• European bourses/US futures have pared back essentially all of the mornings initial upside, Euro Stoxx 50 +0.1%, ES +0.1%; ahead of key US data
• OPEC+ deal likely to include a monthly oil output increase less than 0.5mln BPD until December-2021, sources; bolstering crude futures to session highs
• FX has been very choppy though the USD remains bid and USD/JPY surpassed 111.50 while Cable lost 1.38
• The BoJ Tankan survey missed expectations and Chinese Caixin Manufacturing PMI printed short of estimates
• Looking ahead, highlights include US Manufacturing PMI (Final), US IJC, ISM Manufacturing, OPEC+ Meeting and Fed's Bostic

CORONAVIRUS UPDATE

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 (-0.7%) 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 (-0.3%) 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 (-0.4%) 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

EZ Markit Manufacturing Final PMI (Jun) 63.4 vs. Exp. 63.1 (Prev. 63.1)

• German Markit/BME Manufacturing PMI (Jun) 65.1 vs. Exp. 64.9 (Prev. 64.9)

UK Markit/CIPS Manufacturing PMI Final (Jun) 63.9 vs. Exp. 64.2 (Prev. 64.2)

BoE's Bailey says expects cost of living to increase in the coming months but should only be short-lived. It is important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions - but, if price pressures are more persistent, the bank is prepared to respond with monetary policy tools. (BoE)

ECB policymakers are set to hold a special meeting in Frankfurt next week in an attempt to conclude its strategic review, according to Omfif. (Newswires)

ECB's Lagarde says the improved economic outlook following rapid progress in vaccination campaigns has lowered the probability of severe scenarios. (Newswires)

GEOPOLITICS

A Houthi drone heading to Saudi Arabia has been destroyed in Yemeni airspace, according to the Arab coalition in Yemen. (Twitter)

US Ambassador to Russia said his meeting with the Russian Deputy Foreign Minister was "positive", according to RIA - no further details. (Newswires)

Russia is tracking an Italian navy frigate that entered the Black Sea, according to Russian Defence Ministry via Interfax. (Newswires)

EQUITIES

Equities in Europe kicked the new HY off on the front foot as European sentiment improved following the lacklustre APAC handover, with major bourses initially extending the modest gain seen at the open, albeit cash and futures have trimmed all of these initial gains, at the time of writing (Euro Stoxx 50 +0.1%). This sentiment also initially seeped into the major US futures, but the contracts have been waning off best levels in recent trade, with the NQ (-0.2%) narrowly lagging vs the YM (+0.2%), RTY (+0.3%), and ES (U/C) as yields also clamber off lows. Back to Europe, sectors are all in the green with cyclicals faring better than defensives. Travel & Leisure outpace peers with some positive omens emanating from reports that UK Ministers are reportedly targeting quarantine-free travel for double-vaccinated holidaymakers by July 26th. The Oil & Gas sector also resides towards the top of the pack as the sector reaps rewards from the rise in oil prices in the run-up to the OPEC meetings; supported further on the recent source reports (see commodities). Banks are on a firmer footing amid the higher yield environment and with ECB's Supervisory Board Member Enria stating that the ECB plans to repeal the dividend recommendation as of end-Q3 2021. Basic Resources names also see some reprieve as base metal prices stabilise. On the downside, Healthcare resides as the laggard – in turn, pressuring the pharma-heavy SMI (-0.1%). Turning to individual movers, AB Foods (+4.1%) trades at the top of the Stoxx 600 following a rosy trading update which sees higher-than-expected Primark sales. GSK (+0.5%) is off best levels with the initial upside in light of a letter from activist investor Elliott which noted that the Co. has substantial value creation opportunity with superior execution, as much as 45% upside in share price, but the management and board need to be reassessed. Finally, H&M (-1.8%) resides towards the foot of the pan-European index after noting that sales are still affected by reduced footfall.

FX

DXY - The index has now scaled 92.500 and breached Fib resistance just above the half round number after a very narrow miss at first time of asking as the broad Buck short squeeze continues into the new month, Q3 and H2. However, the Dollar and DXY face a busy macro agenda before the main event of the week and perhaps the whole of July in the form of NFP tomorrow, with more proxies for the official BLS report via Challenger layoffs and the employment components of the final Markit manufacturing PMI and ISM, while jobless claims provide an even more timely snapshot of the labour market and Bostic represents the Fed on the speakers front yet again. Back to the index, 92.547 is the new cycle and multi-month or multi-year high vs 92.356 intraday low.

SEK - In contrast to the Dollar’s ongoing ascent, the Swedish Crown has lost momentum following its rebalancing rally on the final trading day of June, and the retreat was already underway prior to the Riksbank maintaining rates and its QE remit with a taper to ensure that the Sek 700 bn envelope will be fully utilised by the end of the year in wake of a slowdown in Sweden’s manufacturing PMI and downward back month tweak. The Riksbank did change guidance on inflation to state that less expansionary monetary policy may be justified if inflation threatens to overshoot target significantly and persistently, but left the repo path unchanged at 0% for the entire forecast period (out to the 3rd quarter of 2024 this time) and retained the caveat that the Executive Board may cut the repo rate or loosen policy by other means should inflation prospects weaken. Hence, Eur/Sek is back up near 10.1600 and the Krona has ongoing political instability and uncertainty to contend with given reports that Moderate Party Leader Kristersson has abandoned attempts to form a new government.

GBP/JPY/CHF/AUD/CAD - It remains an overarching, if not quite all consuming Greenback story, but the Pound’s failure to retain grasp of 1.3800 and decline through stops said to be waiting for a break of 1.3787 may also attributed in part to a small downgrade to the final UK manufacturing PMI. Meanwhile, comments from BoE Governor Bailey via text for the Mansion House dinner highlighted at least three reasons why the MPC believes higher inflation will be transitory, but also underlined that the Bank is willing to act if that is not the case – see 9.00BST post on the Headline Feed for details and link to the full speech. Elsewhere, the Yen has tanked after a disappointing Tankan survey on balance overnight, and failed to stop the rot at 111.50, with a current high around 111.62 having fallen through interim chart support at 111.30 to a fresh y-t-d trough, while the Franc is under 0.9250 and hardly assisted by slightly softer than forecast Swiss inflation data or a slowdown in retail sales and the manufacturing PMI. Similarly, the Aussie is losing sight of 0.7500 and partially on specific factors, as the trade surplus came in short of consensus, albeit fractionally and China’s Caixin manufacturing PMI also underwhelmed.

NZD/EUR/CAD - The Kiwi is holding up relatively well, though Aud/Nzd tailwinds are providing a buffer as the cross retreats towards 1.0700 and helps Nzd/Usd to stay within sight of 0.7000. Upside in Eur/Jpy and Eur/Gbp is also lending the Euro a hand, but Eur/Usd may be deriving encouragement from firm Eurozone manufacturing PMIs and the fact that breaks below 1.1850 have been relatively contained, thus far. Last, but not least, the Loonie has found some underlying support beneath 1.2400 and perhaps from the firmer tone in crude prices.

EM - Another prop for the Try from the CBRT that has jacked up the RRR by 200 bp and estimates that the hike will to lead to Lira and FX denominated reserves increasing by Try 13.2 bn and Usd 2.7 bn respectively, initially.

Riksbank maintains its rate unchanged at 0.00% as expected; Riksbank maintains asset purchase envelope of SEK 700bln; Repo path maintained at 0.00% for the entirety of forecast horizon. Adding that a less expansionary monetary policy may be justified if inflation were to risk overshooting the target significantly and persistently. (Riksbank)

CBRT 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%)

FIXED

The volatility in FX and moves through or to several eye-catching levels may have detracted from and overshadowed trade in debt futures, but Bunds, Gilts and US Treasuries have witnessed quite a bit of choppy price action as the new month, quarter and H2 kicks off. Indeed, the former has reversed further to a new 172.22 intraday Eurex low (-39 ticks vs -7 ticks at one stage) and its UK peer has seen deviation on both side to extend its Liffe range to 128-06-127.86 compared to 128.10 at the close of business on Wednesday. Meanwhile, US Treasuries are hugging overnight session lows and the curve is back in steepening mode in advance of a packed pm session on the eve of payrolls, including more proxies for the data and an up-to-date view via ICJ.

COMMODITIES

WTI and Brent front-month futures have been grinding higher, in part due to the constructive sentiment across Europe, but the complex eyes a string of OPEC meetings and corresponding sources throughout the session. The complex saw a bout of upside as sources suggested that the OPEC+ deal will likely include a monthly oil output increase of less than 500k BPD vs the median expectations of 500k in August – with reports adding that an ease of around 2mln BPD is being discussed between August and December. Price action is likely to be dictated by OPEC developments today in the absence of any macro shocks. WTI and Brent now reside at session highs just off USD 75/bbl (73.39-74.94/bbl range) and USD 76/bbl (74.55-76.03 range) respectively at the time of writing. As a reminder, the OPEC, JMMC, and OPEC+ meetings are all slated for Thursday at 12:00BST/07:00EDT, 15:30BST/10:30EDT and 17:00BST/12:00EDT respectively, although delays can be expected. Elsewhere, spot gold and silver drift higher but remain within recent ranges awaiting the US labour market report tomorrow, with the former on either side of USD 1,775 (1,765-79 range) whilst spot silver inches higher above USD 26/oz. Turning to base metals, LME copper has clambered off worst levels in tandem with the risk tone, but in the grander scheme, prices remain around recent lows. Meanwhile, Chinese steel futures notched a seventh straight session of gains with traders citing supply woes and increased demand for manufacturing.

Saudi Arabia and Russia have agreed on a preliminary deal regarding raising oil output, according to sources; OPEC+ deal is likely to include a monthly oil output increase of less than 0.5mln BPD until December-2021. (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)