• Asian equity markets traded mostly lower; US equity futures were also subdued
• In FX, the DXY held on to most of the CPI-induced gains following a soft 30yr auction
• US Senate Democrats reached a USD 3.5tln budget deal for spending and tax plans
• The RBNZ kept its OCR unchanged but tilted more hawkish than was expected; NZD outperformed
• Looking ahead, highlights include UK CPI, BoC & CBRT Policy Decisions, Fed's Powell, Kashkari; ECB's Schnabel; BoE's Ramsden, supply from Germany
• Earnings from Bank of America, Blackrock, Citigroup, Delta, Wells Fargo

CORONAVIRUS UPDATE

US FDA approved an additional batch of the Johnson & Johnson (JNJ) US made COVID vaccine for use. (Newswires)

BioNTech (BNTX) CEO said expects a small decline in protection over time against severe disease regarding the COVID-19 vaccine. (Newswires)

Australia's New South Wales Premier announced to extend the Sydney lockdown for at least two more weeks to July 30th. (Newswires)

London is reportedly set to make wearing face masks compulsory on public transport despite removal of restrictions on Freedom Day, with London Mayor Khan reported to have asked Transport for London to require mask wearing. (Mirror)

ASIA

Asian equity markets traded mostly lower following the subdued performance across global counterparts as inflationary concerns were stoked in the aftermath of the firmer than expected US CPI. The ASX 200 (+0.1%) was kept afloat amid strength in the commodity-related sectors and just about shrugged off a two-week extension to the Sydney lockdown. Participants also digested the recent announcement of support measures for those impacted by the ongoing restrictions and with some encouragement from the improved Westpac Consumer Sentiment. Nikkei 225 (-0.3%) was lacklustre but with downside stemmed as exporters were kept tentative by an indecisive currency, while the KOSPI (-0.3%) continued to suffer from another record daily increase in COVID-19 cases and with South Korea to toughen social distancing for regions outside of greater Seoul. The Hang Seng (-0.6%) and Shanghai Comp. (-0.8%) were negative due to the ongoing frictions between the world's top two economies. Finally, 10yr JGBs were uneventful following the subdued mood for T-notes in the aftermath of the firmer-than-expected inflation data stateside and weak US 30yr auction, while JGBs prices also failed to benefit from the negative mood in stocks and the BoJ's Rinban announcement for nearly JPY 1.4tln of JGBs that was heavily concentrated in the 1yr-10yr maturities.

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 6.4806 vs exp. 6.4797 (prev. 6.4757)

US Secretary of State Blinken underscored the US rejection of China's unlawful maritime claims in the South China Sea and reiterated that the US stands with southeast Asian claimants in the face of China coercion, while he expressed deep concerns about the Myanmar military coup, according to the State Department. There were also separate comments from a senior US administration official that rule of law risks are now increasingly a concern in Hong Kong. (Newswires)

US Deputy Secretary of State Wendy Sherman will meet Chinese Vice Foreign Minister Xie Feng in Tianjin to discuss potential meeting between US Secretary of State Blinken and Chinese Foreign Minister Wang, citing sources. (SCMP)

• Singapore GDP QQ (Q2 A) -2.0% vs. Exp. -1.8% (Prev. 3.1%)
• Singapore GDP YY (Q2 A) 14.3% vs. Exp. 14.2% (Prev. 1.3%)

UK/EU

UK Treasury officials are examining private equity deals to see if they benefitted local regions, while it was separately reported that UK Business Secretary Kwarteng asked officials to monitor the proposed takeover of Vectura (VEC LN) by Philip Morris International (PM) after concerns were raised regarding the deal. (Times)

UK Trade Secretary Truss met with USTR Tai in which they agreed that the recent civil aircraft deal sets a platform for future challenges including China, according to a statement. (Newswires)

France reportedly wants EU governments to give the responsibility for overseeing cryptocurrencies to the pan-European markets watchdog, instead of national supervisors. (FT)

FX

In FX, the DXY held on to most of the CPI-induced gains, and the upside in yields following a soft 30yr auction also kept the Dollar underpinned overnight. EUR/USD remained beneath the 1.1800 handle after losing ground to the Dollar, and with the Single Currency not helped by recent comments from ECB's Centeno, who stated that there is more room to manoeuvre on policy than previously and that they must be careful when deciding to remove stimulus. GBP/USD languished following an aggressive retreat from 1.3900, although the pair has since found some reprieve from the selling pressure after support at 1.3800 held. USD/JPY and JPY-crosses were mixed whereby price action largely reflected their base currencies, while antipodeans traded higher with NZD/USD the outperformer after the hawkish RBNZ policy meeting where the central bank kept rates unchanged at 0.25% as expected, but announced to halt additional purchases under its LSAP programme from next Friday. This was also viewed as paving the way for a rate lift-off and subsequently resulted in money market rates fully pricing in a November hike, although ASB Bank and ANZ Bank have brought forward their calls for a hike to next month's meeting.

RBNZ kept the OCR unchanged at 0.25% as expected and agreed to reduce current stimulatory level of monetary settings with the bank to halt additional asset purchases under the LSAP programme by 23rd July. RBNZ stated that the level of monetary stimulus can now be reduced to minimise risk of not meeting objectives and stated that medium-term inflation and employment would likely remain below objectives but also commented that recent data indicates the domestic economy remains robust and that there will be near-term spikes in headline inflation for Q2 and Q3. Furthermore, the Committee agreed economic conditions since late last year have been persistently firmer than anticipated and that least regrets policy now implied the significant level of monetary support could be reduced sooner. (Newswires)

COMMODITIES

WTI crude futures retreated below the USD 75.00/bbl level with the energy complex not helped by the somewhat bearish private sector inventory data which showed a narrower than expected draw for crude and gasoline stockpiles, as well as a larger build in distillates. Spot gold marginally gained as the inflationary tailwinds were counterbalance by the recent USD strength and copper prices languished amid the broad subdued risk tone.

US Private Inventory Data (bbls): Crude -4.10mln (exp. -4.4mln), Cushing -1.6mln, Distillate +3.7mln (exp. +0.9mln), Gasoline -1.5mln (exp. -1.8mln). (Newswires)

South Africa's largest refinery has reportedly shut down due to the unrest. (Newswires)

GEOPOLITICAL

US DoJ said Iranian intelligence officials were indicted on kidnapping conspiracy charges. In other news, the State Department that noted there were active but indirect talks taking place with Iran on detainees. (Newswires)

Talk of mid-August Iran talks resumption is very speculative and no plans have been made for a new round yet, according to WSJ's Norman. (Twitter)

US

Treasuries were pressured and the curve had flattened following the surprise CPI upside, resulting in shorter-dated yields rising -- as traders bet that the data would compel the FOMC to hasten the pace of its policy normalisation -- although the long-end of the curve saw 30s yields remain sub-2.00% ahead of the 30yr Treasury auction. In wake of the CPI report, both the hawks and doves are able to frame the data as consistent with their views; however, analysts said that the data was unlikely to result in Fed chair Powell re-framing his inflation view that what we are seeing is transitory (indeed, this sentiment was expressed by SF Fed's Daly). A sloppy 30s auction saw a hefty tail of 2.4bps (vs six auction average of just 0.2bps) on weaker than average cover, while dealer takedown rose above recent averages, and the indirect bid (a proxy for foreign demand ahead of the investor class data) saw lower participation than the prior and recent averages. Yields rose in wake of the auction, and the 30s sector became the focus of underperformance, whereas earlier in the day, the underperformance was in the belly. Attention now moves towards Fed chair Powell's remarks due Wednesday and Thursday; most of his views will likely stick to the script, although the upside surprise in the CPI report may lead to lawmakers quizzing him on the transitory nature of inflation. T-note (U1) futures settled 13+ ticks lower at 132-31+.

Federal Reserve Discount Rate Minutes stated the directors of all twelve Federal Reserve Banks favoured maintaining the current primary credit rate at the existing level (0.25%) and that overall, Federal Reserve Bank directors were positive about the economic outlook and continued to report strengthening activity across sectors and Districts. Furthermore, Directors noted high demand for housing and a broad range of products and services, including motor vehicles, leisure air travel, apparel, and other retail goods, while several directors observed that activity in the industries most affected by COVID restrictions, such as restaurant dining, tourism, and hospitality, had picked up notably. (Newswires)

US Senate Democrats reached a USD 3.5tln budget deal for spending and tax plans and Senate Majority Leader Schumer stated the deal includes expansion of Medicaid. Schumer added that President Biden will go to Capitol Hill today to discuss a large infrastructure bill but also noted there is still work ahead on partisan infrastructure bill, while there were also comments from US Democrat Senator Warner that the plan will be fully paid for. (Newswires)

US Senators in bipartisan infrastructure talks said that after last night's meeting, they want to resolve remaining disagreements by Thursday although when questioned if that meant talks would end on Thursday with no deal, Democrat Senator Shaheen responded that they will extend it, according to CNN's Manu Raju. (CNN/Twitter)

US Senate Majority Leader Schumer stated that progress was being made on infrastructure talks, while there were separate reports citing comments from Democrat Senator Manchin on President Biden's two-track agenda in which he stated that both need to be fully paid for and that they have put enough free money out there. (Newswires/Twitter)

US GOP Senator Thune said it would help GOP members to support the bipartisan infrastructure deal if Democratic Senators Manchin and Sinema released a ceiling on what they would support in reconciliation, while Senator Thune stated that he doesn’t see “any way possible” the bipartisan infrastructure package will get done this week and put on the Senate floor next week. There were also comments from GOP Senator Cramer that Republicans are discussing voting against the debt limit increase. (Newswires)

Fitch affirmed United States at 'AAA'; Outlook Negative. Fitch stated that the Negative Outlook on the rating reflects ongoing risks to the public finances and debt trajectory, notwithstanding the improvement in Fitch's fiscal and debt projections since its last review. Furthermore, it stated the US sovereign rating is supported by structural strengths that include the size of the economy, high per capita income and a dynamic business environment. (Newswires)