• Asian equity markets traded positively after the region took advantage of the mild tailwinds from Wall St
• FOMC Minutes saw the Fed reiterate its commitment to utilizing a full range of tools to support the economy
• Minutes also noted that participants generally indicated support for outcome-based forward guidance
• US daily coronavirus cases increased by over 50,000 for the first time. Apple re-closed 30 stores in seven states
• In FX, the DXY remains lacklustre, EUR/USD sits just above 1.1250, GBP/USD resides just below 1.25
• Looking ahead, highlights include US NFP, IJC, trade, factory orders, Canadian trade, ECB's Mersch, Schnabel, supply from Spain, France & UK

FOMC MINUTES

FOMC Minutes stated that members agreed the Fed is committed to utilizing a full range of tools to support the economy and they anticipate a need for highly accommodative policy ahead. Members agreed that economic data in Q2 will likely show largest contraction to economic activity seen in post WW2 history, while they did not view negative rates as an attractive policy.

Members stated that yield curve control and yield curve target policies can control government bond yields, pass through to private rates and in the absence of exit considerations, may not require large central bank purchases of government debt. Minutes also noted that participants generally indicated support for outcome-based forward guidance and a few others suggested that calendar-based guidance—which specifies a date beyond which accommodation could start to be reduced—might be at least as effective as outcome-based guidance.

A number of participants spoke favourably of forward guidance tied to inflation outcomes that could possibly entail a modest temporary overshooting of the Committee's longer-run inflation goal but where inflation fluctuations would be centred on 2% over time, while a couple of participants signalled a preference for forward guidance tied to the unemployment rate. (Newswires)

CORONAVIRUS UPDATE

US daily coronavirus cases increased by over 50,000 for the first time ever after California, Texas and Arizona all suffered record daily increases according to FT, while AFP tweeted that US experienced a record increase of 52,000 cases in 24 hours citing the Johns Hopkins tracker. (FT/Twitter) California COVID-19 cases rose by 9,740 or 4.4% (Prev. +2.9%) and the death toll rose by 100, Florida COVID-19 cases rose by 6,563 or 4.3% (Prev.+4.2%), New York COVID-19 cases rose by 625 or 0.2% (Prev. +0.1%) with the positivity rate at 1.1% (Prev. 1.0%), while Texas coronavirus cases increased by a record 8,076 and deaths increased by 57 which was the most in 6 weeks. (Newswires)

California Governor Newsom stated that the spread of the virus is particularly concerning and ordered 19 counties to close certain indoor operations such as indoor restaurants, wineries, movie theatres and other venues. (Newswires)

Apple (AAPL) is to re-close 30 stores in seven US states as COVID-19 cases rise, bringing the total number of its closures to 77, while McDonald's (MCD) paused its reopening plans. (Newswires/WSJ)

More than 100 additional coronavirus cases were reported for Tokyo which was the 4th consecutive day there were more than 50 cases. (Newswires)

ASIA

Asian equity markets traded positively after the region took advantage of the mild tailwinds from Wall St where stocks finished mostly higher on vaccine hopes and equity inflows as Q3 trading got underway, although gains were mild in the absence of any improvement to the increasing COVID-19 infections narrative stateside, where new cases surpassed 50k for the first time. ASX 200 (+1.6%) was lifted by strength in tech with the sector inspired following the recent outperformance of the Nasdaq which posted a record close in the preceding session, while Nikkei 225 (+0.1%) shrugged off the early choppy price action which had been at the whim of an indecisive currency. Hang Seng (+1.5%) and Shanghai Comp. (+1.2%) were also upbeat as the constructive tone seen across the continent helped participants overlook another PBoC liquidity drain, as well as the continued US-China tensions after the China Foreign Ministry announced fresh actions against US media and the US House passed China sanctions in response to the HK national security law. Finally, 10yr JGBs were subdued amid gains in stocks and with yields extending to the upside as observed in the 30yr yield which rose to its highest since January last year, while a bout of strength seen on return from the Tokyo lunch break was short-lived due to the mixed results from the 10yr JGB auction.

PBoC skipped reverse repo operations for a net daily drain of CNY 70bln. (Newswires) PBoC set USD/CNY mid-point at 7.0566 vs. Exp. 7.0536 (Prev. 7.0710)

US is reportedly readying sanctions on China over human rights abuses. In related news, the House passed the China sanctions bill in response to the HK national security law through unanimous consent which penalizes banks conducting business with Chinese officials involved in passing the law, while US Senate sponsors of the Hong Kong related sanctions bill stated that the bill could be considered today. (Newswires)

China Global Times Editor Hu Xijin said he hopes the US and China are now even following actions on US media publications operating in China and stated that Beijing will definitely continue reciprocal retaliation if US takes further measures. (Twitter)

UK/EU

Irish Finance Minister and Eurogroup head candidate Donohoe has warned the EU against giving up on digital tax, adding that talks between the EU and US at the OECD were on pause rather than stopped. (FT) Note, the Eurogroup is set to vote on the next head next week. The head would act as a broker on any EU digital tax plans and other levies put forward by the commission.

European commission is in negotiations with Gilead (GILD) to reserve doses of its Remdesivir COVID-19 antiviral for 27 member states. (Newswires)

FX

The DXY remained lacklustre after having been pressured amid the upside in stocks and mixed data releases ahead of today’s earlier than usual NFP jobs report, owing to the Independence Day holiday. Furthermore, FOMC Minutes from the June meeting failed to provide any major fireworks as the Fed reiterated its commitment to utilizing a full range of tools to support the economy and although members discussed yield curve targeting and forward guidance, there appeared to be no major absolute consensus for either policies. The greenback’s major counterparts held on to recent gains with EUR/USD kept afloat by support at 1.1250 where a large option expiry of EUR 2.4bln for today’s New York’s cut has provided the gravitational force for the single currency, while GBP/USD took a breather in its foray closer towards the 1.2500 handle. Elsewhere, JPY-crosses eventually eked marginal gains amid the positive risk tone and antipodeans were kept afloat by the risk appetite but with gains capped by tepid Australian trade data which showed a narrower than expected surplus and a continued contraction to exports, albeit at a much slower pace of decline M/M.

Australian Trade Balance (AUD)(May) 8.0B vs. Exp. 9.0B (Prev. 8.8B) (Newswires) Australian Exports (May) M/M -4% (Prev. -11%) Australian Imports (May) M/M -6% (Prev. -10%)

COMMODITIES

Commodities were mixed with WTI crude prices rangebound below USD 40/bbl following the prior day’s fluctuations due to opposing forces for the complex, as this week’s bullish inventory reports and the positive risk appetite are offset as rising COVID-19 infection rates pushes back reopening efforts in US and with Saudi also said to have threatened to ignite a oil price war again for non-compliance by other OPEC producers. Elsewhere, gold traded sideways, while copper prices saw mild gains amid positive risk tone seen across overnight markets.

Saudi Arabia threatened to ignite an oil price war in recent weeks if other OPEC countries do not adhere to their quotas, according to delegates. (WSJ)

Goldman Sachs said oil demand will decline 8% this year but rebound 6% next year and fully recover to pre-coronavirus levels by 2022, while Citi reaffirmed its theses that oil prices remain volatile although mostly rangebound between USD 45-60/bbl. (Newswires)

GEOPOLITICAL

US House Speaker Pelosi called for the US to impose sanctions on Russia immediately regarding reports it placed bounties for the killing of US soldiers in Afghanistan. (MSNBC)

South Korea Foreign Minister Kang said the country will continue its diplomatic efforts regarding North Korea, although the country was said to be closely observing North Korea following reports related to a potential assault drill by the latter, while other reports noted 62 countries violated North Korea sanctions last year. (Yonhap)

US

The TPLEX modestly bear-steepened as the equity grind higher continued. By the close, 2s +1bps at 16bps, 5s +2bps at 31bps, 10s +3bps at 68bps and 30s +2bps at 143bps. While yields have been rising recently it appears to be more a gravitation towards average levels after the belly recently rallied strongly to test new lows in yields. The selling was supported after today’s data, where leveraged sellers were reported to have emerged post the chunky ADP employment revisions, as well as decent ISM Manufacturing. However, amid some equity turbulence the losses in USTs were pared somewhat, although yields started rising again after the FOMC minutes, which were proved to show YCC/forward guidance policy measures were still in an early stage of discussion. Participants now look to Thursday’s NFP and jobless claims for a more concrete gauge of the US labour market; remember that last month’s blowout NFP saw the 10-year yield break-out to the upside, nearly touching 100bps for the first time since the March liquidity crisis. US T-Note futures (U0) settled 7 ticks lower at 138-30+.

US President Trump said he supports more aid for individuals in the next aid bill and wants direct payments to Americans to be larger, while he added that unemployment benefits do not get people back to work. President Trump also said he will have a statement on the minimum wage in the next two weeks and that he has a different view on minimum wage than some other Republicans, while he added that he is increasingly very happy with Fed Chair Powell's performance but refrained from saying whether or not he would pick him for a second term. (Newswires)

US Senate Majority Leader McConnell said we "may well do" another COVID relief bill, which will include liability protections for businesses, while he also commented that the Senate will definitely consider voting on a second stimulus package this month, but claimed Democrats are partaking in political theatre. (Newswires/EpochTimes)

US House voted 233-188 to pass the USD 1.5tln infrastructure bill, although the Senate already said it will not approve the measure and President Trump had also threatened to veto it. (Newswires)

Fed's Bullard (Non,voter, Dove) does not believe adding to forward guidance would really change the situation in terms of market expectations. Bullard added that if forward guidance was to be made more explicit, he would prefer linking it to economic conditions as opposed to dates. Bullard stated that Yield Curve Control is personally "down the list of priorities". (FT)

Ipsos poll showed former VP Biden leads US President Trump by 46% vs. 38% (Prev. 47% vs. 37%), according to a survey conducted June 30th. (Newswires)