• Asian equity markets traded mostly higher as the region took its cue from the positive rollover from Wall Street
• China’s Foreign Minister said China is willing to develop ties with the US but relations face serious challenges
• Australia is to suspend the extradition agreement with Hong Kong; New Zealand will review relationship settings with Hong Kong
• German Chancellor Merkel is under domestic pressure to take a harder line against China
• In FX, DXY was subdued, JPY-crosses were underpinned, EUR/USD topped 1.1350
• Looking ahead highlights include, US Initial & Continued Jobless Claims, Eurogroup Meeting & Banxico Minutes, supply from UK and US

CORONAVIRUS UPDATE

US coronavirus cases rose by more than 60,000 for a record daily increase according to a major newswire tally, while AFP tweeted that US coronavirus cases rose by 55,000 in 24 hours in which it cited the Johns Hopkins tracker and noted the actual number is likely higher due to issues over getting tested. (Newswires)

New York COVID-19 cases by 692 (Prev. +588) and California cases rose by 4.2% or 11,694 which includes a weekend backlog of 2000 (Prev. +2.2% or +6,090), while Texas coronavirus cases rose by 9,979 to 220,504 and the death toll rose by 98 to 2,813 which was the largest increases since the pandemic began, according to the State Health Department. (Newswires)

US VP Pence said US is starting to see first indications that mitigation efforts where COVID cases have surged are working and that Florida and Texas are starting to see early indications that positive testing is flattening, while he also stated that the CDC will begin issuing new guidance next week. (Newswires)

White House COVID adviser Birx said she is hopeful Arizona is reaching a plateau in its curve and that there are signs Florida is reaching stability in the number of new cases. (Newswires)

Tokyo confirms over 220 new coronavirus cases (Prev. 75) which is a record daily increase. Tokyo Governor Koike said Tokyo coronavirus cases are very high today and that more testing is leading to more confirmed virus cases. (Newswires)

ASIA

Asian equity markets traded mostly higher as the region took its cue from the positive rollover from US, where a late tech-led push helped all major indices finish in the green and lifted the Nasdaq to another record close on what had otherwise been predominantly indecisive session amid COVID-19 concerns. ASX 200 (+1.2%) and Nikkei 225 (+0.8%) were positive with gains in Australia led by tech as the sector found inspiration from its counterparts stateside and with gold miners euphoric after spot prices of the precious metal rose above USD 1800/oz for the first time since 2011, while stocks in Tokyo remained afloat after better than expected Machinery Orders data which showed a surprise expansion of 1.7% M/M although upside was initially capped amid virus fears. Hang Seng (+0.4%) and Shanghai Comp. (+1.2%) began indecisive after the PBoC continued to refrain from liquidity operations and with Chinese press calling for investors to manage risks, but gradually advanced amid a more amicable tone from China as Foreign Minister Wang stated that US-China relations need a more positive message and that China is willing to develop ties with US based on sincerity, despite noting that relations face serious challenges. Furthermore, Alibaba shares were among today’s stellar performers to track the upside in its US listing following reports its unit Ant Financial plans a Hong Kong IPO despite a denial by the unit. Finally, 10yr JGBs were indecisive as gains in stocks saw prices stall around the 152.00 level and with participants side-lined ahead of today’s 5yr auction. Finally, 10yr JGBs were indecisive as gains in stocks saw prices stall around the 152.00 level but later eked mild gains following firm demand at the 5yr JGB auction result.

PBoC skipped reverse repo operations for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 7.0085 vs. Exp. 7.0042 (Prev. 7.0207)

Chinese CPI (Jun) Y/Y 2.5% vs. Exp. 2.5% (Prev. 2.4%) (Newswires) Chinese PPI (Jun) Y/Y -3.0% vs. Exp. -3.2% (Prev. -3.7%)

China’s Foreign Minister Wang Yi said US-China relations need a more positive message and China is willing to develop ties with the US based on sincerity but added that US-China relations face serious challenges. Furthermore, he hopes the US builds a more objective and calm understanding of China and stated China is open to resume dialogue and all level talks with the US, while he added that China has never intended to challenge or replace the US and has no intention of confronting US. (Newswires)

Australian PM Morrison announced to suspend the extradition agreement with Hong Kong and announced to extending visas by 5 years for skilled and graduate visa holders. Furthermore, the Australian government advised its citizens in Hong Kong to reconsider the need to remain there due to the national security law and warned of increased risk of detention on vaguely defined national security grounds, while it also advised citizens against travelling to Hong Kong. (Newswires)

New Zealand says it will review relationship settings with Hong Kong including the extradition arrangement, control of exports and travel advice. (Newswires)

UK Foreign Secretary Raab said he spoke to counterparts from US, Canada, Australia and New Zealand regarding the Hong Kong national security law which poses a threat to basic rights and freedoms guaranteed under Joint Declaration, while he urged China to live up to promises to Hong Kong. (Twitter)

German Chancellor Merkel is under pressure domestically to follow Britain’s lead and take a harder line against China after the National Security Law in Hong Kong. (Times)

Google has ditched plans to offer major new cloud services in China, alongside other politically sensitive counties, partially due to geopolitical tensions and the virus outbreak, sources state. (Newswires) 

Japanese Machinery Orders (May) M/M 1.7% vs. Exp. -5.4% (Prev. -12.0%). (Newswires) Japanese Machinery Orders (May) Y/Y -16.3% vs. Exp. -17.1% (Prev. -17.7%)

UK/EU

UK International Trade Secretary Truss is reportedly worried that borders will not be ready for 2021 and that ports might not be fully ready, while she sees Northern Ireland protocol unlikely and that UK plans could be challenged at the WTO. (Business Insider)

UK RICS Housing Survey (Jun) -15 vs. Exp. -25.0 (Prev. -32.0). (Newswires)

FX                

In FX markets, the DXY was subdued following the prior day’s pullback below the 97.00 level as the mostly positive risk appetite and rising COVID-19 narrative weighed on the currency, which was not helped by the latest update from the Congressional Budget Office which noted the US budget gap in June totalled USD 863bln and was almost the entire fiscal 2019 deficit. The greenback’s major counterparts extended on recent gains with EUR/USD taking advantage of the USD woes despite the lack of progress in recovery fund discussions in which EU Council President Michel suggested that a lot of work remains. GBP/USD took a brief rest following the surge to above 1.2600 in the aftermath of UK Chancellor Sunak’s announcement of new measures. Elsewhere, JPY-crosses were underpinned by the positive risk tone and antipodeans initially consolidated overnight after mixed data including a disorderly release of the latest inflation figures from China which showed headline CPI Y/Y eventually print inline as expected at 2.5%, but then eked mild gains in tandem with the broad assault on USD.

New Zealand ANZ Business Confidence (Jun) -29.8 (Prev. -34.4). (Newswires) New Zealand ANZ Activity Outlook (Jun) -6.8 (Prev. -25.9)

COMMODITIES

Commodities trade was mostly muted overnight with WTI crude futures flat after the prior day’s advances eventually tempered by resistance at the USD 41.00/bbl level, although the pullback has also been stemmed given the constructive risk tone and a lack of pertinent newsflow for the energy complex. Elsewhere, gold was steady and held on to most its gains following its ascent to above USD 1800/oz, helped by the recent weakness in the greenback, while copper benefitted from the overall risk appetite and strength in Chinese commodity prices.  

GEOPOLITICAL

A new assessment by the Pentagon states that China presents the biggest military threat to the US. China has been promoted to the top of a list of most dangerous rivals. (Times)

UN investigator condemned the killing of Iranian General Soleimani as unlawful and said Washington failed to provide sufficient evidence that he posed an immediate threat. (WSJ)

Recent satellite images reportedly showed activity at a previously undeclared North Korean nuclear facility which researchers suspect is being used to develop nuclear weapons. (CNN)

US

The T-Note complex was shaping up for a dull, horizontal session; however, some commentary from NY Fed’s markets desk head ­ who suggested that the pace of corporate debt purchases might be slowed if markets continued to improve – resulted in positive ticks, while equity futures saw some downside. However, the bid did not last, and it is worth noting that ranges were thin, once again. The US Treasury sold 10-year notes in a decent auction, which stopped through the screens by 1bps, and the high-yield set another record low at auction; the cover was higher, and the internals were also very encouraging. Into the late part of the session, the TPLEX resumed horizontal trade. T-note futures (U0) settle half-a-tick lower at 139-06.

Congressional Budget Office said the US budget gap in June totalled USD 863bln which is near the entire fiscal 2019 deficit. CBO also stated that government spending in June tripled from the prior year and PPP spending pushed outlays to USD 1.1tln, while federal revenues declined 28% in June to 242bln. (Newswires)

Fed's Bullard (non-voter) said unemployment can get to below 8% by the end of the year and he is optimistic on the outlook despite the resurgence in COVID cases, but also noted there are downside risks to his base case on the outlook. Bullard added he does not think it is likely Fed will purchase equities and believes lawmakers will deliver new fiscal stimulus with plenty of resources, while he noted the tech sector is finding a tailwind from the pandemic., (Newswires)

Fed's Rosengren (non-voter) said more than 400 lenders have either registered or are in the process of signing up for the Main Street Lending Programme, while he expects the US economy will remain weaker than many had hoped through the summer and fall; as such, believes demand for the lending scheme could increase. (Newswires/FT)

Democrat Presidential Candidate Biden plans a big economic speech today framing policy in which areas will include a push to buy American and incentivizing American jobs, clean energy, the “caring” economy and racial equity. (Newswires)

The Hill/HarrisX poll showed former VP Biden maintained his lead over US President Trump at 43% vs. 39% (Prev. 43% vs. 39%), according to a survey conducted July 3rd-4th. In related news, a political science professor said earlier this week there is a 91% chance President Trump will win the November election, citing "The Primary Model" which has successfully predicted 5 out of the 6 elections since 1996. (The Hill/Independent)

Source: Newsquawk