• Initial optimism across stocks faded; sectors hold a cyclical bias
• US Senate could start the debate on the House-passed COVID-19 bill this afternoon, according to Fox
• House Speaker Pelosi said she hopes a deal could be made this week, although acknowledged that it will not probably occur until next week
• RBA kept rates unchanged at 0.25% as expected and reiterated its forward guidance, but will purchase AGS tomorrow
• DXY remains sub-93.500, USTs grind higher while the curve flips back into flattening mode
• Looking ahead, highlights include US ISM NY Index, Factory Orders and Durable Goods (R), New Zealand Unemployment Rate, supply from the UK

CORONAVIRUS UPDATE

US President Trump noted a decline in virus infection rates for some states and said they are sees signs the virus is receding and many states are getting it under control. Furthermore, President Trump said a permanent lockdown is not a viable path forward for tackling the coronavirus and that vaccines are coming along incredibly well. (Newswires)

Hong Kong authorities reported 80 new COVID cases (vs. 80 reported yesterday), 75 of which are locally transmitted. (Newswires)

French top scientific body says a second COVID-19 wave is highly likely by this autumn or by next winter. (Newswires)

ASIA-PAC

Asian equity markets traded positively as the region took its cue from the constructive handover from Wall St where sentiment was underpinned by strong ISM Manufacturing PMI data and with advances led by a continued tech rally after Apple shares extended on record highs and with Microsoft the biggest gainer in the DJIA amid a potential TikTok acquisition. ASX 200 (+1.9%) outperformed and broke above the 6000 level as tech names found inspiration from their counterparts stateside and a potential WFH boost due to the impending tougher lockdown restrictions in Victoria state, with notable strength also seen in the top-weighted financials sector. Nikkei 225 (+1.7%) remained underpinned by favourable currency flows and with slight encouragement also provided by firmer than expected Tokyo inflation data, as well as comments from BoJ Governor Kuroda that the central bank could extend the period of corporate support. Hang Seng (+2.2%) and Shanghai Comp. (+0.1%) conformed to the upbeat tone but with less conviction in the mainland after another notable liquidity drain by the PBoC and continued US-China tensions with the US attempt to force a sale of TikTok being branded by Chinese press as a robbery and with allegations from US Secretary of State Pompeo that the Chinese Communist Party is running an espionage operation in the US. 10yr JGBs were initially flat with demand sapped by the gains in Tokyo stocks and as participants were sidelined ahead of the 10yr JGB auction which saw mixed results but nonetheless attracted higher prices and eventually spurred 10yr JGBs in late trade.

PBoC skipped reverse repo operations for a net daily drain of CNY 80bln. (Newswires) PBoC sets USD/CNY mid-point at 6.9803 vs. Exp. 6.9830 (Prev. 6.9980)

Chinese Foreign Ministry understands that no Chinese journalists in the US had visas renewed yet. (Newswires)

BoJ Governor Kuroda said Japan's economy is gradually moving towards a recovery but downside risk is large given increase in infections, while he also noted the BoJ may consider extending March 2021 deadline regarding steps to support corporate funding. Furthermore, Kuroda stated that expanding loan scheme, cutting short and long-term rate targets, as well as boosting ETF purchases are among options if BoJ were to ease again. (Newswires)

Tokyo CPI (Jul) Y/Y 0.6% vs. Exp. 0.3% (Prev. 0.3%). (Newswires) Tokyo CPI Ex. Fresh Food (Jul) Y/Y 0.4% vs. Exp. 0.2% (Prev. 0.2%) Tokyo CPI Ex. Fresh Food & Energy (Jul) Y/Y 0.6% vs. Exp. 0.3% (Prev. 0.4%)

RBA kept the Cash Rate Target unchanged at 0.25% and maintained the 3yr yield target at 25bps as expected, while it reiterated forward guidance and noted that tomorrow the Bank will purchase AGS in the secondary market to ensure 3yr yield remains consistent with target. Furthermore, it stated that the Board is committed to do what it can to support jobs, incomes and businesses, while it forecast inflation to average between 1.0%-1.5% over the next couple of years and said the Australian economy is going through a very difficult period. (Newswires

US

Fed's Evans (non-voter) sees jobless rate at 9.5% at end-2020 & 6.5% end-2021 in his baseline outlook but noted more pessimistic forecasts are equally probable, while he added monetary policy is about where it can be and the ball is in Congress’ court regarding the economy. (Newswires)

US Treasury Secretary Mnuchin said there is still a lot of progress to be made after talks with Democrats and that they are open to larger COVID-19 relief bill if we can reach an agreement. US Senate Majority Leader McConnell said Democrats are refusing to budge on negotiations, while there were separate reports that US Senate vote on the unemployment insurance is to happen on Tuesday at the earliest. (Newswires) Later reports noted US Senate could start the debate on the House-passed COVID-19 bill this afternoon, inserting amendments and tackling expired unemployment insurance issues, according to Fox's Pergram. (Twitter)

US House Speaker Pelosi said COVID-19 relief bill meeting was productive but there were many outstanding issues and Senate Minority Leader Schumer said he believes there is a desire to get something done. Pelosi said they will meet with Treasury Secretary Mnuchin and White House Chief of Staff Meadows again on Tuesday, while she hopes a deal on COVID-19 relief could be made this week, but added it will not probably happen until next week. (Newswires)

UK/EU

ECB's Lane states the overall envelope of PEPP purchases is a core determinant of the ECB’s overall monetary stance; CB is committed to providing the monetary stimulus needed to support the economic recovery. Further progress in persistently containing the virus will be central in determining the size and speed of the economic recovery. While there has been some rebound in economic activity, the level of economic slack remains extraordinarily high and the outlook highly uncertain. (ECB)

Tesla (TSLA) is planning a significant expansion of its retail presence in North America and abroad, with a focus on China. (Electrek)

EQUITIES The initial optimism seen in Europe at the cash open somewhat petered out – with the region now posting a mixed performance despite a lack of fresh fundamental catalysts and a positive APAC handover. No major under/outperformers are seen across major European bourses, but DAX saw a notable reversal into negative territory from a firm positive performance earlier in the session – potentially on the back of heavyweight Bayer (-3.3%) extending on post-earnings losses after cutting its guidance, whilst the turnaround in the tech sector prompted SAP (-2.5%) to tumble to the bottom of the index, albeit Infineon (+4.7%) remains positive despite the broader erosion in the tech sector after raising its revenue guidance.. Sectors are now mixed as earlier gains recede, albeit the detailed breakdown sees cyclical sectors Oil & Gas, Autos, Bank and Travel & Leisure retaining their top positions whilst defensives hold onto losses. The auto sector has seen little by way of fresh news, although pre-market, the German Ifo institute noted that the auto industry business expectations rose significantly for a second straight month, thus potentially underpinning the sector. Individual movers largely consist of earnings: BP (+7.5%) extends on gains despite a 50% cut to dividends after posting a smaller than expected loss and noting that the current financial breakeven is at USD 40/bbl. Diageo (-5.5%) holds onto losses after missing on expectations across the main metrics whilst refraining from providing guidance. Easyjet (+12%) drifts higher after upping its Q4 capacity to 40% from the prior 30%, with the performance also supporting the likes of Air France-KLN (+5.5%), Lufthansa (+3.5%) and peers. Other earnings-related movers include Hugo Boss (+2.1%), Fraport (+0.3%), Evonik (+3.6%) and Metro AG (+4%).

FX

USD - It remains to be seen whether the Buck stops retreating and stages another rebound, but for now it looks as though yesterday’s narrow failure to recapture the 94.000 level in DXY terms was telling from a psychological standpoint if nothing else. Indeed, the index has drifted down from a lower 93.612 high through 93.500 to 93.268 and lost inverse correlation with broad risk sentiment that briefly returned yesterday. Ahead, relatively 2nd tier data scheduled and unlikely to have a major impact given the lack of meaningful or last reaction to Monday’s manufacturing ISM that was largely better than expected in headline and sub-component terms. However, technical factors may direct trade given near term support at 93.169 and resistance at 93.997 ahead of last Friday’s 94.007 high.

AUD/EUR/CHF/CAD - The Aussie has taken advantage of Greenback’s pull-back to reclaim 0.7100+ status and the 10 DMA (0.7144) in wake of the RBA policy meeting that maintained rates and guidance, but in acknowledgement of the COVID-19 resurgence in Victoria will see the Bank resurrect its QE program from Wednesday. Elsewhere, the Euro has retested 1.1800 from Monday’s low just under 1.1700 and the Franc is back over 0.9200, with the former topping out ahead of Fib resistance at 1.1823 and the latter into 0.9150, while the Loonie is meandering between 1.3404-1.3360 parameters in the run up to Canadian manufacturing PMI.

JPY/NZD/GBP/NOK/SEK - Lagging their G10 counterparts, albeit to varying degrees, as the Yen pivots 106.00, Kiwi straddles 0.6600 in advance of NZ jobs data and Pound fades within a 1.3107-1.3047 range having failed to get close enough to stir or arouse stops said to be waiting for a break of 1.3120. Similarly, the Scandinavian Crowns have slipped both slipped from best levels against the Euro, though in tight bands of 10.7675-7200 and 10.3045-2740 respectively and the Nok eyeing softer crude prices.

EM - Try in focus due to Turkish inflation data, but not deflated even though CPI slowed more than forecast on the headline and core measures, with the Lira hovering towards the upper end of 6.9170-9795 extremes vs the Usd. The aforementioned weaker Dollar is clearly a factor, while Usd/Try may also be taking on board Turkey’s manufacturing PMI extending its rising trend to 3 months in a row and reaching its best level since early 2011. Over in Asia, the HKMA has been active again to keep the Hkd pegged, selling over 1.16 bn of the local currency.            

FIXED INCOME

In contrast to Monday, the core Eurozone debt future and its peripheral peers are heading the recovery from intraday lows and not strictly in tandem with weakness in stocks to imply any pronounced asset-switching or reallocation. However, dovish sounding ECB rhetoric from Lane may have provided some impetus as Bunds bounce to 177.74 from 177.19 at worst, while OATs, BTPs and Bonos trade above 169.00, near 147.50 and 159.00 respectively. Elsewhere, Gilts have just climbed to 138.61 vs 138.37, but seem wary about impending 21 year DMO supply and US Treasuries are grinding higher ahead of data and Wednesday’s Quarterly Refunding details, with the curve flipping back into flattening mode.        

COMMODITIES

WTI and Brent front month futures remain subdued in early European trade as investors weigh the impact a second COVID-19 wave could have on lockdown impositions and reopening delays alongside rising OPEC supply with the implications as reflected by prelim numbers. Aside from that, traders will be eyeing the weekly Private Inventory figures – with expectations currently positing to a headline draw of 3.5mln barrels, with a draw seen in gasoline and a build in distillates. WTI and Brent futures trade ~40.50 (vs. high 40.99/bbl) and around 43.50/bbl (vs. high 44.11/bbl) respectively. Elsewhere, precious metals are uneventful with spot gold trading on either side of 1975/oz, whilst its silver counterpart remains contained below 24.50/oz. Data compiled by Bloomberg showed that ETFs increased gold holdings for a 27th straight session yesterday – equating some USD 580mln at yesterday’s spot price, whilst UBS expects spot gold prices to rise to around USD 2000/oz in H2 2020. In terms of base metal prices, Dalian iron ore saw another day of gains amid concerns regarding Brazilian miner Vale’s ability to increase production of the raw material, whilst London copper prices continue to ease, in-fitting with the performance in sentiment.

UBS expects spot gold prices to rise to around USD 2000/oz in H2 2020; prices could overshoot in the short term, with risk-case at USD 2300/oz. (Newswires)