• Equities are contained in relatively narrow ranges after an uneventful APAC session; Euro Stoxx 50 -0.3% and ES U/C
• FX is rangebound and the USD has been either side of the U/C throughout the morning with GBP outperforming but peers broadly contained
• USTs are firmer and the yield curve is bull-flattening ahead of Fed speak while EGBs are closer to the U/C mark
• President Biden said he doesn’t plan to veto a bipartisan infrastructure bill if it comes without a reconciliation package
• Looking ahead, highlights include ECB's Weidmann, Stournaras, de Guindos and Fed's Williams, Harker, Barkin, Quarles and BoE's Haldane

CORONAVIRUS UPDATE

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. Further reports indicate this will be discussed later today in Germany. (Newswires/The Times/Bild)

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%)

Fitch affirms China at A+, outlook stable. (Fitch)

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)

PBoC says they will make prudent monetary policy flexible, targeted and appropriate. Will keep liquidity reasonably ample and the macro leverage ratio basically stable; additionally, make the Yuan exchange rate more flexible, keep the currency basically stable. (Newswires)

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)

US

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)

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)

German Import Prices MM (May) 1.7% (Prev. 1.4%); YY (May) 11.8% vs. Exp. 11.3% (Prev. 10.3%)

GEOPOLITICAL

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)

China-India border remains stable and the two sides are engaged in talks, Global Times citing the Foreign Ministry spokesperson adding the words/actions of the Indian side should be beneficial to the border situation. (Twitter)

Russia has successfully tested a new intercontinental ballistic missile, according to sources. (Newswires)

EQUITIES

European equities (Eurostoxx 50 -0.4%) have kicked the week off on a softer footing in what has been a quiet start to the week. Stateside, price action in the futures markets is also relatively contained with some very minor outperformance in the e-mini Nasdaq (+0.2% vs. E-mini S&P U/C). From a macro perspective, infrastructure talks in the US continue to grab the headlines with US President Biden walking back his veto threat over the weekend. That said, the likes of Pelosi and Schumer could pose an obstacle to the legislation’s passage with the former of the view that the House will not vote on the bipartisan bill unless it is accompanied by a reconciliation bill. On the S&P 500, Goldman Sachs notes that its year-end 2021 target of 4300 is predicated on the US 10yr rising to 1.9% and P/E multiple remaining stable around 22x. GS notes that, all else equal, if interest rates remain roughly flat their model would imply a fair value of 4700, whereas if rates rose to 2.5% by year-end, fair value would be around 3550; 17% below current levels. Back to Europe, sectors are predominantly lower with Travel & Leisure a clear laggard as Tui (-3.1%), easyJet (-2.7%) and IAG (-4.1%) continuing to suffer at the hands of travel restrictions across the region with German Chancellor Merkel set to launch a bid to ban travellers from Britain to the EU regardless of whether they have been vaccinated or not. Other underperforming sectors included cyclically-exposed names such as Banks, Oil & Gas and Autos. In terms of stock specifics, Nokia (+6.00%) sit at the top of the Stoxx 600 after being upgraded to buy from neutral late last week (the Finnish market was closed on Friday) at Goldman Sachs; citing continued improvement in the wireless market driven by 5G. Burberry (-6.4%) is the region’s laggard after its CEO Gobbetti will leave the Co. at the end of the year and become CEO of Salvatore Ferragamo.

FX

GBP/DXY - The Pound has rebounded quite firmly across the board to reclaim 1.3900+ status against the Dollar and fend off yet another assault on 0.8600 vs the Euro, with little sign of any real fallout from the latest scandal to hit Whitehall that has culminated in the UK’s Health Minister leaving his post. However, Cable remains top heavy into 1.3950 and Eur/Gbp underpinned ahead of 0.8550 as the Greenback retains an underlying bid in wake of the Fed’s recent hawkish shift and the index hovers just below 92.000 and above 91.500. Note, latest IMM data reveals that positioning is still net short even though more Bucks were bought back last week, and specs may want to reduce exposure further into month end on Wednesday plus NFP 2 days later.

JPY/EUR - Option expiry interest could well provide the Yen and Euro with some additional guidance amidst the ongoing post-FOMC Dollar retracement and focus on US Treasury yields in relation to EGBs and JGBs in light of policy divergence between the Fed and ECB/BoJ. Indeed, Eur/Usd has a hefty 1.13 bln to contend with very close to current levels (1.1945-50), and may also be hampered technically while unable to make a clean breach of the 100 HMA that comes in at 1.1931, but Usd/Jpy might be anchored given 1.38 bn rolling off at the 110.50 strike.

CAD/AUD/NZD - All choppy vs their US rival, with the Loonie still straddling 1.2300, Aussie capped around 0.7600 and Kiwi contained in the upper 0.7000 area, as latest outbreaks of COVID-19 down under weigh on Aud/Usd and Nzd/Usd, but the Aud/Nzd cross remaining sub-1.0750 against the backdrop of less dovish/more hawkish RBNZ policy vibes via the BNZ that reckons QE may be withdrawn in coming months as the Bank gets ready to tighten rates.

CHF - The Franc remains rangebound just above 0.9200 against the Greenback and either side of 1.0950 vs the Euro following latest weekly Swiss sight deposit balances showing a dip in domestic bank accounts before Wednesday’s official reserves data and KOF indicator.

SCANDI/EM - Strength in retail sales has not helped the Nok stay afloat vs the Eur, but may well be assisting the Sek in advance of Thursday’s Riksbank meeting as it rebounds towards 10.1000 from almost 10.1500 irrespective of the fall of Swedish PM Lovren and the Parliamentary speaker now looking to form a new Government through a roundtable procedure. Elsewhere, the Zar is underperforming as SA enters Alert 4 status for 2 weeks to try and halt the spread of the new COVID-19 Delta strain that is rampant, according to President Ramaphosa. Conversely, the Rub is holding up well alongside Brent on the Usd 76/brl handle and with CBR Governor Nabiullina signalling another hike anywhere between 25 bp to a full point at the next policy meeting (July 23), while the Try is firmer after Turkey’s Deputy Finance Minister reaffirmed its commitment to bring inflation down and the Cnh/Cny are flat regardless of a slowdown in Chinese industrial profits as the PBoC added 7-day funds and set a higher onshore fix overnight.

Notable FX Expiries, NY Cut:

• EUR/USD 1.1900 (447M), 1.1920-25 (825M), 1.1945-50 (1.13BLN), 1.1965 (316M), 1.2000 (1.23BLN), 1.2100 (308M)
• USD/JPY 109.50 (431M), 110.00 (485M), 110.50 (1.38BLN), 111.00 (385M), 111.75 (500M), 112.00-05 (900M)

Swedish PM Lofven has resigned. (Newswires) As such, the Parliamentary President will now begin the process of forming a mandate for a new government

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)

CBR Governor Nabiullina says another rate hike could be necessary, considering a 25bp to 100bp move for the next meeting. (Newswires) The next meeting is July 23rd

FIXED

Bunds and their Eurozone peers continue to lead the way, but it remains very gradual in terms of price movement and the manner in which bonds are extending gains and or recoveries from intraday lows. The former has been 21 ticks above par vs -6 ticks at worst, but stopped 1 tick shy of chart resistance at 171.99 that may have prompted a bit more action if breached and precipitated stops on a break of the big figure. Meanwhile, even reluctant or leggy Gilts have tagged along to reach 127.69 (+14 ticks compared to -5 ticks at the Liffe low) and US Treasuries are firmer with the curve flatter ahead of Dallas Fed manufacturing plus a busy line up of Fed speakers including Williams, Harker, Barkin and Quarles.

COMMODITIES

WTI and Brent are currently modestly firmer on the session but reside within a narrow range of circa USD 0.60/bbl so far and the few directional changes in performance this morning have follower broader risk sentiment, rather than specific fundamental updates. At present, the benchmarks are firmer by 0.10% as newsflow remains sparse and the situation is very much as-we-were from Friday looking out for IAEA updates, where Iran has placed the burden on the US to first remove sanctions and awaiting the week’s OPEC+ event. Elsewhere, China’s NDRC has announced it is increasing the domestic price of gasoline and diesel by CNY 225/T and CNY 215/T respectively from tomorrow. Moving to metals, spot gold and silver are contained and little changed overall on a session that has been somewhat choppy but given movements in the USD rather than any fresh macro driver. Finally, base metals are slightly softer but again relatively rangebound following a light APAC session and as industrial profit data for May out of China dipped from the prior reading.

China's NDRC is to raise the price of gasoline by CNY 225/T and diesel by CNY 215/T as of tomorrow. (Newswires)