• APAC stocks traded mixed in what was a choppy session; Mainland China remained positive
• Chinese officials are said to believe that if they keep ramping up US agriculture purchases it will help keep the Phase One deal alive, sources
• EU’s Chief Brexit Negotiator Barnier said the EU is willing to accept zonal attachments for post-Brexit fisheries under conditions
• RBA kept its Cash Rate Target unchanged at 0.25% and maintained the 3yr bond yield target as expected, while it reiterated forward guidance
• In FX, DXY was flat below 97.000, USD/JPY mirrored the choppy price action in stocks; USD/CNH briefly dipped below 7.000
• Looking ahead, highlights include German Industrial Production, Fed’s Quarles, Daly & BoE’s Haldane, EIA STEO, Fed Discount Rate Minutes, Supply from UK, Germany and US

CORONAVIRUS UPDATE

US COVID-19 cases rose by 44,361 (Prev. +43,003) and death toll increased by 235 (Prev. +212), while AFP later tweeted that the US passed another grim milestone as the number of coronavirus deaths surpassed 130,000 citing the Johns Hopkins University. (Newswires/Twitter)

California COVID-19 cases rose by 4.4% or 11,529 cases (Prev. +5,410) and Texas coronavirus cases increased by at least 8,323 to a total of 209,464 on Monday which was a record increase amid counties reporting a weekend backlog. Furthermore, New York COVID-19 cases rose by 518 (Prev. +533) and New Jersey COVID-19 transmission rate was at 1.03 which was the highest in 10 weeks. (Newswires)

NIH's Fauci said as things stand, one of the leading COVID-19 vaccine candidates will enter its Phase 3 study at the end of July and the others will follow in August and September, while he added that if a vaccine is discovered, it is not clear how long it would be effective for and is to assume any vaccine will offer "finite" protection. (Newswires)

Australia's Victoria state reports 191 additional coronavirus cases and the state Premier is considering a 4-week state-wide lockdown. Melbourne, the state’s capital, is to have a 6-week lockdown implemented. (Newswires/The Australian)

Brazil President Bolsonaro reportedly has COVID-19 symptoms and results from his test are expected on Tuesday. (Newswires)

ASIA

Asian equity markets were somewhat choppy as participants began to second guess the viability of the recent Chinese stocks surge which had already reverberated across global counterparts on Monday to lift all major indices on Wall Street and push the Nasdaq to a fresh record high. ASX 200 (+0.8%) swung between gains and losses as strength in the mining related sectors was initially offset by early weakness in energy, utilities and financials, while second wave fears concerning Australia’s 2nd largest city of Melbourne and the RBA policy announcement further added to the tentative tone. Nikkei 225 (-0.6%) lagged after Household Spending data showed the largest decline on record and the KOSPI (-0.7%) also failed to hold on to early gains as the initial support in Samsung Electronics following a beat in preliminary Q2 results which eventually wore thin. Hang Seng (-0.1%) and Shanghai Comp. (+1.8%) both extended on the prior day’s stellar rally but are off their best levels with the momentum gradually dissipating amid several bearish factors such as another substantial liquidity drain by the PBoC and with Chinese press calling for rationality in the stock markets, while the recent headlines also continued to add to the ongoing China vs. the West narrative including the warning from China’s Ambassador to the UK that it will have to bear the consequences if it treats China as a hostile country. Finally, 10yr JGBs were marginally higher amid underperformance in Japanese stocks following the abysmal Household Spending data and with upside also briefly spurred by mostly firmer results at the 30yr JGB auction.

PBoC skipped reverse repo operations for a net daily drain of CNY 110bln. (Newswires) PBoC set USD/CNY mid-point at 7.0310 vs. Exp. 7.0271 (Prev. 7.0663)

Chinese officials are said to believe that if they keep ramping up agriculture purchases it will help keep the deal alive according to sources, while it was also reported that USTR Lighthizer and Chinese Vice Premier Liu are to lead a phone conversation in mid-August to assess the deal's progress. (WSJ)

US Secretary of State Pompeo tweeted that Hong Kong authorities are removing books from libraries, banning political slogans and requiring censorship in schools, while he added the US condemns these Orwellian assaults on rights and freedoms of the Hong Kong people. Furthermore, Secretary of State Pompeo separately commented that the US is certainly looking at banning TikTok in the US. (Twitter/Fox News)

China's major state-owned financial press outlets reportedly published front-page commentaries regarding the stock market in which they urged participants to be rational. (Twitter)

Japanese All Household Spending (May) Y/Y -16.2% vs. Exp. -12.2% (Prev. -11.1%); largest decline since comparable data was made available in 2001. (Newswires)

UK/EU

EU’s Chief Brexit Negotiator Barnier said the EU is willing to accept zonal attachments for post-Brexit fisheries if it was coupled with other factors such as assessing economic impact on coastal communities. (Telegraph) Note, zonal attachments have been a key British request in ongoing trade negotiations.

UK Chancellor Sunak is poised to unveil a scheme in which vouchers to be given away for eco-friendly home improvements. Separately, BoE Governor Bailey has postponed his address to the 1922 committee to a later date. (Telegraph)

Outgoing Eurogroup president Centeno believes the EU should use the pandemic to pause on the standard application of EU debt and deficit rules and rethink the legislation. (FT)

FX

In FX markets, the DXY was flat below the 97.00 level amid the flimsy overnight risk tone and after the effects of strong US ISM Non-Manufacturing PMI data was nullified by rising coronavirus infection rates. The greenback’s transatlantic counterparts were indecisive and have retraced the initial risk fuelled gains with EUR/USD now flat heading into Wednesday’s meeting between European Commission President Von der Leyen and German Chancellor Merkel to discuss the budget and recovery plans, while GBP/USD marginally pulled back and oscillated through the 1.2500 level. Elsewhere, USD/JPY and JPY-crosses mirrored the choppy price action in stocks, which was also among the main catalysts for antipodean currencies and with late pressure seen after reports Australia’s Victoria state Premier was mulling a 4-week state-wide lockdown, while the RBA policy announcement didn’t provide any surprises. Meanwhile, USD/CNH briefly dipped below 7.000 in a continuation of yesterday’s strength.

RBA kept its Cash Rate Target unchanged at 0.25% and maintained the 3yr bond yield target at 0.25% as expected; while it reiterated forward guidance that it will not increase the cash rate target until progress is being made towards employment and inflation goals. RBA also repeated that it will maintain an accommodative approach and that it is likely both fiscal and monetary support will be required for some time, while it is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional.

COMMODITIES

Commodities were rangebound on what was a predominantly choppy session for risk assets with mild losses seen in WTI crude futures which marginally retreated below the USD 40.50/bbl level as continued increases in coronavirus infections hindering the reopening agenda with analysts forecasting that reopenings impacting around 40% of the US population have already been affected, while focus for the complex turns to the latest stockpiles numbers beginning with the private sector inventory report later. Elsewhere, gold prices were steady amid the uneventful greenback and indecisive risk tone, while copper edged mild gains as the momentum in Chinese stocks remained intact albeit in a moderated fashion.

IEA's Birol said global oil demand will likely recover to above pre-pandemic levels in the future, despite claims that a structural decline in the oil market has begun. (S&P Platts)

CME lowered crude oil future NYMEX maintenance margins by 12.8% to USD 6800 per contract from USD 7800/contract for August. (Newswires)

GEOPOLITICAL

North Korea has no intention to sit down with the US, according to state media reports. (KCNA) 

US

Yields were modestly firmer on Monday as equities got off on a strong start, albeit off highs. Yields peaked in a bear-steepening fashion around the US cash equity open as the positive overnight sentiment travelled into the Americas, the 10-year yield’s high was 71bps. Furthermore, a 10+ list of High Grade issuers coming to the dollar market weighed on the curve too. However, as the session advanced, equities faced some headwinds, and defensive/duration factors began to fare better, seeing yields come off their highs into settlement. Furthermore, this week’s Treasury refunding (3s, 10s, 30s) looms, read below. However, recent auctions have gone down well, which participants will be examining to see if this week’s more duration-heavy slate can echo. In the short-end, it is worth noting that government money market funds have continued to see weekly outflows from their peak levels in May, which could begin to provide some pressure on T-Bills and RP rates, especially with the potential US tax deadline on July 15th, although this could potentially be delayed again. US T-note futures (U0) settled 3+ ticks lower at 138-31+.

US Treasury Secretary Mnuchin said the Boston Fed's Main Street Lending Program is now fully functioning and ready to buy qualifying loans, while he encourages all eligible lenders to participate in the program. (Newswires)

Fed's Bostic (non-voter) said the US economic recovery may be levelling off and that he is concerned regarding data on business openings. (FT)