Sentiment in Europe remains subdued but has picked up a touch following positive flash PMIs

China has confirmed it will be asking the US to close the Chengdu consulate in response to the closure of the Chinese consulate in US

EU Commission says the Airbus agreement to modify subsidy scheme achieves full compliance with WTO rulings, removing any grounds for the US to maintain countermeasures on EU exports

EU Commission states it is urgent that EU countries mitigate the risk of dependency on high-risk 5G providers

European tech names lag post INTC (-12% pre-market) after announcing their 7nm chip tech is behind schedule

DXY is downbeat below 95.00 again while XAU is yet to eclipse USD 1900/oz but EUR/USD successfully surpassed 1.1600

• Looking ahead highlights include US PMIs (Flash), earnings from Verizon & American Express

CORONAVIRUS UPDATE

A newswires tally suggested US COVID-19 cases rose by at least 66,064 (Prev. +69,659), whilst deaths rose by at least 1,112 (Prev. +1,101), according to a major newswires tally. Texas COVID-19 cases +9,507 (prev. +9,879); deaths +173 (prev. +197); hospitalisations data is incomplete due to new federal requirements. Houston, Texas ICU Phase 2 surge capacity now at 27% occupancy, seeing Houston ICU occupancy rate rise to 108%. LA County COVID-19 cases increased by 2,014 (Prev. +3,266), deaths rise by 49 (Prev. +64), hospitalisation rose by 3 (Prev. -11), according to the County Health Department. Arizona Governor has extended the closures of gyms, bars, nightclubs, and water parks. (Newswires)

US President Trump reiterated his support for payroll tax cuts. (Newswires)

US President Trump cancelled the Republican national convention events in Jacksonville, Florida and stated the timing of a big GOP convention is not right given the virus flare-up in Florida; Republican convention delegates will likely get together in North Carolina. (Newswires) Note, the convention was scheduled for August 24-27th. US President Trump has dropped plans to eliminate government drug rebates, according to Politico. (Politico) US President Trump is to deliver remarks and signed executive orders on lowering drug prices on Friday at 15:00ET/20:00BST. (Newswires)

US Commerce Secretary Ross was released from hospital this week and is resting at home, according to sources cited by Fox's Lawrence. (Twitter) Reminder, US Commerce Secretary Ross was admitted into hospital last Friday night for a “minor” unrevealed illness, according to sources.

China reports 21 new COVID-19 cases in Mainland (Prev. 22); 6 new imported cases (Prev. 3) and 43 new asymptomatic cases (Prev. 31). Hong Kong reported 118 (Prev. 113) new confirmed COVID-19 cases on July 23, according to Global Times citing NHC. (Twitter) South Korea reported 41 new COVID-19 cases (Prev. 59); according to KCDC. (Yonhap)

Australia's Victoria state Premier announces 300 (Prev. 403) new coronavirus cases. (Newswires)

Germany COVID-19 cases rose 815 (Prev. +569), whilst deaths rose by 10 (Prev. +6), RKI. (Newswires)

Over 50% of the population of England are set to be offered free flu jabs during the winter to help the NHS prepare for a potential COVID-19 second wave. (Telegraph)

US – CHINA UPDATE

China has confirmed it will be asking the US to close the Chengdu consulate in response to the closure of the Chinese consulate in US. (Newswires) This was touted by SCMP sources yesterday, however the requested timeline for the closure is currently unknown. The head of the Chinese consulate in Houston will not commit to closing the office by the Friday deadline. (SCMP) Global Times citing experts, tweeted China can consider targeted strike to retaliate the US on the forced closure of the consulate in Houston – expelling hundreds or even more US diplomats who actually worked for CIA in Chinese mainland and Hong Kong. (Twitter)

US President Trump said the China trade deal means much less to him now. (Newswires) US Secretary of State Pompeo said China is a threat to the economy and added we will keep on talking with China but the conversations are different. Pompeo reiterated that Huawei is a national security threat; Chinese consulate in Houston was a "hub of spying" and IP theft. (Newswires)

ASIA

APAC stocks traded lower across the board as the region took its cue from the losses on Wall Street, where the S&P snapped a four-day winning streak and the Nasdaq underperformed on the back of the sell-off in major tech stocks. Furthermore, Intel shares slumped 10% after-hours despite broadly positive earnings as its advanced 7-nanometre chip product transition faces a further delay, albeit competitor AMD soared 7.5% on the news.  Losses in Asia-Pac came ahead of the anticipated retaliatory announcement from China, where it confirmed it will be asking the US to close its consulate in Chengdu, as touted by sources. ASX 200 (-1.2%) was weighed on by the losses across its heavyweight miners and financials. KOSPI (-0.7%) took a breather from yesterday’s underperformance, and as new cases in South Korea continue to decline in pace. Hang Seng (-2.2%) was pressured by a number of large cap stocks in the red and with fears that the closure of the US consulate in Hong Kong is in China’s arsenal, although this would be akin to a nuclear option. Similarly. Shanghai Comp (-3.8%) underperformed as investors took chips off the table amid China’s retaliatory move, whilst experts cited by Global Times stated that Beijing could also consider a targeting strike such as expelling hundreds or more US diplomats in Mainland and Hong Kong,. As a reminder, Japanese markets were closed in observance of National Sports Day Holiday.

PBoC drained a net CNY 170bln this week via reverse repos vs. an injection of CNY 330bln last week. (Newswires) PBoC set USD/CNY mid-point at 6.9938 vs. Exp. 6.9937 (Prev. 6.9921)

US

Trump administration is sending agents to Seattle and expanding on controversial Portland deployment. (NYT)

Former Vice President Joe Biden holds a discernible -- though not insurmountable -- Electoral College advantage over President Donald Trump,, according to ABC News, (Twitter)

UK/EU

EU Commission says the Airbus (AIR FP), France & Spain agreement to modify subsidy scheme puts them in full compliance with WTO rulings, and as such removes any grounds for the US to maintain countermeasures on EU exports. If the dispute is not settled, EU fully ready to avail itself of own sanction rights. Subsequently, French Finance Minister Le Maire calls on US to remove imposed tariffs on European products, like French wine, as soon as possible; adds that EU will impose tariffs on US in retaliation if the US refuses talks. (Newswires)

EU Commission states it is urgent that EU countries mitigate the risk of dependency on high-risk 5G providers; 13 countries need to implement foreign direct investment screening mechanism without delay. (Newswires)

UK Chancellor Sunak is said to be mulling a new infrastructure bank for new funding for capital projects across the UK, no final decisions have been made but the Chancellor is expected to make an announcement on this in his autumn statement. (FT)

UK GfK Consumer Confidence* (Jul) -27 vs. Exp. -26.0 (Prev. -30.0) (Newswires)

EU Markit Composite Flash PMI (Jul) 54.8 vs. Exp. 51.1 (Prev. 48.5)

-        Services Flash PMI (Jul) 55.1 vs. Exp. 51 (Prev. 48.3)

-        Manufacturing Flash PMI (Jul) 51.1 vs. Exp. 50 (Prev. 47.4)

UK Flash Services PMI (Jul) 56.6 vs. Exp. 51.5 (Prev. 47.1)

-        Manufacturing PMI (Jul) 53.6 vs. Exp. 52 (Prev. 50.1)

-        Composite PMI (Jul) 57.1 vs. Exp. 51.1 (Prev. 47.7)

German Markit Composite Flash PMI (Jul) 55.5 vs. Exp. 50.3 (Prev. 47)

-        Services Flash PMI (Jul) 56.7 vs. Exp. 50.5 (Prev. 47.3)

-        Manufacturing Flash PMI (Jul) 50 vs. Exp. 48 (Prev. 45.2)

EQUITIES

European equities trade lower across the board (Eurostoxx 50 -1.5%) following a negative close on Wall Street yesterday, alongside heightening tensions between the US and China after China confirmed it will be asking the US to close the Chengdu consulate in response to the closure of the Chinese consulate in US. Furthermore, Europe is also being hampered by performance in tech names after Intel (-11.1% pre-market) reported after-hours yesterday. Despite financial metrics being broadly positive, disappointment was seen after reports that the Co.’s advanced 7-nanometre chip product transition faces a further delay. Given the above, a raft of broadly upbeat PMI prints from across the Eurozone have prompted only a modest pick-up in sentiment, with markets perhaps looking to the weeks/months ahead to determine if such readings are indicative of the recovery that is to come. Elsewhere in terms of sector-wide performance, telecom names are being weighed on by Vodafone (-5.2%) after the Co.’s Q1 sales fell short of expectations, whilst also announcing that it is targeting early 2021 for a Frankfurt listing of its mast business. Energy names are faring modestly better than peers, albeit still lower on the day with some reprieve being granted by slightly firmer energy prices and Equinor (+1.8%) after the Co. reported former than expected profits, supported by trading activities. Centrica (+20.0%) is the clear outperformer in the Stoxx 600 with the Co. announcing it is to propose the sale of Direct Energy to NRG Energy for USD 3.625bln in cash alongside H1 earnings.

Congressional hearing for CEOs of Amazon (AMZN), Apple (AAPL), Facebook (FB) and Google (GOOG) is poised to be delayed, sources state. (Newswires)

Intel (INTC) Q2 2020 (USD): Adj. EPS 1.23 (exp. 1.11/1.04 reported); Revenue (exp. 18.55bln); 7 nanometer chip process is now trending around 12 months behind target. Client computing group: 9.5bln (exp. 8.91bln) Data center group (DCG): 7.1bln (exp. 6.77bln). Q3 guidance: EPS 1.10 (exp. 1.14/1.07 reported); Revenue 18.2bln (exp. 17.90bln). FY guidance: EPS 4.85 (exp. 4.81/4.48 reported); Revenue 75bln (exp. 73.86bln). Co. shares fell as much as 10% after-market.

Skyworks Solutions Inc (SWKS) Q3 20 (USD): Adj. EPS 1.25 (exp. 1.12), Revenue 737mln (exp. 691mln). Raises dividend by 14% to USD 0.50/share

Goldman Sachs (GS) has reportedly reached a USD 3.9bln settlement with Malaysia over 1MDB scandal, sources say. (Newswires)

FX

JPY - The lack of Japanese involvement and potential export/corporate supply may be exacerbating the move, but risk aversion on well documented and familiar factors have prompted a more pronounced and widespread increase in demand for the safe-haven Yen. Indeed, Usd/Jpy has made a decisive break through 107.00, 106.67-65 recent lows and is now edging towards the round number below where support resides at 106.07 (June 23 base) ahead of stronger downside technical levels in the form of a double or tweezer bottom at 105.99 (consecutive troughs from May 6 and 7). Similarly, Eur/Jpy has reversed sharply from post-EU fiscal stimulus highs to the low 123.00 zone, as the single currency loses momentum generally.

EUR/GBP - Propped by better than expected and encouraging preliminary PMIs, including the German manufacturing sector returning from deep contraction to the threshold of expansion, but hampered on the other hand by broader risk-off sentiment and no progress on the Brexit trade front. Hence, the Euro is finding the altitude rare above 1.1600 against the Greenback and the Pound continues to struggle on the 1.2700 handle, albeit forming a firmer base above Cable’s 200 DMA (bang on the big figure today).

AUD/CAD/NZD - Further erosion from lofty peaks vs their US counterpart, as the DXY pares some losses from a new 2020 nadir between 94.569-810 parameters, with the Aussie sub-0.7100, Loonie back under 1.3400 and Kiwi near the bottom of a 0.6653-19 range. Little independent reaction to decent improvements in CBA PMIs or a narrower NZ trade surplus overnight, with the former somewhat marred by more COVID-19 cases in Victoria and the Aud also monitoring another YUAN retreat below 7.0000 after confirmation of Chinese consulate retaliation against the US.

EM - The aforementioned sour risk tone and rising virus infections are weighing on regional currencies, but the Rouble is deriving a degree of underlying support from Brent holding above Usd 43/brl awaiting the upcoming CBR rate call amidst expectations for a 50 bp reduction, but no guarantee after Governor Nabiullina intimated that a pause is possible following June’s ease to the current 4.5% ATH.

New Zealand Trade Balance (Jun) 426M (Prev. 1253.0M, Rev. 1286M) (Newswires) New Zealand Exports (Jun) 5.07B (Prev. 5.39B, Rev. 5.40B) New Zealand Imports (Jun) 4.64B (Prev. 4.14B, Rev. 4.11B)

FIXED

Although caveats could be more of a consideration for equity investors, bond bulls seem to be taking the flash EU PMIs at face value or simply a catalyst to book profits and pare long positions. Indeed, Bunds, Gilts and US Treasuries have all retreated further from best levels to post new intraday lows, at 176.28, 137.99 and 139-17+ compared to 176.98, 138.46 and 139-25 respectively, even though stocks remain well under par, albeit off lows. Ahead, the first look at US Markit PMIs for the current month before more housing data.

COMMODITIES

WTI and Brent are firmer this morning in what appears to be a consolidation from some of the US hours downside given stimulus concerns and US-China tensions; albeit, the benchmarks still have some way to go to recapture yesterday’s decline. In terms of newsflow there is nothing fundamentally new for the complex, which has been the theme for the entirety of the week. On the docket for today we do have the weekly Baker Hughes rig count which may draw some attention but aside from that price action will likely follow, at least directionally, risk sentiment once again. This morning saw earnings from Equinor and in terms of their more qualitative commentary the CEO sees downward pressure on prices given OPEC easing their production cut quotas but ultimately continues to expect the market to achieve balance in 2022. For metals, the upside action for precious metals continues with gold and silver both firmer on the day aided by dollar downside. The yellow metal is yet to eclipse USD 1900/oz with the session high USD ~2/oz from this handle afterwhich just the all time high of USD 1921.75/oz lies as a possible sticking point.

CME raised COMEX 5000 Silver Futures margins by 12.5% to USD 9k/contract from USD 8k/contract. CME lowered crude oil futures NYMEX maintenance margins by 8.8%. (Newswires)

NHC said the Gulf Depression has strengthened into Tropical Storm Hanna. Tropical storm warning has been extended Southward