• Asia-Pac bourses were mixed as the positive bias from Wall St was offset after Chinese markets returned from the extended weekend
• UK PM Johnson confirmed a delay to the removal of further restrictions in England for four weeks until July 19th
• In FX, the DXY consolidated around 90.50, EUR/USD little changed on a 1.21 handle and GBP/USD tested 1.41 to the downside
• EU and US are set to resolve the Boeing (BA) - Airbus (AIR FP) dispute over aircraft subsidies, according to the FT
• US Senate Majority Leader Schumer said the Senate will move forward with another infrastructure package via reconciliation even if it doesn't have bipartisan support
• Looking ahead, highlights include UK Jobs, NY Fed Manufacturing, PPI, Retail Sales, Industrial Production, ECB's Lane, Panetta, BoE's Bailey, supply from the UK, Germany & US

CORONAVIRUS UPDATE

NIH said US clinical trial results show Novavax (NVAX) vaccine is safe and prevents COVID-19, while it added that safety data indicates the Novavax vaccine was generally well-tolerated and the results from the Phase 3 trial in US and Mexico demonstrated 90.4% efficacy in preventing symptomatic COVID-19 disease. (Newswires)

UK PM Johnson confirmed a delay to the removal of further restrictions in England for four weeks until July 19th but is confident the UK will not need more than four weeks and reserves the right to review progress, as well as lift restrictions earlier. UK PM Johnson said we are concerned by the delta variant and that numbers in intensive care are rising, while he added that to go ahead with removing remaining restrictions next week risks possibility of thousands of more avoidable deaths and that the four tests to ease lockdown restrictions further have not been met. (Newswires)

UK Ambassadors have been warned that Britain is unlikely to reopen overseas travel to major European holiday locations until the beginning of August. (Telegraph)

Public Health England analysis showed vaccines are highly effective against hospitalisation from the Delta variant in which the Pfizer (PFE)/BioNTech (BNTX) jab is 96% effective against hospitalisation and the AstraZeneca (AZN) vaccine is 92% effective. (Newswires)

ASIA

Asia-Pac bourses were mixed as the early positive bias following a late ramp up on Wall St that propelled the S&P 500 and NDX to fresh all-time highs, was offset after Chinese markets returned from the extended weekend and digested the increasing global criticism following the G7 and NATO summits. ASX 200 (+1.0%) followed suit to its stateside peers in which it also reached unprecedented levels with advances led by consumer stocks and financials, with risk appetite also helped after the RBA minutes affirmed the central bank’s accommodative stance. Nikkei 225 (+1.0%) was boosted by a weaker currency and although PM Suga’s cabinet is facing a no-confidence vote submitted by the opposition, the ruling party members are to vote against the motion. Hang Seng (-0.9%) and Shanghai Comp. (-0.9%) were subdued amid the global frictions as aside from being called out for human rights abuses at the G7, NATO also designated China's behaviour as a systemic challenge. This prompted a response from China which urged NATO to stop exaggerating China's threat and said that it does not pose systemic risks to other countries, while the announcement by the PBoC to inject CNY 200bln through its one-year medium-term lending facility did little to spur risk appetite. Finally, 10yr JGBs continue on the gradual retreat from the 152.00 resistance with demand hampered as Japanese stocks remained afloat and amid weaker headline results at the enhanced liquidity auction for longer-dated JGBs.

PBoC injected CNY 10bln through 7-day reverse repos with the rate at 2.20% for a net neutral daily position and it also injected CNY 200bln through its one-year Medium-term Lending Facility with the rate maintained at 2.95%. (Newswires) PBoC set USD/CNY mid-point at 6.4070 vs exp. 6.4053 (prev. 6.3856)

China's mission to the EU said it urges NATO to stop exaggerating the various forms of China's threat and stated that China does not pose systemic risks to other countries. (Newswires)

Businesses and customers are reportedly bracing for another shipping crisis in southern China amid a disruption of port services due to the virus outbreak and which threatens to increase costs. (CNBC)

A no confidence motion was submitted by the opposition party against Japanese PM Suga's Cabinet, while there were also comments from Japanese Chief Cabinet Secretary Kato that ruling party members will vote against the no confidence motion against the cabinet. (Newswires)

UK/EU

UK-Australia free trade agreement will be announced Tuesday morning after UK PM Johnson and Australian PM Morrison agreed to the broad terms over dinner, according to Sky News's Political Correspondent Cohen. In relevant news, UK MPs are demanding that parliament have greater authority to scrutinize and approve international trade agreements made by the UK with the cross-party group of more than 20 MPs noting urgent concerns of the deal with Australia amid potential impact to the farming industry. (Sky News/FT)

EU and US are set to resolve the Boeing (BA) - Airbus (AIR FP) dispute regarding aircraft subsidies with the sides said to be on the cusp of a deal following two days of intensive negotiations. (FT)

FX

In FX markets, the DXY consolidated around the 90.50 level with the greenback kept afloat following the recent rebound in yields but with price action contained heading closer towards the FOMC. In terms of the latest infrastructure-related rhetoric, Senate Majority Leader Schumer said the Senate will move forward with another infrastructure package via reconciliation even if it doesn't have bipartisan support but added that bipartisan talks on the other package continue, while Democratic Senator Manchin commented that further discussions are coming this week and that the group of Senators will set a proposal by the end of the week. The greenback’s major counterparts lacked firm direction with EUR/USD little changed at the 1.2100 handle after the prior day’s rebound from support near its 50DMA and despite the recent dovish central bank remarks in which ECB’s Villeroy stated ECB stimulus will be at least as prolonged as the Fed's and ECB's Holzmann noted it is too early to discuss the end of stimulus but added that a transition from pandemic-era to 'normal' stimulus will be discussed in the Autumn. GBP/USD was subdued and briefly tested 1.4100 to the downside after UK PM Johnson confirmed to delay the lockdown exit in England for four weeks until July 19th and with Chancellor Sunak also said to reject calls to increase support for business given the delay to the COVID-19 reopening. USD/JPY held on to the recently reclaimed 110.00 status after having been underpinned yesterday by yield differentials with the US, while antipodeans were indecisive amid weakness in commodity prices and after the RBA minutes from the June meeting affirmed the central bank’s accommodative stance. In the EM space, TRY was a notable mover with pressure following discussions between US President Biden and Turkish President Erdogan in which the latter renewed his stance regarding the S-400 defense systems.

RBA Minutes from the June meeting stated the Board agreed it would be premature to consider ending the bond-buying programme and that policy needs to remain highly accommodative to achieve full employment, while it added that a return to a tight labour market and actual inflation target band is unlikely until 2024 at the earliest. RBA stated that options for the bond-buying programme include another round of AUD 100bln, scaling back purchases or spreading them out, while they also talked about approach of reviewing bond purchases more frequently depending on data. Furthermore, it stated the domestic economy is transitioning from a recovery to expansion and that annual wage growth would need to be sustainably higher than 3% for inflation to achieve its target, although members anticipate only a gradual pick up in wages for the following few years. (Newswires)

COMMODITIES

WTI crude futures were choppy around the USD 71.00.bbl level amid a lack of pertinent newsflow and with an Iran nuclear deal seemingly not imminent with outstanding issues remaining. However, natgas prices continued to outperform the energy complex with prices underpinned amid the heatwave in Texas and the southwest, while focus for the complex turns to the latest stockpiles numbers beginning with the private sector data due later today. Gold prices head into the European trade flat amid a steady greenback and on pre-FOMC positioning, while copper was pressured on return of Chinese participants with mood soured by recent rebukes on China from the G7 and NATO, as well as concerns of shipping disruptions in southern China from the virus outbreak.

GEOPOLITICAL

US President Biden said he had a very good meeting with Turkish President Erdogan and that he is confident progress will be made with Turkey. President Biden also stated that Russia and China are looking to drive a wedge in the transatlantic solidarity and that we will respond if Russia continues harmful activities, while he added that if Russian President Putin chooses not to cooperate on cyber security and others, then the US will respond. (Newswires)

Turkish President Erdogan said the meeting with US President Biden was productive and sincere, while he emphasized to President Biden that joint dialogue mechanisms need to be revived. Furthermore, they discussed the Russian S-400s in which he conveyed their views on the S-400s and F-35 jets to Biden and renewed their stance on the S-400s, while he added the US did not give them patriots and that they had to buy S-400s. (Newswires)

Ukrainian President Zelenskiy said the military threat from Russia remains high, while he discussed with UK PM Johnson regarding further defence cooperation and strengthening the Ukrainian Navy. Furthermore, Zelenskiy stated that NATO leaders confirmed Ukraine will become a member of NATO and membership action plan is an integral part of the membership process. (Newswires)

Greek PM Mitsotakis and Turkish President Erdogan agreed last year's tensions cannot be repeated this year and Greece wants a step-by-step improvement in relations with Turkey. (Newswires)

US

Treasuries were well offered from the belly out in otherwise quiet trade as yields creep higher, albeit on low volume, into FOMC Wednesday, 20yr bond auction Tuesday, and some additional corporate IG deals today. By settlement, 2s +1.0bps at 0.161%, 3s +2.1bps at 0.334%, 5s +3.7bps at 0.787%, 7s +4.2bps at 1.196%, 10s +3.9bps at 1.501%, 20s +4.2bps at 2.117%, 30s +3.9bps at 2.190%; TYU1 volumes were very light. 5yr TIPS +2.3bps at -1.676%, 10yr TIPS +0.0bps at -0.867%, 30yr TIPS -1.3bps at -0.146%. SOFR and EFFR both unchanged at 1bp and 6bps, respectively. It wasn't until the US handover that offers started emerging for govvies, perhaps finding impetus on the back of crude hitting fresh session highs, but also likely some flow-driven trade amid positioning into Wednesday's FOMC meeting and as a fresh slew of IG deals were announced - including a USD 5bln offering from Nvidia. It's worth stressing that futures volumes were very light, even taking into account summer trading conditions, so it's somewhat harder to read too much into today's moves given that prices were vulnerable to any chunky flow going through - which included a lonely 5k FVU1 block sale reported in latter trade. Either way, yields rose to highs for the futures settlement, providing some concession to dealers ahead of Tuesday's 20yr auction. T-note (U1) futures settled 10+ ticks lower at 132-16+.

US Senate Majority Leader Schumer said the Senate will move forward with another infrastructure package via reconciliation even if it doesn't have bipartisan support, while he added that bipartisan talks on the other package continue and suggested that in order to move forward on infrastructure, we must include bold action on climate. (Newswires)

US Senator Manchin said further bipartisan infrastructure talks are coming this week and the group of Senators will set a proposal by the end of the week. There were also comments from Democratic Senator Tester that it his understanding is that indexing the gas tax to inflation is now out of the bipartisan infrastructure plan, although other reports noted the bipartisan group have kept the idea of indexing the national gasoline tax to a measure of inflation despite White House opposition. (Newswires)