• Asia-Pac equities staged a rebound from the prior day's sell-off; Nikkei outperformed and the Hang Seng lagged
• US equity futures traded flat and near the prior session’s best levels; US 10yr cash yield probed 1.50% overnight
• FX was quiet, DXY hovers around 92, EUR/USD and GBP/USD found support at 1.1900 and 1.3900; USD/JPY drifted higher towards 110.50
• Fed Chair Powell's prepared testimony to Congress reiterated recent remarks
• US President Biden reportedly said he was encouraged by the infrastructure deal that has taken shape, but questions remain
• Looking ahead, highlights include EZ Consumer Confidence (Flash) & US Existing Home Sales, Fed's Powell, Daly, Mester, ECB's Lane & Schnabel, and supply from the US

CORONAVIRUS UPDATE

UK ministers are to relax travel restrictions from August for those who have been fully vaccinated. (Times) Ministers are set to unveil an overhaul of travel restrictions on Thursday

ASIA

Asia-Pac equities staged a rebound from the prior day's sell-off as the region reacted to the rally seen on Wall Street, whereby the DJIA outperformed whilst the Nasdaq’s upside was hindered by the recovery in yields. Overnight, US equity futures traded flat and near the prior session’s best levels ahead of Fed Chair Powell’s testimony – but before that, 2022-voter Mester is poised to make remarks on monetary policy ahead of commentary from 2021-voter Daly. From a technical standpoint, the ES (+0.2%) and RTY (+0.2%) see their 50 DMAs at 4,181 and 2,257 respectively, whilst the YM (+0.3%) remains in between its 50 and 100-day moving averages (34,124 and 33,096 respectively). The NQ (+0.1%) eyed the yield situation as the US 10yr cash yield probed 1.50%. Over in APAC markets, the ASX 200 (+1.8%) was supported by its Telecoms and Financials sectors whilst the Nikkei 225 (+3.2%) trimmed some of the prior session’s hefty losses as reports of BoJ ETF purchases providing Tokyo with some tailwinds. The KOSPI (+0.8%) saw cautious gains as Yonhap reported that South Korea and the US are mulling ending the working group on North Korean policy, whilst North Korea tempered down expectations of dialogue with the US. Hang Seng (Unch) and Shanghai Comp (+0.8%) varied with the former pressured after the US reiterated its concern over Hong Kong’s autonomy, whilst the latter remained within recent ranges. As a side note, crypto markets also saw a rebound following yesterday's bloodbath, albeit Bitcoin and Ethereum remained under 35k and 2k respectively. Finally, JGBs trade narrowly softer in tandem with UST and Bund futures waning off best levels.

White House is mulling a ban on imports of polysilicon from Xinjiang, China, an ingredient used in most solar panels. (Politico)

Chinese ambassador to the US Cui Tiankai will leave his post and return to China after eight years of service, the ambassador said in a statement. (Twitter)

Reports suggested that China's purchases of US goods fell to the lowest since October 2020. (Newswires)

• PBoC sets USD/CNY mid-point at 6.4613 vs exp. 6.4654 (prev. 6.4546)
• PBoC injects CNY 10bln via 7-day reverse repos for a net neutral daily position; rate unchanged at 2.20%

UK/EU

The UK has commenced negotiations to join Asia-Pacific free trade pact. Membership would reduce tariffs on exports such as cars and whisky. (BBC)

UK Chancellor Sunak has been warned by senior government ministers against a pension tax raid who have warned that such a shake-up would fail to make its way through Parliament. (Telegraph)

ECB President Lagarde said the ECB still has room to cut interest rates if it is needed. (Newswires)

German Elections Insa poll: Merkel's Conservatives 28.5% (+0.5), Greens 19% (-1), SPD 15.5% (-0.5), FDP 14% (+1), AfD 10.5% (-0.5), Linke 7% (+1). (Newswires)

FX

FX markets were quiet. The DXY remained caged near the prior day’s base amid a lack of fresh news flow and as the upbeat risk tone kept the index under 92.000 before probing that level ahead of the European entrance to market. Ahead, the Buck eyes another raft of central bank commentary including Fed Chair Powell’s testimony to Congress – whereby focus will fall to the questions asked as the pre-released remarks were reiterations of recent remarks. EUR/USD traded in tandem with the Buck and tested 1.1900 to the downside ahead of yesterday’s low at 1.1846, with the upside seeing the 200DMA at 1.1996. GBP/USD waned after reaching levels close to its 100 DMA (1.3941) and then attempted a breach at 1.3900 to the downside whilst EUR/GBP found support at 0.8550. USD/JPY saw modest gains north of the 110.00 mark in what seemed to be yield-driven action. Antipodeans meanwhile are under some modest pressure with mild underperformance in the Aussie as the continuing decline across base metals weighed on the currencies. The Yuan meanwhile remained relatively stable following another softer CNY fix by the PBoC.

Turkish President Erdogan announced he will lift the nationwide COVID-19 lockdown on July 1st. (Newswires)

COMMODITIES

WTI and Brent front month futures were relatively flat overnight but with an upside bias, with the former gaining ground above USD 73/bbl whilst the latter remained north of USD 75/bbl throughout the session. Newsflow for the complex remained light overnight, but the softer Dollar and constructive mood across equities underpinned the crude complex - with eyes now on the weekly Private Inventory report. Spot gold and silver traded with an upside bias and within recent ranges under USD 1,800/oz and USD 26/oz respectively. Copper prices eked mild gains overnight amid the rebound in stocks, whilst Dalian iron ore futures and Shanghai coal and rebar futures slumped after China's NDRC reaffirmed its vow to closely monitor iron ore spot price changes and reiterated the firm crackdown on iron ore monopoly and hoarding.

GEOPOLITICAL

US State Department says it is preparing strategic stability dialogue with Russia and it is in the process of scheduling. (Newswires) Russia has sent a series of proposals to the US on how to stabilise relations, according to an ambassador. (Sputnik)

The White House said it has no timeline on reaching an agreement on the Iran Nuclear deal and it will continue negotiations. White House added it has no plans for US President Biden to meet Iranian leaders; (Newswires) US State Department says it considers the process by which Iranian President was chosen as "pretty manufactured". (Newswires)

South Korea and the US agreed to consider ending the 'working group' on North Korea policy. (Yonhap) The sister of North Korean leader Kim Jong Un has dismissed prospects for early resumption of diplomacy with the US, saying Washington's expectations for talks would “plunge them into a greater disappointment”. (AP)

A drone attacked the part of Baghdad airport that hosts US forces, according to local reports. (Newswires)

US

The heavy trading activity yesterday was really in absence of new catalysts today, or much over the weekend, with price action continuing to be framed in the lens of dust settling after last week's hawkish Fed tilt in the backdrop of the improving economic recovery, which Fed officials have been eager to express. We did hear from Fed's Kaplan and Bullard again today, which unsurprisingly, were keen to echo their taper-friendly sentiment, and one of the interesting takeaways from Bullard was his statement that the Fed would likely, but not necessarily, complete purchase tapering before a rates lift-off - it will be interesting to hear from more of the Board of Governors on the issue amid the heavy slate of Fed speak scheduled this week. Otherwise, Treasury auctions for 2s, 5s and 7s are on the radar this week, with the 2s kicking things off on Tuesday - the increase in the 2023 FFR median dot plot last week and tightening of overnight rates could make their mark on the offering, although the 2yr yield is already 10bps cheaper post-Fed. T-Note (U1) futures settled 3+ ticks lower at 123-06+.

Fed Chair Powell's prepared testimony stated that the US economy has showed sustained improvement from Sept 2020, real GDP is on track to post the fastest growth in decades and the Fed will do everything it can to support the economy for as long as needed. Job gains should pick up in coming months as vaccinations rise, easing some of the pandemic-related factors currently weighing them down. Inflation has increased notably in recent months. The pandemic continues to pose risks to the economic outlook. The sectors most adversely affected by the pandemic remain weak, but have shown improvement. (Fed)

Fed's Williams (voter) stated that the economy is improving at a rapid rate but has not progressed enough to pare stimulus and inflation likely to rise to 3% this year before falling close to 2% in 2022. Williams added that the recent spike in inflation mostly reflects the temporary effects of the surprisingly rapid opening of the economy, and the economy is reopening more quickly and more strongly than expected due to widespread vaccination and robust fiscal policy support. Williams suggested that there is a long way to go to full strength, but he is confident that the US will see continued strong job gains going forward. He added that it is taking longer for the supply side of global economy to respond to surge in demand and they see bottlenecks recede over time. Williams noted that the Fed has the tools to not only increase the balance sheet but also get it back down to appropriate levels when the Fed does not need to support the economy the same. Williams concluded that some labour supply issues that are difficult to quantify which includes the extended unemployment benefit programme being phased open. (WSJ)

Senate negotiators are reportedly circulating a four-page spending breakdown of infrastructure deal, parcelling out USD 579 billion in new spending, according to Politico. "there's no big breakthrough yet on paying for this bill. Sen. Capito said. (Politico)

US President Biden told Democratic Senators Manchin and Sinema that he was encouraged by the infrastructure deal that has taken shape, but he still has questions regarding policy and financing, via The White House. (Newswires) US Senate negotiators for the bipartisan infrastructure bill are trying to create momentum for a "too-big-to-fail" package by adding an equal number of Democratic and Republican co-sponsors. (Axios)

US Financial Regulators reported that the US financial system is in a strong condition; risks are being mitigated by banks capital, liquidity levels, and healthy household balance sheets. (Newswires)

The White House said US President Biden believes congress will raise the debt ceiling. (Newswires)