• Sentiment remains stronger this morning following a positive APAC handover ahead of today’s heavy US data slate
• DXY is softer below the 97.00 handle to the benefit of most major peers while the core debt complex is marginally firmer
• Senior EU official is to publish a compromise EU budget and Recovery Fund proposal next week, will continue to negotiate until the EU leader summit
• 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
• 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.
• Additionally, McDonald’s (MCD) has reportedly paused reopening plans in the US for 21-days
• Looking ahead, highlights include US NFP, IJC, trade, factory orders, Canadian trade, ECB's Mersch, Schnabel

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) Texas coronavirus cases increased by a record 8,076 and deaths increased by 57 which was the most in 6 weeks. (Newswires)

McDonald's (MCD) has reportedly paused its reopening plans in the US for a period of 21-days. (WSJ/Newswires)

More than 100 additional coronavirus cases were reported for Tokyo which was the 4th consecutive day there were more than 50 cases. Subsequently, Japanese Gov't spokesperson says he does not think the conditions are there for the issuance of a state of emergency. (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 (+1.7%) 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 (+2.9%) and Shanghai Comp. (+2.1%) 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 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. Subsequently, China's Commerce Ministry state they resolutely oppose the sanctions from the US on Hong Kong. (Newswires)

China has reportedly vowed corresponding measures in the event Britain was to extend their Hong Kong citizenship plan, according to AFP citing the Embassy. Additionally, China's Foreign Ministry urges Australia to stop interference in China's internal Hong Kong affairs (Twitter/Newswires) Follows on from, Australian PM Morrison says they are considering the prospect of making Australia a safe-haven for individuals from Hong Kong.

Japan will be reducing bond issuance by JPY 500bln from its previously planned issuance, sources state. Sources added that the govt will instead tap reserves to fill tax revenue shortfalls. (Newswires)

US

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)

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.

UK is to effectively abandon their air-bridge plan given the introduction of a quarantine exemption list for as many as 75 countries, Telegraph reports; USA, Russia & Brazil will remain on the 'red' list which bans non-essential travel. (Telegraph) Expected to be announced Thursday/Friday

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

Senior EU official is to publish a compromise EU budget and Recovery Fund proposal next week, will continue to negotiate until the EU leader summit, adding that the EU multi-annual budget could be lowered slightly and rebates could be subject to guarantees in negotiations but will aim to keep the recovery fund at EUR 750bln. (Newswires) Note, some reports are attributing these comments to EU Council President Michel

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)

Arabian alliance notes that eight drones have been destroyed alongside four ballistic missiles dropped by Houthis; adding that Iranian made missiles targeted Riyadh. (Newswires)

EQUITIES

European equities continue to march higher as the second trading session in H2 is underway (Euro Stoxx 50 +1.5%) following on from a similarly stellar APAC performance – with gains in stocks attributed to COVID-19 vaccine optimism coupled with Q3 inflows. The fundamental landscape has not shifted much but the narrative of rising case counts has not subsided, with US cases topping 50k additions for the first time whilst a record increase was also reported in Indonesia. Furthermore, the Hong National Security Law keeps tensions riled up between China and G10 nations, with US House passing the China sanctions bill in response to the HK national security law through unanimous consent. Nonetheless, Europe extends on gains seen at the open with Spain’s IBEX (+2%) outperforming as the index is propped up by outperformance in Banks and Travel & Leisure. Meanwhile, Autos, construction and insurance sectors also reside near the top of the pile whilst Healthcare and consumer staples trade on the other side of the spectrum. Cyclicals clearly outpace defensives.  In terms of individual movers, Wirecard (-27%) shares are on the backfoot amid reports Softbank is to end its partnership with the Co. Meanwhile, Associated British Foods (+5.3%) holds onto a bulk of its gains after reporting that almost all of its Primark stores have reopened and the group continues to expect strong progress in aggregate adjusted operating profit in sugar, grocery, agriculture and ingredients businesses.

FX

USD - The Dollar continues to depreciate amidst rather contradictory or juxtaposed impulses via more signs that the US and global economy has turned the corner from initial coronavirus-related shutdowns vs concerns about the impact of re-opening and a 2nd wave. Hence, a double whammy for the Buck as fresh COVID-19 outbreaks spread to more states that have lifted restrictions, but the overall risk environment remains positive and the DXY loses grip of the 97.000 handle ahead of NFP, the more timely weekly jobless claims update, trade data and factory orders, all truncated due to Friday’s market closure for Independence Day.

NZD/EUR/GBP/AUD/CHF - The Kiwi is back above 0.6500, thanks in part to general Greenback weakness, but also deriving momentum from closer to home as the Aussie lags in wake of weaker than forecast trade data overnight. In response, Aud/Nzd has retreated from circa 1.0675 to sub-1.0640 and Aud/Usd has not been able to revisit 0.6950 against the backdrop of heavy option expiry interest at 0.6895 (1.8 bn) and in the Aud/Jpy cross close to current levels, at 74.50 (1 bn). Similarly, the Euro and Pound are both making more headway against the Dollar, with Eur/Usd probing above 1.1300 and Cable now over 1.2500 as Eur/Gbp eyes 0.9000 to the downside on reports of real money Sterling buyers. Note, the single currency may also be capped by significant expiries at 1.1300 (2 bn), but should glean support from slightly bigger options rolling off at 1.1250 (2.2 bn). Elsewhere, the Franc has extended gains vs the Buck towards 0.9425 in contrast to marginal underperformance against the Euro around 1.0650 following slightly softer than expected Swiss CPI metrics.

JPY/CAD - Both narrowly mixed vs the Usd, as the Yen weighs up bullish risk sentiment alongside latest Greenback declines and treads a fine line between 107.55-35 with a decent 107.50 expiry (1 bn) also in contention for the NY cut pending reaction to US data. Conversely, the Loonie has reversed further from recent highs to pivot 1.3600 in advance of Canadian trade and manufacturing PMI, as underlying traction from crude stalls somewhat.

SCANDI/EM - Broad strength on the ongoing risk-friendly start to July, Q3 and H2, and with the Zar also benefiting from another upside SA data surprise in the form of a Q1 current account surplus, while the Rub is underpinned by reduced political uncertainty on the domestic front after more than ¾ of the country voted in favour of Russia’s new constitution. However, the Try remains hampered due to renewed geopolitical jitters, albeit still stemming losses with the aid of Turkish bank intervention.

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%)      

FIXED 

It’s been measured and not without the odd setback, but debt has decoupled from equities and regained a degree of composure after kicking off the new month, quarter and 2nd half of 2020 on the back foot. Bunds and their Eurozone peers are now outperforming, with the former just climbing to a new Eurex high chiming with a 50% Fib retracement (175.70 and 175.04 at one stage), while Gilts may want confirmation from the 2nd of today’s DMO cash sales before deciding that Wednesday’s poorly received offerings were likely a hiccup rather than end of a largely successful funding trend. Hence, the 10-year UK benchmark has eased back from 137.31 and more in keeping with mildly firm/flatter Treasuries awaiting US jobs data and the final batch of pre-July 4th releases.

COMMODITIES

WTI and Brent front-month futures hold onto earlier gains, albeit have drifted off highs in recent trade with little by way of fresh fundamental drivers as the oil complex piggybacks on risk sentiment. On the OPEC front, interesting reports overnight from delegates noted that Saudi Arabia threatened to re-ignited an oil price war in past weeks if other OPEC countries do not adhere to their quotas. The headline, however, gained little traction as OPEC laggards have, at face value, been taking steps to improve compliance in line with the OPEC+ pact. Meanwhile, Russian Energy Minister Novak hopes the global oil market reaches a balance/shortage in July but noted a second wave of COVID-19 could impact on oil demand. WTI trades on either side of USD 40/bbl (39.50-40.40/bbl range) whilst Brent Sep holds its head above USD 42/bbl (41.73-42.66/bbl).Price action today will likely be dictated by pandemic-related headlines alongside the US labour market report, whilst the Baker Hughes Rig Count will be released today on account of tomorrow’s Independence Day market holiday. Elsewhere, spot gold remains contained around recent ranges on either side of USD 1770/oz as the yellow metal bides its time ahead of NFP. Copper prices meanwhile are experiencing a day of correction after its recent supply-led gains.

Russian Energy Minister Novak says that there are no decisions on the OPEC+ deal at present, with the current deal meaning will we see an easing of oil cuts from August onwards. (Newswires)

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)