• Asian equity markets traded tentatively ahead of this week's risk events and as participants digested a slowdown in Chinese Caixin PMI data
• In FX, the DXY has nursed post-NFP losses, EUR/USD trades north of 1.1850 and GBP/USD remains on a 1.38 handle
• UAE rejected a proposal to extend the deal and increase production as it seeks a review of baseline production levels
• Saudi has rejected calls by the UAE to take an immediate decision regarding August output and revisit the extension of the deal at future meetings
• Looking ahead, highlights include EZ, UK final PMIs, ECB's Lagarde, de Guindos. US markets will be observing Independence Day
• The desk will shut at 18:00BST/13:00EDT. The service will resume on Monday 5th July for the beginning of Asia-Pac coverage at 22:00BST/17:00EDT

CORONAVIRUS UPDATE

NIH’s Dr Fauci said he does not expect another nationwide spike of COVID-19 cases due to the Delta variant as a “substantial proportion” of the population has been vaccinated. (Newswires)

UK PM Johnson will announce plans to abandon many COVID-19 rules from July 19th which will make the wearing of masks voluntary in public places including shops, hospitality, and public transport. Furthermore, QR codes will no longer be required to enter establishments such as pubs, bars and restaurants. (The Times)

UK Housing Minister Jenrick said England will move into a period without legal restrictions where the public will have to exercise "personal responsibility" including the wearing of face masks. There were also separate reports that leading UK doctors urged the government to keep some COVID-19 pandemic restrictions in place in England, while a poll showed less than two-thirds of office staff in the UK are expected to return to the workplace when COVID-19 restrictions are removed. (Newswires/BBC/Telegraph)

A senior South Korean official warned that COVID-19 is spreading at menacing speed amid a faster rate of spread for the Delta variant, while everyone including those who have been vaccinated will be required to wear masks in Seoul and the metropolitan area. In relevant news, South Korea said it is in talks with MRNA vaccine producers including Pfizer (PFE) and Moderna (MRNA) to produce COVID-19 shots, adds it is ready to offer capacity of up to 1bln doses immediately with Hanmi (128940 KS) and Quratis having the capacity for production. (Newswires)

India’s Bharat Biotech concluded final analysis for COVAXIN efficacy from Phase 3 trials in which the vaccine demonstrated a 77.8% effective rate against symptomatic COVID-19 and was 93.4% effective against severe symptomatic COVID-19. Furthermore, the data showed COVAXIN was 63.6% effective in protecting against asymptomatic cases and showed 65.2% protection against the Delta variant. (Newswires)

ASIA

Asian equity markets traded tentatively ahead of this week's risk events and as participants digested a slowdown in Chinese Caixin PMI data, as well as a fresh Beijing tech crackdown including on Didi, while US equity futures also retraced some of their post-NFP gains with Wall Street to remain closed for the Independence Day holiday. ASX 200 (+0.1%) was kept afloat by strength in industrials and the commodity-related sectors, with Sydney Airport the biggest gaining stock after surging about 30% due to a buyout offer valued over AUD 22bln, although gains in the index were capped following mixed data from Australia and as further virus cases in New South Wales stoked fears of a lockdown extension in Sydney. Nikkei 225 (-0.5%) was pressured by the recent flows into the currency and with SoftBank shares hit due to its exposure to Didi in which it is the largest shareholder in with around a 20% stake, while the Tokyo Metropolitan Assembly elections results were a glum affair for PM Suga’s LDP as although the party won more seats than previous, it failed alongside ruling-coalition partner Komeito to achieve a majority. Hang Seng (-0.2%) and Shanghai Comp. (+0.2%) were choppy after Chinese Caixin Services and Composite PMI data printed its lowest since April 2020, and with risk appetite also constrained by China’s renewed crackdown on tech including the country’s largest ride-hailing app Didi which was removed from smartphone app stores due to concerns of illegal collection of user data and in turn, pressured shareholder Tencent. Chinese regulators also recently issued revised rules that will punish e-commerce platforms for charging variable prices based on customer purchase habits and began internet security probes into 3 different companies. Finally, 10yr JGBs were higher after they tracked last week’s advance in T-notes following the US jobs and earnings data, although JGBs are off their best levels after prices marginally retraced back towards the 152.00 focal point and amid the lack of BoJ purchases in the market today.

PBoC injected CNY 10bln via 7-day reverse repos with rate at 2.20% for a CNY 20bln net daily drain. (Newswires) PBoC set USD/CNY mid-point at 6.4695 vs exp. 6.4705 (prev. 6.4712)

• Chinese Caixin Services PMI (Jun) 50.3 (Prev. 55.1)
• Chinese Caixin Composite PMI (Jun) 50.6 (Prev. 53.8)

Chinese President Xi is expected to conduct a video call this week with German Chancellor Merkel and French President Macron, while the agenda of the talks is currently unknown but will occur amid recent cooling of relations due to trade and human rights, according to reports citing sources with knowledge of the matter. (Newswires)

Didi announced its app was taken down in China after the Cyberspace Administration of China ordered the removal from smartphone app stores due to concerns of Didi’s illegal collection of user data, while Didi said existing users that had previously downloaded and installed the app will still be able to use the app and that it will strive to rectify any problems, as well as improve risk prevention awareness. There were also reports that China is beginning internet security probes into 3 different companies which are Zhipin.com, Houchebang and Yunmanman, while it also starts a cyber security review into cargo and hiring platforms. (Newswires)

UK/EU

UK Brexit Minister Frost called for EU leaders to engage in “constructive and ambitious” discussions to resolve lingering Brexit frictions related to the Irish border, while Frost added that the situation regarding the Irish border was urgent. (Newswires/Irish Times) Irish PM called for the UK to “reciprocate the generosity of spirit” shown by EU leaders regarding the Northern Ireland protocol after they extended the grace period allowing chilled meats to be shipped to NI from Britain. There were also comments from DUP leader Donaldson that Northern Ireland risks losing out on economic opportunities because of the Brexit border in the Irish Sea. (Guardian/Sky News)

UK’s move to defend producers in the steel industry by extending tariffs on steel products is reportedly at risk of a challenge at the WTO. (FT)

UK MPs are calling for new legislation for greater transparency on profits from public contracts and compel firms that profit from public contracts to publish accounts following recent procurement scandals. (FT)

ECB’s Schnabel said it is “necessary and proportionate” that inflation overshoots the institution’s goal for a while as the economy recovers. (Newswires)

ECB’s Knot warned that policy makers could be underestimating the potential for accelerating inflation to become entrenched and stated that emergency monetary stimulus should end around March next year. (Newswires)

French Finance Minister Le Maire intends to push for a permanent mechanism on joint-debt issuance in the EU to spur investment in innovation and projects that countries cannot finance alone, although it was later reported that German Economy Minister Altmaier poured cold water on a French proposal to give the EU a lasting tool to raise common debt and stated that it will take some years to spend the EUR 750bln debt they currently have. (Newswires)

France’s far-right National Rally has re-elected Marine Le Pan as its head for a 4th term. (Anadolu Agency)

Chancellor Merkel’s CDU/CSU bloc widened its lead to 10 percentage points with support for the ruling coalition at 28% (prev. 28%), while support for the Greens was at 18% (prev. 19%). (Newswires)

FX

In FX markets, the DXY nursed some of Friday’s post-NFP losses whereby the greenback was pressured heading into the extended weekend. Nonetheless, the USD selling has since dissipated with US participants away on Monday for the Independence Day holiday. In terms of Fed speak, Daly suggested it is appropriate to consider tapering later this year or early 2022 and that the Fed can withdraw a little bit of accommodation as the economy functions more and more on its own. EUR/USD marginally pulled back as the USD recouped some lost ground with the single currency reverting towards the 1.1850 level amid recent commentary from central bank officials including ECB’s Schnabel who noted it is “necessary and proportionate” that inflation overshoots the institution’s goal for a while as the economy recovers, while ECB’s Knot warned that policy makers could be underestimating the potential for accelerating inflation to become entrenched and stated that emergency monetary stimulus should end around March next year. GBP/USD traded steadily after it reclaimed the 1.3800 status with participants looking ahead to UK PM Johnson who is expected to announce plans to abandon many COVID-19 rules from July 19th in which mask wearing will become voluntary in public places including shops, hospitality and public transport, although leading UK doctors were said to have urged the government to keep some COVID-19 pandemic restrictions in place for England. USD/JPY was subdued but found a base near 111.00 and antipodeans were tentative following the softer Chinese PMI figures and mixed data from Australia in which stronger than forecast Retail Sales offset the contraction in Building Approvals, with participants also awaiting tomorrow’s RBA rate decision and announcement regarding bond purchases.

• Australian Building Approvals (May) -7.1% vs. Exp. -5.0% (Prev. -8.6%, Rev. -5.7%)
• Australian Retail Sales MM Final (May) 0.4% vs. Exp. 0.1% (Prev. 0.1%)

GLOBAL NEWS

Brazil’s Supreme Court Justice Rosa Weber authorized the start of a probe into President Bolsonaro for potential negligence in handling of corruption allegations related to vaccine purchases from India. (Newswires)

NHC stated that Tropical Storm Elsa is located 15 miles west of Cabo Cruz, Cuba with maximum sustained winds of 60mph, while it previously had announced that NHC Tropical Storm Elsa strengthened to a hurricane and it that it forecasts Elsa to make landfall in Florida on Monday. (Newswires)

Philippines reported a military plane carrying around 90 people crashed which killed at least 45 people, while 40 were reported to have been rescued. (Newswires)

A magnitude 6.0 earthquake hit offshore Atacama, Chile on Saturday. (Newswires)

COMMODITIES

Commodity prices were mixed with crude prices contained around the USD 75.00/bbl level as participants await today's resumption of the extended OPEC+ meeting where a further easing of output cuts and extension of the deal hangs in the balance amid an impasse after UAE rejected a proposal to extend the deal and increase production as it seeks a review of baseline production levels, while it instead suggested to take an immediate decision regarding August output and revisit the extension of the deal at future meetings. Furthermore, the Saudi Energy has made it clear that they cannot agree to UAE’s demand which will set a precedent and that if there is no deal, then there will be no output hike in August, while reports have suggested that if the standoff persists, it could lead to a breakdown of the alliance which could trigger a return to the price war. Gold was flat amid a steady greenback and extended weekend stateside, with participants also looking ahead to this week's key events including the FOMC Minutes, while copper saw mild gains alongside gains in Dalian iron ore futures and reports that China's largest steel making city of Tangshan began implementing a 30% output cut with the reduction expected to remain for the rest of the year.

Baker Hughes US Rig Count (w/e July 2nd): Oil +4 at 376, Nat gas +1 at 99, Total +5 at 475. (Newswires)

Saudi Energy Minister said that the Saudi-Russian proposal for an extension of the deal and increase in production was accepted by all apart from the UAE and stated that there should be an increase of production to meet the expected decline in oil during the summer. He also questioned why other countries did not issue their concerns previously if they had reservations and stated that he is neither optimistic nor pessimistic about the next OPEC+ meeting. Saudi Energy Minister stated that no country can use a single month as a baseline output reference and that increasing output by 400k bpd a month is not enough to end output cuts by April next year, while he noted that they are facing several uncertainties such as COVID-19 and spread of the Delta variant, as well as uncertainties such as lack of visibility regarding Iran and Venezuela output. Furthermore, he stated that a little compromise and rationality can make Monday’s meeting successful, but added they cannot agree to UAE’s demand which will set a precedent and that if there is no deal, then there will be no output hike in August. (Newswires/Twitter)

UAE stated that the global oil market needs higher output and that it supports increased production from August to December without conditions although it considers OPEC+ proposal to link increased production to an extension of the current agreement to December next year as unfair to the UAE. Furthermore, it demands a review of the baseline production level to ensure fair distribution of quotas, while it suggested to take an immediate decision to increase output from August to the expiry of the current agreement but postpone the decision regarding extending the output deal to another meeting. (Newswires)

Iraq’s Oil Minister stated Iraq supports extending the output deal to December 2022 and agrees with easing OPEC+ production cuts by 400k bpd from August, as well as expects oil prices to remain no less than USD 70/bbl through to December 2022 and added that the expected OPEC+ agreement on Monday will help support oil market stability which will serve both producers and consumers. Furthermore, he stated that BP (BP/ LN) was considering exiting from Iraq and that Lukoil sent formal notification that it wants to sell its stake in West Qurna-2 to the Chinese, while he added that the investment environment in Iraq is unsuitable to retain major investors. (Newswires)

Iran's Oil Minister Zanganeh stated that it won't be difficult to regain market share and that Iranian output can be raised easily to 6mln bpd, while he also suggested that the restoration of Iranian supply will have no impact on the market. In relevant news, delegates stated that Zanganeh made a strong statement at the meeting last week whereby he noted that OPEC+ short- and medium-term decisions regarding production will not impact Iran’s plan for a full return to the market. (Twitter)

OPEC+ meeting was extended into Monday and reportedly may only seek an agreement on raising output from August to December on Friday, not an extension, according to OPEC+ sources. UAE agreed to easing of oil cuts but stated an extension is conditional to revising its baseline production, while other sources noted the UAE was sticking to its position not to support the extension of the declaration of cooperation and had agreed with a one-month delay in making the decision although Russia opposed the suggested delay. (Newswires/Twitter/Energy Intel)

White House stated they are concerned about the impact of high oil prices on American consumers and noted there is enough spare oil production capacity globally. (Newswires)

A report noted that central banks may be regaining their appetite for purchasing gold after being sidelined for the past year. (Newswires)

Chile's Codelco copper mine production rose 5.8% to 152,500 tonnes in May, compared to a fall of 0.5% to 132,700 tonnes in April, according to Cochilco. Furthermore, BHP's Escondida copper mine production fell 9.2% to 84,800 tonnes in May, compared to a fall of 16.5% to 85,700 in April, while Chile's Collahuasi copper mine production fell 3.7% to 57,900 tonnes in May, compared to a rise of 5.4% to 57,000 tonnes in April. (Newswires)

China's largest steel making city of Tangshan reportedly began implementing a 30% output cut with the reduction expected to remain for the rest of the year. (Newswires)

GEOPOLITICAL

US President Biden stated that he is not sure if the recent ransomware attack is Russian and that the US will respond if it is Russia, while he added that the initial thinking is that it was not Russia, but they are not sure. This follows reports that a Russia-linked hacking group compromised roughly 200 businesses in a large-scale ransomware attack, according to cybersecurity firm Huntress Labs Inc. (Newswires)

US are aware of reports that Belarus has closed its border with Ukraine and will continue to hold regime accountable, according to a senior administration official. (Newswires)

Russia’s Kremlin stated that provocations such as the recent UK warship illegally entering territorial waters near Crimea is the type of provocations that will elicit a tough response. (Newswires)

US and South Korea agree to conduct joint military drills in August. (Newswires)

A rocket attack was reported at a US base in Al-Omar field in eastern Syria, although no casualties were reported. (ELINT News)

A cargo ship, which was up until very recently owned by an Israeli businessman, has been hit by a missile in the Indian Ocean; the ship was able to continue its journey and officials are working to determine if Iran was involved. (Times)

US

Treasuries were well bid today, led by the belly, after a solid headline NFP was overcast by some of the internals. By settlement, 2s -1.9bps at 0.238%, 3s -2.8bps at 0.443%, 5s -4.3bps at 0.859%, 7s -5.1bps at 1.194%, 10s -4.9bps at 1.431%, 20s -4.0bps at 1.979%, 30s -4.1bps at 2.045%; aside from the NFP period, TYU1 volumes were light on the day. 5yr TIPS -3.6bps at -1.674%, 10yr TIPS -2.3bps at -0.915%, 30yr TIPS -1.6bps at -0.217%. SOFR unchanged at 5bps; EFFR rises back to 10bps after month-end passes. The strength saw T-Notes come into today's NFP at the 132-16 handle, with cash 10s just beneath 1.45%. The beat on the headline at +850k jobs added saw knee-jerk sales of bonds, seeing T-Notes hit lows of the session at the 132-08 area and cash 10s peaking at 1.47%, only to reverse in the other direction shortly after. There was some concern over the internals, i.e. the surprise rise in the unemployment figures, which were accompanied by declining wage growth concerns, driving T-Notes to a high of 132-23+ and cash 10s a low of 1.43% (lowest since June 21st) all within the half-hour of the data release, only to see yields move back to pre-release levels shortly after. However, as the day progressed, and attention gyrated to position squaring into the long weekend, yields started drifting lower again, closing at their lows. T-notes (U1) futures settled 13 ticks higher at 132-21+.

Fed’s Daly (2021, 2024) said that it is appropriate to consider tapering later this year or early 2022 and that the Fed can withdraw a little bit of its accommodation as the economy functions more and more on its own, while she added that they are still not close to the full employment goal and will likely be missing on inflation, as well as price stability goals going forward. (Newswires)

Carnival Cruise (CCL) began its first cruise from the US with Carnival Vista sailing from Galveston on Sunday afternoon, while Carnival Horizon begins sailing from Miami. (Newswires)