• Sentiment remains subdued as stocks slip and the DXY dominates amidst a busy session in-spite of a quiet schedule with COVID-19 at the forefront
• Melbourne, Australia has been placed under lockdown restrictions for 6-weeks given COVID-19
• European Commission cut EZ growth forecasts for 2020 & 2021 due to the slower easing of lockdown measures
• USTR Lighthizer and Chinese Vice Premier Liu are to lead a phone conversation in mid-August to assess the trade deal's progress
• RBA left rates & 3-yr bond yield target unchanged as expected alongside reiterating forward guidance
• Looking ahead, highlights include Fed’s Quarles, Daly & BoE’s Haldane, EIA STEO, Fed Discount Rate Minutes, supply from the US

CORONAVIRUS UPDATE

AFP tweeted that the US passed another grim milestone as the number of coronavirus deaths surpassed 130,000 citing the Johns Hopkins University. (Newswires/Twitter)

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. (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)

Tokyo reports 106 new COVID-19 cases (Prev. 131); above 100 cases for a sixth straight day. (Newswires)

EUROPEAN COMMISSION SUMMER FORECASTS

- EZ 2020 GDP to contract 8.7% (Prev. 7.7%) before rebounding 6.1% (Prev. 6.3%) in 2021; forecasts cut due to less swift easing in lockdown measures

- In terms of commentary the Commission notes, “Risks surrounding the growth projections continue to be severe and interconnected, leaving the balance of risks still tilted to the downside."

- Full release available here

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 (U/C) 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 (-0.4%) 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 (-1.4%) and Shanghai Comp. (+0.4%) 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)

Australia's Department for Foreign Affairs and Trade has issued new travel advice warning Australian's that they could be placed in 'arbitrary detention' and recommending those who wish to return to Australia do so as soon as is possible. (Newswires)

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)

US

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)

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)

ECB's Panetta notes that "unfortunately" the European Commission's EUR 750bln recovery fund is both temporary in nature and relatively small in relation to the size of the European sovereign bond market. (Newswires)

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)

French lawmakers said the decision to only provide temporary waivers for 5G to Huawei shows the government plans to phase out Huawei technology from their 5G network, according to reports. (Newswires)

GEOPOLITICAL

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

Russia's Kremlin says it will response to new UK sanction against Russian, which will include the country's top state investigator. (Newswires)

EQUITIES

European stocks have continued to bleed [Euro Stoxx 50 -1.3%], as the mostly positive APAC sentiment dissipated when European players entered the fray. Downside in futures was initially seen overnight as the optimism over China’s recent performance fizzled out amid rising reported cases, which led to the Australian State Premier imposing a six-week lockdown on Melbourne, whilst case numbers remained heightened in other parts of Asia. Furthermore, the European Commission cutting its 2020 and 2021 growth forecasts, due to less swift than expected reopening, only dampened the mood. As such, major bourses trade with broad-based losses of some 1%, but in the periphery, Italy’s FTSE MIB (-0.3%) fares slightly better as losses in banking names were somewhat cushioned by reports the ECB's Funding to Italian Banks in June rose to EUR 345.226bln vs. EUR 290.963bln in May, although reports noted that the ECB is to consider asking banks to withhold dividend for longer. Sectors remain in negative territory with no clear risk-tone to be derived on that front as cyclicals and defensives remain mixed. Delving deeper into the sectors, a similar performance, but Travel & Leisure resides among the laggard amid the aforementioned dampened sentiment regarding reopening economies. In terms of individual movers, Wirecard (-14%) extended on losses, with reports also noting that payment group Mastercard was warned about Wirecard’s links to an alleged laundering network around four years ago. Micro Focus (-10.3%) holds its place as a laggard after reporting an impairment charge of USD 922.2mln in H1. Bayer (-7%) shares remain pressured after a U.S. judge questioned the Co’s proposed settlement to deal with future claims regarding its weedkiller. On the flip-side, BMW (+1.0%) nursed opening losses after a trading update in which, despite a H1 YY sales decline of 23%, noted that Q2 China sales have exceed the prior and are seeing initial signs of recovery in some markets as of end-Q2. Finally, in terms of commentary, Blackrock has downgraded US equities on risk of fading fiscal stimulus whilst upgrading Europe to overweight.

Apple (AAPL) is reportedly to use OLED displays within all new iPhone models, according to Nikkei; Apple will for the first time not include a charger in the box for the upcoming new iPhones and iPads this year - source added this the exclusion of the charger and wired headphones was to " lower the cost a bit, but not necessarily the most important one [reason]". (Nikkei)

ECB Supervisor af Jochnick says the ECB is considering whether the recommendation that banks suspend dividend payments and share buybacks should be extended beyond October. (Newswires)

FX

USD - A further erosion of bullish risk sentiment has helped the Dollar regain composure and its status as a safe haven following less pronounced gains in Chinese equities overnight and a more mixed session for APAC bourses overall. Hence, the index is back on the 97.000 handle from a low of 96.565 at one stage on Monday and extending recovery gains on the back of a much better than expected services ISM survey.

AUD - The Aussie is bearing the brunt of the turnaround in risk assets and heightened 2nd wave COVID-19 concerns as Melbourne extends anti-virus measures amidst another rise in cases, with Aud/Usd reversing sharply from just shy of the 0.6900 level towards 0.6920 alongside Usd/CNH bouncing from a fraction below 7.0000. For the record, no surprises from the RBA that reaffirmed wait-and-see guidance, but clearly the economic outlook will be adversely impacted by the aforementioned outbreak in the state of Victoria.

NZD/EUR/JPY/CAD/CHF/NOK/SEK/GBP - All unwinding more of their recent gains relative to the Greenback, as the Kiwi retreats from around 0.6580 to 0.6520 irrespective of a modest improvement in NZIER Q2 confidence, while the Euro has relinquished 1.1300+ status to test the resolve of decent option expiry interest between 1.1265-75 (1.5 bn). However, the Yen is still pivoting 107.50 and Loonie holding above 1.3600 post-weaker than forecast Japanese household spending data and pre-Canadian Ivey PMIs. Elsewhere, the Franc is hovering circa 0.9450 and 1.0650 vs the single currency, Eur/Nok is near 10.6500 in wake of a steeper decline in Norwegian manufacturing output and Eur/Sek is straddling 10.4500 even though Swedish ip and orders were mixed. Elsewhere, Cable has lost grip of 1.2500 yet again, albeit finding underlying bids ahead of 1.2450 and support some 10 pips below.

EM - Broad deterioration on the downturn in risk appetite, but the Rand underperforming following a more pronounced than anticipated fall in SA consumer morale.

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.

FIXED

Although the risk backdrop remains distinctly less positive than it was on Monday, bonds have lost momentum and perhaps tellingly did not derive extra impetus when stocks slipped to fresh intraday lows. In fact, Bunds have subsequently retreated to a new Eurex base at 175.96 compared to 176.30 at best and Gilts are closer to their 137.33 opening trough than 137.50 peak, as Treasuries idle midway between overnight ranges with a marginally flatter bias ahead of the first leg of this week’s US supply schedule. Also ahead, JOLTS, Fed speakers and June discount rate meeting minutes plus another appearance from BoE’s Haldane.

COMMODITIES

WTI and Brent crude futures remain on the backfoot, albeit off lows, as the complex tracks broader market sentiment, as participants regain focus on rising COVID-19 infection rates which prompted the re-imposition of lockdown measures in some cities, whilst others see their gradual easing plans hindered. Furthermore, the European Commission cutting the EZ and EU growth forecasts added to the bearish factors. WTI Aug resides just above the USD 40/bbl (vs. high 40.79/bbl) having tested the level earlier in the session, whilst Brent Sep relinquished its USD 43/bbl (vs. high 43.19/bbl) handle before finding mild support at the psychological 42.50/bbl. Looking ahead, in the absence of virus/China related headlines, participants will be eyeing the release of the EIA Short-Term Energy Outlook for any potential revisions to global oil demand given the resurging COVID-19 cases, thereafter, focus will turn to the Private Inventory numbers for short-term volatility. Elsewhere, spot gold has fallen victim to the rising Buck as the yellow metal slid from near-8yr highs of around USD 1787/oz to find some solace around the psychological USD 1775/oz. In terms of base metals, Shanghai copper hit a 2020 high amid supply woes coupled with hopes of a rebounding Chinese economy. Similarly, Dalian iron ore was underpinned by China optimism alongside doubts over the prospected of a recovery in Brazilian iron shipments.

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

G20 energy minsters are reportedly intending to hold a meeting on July 19th, according to sources. (Newswires)