• Asia-Pac stocks traded choppy following a mixed lead from Wall Street; Mainland China outperformed
• EU leaders are yet to formally agree on the scale of grants in the Recovery Fund as talks enter a fourth day, leaders will reconvene today at 16:00CEST/15:00BST
• Frugal EU members have further eased their stance on grants, but asks Southern Europe and France to meet them halfway; France sees a path towards a deal
• PBoC stood pat on its 1yr and 5yr Loan Prime Rates as expected
• UK Foreign Secretary Raab signalled that the UK will suspend its extradition treaty with Hong Kong
• In FX, DXY sits just below the 96.00 level, EUR was choppy, and JPY held onto losses
• Looking ahead, highlights include the EU summit, BoE’s Haldane & Tenreyro, ECB’s Lane & de Guindos, UK Foreign Minister Raab, Bundesbank Monthly Report

CORONAVIRUS UPDATE

US CDC reports 67,574 new COVID-19 cases (Prev. +74,710) and 877 new deaths (Prev. +918) as of yesterday. Texas coronavirus cases increased by 7,300 on Sunday (vs. +10,158 on Saturday) to a total of 352,030; deaths rose by 93 to total of 3,958; hospitalization down 66, down from record high; according to the State Health Department. Florida COVID-19 cases rose by 12,478 on Sunday to a total of 350,047 cases, marking the fifth straight day of +10,000 daily cases. Florida hospitalisation +131 in the past 24 hours. Arizona COVID-19 cases +1.7% vs. 7-day average 2.4%. South Carolina COVID-19 cases rose by 2,374 on Sunday, the largest single-day increase since the pandemic started, according to a newswires tally. Los Angeles County COVID-19 cases rose by 2,848 on Sunday (Prev. +2,770 on Saturday); Deaths +11 (Prev. +37). California coronavirus cases increased by at least 5,790, according to a major newswire tally (Newswires)

New Jersey Governor Murphy said the transmission rate has risen to the highest level in weeks, while the San Francisco Mayor said re-opening has been halted. (Newswires) Ohio Governor has warned that Ohio is heading in the wrong direction and “could become Florida”. (CNBC)

US President Trump said he will not consider a national mandate on mask wearing. (Fox News)

US Senate Republicans are seeking temporary COVID liability protections for businesses, healthcare facilities, schools, churches, charities, and government agencies, according to a draft document. It was also reported US travel groups have written to Congress seeking billions in assistance for industry and new tax breaks. (Newswires)

Trump admin and GOP leaders to meet at White House today morning to discuss the next round of stimulus funding, according to CNBC's Tausche citing sources. (Twitter) Senate Majority Leader McConnell plans to release his phase four legislation this week and will be around USD 1tln; measures include payroll tax cuts, extension of the Payment Protection Program and increased funding for COVID-19 testing, Axios reported. (Axios)

Germany COVID-19 cases rose by 249 (Prev. +202) to 201,823 whilst deaths rose by 2 (Prev. +1) to a total of 9,086, according to RKI. (Newswires)

Beijing is to lower its COVID-19 emergency response level to level 3 from level 2 starting July 20th, according to an official. (Newswires) China reported 22 new COVID-19 cases in the Mainland (Prev. 16); 13 new asymptomatic cases (Prev. 42) and 5 new imported cases (Prev. 3). (Newswires)

Australia's Victoria state reports 275 new COVID-19 cases (Prev. +363). Victoria state introduced a mask wearing rule over the weekend. (Newswires)

ASIA

APAC stocks traded choppy after the region initially took its cue from Wall Street’s mixed close on Friday as the decline in Netflix shares kept other large tech stocks at bay ahead of another earnings-abundant week, with 92 S&P 500 companies alongside eight Dow 30 constituents bracing to report their numbers – including the likes of Tesla, Microsoft, Twitter, IBM and some major US airlines. ASX 200 (-0.5%) lost steam after the open as Australia remained subdued by the outbreak in its second largest state of Victoria– which prompted authorities to announce a mandatory mask-wearing rule over the weekend. Nikkei 225 (-0.1%) swung between gains and losses after seeing initial pressure as Japan’s June trade balance printed a significantly wider-than-expected deficit in JPY terms, but with losses somewhat cushioned on currency dynamics. Meanwhile, Hang Seng (+0.4%) conformed to the downside across the region at the open and as Hong Kong is set to tighten restrictions following a spike in COVID-19 cases, but later erased losses, whilst Shanghai Comp (+2.9%) outperformed as reports noted that Beijing is to lower its COVID-19 alert level as cases are back under control, whilst the PBoC also injected a net CNY 50bln via 7-day reverse repos. Finally, JGB futures traded lower in early Tokyo trade, whilst most of the curve saw some cheapening, but the longer-end held despite 20yr supply tomorrow.

PBoC set USD/CNY mid-point at 6.9928 vs. Exp. 6.9954 (Prev. 7.0043)

PBoC injected CNY 100bln via 7-day reverse repos for a net daily injection of CNY 50bln at a maintained rate of 2.20%

PBoC 1-Year Loan Prime Rate 3.85% vs. Exp. 3.85% (Prev. 3.85%); 5-Year Loan Prime Rate 4.65% vs. Exp. 4.65% (Prev. 4.65%). (Newswires)

PBoC said China will connect its interbank and exchange bond markets in a bid to unify bond markets and facilitate monetary policy transmission and macroeconomic management. (CGTN)

China will be extended an anti-dumping investigation into imports of cresol from the US, EU and Japan due to complexity in the case; investigation extended to January 2021 from the initiation in July 2019, according to MOFCOM cited by Global Times. (Twitter) Note, cresol has antibacterial and insecticidal properties

US Secretary of State Pompeo said China is crushing Hong Kong’s freedom and cheating on international deals. (Newswires) Global banks in Hong Kong are combing through their client lists for people at risk as the US prepares to move forward with sanctions against Chinese officials and possibly other individuals in the city over a national security law, SCMP sources state. (SCMP) Bankers at Credit Suisse (CSGN SW), HSBC (HSBA LN), Julius Baer (BAER SW), UBS (UBSG SW), among others, are examining whether their clients in Hong Kong have links to pro-democracy movements, sources state. (Newswires)

TSMC (2330 TT) could face a 20-30% drop in Q4 sales, if it suspends new orders from Huawei in September, and Huawei's smartphone shipments and new phone launches could also be disrupted, according to Global Times citing experts. (Twitter)

RBNZ bought NZD 390mln (Prev. NZD 230mln) of NZGBs in today's LSAP, matching the amount it sought to purchase. (Newswires)

BoJ Minutes from its June meeting stated that members agreed that tensions in global financial markets have abated due to aggressive fiscal and monetary policy; members shared view that markets continue to be nervous due to high uncertainty. (Newswires)

UK/EU

EU leaders are yet to formally agree on the scale of grants in the European Recovery Fund as the meeting ran into Monday. European Council President Michel proposed cutting grants to EUR 400bln from EUR 500bln and raising loans share to EUR 350bln from EUR 250bln. Frugal member Denmark said it is ready to accept the EUR 400bln in grants under the new compromise proposal, whilst officials stated that cracks are starting to appear on the Frugal front. Frugal members now see EUR 390bln (Prev. EUR 375bln; original EUR 350bln) as the red line for grants in the Recovery Fund, but they need southern Europe and France to meet them halfway, according to FT's Khan (Newswires/Twitter) More recently, reports noted that hardliners (Frugals) are reportedly prepared to accept the EUR 390bln in grants, according to Officials. However, FT’s Khan suggests that the Frugals willingness to accept the EUR 390bln figure will be subject to the group pushing for additional rebates in budget talks. French President Macron opposed Recovery Fund grants being cut to EUR 375bln, according to Politico citing officials, but an official stated that France now sees a path to a recovery fund deal (Politico/Newswires) ECB President Lagarde stated it is better for EU leaders to agree on an ambitious package as opposed to reaching a quick deal under any costs. (Newswires) EU27 are to reconvene at 16:00CEST/15:00BST, according to the European Council Spokesman. (Twitter) Click here for a detailed round-up

UK government has reportedly asked Japan for help with 5G as an alternative to China’s Huawei, according to sources. British officials have said that Japan’s NEC (6701 JT) and Fujitsu (6702 JT) could replace Huawei, with the former already in discussions with the UK. (Nikkei) Chinese experts said China will make its "principled stance" over the Huawei ban clear to the UK, but there remains room for positive engagement and negotiations before the two sides to address the disputes, reported via Global Times. (Twitter)

According to the latest Deloitte survey, nearly half of CFO’s surveyed forecast that demand for goods and services will not return to pre-lockdown levels in Britain until July 2021 at the earliest. (Times)

UK Rightmove House Price Index (Jul) MM 2.4% (Prev. 1.9%). Rightmove said a mini housing market boom was gathering pace after a tax cut by Chancellor Sunak. (Newswires)

FX                

DXY remained within a tight range either side of 96.000 for a bulk of the session before slipping below the figure heading into the EU open, whilst EUR/USD just about kept a 1.1400 handle and initially saw some impetus on news that Frugal member Denmark is softening its stance and is willing to accept the EUR 400bln in grants under the latest EU Recovery Fund proposal – which came amidst tedious negotiations that ran for a fourth day – albeit other Frugal members, namely Netherlands and Austria, still need convincing, and French President Macron opposes the “meet in the middle” proposal of a EUR 375bln even-split in grants and loans, which, alongside a pick-up in the Dollar, prompted a reversal of earlier gains. GBP/USD largely moved in tandem with the Dollar as it lost ground below 1.2550 ahead of Foreign Minister Raab’s update on the Hong Kong extradition treaty, as focus turns to a potential response from China against the backdrop of the Huawei phase-out. Antipodeans also succumbed to the Dollar strength with NZD/USD under 0.6550 and AUD/USD retreating below 0.7000 as the currency awaits the RBA minutes released tomorrow alongside a speech from RBA Governor Lowe ahead of the Aussie budget unveiling. USD/JPY continued to extend gains above 107.00, in which upside coincided with the Tokyo fix, whilst some also cited Gotobi influence for the Japanese currency after initially shrugging off the much wider-than-expected Japanese trade balance and outdated BoJ minutes. 

Canadian Finance Minister said govt proposing emergency wage subsidy programme until 19th December; Canada businesses will get wage subsidy if they have had a reduction in revenue. (Newswires)

S&P affirmed Russia at “BBB-“; outlook Stable. (Newswires)

COMMODITIES

Commodities traded softer with WTI and Brent front-month contracts pressured by the initial declines across stocks coupled with a firmer Dollar. Nonetheless, prices remained within recent ranges as the contracts found interim support at 40.25/bbl and 42.75/bbl respectively. Prices were little reactive to news that Saudi King Salman bin Abdulaziz has been admitted into hospital for medical tests due to a gallbladder infection. Meanwhile, ahead of the OPEC+ production curb tapering, Citi expects oil market to move into deficit from Q3 2020 onwards, driven by a sharp reduction in global supply. Elsewhere, spot gold moved as a function of the Buck but retained an 1800/oz handle, whilst copper prices fell amid rising inventories at Chinese warehouses. 

Russian Energy Minister Novak does not expect oil prices changing after the easing of OPEC+ supply curb deal. (Newswires)

Saudi King Salman bin Abdulaziz has been admitted into hospital for medical tests due to a gallbladder infection, according to Saudi press. (SPA)

Baker Hughes US Rig Count (w/e July 17th): Oil rigs -1 at 180, Nat Gas rigs down 4 at 71; Total rigs -5 at 253. (Newswires)

GEOPOLITICAL

UK Foreign Secretary Raab signalled that the UK will suspend its extradition treaty with Hong Kong following the implementation of the National Security Law. Raab is set to update Parliament today on extradition arrangements with Hong Kong. (Newswires)

The White House is mulling troops cuts in South Korea amid disagreement between the two sides over cost sharing, according to WSJ. (WSJ) South Korea’s defence ministry stated that there have been no such discussions. (Yonhap)

Germany, France and Italy are said to be mulling sanctions if the violations of arms embargo on Libya does not cease, according to reports. (Newswires)

US

A choppy session for Treasuries on Friday, although ultimately the curve was steeper as duration was offered in the latter part of the day. By settlement, 2s unch. at 15bps, 10s +2bps at 63bps, 30s +3bps at 133bps. Sovereigns had been grinding higher in European trade, seeing 10s flirt with levels marginally beneath the key 60bps area again, although failing to make a test on the July low of 57bps, with the market not convinced enough to explore a newer, lower range – 10s has only been beneath 60bps a handful of times since the March 9th all-time-low of 32bps, where the market front-ran the Fed cutting to zero amid market turmoil, and on the eve of the dash-for-cash, yield blow up, crises that would ensue on the Treasury market, right after the Fed did indeed cut to zero. The rate back-up could also be part due to investor positioning ahead of the USD 17bln 20-year bond auction next week, although the recent relationship between Treasury supply and tape action has been rather murky, especially with potential YCC and lower for longer from the Fed. T-Note futures (U0) settled 4 ticks lower at 139.11+.

US Treasury asked primary dealers if it should consider technical adjustments to Treasury coupon auction schedule given the increased financing needs; asking how large benchmark T-Bill auction sizes could rise without causing yield deviations. (Newswires)

Fed's Rosengren (non-voter) said he takes a little bit more of a pessimistic view than his colleagues due to the over-leverage of non-financial companies going into the crises, reducing the availability of the Fed's facilities, according to WSJ. (WSJ)

Washington Post-ABC poll shows Democratic candidate Biden leading Trump 55% to 40% (vs. 53% to 43% in May). Poll was conducted between July 12-15 and comprised of 845 registered voters with an error margin +/- 4ppts. (Washington Post)

US House Democrats have demanded investigation into the use of force by law enforcement agents from Justice and Homeland Security departments in Portland, Oregon. (Newswires)

US President Trump and top officials are reportedly privately mulling a controversial strategy to act without legal authority to enact new federal policies, starting with immigration, according to Axios citing sources. (Axios)

US Commerce Secretary Ross was admitted into hospital on Friday night for a “minor” unrevealed illness, according to sources cited by Fox (Fox News)