• APAC equities lacked firm direction, Hong Kong outpaced peers; US equity futures were mixed, NQ outperformed
• In FX, the DXY tested but failed to breach 92.50 to the upside, USD/JPY fell under 110.00 and EUR/USD remained above 1.1800
• Fed Chair Powell stated it is still appropriate that monetary policy remains highly accommodative and that the jobs market is still a ways off from progress needed to begin tapering
• Chinese GDP Q/Q beat expectations and both Industrial Production and Retail Sales figures also topped forecasts
• Iraq will seek an upward revision to its OPEC+ baseline, according to an Iraqi source
• Looking ahead, highlights include UK Unemployment, US Initial/Continued Jobless Claims, NY Fed Manufacturing, IP and Import/Export Prices, Fed's Powell, Evans, ECB's Elderson, BoE's Saunders, OPEC MOMR, supply from Spain & France
• Earnings from Just Eat Takeaway, Morgan Stanley, UnitedHealth

CORONAVIRUS UPDATE

Johnson & Johnson (JNJ) stated that its vaccine provided a strong immune response eight months after vaccination including against variants of concern such as the Alpha, Beta and Delta. (FT)

COVID-19 passports could be required in UK hospitality venues such as restaurants, pubs and bars after a new government guidance called for their wider use among businesses. (Telegraph)

Japan is to approve the use of the Moderna (MRNA) vaccine to people aged 12-years old and older. (Newswires)

Melbourne, Australia will enter a lockdown from midnight due to COVID-19. (ABC)

ASIA

Asian stocks lacked firm direction as participants digested mixed Chinese GDP data - which partially offset the slight positive bias from the US following Fed Chair Powell's dovish reiterations in Congress. Powell stated it is still appropriate that monetary policy remains highly accommodative and that the jobs market is still a ways off from progress needed to begin tapering. The ASX 200 (-0.1%) was indecisive, with strength in most mining-related sectors and utilities counterbalanced by underperformance in tech and energy names. In addition, the latest jobs data was somewhat inconclusive and failed to spur price action with headline Employment Change slightly below forecasts despite a faster than expected decline to the Unemployment Rate. The Nikkei 225 (-1.0%) was pressured by recent flows into the domestic currency and cautiousness as the BoJ kick-started its two-day policy meeting where the Bank is touted to reduce its economic growth forecast for the current fiscal year. The KOSPI (+0.3%) remained afloat following an unsurprising BoK announcement to keep policy rates steady. The Hang Seng (+1.5%) and Shanghai Comp. (+0.2%) were varied with the former boosted by its tech giants Alibaba and Tencent amid reports they are considering opening up their ecosystems to each other and with Hong Kong also said to lift travel restrictions. Conversely, the mainland was choppy after mixed Chinese GDP data, which showed China's economic growth Y/Y slowed to 7.9% vs exp. 8.1% (prev. 18.3%), although GDP Q/Q beat expectations at 1.3% vs exp. 1.2% (prev. 0.6%) and both Industrial Production and Retail Sales figures also topped forecasts, while the PBoC only rolled over CNY 100bln in MLF loans vs CNY 400bln maturing this month. The PBoC also maintained the 1-Year MLF rate at 2.95%, which dampens prospects of a cut to the Loan Prime Rate next week, although China Securities Journal noted that China might reduce the Loan Prime Rate but not cut the policy rate. Finally, 10yr JGBs were uneventful and failed to benefit from the strength in USTs, which were inspired by Fed Chair Powell's continued dovishness and despite the underperformance seen in Japanese stocks, while slightly increased demand at the enhanced liquidity auction did little to spur prices with participants sidelined as the BoJ began its latest conclave.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position, while it also announced to inject CNY 100bln in 1-year MLF vs CNY 400bln maturing in July with the rate kept at 2.95%. (Newswires)PBoC set USD/CNY mid-point at 6.4640 vs exp. 6.4607 (prev. 6.4806)

• Chinese GDP QQ SA (Q2) 1.3% vs. Exp. 1.2% (Prev. 0.6%)
• Chinese GDP YY (Q2) 7.9% vs. Exp. 8.1% (Prev. 18.3%)
• Chinese Industrial Production YY (Jun) 8.3% vs. Exp. 7.8% (Prev. 8.8%)
• Chinese Retail Sales YY (Jun) 12.1% vs. Exp. 11.0% (Prev. 12.4%)
• Chinese House Prices YY (Jun) 4.7% (Prev. 4.9%)

US is to extend the former President Trump-era halt to economic dialogue with China. In relevant news, US Senate passed the Uyghur Forced Labor Prevention Act which bans import of products from China’s Xinjiang region and a rebuttable presumption which suspects all goods of being made by forced labour unless certified by US authorities, while the bill still needs to go to the House. (Newswires/SCMP)

China's stats bureau said the economy continued to recover and improve during H1, although it added that China still faces external uncertainties and the recovery is not yet balanced. (Newswires)

Chinese press article suggested that there is no need to worry about funds in Q3 and that the policy interest rate is temporarily difficult to reduce, while a report also noted that China may reduce the Loan Prime Rate but not cut the policy rate. (China Securities Journal)

China’s Kujiale and Lalamove reportedly suspended US listing plans and are searching for alternatives. (The Information)

BoK kept the 7-Day Repo Rate unchanged at 0.50% as expected, although the decision was not unanimous with board member Koh Seungbeom as the dissenter and wanted a 25bps rate hike. BoK said private consumption weakened but added that growth path is inline with its earlier projection and that recovery will be led by exports and investment. Furthermore, Governor Lee that they will monitor the build-up of financial imbalances and COVID-19 developments, while he added they will keep supporting vulnerable households and they need to review if policy adjustment is necessary from the next policy meeting. (Newswires)

UK/EU

BoE Governor Bailey said he will not be rushed into deciding on rates despite the increasing inflation. (Business Live)

BoE's Ramsden said there is still real uncertainty as to what path the economy will take but added that he can envisage the conditions for considering tightening being met somewhat sooner than he had previously expected. Furthermore, he puts more weight on his inflationary than disinflationary scenario and stated there should be no presumption that the recent strength in demand and inflation will be sustained, while he agrees with the MPC assessment on transitory inflation. Ramsden also said it is conceivable that we could not complete the current programme of asset purchase and that there is a range of things we can do on the gilts side. (Newswires)

Ireland's government plans to scrap 12.5% corporate tax rate on concerns it could be viewed as a pariah state for refusing to shift to 15%. (Irish Examiner)

FX

In FX, DXY tested but failed to breach 92.50 to the upside and nursed some of the losses that had resulted from a decline in yields and comments from Fed Chair Powell, who stuck to the dovish script. EUR/USD remained above 1.1800 amid the recent USD weakness and optimism from ECB's Schnabel who stated the economy is past a turning point and is seeing a strong recovery, although the single currency has since pulled back from yesterday's highs, while GBP/USD gradually trickled lower and reverted to the levels seen before yesterday's firm UK CPI print. USD/JPY and JPY-crosses were subdued amid the underperformance in Japan and antipodeans partially retraced their recent advances with the mood not helped by the mixed Chinese GDP figures and despite BNZ and Westpac joining in the calls by their other big four peers for an August rate hike by the RBNZ.

• Australian Employment (Jun) 29.1k vs. Exp. 30.0k (Prev. 115.2k)
• Australian Full Time Employment (Jun) 51.6k (Prev. 97.5k)
• Australian Unemployment Rate (Jun) 4.9% vs. Exp. 5.0% (Prev. 5.1%)

Brazilian President Bolsonaro will be taken to Sao Paulo for medical exams after an intestinal blockage was identified and doctors will determine if the President will need emergency surgery, while his schedule has been suspended for 48 hours due to medical issues. In other news, Brazil’s Economy Minister Guedes stated he wants to reduce import tariffs by 10%. (Newswires)

COMMODITIES

Commodities were mixed with underperformance in oil prices after reports suggested progress towards a potential Saudi-UAE compromise and that an OPEC+ meeting could be arranged soon. However, the UAE later stated that no agreement has yet been reached with the broader OPEC+ group and that deliberations continue, while Iraq is also said to seek an upward revision to its baseline. Nonetheless, the increased prospects of an agreement weighed heavily on WTI, which slipped from above USD 75.00/bbl to trade around USD 72.50/bbl and with a larger than expected draw in the delayed headline EIA stockpiles doing little to plug the losses for which finished down by more than 3% yesterday. Gold traded sideways with prices kept afloat after Fed Chair Powell stuck to the dovish script, while copper prices benefitted despite the mixed Chinese GDP data with prices getting a lift as Shanghai metals trade got underway.

US EIA Weekly Crude Stocks w/e -7.9M vs. Exp. -4.4M (Prev. -6.9M). (Newswires); production 11.4mln (Prev. 11.3mln)

Iraq will seek an upward revision to its baseline, according to an Iraqi source cited by Energy Intel. (Twitter)

US Senate Energy Committee passed bill on climate and energy initiatives that could shape energy measures in the bipartisan infrastructure bill. (Newswires)

Natural Gas Pipeline reported a force majeure related to work on the Gulf Coast #2 mainline between compressor station 301 in Wharton County, Texas and Station 300 in Victoria County, Texas. (Newswires)

GEOPOLITICAL

Iran is not prepared to resume talks until the new president takes over and has informed European interlocutors, while the current view is that nuclear discussions won't resume before mid-August, according to diplomatic sources. There were also comments from the US State Department that the US is prepared to resume nuclear talks although Iran requested additional time for its presidential transition, while the US said it remains interested in mutual return to the nuclear deal but the offer will not be on the table indefinitely. (Newswires)

US envoy for climate Kerry spoke with Russian President Putin in which they underscored importance of both nations working together across a range of climate change issues. (Newswires)

Britain's MI5 Spy Chief said spies from Russia, China and Iran are seeking to steal technology, sow discord and meddle in UK. (Newswires)

US

The curve was bull-flattening as US players arrived, although some of that was in sympathy with EGBs, which picked up after softer-than-expected May industrial production data out of the Eurozone, and well-received bund issuance out of Germany. The entire Treasury complex was lifted in wake of the pre-released remarks from Fed Chair Powell, with his dovish comments signalling that the Fed was not likely to immediately tilt hawkish in wake of the hot June CPI report, injecting a further bull-flattening impulse. Powell also said that the tapering debate would continue over the coming meetings, perhaps a knock to those who might have been expecting a taper signal at the Jackson Hole Economic Symposium at the end of August. The complex traversed throughout the remaining part of the session, with Powell sticking to the script in the Q&A part of his House testimony; we expect a repeat performance to the Senate on Thursday. Meanwhile, the Fed announced the monthly schedule of its asset purchases, and reconfirmed a pace of approximately USD 80bln/month, as expected. As we settle up, the curve is bear-flattening, with most of the outperformance in the 7s and 10s part of the curve. T-note (u1) futures settled 15 ticks higher at 133-14+.

Fed Beige Book stated the US economy strengthened further from late May to early July, displaying moderate to robust growth and that sectors reported above-average growth included transportation, travel and tourism, manufacturing, and non-financial services. Furthermore, three-quarters of Districts reported either slight or modest job gains and the remainder reported moderate or strong increases in employment, while it stated that prices increased at an above-average pace, as seven Districts reported strong price growth and the rest saw moderate gains. It also noted that although some contacts felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months. (Newswires)

Fed Chair Powell said it is still appropriate that monetary policy remains highly accommodative and that monetary policy is supporting demand, while he stated it is difficult to be precise on what further substantial progress means and they will give the market appropriate notice in regards to tapering. Powell also stated they will have another round of discussions on tapering in a couple of weeks and noted that inflation data has been higher than expected but still consistent with what the Fed expected. Powell also repeated the Fed should look at current higher inflation as temporary unless it persists year after year and it would be a mistake for the Fed to act prematurely as they still forecast inflation to come down. Furthermore, Powell commented that the Fed lacks certainty that higher inflation is 'transitory', but still believes it is the case and that he does not expect the Fed to have to move very quickly even if higher inflation persists. (Newswires)

US Senate Minority Leader McConnell commented on Democrats USD 3.5tln plan which he stated was wildly out of proportion to what the country needs at the time of raging inflation. It was also reported that the revenue side of USD 3.5trln spending plan is expected to include a major IRS expansion to close tax gap, hike on top marginal tax rate for richest, corporate tax hikes and international tax reform, while the report added that capital gains tax is thought to will be in mix too. (NBC/Washington Post)

US Senior Democrats reportedly agreed to include a tax on imports from countries that lack aggressive climate change policies in the USD 3.5tln budget plan. (NYT)