• Asian equity markets were mixed as efforts to recoup the prior day’s losses were fettered by the record increases in coronavirus numbers in US and abroad
• Texas Governor Abbot pushed back on rumours over a potential shutdown in the state, whilst the Miami Mayor suggested a stay at home order could be on the cards
• In FX, the DXY heads into the EU session relatively steady above 96.00, EUR/USD trades sub-1.14
• Reports suggest there are disagreements in the White House over the use of stimulus checks vs. payroll tax cuts as part of the next stimulus bill
• Looking ahead highlights include, EZ CPI (Final), US Building Permits & Housing Starts, University of Michigan Sentiment (Prelim), European Council Meeting Begins (17th-18th July), ECB's de Guindos & BoE's Bailey
• Earnings: Blackrock, Danske Bank, Ericsson

CORONAVIRUS UPDATE

US COVID-19 cases rose 67,404 (Prev. +60,971) and the death toll +947 (Prev. +773). AFP later tweeted that US cases rose by a record 68,428 in 24 hours citing the Johns Hopkins tracker, while a major newswire tally showed US cases rose by at least 70,727 on Thursday which is a record single-day increase and deaths rose by 969 to 138,284 which was the largest increase since June 10th. (Newswires/Twitter) California COVID-19 cases rose by 8,544 (Prev. +11,126) and death toll rose by 118 (Prev. +140), New York cases rose by 769 (Prev. +831) and the death toll rose by 14 (Prev. +9), while Governor Cuomo said NYC is still headed for Phase 4 of reopening on Monday with a decision by 16:00 ET on Friday. (Newswires) Texas coronavirus cases increased by 10,291 to a total of 292,656 which was the 4th largest increase on record and deaths rose by 129 to 3,561 which was the largest single-day increase, according to the State Health Department. However, a major newswires tally suggested that Texas coronavirus cases increased by a record 15,108 to a total of 311,530 and the death toll rose by a record 149 to 3,745. (Newswires)

There were initial rumours that Texas could be placed on a shutdown today, although Texas Governor Abbott later commented that there is no shutdown coming. Elsewhere, reports noted comments from the Miami Mayor that they are "very very very close" to enacting a stay at home order. (Twitter/Texas Tribune)

NIH's Fauci stated we need a time-out to get the virus better under control and that an antibody could be ready by fall, while added we will know whether we have safe and effective candidates by mid-to-late fall/early winter and that he hopes and anticipates there will be one or more. (Facebook)

US CDC announced extension of no sail order for cruise ships to September 30th. (Newswires)

UK government's chief scientific adviser Vallance stated that coronavirus outcome for the country has not been good and that the virus is likely to remain for a number of years. (ITV)

According to a study by Oxford University the UK might have already achieved a sufficient level of herd immunity to prevent a second wave of coronavirus with the bar to herd immunity lowered by some people already being immune to the disease without ever catching it. (Telegraph) 

ASIA

Asian equity markets were somewhat mixed as efforts to recoup some of the prior day’s losses heading into the weekend were fettered by the record increases in coronavirus numbers in US and abroad which continued to fuel second wave fears. ASX 200 (-0.1%) traded indecisively with notable weakness seen in tech names after similar underperformance of the sector stateside and after Victoria state suffered a record increase of coronavirus cases which surged by 428 vs. Prev. 317, while Rio Tinto shares failed to sustain the opening momentum that had been spurred by stronger quarterly production and shipment updates. Nonetheless, downside for the Australian benchmark is only marginal as the index just about kept afloat of the 6000 level and the Nikkei 225 (-0.4%) swung between gains and losses as sentiment navigated through a wavy currency. Hang Seng (+0.5%) and Shanghai Comp. (-0.5%) both initially outperformed after nursing the pain from recent heavy selling that resulted to losses in the mainland of about 5% yesterday, which China downplayed as a normal market adjustment, while a firm liquidity effort by the PBoC also contributed to the early improved tone in which it provided a total weekly net injection of CNY 330bln. However, the optimism in for Chinese bourses gradually faded amid the lingering doubts regarding the economic recovery. Finally, 10yr JGBs were higher alongside the indecision in the region and with the BoJ also present in the market for over JPY 1.2tln of JGBs heavily concentrated in 1yr-10yr maturities.

PBoC injected CNY 200bln via 7-day reverse repos for a CNY 330bln weekly net injection vs. last week's net drain of CNY 290bln and it maintained the rate of the reverse repos at 2.20%. (Newswires) PBoC set USD/CNY mid-point at 7.0043 vs. Exp. 6.9957 (Prev. 6.9913)

China NDRC said some domestic industries have not recovered to normal and some firms continue to struggle, while it added that employment pressure is huge. (Newswires)

China called the sharp decline in A-shares yesterday as a normal market adjustment. Furthermore, press reports noted that China should take steps to boost demand including distributing consumption coupons and subsidising the appliance and auto purchases, while the government should also increase infrastructure investment to boost demand. (China Securities Journal)

UK/EU

US Secretary of State Pompeo stated he enjoyed speaking with UK Foreign Secretary Raab and that the UK made the right decision not to allow untrusted vendors in its 5G network, while he looks forward to working with the UK to promote the development of trusted solutions for 5G. (Twitter)

Policymakers at the ECB did not agree on whether the bank will exercise the full amount of its EUR 1.35trl PEPP at its latest meeting despite President Lagarde’s comments yesterday that such a move would be likely, according to sources. (Newswires)

FX                

The DXY was uneventful overnight and took a breather from yesterday’s whipsawing through the 96.00 level with mild pressure seen as Fed officials continued to provide bearish undertones on the economy with Fed’s Williams noting now is not the time for the Fed to focus on exit strategies as we are in the middle of a difficult situation and Fed’s Evans was said to be worried about downside risks to the economy due to the virus spread. The ongoing surge in virus cases also did no favours for the currency with the US posting its highest daily increase of new cases, while Florida and Texas both suffered a record number of deaths which doesn’t bode well for the reopening agenda as the Miami Mayor suggested they are very close to enacting a stay at home order and there were also rumours that Texas could be placed under shutdown today although comments from the Texas Governor later refuted this. EUR/USD was lacklustre after having slipped back below 1.1400 ahead of the EU Summit which begins later in which a senior EU Official suggested a deal is not guaranteed and there are still important differences. GBP/USD eked marginal gains as it gradually brushed itself off following a recent failed incursion into the 1.2600 territory but must first contend again with the 50- to 200-Hour MA levels circa 1.2576-1.2579. USD/JPY was somewhat choppy and antipodeans benefit from the mild softness in the greenback but with gains capped amid a sparse calendar and after the PBoC weakened the reference rate beyond the 7.0000 level.

COMMODITIES

WTI crude futures traded rangebound amid the indecisive risk tone and after this week’s advances eventually ran into resistance just above USD 41.00/bbl, while record increases in coronavirus cases stateside threatens economic reopening efforts. Elsewhere, gold prices were rangebound amid the uneventful greenback although eyes a retest of the USD 1800/oz level to the upside and copper was subdued due to the flimsy risk appetite.

Saudi Energy Minister said we had differences with Russia, not an argument over the effects of the coronavirus, while he added that prospective action is less expensive than treatment after hindsight and talks with Russia were about the mechanism of dealing with the crisis. (Newswires)

OPEC+ laggard Angola's crude oil exports are scheduled to rise to 1.31m bpd in September, which is higher than the 1.18m bpd planned for next month and above its 1.25m bpd Aug-Dec output quota, according to Argus. (Newswires)

GEOPOLITICAL

US House Minority Leader McCarthy accused Russia of malicious actions to weaken the US pandemic response and said he is producing a bill in the next few days to hold Russian hackers accountable. (Newswires)

US

The Treasury curve has bull-flattened, albeit the magnitude of moves is very thin. There has been a very summer feel to Treasury trade Treasuries looked through a solid slate of data (upside beat in retail sales, Philly Fed beat expectations; jobless claims continue in the right direction); some desks are also viewing June data as stale, particularly given increasing concerns that the economy could stall in the months ahead – June data does not give us any insight about how that could play out. Some reported that tech-based traders were sellers of 10s with yields at 60bps, preventing a deeper slide, while real money reportedly joined in afterwards; There were also reports of large hedge fund selling in the 20- and 30-year sectors, with dealers selling into upticks with an eye on the sizing of the second re-opening of the 20s auction next week (sized at USD 17bln, unchanged). If these thin trading conditions persist into Friday, Treasury traders would do well to keep an eye on the Bund future, as well as peripheral spreads in the Eurozone – the TPLEX might take cues from EGBs as European policymakers meet to try and thrash out the Budget and Recovery Fund deals. T-note futures (U0) settled 4+ ticks higher at 139-15+.

US President Trump reportedly told associates he will not sign the next COVID relief bill without a payroll tax cut. There were also separate reports that US officials were said to be in disagreement over next stimulus package with Treasury Secretary Mnuchin pushing for individual stimulus checks and extension of unemployment benefits, while NEC Director Kudlow wants payroll tax cuts. (Politico/Fox Business News)

Fed’s Williams (voter) said now is not the time for the Fed to focus on exit strategies as we are in the middle of a difficult situation and that the economy is facing more dis-inflationary pressure than inflationary pressure. Furthermore, Williams expects a gradual economic recovery in H2 20 but added we are still in a deep hole and that this is going to be a longer drawn out period getting through the pandemic, while he noted that Yield Curve Control would be best used in a situation where forward guidance was not being as effective as the Fed would like. (Newswires)

Fed's Evans (non-voter) expects 9.0% or 9.5% unemployment at year-end and 6.5% next year, while he is worried about downside risks to the economy due to the virus spread and expects US GDP to get back to prior peak by mid or late 2022. Fed's Evans also downplayed the use of negative rates, as well as Yield Curve Control, while suggested forward guidance is more important and the timing for the Fed taking its foot "off the pedal" is simple in which we need to get inflation to 2.0-2.5%. (Newswires)