• Asian stock markets were negative following a lacklustre performance across global peers
• Large-cap Chinese shares were pressured after two state-backed funds said they plan to trim holdings
• US coronavirus cases rose by at least 60,565 which was a 2nd consecutive record increase
• US is said to be mulling a tariff list against France for around USD 500-700mln in goods, with a potential announcement today, sources
• In FX, DXY extended on the prior day’s gains; PBoC set the USD/CNY midpoint below 7.000
• Looking ahead, highlights include US PPI, Canadian Labour Market Report, Chinese M2 & New Yuan Loans, IEA Monthly Oil Market Report & Riksbank Minutes

CORONAVIRUS UPDATE

US coronavirus cases rose by at least 60,565 which was a 2nd consecutive record increase and the death toll rose by at least 838 to a total 133,134 according to a major newswire tally, while AFP tweeted the US coronavirus caseload rose by a record of over 65,000 in 24 hours, citing the Johns Hopkins tracker. (Newswires/Twitter)

California COVID-19 cases rose by 7,031 (Prev. +11,694) and the death toll rose 149 (Prev. +111), while Texas cases rose by 10,709 to a total of 240,255 which is the largest increase since the pandemic began and the death toll increased by 75 to a total of 3,026 (Prev. +116) according to a major newswire tally. (Newswires)

US President Trump said the US has enough PPE kits for health workers, while he suggested US is well on the way towards vaccine and therapeutics, according to a Fox interview. Elsewhere, there were comments by US Secretary of Health and Human Services Azar that he expects tens of millions of COVID-19 vaccine doses by this fall and hundreds of millions by early 2021. (Newswires/(Fox)

Texas Governor Abbott predicts next week will look worse regarding the coronavirus situation and pleaded that wearing masks is the only strategy remaining to avoid another shutdown of the local economy. Elsewhere, the Nevada Governor announced bars in Clark County, where Las Vegas is located, to close on Friday until further notice amid COVID-19 spike, while New York City Mayor De Blasio said large events in the city are now cancelled through to September 30th. (Newswires/The Dallas Morning News)

Australian PM Morrison said news from Victoria state is very concerning and announced Australia will reduce the number of inbound arrivals and will conduct a nationwide review of hotel quarantine. In related news, Australia's Victoria state Treasurer announced a AUD 534mln support package for businesses during the lockdown, while he forecasts unemployment increasing to 11% and GDP declining 14%. (Newswires)

UK reportedly turned down EU coronavirus vaccine scheme following warnings by officials of costly delays and a failure to secure assurance that the UK would receive vaccines on time. (The Telegraph)

ASIA

Asian stock markets were negative following a lacklustre performance across global peers amid lingering coronavirus concerns and as US-China tensions were stoked by several escalatory reports such as the US enacting sanctions on 4 Chinese individuals for human rights abuses including the Xinjiang security bureau director and a top member of the Chinese Communist Party. ASX 200 (-0.3%) was led lower by underperformance in the energy sector after the recent pullback in oil prices and amid ongoing lockdown headwinds, with the Victoria state Treasurer anticipating GDP to decline 14%, although the downside for the index was stemmed by resilience in the tech sector which continued to ride on the work from home bandwagon. Nikkei 225 (-0.8%) was subdued by the weight of the haven currency inflows and with some large retailers pressured including Fast Retailing, Seven & I and Lawson after weaker earnings. Hang Seng (-1.4%) and Shanghai Comp. (-1.1%) underperformed after PBoC inaction resulted to a total CNY 290bln liquidity drain this week and as anti-China sentiment persisted with the Trump administration said to be finalising regulations this week that will bar US government from purchasing goods and services from several Chinese tech firms including Huawei and ZTE. Furthermore, it was also reported that China state funds were also said to plan cutting holdings in some companies including PICC. Finally, 10yr JGBs were slightly higher due to the weakness in stocks and following the bull flattening stateside in the aftermath of a blockbuster 30yr auction, while the BoJ were also present in the market today for JPY 870bln on JGBs with an emphasis on 1-3yr and 5-10yr maturities.

PBoC skipped reverse repo operations for a net weekly drain of CNY 290bln vs. Prev. CNY 490bln drain. (Newswires) PBoC set USD/CNY mid-point at 6.9943 vs. Exp. 6.9934 (Prev. 7.0085) and stated that CNY will be traded directly with more currencies.

China state funds are said to be planning to cut holdings in PICC and other China-listed firms, with China’s National Council for Social Security Fund planning to sell up to 884.5mln A-shares in PICC or a 2% stake valued around USD 1bln during the next 6 months, citing the need for asset allocation and investment. (Newswires)

US and European banks in Hong Kong are auditing clients to identify potential Chinese and Hong Kong officials that could face US sanctions, according to sources. The unnamed banks said that if sanctioned, clients would have to be cut off from their services which could result in losing revenue from Chinese banks and state-owned enterprises. (FT)

China Daily's Chen tweeted that Western leaders are shamefully quiet when Washington attacked and began withdrawal from WHO, while he added that if it were China doing this, some politicians would have a field day bashing China, let alone many China haters on Twitter. (Twitter)

UK/EU

UK Culture Secretary Dowden announced that gyms, swimming pools and sports facilities will be permitted to reopen from July 25th. (Newswires)

USTR Lighthizer said he is optimistic a US-UK trade deal will occur in due course but noted there are significant issues to resolve, while he added that it is possible, but tricky, to resolve the dispute with Europe over aircraft subsidies (AIR FP, BA). (Newswires)

US is said to be mulling a tariff list against France for around USD 500-700mln in goods, with items targeted potentially including French wine, cheese, and handbags. The announcement could come as soon as today. (Newswires)

Ireland's Finance Minister Paschal Donohoe is the new President of the Eurogroup. (FT)

FX                

In FX markets, the DXY extended on the prior day’s gains with the negative risk tone being the sole catalyst for the recent flows into the hard currency, but with the advances kept at gradual pace by the grim coronavirus situation which has led to further disruptions to the reopening agenda. As such, the greenback’s major counterparts were subdued in which EUR/USD trickled further below the 1.1300 handle but has found a floor near the 200-Hour MA of 1.1272 and GBP/USD gave up the 1.2600 handle as the tone regarding Brexit talks remains bleak in which EU’s Barnier noted that significant divergences remain between UK and EU. Elsewhere, USD/JPY attempted a break below 107.00 amid the safe-haven flows and antipodeans suffered due to their high-beta statuses, while the jitters also pressured CNH and effectively nullified the PBoC setting the reference rate below the 7.0000 handle for the first time since March.

COMMODITIES

Commodities were mixed with WTI crude futures the underperformer and retreated further below the USD 40/bbl level amid the negative risk tone and as the ongoing coronavirus situation further disrupts the reopening agenda, while an impending return of Libya supply also added to the glum mood for crude prices ahead of next week’s JMMC meeting. Elsewhere, gold was rangebound as it took a breather following its recent stellar rally with further advances contained by USD strength, although the precious metal still retained the USD 1800/oz status, and copper traded uneventful with prices kept to within a tight range throughout Asia trade.    

Goldman Sachs said an environment where China outperforms the US is ideal for gold which increases its confidence regarding its USD 2000/ounce target, and that it believes we are entering a near perfect environment for silver to finally perform. Furthermore, it forecasts gold prices at USD 1740/oz this year and USD 1988/oz next year, while it sees silver at USD 18.13/oz this year and USD 21.75/oz next year. (Newswires)

GEOPOLITICAL

North Korean leader's sister Kim Yo Jong said a summit with US President Trump may not occur this year but added we never know, while she also stated that another summit with Trump would only be beneficial for the US. (KCNA)                      

A large explosion was heard in south west Tehran, Iran according to reports citing social media, while other sources suggested the blast may have hit an IRGC missile facility/warehouse. (Twitter)

US

The Treasury curve bull flattened amid a concoction of risk-off and a blowout 30-year bond auction demand; by settlement, 2s unch. at 15bps, 10s -4bps a 61bps, 30s -8bps at 131bps. The strength in USTs found its legs heading into the US cash equity open, just as stocks began their descent. There wasn’t one catalyst per se, although, continuing claims remain high, Trump’s tax returns ruling heated up the Biden/election narrative, and latest China tariffs against individuals all brewed together. Duration treaded higher into the USD 19bln 30-year auction, to then catch a second wind on what was an all-round historic auction. The 1.357% WI was stopped through by a chunky 2.7bps (six-auction avg. tail of 0.3bps), covered 2.5x (vs avg. 2.38x), dealers took 17.45% (vs avg. 21.4%), while indirects took an eye-gouging 72.05% (vs avg. 64.7%, the highest ever takedown in the 30-year tenor). The auction saw the 30-year yield fall by an additional 4bps to levels not seen since mid-May. Meanwhile, the 10-year rode off the auction’s coattails too, seeing the benchmark yield briefly dip beneath the 60bps figure, although failing to breach the May low of 59bps; the September T-Note broke through some key resistance levels and sits in thin-air ahead of the contract high of 139-25 from March.

White House Chief of Staff Meadows said President Trump will sign 3 executive orders on cutting prescription drug costs. (Newswires)

Democrat Presidential candidate Biden reiterated he will raise corporation taxes from 21% to 28% if he is elected President and said he will end the era of "shareholder capitalism". Furthermore, Biden said he will announce an infrastructure plan next week and that in addition to bringing back pandemic lost jobs, his plan would add 5mln jobs to the economy, while he repeated Amazon (AMZN) needs to pay its fair share. (Newswires)