• European stocks drift higher as earnings remain in focus; sectors retain a cyclical bias
• Chinese Ambassador to the US said China is prepared to negotiate with other countries for peaceful solution to South China Sea disputes
• Further US coronavirus relief bill talks will take place today; US Treasury Secretary Mnuchin said he wants to have an understanding by end of the week
• DXY dipped below 93.000, Antipodeans outperform, spot gold extends gains above USD 2,000/oz
• Looking ahead, highlights include US Services and Composite Final PMIs, ADP National Employment, US ISM Non-Manufacturing PMI, Weekly DoEs, Fed's Mester, BoJ Governor Kuroda, BCB Rate decision

CORONAVIRUS UPDATE

Novavax (NVAX) vaccine data was initially reported to have 8 patients that had side effects which required hospitalization with about 80% of volunteers had side effects at the site of injection, including pain and tenderness and over 60% had other side effects, mostly headaches, muscle pain and fatigue, according to STAT News. However, the story was later adjusted to note that 8 patients had side effects that were graded severe and the Co. stated that none required hospitalization, while all of the reactions were resolved after a few days with non life-threatening. (Stat News)

BioNTech (BNTX) and Fosun Pharma announce the start of a clinical trial of MRNA-based COVID vaccine in China. (Newswires)

Australia's Victoria State Premier confirmed a record 725 of new daily coronavirus infections, while Queensland state declared New South Wales and the Australian Capital Territory as coronavirus hotspots and will shut its borders to the 2 territories from August 8th. (Newswires)

The mortality rate was said to be roughly halved in hospitalized COVID-19 patients that received transfusions of blood plasma rich with antibodies from recovered patients, according to reports citing researchers conducting a large national study. (WSJ)

Tokyo confirm 263 news cases of COVID-19 (vs. Prev. 309). (Newswires)

US-CHINA UPDATE

US and China have agreed to high-level talks on August 15th to assess Beijing’s compliance with the bilateral trade agreement signed early this year, while USTR Lighthizer and Chinese Vice Premier Liu He will participate in the talks likely via videoconference, according to sources. (WSJ)

US Secretary of State Pompeo tweeted that human rights violations in Xinjiang must stop, while he added US sanctions on Xinjiang Production and Construction Corporation and 2 of its officials make clear that if China wants to participate on the world stage, it cannot behave this way. (Newswires)

US Department of Health and Human Services Secretary Azar is to visit Taiwan in the next few days with China opposed to the visit. There were also comments from the Taiwan Foreign Ministry that US Health Secretary Azar will meet with Taiwan President Tsai during that visit and that the visit shows firm US support for Taiwan, as well as a close US-Taiwan relationship. (Newswires)

Chinese Ambassador to the US said China is prepared to negotiate with other countries for peaceful solution to South China Sea disputes and stated that Beijing does not want to see escalation following mutual consulate closures. (Newswires)

A person involved in the TikTok sale process said discussions were now rapidly progressing to the terms of a deal with Microsoft (MSFT). (FT) China Global Times tweeted that the US crackdown on TikTok sets a dangerous precedent for the US and others to target Chinese companies and interests, while China must take reciprocal countermeasures to make it clear such behaviour will have consequences, citing experts. (Twitter)

ASIA-PAC

Asian equity markets traded mixed after the marginally firmer handover from Wall St amid the toing and froing in US COVID-19 relief discussions and after the tech rally lost steam. ASX 200 (-0.6%) was negative and slipped back below the 6000 milestone with the losses led by financials amid notable weakness across the Big 4 banking names and as the virus outbreak causes further disruption with the Queensland state declaring New South Wales and the Australian Capital Territory as coronavirus hotspots and will shut its borders with those areas from August 8th. Conversely, Australia’s commodity-related sectors just about remained afloat as gold miners outperformed after the precious metal surged through the USD 2000/oz level for the first time ever. Nikkei 225 (-0.3%) was also subdued with exporter sentiment dampened by recent currency strength and with earnings also directing price action as the likes of Mitsubishi UFJ Financial Group and SoftBank Corp suffered after weaker results, while Sony also failed to sustain the early boost provided by improved earnings and  a JPY 100bln buyback announcement, as some fretted over the Co.’s cautious outlook. Hang Seng (+0.6%) and Shanghai Comp. (+0.2%) were choppy after slightly inconclusive data in which Caixin Services PMI missed estimates and Caixin Composite PMI was lower than previous but both remained in firm expansionary territory. In addition, the PBoC continued to refrain from liquidity efforts and it was also reported that US and China have agreed to conduct high-level talks on August 15th to assess Beijing’s compliance with the bilateral trade agreement. Finally, 10yr JGBs were higher and briefly prodded above the 152.50 level as they tracked the upside in T-notes and amid the weakness in Japanese stocks, while the BoJ were also present in the market today for JPY 570bln of JGBs predominantly focused in the belly of the curve and also offered to purchase JPY 300bln of corporate bonds from August 7th. 

PBoC skipped reverse repo operations for a net daily drain of CNY 30bln PBoC set USD/CNY mid-point at 6.9752 vs. Exp. 6.9736 (Prev. 6.9803)

Chinese Caixin Services PMI (Jul) 54.1 vs. Exp. 58.0 (Prev. 58.4) Chinese Composite PMI (Jul) 54.5 (Prev. 55.7)

PBoC Adviser Ma Jun expects the Chinese economy to grow around 2% this year and states there is no need to step up counter-cyclical adjustments of monetary policy. (Newswires)

US

US President Trump was quoted as saying there is a "“big number coming out Friday on jobs”. (Newswires) Note, consensus currently looks for a 1.6mln print for the headline NFP release on Friday.

US Treasury Secretary Mnuchin said he wants to have an understanding by end of the week so legislation can be passed but noted we are not going anywhere near to USD 3.4tln for cost of the relief bill. (Newswires) Further COVID relief bill talks will take place today between White House Chief of Staff Meadows and Treasury Secretary Mnuchin, with House Speaker Pelosi and Senate Minority Leader Schumer. (Twitter)

White House Chief of Staff Meadows said they made substantial progress on eviction protections and unemployment in relief discussions. It was also reported that White House Chief of Staff Meadows is said to be looking at redirecting funds already approved by Congress and putting it towards federal unemployment benefits, according to Washington Post citing sources. (Newswires/Washington Post)

US House Speaker Pelosi later stated that negotiators agreed that they want to reach an agreement on coronavirus relief, while Senate Minority Leader Schumer said there will be two meetings today including one with the Postmaster General, although they noted that the sides remain far apart. (Newswires) EU Markit Comp Final PMI (Jul) 54.9 vs. Exp. 54.8 (Prev. 54.8)

UK/EU

EU Markit Comp Final PMI (Jul) 54.9 vs. Exp. 54.8 (Prev. 54.8). (Newswires)

EU Markit Services Final PMI (Jul) 54.7 vs. Exp. 55.1 (Prev. 55.1)

UK Composite PMI Final (Jul) 57.0 vs. Exp. 57.1 (Prev. 57.1)

UK Markit/CIPS Services PMI Final (Jul) 56.5 vs. Exp. 56.6 (Prev. 56.6)

EQUITIES

European stocks trade higher across the board [Euro Stoxx +0.9%] as sentiment picked up following the mixed APAC lead, with the region’s eyes set on the slew of pre-market earnings as the season remains in full swing. Bourses see broad-based gains with no major standout performer, while DAX cash and front-month futures briefly topped the psychological 12,750 mark. European sectors are all in the green and retain a cyclical bias – with Energy leading the pack amid price action in the complex. The sectoral breakdown sees Travel & Leisure outpacing, with Oil & Gas a close second and defensives lagging, with the former propped up by airlines amid reports easyJet (+8.5%) is to carefully expand its flight schedule, also supporting the likes of Air France-KLM (+4.2%) and Lufthansa (+6.0%) in sympathy. Individual movers again mostly comprise of earnings, particularly in Germany: Allianz (Unch) swung between gains and losses before stabilising around the flat mark amid a mixed bag of results. BMW (-3.0%) is pressured by dismal earnings, in which the Co. expects profit before tax is expected to be significantly lower than in 2019. However, other auto names have shrugged off this report and trade higher in tandem the cyclical performance seen in the sector. Elsewhere, Accor (-0.5%) trimmed post-earnings losses of around 4%, with downside cushioned by the broader performance in the Travel & Leisure names. Other earnings-related movers include Commerzbank (+4.7%), Deutsche Post (+2.8%), Vonovia (+3.2%) and William Hill (+4.4%).

FX

USD - The Dollar and DXY are on the brink of another collapse as bullion extends its surge through the Usd 2000/oz barrier towards Usd 2050 and the next technical resistance level at Usd 2058.94. Treasury yields have actually firmed up a tad and the curve has re-steepened slightly, but momentum has carried Gold and other precious metals to fresh record/multi-year peaks to the broader detriment of the Greenback. The index has tested support around the 93.000 level and the Buck key downside chart points vs major rivals, as the DXY teeters between 93.247-92.846 parameters in the run up to ADP, trade, Markit PMIs and the non-manufacturing ISM.

AUD/NZD - Multiple factors behind firm Aussie and Kiwi rebounds vs their US counterpart, including the aforementioned commodity advances and for the latter much better than expected NZ jobs data. Hence, Aud/Usd has revisited 0.7200 and Nzd/Usd is back above 0.6650, as the Aud/Nzd cross straddles 1.0800 ahead of the NZ labour cost index and AIG services PMI due later today and on Thursday respectively.

CAD/CHF/EUR/GBP - The next best G10 performers, with the Loonie latching on to firmer crude prices and finally breaching resistance around 1.3330 on the way through the 200 DMA to best levels since February circa 1.3264, while the Franc is on the cusp of reclaiming 0.9100+ status and having another look its pre-month end pinnacle at 0.9056. Similarly, the Euro has cleared a Fib hurdle at 1.1823 and now eyeing 1.1900 again, and Sterling has regrouped after a sharp stop-chase reversal from 1.3123 to 1.3059, with Cable back up to 1.3100. Note, somewhat mixed EU services and composite PMIs have hardly impacted amidst all the renewed downside Dollar pressure, but the Pound is lagging as Eur/Gbp hovers near the top of a 0.9013-44 range.

JPY - Not much extension beyond 106.00 for the Yen vs the Greenback as relatively buoyant risk sentiment on some improvement in daily rates of COVID-19 cases and deaths combines with signs of progress in terms of extra US fiscal support to sap safe haven demand. Hence, Usd/Jpy is contained within a tight 105.80-50 band awaiting further direction.

SCANDI/EM - Contrasting fortunes for the Norwegian and Swedish Krona as the former gleans traction from the recovery in oil, but the latter fails reap reward via a return to growth in the services PMI in wake of weak industrial orders and the first look at Q2 GDP missing consensus. In the same vein, the Yuan has made a decisive break through 7.0000 vs the Buck following news of a top level US-China meeting to assess the Phase 1 trade deal in stark contrast to the Lira that has tumbled below the psychological mark even though post-Turkish holiday strains in the OIS market have eased appreciably. Elsewhere, the Real is likely to benefit from the latest Usd slide alongside other EM currencies, though may be subject to a degree of pre-BCB caution given expectations for a 25 bp SELIC rate cut and prospects that this may be the last ease in the cycle.                                   

FIXED INCOME

While Gold and other precious metals have been the architects of widespread Dollar depreciation again, rebounding crude prices could be a major force behind the latest downturn in debt allied to concessions for supply and the firm tone in equity markets. Moreover, technical factors are turning bearish after Bunds failed to breach 178.00 for the 3rd time in earnest and are now hovering just above 177.40, while Gilts have retreated further from early Liffe highs of 138.78 to 138.45 and US Treasuries are holding sub-140-21 resistance and just over 50 bp support in 10 year yield times, braced for a busy release schedule and the Quarterly Refunding in particular.

COMMODITIES

The strength seen in the oil complex during the APAC session persisted and intensified in early European trade, with WTI and Brent front-month prices now north of USD 42/bbl (vs. low 41.47/bbl) and USD 45/bbl (vs. low 44.24/bbl) respectively – with the former eclipsing the July 21st high at USD 42.51/bbl and topping its 200 DMA (42.59/bbl) in what seems to be more of a risk-induced move alongside a weaker Dollar, as fresh fundamental catalysts are scarce. That being said, the complex is underpinned by yesterday’s Private Inventory figures showed a much larger than expected draw of 8mln barrels vs. Exp. -3mln, with traders now looking ahead to the DoEs for confirmation. Elsewhere, spot gold continues to plough ahead to fresh all-time highs, currently around USD 2040/oz amid a softer USD, and as macro uncertainty and inflation fears prompts participants to flock to the yellow metal, with the Dec’20 futures now above the USD 2050/oz mark. Similarly, spot silver remains buoyed above 26.50/oz. In light of the precious metal rally, the Shanghai Gold Exchange has asked investors to rationally invest in gold & silver contracts and to raise awareness and prevent risks given high prices. Elsewhere Shanghai copper prices edged lower amid rising production in Chile and Peru.

US Private Inventory Crude Stocks crude -8.6mln vs. Exp. -3.0mln. (Newswires)