• European bourses began the session indecisive but have since dipped as broad risk sentiment slips, Euro Stoxx 50 -0.3%, ES -0.3%, RTY -0.8%
• The DXY remains bid to the detriment of peers with high-betas suffering on COVID-19 concerns and crumbling commodities while USTs climb ahead of US supply
• ECB's Lagarde said she sees a July policy change and that there will be a forward guidance review at the July meeting, while she sees possible measures for 2022 and noted that PEPP may be followed by a transition to a new format
• China's military stated that a US warship unlawfully entered the Paracel Islands in the South China Sea
• Looking ahead, highlights include the ECB Asset Purchases, Fed’s Williams, Kashkari and US supply

CORONAVIRUS UPDATE

European Commission President Von der Leyen said that they have delivered enough vaccine doses to member states to be in a position to fully vaccinate 70% of the EU adult population. (Newswires)

UK is reportedly to reduce the gap between taking the first and second doses of COVID-19 vaccines to 4 weeks from the current 8 weeks and is reportedly planning to require COVID-19 passports for customers to enter bars, restaurants and nightclubs under plans to tackle a fourth wave of the virus and which experts hope will boost jab rates among the young. (The Times/Sky News). UK Vaccines Minister Zahawi suggested the government will issue guidance on Monday that people are still "expected" to wear face masks in indoor and enclosed spaces after the legal requirement for wearing masks ends on July 19th. Furthermore, he said he was puzzled where the story came from when asked about if the gap for second doses will be cut and stated that the eight-week interval protection is better than reducing it, while there were also comments from national statistician Diamond that there are big increases in the number for the north-east of the country. (Newswires)

Sydney is bracing for a longer and stricter lockdown after continued increases in COVID-19 cases, while the New South Wales Premier stated things are going to get worse before they get better and it was also reported that the Australia-Singapore travel bubble was delayed until at least year-end, according to the Australian Trade Minister. (Newswires)

South African President Ramaphosa said the Cabinet decided to maintain an adjusted alert level 4 for an additional 14 days but noted restaurants will be permitted to operate under strict protocols, while he added the advisory committee is working on how soon the Sinovac (SVA) vaccine could be included in the vaccination programme. (Newswires)

TSMC (2330 TT) said it is in the middle of a contract signing process to acquire COVID-19 vaccine doses from BioNTech (BNTX). (Newswires)

ASIA

Asia-Pac stocks began the week on the front foot as they followed suit to last Friday’s gains across global counterparts including the cyclical-led advances on Wall St where the major indices posted fresh record closes, with the regional bourses taking their first opportunity to react to the PBoC’s surprise RRR cut. The ASX 200 (+0.8%) traded higher with outperformance in the mining-related sectors frontrunning the advances for the index but with upside capped by losses in consumer stocks and with Australia’s most populous city of Sydney bracing for a longer and stricter lockdown after a further increase of COVID-19 infections which the New South Wales Premier suggested were going to get worse before they get better. The Nikkei 225 (+2.3%) was the biggest gainer with the index encouraged by recent outflows from the JPY and better-than-expected Machinery Orders that printed at its highest since October, while the KOSPI (+0.9%) benefitted from early trade figures including a continuation of the double-digit growth in Exports during the first 10 days of July. Hang Seng (+0.6%) and Shanghai Comp. (+0.7%) conformed to the positive mood after the recent 50bps RRR cut by the PBoC effective from July 15th which will release around CNY 1tln of long-term liquidity and with the latest Chinese financing data also adding to the encouragement, although tensions lingered in the background after the US recently blacklisted 34 companies including 14 that were related to China's ongoing campaign of repression against Muslim minority groups, which China’s Mofcom criticized as unreasonable suppression and vowed to take necessary measures to protect China’s rights and interests. Finally, 10yr JGBs were subdued following the recent bear-steepening in USTs, with demand sapped by the outperformance in Japanese stocks and absence of BoJ purchases in the market today.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4785 vs exp. 6.4739 (prev. 6.4755)

US confirmed it blacklisted 34 companies on Friday in which 14 of them were related to China's ongoing campaign of repression against Muslim minority groups. China’s Mofcom stated the US inclusion of Chinese companies to its entity list is unreasonable suppression and a serious breach of international economic and trade rules, while it will take necessary measures to protect China’s rights and interests. (Newswires)

China’s Cyberspace Administration stated any company that holds data of more than 1mln Chinese users must provide a safety review prior to listing in the US. (Newswires)

South Korean July 1st-10th Trade Balance at provisional deficit of USD 3.9bln, while Exports rose 14.1% Y/Y and Imports rose 33.3% Y/Y. (Newswires)

Japan's government raised its assessment of machinery orders which it said is showing signs of a pick up, while it was also stated that core machinery orders rose the most M/M increase since October although the recovery in orders from non-manufacturers may take more time. (Newswires)

BoJ will purchase green bonds as part of measures to manage foreign currencies, according to Jiji without citing sources. (Newswires)

• Japanese Machinery Orders MM (May) 7.8% vs. Exp. 2.6% (Prev. 0.6%)
• Japanese Machinery Orders YY (May) 12.2% vs. Exp. 6.3% (Prev. 6.5%)

G20

G20 Ministers agreed on a minimum corporate tax of at least 15% and the agreement also establishes new tax rules for multinationals which will be partly based on where they sell their goods and services instead of location of their headquarters. Elsewhere, the EU is reportedly to delay plans for a digital levy until the Autumn following pressure from US Treasury Secretary Yellen, according to sources Subsequently confirmed. (Newswires/FT)

Italy’s G20 Presidency stated that additional work is necessary on a global tax deal and that they should avoid rolling out new pandemic related restrictions, while he added that new variants are increasing uncertainty and is what they should concentrate on. (Newswires)

US Treasury Secretary Yellen said the global tax deal will raise revenues for governments for necessary investments and stated that the world should proceed quickly to finalize the global tax deal. Yellen also stated that G20 made good progress on tackling climate change and helping poor nations regarding COVID-19 vaccine rollouts, while she also commented and that multilateral cooperation can make US more competitive in the global economy. (Newswires)

BoJ Governor Kuroda stated that the new tax deal is very important as it overhauls global tax rules which have been in place for a century and he told G20 that policymakers must take further action for financial stability, while Japanese Finance Minister Aso said Japan had called for a new global tax agreement for almost 9 years and noted there wasn’t substantial discussions at the G20 around carbon pricing with the agreement likely to take quite a long time. (Newswires)

US

Fed’s Quarles (voter) stated that the Financial Stability Board is taking a critical role in coordinating the global approach to climate-related financial risks and the FSB’s climate blueprint is to establish a global disclosure standard and improve data quality. (Newswires)

Fed's Barkin (2021, 2024 voter) says the labour market has not healed enough to taper QE; he would like to see the employment-to-population ratio just north of 59% (vs 58% in June 2021 vs 61.1% in Feb 2020) before he believes it is time to taper QE. Inflation has risen more than expected, gains are likely temporary; could cool more than expected. (WSJ)

Virgin Galactic (SPCE) successfully completed a first fully crewed space flight which reached space at an altitude of 53.5miles before gliding to a runway landing at Spaceport America. (Newswires)

UK/EU

UK Trade Minister Truss is to meet with US Trade Representative Tai during her five-day visit to the US. (Newswires) However, sources suggest that a deal with the US before 2023 is unlikely and the UK Trade Minister was now "playing the long game" with this visit. (Telegraph)

UK is considering short-term visas to address a shortage of lorry drivers. (Telegraph)

ECB's Lagarde said she sees a July policy change and that there will be a forward guidance review at the July meeting, while she sees possible measures for 2022 and noted that PEPP may be followed by a transition to a new format. (Newswires)

ECB’s Schnabel stated she does not expect to see excessively high inflation and that current higher inflation is transitory. Schnabel added that the increase in the inflation target is minimal and that people should not fear higher inflation. (Newswires)

ECB’s Villeroy stated the ECB has time to adapt monetary policy in approaching meetings and that strategy is long-term but can be adapted, while he also suggested that they need to distance themselves from the idea that the inflation target is a ceiling. (Newswires)

ECB's de Guindos says the ECB sees the risks to growth as broadly balance, but the ECB should not be complacent amid the spread of the COVID variants; inflation risks are tilted to the upside and ECB expects inflation to rise until year-end. (Newswires)

European Commission is yet to conclude the assessment of the Hungarian Recovery Plan; should our assessment require months rather than days we will propose a deadline extension. (Newswires)

GEOPOLITICAL

China's military stated that a US warship unlawfully entered the Paracel Islands in the South China Sea. (Newswires)

EQUITIES

The European equity space kicked off the new trading week in somewhat of a mixed/directionless fashion (Euro Stoxx 50 -0.4%), with a slight downward bias materialising since the cash open. US equity futures also vary but the NQ (+0.1%) narrowly outperforms its ES (-0.2%), YM (-0.3%) and RTY (-0.5%) counterparts. Volumes in the morning are unsurprisingly anemic after the Euro 2020 final, whilst news flow is also sparse. That being said, the rest of the week is packed with risk events – the focus from a macro standpoint will primarily fall on China's Trade and GDP, and US CPI and Retail Sales, whilst several ECB and Fed speakers also slated for the week including a double dose of Fed Chair Powell. Meanwhile, earnings season is about to kick off again this week seeing updates from Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, and Wells Fargo, alongside chip giant TSMC. Back to Europe, sectors paint a more defensive picture as Healthcare, Utilities and Staples reside as the outperformers. Banks and Basic resources trade on the other side of the spectrum amid declines in yields and base metals respectively. Travel & Leisure meanwhile underperforms as the spread of the COVID delta variant prompts some economies to reconsider some more stringent restrictions. Furthermore, the European Commission is set to propose an overhaul of carbon/fuel tax, whilst it will provide incentives for low-emission fuels and propose levies on heavily polluting energy in airlines. In terms of individual movers, Daily Mail and General (+0.6%) almost totally retraced the 10% gains seen at the cash open despite reports suggesting that the Rothermere family is considering taking the Daily Mail private in a deal that could value the newspaper group at GBP 810mln. Admiral Group (+4.2%) are among the winners following a guidance upgrade. Tate & Lyle (+1.8%) are firmer after proposing a sale of a controlling stake in their primary products unit. On the other end, ATOS (-17%) shares slumped as it issued a profit warning after it booked negative organic growth during the second quarter.

FX

USD - The Dollar looks a bit more settled after its relatively abrupt and sharp decline towards the tail end of last week when FOMC minutes and US data prompted a pull back from midweek peaks, with the index holding above the 92.000 level and the Greenback firmer against most majors ahead of Fed commentary via Williams and Kashkari plus 2 slugs of US Treasury supply that may result in some concession in yields and curve re-steepening after recent pronounced bull-flattening.

NZD/CAD/AUD/GBP - All on the back foot vs the Buck, and the Kiwi undermined by a slowdown in NZ electronic card sales rather than mixed RNBZ vibes as NZIER’s shadow board expects the Bank to begin tightening within 12 months, but Kiwi Bank suggest that a November hike seems premature. Nzd/Usd is back below 0.7000 as a result and the Loonie has handed back modest post-Canadian jobs data gains on the back of a retreat in oil prices with Usd/Cad hovering just below 1.2500 vs sub-1.2450 at one stage. Back down under, the Aussie remains subdued beneath 0.7500 as Sydney braces for a longer and stricter lockdown due to increases in COVID-19 cases, while the New South Wales Premier warned that the situation is going to get worse before improving and the Australia-Singapore travel bubble will reportedly be delayed until the end of 2021 at the earliest, according to Australia’s Trade Minister. Elsewhere, Sterling is subdued after England’s defeat at the Euros with Cable towards the base of a 1.3910-1.3856 range and Eur/Gbp pivoting 0.8550 ahead of UK inflation and jobs data on Wednesday and Thursday respectively.

JPY/EUR/CHF - The Yen continues to outperform or hold up better than its G10 counterparts and significantly stronger than forecast Japanese machinery orders could well be a factor as Usd/Jpy retreats from around 110.28 towards 110.00 where circa 1.2 bn option expiry interest resides. Meanwhile, the Euro is hovering between 1.1850-1.1900 and awaiting this month’s ECB policy meeting with anticipation after President Lagarde and GC member de Guindos both signalled that there will be a change in guidance, and the Franc is tightly bound around 0.9150 following a fairly big rise in Swiss domestic bank sight deposits in the latest reporting week.

SCANDI/EM - Hawkish-leaning Riksbank minutes have not given the Swedish Crown any real impetus as Eur/Sek straddles 10.2000, while the aforementioned retracement in crude is weighing on the Nok either side of 10.3300 and the Zar is underperforming on the back of a higher pandemic alert status and extended lockdown in SA as it languishes near 14.4000 vs the Usd.

Notable FX Expiries, NY Cut:

• USD/JPY 109.00 (500M), 109.45-50 (430M), 110.00 (1.16BLN)
• USD/CAD 1.2400 (500M), 1.2500-05 (835M), 1.2525 (1.18BLN), 1.2575 (500M)

NZIER Shadow Board sees the RBNZ to tighten policy within the next year citing a pick up in inflation pressures for New Zealand, while there were also comments from Kiwi Bank that a November rate hike from the RBNZ seems premature. (Newswires)

Riksbank Minutes: several members noted that inflation is expected to be somewhat above target at the end of the forecast period, but this is not an argument for policy to be less expansionary; a few members discussed a rate path that could indicate a rate rise at the end of the forecast period. (Riksbank)

South Africa’s Eskom announced that they temporarily paused services in areas impacted by community protests for the safety of employees and contractors. (Newswires)

FIXED

It’s been gradual and quite measured, but debt futures have regained composure across the board, with Bunds and Gilts both reclaiming round number+ status between 173.91-174.32 and 128.76-129.14 respective parameters, while US Treasuries a closer to overnight peaks than troughs and the curve is flatter ahead of more Fed speakers via Williams and Kashkari plus front-loaded issuance in the form of Usd 58 bn 3 year and Usd 38 bn 10 year notes.

COMMODITIES

WTI and Brent front month futures have seen losses exacerbate in recent trade despite a lack of fresh fundamental news flow to trigger the price action, although technical factors and low volumes could be attributed to some of the downside experienced across the complex. The former now resides under the USD 73.50/bbl mark (vs high 74.93/bbl) whilst the latter trades sub-USD 74.50/bbl (vs high USD 75.84/bbl). The morning has seen a joint Saudi-Omani statement which in essence signalled that the two countries will abide by OPEC decisions. However, eyes remain on the UAE as reports last week floated the idea of a unilateral increase by the kingdom, in turn sparking fears of an OPEC breakdown Furthermore, the delta variant has put a spanner in the works in terms of the pace of crude recovery as some economies reconsider some targeted measures to stem outbreaks. Elsewhere, spot gold and silver are subdued due to the Dollar but remain within tight ranges on either side of USD 1,800/oz and USD 26/oz respectively as precious metals await this week’s risk events. Precious metals meanwhile are on the backfoot with LME copper struggling to hold above USD 9,500/t in the run-up to the Chinese GDP figures – with some doubts raised regarding the nation’s rate of growth which could’ve led to the RRR cut. However, Chinese officials have suggested that the increasing monetary supply is likely to help small companies to absorb the upstream inflation in commodity prices.

Saudi Arabia will supply full contract volumes of August-loading crude oil to at least five Asian buyers but rejected requests for extra barrels from at least two buyers, according to sources. (Newswires)

Iran sets its August Iranian light crude price to Asia at Oman/Dubai +USD 0.80/bbl from July, according to sources; Iraq sets its August Basra light crude price to Asia at Oman/Dubai +USD 0.80/bbl from July, according to a pricing document. (Newswires)

Saudi-Oman statement says there is a emphasis on the need to continue cooperation in order to support oil markets, AJ Breaking. (Twitter)