• Asian stocks were subdued as the region took its cue from the lacklustre performance across global peers; US equity futures were flat overnight
• In FX, DXY remained above 92.50, USD/JPY probed 110.00 and the NZD outperformed and Westpac now expects three RBNZ hikes this year
• US is preparing to impose sanctions on several Chinese officials over Hong Kong (in line with prior sources)
• China denied the request for US Deputy Secretary of State Sherman to meet with her Chinese counterpart during a proposed visit to the country
• BoJ kept policy settings unchanged as expected with rates kept at -0.10% and 10yr JGB yield target maintained at 0.0%, although it adjusted its Outlook Report forecasts
• Looking ahead, highlights include EZ CPI (Final), US Retail Sales, University of Michigan (Prelim.), Fed's Williams and earnings from Ericsson

CORONAVIRUS UPDATE

Canadian PM Trudeau said Canada may begin accepting fully vaccinated Americans for non-essential travel from mid-August. (Newswires)

UK ministers are mulling putting France on the travel red list alert. (Telegraph)

China reportedly denounced politicising inquiries into origins of the pandemic. (Newswires)

ASIA

Asian stocks were subdued as the region took its cue from the lacklustre performance across global peers amid lingering growth slowdown concerns and ongoing US-China tensions, with the Biden administration preparing sanctions on Chinese officials over the Hong Kong democracy crackdown. The ASX 200 (Unch.) was flat with sentiment not helped by the lockdown affecting Australia’s two most-populated cities, and with underperformance in commodity names after weak quarterly updates from Rio Tinto and Evolution Mining, although the losses for the index were later pared by resilience amongst defensives. The Nikkei 225 (-1.1%) briefly retreated beneath the 28,000 level as participants awaited the BoJ policy announcement - which turned out to be a damp squib and offered little surprises as the central bank kept policy settings unchanged and lowered the growth forecasts for the current fiscal year as expected. That being said, there were notable losses for the likes of index heavyweight Fast Retailing despite an increase in 9-month profits, as it also trimmed FY revenue guidance, and Eisai was the worst hit after the Institute for Clinical and Economic Review unanimously voted that there is no evidence the Aduhelm Alzheimer's drug, which the Co. partners with Biogen on, has any benefits beyond usual care. Hang Seng (-0.2%) and Shanghai Comp. (-0.3%) conformed to the uninspired mood on continued tensions with US President Biden set to warn investors about Hong Kong and with the US also preparing sanctions (in line with prior source reports), while President Biden earlier noted that the situation in Hong Kong is deteriorating and the Chinese government is not keeping its commitment. China also denied a request for US Deputy Secretary of State Sherman to meet with her Chinese counterpart during a proposed visit to the country, although reports that China is planning to exempt Hong Kong IPOs from cybersecurity reviews later provided tailwinds for the HKEX. Finally, 10yr JGBs are lower after the jittery price action in T-notes which pulled back from yesterday's gains and with prices not helped following the BoJ policy meeting where it also outlined details of its zero-interest climate loans scheme.

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 at 6.4705 vs exp. 6.4678 (prev. 6.4640)

US President Biden said the situation in Hong Kong is deteriorating and Chinese government is not keeping its commitment, while German Chancellor Merkel said they need a level playing field in trade with China and that there is understanding with US that China is our competitor. Furthermore, Merkel added large security issues linger in relationship with China and that rules on how to deal with China rest on shared values with US, although there were later comments from China's Foreign Minister Wang that China and the EU should properly manage differences. (Newswires)

US President Biden will reportedly issue a Hong Kong warning at investors shrugging off risks and the business advisory on Friday will flag China's grip over the city, while the US is preparing to impose sanctions on Friday on a number of Chinese officials over Beijing's crackdown on democracy in Hong Kong. (Newswires)

US House Foreign Affairs Panel has advanced a bill to counter China, while it was later reported that House Republicans have reportedly drafted a counter-proposal for the China-targeted bill, which they plan to circulate this Friday. (Newswires/Axios)

China denied the request for US Deputy Secretary of State Sherman to meet with her Chinese counterpart during a proposed visit to the country. (FT)

China will require property developers to disclose commercial paper debt every month and is reportedly to enhance the crackdown on illegal apps, although it was later reported that China is said to plan exempting Hong Kong IPOs from cybersecurity reviews. (Newswires)

BoJ kept policy settings unchanged as expected with rates kept at -0.10% and 10yr JGB yield target maintained at 0.0%, although it adjusted its Outlook Report forecasts and confirmed to offer funds at zero interest for the scheme to combat climate change but will not offer an interest reward to banks that tap into the scheme. BoJ reiterated that Japan's economy remains in a severe state but is picking up as a trend and is likely to recover although activity remains low compared to pre-pandemic levels, while it will not hesitate to take additional easing steps of necessary. Furthermore, the BoJ reduced its Real GDP growth forecast for the current fiscal year to 3.8% from 4.0% but upgraded fiscal 2022 forecast to 2.7% from 2.4%, and raised Core CPI forecasts for fiscal 2021 and fiscal 2022 to 0.6% from 0.1% and to 0.9% from 0.8%, respectively. (Newswires)

UK/EU

UK PM Johnson is supporting proposals for a new tax to pay for social care system reforms under plans that could be agreed on within week. (Times)

The influential House of Lords economic affairs committee said the BoE has not provided sufficient justification for continued QE and called for the Bank to provide better justification for viewing the increase in inflation as temporary. (FT)

FX

In FX, the DXY remained above the 92.50 level, albeit off the highs seen during the prior session where it had been supported amid the uninspiring risk tone. There was another bout of Fed rhetoric including Fed Chair Powell’s second day in Congress although he did not provide anything ground-breaking in which he noted that prices are not moving up broadly across the economy and reiterated that he thinks it is appropriate for the Fed to continue accommodative monetary policy. Separately, Fed’s Evans (2021 voter) stated that more employment progress is needed before the 'substantial further progress' bar taper threshold is reached but expects it later this year, and called for the Fed to begin tapering once this progress has been seen. Evans also stated that he still sees a rate lift-off in 2024 but added it wouldn't take much to move in 2023 and he does not have a taper date in mind although could make judgements in the Autumn, while Fed’s Bullard noted that substantial progress has been made and repeated that it is time to end emergency measures. EUR/USD traded sideways after yesterday’s pullback amid the USD strength and with comments from ECB's Visco who said the recovery is picking up pace but added that they have to avoid tapering before the time is right and that he does not expect policy to be tightened for a long period, although the single currency has since found a floor around 1.1800. GBP/USD was uneventful with price action rangebound after having fully retraced the gains that were spurred by hawkish comments from BoE's Saunders. USD/JPY probed the 110.00 handle and JPY-crosses marginally nursed losses heading into the BoJ policy decision which lacked any fireworks, while antipodeans were varied as AUD/USD was contained by the subdued risk appetite and NZD/USD outperformed after firmer than expected CPI data for Q2 which surpassed the top end of the 1%-3% target band for the first time in 19 quarters. This subsequently resulted in OIS pricing in around a 90% chance of a hike next month and nearly two hikes for this year, although Westpac is now calling for a total of three hikes by year-end.

• New Zealand CPI QQ (Q2) 1.3% vs. Exp. 0.8% (Prev. 0.8%)
• New Zealand CPI YY (Q2) 3.3% vs. Exp. 2.8% (Prev. 1.5%)
• New Zealand RBNZ Sectoral Factor Model Inflation (Q2) 2.2% (Prev. 1.9%)

COMMODITIES

WTI crude futures languished following this week's selling pressure and retreat to beneath the USD 72/bbl level with price action hampered by the growth slowdown concerns, recent virus restrictions for the Asia-Pac region, while an OPEC+ meeting date is yet to be announced. Gold was unchanged as the greenback held steady overnight and after Fed Chair Powell provided mostly reiterations during his second day in Congress, while copper brushed off the lacklustre mood and extended on Thursday's rebound.

GEOPOLITICAL

US President Biden said that he covered a wide range of issues with German Chancellor Merkel and that their countries will stand for principles and universal rights in contrast to China actions and will stand together against Russian aggression. President Biden also stated that they are unified in the view that Russia should not use energy as a weapon against its neighbours and are launching an energy partnership. (Newswires)

US

Yields bull-flattened along the Treasury curve, as European and US fixed income ticked higher on Thursday, seeing both complexes rise to weekly highs; Gilts were pressured after hawkish commentary from BoE's Saunders, hot on the heels of hawkish rhetoric from BoE's Ramsden on Wednesday. Powell's testimony to lawmakers failed to yield any new information, although some desks attributed the decline in yields to a reiteration of his dovishness. Commentary from Fed 2022 voter Bullard and 2021 voter Evans didn't shake up the fixed income complex too much, although the latter's dovishness was cited for a small easing in yields (Bullard, while calling for a taper, has suggested the process shouldn't be on autopilot; Evans was more dovish, suggesting that inflation was transitory, and 'substantial further progress' was still not made to justify tapering, although could be seen by end of the year). Attention shifts on to comments due from Fed's Williams on Friday (again - he spoke earlier in the week, so there is a risk he doesn't add anything new) ahead of the Fed's blackout period, which kicks in after the close on Friday, ahead of the 28th July FOMC. T-note (U1) futures settle 11 ticks higher at 133-25+.

Fed Chair Powell said prices are not moving up broadly across the economy, while he reiterated that he thinks it is appropriate for the Fed to continue accommodative monetary policy. (Newswires)

Fed's Evans (2021 voter) said they want to see they are on track to lower unemployment before tapering and that they may need to adjust their stance earlier if inflation appears to be more persistent, while he added that it will take more than just a couple of months to sort out timing on taper. Furthermore, he stated that tapering too early might undercut Fed objectives but expects 'substantial further progress' later this year and that once this progress has been seen, he expects Fed will begin tapering, while he still sees a rate lift-off in 2024 but added it wouldn't take much to move in 2023 and said he does not have a taper date in mind although could make judgements in the Autumn. (Newswires)

US President Biden said he is confident he can get a deal done on infrastructure and believes he will get what was proposed in the bipartisan infrastructure deal. (Newswires)

White House said the Biden administration experts believe that 'most of price increases' are anticipated to be temporary, while US Treasury Secretary Yellen said she thinks that there will be several more months of rapid inflation but had also commented that she expects inflation to fade in the medium-term. Yellen added the gap between US and foreign rates will diminish under proposed tax changes but also noted that it is not certain that Amazon (AMZN) will be covered by OECD tax deal as it is not certain if it will reach profitability threshold for reallocation of taxing rights. Furthermore, she is concerned regarding housing affordability and sees US rates remaining at moderate levels, as well as inflation staying under control. (Newswires)

US House Speaker Pelosi said the House will make changes to the USD 3.5trln Senate Democrat budget. (Newswires)

US Senate Majority Leader Schumer dismissed Republican concerns about prematurely voting on the bipartisan infrastructure plan next Wednesday, while he said negotiators are making progress and there is no reason they cannot start voting next Wednesday. (CNN)

White House said the US government are flagging problematic posts for Facebook (FB) to reduce misinformation and the White House added that FB should provide public data on reach of COVID misinformation. There were also separate reports that Apple (AAPL), Amazon (AMZN), Google (GOOG) and Facebook (FB) collectively face at least 70 antitrust probes and Cases, according to The Information's analysis. (Newswires/The Information)