• Asian equity markets began H2 subdued following the mixed performance of Wall St counterparts
• The BoJ Tankan survey missed expectations and Chinese Caixin Manufacturing PMI printed short of estimates
• The DXY remains on a firm footing above 92.00, EUR/USD trades sub-1.1850 and GBP/USD holds on to 1.38 status
• Looking ahead, highlights include Riksbank Policy Announcement, Final EZ, UK & US Manufacturing PMIs, OPEC+ Meeting, US IJC, ISM Manufacturing, ECB's Lagarde, Elderson, BoE's Bailey, Fed's Bostic, supply from Spain, France & the UK

CORONAVIRUS UPDATE

Johnson & Johnson (JNJ) scientist expect the first COVID vaccine study in adolescents to start in the fall of 2021 and are awaiting discussions with regulators. (Newswires)

Germany wants the EU to buy two types of mRNA COVID-19 vaccines, as well as vaccines using other technologies for 2022, according to a Health Ministry paper. Furthermore, the report noted that the BioNTech (BNTX)/Pfizer (PFE) vaccine orders cover Germany's needs for 2022 although they need to buy large quantities of other vaccines too as a precaution, while they plan to buy 31.8mln doses of Moderna (MRNA), 18.3mln doses of Johnson & Johnson (JNJ) and 70mln of protein/de-activated virus vaccine doses for 2022. (Newswires)

Curevac (CVAC) stated the final analysis of its COVID vaccine trial demonstrated overall efficacy of 48% against diseases of any severity and overall efficacy among participants in the 18-60 age group was 53%, while efficacy against moderate and severe disease among 18-60 age group was 77%. Furthermore, the Co. is in dialogue with the EMA and the data has been sent as part of an ongoing submission. (Newswires)

Novavax (NVAX) published results of its UK phase 3 clinical trial which showed high levels of efficacy for its COVID vaccine, while the final analysis confirmed the overall efficacy of 89.7% whereby 60% of cases were caused by the Alpha variant and 96.4% against non-Alpha variants. (Newswires)

UK Ministers are reportedly targeting quarantine-free travel for double-vaccinated holidaymakers by July 26th. (The Times)

ASIA

Asian equity markets began H2 subdued following the mixed performance of Wall St counterparts and as participants digested a slew of soft data releases including the BoJ Tankan survey which missed expectations and Chinese Caixin Manufacturing PMI also printed short of estimates. ASX 200 (-0.5%) traded negatively with underperformance in consumer stocks and the largest-weighted financials sector but with downside stemmed as data showed the domestic manufacturing industry and the latest exports gathered pace. Nikkei 225 (-0.5%) was pressured after a disappointing BoJ Tankan Survey in which most components of the release missed forecasts despite the headline Large Manufacturing Index increasing to its highest level since December 2018 and Large Non-Manufacturers Index turning positive for the first time in more than a year, while the KOSPI (-0.5%) was also constrained with a continued surge in exports doing little to spur risk appetite. Shanghai Comp. (-0.1%) was lacklustre after Chinese Caixin Manufacturing PMI missed forecasts and amid the absence of Hong Kong participants, as well as Stock Connect trade on the anniversary of the city’s handover from the UK, while there were also hawkish reports concerning Taiwan including comments from Chinese President Xi that they want to resolve the Taiwan problem to achieve complete reunification of the nation and with the US and Japan said to have been conducting war games and joint military exercises in the event of a conflict with China over Taiwan. Finally, 10yr JGBs edged mild gains amid the uninspired risk tone and following stronger results at today’s 10yr JGB auction in which the b/c and accepted prices increased from the previous month.

PBoC injected CNY 10bln via 7-day repos with the rate at 2.20% for a net daily drain of CNY 20bln. (Newswires) PBoC set the mid-point CNY at 6.4709 vs. Exp. 6.4679 (Prev. 6.4601)

Chinese President Xi said they must increase the pace of defense and military modernization, while they will also push forward self-reliance tech development. Furthermore, he added that China doesn't have genes for hegemony and that China prefers collaboration over conflict but noted they want to resolve the Taiwan problem to achieve complete reunification of the nation. In relevant news, US and Japan reportedly have been conducting war games and joint military exercises in the event of a conflict with China over Taiwan. (Newswires/FT)

Japanese Chief Cabinet Secretary Kato said domestic business sentiment is improving as a whole and they will decide whether to compile further stimulus package with an eye on the economic outlook and people's livelihoods, while he added Japan's fiscal 2020 tax revenue will likely reach a new record. (Newswires)

• Chinese Caixin Manufacturing PMI Final (Jun) 51.3 vs. Exp. 51.8 (Prev. 52.0)
• Japanese Tankan Large Manufacturing Index (Q2) 14 vs. Exp. 15 (Prev. 5)
• Japanese Tankan Large Manufacturing Outlook (Q2) 13 vs. Exp. 18 (Prev. 4)
• Japanese Tankan Large Non-Manufacturing Index (Q2) 1 vs. Exp. 3 (Prev. -1)
• Japanese Tankan Large Non-Manufacturing Outlook (Q2) 3 vs. Exp. 8 (Prev. -1)
• Japanese Tankan Large All Industry Capex (Q2) 9.6% vs. Exp. 7.2% (Prev. 3.0%)

UK/EU

UK is poised to secure an exemption for financial services from the new global digital tax rules whereby the move would ensure the largest banks in the UK do not pay more tax on their profits in other countries, while Chancellor Sunak had to make concessions to the US on dismantling Britain’s digital services tax that is focused on American technology companies. (FT)

FX

In FX markets, the USD held on to the gains seen during the prior session where the DXY defied the various month-end sell signals and gained a firmer footing on the 92.00 level following mixed data releases in which Chicago PMI missed expectations although Pending Home Sales showed a surprise increase and ADP Employment topped forecasts ahead of Friday’s NFP jobs data. There was also further commentary from Fed officials with Bostic noting that prices are not spiralling but they have to pay attention and that he sees clearer labour market signs in September when schools reopen, while Kaplan reiterated that he is ready to taper sooner and thinks they will achieve substantial further progress sooner than expected. EUR/USD remained near a 3-month low beneath 1.1850 due to the recent USD strength and following inline inflation numbers for the bloc, while GBP/USD also briefly re-approached yesterday’s base near 1.3800 despite the extension of the Northern Ireland chilled meats grace period and news that the UK is poised to secure an exemption for financial services from new global digital tax rules. USD/JPY held on to the 111.00 status owing to the firmer greenback and after the soft Tankan data, while antipodeans were lacklustre due to their high-beta properties, disappointing Chinese PMI data and a softer CNY reference rate setting by the PBoC.

Turkey Central Bank raised the FX reserve requirement ratio by 200bps. (Newswires)

• Australian Manufacturing PMI (Jun F) 58.6 vs. Exp. 58.4 (Prev. 60.4)
• Australian AIG Manufacturing Index (Jun) 63.2 (Prev. 61.8)
• Australian Trade Balance (AUD)(May) 9.7B vs. Exp. 10.0B (Prev. 8.0B)
• Australian Exports M/M (May) 6% (Prev. 3.0%)
• Australian Imports M/M (May) 3% (Prev. -3.0%)

COMMODITIES

Commodities were mixed with WTI crude futures sitting on tentative gains after yesterday's wider than expected draw to EIA crude stockpiles and following reports that Iranian discussions were postponed to an undetermined date. Focus for the energy complex remains on the various OPEC meetings today (OPEC, JMMC & OPEC+), after Kazakhstan suggested yesterday that OPEC+ will be debating whether to hike output in August or September and sources also noted that OPEC+ is expected to discuss the extension of the oil supply deal beyond April 2022. Elsewhere, gold prices remained unfazed by the recent strength in the greenback and marginally extended on gains, while copper was pressured in the aftermath of the weaker than expected Chinese Caixin Manufacturing PMI data.

US total oil demand in April rose 32.5% or 4.768mln BPD Y/Y vs prev. 5% rise in March, according to EIA's Petroleum Supply Monthly. (Newswires)

Energy Intel's Bakr tweeted that scenarios reviewed by the JTC this week show higher demand in approaching months and all three scenarios showed OECD commercial stocks above 2015-2019 average for H2 2022. (Twitter)

Exxon (XOM) Beaumont Texas refinery (366k BPD) is operating at 60% capacity as lockout continues, according to sources. (Newswires)

Citi expects the oil market to remain in deficit of over 3mln bpd through 3Q2021 even after accounting for increased OPEC+ production, while it added that prices look to increase to USD 80/bbl soon if OPEC+ stay conservative in returning supply. (Newswires)

US

Treasuries traded higher through the day amid continued month-end flows and little else to stand in their way. By settlement, 2s -0.3bps at 0.249%, 3s -0.8bps at 0.455%, 5s -1.6bps at 0.875%, 7s -2.7bps at 1.217%, 10s -3.2bps at 1.448%, 20s -3.0bps at 2.000%, 30s -2.5bps at 2.072%. 5yr TIPS -3.1bps at -1.641%. 10yr TIPS -3.4bps at -0.890%. 30yr TIPS -2.3bps at -0.196%. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. T-Notes broke above the 132-08 resistance area as European trade got underway, with little fresh catalysts to point to, month-end flows got the nod, despite expectations for a rather average duration extension - thin trading conditions are undoubtedly seeing these flows have an outsized price effect. The momentum carried right through into the US session, with little reprieve on the better-than-expected ADP print, while a disappointing Chicago PMI print supported the moves, seeing the cash 10yr yield fall beneath the 1.50% level for the first time since June 21st, although currently finds resistance at the key area. After Europe left, yields moved rather sideways while T-Notes (U1) hugged 132-16, with some noting the USD 12.5bln Qatar Petroleum dollar bond offsetting the month-end bid. Thursday will see attention gyrate to the ISM Manufacturing survey and Jobless Claims, although most will be hesitant to take exposure ahead of Friday's NFP and 3s, 10s, and 30s auctions next week. T-notes (U1) futures settled 7+ ticks higher at 132-16.

Fed’s Kaplan (2023 voter) reiterated that he is seeing a broadening of price pressures and that he sees 2.4% inflation next year, while he does not expect explosive headline numbers in the jobs report. Kaplan said that they will see evidence of whether prices are transitory through the fall but added some price pressures will be more consistent and noted that there is still a lot of supply constraints in the labour market. Furthermore, Kaplan reiterated he is ready to taper sooner and also thinks they are going to get to substantial further progress sooner than expected, while he added that they have made progress on inflation but more progress is needed on the labour front. (Newswires)

US Democratic Representative Maxine Waters said that her committee has started investigating the Crypto marketplace, according to FBN's Lawrence. (Twitter)