• Sentiment is subdued in Europe, but off lows, as US futures remain robust ahead of US bank earnings
• China's Foreign Ministry intends to apply sanctions on Lockheed Martin (LMT) over arms sales to Taiwan
• Trump’s advisors have outruled breaking the USD/HKD peg while China says the US accusations over the South China Sea are unjustified
• UK reportedly will ban UK telecoms from purchasing Huawei equipment by year-end and will remove Huawei from all 5G networks by 2027
• FX sees the USD softer but rangebound recently with GBP the notable laggard; stateside, yield curve is marginally flatter
• Looking ahead, highlights include US CPI, UK Huawei Decision & OBR Forecasts, OPEC Monthly Oil Market Report, Fed's Brainard, Bullard & SNB's Jordan.
• Earnings: Delta Air Lines, JP Morgan, Citi, Wells Fargo

CORONAVIRUS UPDATE

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. (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)

Germany reports 199,375 COVID-19 cases +412, deaths at 9,068 +4, Robert Koch Institute. (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 (-0.6%) and Nikkei 225 (-0.9%) 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 (-1.1%) and Shanghai Comp. (-0.8%) 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%)

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) Later, China’s Foreign Ministry, on US disputing China's claims in the South China Sea, said China has never strived to build a sea empire in the region, says US is a troublemaker that undermines regional peace and security

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)

China's Foreign Ministry intends to apply sanctions on Lockheed Martin (LMT) over arms sales to Taiwan. (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%)

US

Senate Majority Leader McConnell says unemployment insurance could be included in the next virus relief package

UK/EU

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 OBR central scenario sees output recovering more slowly, regaining its pre-virus peak by the end of 2022. Full release here. (OBR)

UK GDP Estimate MM (May) 1.8% vs. Exp. 5.5% (Prev. -20.4%); YY (May) -24.0% vs. Exp. -20.4% (Prev. -24.5%)

-        3M/3M (May) -19.1% vs. Exp. -17.4% (Prev. -10.4%)

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 ZEW Economic Sentiment (Jul) 59.3 vs. Exp. 60.0 (Prev. 63.4)

-        Current Conditions (Jul) -80.9 vs. Exp. -65.0 (Prev. -83.1)

-        outlook for the German economy largely remains unchanged compared to the prior month; after a very poor Q2, experts expect to see a gradual increase in GDP in H2 and early 2021

EU ZEW Survey Expectations (Jul) 59.6 (Prev. 58.6)

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)

EQUITIES

European equities have pulled back from yesterday’s advances (Eurostoxx 50 -1.5%) as indices catch-up to the declines seen on Wall St. yesterday after the EU close. No one individual catalyst was attributed to the sell-off seen in the latter half of the US session yesterday with many of the bearish factors cited already present at the time of the initial rally. However, one feature of the selling pressure yesterday was an emphasis on tech names; a theme which has been replicated today in Europe with the IT sector the clear underperformer thus far as the likes on Infineon (-4.8%), STMicroelectronics (-4.5%) and SAP (-3.9%) all lag peers. Macro newsflow from a European perspective has been relatively light thus far with focus for the equity complex likely to fall on upcoming pre-market US earnings reports from JP Morgan, Well Fargo, Citi and Delta Airlines (previews of key metrics can be found on the newsquawk headline feed). Elsewhere, stateside, focus could fall on defense names after reports the Chinese Foreign Ministry intends to apply sanctions to Lockheed Martin (-1.1% in pre-market) over arms sales to Taiwan. Elsewhere in Europe, sectors trade broadly lower with no real clear theme seen in the focus of selling asides from the IT sector with individual equity stories on the light side this morning. Notable corporate updates have included Ocado (-0.8%), who trade lower despite reporting a 27% increase in revenues with the Co. unable to provide guidance and announcing the search for a new Chairman & CEO to replace “retail veteran” Lord Rose.

FX

USD - The Dollar continues to track broad risk sentiment and has benefited from renewed aversion on latest COVID-19 developments coupled with a further deterioration in US-Chinese relations centring on the South China Sea. As such, the DXY has regrouped to trade back around the 96.500 level within a 96.472-707 band ahead of US CPI data and a raft of Fed speakers awaiting the next daily update from states that are seeing a resurgence in the number of virus infections and fatalities.

CHF/JPY/EUR/AUD - All narrowly mixed vs the Greenback, as the Franc and Yen retain an element of safe haven demand near 0.9400 and 107.00 respectively, while the former has pared some of Monday’s relatively heavy declines against the Euro from sub-1.0700 towards 1.0650 even though SNB head Jordan is highly likely to reiterate the importance of direct intervention and NIRP later today. However, the single currency is holding up well in its own right as Eur/Usd consolidates above 1.1300 and eyes hefty option expiry interest at the round number (2.1 bn), between 1.1320-25 (2 bn) and from 1.1350 to 1.1355 (1.3 bn). Similarly, the Aussie is gleaning some underlying traction circa 0.6945 from encouraging Chines trade data plus a firm rebound in NAB business sentiment and conditions to compensate for another incremental rise in pandemic cases in Victoria. Next up for the Jpy and Aud, the end of the 2-day BoJ convene and July consumer sentiment.

CAD/NOK/NZD/GBP - The Loonie and Norwegian Krona have both been knocked out of stride by the aforementioned turnaround in tone from bullish to bearish that is also weighing on crude prices, as Usd/Cad rebounds through 1.3600 in advance of Wednesday’s BoC policy meeting and Eur/Nok pivots 10.7300 from sub-10.6000 mtd lows. Similarly, the Kiwi is back on the defensive within a 0.6545-10 range heading into NZ Q2 CPI tonight and Sterling is losing more momentum across the board on a mix of negative factors, as Cable fails to derive any traction from tame improvements in UK activity data and Eur/Gbp remains elevated on ongoing Brexit divisions having reversed/rebounded through 1.2600 and 0.9000 yesterday. Note, market contacts report big buy orders in the cross when 0.9075 was breached, but 0.9100 has capped advances beyond 0.9080 for now.

SEK - In contrast to its Scandinavian peer, the Swedish Crown has been inflated by firmer than forecast CPI readings to remain close to 10.4000 and recent highs vs the Euro.

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

FIXED

Bunds continue to unwind initial and early Eurex safe haven gains having peaked at 176.21, with recent trade resulting in a breach of chart support at 175.90 (low from the final hour on Monday) and deeper retracement to 175.79. Similarly, Gilts have drifted down from their 137.89 Liffe top and US Treasuries are hovering below overnight session highs, albeit still above parity and the curve remaining a tad flatter as EU stocks reverse from yesterday’s elevated levels on a combination of coronavirus and other global risk factors that have been dormant, but always prone to resurfacing.

COMMODITIES

WTI & Brent have succumbed to the broader risk-off moves overnight and in Europe this morning, with little fresh for the complex fundamentally out this morning as we await the OPEC monthly oil report. Benchmarks are posting losses just shy of 1% at present as sentiment modestly picks-up in the approach to US hours, with equity futures stateside marginally positive ahead of US earnings season’s full commencement. Returning to the aforementioned OPEC monthly report, aside from their demand outlooks for this year and next, attention will be on any insight into compliance figures for June. As, while we know compliance overall exceeded 100% this was largely due to efforts from Saudi Arabia, UAE & Kuwait and as the likes of Nigeria & Iraq having agreed to over-comply ahead to make up for their shortcomings in recent months this report will be looked at as an indication of just how much overcompliance will be required; and, of course, ahead of tomorrow’s JMMC where further insight into this and guidance on easing production cuts for the immediate period is expected. Further ahead, the weekly private inventory report is expected to print a headline draw of 1.8mln. Turning to metals, spot gold is very much rangebound around the USD 1800/oz handle as the USD has been relatively steady since the volatility around the European equity open & China Foreign Ministry updates. Copper prices remain supported by the strike action commencing in multiple Antofagasta mines over the weekend as reports note the final wage offers have been rejected by supervisors.