• APAC equity markets were mixed; ASX 200 lagged as Australia’s 2nd largest city heads into a 6-week lockdown
• California and Texas reported record daily COVID-19 cases, according to reports
• President Trump’s aides were said to propose undermining the USD/HKD peg; the idea had not been put forward to the President
• UK PM Johnson reiterated that Britain is prepared to leave the EU without a trade agreement
• In FX, DXY held onto gains below 97.000, G10 peers largely traded within tight ranges
• Looking ahead, highlights include UK Chancellor Sunak providing a Fiscal Statement, ECB's de Guindos, supply from Germany and US
• Earnings: Daimler & Barratt Development

CORONAVIRUS UPDATE

US CDC reported total cases rose 46,329 (Prev. +44,361) death toll rose by 322 (Prev. +235), while AFP later tweeted that US coronavirus cases rose by a new daily record of 60,209, citing the Johns Hopkins tracker. (Newswires)

California coronavirus cases increased by at least 10,201 which was a record daily increase, according to a major newswire tally and Texas cases also reportedly rose by a record 10,028 (Prev. +5,318). (Newswires)

University of Washington's Institute for Health Metrics and Evaluation (IHME) sees 208k US COVID deaths by November vs. current estimate of 175k by the beginning of October. (Newswires)

US President Trump said Americans will get another stimulus check in the next tranche of relief. President Trump also reiterated his desire to keep the economy open in which he stated that now we're open, we want to stay open and we will stay open, while he added we'll put out the fires as they come out. (Newswires/Twitter/CNN)

FBN's Gasparino tweeted that the rise in COVID cases prompts the White House to renew push to get Senate GOP to compromise with Democrats and reach a deal on a new stimulus this month, while he added President Trump is worried cases could jeopardize nascent recovery as election approaches. (Twitter)

WHO has acknowledged there is emerging evidence that coronavirus can be spread by particles suspended in the air. (BBC)

WHO said it received reports US submitted formal notification to the UN Secretary General that it is withdrawing from WHO from July 6th next year, while there were comments from former VP Biden that he will keep the US in the WHO if he becomes the next US President. (Newswires/AFP)

ASIA

Asian equity markets were mixed as attempts to shrug off the weak handover from global peers were somewhat hindered by the record infection rates stateside and a slew of punchy US-China related headlines. ASX 200 (-1.2%) was subdued as Australia’s 2nd largest city heads into a 6-week lockdown and with the declines in the index led by notable losses in consumer stocks and financials, while Nikkei 225 (-0.7%) was pressured by the ongoing virus flare up in Tokyo where more than 100 new cases were reported for a 6th consecutive day, but with downside stemmed after data showed the largest increase in bank lending on record. Hang Seng (+0.6%) and Shanghai Comp. (+0.7%) were supported as the latest coronavirus updates from Beijing showed zero new cases for a 2nd consecutive day although caution was also observed on the inauguration day of China’s national security office in Hong Kong and as reports continued to suggest increasing tensions between the world’s largest economies. This includes confirmation by US President Trump that he is looking at banning TikTok in the US and his administration also warned the Railroad Retirement Fund against Chinese investments due to risks of additional sanctions, while the White House is considering executive actions which involve targeting Chinese businesses operating in the US and aides were also said to propose undermining the USD/HKD peg although this was not put forward to President Trump and certain officials have opposed the idea. Finally, 10yr JGBs were initially copy as they conformed to the unsettled overnight tone across asset classes, but eventually edged only marginal gains amid a subdued risk tone in Tokyo and the BoJ’s presence in the market for JPY 870bln of government bonds with up to 5yr maturities.

PBoC skipped reverse repo operations for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 7.0207 vs. Exp. 7.0186 (Prev. 7.0310)

US President Trump confirmed he is looking at banning TikTok in the US, while his administration reportedly warned the Railroad Retirement Fund against Chinese investments due to risks of additional sanctions. (Newswires/NYT)

US Secretary of State Pompeo announced the US has set visa restrictions on China officials for policy on Tibet, while there were separate reports that President Trump’s aides were said to propose undermining the USD/HKD peg, although the idea had not been put forward to President Trump and certain officials opposed the idea. (Newswires)

China and the US have made positive progress on phase one trade deal implementation but there are certain “lags” on purchase targets due to technical and supply issues on the US side, according to China’s Global Times. (Twitter)

China’s Global Times Editor tweeted “President Trump withdrew from WHO because the organization is of no help to his re-election. The whole world can see it through, but this ugly act can be done with a sense of justice in the US. It’s true that the political function of the US has fallen into a state of dementia”. (Twitter)

UK/EU

UK PM Johnson underlined the UK's commitment to find an early agreement out of the intensified talks progress and noted the UK would be equally ready to leave the transition period on Australia terms if no agreement during a call with German Chancellor Merkel. (Newswires)

UK Chancellor Sunak is to announce GBP 2bln funding on hundreds of thousands of work placements in today’s emergency economic update. (Sky News)

UK Ministers are to press ahead with relaxation in alcohol licensing laws as the economic need outweighs concerns, sources state. (Telegraph)

BOE chief economist Haldane said BOE asset purchases could be around GBP 750bln by the end of this year, while he noted the direction of travel has been upwards which has come sooner than any mainstream forecasters expected and that the UK has seen a hefty bounce-back in household spending. However, he also suggested as much as half the workforce is unemployed or underemployed, that output likely fell 25% over the three-month period and that he has never seen so much uncertainty in his 30 years at the Bank. (Newswires)

UK unemployment rate could reach 15% if the country is hit with a second wave, OECD has warned. (Times)

ECB’s President Lagarde said she wishes to explore every available avenue to combat climate change, in the context of using the APP to pursue green objectives and will examine all of their operations to see where changes can be made as part of the ongoing strategic review. (FT)

FX                

In FX markets, DXY held onto the prior day’s gains after the recent soured sentiment spurred flows into the currency but with upside capped by resistance at the 97.00 level and due to the record infection rates in the US where the number of new cases was said to have increased by a record of over 60.2K. EUR/USD was rangebound following its pullback from the 1.1300 handle, while price action in GBP/USD was uneventful and centred around 1.2550 after UK PM Johnson reiterated that Britain is prepared to leave the EU without a trade agreement during a phone call with German Chancellor Merkel. Elsewhere, USD/JPY was restricted by the indecisive risk tone and antipodeans also lacked conviction due to their high-beta properties but were kept afloat following another firmer reference rate setting by the PBoC.

COMMODITIES

Commodities were predominantly rangebound throughout the session with crude prices slightly softer following the latest private sector inventory reports which showed a surprise build in headline crude stockpiles but with price action relatively restrained given the mixed picture in product components of the report including a surprise gasoline draw. Nonetheless, oil prices were lacklustre in which WTI trickled below the USD USD 40.50/bbl level, while the latest relevant headlines were on the bearish side with ADNOC set to boost oil exports next month and Total’s Port Arthur refinery said to be running at 60% capacity due to subdued demand. Elsewhere, gold plateaued just shy of the USD 1800/oz level and traded sideways amid the stable greenback, while copper prices were restrained by the overnight indecision. 

US Private Inventory Crude Stocks +2mln vs. Exp. -3.1mln (Prev. -7.2mln). (Newswires)

UAE's ADNOC will be boosting August oil exports as OPEC+ cuts are set to ease, according to sources. (Newswires)

Total's Port Arthur, Texas refinery is reportedly operating at 60% capacity amid low demand, according to sources. (Newswires)

EIA lifted 2020 world oil demand growth forecast by 190k BPD (to 8.15mln BPD Y/Y fall) but cut 2021 world oil demand growth view by 190k BPD (to 6.99mln BPD Y/Y increase). (Newswires)

GEOPOLITICAL

US Deputy Secretary of State Biegun said the US strongly supports inter-Korean cooperation and is willing to be flexible in North Korea talks, while he noted the US did not request a meeting with North Korea and reiterated that President Trump is focused on eliminating nukes from the Korean peninsula. (Newswires)

A senior Chinese diplomat said if US reduces its nuclear arsenal to the same level as China, then China will participate in an arms control treaty with US. (Newswires)

China and Russia vetoed an extension of cross-border aid delivered to northwest Syria from Turkey. (Newswires)

US

The Treasury curve bull flattened as Monday’s risk rally hit a snag; by settlement, 2s unch. at 16bps, 3s -2bps at 29bps, 10s -4bps at 64bps, and 30s -6bps at 138bps. Yields failed to fall in European trade, unlike equity futures, although as the Europeans left duration increasingly found a bid as the risk sentiment that was built into the US cash equity open was faded. The supply slate was light on the long end with only a couple of issuers in the dollar market, ahead of this week’s 10s and 20s auctions from the Treasury. Meanwhile, the pipeline was more robust at the front-end, due to the Treasury’s USD 46bln 3-year auction and other issuers, such as the ADB’s USD 4bln 3-year offering, likely restraining front-end rates from richening. US T-note futures (U0) settled 7 ticks higher at 139-06+.

Fed Discount Rate Minutes stated all 12 regional Fed bank boards supported maintaining the discount rate and that most saw job losses decelerating but still exceptionally high. Furthermore, it noted that spending was subdued even as business reopened. (Newswires)

Fed's Clarida (voter) said the Fed can and will do more if needed and that there is no limit on how much Treasuries and MBS the Fed can buy, while he added lending facilities will stay in place for as long as needed. (CNN)

Fed's Quarles (voter) said FSB will evaluate rules for money market funds that were front and centre of COVID event and that markets are functioning in an orderly manner after volatility. (Newswires)

Fed's Mester (voter) said there has been some levelling off in the economy recently and believes it will be a long road back to where we want the economy to be. Mester added that she has included additional fiscal support into her forecasts and believes monetary policy is in a good spot. (Newswires)

Fed's Barkin (non-voter) said there is more for the Fed to do with US unemployment at such high levels and is not worried that the Fed's balance sheet will cause inflation. Furthermore, he stated that he took great comfort from the results of Fed's recent stress test but added there are some very real risks approaching the US economy. (Newswires)

Fed's Daly (non-voter) 

said she is currently specifically focused on the Main Street Lending programme and whether it is as effective as it needs to be, while she added there are still some questions on whether it has the right terms to make it work. Daly also commented that the labour market is in better shape than where it could have been, although nowhere close to where it needs to be and suggested that if there is no more fiscal stimulus, it could have a spiralling effect on the ability for business and households to pay bills and repay debt. (Newswires)