• Asian equity markets were subdued following a light weekend in terms of macro drivers ahead of NFP on Friday
• US equity futures were uneventful with the Emini S&P fading an initial extension to fresh record highs
• In FX markets, the DXY remains sub-92.00, EUR/USD trades on a 1.19 handle and GBP/USD has lost 1.39 status
• President Biden is said to have dropped his threat to veto a bipartisan infrastructure bill if it comes without a reconciliation package
• Looking ahead, highlights include ECB's Panetta, de Guindos, Fed's Williams, Harker

CORONAVIRUS UPDATE

Eli Lilly's (LLY) bamlanivimab and etesevimab COVID-19 drugs are being paused for distribution across the US immediately after reports the antibody drugs were not active against Beta and Gamma variants. (Newswires)

AstraZeneca (AZN LN) announced that the first participants in a trial for new COVID-19 variant vaccine AZD2816 were vaccinated, while the trial will recruit around 2,250 participants with initial data expected later in the year. (Newswires)

Former UK Chancellor Javid was appointed as the new Health Secretary after Matt Hancock resigned due to breaking social distancing rules, while Javid said his top priority was to oversee a return to normal as soon as possible. There were also separate comments from PM Johnson’s flexible working task force chief that Britain will not see the culture of working from the office from Monday to Friday return after the COVID-19 pandemic. (Newswires/Telegraph)

Germany’s COVID-19 cases continued to subside as recoveries outpaced new infections, while it was also reported that Germany imposed a 14-day quarantine on travellers returning from Portugal. Furthermore, German Chancellor Merkel is to launch a bid to ban travellers from Britain to the EU regardless of whether they have been vaccinated or not and wants to designate Britain as a country of concern due to the Delta variant being widespread. (Newswires/The Times)

Sweden’s state epidemiologist said he expects all COVID-19 restrictions will have been removed by November including work from home recommendations and social distance requirements. (Newswires)

Australia’s New South Wales state widened a lockdown of Sydney after reporting more COVID-19 infections linked to a Delta variant outbreak in which all residents of the Greater Sydney area will be restricted from moving freely until July 9th, while the New South Wales Premier said that they are preparing for a significant increase in virus cases. There were also reports that Darwin in Australia will go into a snap lockdown after the Northern Territory recorded four new COVID-19 cases linked to an outbreak at a gold mine. (Newswires/Daily Mail)

New Zealand extended restrictions in the Wellington region for two days due to a recent visit by an infected Australian national and despite a lack of evidence that cases increased from the visit. (Newswires)

South African President Ramaphosa said the rapid spread of the COVID-19 Delta variant is extremely serious and that existing containment measures are not sufficient to handle the speed and scale of infections, while they have moved to Alert Level 4 with restrictions to be in place for 14 days. (Newswires)

ASIA

Asian equity markets were subdued following a light weekend in terms of macro drivers, with participants kept tentative heading closer towards HY-end and this week’s upcoming risk events culminating in the release of the latest US NFP jobs data on Friday, while US equity futures were uneventful with the Emini S&P fading an initial extension to fresh record highs. ASX 200 (Unch.) was constrained by underperformance in the tech sector and after Sydney entered into a two-week lockdown in an effort to curb the outbreak of the COVID-19 Delta variant. Nikkei 225 (-0.1%) struggled for direction amid a slightly firmer currency and briefly tested the 29k level to the downside where it then bounced off a nearby floor, with Seven & I the top gainer after it was ordered by US antitrust regulators to sell 293 stores that were acquired in the takeover of Speedway and its 3,900-strong outlets. Shanghai Comp. (-0.1%) was lacklustre and failed to find inspiration from the resilience in Shenzhen bourses, nor from the Chinese data over the weekend which showed Industrial Profits rose by 36.4% Y/Y in May which slowed from the prev. 57.0% growth in April, while Hong Kong participants were absent for the entire morning session due to the black rainstorm warning which has since been lifted to allow afternoon trade to commence. Finally, 10yr JGBs were lower after last Friday’s selling pressure in T-notes but with downside stemmed amid the BoJ presence for JPY 950bln of JGBs mostly in 3yr-10yr maturities, while Aussie bonds traded mixed with pressure in the long-end following a 30yr government auction.

• Chinese Industrial Profits (May) Y/Y 36.4% (Prev. 57.0%)
• Chinese Industrial Profits YTD (May) Y/Y 83.4% (Prev. 106.1%)

PBoC injected CNY 30bln via 7-day reverse repos with rate at 2.20% for a net CNY 20bln daily injection. (Newswires) PBoC set USD/CNY mid-point at 6.4578 vs exp. 6.4581 (prev. 6.4744)

HKEX (388 HK) formally cancelled the morning trading session due to a black rainstorm signal although will open for afternoon trade at 06:30BST/01:30EDT/13:30HKT after Hong Kong lowered its rainstorm warning from black to red. (Newswires)

Hawkish UK politicians and a US industrial lobby group are calling for western allies to establish a NATO for trade to counter Beijing's weaponisation of policy tools. (SCMP)

BoJ Summary of Opinions from June meeting stated that Japan's economy has picked up as a trend although has remained in a severe situation due to the impact of COVID-19 at home and abroad, while it added that inflation will likely accelerate as pent-up demand begins to appear in latter half of the year but noted that inflationary pressure will likely remain subdued in Japan due to sticky deflationary mindset. Furthermore, the Summary stated the BoJ has approached the time when it needs to show direction regarding what it can do on climate change via monetary policy and that the BoJ response on climate change tied to its mandate of achieving a stable economy, while the climate change scheme must be flexible. (Newswires)

UK/EU

UK Secretary of State for Northern Ireland Lewis said they have put forward a sensible proposal regarding the Northern Ireland Protocol before finding a long-term solution but added there has not been any formal response from the EU. (Newswires)

UK opposition Labour Party leader Sir Keir Starmer’s team is reportedly bracing for a leadership challenge as early as this week if he loses the Batley and Spen by-election, with leading figures on the left and Blairite wings of the party said to be losing patience. However, there were also comments from a prominent ally of former party leader Corbyn, Dawn Butler, who denied she was preparing to challenge for the Labour leadership. (Sunday Times/Telegraph)

UK financial watchdog FCA banned crypto exchange Binance from the UK and ordered it to stop all regulated activities in the country. There were also comments from Binance which said the FCA notice has no direct impact on services provided by Binance.com and that BML which it acquired last year has not yet launched its UK business nor used its FCA regulatory permissions. (Newswires/FT)

Exit polls showed that French far-right failed to win a single region in local elections on Sunday and is set for a defeat against the incumbent centre-right candidate in Provence-Alpes-Cote d’Azur, while Presidential hopeful and conservative Bertrand is set for a regional victory in Hauts-de-France with a comfortable 25-point lead over Marine Le Pen’s far-right party. (Newswires)

Insa poll showed support for German Chancellor Merkel’s CDU/CSU coalition was unchanged at 28%, while support for Greens fell 1pp to 19%. (Bild am Sonntag)

FX

In FX markets, the DXY consolidated beneath 92.00, although it has eked mild gains after Friday’s recovery from the slew of soft data releases and with US President Biden said to have dropped his threat to veto a bipartisan infrastructure bill if it comes without a reconciliation package. Furthermore, Fed commentary from late last week hasn’t provide much for markets to get excited about in which Fed's Kashkari stated the US economy is at the beginning of a very strong recovery but added that they are still in a deep hole, while Fed's Mester noted the potential growth rate is lower because of the slowdown in productivity growth which can change with investments and Fed's Rosengren suggested it is possible that conditions could be met by the end of next year. EUR/USD trickled below its 100-hour MA of 1.1931 with the single currency uninspired despite exit polls showing the French far-right failed to win a single region in local elections on Sunday which doesn’t bode well for far-right populist Marine Le Pen’s presidential ambitions. GBP/USD was also despondent after relinquishing the 1.3900 status with the currency not helped by another scandal to PM Johnson’s government in which Matt Hancock resigned as Health Secretary. USD/JPY and JPY crosses were lacklustre amid a non-committal risk tone and an uneventful BoJ Summary of Opinions release, while antipodeans also traded rangebound due to a lack of data and amid choppy price action in commodities with NZD/USD unreactive to forecasts by Bank of New Zealand that the RBNZ could end QE in the approaching months as it prepares to hike rates, with the former citing market pricing of more than a 50% chance of an OCR hike this November.

SARB Governor Kganyago stated that South Africa is financially strong enough to weather a post-pandemic rise in global interest rates, while he suggested that they shouldn’t worry about a taper tantrum but could worry about a data tantrum or investors reading too much into the latest data as a signal of imminent rate increases. (FT)

COMMODITIES

Commodities were choppy overnight in which WTI crude futures traded on both sides of USD 74.00/bbl amid the indecisive risk tone and tentativeness heading into this week's risk events including the US jobs data and latest OPEC+ conclave. There was also uncertainty regarding the Iranian nuclear deal talks after the expiry of the IAEA monitoring agreement and with Iran putting the onus on Washington for a return to a nuclear deal by removing US sanctions first. Gold prices recouped early losses and have returned flat and copper languished amid the subdued mood across asset classes.

Baker Hughes US Rig Count (w/e June 25th): Oil -1 at 372, Nat gas +1 at 98, Total unchanged at 470. (Newswires)

GEOPOLITICAL

Iran said Washington, not Tehran, must decide whether it wants to return to the nuclear deal and fulfill its obligations, while it will reverse its nuclear steps after removal of US sanctions and its verification, according to the Foreign Ministry. There were also comments from a Tehran envoy that Iran has no obligation to respond to IAEA's request regarding an extension of the monitoring deal. (Newswires)

Israel’s Foreign Minister Lapid said Israel has some serious reservations about Iran nuclear deal hammered out in Vienna and said it is time for the US to support Israel’s normalisation efforts in the region, while he added that his upcoming trip to the UAE will be historic. There were also comments from US Secretary of State Blinken following their meeting in Rome that the US supports Israel’s normalisation accords but added that they cannot be a substitute for engaging in issues between Israelis and Palestinians. (Newswires)

US Department of Defense confirmed US military forces conducted precision airstrikes on facilities used by Iran-backed militia groups in the Iraq-Syria border region which was under the direction of US President Biden. (Newswires)

US

Treasuries sold off into the afternoon on Friday as inflation data saw 10yr yields mark their largest weekly increase since March. On the day, 2s +0.2bps at 0.270%, 3s +0.8bps at 0.481%, 5s +2.4bps at 0.931%, 7s +3.8bps at 1.295%, 10s +5.1bps at 1.538%, 20s +7.4bps at 2.101%, 30s +7.8bps at 2.173%; TYU1 volumes were light. 5yr TIPS +4.4bps at -1.578%, 10yr TIPS +4.5bps at -0.820%, and 30yr TIPS +4.1bps at -0.121%. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. It was a rather uneventful open in Europe, with EGBs, or other sovereigns, not finding much impetus from the GfK July German consumer sentiment survey printing considerably better than anticipated. It wasn't until US May PCE data that prices found some momentum, where the Core M/M printed +0.5%, below the expected 0.6%, and down from the prior +0.7%, seeing T-Notes catch a bid to print a daily high of 132-08+ as the Fed's favoured inflation gauge paints a more tame inflation story than the May CPI reading had done. But the strength didn't last long, with some noting the Core PCE Y/Y rising to 3.4% from 3.1% encouraging some unwinds of profitable flatteners, and encouraging steepeners. That sentiment was echoed after the Final June UoM survey saw 1yr-ahead inflation expectations revised higher to 4.2% from 4.0% (although still down from May's 4.6%), with the long-end picking up selling momentum, particularly as the 1.50% support level broke in cash 10s taking yields to new weekly highs. T-Notes continued trundling lower into the afternoon as Europe departed - note that EGBs had been tracking the move lower with USTs too, with prices hovering around lows into the settlement, marking the largest weekly rise in yields since March. T-note (U1) futures settled 10 ticks lower at 131-27+.

Fed will extend PPP liquidity facility 'a final time' to July 30th to enable financial institutions to process loans already approved. (Newswires)

Fed's Mester (2022, 2024 voter) said the potential growth rate is lower because of the slow down in productivity growth, but that can change with investments in technology and infrastructure. (Newswires)

Fed's Rosengren (2022 voter) stated he does not talk about his specific forecast for interest rates and that it is quite possible the conditions could be met by the end of next year, while he added that determining full employment is pretty difficult right now and that the Fed is not going to raise rates until there is full employment. Furthermore, he stated that they should consider tapering treasury and MBS purchases in the same amount and suggested it would mean stopping the MBS programme well before stopping the treasury programme but added that details on tapering have not been decided yet. Rosengren separately commented that the US cannot afford a boom and bust in the housing market which would threaten financial stability, while he added it is very important to get back to 2% inflation target and that the goal is for that to be sustainable. (Newswires/FT)

US President Biden said he doesn’t plan to veto a bipartisan infrastructure bill if it comes without a reconciliation package, in a backtrack of last week’s threat that he would refuse to sign it unless the two bills came in tandem. (Newswires)