• Asian equity markets began the week mostly positive as the region benefitted from the recent tailwinds from Wall St.
• Weekend updates saw a record rise in global COVID-19 cases, whilst Florida saw its largest increase in cases since the pandemic began
• US is reportedly weighing limited options to sanction China for its actions in Hong Kong, according to WSJ
• DXY traded softer and declined back below 96.50, EUR/USD and GBP/USD trade above 1.13 and 1.2650 respectively
• WTI crude futures retraced some of Friday’s risk-fuelled advances as markets eye a potential tapering of production cuts
• Looking ahead, highlights include Fed's Williams, BoE Governor Bailey

CORONAVIRUS UPDATE

WHO reported a record daily increase in coronavirus cases of more than 230k in 24 hours. (Newswires)

US CDC reported new coronavirus cases rose 62,918 to a total of over 3.2mln and the death toll rose by 906 to a total of 134,572. Florida coronavirus cases rose by 15,300 to a total of 269,811 which was the largest increase since the pandemic began although there was a substantial rise in testing and the percentage of positive cases fell to 11.25% from 12.59%. Texas coronavirus cases rose by 8,196 to a total of 258,658 and its hospitalizations rose by 327 to a 14th consecutive record high of 10,410, while Arizona cases increased by 2,537 which was the first day in more than a week in which cases increased by less than 3,000. New York City reported zero COVID-19 deaths for the first time since the pandemic hit New York state. (Newswires) 

UK coronavirus cases increased by 650 to 289,603 and the death toll rose by 21 to 44,819. (Newswires)

AstraZeneca is preparing to begin trials on an antibody treatment that could help protect older people from COVID-19 for up to six months. (Times)   

Japanese Economic Minister Nishimura said the government may ask Tokyo and surrounding areas to request business shutdowns dependent on the extent of the coronavirus situations there, while it was separately reported that Tokyo is to waive accommodation taxes through September 2021. (Newswires/Japan Times)

Hong Kong Health authorities called for tougher measures to control the virus spread, as well as for residents to stay home and avoid social gatherings, while they warned the situation was "getting a bit out of hand". (Newswires)

Gilead (GILD) data on remdesivir for COVID-19 was associated with an improvement in clinical recovery and a 62% reduction in risk of mortality, while 74.4% of treated patients recovered by day 14 (vs 59% of patients receiving standard of care)

First longitudinal study has found that COVID-19 antibody’s peaked after around 3-weeks after the commencement of symptoms and thereafter swiftly declined. Specifically, 60% of individuals generated a potent antibody response only 17% retained this level 3-months later. (Guardian)

ASIA

Asian equity markets began the week mostly positive as the region benefitted from the recent tailwinds from Wall St. where encouraging Remdesivir data and outperformance in financials last Friday ahead of upcoming earnings, helped markets shrug off the rising COVID infection numbers to lift all major US indices and helped the Nasdaq to a fresh all-time high. ASX 200 (+0.6%) was led higher by outperformance in utilities and the top-weighted financials sector, as the latter took its cue from its counterpart stateside and as big 4 bank Westpac was buoyed by reports it is mulling divesting over AUD 4bln in non-core wealth assets, while Nikkei 225 (+1.8%) outperformed on a break above the 22,500 level with participants unfazed by the increasing risks associated with the outbreak flare-up in Tokyo. Hang Seng (+0.9%) and Shanghai Comp. (+1.3%) were also positive after the PBoC provided its first liquidity injection following a 2-week hiatus and amid recent better than expected lending data from China. This helped domestic markets shake off the initial tentativeness after local press continued to urge rationality regarding stocks and amid the continued US-China tensions with US President Trump suggesting a Phase 2 trade deal was unlikely at this point and the US State Department warned US citizens in China of increased arbitrary detention, while China had also threatened to impose reciprocal measures if the US insists on moving forward with sanctions. Finally, 10yr JGBs were weaker amid gains in stocks and spillover selling following Friday’s pullback in USTs, while the lack of BoJ presence in the market ahead of its 2-day policy meeting tomorrow, also contributed to the tame demand for bonds.

PBoC injected CNY 50bln via 7-day reverse repos for a CNY 50bln net injection with the rate kept at 2.20% (Newswires) PBoC sets USD/CNY mid-point at 6.9965 vs. Exp. 6.9957 (Prev. 6.9943)

US President Trump said a Phase 2 trade deal with China is unlikely at this point and that it is far from his mind, while he added that the relationship with China is severely damaged. (Newswires)

US is reportedly weighing limited options to sanction China for its actions in Hong Kong, as Hong Kong’s financial centre status limits the actions available to Washington given that any significant measures also risk affecting US and other western companies and consumers. (WSJ)

US State Department warned US citizens in China of increased arbitrary detention and to exercise increased caution. (Newswires)

White House Trade Adviser Navarro said further actions on TikTok and WeChat is expected, while he added that President Trump is only just getting started and will not rule out banning the apps. In related news, White House is looking to use CFIUS as a way to ban TikTok by declaring the 2018 purchase of Musical.ly as illegal according to FBN's Gasparino, while the US Democratic National Committee had also warned campaigns against using TikTok. (Newswires/Twitter/CNN)

UK/EU

UK Chancellor Sunak is planning sweeping tax reductions and to relax planning laws in as many as 10 new freeports within a year from December as part of efforts to support the economy post-Brexit. (Telegraph) Separately, the Gov’t has begun to look into plans to manage the ‘average higher levels of corporate debt’ resulting from the pandemic, findings will feed into the Autumn budget. (FT)

UK Cabinet Minister Gove said they are looking at developing infrastructure at Kent in south east England to stop bottlenecks in trade flows post-Brexit, while he added the UK will lay out more regarding the Irish border later this month and stated that there is movement on talks with EU but that differences remain. (Newswires/BBC)

UK is planning to withhold power to control state aid from Scotland and Wales post-Brexit and is expected to propose in a bill during Autumn which will provide the legal powers for Westminster to control state aid policies for the whole country. (Newswires/FT)

UK is expected to set a deadline of 2025 for the removal of Huawei equipment from telecom networks. (Telegraph)

US is to issue 25% tariffs on USD 1.3bln of French goods in retaliation to the digital tax, although new duties will not be imposed for 6 months. (Newswires)

EU ‘Frugal Four’ (Five) are reportedly demanding cuts to the EUR 750bln recovery fund and deeper cuts to the next budget than those announced by Council President Michel last week. Officials believe the EUR 750bln figures is unlikely to survive the summit unscathed. (FT)

ECB to give Exchange Rate Mechanism intervention points before markets open on Monday, while Croatia and Bulgaria are to join ERMII to prepare for EU membership. (Newswires)

German states are to borrow EUR 95bln to fund their efforts to support the economy amid the fallout from the coronavirus pandemic. (Newswires)

Poland’s incumbent President Duda has declared victory after receiving ~51% of the vote via an exit poll, rival Trzaskowsik has said the results are too close to call. Official results expected later today. (BBC)

Fitch affirmed Italy at BBB-; Outlook Stable. (Newswires)

FX                

The DXY traded softer and declined back below the 96.50 level as the constructive risk tone spurred outflows from the hard currency, which was also not helped by the rising COVID-19 infections in US that has surpassed a total of 3.2mln including the record number of new cases in Florida. As such, the greenback’s major counterparts benefitted from the softness in the USD with EUR/USD climbing above 1.1300 and although the US announced to impose 25% tariffs on USD 1.3bln of French goods in retaliation for the digital tax, the collection of tariffs will be delayed for 6 months to provide time for the sides to work out a solution. GBP/USD was firmer amid reports UK Chancellor Sunak is planning post-Brexit cuts on taxes and red tape to support the economy, while the UK is also looking into developing infrastructure at Kent in south-east England to stop bottlenecks in trade flows post-Brexit. Elsewhere, USD/JPY and JPY-crosses are mixed, despite the upbeat risk tone, which has been the main factor that kept antipodeans afloat with AUD/USD outperforming its trans-Tasman counterpart as AUD/NZD homed in on 1.0600 to the upside and following a note from ANZ which suggested the RBNZ is keeping all options on the table and that policy tools which pressure the exchange rate should be carefully considered.

COMMODITIES

Commodities were mixed with WTI crude futures retracing some of Friday’s risk-fuelled advances heading into the OPEC+ JMMC meeting on Wednesday where producers are to discuss relaxing output restrictions from next month with Saudi proposing to ease production cuts by 2mln bpd to 7.7mln bpd. However, the pullback in oil prices was limited as there were also reports that Saudi reduced August allocation to at least 4 refiners in Asia, while the lifting of Libya’s force majeure was short lived as the NOC announced to reimpose this after the LNA announced to continue its blockade. Elsewhere, gold prices eked marginal gains as the weaker greenback helped the precious metal reclaim the USD 1800/oz status, and copper surged on the risk appetite and strength in Dalian iron futures to push LME prices to their highest in around 2 years.

Baker Hughes Rig Count: Oil rigs -4 at 181, Natgas -1 at 75, total -5 at 258. (Newswires)

Saudi Arabia and other major producers are likely to raise output in August amid easing of coronavirus lockdowns although a continued spread of the virus is said to cast a shadow on their plans, while other reports noted that Saudi proposed to ease current production curbs by 2mln bpd to 7.7mln bpd. (NYT/WSJ)

Saudi Aramco reduced August allocation of Arab heavy and medium crude to at least 4 refiners in Asia, while it was separately reported that Aramco is raising its gasoline prices in July. (Newswires)

Iran set August Iranian Light Crude price to Asia buyers at Oman/Dubai + USD 1.30/bbl which is up USD 1.00 from the prior month. (Newswires)

Libya's NOC reinstated the force majeure on all oil exports after the LNA said the blockade will continue and the also stated that the UAE instructed the LNA to resume its oil blockade. (Newswires)

GEOPOLITICAL

North Korea warned UK will pay the price for introducing new sanctions on North Korea. (Yonhap)

US

Yields were ultimately higher on Friday, with the 10-year failing to hold/extend its gains beneath the 60bps figure. By settlement, 2s unch. at 15.5%, 10s +4bps at 64bps, and 30s +3bps at 134bps. Duration was bid into Europe alongside losses in the equity complex. However, the tide turned heading into the US session as the risk aversion pared. There were a few positive vaccine/treatment updates on the COVID front, as well as mean reversion being cited for the positive risk tone following Thursday's risk sell off. Furthermore, there was reportedly profit-taking, in addition to algo sell programmes as the 10-year yield reached a new record low of 0.569%. The selling was accentuated as the NDX underperformed amid a bias to cyclicals/value (mainly financials), keeping duration proxies under pressure. While the all-time-low for the 10-year was 32bps back in early March, the benchmark has only been beneath 60bps for a few times since then, and not since May, so for now, the figure will be watched to see if the market can convincingly dip beneath it, potentially opening up a newer range. T-note futures (U0) settled 9 ticks lower at 139-07.

NEC Director Kudlow said the US cannot keep providing USD 2-3trln in COVID-19 relief every few months. (Newswires)

US House Speaker Pelosi said she believes US Congress can reach a compromise to extend the jobless payments and unemployment insurance for Americans impacted by the pandemic shutdowns. (Newswires)