports of China imports of US crude are on track to reach a record level next month, while Barclays also upped its oil price forecasts. Elsewhere, gold prices were steady as the safe-haven bid was offset by a firmer greenback and copper was relatively unchanged near the prior day’s lows following the sell-off in stocks.

US Gulf of Mexico offshore oil production -13% after Cristobal (vs 24% shut yesterday) according to BSEE. In other news, Total’s Port Arthur, Texas refinery reportedly cut back on output, according to sources. (Newswires)

China imports of US crude are reportedly on course to reach an all-time next month, according to Refinitiv data. (Newswires)

Barclays said it raised its oil price forecasts in which it sees Brent at USD 41/bbl and WTI at USD 37/bbl this year but remains cautious regarding the curve near-term, while it suggested the pace of recovery in oil prices is likely to slow as the steepest decline in supply and fastest improvement in demand is likely behind us. (Newswires)

GEOPOLITICS North Korea said relations with US have currently shifted to despair and US is hell-bent of exacerbating tensions. Furthermore, it stated that US policy proves US remains a long-term threat and sees no improvement in relations by maintaining the Trump-Kim relationship, while it added it will build up a more reliable force to confront the US military threat. (Newswires/KCNA)

US Secretary of State Pompeo said US is deeply troubled by Turkish court conviction of US Consulate employee in Istanbul, while he added the charges are baseless and the conviction harms US-Turkey relations. (Newswires)

US

The Treasury curve bull-flattener extended post-FOMC while equities were sold in a fashion not seen since March – queries over limit down levels were rife on the Newsquawk desk, a telling sign. The Fed clarifying it would be continuing to purchase USD 80bln of Treasury securities per month, at the least, has taken off a significant hawkish risk for the market and has even opened the door to potential increases, should market functioning “not run smooth”. At the same time, the FOMC has served as what appears, for now, to be a breather on the wider risk rally, seeing equities print a pullback, which has further supported the inflows into USTs. The equity sell-off at this stage appears healthy in context of the March sell-off, which led to a dash-for-cash sell off in Treasury securities too. Essentially, Treasuries are finding the haven bid, rather than correlating to the risk sell-off as they did in March, indicative of a healthier market retreat; Treasury bid/ask spreads remain relatively tight too, as opposed to March. At the same time, the USD 19bln 30-year Treasury bond reopening today was lacklustre, echoing the 10-year on Tuesday, where it tailed the 1.444% WI by 0.6bps, covered 2.3x (vs average 2.41x), while dealers took 24.55%, more than their average 19.9%. US T-note futures (U0) settle 18 ticks higher at 139-01+.

NEC Director Kudlow said the Fed keeping interest rates at zero for 2 years is good news and said the White House is always talking with leaders of House and Senate on "pro-growth" economic stimulus plans. (FBN)

Kansas City Fed said Jackson Hole Symposium will be conducted virtually on August 27th-28th with the theme to be 'Navigating the Decade Ahead: Implications for Monetary Policy'. (Fed)