• Sentiment remains strong after similar APAC performance & EU recovery package agreement
• EU leaders have reached an agreement on a EUR 1.82tln budget and recovery package
• China urged UK to stop interfering in Hong Kong affairs and stated UK will bear consequences if it insists on going down the wrong road
• RBA Governor Lowe said the Board could lower the Cash Rate to 10bp (currently 25bps) but judgement is lower rates would have little benefit, would prefer a softer AUD
• FX, sees the USD modestly softer with AUD the outperformer post-Lowe while the EUR is now U/C post EU Council agreement
• Looking ahead highlights include, ECB's de Guindos & US House appearance from top drug maker executives
• Earnings from Phillip Morris, Lockheed Martin, United Airlines, Texas Instruments

CORONAVIRUS UPDATE

US COVID-19 cases rose by at least 61,761 on Monday, whilst deaths rose by at least 500, according to a major newswires tally. Texas coronavirus cases increased by 7,404 on Monday (vs. +7,300 on Sunday); deaths rose by 62 (Prev. +93); hospitalization down 23 (Prev. -66); according to the State Health Department Houston-Area. LA County coronavirus cases increased by 3,160 (Prev. +2848), deaths rose by 9 (Prev. +11); hospitalization +16 (Prev. +28), according to the County Health Department. (Newswires)

White House Chief of Staff Meadows and Treasury Secretary Mnuchin will be meeting with Senate Republicans and then House Speaker Pelosi and Senate Minority leader Schumer today on the next coronavirus bill. Sources state that Republicans are looking at USD 100bln of the touted USD 1tln to go to state and local governments. Any potential boost in minimum wage is not part of the negotiations, according to Fox, “these negotiations will likely crescendo between now and the first week of August”. (Fox News). Senate Finance Chairman Chuck Grassley is not a fan of adding payroll tax cut to next bill, says direct payments are more effective, according to CNN. (Twitter)

Australia's Victoria State reported 374 new COVID-19 cases (Prev. 275). (Newswires)

China reported 11 new COVID-19 cases in Mainland (Prev. 22); 3 new imported cases (Prev. 5) and 6 new asymptomatic cases (Prev. 13). (Newswires) South Korea reported 45 new COVID-19 cases (Prev. 26); according to KCDC cited by Yonhap. (Yonhap)

Germany’s COVID-19 cases rose by 522 (Prev. +249), deaths rose by 4 (Prev. +2), according to RKI. (Newswires)

Australia has begun discussions around potentially manufacturing the AstraZeneca (AZN LN)/Oxford University COVID-19 vaccine, according to Australia 10News First's Riminton. (Twitter)

ASIA

Asia-Pac bourses traded firmer across the board following strong handover from Wall Street, as tech shares pushed the SPX into positive territory for the year, whilst Amazon shares gained almost 8%, Tesla over 9%, and IBM rose some 6% after hours following a beat on both top and bottom lines, but notably, the Co. reported an improvement in three out of five units over the past quarter. ASX 200 (+2.6%) was bolstered by its tech and material stocks in what was an in-fitting performance with its peers State-side, albeit BHP shares failed to gain much traction in Aussie trade after reporting a quarterly copper production decline whilst noting 2021 copper output volumes will be slightly lower YY. Nikkei 225 (+0.7%) also felt the tech euphoria, but with upside somewhat hampered by currency dynamics. Elsewhere, Shanghai Comp (+0.2%) took a breather after yesterday’s rally and as the PBoC’s operation resulted in a modest net daily drain of CNY 20bln. Hang Seng (+2.3%) saw a strong performance from the cash open as a number of its large cap stocks remained in firm positive territory, whilst reports yesterday noted the Hang Seng will launch a tech index next Monday to track the 30 largest eligible stocks listed in Hong Kong. Elsewhere, Alibaba’s Hong Kong listing soared over 5% as its founder’s newest venture looks towards a record USD 200bln IPO. Note: Taiwan’s chip giant TSMC rose over 4% amid tailwinds from IBM’s earnings.

PBoC injected CNY 10bln via 7-day reverse repos for a net daily drain of CNY 20bln at a maintained rate of 2.20% PBoC set USD/CNY mid-point at 6.9862 vs. Exp. 6.9912 (Prev. 6.9928); firmest fix since March 12th.

Moody's revised down Chinese companies' earnings for 2020; largest downgrades in auto-related and oil-related stocks, expects a gradual recovery in 2021 with GDP. (Newswires)

Trump administration has blocked TikTok on work devices for Federal employees; as expected. (Newswires)

Australian Minister for Resources said Australia has been shielded from an even worse economic downturn amid record demand for resources from China despite soured relations, Canberra is expanding trading partners to provide new markets for resources; FT reported. There were fears China would target resource sectors following the imposition of trade sanctions on some Australian farms products, but Australian Minister for Resources said China will probably continue to buy Australian resources. (FT)

RBA Governor Lowe said the Board could lower the Cash Rate to 10bp (currently 25bps) but judgement is lower rates would have little benefit. Lowe also would like to see a lower AUD, but will not intervene to lower it, whilst stating the situation in Melbourne is concerning. The Board has not ruled out future changes to this package, though it recognises that, in the current environment, there are limitations to what more can be achieved through monetary policy, there is no need to intervene in FX. There has been no change to the Board's view that negative interest rates in Australia are extraordinarily unlikely. The unemployment rate is likely to increase further, even with the recovery underway. There is also a broad understanding that the RBA is prepared to use its balance sheet in whatever quantity is needed to maintain the target. (RBA)

RBA July Minutes stated economic conditions had stabilised and the downturn had been less severe than earlier expected; Members agreed that negative interest rates in Australia remain extraordinarily unlikely. The minutes noted that it was likely that fiscal and monetary support would be required for some time and that the Board remained committed to supporting jobs, incomes and businesses and to making sure that Australia is well placed for recovery. The Minutes also reiterated that the Bank is prepared to scale up asset purchases again if necessary, whilst there is no case for FX intervention. (RBA)

Japanese CPI, Core Nationwide YY (Jun) 0.0% vs. Exp. -0.1% (Prev. -0.2%); Overall Nationwide CPI (Jun) 0.1% (Prev. 0.1%). (Newswires)

South Korean July 1-20 Exports -12.8% YY (Prev. -7.5%); imports -13.7% YY (Prev. -12.0%); Semiconductor exports -1.7% YY; Exports to China -0.8% YY, according to the customs agency. (Newswires)

US

US Senate Banking Committee is set to approve Judy Shelton for a seat at the Fed; a spokesperson for Republican US Senator John Kennedy said he would be voting to advance her nomination, thus solidifying Republican support for her selection. (FT) Republican US Senator Kennedy had previously been sceptical of Shelton's nomination as a Fed governor.

US House Panel is seeking records of the FAA Survey on employee culture following the Boeing (BA) 737 Max crashes, according to a letter. (Newswires)

US Senate has confirmed Russel Bought to be director of White House Office of Management and Budget. (WSJ)

US Democrat Presidential Nominee Biden is proposing a USD 775bln plan which will be funded via a real estate investment tax

UK/EU

EU leaders have reached a deal on the post-pandemic recovery package. Council President Michel said EU money will be linked to observing the “rule of law” (Newswires) Note Hungary previously threatened to veto a compromise that tied the distribution of the aid to respect for the “rule of law”. Earlier, EU proposed EUR 1.074tln for its 2021-2027 budget; and the Recovery Fund size has been maintained at EUR 750bln and will comprise of EUR 390bln in grants and EUR 360bln in loans. (Newswires) The "Frugal" members received a jump in budget rebates for their consent to EUR 390bln in grants, but Germany would get no extras, according to FT’s Khan. (Twitter) EU Commission is to propose a tax on goods imported into EU from countries with lower carbon emission standards in H1 21, and is to be introduced from 2023; will work on other revenue boosting proposals over 7-years, including a financial transaction tax. Money from the new revenues will be used to pay back commission borrowing for the recovery package. (Newswires)

Spokesman for Chinese embassy in the UK said UK has repeatedly violated international law and basic norms of international law over Hong Kong; urges UK to stop interfering in Hong Kong affairs. UK will bear consequences if it insists in going down the wrong road. (Newswires) Subsequently, China's Foreign Ministry firmly opposes and reserves the right to take action against the UK and urges them to immediately correct their mistakes.

UK Parliament Intelligence Committee report on Russian interference; continuing international consensus is required against Russia's aggressive action; report is redacted in relation to the MI5 response on meddling in the EU referendum. Seemingly confirms interference in the 2014 Scottish referendum. (Newswires)

ECB's Schnabel reiterated that the balance of risk is tilted to the downside, ECB will likely use the full PEPP envelope if baseline outlook holds. Schnabel did not rule completely rule out increasing PEPP but stated it is not on ECB agenda at the moment. ECB will not increase PEPP just because of investor expectations. (ECB) Note, ECB President Lagarde last week stated that if baseline remains, the ECB will use full PEPP envelope.

European Parliament are to hold an extraordinary plenary session on Thursday at 08:30BST, to undertake an initial assessment of the European Council meeting conclusions. (Twitter)

GEOPOLITICAL

Five Iranian Revolutionary Guards were killed in the Israeli airstrikes which targeted IRGC positions, according to Sky News Arabia. (Twitter)

South Korean and US defence chiefs discussed combined exercises and defence cost sharing. (Yonhap) Reports last week noted White House is mulling troops cuts in South Korea amid disagreement between the two sides over cost sharing, according to WSJ.

EQUITIES

European equities (Eurostoxx 50 +1.5%) trade on the front-foot as markets react to the historical EU Council agreement overnight which saw EU leaders agree on a EUR 750bln recovery fund (390bln grants, 360bln loans) and EUR 1.074trl 2021-27 budget. The DAX (+1.7%) is currently outperforming its peers as the index briefly returned to marginal positive territory for the year and is now around 4% away from its all-time high posted on February 19th. Aside from events in Brussels, support for the index has also emanated from the autos & parts sector with Continental (+3.8%) a noteworthy outperformer after prelim Q2 revenues exceeded expectations, furthermore, index-heavyweight Bayer (+1.4%) have been granted some reprieve this morning amid a 92% reduction in the Roundup Weedkiller verdict. Elsewhere from a sectoral standpoint, banks sit at the top of the leaderboard following the aforementioned EU agreement, whilst UBS (+3.5%) have also lent a helping hand to the industry after with its Q2 decline in net profit was not as bad as some had feared. Healthcare names are the laggard in Europe (albeit marginally positive on the session) with AstraZeneca (-1.3%) taking a breather from yesterday’s COVID-19-induced gains. Other notable movers include Novartis (-0.9%) after Q2 revenues and EPS fell short of expectations, whilst GVC (-11.7%) sit at the bottom of the Stoxx 600 after HMRC announced it is to expand the scope of an investigation into its former Turkish Business.

International Business Machines (IBM) reported Q2 2020 (USD): EPS 2.18 (exp. 2.07/1.73 reported); Revenue 18.1bln (exp. 17.72bln). Global Technology services: 6.3bln (exp. 6.3bln). Cloud and cognitive software: 5.75bln (exp. 5.7bln). Global business services: 3.9bln (exp. 3.9bln). Systems revenue: 1.9bln (exp. 1.75bln). Global financing: (exp. 0.322bln). (Newswires) Co. shares rose over 6% after-market

China's Global Times says that the WSJ report stating that China may retaliate against Nokia (NOKIA FH) and Ericsson (ERICB SS) if EU bans Huawei is "fake news" aimed at undermining good China-EU relations, according to the Foreign Ministry. (Newswires)

FX

AUD - Another upturn in broad risk sentiment, partly tech sector driven, but also backed up by ongoing strength in precious metals, has helped the Aussie extend gains across the board with Aud/Usd eyeing the current 2020 high at 0.7063 and Aud/Nzd rebounding through 1.0700. However, the latest advances were also forged in wake of RBA minutes and comments from Governor Lowe, as the former underlined stabilisation in the economy after a less severe than previously envisaged downturn and the latter stated a desire to see a weaker Aud, but no intention to intervene. Moreover, the Minister for Resources flagged record Chinese demand despite the spat as reason for Australia gleaning protection from even worse post-coronavirus conditions, albeit not accounting for the more recent outbreak in Victoria.

CAD/NOK/SEK/GBP - The next best performing majors, and ensuring that the DXY remains depressed below 96.000, as the Loonie probes above 1.3500 ahead of Canadian retail sales data with some support from firm crude prices, while the Norwegian and Swedish Crowns continue their ascent vs the US Dollar and Euro, with Eur/Nok now under 10.5100 and Eur/Sek approaching 10.2400. Similarly, Sterling is gathering fresh technical momentum and Cable has probed 1.2700 on the way through the 200 DMA before drifting back, with Eur/Gbp hovering near the base of a 0.9050-10 range as the single currency pares initial gains made on the EU Recovery Fund deal.

NZD/CHF/JPY/EUR/USD - Relative G10 laggards, with the Kiwi capped ahead of 0.6600, Franc unable to bounce far from 0.9400, Yen caught in a narrow sub-107.00 corridor and Euro waning between 1.1470-24 parameters even though the Greenback has sustained more losses overall. In terms of more specific impulses, Swiss trade data revealed a wider trade surplus and less steep slide in watch exports, Usd/Jpy may be influenced by decent option expiry interest from 107.30 to 107.40 (1.5 bn) and the single currency seems prone to further buy rumour, sell fact trade after the aforementioned EU package that was largely as expected in terms of size and structure. Back to the Buck, some respite after the index dipped below Fib support at 95.622 to 95.610, but not enough to reclaim 96.000 in the run up to June’s national activity index and Redbook sales.

EM - No real surprise to see the Rand revel in Gold’s illustrious performance and the Rouble rally with Brent, but the Mexican Peso is also benefiting from the rebound in oil.

FIXED

Core debt has detached somewhat from the outperformance in the Eurozone periphery and equity markets, as Bunds hold close to their 176.45 recovery high and Gilts not far from 137.92 vs 137.76 at the Liffe low, while US Treasuries remain flat along with the curve ahead of a light pm agenda. Some support for UK debt via a solid 2026 DMO sale, while Germany’s Schatz offering also went down fairly well, but in truth price action and turnover remains relatively contained with no major range breaks beyond the aforementioned BTP and Bono rallies on EU fiscal support.

COMMODITIES

WTI and Brent front month futures have rallied somewhat this morning with sentiment in general bolstered post the European Council coming to agreement overnight. Price action has seen WTI & Brent September futures hit highs of USD 42.02/bbl and USD 44.49/bbl respectively so far, levels which we remain in relative proximity to at present. Newsflow for the complex itself has once again been very sparse with no scheduled events for the complex this week aside from the weekly releases which see the private inventory report tonight; some expectations looking for a draw of 750k, compared to the previous weeks draw of 8.3mln. As a reminder for the complex today the Aug’20 WTI future is set to expire. Turning to spot gold, where the metal remains elevated with the DXY firmer but still capped by 96.00 with the precious metal itself not far from the September 2011 high of USD 1827.88/oz; currently, the sessions peak is USD 1824.55/oz. Upward price action assisted by total gold ETF holdings increasing for 17 continuous days by ~2.68mln/oz, via ING. Elsewhere, overnight updates from mining names including Vale who see iron ore production at the lower end of guidance as the most probable scenario and BHP seeing copper production volumes slightly lower in 2021.

Vale Q2 iron ore output 67.6mt vs. Exp. 69.0mt; Co. says the most probable scenario is for iron ore production to be towards the lower end of guidance. (Newswires)

BHP (BHP AT/BHP LN) - Group copper production volumes expected to be slightly lower in 2021, in China, copper demand could be modestly lower than steel in FY20; Quarterly copper production 414k tons vs. Prev. 444k tons. Waio iron ore production 75.6mt vs. Prev. 71mt; attributable 66.7mt vs. Prev. 62.6mt. Remains confident in outlook for demand for BHP products over medium to long term. (Newswires)