• Asian equity markets were mostly positive as regional bourses tracked the cyclical-led gains in US peers
• Moderna (MRNA) COVID-19 vaccine produced antibodies in all patients tested in an initial study, according to reports
• US President Trump said he signed legislation and an executive order to hold China accountable for actions in Hong Kong
• BoJ kept monetary policy settings unchanged as expected with rates kept at -0.1% and 10yr JGB yield target at around 0% through an 8-1 vote
• The DXY heads into the EU open modestly firmer after softening in US hours yesterday 
•  Looking ahead highlights include UK CPI, US Import/Export Prices, Industrial Production, Manufacturing Output & NY Fed Manufacturing, BoC Rate Decision, Fed's Beige Book, EU State Aid ruling on Apple, BoE's Bailey & Tenreyro, Fed's Harker, BoC's Macklem & Wilkins, supply from UK & Germany, earnings from Goldman Sachs & ASML

CORONAVIRUS UPDATE

Moderna (MRNA) COVID-19 vaccine produced antibodies in all patients tested in initial study, according to reports. The vaccine trial produced robust immune response for all 45 patients in early stage human trial and the findings are said to provide more promising data that the vaccine could give some protection against the coronavirus. (Newswires)

US COVID-19 cases rose by 58,858 (Prev. +60,469) and death toll rose by 351 (Prev. +312). It was later reported that US coronavirus cases rose by 65,682 to 3.45mln on Tuesday which was the 2nd largest increase on record and the death toll rose by at least 919 to 136,367. (Newswires) California coronavirus cases increased by at least 10,707 which is a record daily increase and the death toll rose by at least 137, while Texas coronavirus cases increased by at least 10,677 and deaths rose by a record 133. (Newswires)

NIH Dr. Fauci said he expects US COVID-19 deaths to rise again but it will not likely rise to levels seen at the previous peak and stated there is some degree of aerosol transmission with COVID, while he also commented that he hopes any vaccine will last a full season. (Newswires/Twitter)

Tokyo Governor Koike said the coronavirus expert panel will meet today one day ahead of normal and that she is aware the situation in Tokyo is very severe, while it was also reported that Tokyo raised its COVID-19 alert to its highest level. (Newswires)

ASIA

Asian equity markets were mostly positive as the regional bourses tracked the cyclical-led gains in US peers and on vaccine hopes after Moderna’s COVID-19 vaccine produced antibodies in all 45 patients tested in an initial study. ASX 200 (+1.7%) and Nikkei 225 (+1.5%) were lifted from the open with Australia’s tech sector and gold miners front-running the broad advances in the index which surpassed the 6000 milestone, while the Japanese benchmark printed its highest level in over a month and withstood the ongoing virus concerns in Tokyo which prompted the city to switch to its highest COVID-19 alert status. Chinese markets underperformed with the Hang Seng (-0.5%) and Shanghai Comp. (-1.4%) both negative after US President Trump signed legislation and an executive order to hold China accountable for actions in Hong Kong, with the executive order to remove preferential treatment for Hong Kong and which will now be treated the same as China. Furthermore, China later responded that it strongly opposes US signing the sanctions bill and that it will implement its own sanctions on US officials and entities. Reports of China state funds continuing to sell shares also did not help in which a pension fund was said to have offloaded 42.3mln BoCom A-shares on Tuesday. Indian markets were also notable gainers with the NIFTY up 1.2% and the NIFTY IT index gaining around 3% in early trade alongside Wipro shares which hit 10% upper circuit following a beat on earnings. Finally, 10yr JGBs were lacklustre amid the gains in stocks and unsurprising BoJ policy hold, while there was notable corporate supply with Nissan pricing a JPY 70bln 3-tranche in its first JPY-denominated bond offering since 2016. 

PBoC skipped reverse repos but conducted CNY 400bln 1yr MLF operation with the rate kept at 2.95% PBoC set USD/CNY mid-point at 6.9982 vs. Exp. 6.9977 (Prev. 6.9996)

US President Trump said he signed legislation and an executive order to hold China accountable for actions in Hong Kong and that the executive order is to remove preferential treatment for Hong Kong which will now be treated the same as China. Furthermore, President Trump stated he holds China fully responsible for concealing the coronavirus and unleashing it on the world, while he added that we will be seeing more in terms of actions on China and can impose massive tariffs on China if we desire. US President Trump's Executive Order regarding Hong Kong eliminates preference for Hong Kong passport holders as compared to China, while it also revokes license exceptions for exports to Hong Kong and blocks US property of persons who undermine democratic processes or institutions in Hong Kong. (Newswires) China said it strongly opposes US signing sanctions bill regarding Hong Kong and that it will implement sanctions on US officials and entities. (Newswires)

China's Global Times tweeted that the Hong Kong democratic party vice-chairman Lo was arrested this morning for alleged involvement in illegal assembly outside the Polytechnic University last year, while a key Hong Kong democratic party organizer stepped down on accusation from Beijing that recent primary vote was illegal. (Newswires/Twitter)

China's banking authority is to further crackdown on illegal activities in the shadow banking sector as part of the effort to contain financial risks. (Xinhua)

US tech firms Google (GOOG), Amazon (AMZN) and Microsoft (MSFT) refuse proposal to share access to customer banking records with Hong Kong regulators which places them at loggerheads with the city's authorities. (FT)

BoJ kept monetary policy settings unchanged as expected with rates kept at -0.1% and 10yr JGB yield target at around 0% through an 8-1 vote with Kataoka the dissenter on YCC, while it maintained forward guidance that it expects short- and long-term policy rates to remain at current or lower levels. Furthermore, the BoJ reiterated that it will take additional easing steps as needed with an eye on the pandemic impact to the economy and noted that risks to Japan's economy and price outlook are skewed to the downside but also stated that Japan's economy is likely to improve in the latter part of the year and will continue improving as the pandemic subsides globally. (Newswires)

UK/EU

German Chancellor Merkel said time is pressing to reach a deal on EU proposals for budget and the recovery fund, while she added that differences remain, but Germany will bring compromises to the table. (Newswires)

EU Economic Commissioner Gentolini proposes the automatic exchange of information between EU tax administrations on revenue from sellers on digital platforms. To help ensure digital Co's are paying the correct share of tax. (FT)

UK Chancellor Sunak has ordered a review of capital gains tax, a move that could be used as an option to claw back billions of GBP from investors and homeowners and help pay for COVID-19-related stimulus measures. (Times) 

China has issued a threat over potential retaliation against British companies following the recent decision by Britain to block Huawei from 5G networks. (Times) 

FX                

The DXY softened in US hours as a function of the positive risk tone and dovish central bank rhetoric as Fed’s Brainard suggested monetary policy will need to shift to provide more stimulus rather than focus on stabilization, while Fed's Kaplan is seeing a pronounced slowing in the economy again and Fed’s Harker noted we are in an exceptionally painful and stubbornly lasting downturn. As such, the greenback’s major counterparts attempted to build on recent gains although EUR/USD eventually stalled above the 1.1400 level where there is an option expiry of EUR 1.4bln rolling off at the New York cut and as the bloc’s officials continue to voice pessimism regarding an imminent deal on the recovery fund, while GBP/USD also benefitted from the early USD weakness which saw the pair extend above its 200-Hour MA of 1.2556. Elsewhere, USD/JPY and JPY-crosses were kept afloat by the positive sentiment but with prices action restricted by an unsurprising BoJ policy announcement in which maintained policy settings as expected, and antipodeans were driven by the risk tone which helped AUD/USD briefly reclaim the 0.7000 status.

South Africa's Eskom said it is to implement Stage 1 load shedding from 9am local time until 10pm on Wednesday. (Newswires)

COMMODITIES

WTI crude futures marginally extended on the prior day’s rebound which had been spurred by the constructive risk tone and following upward revision for oil demand growth in the OPEC MOMR. Furthermore, the JTC had held a meeting ahead of today’s JMMC which Energy Intel suggested was in preparation for the easing of the cuts to 7.7mln BPD, while the latest private sector inventory report also briefly lifted prices as it showed a much larger than expected draw in headline crude stockpiles. Elsewhere, gold prices were little changed above USD 1800/oz, while copper prices pared the majority of early due to underperformance in its largest purchaser due to US-China tensions.

US Private Inventory Crude Stocks (w/e 10th July) -8.3mln vs. Exp. -2.1mln (Prev. +5.654mln)

GEOPOLITICAL

US Navy destroyer conducted a freedom of navigation operation in which it sailed through the South China Sea following the recent US rejection of China’s claims in the disputed territory. (Newswires)

US

US CPI came in a touch firmer than expected; there was a bid in the TPLEX after a choppy cash equity open, and the complex pretty much ignored a cautious set of remarks from the Fed’s Brainard. Trading conditions, however, were extremely dull, a typically dull summer session where T-Note futures were lodged in a c. two-tick range after the cash equity day got underway, traversing horizontally, only showing signs of life when equities threatened to push the range higher for the day. Yields were lower across the curve, and the shape of the curve was unchanged. T-note futures (U0) settled 6+ ticks higher at 139-13+.

Fed's Brainard (voter) said monetary policy will have to shift from stabilisation to accommodation, while she noted forward guidance is a vital way for the Fed to provide necessary accommodation and that there may come a time when YCC helps too but requires more discussion. (Newswires)

Fed’s Harker (voter) said we are in an exceptionally painful and stubbornly lasting downturn with the pandemic impact not a brief setback, while he added more fiscal policy is needed to soften the blow for states and local government, as well as the unemployed. Harker also suggested another wave of stimulus is required to avoid the cliff effect with drop off in unemployment insurance and that a hit to income could hurt spending. (Newswires)

Fed's Kaplan (voter) said he is seeing pronounced slowing in the economy again but 2021 may see above trend economic growth, while he added that there is a lot of overcapacity in the economy and that the overwhelming trend will be disinflationary. Furthermore, Kaplan stated he would prefer the Fed to do less, not more and is hopeful Fed will let some programs ease. (Newswires/CNBC)

Fed's Barkin (non-voter) said there is a "complicated brew" of unemployment developing as some businesses restructure as they prepare for a longer hit to demand. (Newswires)

Fed's Bullard (non-voter) said there is no need for forward guidance or other monetary policy measures at this point due to low interest rate expectations, while he added that stock markets have been rightly optimistic given better than expected jobs performance and the boon to tech from shift to mobile technology. Furthermore, he stated that programs are not causing financial stability problems and expects another fiscal package. (Newswires)

White House is mulling scaling back new rules the Trump administration unveiled last week that would bar international students from remaining in the US while taking classes remotely this fall, according to sources. (WSJ)