• European bourses are lower across the board following a mixed-APAC handover where China outperformed
• US equity futures vary with the NQ (+0.3%) the outperformer while the RTY (-0.8%) lags
• BoE's Saunders said it may become appropriate fairly soon to withdraw some of the current monetary stimulus; sparking a hawkish reaction across UK assets
• DXY is subdued losing initial upside as GBP climbs on Saunders while core debt is dragged down by Gilts; though yields, ex-UK, remain lower across the board
• Chinese GDP Q/Q beat expectations and both Industrial Production and Retail Sales figures also topped forecasts
• Looking ahead, highlights include US Initial/Continued Jobless Claims, NY Fed Manufacturing, IP and Import/Export Prices, Fed's Powell, Evans, ECB's Elderson, OPEC MOMR (12:50BST/07:50EDT)
• Earnings from Morgan Stanley

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; as will Victoria. (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 (-0.3%) 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 (-1.2%) 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 (+0.7%) remained afloat following an unsurprising BoK announcement to keep policy rates steady. The Hang Seng (+0.8%) and Shanghai Comp. (+1.0%) 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%)

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)

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)

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)

Fast Retailing (9983 JT) 9M net JPY 151.4bln vs prev. JPY 90.6bln; sees FY operating income around JPY 245bln vs prev. view JPY 255bln. (Newswires)

US

China's Commerce Ministry says China and the US should create conditions to move forward on the Phase One trade deal. (Newswires)

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)

The White House does not expect an agreement to emerge between President Biden and German Chancellor Merkel on Nord Stream 2 at today's meeting, Axios; in-spite of some reports that a deal may be close. (Axios)

EU Competition Commissioner Vestager foresees greater alignment with the US on competition enforcement, particularly regarding the tech sector, WSJ. (WSJ)

UK/EU

BoE's Saunders says the question of whether to curtail our current asset purchase program early will be under consideration at our forthcoming meetings & "..it may become appropriate fairly soon to withdraw some of the current monetary stimulus.."; in this case, options might include curtailing the current asset purchase program – ending it in the next month or two and before the full £150bn has been purchased – and/or further monetary policy action next year. Beyond the next few meetings, I want to stress that if Bank Rate does rise in the next year or so, it is likely that any rise would be relatively limited. (BoE - link to speech)

UK ILO Unemployment Rate (May) 4.8% vs. Exp. 4.7% (Prev. 4.7%); Employment Change (May) 25k vs. Exp. 90k (Prev. 113k)

• Average Earnings (Ex-Bonus)* (May) 6.6% vs. Exp. 6.6% (Prev. 5.6%, Rev. 5.7%); Average Week Earnings 3M YY* (May) 7.3% vs. Exp. 7.1% (Prev. 5.6%, Rev. 5.7%)

ECB's Visco says the recovery is picking up pace, have to avoid tapering before the time is right; does not expect policy to be tightened for a long period. (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)

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)

EQUITIES

Stocks in Europe clambered off the losses seen shortly after the cash open, although this mild reprieve did not last long and and Europe holds onto a negative bias (Euro Stoxx -1.0%). This follows from a mixed APAC handover, which saw an overall firm performance in China following the nation topping expectations in Q/Q Q2 GDP alongside June Industrial Production and Retail Sales. US equity futures vary with the NQ (+0.2%) the outperformer as the tech-laden index future benefits from declining yields, whilst the RTY (-0.8%) lags and the YM (-0.4%) and ES (-0.2%) trade in more contained parameters. Back to Europe, the FTSE 100 (-0.9%) initially narrowly outperformed regional peers amid favourable currency dynamics at the time. However, the index was hit (alongside general sentiment) after BoE's Saunders struck a hawkish tone - suggesting that "it may become appropriate fairly soon to withdraw some of the current monetary stimulus." Sectors remain primarily in the red, with Oil & Gas the marked underperformer as crude prices ease. Overall, sectors have more of a defensive bias, with Food & Beverages, Personal & Household Goods and Healthcare towards the top of the pack. In terms of individual movers, Daimler (-0.5%) initially opened with gains following a stellar earnings report, with traders citing the broader downside in autos to the chip crunch squeeze expected to last into next year – as reiterated by chip-giant TSMC after their earnings. Sticking with earnings, TomTom (-15.7%) shares continue to decline after the group cut its outlook as a by-effect of the chip shortage. Meanwhile, Siemens Energy (-8.2%) ditched its margin guidance after the wind power division Siemens Gamesa (-13%) was hit by higher-than-expected raw material costs and product ramp-up expenses. Airbus (+0.3%) and UBS (Unch) have trimmed the earlier gains seen in the wake of positive broker moves.

US Consumer Product Safety Commission (CPSC) is suing Amazon (AMZN) over products it deems to be defective and pose a serious risk of injury/death to consumers. (Press TV)

TSMC (2330 TW) Q2 net profit TWD 134.4bln vs exp. TWD 136.5bln; sees 2021 sales growing by over 20% in USD terms, Q3 revenue at USD 14.6-14.9bln, gross profit margin USD 49.5-51.1%, operating margin 38.5-40.5%. Expects the chip supply tightness to last into 2022. (Newswires)

UnitedHealth Group Inc (UNH) Q2 2021 (USD): EPS 4.70 (exp. 4.43/4.21 GAAP), Revenue 71.3bln (exp. 69.44bln) (Business Wire)

EU Securities Watchdog says SPACs may not be an appropriate investment for all investors, will watch relevant activity to determine if additional action is necessary to preserve investor protection. (Newswires)

FX

USD - The Greenback is trying to find a footing after retreating to fresh lows in wake of Fed chair Powell’s testimony to the House that reinforced dovish policy guidance on the premise that higher inflation will prove to be a temporary phenomenon rather than persistent or permanent feature, while he also reiterated that reaching the goal of maximum employment remains a long way off. Using the DXY as a proxy, the index pared declines briefly to touch 92.500, but then faded fairly fast to trade down at 92.272 amidst greater demand for safer-havens, like the Yen, Franc and Gold due to a bout of risk aversion that is keeping global bond yields depressed and curves compressed. However, the Dollar will be looking for more evidence of substantial progress from a raft of US data and surveys before Powell returns to Congress and addresses the Senate in advance of comments from Evans.

JPY/CHF/XAU - As noted above, the Yen, Franc and Gold are bucking the general trend and consolidating their comeback from recent lows within a 110.03-109.75 range for the former ahead of the BoJ tomorrow and with decent option expiry interest between the round number and 110.13 (1.25 bn) capping the headline pair. Meanwhile, the Usd/Chf has reversed through 0.9150, with Eur/Chf edging closer to 1.0800 and spot bullion has climbed into a higher band above Usd 1800/oz and gathering stronger technical momentum following its close beyond the 200 DMA.

EUR - Notwithstanding, the aforementioned depreciation in Franc cross terms, the Euro has established a firmer base vs the Buck on the 1.1800 handle to retest half round number resistance and clear option expiries at 1.1800-05 (1 bn), but Eur/Usd faces more from the big figure above (1.15 bn between 1.1900-10 to be precise) and may be hampered by dovish ECB commentary from Visco.

NZD/GBP/AUD/CAD - All unable to capitalise on their US rival’s relative fragility on risk-off grounds, and with the Kiwi also unwinding some of its post-RBNZ outperformance in the run up to NZ Q2 CPI having topped out circa 0.7044 twice and failing to advance through 1.0600 against the Aussie. Moreover, Aud/Usd is holding above 0.7450 in wake of largely encouraging jobs data as a counterweight to more worrying COVID-19 developments as Melbourne, Victoria heads into a 5 day snap lockdown. Elsewhere, the Pound was back-pedalling across the board following a mixed UK labour report with Cable back beneath 1.3850 and Eur/Gbp rebounding sharply from almost 0.8500 to 0.8550+ before very hawkish remarks from BoE's Saunders sent Sterling up again (Cable to circa 1.3900 and Eur/Gbp under 0.8515).

SCANDI/EM - The Sek derived no independent impetus from unchanged Swedish money market inflation expectations and is weaker alongside the Nok due to the deterioration in sentiment, but the Try is content with the lower cost of crude and Cnh/Cny are steady after somewhat conflicting Chinese data overnight (Q2 GDP narrowly mixed vs consensus, but retail sales and ip both comfortably above forecast) and calls from the Commerce Ministry for China and the US to create conditions to move forward on the Phase One trade deal.

Notable FX Expiries, NY Cut:

- AUD/USD 0.7470 (250M), 0.7500-10 (3.9BLN), 0.7570 (439M), 0.7590 (470M)

- USD/JPY 109.70-80 (750M), 109.90 (230M), 110.00-13 (1.25BLN), 110.35 (284M), 110.50-55 (616M), 111.00-05 (1.1BLN)

- EUR/USD 1.1750 (448M), 1.1800-05 (1.0BLN), 1.1875-80 (500M), 1.1900-10 (1.15BLN), 1.1950-60 (920M)

Australian Unemployment Rate (Jun) 4.9% vs. Exp. 5.0% (Prev. 5.1%)

Australian Full Time Employment (Jun) 51.6k (Prev. 97.5k)

Australian Employment (Jun) 29.1k vs. Exp. 30.0k (Prev. 115.2k)

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)

FIXED

Short Sterling futures were already deflated post-CPI and rattled after Ramsden’s hawkish comments post-Wednesday’s official Liffe close, but Saunders has sent the 3 month strip and Gilts into a tailspin with talk about tapering QE quite soon, albeit from a personal point of view rather than on behalf of the BoE or any MPC consensus. The 10 year bond has duly recoiled from a 129.49 Liffe peak to 128.87 trough and dragged Bunds and USTs down in sympathy, while STIRs are extending heavy losses and bear-steepening to -8 ticks at worst in Sep22 and Dec22.

COMMODITIES

WTI and Brent front month futures have extended on the losses seen during APAC hours, with the former around 72.50/bbl (vs 71.68-72.96/bbl range) whilst the latter meanders just under USD 74.50/bbl (vs 73.50-74.59/bbl range). However, the complex rebounded off worst levels despite a distinct lack of newsflow at the time. That being said, several factors are currently at play for the crude market. Firstly, on the demand side, COVID cases have been rising across the globe, fuelled by the more potent COVID Delta variant. This, in turn, has prompted the reintroduction of some targeted lockdowns (Australia's Victoria State overnight) whilst international travel becomes more restrictive – with Japan also set to tighten border control. However, the summer picture is expected to be rosy, with hopes that mass vaccinations and summer weather permit more activity. Over to the supply side, although the UAE and Saudi reportedly struck a deal involving a higher base level to conduct the cuts from, Iraq has joined the call for its reference rate to be raised. As a reminder, during the early July talks, the UAE, Kazakhstan, and Iraq all asked for higher baselines. Thus, it will not be too surprising if more producers join the call for a higher base under the strain of balancing fiscal books. Furthermore, reports noted that the UAE's increased base would only be in effect after April 2022, when the original pact expires. Hence, a deal could be brokered whereby all those wanting to raise their baselines do so after April 2022, for the sake of a deal now – with any deal likely to be tweaked in the future depending on market conditions. It is also worth noting that Iraq asking for a baseline hike reintroduces the threat of a no-deal at the next meeting as unanimity is needed for an accord. The Iranian nuclear deal meanwhile has taken the backseat for now as sources suggested talks are not likely to resume until mid-August. Elsewhere spot gold and silver meander further above USD 1,800/oz and USD 26/oz, respectively, amid the weaker Dollar. LME copper is also on a firmer footing following the Chinese data overnight, but the contract remains below USD 9,500/oz.

Goldman Sachs notes of USD 2-4/bbl upside risks to its summer and 2022 Brent forecasts of USD 80/bbl and USD 75/bbl respectively; recommends going long Dec'22 Brent forwards (currently at USD 67.06/bbl). UAE and Saudi deal - if confirmed - would likely come alongside alongside a gradual 400k BPD ramp-up in production through December 2021. (Newswires)