• Sentiment remains softer after mixed APAC performance and US-China tensions, but US futures have begun to edge higher
• US asked China to close their Houston consulate which prompted backlash from China and threats of retaliatory action
• US Treasury Secretary Mnuchin hopes to get a new COVID-19 bill passed by the end of July
• US President Trump reiterated that COVID-19 vaccines are coming sooner than anyone thought possible & working on a very powerful strategy
• DXY was bolstered on Houston updates but has since slipped below 95.00 as EUR eclipses January’19 highs while XAU rallied overnight and remains above USD 1850/oz
• Looking ahead highlights include Canadian CPI, ECB's Lagarde & de Guindos
• Earnings from Microsoft & Tesla

CORONAVIRUS UPDATE

Newswires tally reported US COVID-19 cases rose by at least 64,734 (Prev. +61,761), whilst deaths rose by at least 1,123 (Prev. +500). California cases +2.4%/+9231 (prev. +1.8%/+6,846); deaths +61 (prev. +9). Texas cases increased by 9,305 (Prev. +7,404); deaths +131 (Prev. +62); Hospitalization +279 (Prev. -23). LA County cases increased by 2,741 (Prev. +3,160), deaths rise by 50 (Prev. +9), hospitalisation fell by 14 (Prev. +16), according to the County Health Department (Newswires)

US President Trump reiterated that COVID-19 vaccines are coming sooner than anyone thought possible; virus will probably get worse before it gets better; we are working on a strategy that is very powerful. President Trump also stated that citizens should wear a face mask if unable to socially distance. Trump again referred to COVID-19 as the "China virus” and stated that a permanent shutdown "really never an option". Trump also thinks the US will have a very strong Q3 and a very strong 2021. (Newswires)

US Treasury Secretary Mnuchin hopes to get a new COVID-19 bill passed by the end of July. (Twitter/Newswires) McConnell’s plans to provide more state aid hit a snag in the GOP conference talks. (Newswires)

US House Speaker Pelosi says we will bridge party differences on stimulus aid. (CNN)

WHO's Ryan says the the major hotspot for COVID-19 is clearly the Americas, whilst the disease is accelerating in Africa and worrying trends are being seen in Southern Europe and the Balkans. (Newswires)

China reported 14 new COVID-19 cases in Mainland (Prev. 11); 5 new imported cases (Prev. 3) and 22 new asymptomatic cases (Prev. 6). (Newswires) Hong Kong confirmed 60 new COVID-19 cases (Prev. 73), according to Global Times. Reports in SCMP suggested that Hong Kong COVID-19 cases on Wednesday reportedly topped Sunday's record of 108, according to sources. Hong Kong is to extend the public mark-wearing requirement, according to HKET (Twitter/Newswires) South Korea reported 63 new COVID-19 cases (Prev. 45); according to KCDC. (Yonhap) Tokyo Governor said Tokyo is likely to see 230-240 COVID-19 cases on Wednesday and has asked people to refrain from going out as much as possible. (Newswires)

Australia's Victoria State Premier confirms 484 (Prev. 374) COVID-19 cases in the state, a new record. (Newswires)

Germany COVID-19 cases rose by 454 (Prev. +522), whilst deaths rose by 5 (Prev. +4), according to RKI. (Newswires)

ASIA

APAC stocks traded mixed following a similar handover from Wall Street, in which the three indices saw downside in the latter part of the session as the US stimulus bill hit a bump amid differences over the size of the package and whether payroll tax cuts should be included. ASX 200 (-1.3%) lagged as cases stayed on an upward trajectory in Australia’s second largest state of Victoria, although miners saw a boost from the rally in precious metals. Nikkei 225 (-0.6%) failed to nurse opening losses as several large-cap stocks remained in the red, whilst recent JPY strength further weighed on exporters in the index. Conversely, Shanghai Comp (+0.4%) outperformed following yesterday’s pause, whilst Hang Seng (-2.5%) initially took a breather and remained in positive territory as oil giants kept the index afloat; before succumbing to the overall deterioration in sentiment. Finally, JGB futures ticked higher overnight after reports that that the Tokyo Governor is mulling stay-at-home orders, whilst the BoJ’s Rinban operations saw sizes for the 1-3yr, 3-5yr and 5-10yr buckets unchanged.

Senior US Senator Risch (R) is pushing to give US new tools to curb Chinese trade practices, including sanctions for IP violations, however, passage this year is unlikely due to elections but could serve as a template for after November. Risch also stated that US needed to tackle to "increasingly unfavourable" military balance by strengthening alliances with Japan, South Korea and Australia. (FT)

The general consensus among Chinese officials and analysts is that the US will not completely cut off China's access to the USD system as it would pose risks to the US and the global economy, but the risks remains real if relations deteriorates further. (SCMP)

PBoC skipped reverse repo operations for a net neutral daily position PBoC set the USD/CNY mid-point at 6.9718 vs. Exp. 6.9706 (Prev. 6.9862)

Japanese Jibun Bank Manufacturing PMI Flash (Jul) 42.6 (Prev. 40.1) Japanese Jibun Bank Services PMI Flash (Jul) 45.2 (Prev. 45.0) Japanese Jibun Bank Composite PMI Flash (Jul) 43.9 (Prev. 40.8)

US

"US has asked China to close their Consulate General in Houston within 72-hours. This is a crazy move." Global Times Editor, reports which were subsequently confirmed by the Chinese Foreign Ministry (and later by the US State Department) with the Foreign Ministry adding that there will be retaliations unless the decision is corrected & strongly condemn such action. (Twitter/Newswires) The Foreign Ministry remarks sparked pronounced risk-off moves, notably lifting USD/CNH above 7.00 and causing US equity futures to drop into negative territory

In terms of potential retaliatory action, China could consider shutting the US consulate in Wuhan in response to the US order for China to shut its Houston consulate, sources say. (Newswires)a

China Foreign Ministry, on US accusations that Chinese nationals are on a hacking spree for defense secrets and COVID data, asks the US to immediately stop its accusations. (Newswires)

US House has approved a USD 740bln defence policy bill. (Newswires) Note: US President Trump has threatened to veto this bill.

UK/EU

UK is close to abandoning hopes on a post-Brexit EU trade deal, Telegraph reports; UK government's working assumption is that UK will trade with the EU on WTO terms. Senior sources state that the assumption is that there will not be a deal, but a "basic" agreement could be reached if EU gives ground in Autumn. (Telegraph)

UK senior government figures have abandoned hope of reaching a UK-US trade deal ahead of the US elections in November due to the pandemic. (FT)

The European Parliament's main groups have backed a resolution saying they "do not accept" and "deplore" the deal on the budget ..."as it stands", according to FT's Khan. (Twitter) Subsequently, EU Parliament President Sassoli says it wants to improve the EU summit, and wants to stop budget cuts for research; says he is satisfied with the recovery fund, but will focus on changes to the budget: final vote will occur in a few months time. (Newswires)

GEOPOLITICAL

UK is said to be mulling tighter security laws following the release of the Russia report, with sources suggesting new law requiring foreign agents to register in the UK was being looked at by Downing Street, although no firm proposal  have been made. (BBC)

US Navy is holding parallel exercises in the Philippine Sea and the Indian Ocean, involving the US, Japan, India and Australia, in a move sure to catch the attention of Beijing. (Nikkei)

US President Trump spoke to Abu Dhabi crown prince on the importance of de-escalation in Libya via the removal of foreign forces, according to the White House. (Newswires)

EQUITIES

European equities have started the session off on the backfoot (Eurostoxx 50 -0.8%) following a mixed handover from the US and Asia with action exacerbated on increasing US-China tensions regarding the Houston consulate in EU hours. From a European perspective, little has fundamentally changed since yesterday’s close amid the fallout from the agreement in Brussels other than some rumblings from Parliamentary groups in the EU that do not accept the Multiannual Financial Framework as its stands; ahead of tomorrow’s plenary session to assess the Council conclusions. In terms of sectoral performance, auto names are lagging their peers after a solid session yesterday with Valeo (-9%) acting as a weight on the sector after its H1 update. Energy names are also seen lower this morning with WTI and Brent front-month futures having dipped below 41.50/bbl and 44/bbl respectively. For stocks specific developments, Kingfisher (+11.4%) sit at the top of the Stoxx 600 with the Co. anticipating HY adj. pretax profit to be above Prev. due to strong Q2 sales and cost reductions. Elsewhere, other gainers include Fresnillo (+9.1%) despite cutting gold production guidance as investors appear satisfied with the accompanying beat on silver production. ABB (+2.3%) are also seen higher after the Co. beat on both top and bottom lines, whilst to the downside Melrose (-17.5%) are a laggard in Europe after announcing a 27% decline in H1 revenues.

Amazon (AMZN)/Apple (AAPL) - Italy's antitrust authorities have opened a probe into the Co's regarding anti-competitive cooperation in terms of the sale of Apple brand Beats headphones. (Newswires)

Boeing (BA) 737 Max is unlikely to resumed widespread passenger flights until early next year, almost two months beyond prior guidance, amid regulatory delays, according to US officials cited by WSJ. Officials said the timetable could speed up and MAX operations could resume earlier, but it is not the expectations of those closely monitoring the process. (WSJ) Co. has a 4.5% weighting in the DJIA. Separately, a 737 craft has caught fire at the Shanghai airport, according to Xinhua. (Newswires)

Snap Inc (SNAP) Q2 2020: Adj. EPS -0.09 (exp. -0.09), Revenue 454mln (exp. 440mln); no Q3 guidance. (Newswires) 10% lower in after-market trade

Texas Instruments (TXN) Q2 2020 (USD): EPS 1.48 (exp. 0.88/0.86 reported); Revenue 3.2bln (exp. 2.94bln); Q3 Revenue view 3.26-3.54bln (exp. 3.07bln); Q3 EPS view 1.14-1.34 (exp. 0.97) 4% higher in after-market trade

United Airlines (UAL) Q2 2020 (USD): Adj. EPS -9.31 (exp. -9.02/-5.64 reported); Revenue 1.48bln (exp. 1.32bln); expects demand to remain suppressed until the availability of treatment and/or vaccine; total liquidity as of Jul 20 ~USD 15.2bln. (Newswires) Choppy in after-market trade, but ultimately over 1% lower

FX

USD - The Buck has bounced broadly on risk-off positioning and some profit taking after sustaining more heavy losses vs rival currencies, as US-China tensions ratchet up further over the closure of the Chinese Consulate in Houston by US ‘request’. In response, China’s Foreign Ministry has issued a warning about retaliation if the outrageous edict is not reversed and Usd/Cnh has rebounded firmly from circa 6.9640 to around 7.0160 awaiting further developments. Meanwhile, the DXY has pared more losses following another skirmish with 95.000, at 95.061 vs 95.043 at one stage on Tuesday to trade at 95.419 amidst a deeper pull-back in high beta/cyclicals that have gleaned most at the Greenback’s expense.

GBP - Sterling never really took advantage of the aforementioned Dollar drubbing, with Cable only extending advances beyond the 200 DMA (around 1.2705) to 1.2740 at best before reports emerged in the UK press suggesting that the Government is resigned to life post-Brexit transition period without an EU trade deal. The Pound has subsequently given up 1.2700+ status and Eur/Gbp is testing 0.9100 from a few pips off 0.9000 only yesterday.

CHF/AUD/NZD/EUR/CAD/JPY - All conceding ground to the recovering Buck, but not much in the grand scheme, as the Franc flits between 0.9314-37, Aussie remains above 0.7100 and not far from Fib resistance that was breached on the way up towards 0.7167 and Kiwi pivots 0.6650. Elsewhere, the Euro ran into reported fund supply at 1.1550, but is holding above 1.1500 after Tuesday’s big figure break despite potentially damaging news on the EU Budget as main EP groups back a motion of non-acceptance of the deplorable deal. Separately, Eur/Usd may be deriving a degree of underlying support from decent 1.27 bn option expiry interest at the round number. The Loonie is straddling 1.3450 in the run up to Canadian CPI and the Yen has drifted down to 107.00 or so following a break above that faded just ahead of near double top resistance at 106.67-65.

SCANDI/EM - The latest strains in relations between Washington and Beijing and associated aversion has undermined the Sek and Nok especially as oil prices recoil, but EMs are also suffering due to their more risk sensitive nature. Nevertheless, the Rand is still deriving some traction from Gold reaching fresh multi-year peak and only appearing to wane beyond Usd 1850/oz amidst speculation about hedging from bullion producers.

Australian Retail Sales Prelim (Jun) MM 2.4% (Prev. 16.9%); YY 8.2% (Prev. 5.3%) (Newswires) 

Brazilian Central Bank Director said the economy requires extraordinarily high monetary stimulus, but room for further rate cuts is small and uncertain; have room to continue FX interventions if needed. (Newswires)

FIXED

Gilts were already regaining a certain amount of Brexit no deal premium before Beijing condemned the US for ordering the closure of the Chinese GC in Houston, but got additional momentum from the ensuing safe-haven scramble to surpass the 138.20 contract high before making some concession from 138.25 at best for DMO supply bearing in mind that Tuesday’s long end offering was not so easily digested. Similarly, Bunds broke from their stupor to extend wtd peaks to 176.64 ahead of Germany’s 2048 issuance that was adequately absorbed in the current bond-friendly environment, while US Treasuries are firmer and the curve flatter awaiting the 3rd 20 year sale and Wall Street’s reaction to the latest in a growing list of US-China rifts.

COMMODITIES

WTI and Brent futures have, alongside broader market performance, experienced risk-off moves this morning. At present, the session low for WTI Sep’20 stands just above the USD 41/bbl mark and almost USD 1/bbl lower on the day. The downside stemmed from an escalation in reports relating to the US asking China to close their Houston consulate, which has been confirmed by both sides and seen China threaten to take retaliatory action unless this demand is rectified. For the complex itself newsflow has once again been very quiet, as a reminder the private inventory report last night showed an unexpected build of 7.54mln compared to consensus for a draw of 2mln going into the release, a release which placed the crude benchmarks under pressure. Attention now turns to the EIA report later today for confirmation of such a build in stocks; currently, the EIA report is expected to show a crude draw of 2.088mln which would be smaller than last week’s 7.5mln draw and in contrast to last night private inventory build. Turning to metals, where price action for spot gold has been comparatively quieter in the context of APAC price action. Overnight, the yellow metal extended on gains above the USD 1850/oz mark to a high of USD 1866.44/oz; price action which seemingly followed similar upward action in silver. In terms of a catalyst, no one driver has been attributed to the move but desks note COVID-19 reports alongside Fed nominee Shelton, a gold standard supporter, advancing at the Senate Banking Committee amongst factors. For reference, the next level to watch out for is USD 1885.72/oz which is the high from September 9th 2011 and the ATH at USD 1921.17/oz.

US Private Inventory Crude Stocks (w/e 17th May) Crude +7.54mln (exp. -2.1mln). (Newswires)