• Asian equity markets traded with a lacklustre tone following on from a weak lead from US where the major indices faltered in late trade
• US Senate Majority Leader McConnell dashed some stimulus hopes and saw the S&P 500 retrace its earlier gains
• In FX markets, the DXY heads into the EU open firmer as EUR/USD and GBP/USD sit above 1.17 and 1.30 respectively
• RBNZ kept rates unchanged as expected, widened its LSAP programme to NZD 100bln from NZD 60bln and agreed to continue preparing a package of additional monetary tools including a negative OCR
• Gold extended on its aggressive pullback and slipped below the USD 1900/oz level to notch losses of more than USD 100/oz in the last 24 hours
• US Senator Kamala Harris has been chosen as former VP Joe Biden’s running mate.
• Looking ahead, highlights include UK GDP, Swedish CPI, US CPI, DoEs, Fed's Rosengren, Kaplan, Daly, supply from UK, Germany and the US

CORONAVIRUS UPDATE

US COVID-19 cases +40,522 (prev. +48,690) and deaths +565 (prev. +558), while a major newswire tally stated US cases increased by at least 52,751 to a total of 5.16mln on Tuesday and deaths rose by at least 1,413 to a total of 164.6k. California COVID-19 cases 1+2,500 (prev. +7,751), while a major newswires tally stated California cases increased by at least 11,448 on Tuesday and deaths rose by at least 176. Elsewhere, Texas cases +8,913 (prev. +4,455) and deaths +220 (prev. +31). (Newswires)

US President Trump said the government reached an agreement with Moderna (MRNA) for delivery of 100mln doses of its vaccine candidate and also commented that three vaccine candidates are now in phase 3 trials. Moderna (MRNA) confirmed the supply agreement in which it stated the new government award is for up to USD 1.525bln and option was granted to the US government to buy as many as 400mln additional doses. (Newswires)

NIH's Fauci said he hopes that the Russians have actually, definitively proven that the vaccine is safe and effective but seriously doubts that they've done that. There were separate comments from the Pan American Health Organizantion Assistant Director that the potential Russian COVID-19 vaccine cannot be produced by any country until Phase 2/3 trials are completed, while WHO has not received full information on the vaccine and cannot fully evaluate it. (Newswires)

ASIA

Asian equity markets traded with a lacklustre tone following on from a weak lead from US where the major indices faltered in late trade after comments from US Senate Majority Leader McConnell dashed some stimulus hopes and saw the S&P 500 retrace its earlier gains which had initially pushed the index to within 1% of its all-time high. ASX 200 (-0.6%) was subdued with underperformance seen in gold miners following the aggressive pullback in the precious metal which retreated firmly below the USD 2000/oz level. Furthermore, nearly all its sectors languished in the red aside from financials which showed some resilience despite CBA posting an 11.3% decline in FY cash profits, while recent data releases contributed to the dampened mood after a further deterioration in Westpac Consumer Sentiment and with Wage Growth at its slowest pace in 27 years. Nikkei 225 (+0.2%) was choppy as participants digested earnings including SoftBank which was pressured following a drop in Q1 pre-tax profits, and NZX 50 (-1.5%) suffered from lockdown restrictions following reports of the country’s first COVID-19 cases after having gone 102 days without any locally-transmitted spread of the virus, although some of the losses were stemmed following the RBNZ announcement to expand its QE program. Elsewhere, Hang Seng (-0.4%) and Shanghai Comp. (-2.0%) conformed to the glum mood despite a strong liquidity effort by the PBoC which injected CNY 140bln through 7-day reverse repos as participants also react to weaker than expected lending data from China and as US-China tensions lingered. Finally, 10yr JGBs are weaker in the aftermath of yesterday’s extended retreat and following recent losses in T-notes, while participants were also kept sidelined amid the enhanced liquidity auction for longer dated JGBs which attracted weaker interest than prior.

PBoC injected CNY 140bln via 7-day reverse repos for a net injection of CNY 140bln with rate at 2.20% PBoC set USD/CNY mid-point at 6.9597 vs. Exp. 6.9603 (Prev. 6.9711)

China Vice Foreign Minister stated that the approaching months are crucial for US-China relations, while the official added that China needs to keep the relations on the right track and ensure they do not run out of control or derail. (Newswires)

White House economic advisor Kudlow said China is fulfilling its trade obligations on commodity purchases and that a deal will not go out of the window, while he added Saturday's Phase 1 review meeting is 'routine' and that the China trade deal is fine. (Newswires)

White House document stated US ban on TikTok could prevent app stores and advertisers from conducting business with the app, while it was separately reported that TikTok tracked user data for at least 15 months by sidestepping a privacy safeguard in Google's Android system. (Newswires/WSJ)

UK/EU

UK Chancellor Sunak is reportedly weighing a delay of the Autumn budget amid virus second wave fears. (FT) 

FX

The DXY extended on the prior day’s gains as the risk averse tone spurred flows into the hard currency and which coincided with the aggressive pullback in gold with the precious metal now below the USD 1900/oz level to represent a more than USD 100/oz retracement in the last 24 hours. As such, the greenback’s major counterparts were subdued with EUR/USD languishing after price action for the single currency so far this week was hampered by resistance at the 1.1800 level where the 200-Hour MA resides, while GBP/USD retreated under 1.3050 and to beneath yesterday’s lows. Elsewhere, USD/JPY was underpinned by the USD strength and antipodeans suffered following weak Consumer Sentiment and Wage Growth in Australia, as well as the RBNZ policy announcement in which the central bank kept rates unchanged at 0.25% as expected but widened its LSAP programme to NZD 100bln from NZD 60bln and agreed to continue preparing a package of additional monetary tools including a negative OCR.

RBNZ kept the OCR unchanged at 0.25% as expected and widened the LSAP to NZD 100bln to June 2022 from Prev. NZD 60bln to May 2021, while it added that QE eligible assets remain the same and it will provide additional stimulus as necessary. RBNZ agreed that the package of additional monetary tools must remain in active preparation which includes a negative OCR and noted that purchase of foreign assets remain an option although Governor Orr later commented that buying foreign assets would not be effective in current conditions. Furthermore, the Committee agreed that any future reduction in rates, if complemented by a funding or lending programme, could provide an effective way to deliver stimulus and agreed that further monetary stimulus was needed to achieve its remit targets.

RBNZ Governor Orr commented at the press conference that policymakers are ready to lend funds to banks at negative rates but reserves at RBNZ would also have negative rates and stated that the mortgage deferral will be extended, while Assistant Governor Hawkesby commented that the cap on holdings of government bonds was lifted to 60% from 50% and the MPC endorses front loading of QE purchases. (Newswires)

Australian Westpac Consumer Sentiment Index (Aug) 79.5 (Prev. 87.9); M/M -9.5% (Prev. -6.1%). (Newswires) Australian Wage Price Index (Q2) Y/Y 1.8% vs. Exp. 1.9% (Prev. 2.1%); Weakest growth in 27 years

COMMODITIES

WTI crude futures consolidated overnight below USD 42/bbl after the swings seen in the prior session where initial advances were fully retraced amid a deterioration in risk sentiment and as the flows into greenback also gained some traction. Nonetheless, prices have since found a floor at the USD 41.50/bbl level amid higher demand forecasts at the latest EIA STEO and with the latest private inventory report also showing a slightly wider than expected drawdown in headline crude stockpiles. Elsewhere, gold extended on its aggressive pullback and slipped below the USD 1900/oz level to notch losses of more than USD 100/oz in the last 24 hours with prices also dragged by a firmer greenback, while copper suffered on the broad risk averse tone. 

US Private Inventory Crude Stocks (w/e 7th August) Crude -4.4mln (exp. -3.1mln). (Newswires)

EIA STEO raised 2020 world oil demand forecast by 40,000 BPD to -8.11mln BPD y/y and raised forecast for 2021 world oil demand growth by 30,000 BPD in which it now sees +7.02mln BPD Y/Y. (Newswires)

CME raised COMEX 100 gold futures initial margins by 6.9% to USD 10,230/contract from USD 9,570/contract and raises COMEX 5000 silver futures maintenance margins by 15.2% to USD 13,250/contract from USD 11,500/contract

Iran set September Iranian Light Crude price to Asia buyers at Oman/Dubai + USD 1.00/bbl which is down USD 0.30 from the prior month. (Newswires)

GEOPOLITICAL

US official and a diplomatic source said UN Security Council will likely vote on Friday regarding US plan to extend the Iran arms embargo, according to Fox News correspondent Rich Edson. (Twitter/Fox News)

Iraq cancelled Turkish Defense Minister visit that was set for Thursday and summoned the Turkey's Ambassador to give him a protest note following reports of a Turkish deadly drone attack. (Newswires)

US

Treasuries tumbled as risk appetite strengthened and impending supply weighed, resulting in seeing yields posting their largest rise since the blowout May NFP report. By settlement, 2s +3bps at 16bps, 3s +4bps at 19bps, 5s +6bps at 29bps, 10s +8.5bps at 66bps, and 30s +10bps at 135bps. Trade was essentially one-way traffic as risk assets firmer up overnight and carried through into the US session, with the go-to narrative for cyclicals rallying continuing to be the near-completion/expectation of US fiscal stimulus amid economies reopening. Furthermore, the inflation outlook improved after the firmer than expected PPI print today. Meanwhile, the supply-side only catalysed the bearish rates moves, where dealers were reported to have been on the defensive in light of the Treasury’s record refunding this week, including the 3-year auction. T-Note trading volumes also rose above recent averages as real money came out of the summer woodwork to liquidate their USTs to digest new IG supply. There were a few big corporate deals which extended the move higher in yields later in the session, despite equities moving sideways: Comcast’s (CMCSA) USD 4.5bln across three tranches, HSBC’s (HSBA LN) USD 3.5bln over two tranches, and Toyota’s USD 2.75bln over two tranches. Wires reported that some chunky block sales in Treasury futures had accompanied the deals. T-note (U0) futures settled 20 ticks lower at 139-08.

Federal Reserve said it revised pricing on municipal liquidity facility in which it lowered amount by which interest rate for taxable notes is adjusted relative to tax exempt notes and lower interest rate spread on tax-exempt notes by 50bps. (Newswires)

US Senate Majority Leader McConnell said stimulus talks are at a stalemate and that White House negotiators have not spoken to top Democrats in Congress today. (Fox News)

White House economic advisor Kudlow said administration will "bond out" money to cover social security and medicare under Trump's executive order on payroll tax deferral. (Newswires)

US Senator Kamala Harris has been chosen as former VP Joe Biden’s running mate. (Newswires)

Monmouth University poll showed former VP Biden at 51% vs. President Trump at 41% (Prev. 52% vs. 39%) nationally, in a poll conducted August 6th-10th. (Newswires)

Evercore noted China smartphone data showed a big decline in demand for Apple (AAPL). (Newswires)