• Asian equity markets traded mostly positive, but risk sentiment overnight saw volatility amid comments from White House Trade Adviser Navarro
• White House Trade Adviser Navarro said the trade deal with China "is over", but later clarified his comments were taken out of context
• US President Trump tweeted the China trade deal is fully intact and hopefully they will continue to live up to the agreement.
• US Treasury Secretary Mnuchin said there may come a time when we have China decoupling, which is something US President Trump could consider
• DXY, CNH and JPY were turbulent amid the China headlines overnight but have since reversed price action
• Looking ahead, highlights include EZ, UK & US PMIs (Flash), BoE's Bailey, RICs Finance Ministers meet, supply from UK, Germany and US

CORONAVIRUS UPDATE

US COVID-19 cases rose by 27,616 (Prev. +32,411) and deaths rose by 308 (Prev. +560). (Newswires)

California COVID-19 cases rose 2.4% vs. 7-day avg. 2.2% and Texas cases rose by 2622 vs. Prev. 3866 the day before, while Texas hospitalizations rose by 8.9% which was the most in nearly 3 weeks and Texas Governor Abbott stated the virus is spreading at an unacceptable rate in the state. (Newswires)

US President Trump said second stimulus checks for Americans will be in the next COVID-19 aid package and that details are to come in the next few weeks, while there were also comments from the White House that US President Trump has not directed officials to slow down coronavirus testing. (Newswires)

ASIA

Asian equity markets traded mostly positive following the tech led gains stateside where Apple shares advanced amid its Worldwide Developers Conference and the Nasdaq notched a record closing high, although gains in the broader market were limited given the rising infection rates in some US states and as US-China tensions persisted. Furthermore, risk sentiment saw a bout of volatility overnight after comments from White House Trade Adviser Navarro circulated in which the known China hawk reportedly stated that the trade deal with China is over and cited the breakdown was due to Beijing not alerting the US about the coronavirus outbreak sooner. This triggered a risk averse tone across Asian bourses and dragged the Emini S&P and DJIA futures below the 3100 and 26000 levels respectively, although the moves were then reversed after Navarro noted that his comments were taken out of context and were concerning trust, not the Phase 1 trade deal which remains in place. As such, ASX 200 (+0.1%) and Nikkei 225 (+0.9%) swung between gains and losses before recovering back from the dip amid the turbulence from Navarro’s comments on the trade deal, which President Trump also clarified was still intact and that he hopes China will live up to the terms. Elsewhere, the Hang Seng (+1.1%) and Shanghai Comp. (+0.2%) were susceptible to the erroneous trade commentary and eventually kept afloat following another firm liquidity operation by the PBoC, although upside in the mainland was limited by lingering tensions after the US designated 4 Chinese media outlets as foreign missions and US Treasury Secretary Mnuchin suggested the possibility of a future decoupling from China. Finally, 10yr JGBs were choppy as stocks whipsawed but then returned flat after the dust settled, with demand hampered by the eventual broad upbeat tone in stocks and with the BoJ only present in the market today for Treasury Discount Bills.

PBoC injected CNY 90bln via 7-day reverse repos and CNY 110bln via 14-day reverse repos for a daily net injection of CNY 200bln while it maintained 7-day and 14-day reverse repo rates at 2.20% and 2.35% respectively. (Newswires) PBoC set USD/CNY mid-point at 7.0671 vs. Exp. 7.0642 (Prev. 7.0865)

White House Trade Adviser Navarro reportedly commented in an interview that the trade deal with China "is over" and the breakdown was cited on Beijing not alerting the US about the coronavirus outbreak sooner. However, Navarro later clarified his comments on China trade was not what it seemed and have been taken out of context, while he added that he was trying to make a point about trust and the comments were not about the Phase 1 deal which remains in place. US President Trump also tweeted the China trade deal is fully intact and hopefully they will continue to live up to the agreement. (Newswires/Fox/WSJ/Twitter)

US Treasury Secretary Mnuchin said there may come a time when we have China decoupling, which is something US President Trump could consider. (Newswires)

US State Department designated four additional Chinese media outlets as foreign missions, including CCTV, China News Service, People's Daily and Global Times. There were also comments from Assistant Secretary of State for East Asian and Pacific Affairs Stilwell that the designated Chinese news outlets will have to inform state department of their personnel rosters and real estate holdings, while he added that this is simply a response to China's actions. (Newswires)

Chinese President Xi said China is a partner to EU rather than a rival and that there is no fundamental conflict between China and EU, while he added that cooperation triumphs competition and consensus between the two sides exceeds divergences. (Newswires)

UK/EU

UK government has abandoned its plans to relax Sunday trading laws following opposition by Tory backbenchers. (Telegraph)

BBC's Nick Eardley tweeted that UK PM Johnson will announce moves to reopen arts and cultural events in which cinemas, museums and galleries will be able to open again on July 4th. (Newswires)

Spain is said to be mulling significantly increasing the size of its current EUR 100bln loan guarantee fund amid huge demand from businesses, sources state. Sources added as officials are considering an as much as an additional EUR 50bln in guarantees, (Newswires)

FX

Price action in FX markets was predominantly driven by the risk appetite in which the USD was supported as the early negative rhetoric regarding US-China trade spurred safe haven demand, although the moves were then pared after Navarro clarified his comments were taken out of context which brought the DXY back down to around the 97.00 level. The greenback’s major counterparts recouped the prior day’s spoils with EUR/USD back above its 200-Hour MA of 1.1261 and GBP/USD made another attempt at the 1.2500 handle where resistance has so far proved to be stubborn, while focus turns to today’s lockdown easing announcement from UK PM Johnson which reports noted will include the reopening of cinemas, museums and galleries from July 4th. Elsewhere, USD/JPY and antipodeans were under the influence of the tumultuous US-China trade headlines which also spooked CNH, although most the moves have since been retraced which helped USD/JPY reclaim the 107.00 status.

BoC Governor Macklem said he sees a long recovery and noted there has been no discussion on when to withdraw stimulus support. Macklem also commented that the central bank has options going forward and that it can scale asset purchasing programmes, while he added that yield curve control is also in its tool kit and that they will be flexible, resolute, innovative and determined. (Newswires)

SNB Vice Chairman Zurbruegg stated that monetary policy cannot cushion impact from coronavirus and that the SNB opposes increasing the payout to national and local governments, while he added there is no limit to how much the balance sheet can expand. (Newswires)

COMMODITIES

Commodities were subdued overnight with pressure seen amid the initial comments from White House Trade Adviser Navarro regarding that suggested the traded deal was over which pressured WTI crude futures to briefly below USD 40/bbl before recovering most of the losses after Navarro clarified that the comments were taken out of context. Nonetheless, price action has since been uneventful amid a lack of catalysts for the energy complex and with participants looking ahead to the upcoming stockpile data beginning with the private inventory data due later. Elsewhere, gold heads into the European session relatively unchanged after the early safe haven flows petered out and copper momentarily wobbled in tandem with stocks due to the Navarro rhetoric before recovering most the losses.

GEOPOLITICS

US has shared a draft resolution with the UN Security Council that would extend the Iranian arms embargo indefinitely, diplomats stated. (Newswires)

North Korea is ready to float some 12mln propaganda leaflets into South Korea. South Korea has called on Pyongyang to suspend plans, adding that it is “not helpful to relations at all”. (Sky News)

There are doubts over whether the arms control treaty between US and Russia can be replaced in time ahead of its expiry in February following the meeting between the two sides yesterday. (Times)

US

It was hard to read into Treasury price action yesterday and the session had quite a ‘summer’ feel to it; the curve is barely changed, meandering on both sides of neutral but failing to move with conviction either way. It was interesting that the curve remained unchanged even in the face of more constructive risk sentiment in the pre-market, where stocks were firmer. Stocks upside has continued, but the Treasury complex has barely batted an eyelid. However, it would be unwise to expect the current summer feel to persist this year; BMO’s analysts argue that much of the March/April will be put to test; the desk does not expect the range to be too challenged (broadly between around 54-95bps in 10s, with the mini range of 60-65bps within); the theme is that monetary policy expectations are keeping the front-end anchored, while the long end will be influenced by hefty supply, as well as the re-opening narrative (pro-growth and pro-inflation, may see the upper end of the range tested); BMO, therefore, describes the curve as a directional play, at the moment (steepening). US T-note futures (U0) settled 2+ ticks lower at 138-22+.

US President Trump issued an executive order limiting temporary work visas as expected, which will be in place to the end of the year. There were also separate reports that US-Canada border restrictions are to be extended to July 21st, while the US is set to announce aluminium tariffs on Canada by the end of the week. (Newswires)

Apple (AAPL) conducted its Worldwide Developer Conference where it stated that the transition from Intel (INTC) to its own chips will take two years and that it still has Intel based macs in the pipeline. Furthermore, it said it is working with Adobe (ADBE) to bring its creative cloud to the Apple Mac and that Apple TV is coming to Sony (6758 JT), as well as Vizio TV's. (Newswires)