• Asian equity markets traded negatively with sentiment dampened following choppy performance stateside
• California Governor Newsom ordered a shutdown of indoor restaurants, bars, movie theatres and other businesses across the state
• The US has denounced China's claims to the South China Sea as unlawful
• The DXY sits just above 96.50 with trade across the FX complex relatively contained overnight
• UK will reportedly ban UK telecom companies from purchasing Huawei equipment by year-end and will remove Huawei from all 5G networks by 2027
• Looking ahead, highlights include UK GDP (Estimate), Swedish CPIF, German ZEW, EZ Industrial Production, US CPI, UK Huawei Decision & OBR Forecasts, OPEC Monthly Oil Market Report, Fed's Brainard, Bullard & SNB's Jordan. Supply from UK & Italy
• Earnings: Delta Air Lines, JP Morgan, Citi, Wells Fargo

CORONAVIRUS UPDATE

US COVID-19 cases rose 60,469 (Prev. +62,918) and death toll rose 312 (Prev. +906). Texas coronavirus cases increased by 5,655 or 2.2% (Prev. 7-day avg. +4.1%), deaths rose by 43 to 3,235 and current hospitalizations declined by 5 to 10,405 to snap 14 days of consecutive record highs. California cases rose by 8,358 (Prev. +8,460) and the death toll rose by 23 (Prev. +72), while hospitalizations increased by 2.6% to a record 6,485. California Governor Newsom ordered indoor activities to close state-wide, including bars, restaurants, museums, zoos and movie theatres, while he added that the worst-hit counties must also close churches and salons. (Newswires)

US senior administration official said the slate is not closed regarding US government funding for coronavirus vaccines and noted to expect more future announcements, while there were also comments from White House health officials that drug makers will begin coronavirus vaccine production by the end of summer. (Newswires)

NIH's Fauci reiterated he is cautiously optimistic there will be at least one vaccine (MRNA, PFE, BNTX, AZN, INO) available by year-end, according to Stanford Medicine interview. (Newswires)

UK shoppers will be required to wear face masks in stores from July 24th and those that do not follow the rules will face a fine of as much as GBP 100. (Daily Mirror)

ASIA

Asian equity markets traded negatively with sentiment dampened following choppy performance stateside owing to a temperamental tech sector and ongoing US-China tensions after the US denounced China's claims to the South China Sea as unlawful. Furthermore, sentiment was also subdued by the latest developments on the coronavirus front in which California Governor Newsom ordered a shutdown of indoor restaurants, bars, movie theatres and other businesses across the state. ASX 200 (-0.7%) and Nikkei 225 (-1.0%) were lower with Australia pressured by underperformance in the tech sector but with downside restricted by the improvement in Business Survey data, while Tokyo shares suffered the ill-effects of the recent currency inflows and despite reports that Softbank was exploring options for its Arm Holdings unit such as a potential sale or IPO. Hang Seng (-1.7%) and Shanghai Comp. (-1.1%) adhered to the downbeat picture due to the increased tensions after the US departed from its policy of not taking sides in the South China Sea dispute in which it denounced China’s claims, while China's Foreign Ministry said it will impose sanctions on US lawmakers in response to sanctions over Xinjiang. Focus was also on the latest trade data from China which printed mostly better than expected, although this failed to inspire a turnaround for Chinese stocks with Hong Kong underperforming after the local government’s recent announcement of coronavirus related restrictions. Finally, 10yr JGBs were marginally higher as the risk averse tone favoured haven assets and after stronger demand at the enhanced liquidity auction for longer-dated JGBs, but with upside limited as the BoJ kicked off its 2-day policy meeting. 

PBoC injected CNY 30bln via 7-day reverse repos for a net daily injection of CNY 30bln. (Newswires) PBoC set USD/CNY mid-point at 6.9996 vs. Exp. 6.9989 (Prev. 6.9965) Chinese Trade Balance (CNY)(Jun) 328.9B vs. Exp. 425.0B (Prev. 442.8B) Chinese Exports (CNY)(Jun) Y/Y 4.3% vs. Exp. 3.5% (Prev. 1.4%) Chinese Imports (CNY)(Jun) Y/Y 6.2% vs. Exp. -4.7% (Prev. -12.7%)

Chinese Trade Balance (USD)(Jun) 46.42B vs. Exp. 58.6B (Prev. 62.93B) Chinese Exports (Jun) Y/Y 0.5% vs. Exp. -1.5% (Prev. -3.3%) Chinese Imports (Jun) Y/Y 2.7% vs. Exp. -10.0% (Prev. -16.7%)

US denounced China's claims to the South China Sea as unlawful in which US Secretary of State Pompeo said that Beijing's claims to offshore resources across most of the South China Sea and its "bullying" campaign, are completely unlawful. This followed earlier reports that the US was set to formally reject Chinese territorial claims in the South China Sea, departing from the its past practice of not taking sides and will warn that it will "pose the single greatest threat to the freedom of the seas in modern history", according to WSJ sources. (Newswires/WSJ)

Chinese Embassy in US said US accusation regarding South China Sea is completely unjustified and China is firmly opposed, adding the US is stirring up tension and inciting confrontation over the South China Sea. (Newswires)

US official said the US will soon scrap its auditor watchdog agreement with China amid concerns of lack of transparency from Beijing, while reports added this could signal a broader crackdown on US-listed Chinese firms failing to disclose key financial data. In related news, President Trump's advisers ruled out ending the USD/HKD peg as punishment for new China national security law. (Newswires)

NEC Director Kudlow said US President Trump is not in a good mood about China and that the US is still engaging on a Phase 1 trade deal, while he added the US must take a hard look at Chinese companies listed in the US. (Newswires)

Singapore GDP (Q2 P) Q/Q -41.2% vs. Exp. -37.4% (Prev. -4.7%). (Newswires) Singapore GDP (Q2 P) Y/Y -12.6% vs. Exp. -10.5% (Prev. -0.7%)

UK/EU

BoE Governor Bailey commented that plans need to be in place to transition from Libor to alternative reference rates by end 2021, while he added that Libor solution for legacy contracts will not be available for new business. (Newswires)

Ireland Foreign Minister Coveney said Brexit trade deal is more likely than not, though there is a lot of work that is needed to be done first. (Newswires)

UK reportedly will ban UK telecoms from purchasing Huawei equipment by year-end and will remove Huawei from all 5G networks by 2027. (Newswires) Note, other reports have suggested that full removal could be targeted by 2024.

UK BRC Retail Sales YY (Jun) 10.9% (Prev. 7.9%). British Retail Consortium said June total sales rose by 3.4% Y/Y vs. Prev. -5.9% decline in May, which was the largest increase since May 2018. (Newswires)

Barclaycard UK June Consumer Spending -14.5% Y/Y vs. Prev. -26.7% in May, which was the narrowest decline since the pandemic began. (Newswires)

German Chancellor Merkel said Italy and Germany agree on the basic structure of the proposed EU recovery fund and that she cannot say if an agreement will be reached on EU budget and recovery fund at this week's summit. There were also comments from Italian PM Conte that negotiations on the EU aid package are very difficult and that leaders’ decisions must match EU/Franco/German proposals, while he added that Italy is happy to accept EU monitoring of its spending. (Newswires)

FX                

The DXY marginally gained above the 96.50 level as the recent soured tone across stocks spurred haven inflows but with upside limited as the California shutdown contributed to a further regression in the reopening agenda and after data showed the US budget deficit surged to a record high for June. EUR/USD was rangebound at the 1.1300 handle with price action in the single currency mired after German Chancellor Merkel recently suggested leaders remained apart on a coronavirus recovery deal and amid a large amount of nearby option expiries with over EUR 5bln between 1.1300-1.1350 rolling off at today’s New York cut, while GBP/USD traded uneventfully. Elsewhere, USD/JPY and JPY-crosses were subdued by the risk appetite and antipodeans languished as the broad risk averse tone overshadowed the better than expected Chinese trade numbers, while SGD weakened overnight after a larger than expected contraction in Q2 GDP which showed Singapore entered into a recession for the first time since 2009.

Australian NAB Business Confidence (Jun) 1 (Prev. -20). (Newswires) Australian NAB Business Conditions (Jun) -7 (Prev. -24)

COMMODITIES

Commodities were subdued overnight with WTI crude futures the underperformer with losses of more than 2% to extend below USD 40/bbl as prices were weighed by the broad negative risk tone and as we move closer towards the JMMC meeting where producers are expected to discuss tapering production cuts. Furthermore, there were recent comments from OPEC members in which Saudi, Iraq and Nigeria all confirmed commitment to the OPEC+ agreement, while focus shifts to today’s OPEC Monthly Oil Market Report and the latest private sector inventory numbers. Elsewhere, gold was lacklustre and slipped back below the USD 1800 amid a stronger greenback and copper weakened due to dampened sentiment but with downside stemmed after the mostly stronger than expected Chinese trade data.   

Saudi Arabia and Iraq confirmed full commitment to the OPEC+ agreement according to a statement, while Iraq will reach 100% compliance by August and will compensate in July-Sept for overproduction. Furthermore, Saudi Arabia and Nigerian oil ministers also reiterated firm commitment to the OPEC+ agreement in which Saudi emphasised the importance for all OPEC+ countries to meet their agreed output target cuts to accelerate oil markets rebalancing. (Newswires)

Nigeria Oil Minister said Nigeria will raise its compliance with the OPEC+ deal to 100%, compensating in July, August and September for overproduction in May and June, according to Saudi Press. (Newswires)

GEOPOLITICAL

UK military chiefs are planning to deploy one of UK's new aircraft carriers in the Far East to participate in efforts of countering China's increasing assertiveness in the region. (The Times)

US

It was a choppy day for Treasuries, and equities, in a thin summer trading background and no clear bull/bear catalyst; by settlement, 2s unch. at 16bps, 10s unch. at 64bps and 30s +1bps at 134bps. The curve had initially been steepening earlier in the session, with the 10-year yield hitting a high of just north of 66bps, coinciding with a pick up in equity futures heading into the equity cash open - positive virus updates, M&A activity and Pepsi earnings were being cited. However, stocks’ performance became shaky as Europe departed, seeing participants dig their teeth into the cheapened Treasuries. Furthermore, it’s worth noting that volumes were very low today, with the T-Note below recent averages, thus making today’s moves harder to gauge any signal from. Meanwhile, the NY Fed confirmed it would be purchasing USD 80bln of treasury securities over the next month, as expected. Looking ahead, Tuesday’s CPI could serve as a liquidity event, and big banks kicking off their Q2 reports will also drive the risk tone. T-note futures (U0) settled unchanged at 139-07.

Fed's Williams (voter) said Secured Overnight Financing Rate system has performed well during the coronavirus crisis and stated that banks should stop pricing new deals using Libor now. (Newswires)

Fed's Kaplan (voter) reiterated the US economy will contract 4.5%-5.0% this year (Fed median view for -6.5%) and sees a 35% annualised decline in Q2, while added there may be more that the Fed will need to do and there will certainly be a need for more fiscal policy. (Newswires)

Senate Majority Leader McConnell said he'll have a new stimulus package ready to discuss with GOP members when the Senate returns next Monday, while he added we’ll start socializing it with them, then discuss it with the Democrats and start the legislative process. McConnell says unemployment insurance could be included in the next virus relief package

Canada PM Trudeau said he informed US President Trump that it would be a shame for the US to impose aluminium tariffs on Canada and that tariffs could mar the start of the new NAFTA. (Newswires)

US Federal Budget (USD)(Jun) -864B vs. Exp. -863.0B (Prev. -399.0B). (Newswires)