• Asian equity markets traded subdued with the regional bourses mostly lower after the mixed performance on Wall Street
• In the US, tech outperformed amid a decline in yields to lift both the S&P 500 and Nasdaq to fresh all-time highs
• In FX, the DXY was rangebound below 92.00, EUR/USD held onto 1.19 status, GBP/USD lost 1.39
• Commodities were pressured overnight in which WTI crude futures extended on the prior day's declines to test USD 72.50/bbl
• Looking ahead, highlights include regional & national German CPIs, US Consumer Confidence, ECB's Lagarde, Fed's Barkin

CORONAVIRUS UPDATE

Australia's Queensland State Premier imposed a three-day COVID lockdown including the state capital of Brisbane, and Australia Premier McGowan announced that Perth and Peel will enter a 4-day lockdown. It was also reported that New Zealand lowered its COVID alert level in the capital city of Wellington and will move to alert level 1 from midnight on Tuesday, while the country will resume quarantine-free travel to some parts of Australia. (Newswires)

ASIA

Asian equity markets traded subdued with the regional bourses mostly lower after the mixed performance on Wall Street where cyclicals/value were pressured but tech outperformed amid a decline in yields to lift both the S&P 500 and Nasdaq to fresh all-time highs, although US index futures have since eased off their record levels during overnight trade. ASX 200 (-0.7%) was pressured as strength in tech was nullified by weakness in the commodity-related sectors and with risk appetite also subdued after further lockdown announcements concerning Queensland and its state capital of Brisbane, as well as Perth and Peel in Western Australia. Nikkei 225 (-0.9%) declined as exporters suffered from detrimental currency inflows, while the data from Japan has been mixed with better-than-expected Retail Sales data offset by a worse-than-feared increase in the Unemployment Rate. Hang Seng (-0.4%) and Shanghai Comp. (-0.6%) also conformed to the negative tone with the decline in Hong Kong led by China’s oil majors after the recent slump in crude prices and amid ongoing frictions with US where President Biden is said to work with Congress on the China competition bill. Finally, 10yr JGBs were higher following the recent bull flattening in the US but with gains only marginal for the Japanese benchmark amid mixed results at the latest 2yr JGB auction.

PBoC injected CNY 30bln via 7-day reverse repos with the rate at 2.20% for a CNY 20bln net injection. (Newswires) PBoC set USD/CNY mid-point at 6.4567 vs exp. 6.4586 (prev. 6.4578)

China's Global Times opinion piece noted that the US is clamouring against Beijing on almost all multilateral occasions with G20 likely no exception, while it added the US may create small circles in a bid to offset positive functions of G20 which is a hidden danger G20 faces. (Twitter)

• Japanese Retail Sales MM (May) -0.4 % vs. Exp -0.7% (Prev. -4.5%)
• Japanese Retail Sales YY (May) 8.2% vs. Exp. 7.9% (Prev. 12.0%, Rev. 11.9%)
• Japanese Unemployment Rate (May) 3.0% vs. Exp. 2.9% (Prev. 2.8%)

UK/EU

UK government held emergency talks with retailers, logistics groups and wholesalers as a shortage of lorry drivers threatens to leave gaps on supermarket shelves, while industry chiefs have warned that the UK is facing a summer of food shortages similar to a series of “rolling power cuts” because of a loss of up to 100k lorry drivers as a result of the pandemic and Brexit. Furthermore, sources said that retail representatives expressed concern that the reports of potential shortages in stores would lead to panic buying and a return of the stockpiling behaviour seen in the spring of 2020. (Guardian)

EU is readying to offer UK concessions over Northern Ireland Brexit deal, while there were separate reports that Jersey extended the transition period for fishing rights for French boats from June 30th for another three months. (The Times/Sky News)

UK Binance customers were reportedly frozen out of withdrawals via a key UK payment network. (FT)

OECD aims to impose corporate digital taxes on roughly 100 companies with at least EUR 20bln (USD 23.9bln) in revenue and a 10% profit margin, according to a proposal. Furthermore, "Negotiating countries hope to iron out the details of the international digital taxation scheme at a two-day online meeting starting Wednesday, with an agreement to be signed at the Group of 20 finance ministers and central bankers meeting in Italy in July.". (Newswires/Nikkei)

FX

In FX markets, the DXY was rangebound beneath the 92.00 level as it bided time heading into HY-end and the upcoming data releases later in the week, with the currency unaffected by the recent decline in yields and latest Fed rhetoric including from Fed’s Quarles who suggested the Fed is very mindful that they could be wrong on inflation and that if inflation does not settle back down closer to the 2% target in a year, they have the tools to address it. Furthermore, Fed's Barkin also expects inflation to moderate over time to normal levels and noted that the Fed has had substantial further progress against the inflation goal. EUR/USD was lacklustre despite recent comments by ECB’s Weidmann who wants to discuss conditions under which emergency measures are removed, whilst other officials were less willing with ECB's Holzmann stating that PEPP will end when the emergency is over and that they are not seeing evidence yet of the end of the emergency. Rabobank lowered its 1-month forecast for the single currency to 1.1900 from 1.2000 citing fears of the COVID-19 Delta variant spreading throughout the bloc. GBP/USD remained below the 1.3900 handle amid reports the UK government held emergency talks as a shortage of lorry drivers resulting from the pandemic and Brexit, threatens to leave gaps on supermarket shelves. However, there were some encouraging reports that EU's Sefcovic is confident a solution can be found in the next two days on the UK's request to extend the chilled meats grace period and that the Jersey government prolonged the transition period for fishing rights for French boats from June 30th for another three months. USD/JPY and JPY-crosses extended on recent declines with the former testing 110.50 level to the downside amid the broad cautious mood which has also hampered antipodeans due to their high beta characteristics, as well as the recent pressure in commodities and lockdowns across Australian states.

RBNZ Statement of Intent for July 2021 to June 2024 stated we are mindful of our mandate including maintaining low and stable CPI, while contributing to maximum stable employment, as well as role promoting and maintaining sound, efficient financial system. Furthermore, RBNZ stated that continued monetary assistance is required for economic recovery but added that economic policy settings can eventually be normalised and that they intend to implement a new risk appetite and capital framework. (Newswires)

COMMODITIES

Commodities were pressured overnight in which WTI crude futures extended on the prior day's declines to test USD 72.50/bbl to the downside amid the broad risk-averse mood and with prices not helped by the recent fresh lockdowns in the Asia-Pac region including Australia. Furthermore, military attacks on US forces in Syria in retaliation to the recent US strike on Iranian-backed militia near the Syria-Iraq border, did little to spur oil prices, as focus remains on the upcoming OPEC+ meeting with reports suggesting the group could boost production by 500k-1mln bpd from August. Gold prices was uneventful with only marginal losses as the greenback held steady heading into the end of H1 and this week's key data releases, while copper was pressured amid the subdued picture across risk assets and weakness in Chinese iron prices.

OPEC+ could boost oil output by 500k-1mln barrels per day from August, according to RBC. (Newswires)

GEOPOLITICAL

US President Biden said Iran will never get a nuclear weapon on his watch and Israeli President Rivlin later stated that he is "very satisfied" with US President Biden's pledge to ensure that Iran does not get nuclear weapons. (Newswires)

US confirmed forces in Syria were attacked by rockets with the attack reportedly considered as a retaliation for the US airstrike on Iran-backed militia bases in Iraq and Syria, while it was also reported that US forces returned fire with artillery after being attacked by multiple rockets. (Newswires/Fox News)

US

Treasuries bull-flattened in quiet trade with month-end flows cited, reversing Friday's sell-off. 2s -1.4bps at 0.256%, 3s -1.8bps at 0.463%, 5s -3.0bps at 0.899%, 7s -4.4bps at 1.248%, 10s -5.6bps at 1.480%, 20s -6.4bps at 2.033%, 30s -7.0bps at 2.099%; TYU1 volumes were very light. 5yr TIPS +2.2bps at -1.600%, 10yr TIPS -4.5bps at -0.867%, 30yr TIPS -6.2bps at -0.187%. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. The bid for duration gained traction as European trade got underway, coinciding with a 2.3k Ultra 10yr future block, with reports of Asian real money driving the bid. US players kept the buying momentum going once they returned from the weekend, with month-end flows on the mind (0.08yr duration extension expected for USTs this month) and no coupon auctions in otherwise a quiet calendar slate ahead of Thursday's ISMs and Friday's NFP. The Fed buying in the 20yr maturity today also supported the bid. One desk noted the triggering of algo buy programmes as cash 10s and 30s fell beneath 1.50% and 2.12%, respectively, making their mark in light, summer trade, which is perhaps a factor that makes it harder to gauge too much from today and Friday's price action given trade activity has been so low. Lower oil prices also likely lent some support to bonds from the reduced inflationary impulse. T-Notes printed highs of 132-10+ just after mid-day in New York, but pared a few ticks into the settlement. T-note (U1) futures settled 13 ticks higher at 132-08+.

Fed's Quarles (voter) said supply chain imbalances leading to higher inflation are temporary and that the Fed is very mindful that they could be wrong on inflation, while he added that if in a year we were not to see inflation settling back down closer to the 2% target, they have the tools to address it. Quarles also commented that any proposal to create a US central bank digital currency (CBDC) must clear a high bar and that it seems unlikely that the dollar's status as a global reserve currency will be threatened by a foreign CBDC. (Newswires)

Fed's Barkin (2021, 2024 voter) expects inflation to moderate over time to normal levels and said the TIPS market is showing inflation at about 2%. Barkin also stated he doesn't know how long supply chain shortages will last and that they may see the workforce expanding in September with some of the jobs being filled, while he added the Fed has had substantial further progress against the inflation goal. (Newswires)

White House said US President Biden intends to sign both pieces of legislation on infrastructure spending and had been in touch with Democratic leaders on dual-track approach to infrastructure spending, while it added that President Biden spoke with congressional leaders from both parties about the infrastructure deal. (Newswires)

US Senate Minority Leader McConnell is trying to slow momentum for bipartisan infrastructure deal. (Axios)

Following last week's bank stress tests, JPMorgan (JPM) is to boost its quarterly dividend to USD 1.00/shr from USD 0.90/shr and will continue buybacks. Morgan Stanley (MS) will boost its quarterly dividend by 100% to USD 0.70/shr and announced a share repurchase authorization of as much as USD 12bln over 12 months. Goldman Sachs (GS) plans to raise its dividend to USD 2.00/shr from USD 1.25/shr. Citi (C) will continue with its planned capital actions including common dividends of at least USD 0.51/shr and will continue share repurchases. (Newswires)