• Asia-Pac equities saw mixed trade; Hong Kong outperformed while Australia lagged
• US equity futures held a mild upside bias overnight near the prior session's highs
• In FX, DXY was firm, Antipodeans underperformed and the Yuan came under pressure
• China said its military is ready to respond to all provocations after a US ship sailed through the Taiwanese Strait
• China State Planner has sent teams to investigate commodity prices and supplies
• Fed Chair Powell reiterated that the Fed will not raise rates pre-emptively
• Looking ahead, highlights include EZ, UK and US PMIs (Flash), ECB's Lagarde, de Guindos; Fed's Bowman, Bostic, Rosengren, and supply from Germany and the US

CORONAVIRUS UPDATE

AstraZeneca's (AZN LN) COVID-19 vaccine shows effectiveness against Indian/Delta variant. (Newswires)

New Zealand raises the alert level in the capital city of Wellington to level 2 from Wednesday. (Newswires)

Australia's New South Wales is urgently investigating four mystery COVID cases overnight and the premier has outlined new restrictions of hotspots including in Sydney. (Guardian)

ASIA

Asia-Pac equities saw mixed trade and failed to fully benefit from the firmer performance seen on Wall Street, where the Nasdaq Composite closed at an all-time high as Microsoft joined Apple in the USD 2trl club, whilst the S&P 500 was just short of a new closing record. US equity futures held a mild upside bias - the NQ (+0.2%), ES (+0.1%), RTY (+0.1%), and YM (+0.1%) all saw modest broad-based gains ahead of the next raft of Fed speakers. ASX 200 (-0.4%) was pressured as the gains across its mining, telecoms, and tech stocks failed to offset the losses in the Financials and Healthcare sectors. The Nikkei 225 (Unch) briefly topped 29k as the softer currency underpinned the exporter-heavy index. The KOSPI (+0.4%) remained cautious as tensions between Washington and Pyongyang simmered in the background. The Hang Seng (+1.6%) was bolstered by gains across its large-cap oil and financial stocks, whilst the Shanghai Comp (+0.5%) was contained, with friction reported in the Taiwanese Strait after a US destroyer sailed through the waters in what was seen as a sign of provocation in Beijing. Finally, JGB futures are relatively flat as it tracks price action across UST futures.

China Securities Journal noted that China should be alert to risks regarding CNY depreciation. (Newswires)

Japanese government is looking at tightening regulation on investment from foreign entities in Japanese firms with important tech (areas such as nuclear and defence), according to Japanese press

BoJ April Minutes said that members agreed that the Japanese economy will likely recover ahead. (Newswires)

Japanese Composite PMI (Jun P) 47.8 (Prev. 48.8)

Australian Composite PMI (Jun P) 56.1 (Prev. 58.0)

PBoC injected CNY 10bln via 7-day reverse repo at a maintained rate of 2.20%; PBoC set USD/CNY mid-point at 6.4621 vs exp. 6.4641 (prev. 6.4613)

UK/EU

A UK-EU truce is likely on Northern Ireland trade dispute, according to officials.(Newswires)

The Times' Shadow MPC believes the BoE should refrain from carrying out the final GBP 50bln of purchases under its QE plans. 4/9 members think that the Bank should look to hike rates by the end of the year. (Times)

Italy DMO says it is following the inflation-linked bond market closely and is potentially to issue new bonds. (Newswires)

German Election Poll: Merkel’s German Conservative Bloc at 29% (+1), Greens at 21% (Unch), Forsa poll for RTL/NTV. (Newswires)

FX

In FX, the DXY traded towards the upper end of a tight range under 92.000 but above yesterday’s 91.643 base. The Buck eased heading into Fed Chair Powell’s testimony where he stuck to his dovish guns, while some also suggested haven outflow as a factor. EUR/USD gained a firmer footing above 1.1900 after the European close but thereafter eased after testing 1.1950 to the upside as the Single Currency now eyes the Flash PMIs. Meanwhile, reports that an EU-UK truce on the Northern Irish dispute helped Cable briefly top its 100 DMA at 1.3944 before drifting back below the figure as European officials gear up to discuss the next steps at a meeting on Wednesday. USD/JPY edged higher towards 111.00 in early trade as yields ticked higher and the Buck strengthened. Antipodeans underperformed with the Kiwi bearing the brunt as New Zealand raised the alert level in its capital Wellington amid an imported case of the Delta strain from Australia. Subsequently, Australia's New South Wales is investigating four mystery COVID cases and the premier has outlined new restrictions in hotspots including in Sydney. NZD/USD momentarily dipped back below 0.7000 whilst AUD/USD drifted lower after testing its 200 DMA around 0.7560. The Aussie was unmoved by commentary from RBA's Ellis who reiterated the RBA's recent statement, whilst CBA brought forward their RBA hike forecast to November 2022 from the prior view of 2024. Finally, the CNY came under some pressure following another softer yuan fix by the PBoC, alongside reports from the Chinese Securities Journal noting that China should be alert to risks regarding CNY depreciation.

CBA expects RBA to raise the cash rate in November 2022 (vs prev. 2024); sees Cash Rate Target at 0.5% in late-2022 and then peaking at 1.25% by Q3 2023. (Newswires)

RBA's Ellis said the board remains committed to highly supportive monetary conditions; Australia's recovery exceeded all expectations, even before the roll-out. (Newswires)

CBRT told bank managers that policy steps to protect the Turkish Lira would be taken, according to "participants". The CBRT Governor told bank managers Turkey was in talks with four countries on currency swap deals. (Newswires)

COMMODITIES

WTI and Brent front-month futures eked mild gains overnight and traded near their recent highs after experiencing some upside volatility from the larger-than-expected crude draw in Private Energy Inventories (-7.2mln vs exp. -3.9mln), whilst OPEC+ has begun testing the waters over a further easing of output curbs ahead of next week’s meeting. Newsflow for the complex had been light overnight and price action was largely dictated by sentiment. As a side-note, the IAEA monitoring agreement with Iran expires tomorrow, thus headlines surrounding an extension may hit the wires throughout the day. Elsewhere, spot gold and silver traded firmer with the latter seeing a bout of buying in between the Chinese cash open and Tokyo lunch break and prompting a test of USD 26/oz. Spot gold meanwhile was more contained around recent ranges. In terms of base metals, copper prices edged higher with the aid of risk appetite, whilst Dalian iron ore and coke futures gained over 3% apiece with traders citing supply concerns.

US Private Energy Inventories (w/e June 18th; bbls): Crude -7.2mln (exp. -3.9mln), Cushing -2.6mln, Gasoline +0.96mln (exp. +0.8mln), Distillate +0.99mln (exp. +1.1mln)

Chinese State Planner has sent teams to investigate commodity prices and supplies. (Newswires)

Glencore CEO said copper supply must be raised by 1mln tonnes per year in order to meet future demand. (Newswires)

Earthquake magnitude 5.7 hits the coast of Peru. (Newswires) Note. Peru is the second largest copper producer

GEOPOLITICAL

Chinese PLA Eastern Theater Command tracked and monitored the USS Curtis Wilbur destroyer when it sailed through Taiwan Straits on Tuesday, according to Global Times; China said its military is ready to respond to all provocations. (Global Times/Newswires)

US State Department said North Korea leader Kim's sister's comments do not deter US from pursuing diplomacy. (Newswires) As a reminder, the sister of North Korean leader Kim Jong Un dismissed prospects for early resumption of diplomacy with the US

Russia aims to have strategic stability talks with the US soon, TASS reports. (Newswires)

US DoJ confirmed that websites have been seized belonging to Iranian Islamic Radio, Television Union and Kata'ib Hizballah. Al-Jazeera reported "Number of Iranian websites confiscated [total] 33 in addition to 3 battalion". (Newswires/Twitter)

Saudi air defences destroyed explosive-laden drone launched by Yemen's Houthis towards Khamis Mushait. (Newswires)

US

As T-Notes trundled lower into the US session, bids emerged just a few ticks above the overnight lows (which was 132-01 for TYU1) as NY Fed's Williams graced bulls with his comments on business TV. It wasn't so much a particular comment that saw offers lifted in USTs, but more the general tone, with the FOMC Vice Chair striking a much more balanced tone after some of the hawkish leaning comments from regional Fed Presidents (Bullard). The bid in the long-end then extended up into the latter session, while the front-end had already been well supported ahead of the 2yr auction. Note also that real yields saw decent declines as inflation breakevens widened. Attention now gravitates to Wednesday's 5yr auction, followed by Thursday's 7yr - not to mention the continued deluge of Fed speak. Note that the latest JPM Treasury Client Survey saw shorts pare from their multi-decade highs entering this week, coming after last week's nasty steepener unwinds. T-Note (U1) Futures settled 5 ticks higher at 132-11+.

Fed Chair Powell reiterated that the Fed will not raise rates pre-emptively and will respond to shortfalls in unemployment. (Newswires)

Fed's Daly (2021, 2024 voter) said the Fed could get to "substantial further progress" threshold for taper late this year or early next, and discussing interest rate adjustments is off the agenda. Daly said MBS purchases are not having much direct effect on mortgage interest rates and inflation could rise above 3% temporarily, but expects that to unwind. Daly said right now it's the recovery from the pandemic that is affecting inflation and employment; important that inflation reaches 2% over time and not just peeking up over 2%. (Newswires)

Fed's Mester (2022, 2024 voter) said she is not yet thinking about adjusting policy and wants to see further progress on employment, and when time comes Fed should start with the tapering model used after last recession and adjust if needed. Mester said inflation levels picked up but not to levels that are concerning, and sees inflation as a result of supply constraints. Mester sees economic growth at between 6-7% this year (vs Fed median dot plot of 7%), inflation between 3.0-3.5% this year and 2% next year (vs Fed median dot Core PCE 3.0% and 2.1%, respectively) and said unemployment rate could drop below 4% next year (vs Fed median dot of 3.8%). (Newswires)

US NEC Director Deese will unveil the Biden administration’s industrial policy on Wednesday June 23rd, according to Axios sources. (Axios)

GOP whip Thune said infrastructure talks are getting rockier on how to fund it. Thune added that the White House is rejecting bipartisan group’s suggestions, via Politico's Everett. (Twitter) US bipartisan group of senators and admin officials are still struggling to finalise the deal on how to pay for infrastructure package, CNN's Raju reported. (Twitter)

US Democratic Senator Manchin is open to President Biden's 'human infrastructure' plans and undoing some Trump tax cuts, NBC reported. (NBC)

US President Biden is encouraged by the bipartisan work to address problems within large tech; Biden believes the need to protect privacy, generate more innovation, and ensuring big tech grows within the US. (Newswires)

The White House said Fed Chair Powell's testimony shows that President Biden's economic plan is working. (Newswires)