• Asian equity markets traded indecisively in the absence of a lead from Wall St
• RBA kept rates unchanged and extended bond purchases at a lower rate through to mid-November
• UK PM Johnson announced the removal of COVID-19 restrictions which will allow the reopening of all remaining businesses from July 19th
• In FX, DXY was subdued but maintained 92.00 status, EUR/USD and GBP/USD eye 1.19 and 1.39 respectively
• The OPEC+ meeting was cancelled with no new date set. As such, current quota levels will be maintained
• Looking ahead, highlights include EZ & UK Construction PMI, German ZEW, US Final Services & Composite PMI, ISM Services PMI, ECB's de Cos, de Guindos, supply from the UK & Germany

CORONAVIRUS UPDATE

UK PM Johnson said he sees a strong UK recovery and stated that the government is no longer telling people to work from home, while he suggested the government will have to take steps to protect the public if another variant is discovered that does not respond to vaccines. Furthermore, UK PM Johnson said the government plans to reopen all remaining businesses including nightclubs from July 19th without restrictions on capacity, while Health Secretary Javid also stated that they will remove legal requirements on how businesses operate. (Newswires/Sky News)

UK Chief Medical Adviser Whitty said the Delta variant’s increase transmissibility is against us and responded that winter will be tricky when asked about more restrictions in winter, while he also stated that he would wear a mask in any crowded situation indoors. (Newswires)

Germany lifted its ban on travellers from UK, Portugal, Russia, India and Nepal with the countries to now be considered as high-incidence areas instead of virus variant areas, according to the health agency. (Newswires)

Israeli study found the Pfizer vaccine to be less effective against the Delta variant with only a 64% chance of halting the infection for those fully vaccinated vs. estimated 94% efficacy against prior strains. (FT)

Brazilian President’s Office announced an extension of emergency COVID-19 cash transfers for three months, while Economy Minister Guedes stated that the Health Minister expects the pandemic will be brought under control during those three months. (Newswires)

ASIA

Asian equity markets traded indecisively as the region lacked conviction ahead of this week’s looming central bank events and in the absence of a lead from Wall St where markets were closed for the Independence Day weekend. ASX 200 (-0.2%) was initially kept afloat by strength in energy as oil prices rose to fresh cyclical highs after the cancellation of the OPEC+ meeting with no new date set and which means that the current quota levels will stand, although gains were later reversed amid cautiousness heading into the RBA policy decision where the central bank kept rates unchanged and extended bond purchases at a lower rate through to mid-November when it will then conduct a further review. Nikkei 225 (+0.3%) eked marginal gains after better-than-expected Household Spending data and with Labour Cash Earnings at its largest gain in three years, but with upside restricted by a mixed currency, as well as COVID-19 concerns which threaten an extension of the quasi-restrictions in Tokyo and with the opening ceremony of the Olympics reportedly to be held without spectators. Hang Seng (-0.5%) and Shanghai Comp. (-0.7%) were subdued as concerns regarding China’s fresh tech crackdown persisted and with calls by the PBoC for banks to provide additional credit supply for SMEs doing little to spur risk appetite, although there were some success stories with oil names mostly helped by the gains in underlying energy prices and with Suning.com surging by the daily limit after it received a bailout from a consortium including a state fund and Alibaba. Finally, 10yr JGBs traded lower amid a similar lacklustre picture in T-note futures and after a slip beneath the psychologically key 152.00 level, while support from the firmer results at the 30yr JGB auction was only brief with price action not helped by increased corporate supply as Nomura, Mizuho and Xiaomi plan USD-denominated bond offerings.

PBoC injected CNY 10bln via 7-day reverse repos with rate at 2.20% for a net daily drain of CNY 20bln. (Newswires) PBoC set USD/CNY mid-point at 6.4613 vs exp. 6.4627 (prev. 6.4695)

China’s cybersecurity watchdog had previously suggested that Didi (DIDI) delay its IPO which took place last week and urged for it to conduct a thorough assessment of its network security, according to sources with knowledge of the matter. (WSJ)

• Japanese All Household Spending MM (May) -2.1% vs. Exp. -3.7% (Prev. 0.1%)
• Japanese All Household Spending YY (May) 11.6% vs. Exp. 10.9% (Prev. 13.0%)
• Japanese Average Labor Cash Earnings YY (May) 1.9% vs. Exp. 2.1% (Prev. 1.6%); highest since June 2018.
• Japanese Overtime Pay YY (May) 20.7% (Prev. 6.4%, Rev. 5.4%); highest on record.

UK/EU

ECB’s De Guindos stated that the increase in Euro area inflation is transitory and that they must make sure the inflation spike isn’t permanent, while he also noted that they are monitoring potential second-round effects on prices and that non-bank finance is also required for the Euro zone’s revival. (Newswires)

ECB Supervisory Chief Enria said he does not want tighter bank capital buffers while the crisis is still impacting bank balance sheets and that banks should be cautious in releasing provisions. (Newswires)

The European Parliament is set to condemn Hungary over a "clear breach of the EU values, principles and law,” (re LGBTIQ+ issues) according to a draft resolution, to be debated on Wednesday. Additionally, the Parliament will invite EU nations to sue Hungary "should the Commission not act". (Politico)

FX

In FX markets, the DXY was subdued following the holiday lull although remained above the 92.00 level with price action somewhat contained ahead of the upcoming releases stateside including ISM Services PMI later today and the FOMC Minutes on Wednesday. EUR/USD retained a firm footing in 1.1800 territory but with gains in the single currency only marginal and following on from comments by ECB’s De Guindos that the increase in Euro area inflation is transitory and that they must make sure the inflation spike is not permanent. GBP/USD extended above 1.3850 after a breakout from yesterday’s range and the recent announcement by UK PM Johnson to remove COVID-19 restrictions which will allow the reopening of all remaining businesses including nightclubs from July 19th without restrictions on capacity. USD/JPY and JPY-crosses were mixed with the former dejected after it recently gave back the 111.00 status, while CAD held on to its oil-induced gains and after the BoC business outlook survey printed at a record high for Q2. Furthermore, antipodeans were underpinned with NZD/USD the outperformer after strong NZIER Business Survey data which spurred forecasts from both ASB Bank and BNZ for the RBNZ to hike the OCR in November this year. This boosted AUD/USD in sympathy although some of the gains were then pared following a choppy reaction to the RBA policy decision where the central bank maintained rates at the record low 0.10%, refrained from shifting to the November 2024 bond for its 3yr yield targeting which analysts would otherwise have taken as signal of no rate hikes until 2025, while the central bank extended bond purchases that will be conducted at a reduced weekly pace of AUD 4bln until mid-November but will review it again that month which can be viewed as a more flexible approach.

RBA maintained the Cash Rate Target and 3yr yield target unchanged at 0.10% as expected and announced it will retain the April 2024 bond for its 3yr yield target, while it plans a third round of bond purchases in which it will buy AUD 4bln per week (prev. 5bln) until at least mid-November and will conduct a further review in November which would allow the board to respond to the state of the economy at that time. RBA said the Board is committed to maintaining highly supportive monetary policy and will not raise the cash rate until inflation is sustainably within the 2%-3% target, while it added that it is unlikely that employment and inflation goals will be achieved before 2024 and will continue to purchase bonds as it remains a distance from goals. (Newswires)

ASB Bank forecasts the RBNZ to raise the OCR in November this year, while BNZ also forecasts the RBNZ to raise the OCR in November, citing the improvement in business survey data. (Newswires)

NZIER said inflation pressures are increasing and that 60% of financial services sector firms expect interest rates to increase during the coming year. (Newswires)

• New Zealand NZIER Confidence (Q2) 7.0% (Prev. -13.0%)
• New Zealand NZIER QSBO Capacity (Q2) 94.9% (Prev. 93.3%)

Turkish President Erdogan expects GDP to grow by over 20% in Q2 and annual growth of more than 5.8% this year. Erdogan stated that the CBRT is determined to solve the high inflation issue and needs to alleviate structural issues that spur inflation, while he also stated the government is developing policies to make TRY more attractive and the country’s corporate tax rate will be cut to 20% in 2023. (Newswires)

COMMODITIES

Commodities were higher across the board in which WTI crude futures led the upside and broke above the USD 76.00/bbl level to print a fresh cyclical high after the OPEC+ meeting was cancelled with no new date set and which means that current quota levels will be maintained. The breakdown of talks was seen as bullish as it forgoes the touted 400k bpd increase in August, although Citi have suggested that among the potential scenarios include outside chances in which OPEC+ breaks apart resulting to a tussle for market share but just sees a low probability of around 10% of this occurring. Gold prices notched mild gains amid the subdued greenback to test the USD 1800/oz level and copper was also extended on Monday's gains as it took impetus from the strength seen at reopen of Shanghai metals trade.

Iraq’s Oil Minister said they are committed to the agreement with OPEC+ and that what occurred on Monday were normal discussions and they think a solution will be reached soon, while he added that they do not want a price war, nor do they want prices to rise above current levels. Furthermore, Iraq’s Oil Minister stated they support an extension of the current agreement until the end of next year, as well as a gradual increase in production and hopes that in 10 days, there could be a date for the next meeting. (Newswires)

Iraqi PM advisor said any oil production increase must be cautious and coordinated, while the adviser warned that a new price war could develop if there is a lack of collaboration and understanding amongst OPEC producers. (Newswires)

UAE reportedly briefed that the meeting was postponed while Saudi and Russia consider UAE’s proposal, although Saudi and Russia are stating that the meeting has been cancelled and production will continue at current levels, according to FT energy correspondent Raval. (FT)

Oil and energy journalist Reza Zandi stated that the situation is fluid and that the group could reactivate discussions at any moment, while he added that with prices up around 50% this year, producers may feed additional pressure from consuming countries regarding rising inflation. (Twitter)

White House is reportedly keeping a close eye on the OPEC+ discussions and members of the Biden administration have urged OPEC+ to find a middle ground. (Newswires)

Mexico’s government transferred control of the country’s largest oil discoveries to state-owned PEMEX following months of deliberations. (Newswires)

GEOPOLITICAL

There was a drone attack next to the US Embassy in Baghdad, Iraq although Iraqi security sources stated that the drone was shot down near US Embassy in Baghdad, Iraq without causing any casualties. (Newswires)

Taliban will present the first written peace plan to Afghan government at talks as soon as next month, according to a spokesperson. (Newswires)

US

US markets were closed on Monday for Independence Day. (Newswires)