• European bourses are mixed/lower following an indecisive open; US equity futures are flat intraday
• DXY has been choppy with G10 peers trading similarly though the NZD outperforms on further RBNZ hawkish calls while USD/JPY trades above 110.00
• US President Biden's Administration has issued an advisory warning US businesses on the risks of operating in Hong Kong, as expected
• China denied the request for US Deputy Secretary of State Sherman to meet with her Chinese counterpart; however, SCMP sources say negotiations are ongoing
• 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 US Retail Sales, University of Michigan (Prelim.), Fed's Williams

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)

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 (+0.1) 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 (-1.0%) 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 (U/C) and Shanghai Comp. (-0.7%) 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's Administration has issued an advisory warning US businesses on the risks of operating in Hong Kong In-fitting with the earlier overnight reports: 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)However, there were subsequent reports that China is still preparing to host US Deputy Secretary of State Wendy Sherman in Tianjin later this month, but the two sides are haggling over protocol details and are not yet ready to make an official announcement, SCMP sources

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)

US

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)

US Treasury 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)

The Biden administration is inviting labour and business groups to the White House today to strategize on how to pass the USD 579bln bipartisan infrastructure deal, according to an admin official. (Axios)

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)

EZ HICP Final YY (Jun) 1.9% vs. Exp. 1.9% (Prev. 1.9%); X Food & Energy Final YY (Jun) 0.9% vs. Exp. 0.9% (Prev. 0.9%)

• X Food, Energy, Alcohol & Tobacco Final YY (Jun) 0.9% vs. Exp. 0.9% (Prev. 0.9%)

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)

Turkish ship opens fire on Cyprus border guard patrol, according to a the Cyprus News Agency cited by Al Jazeera. (Twitter)

Russian media notes of cyber attacks targeting the Russian Ministry of Defense website, according to Al Jazeera. (Twitter)

South African President Ramaphosa says they will roll out 25k soldiers soon to deal with the ongoing unrest; on the subject, China is concerned about the severe property losses and safety risks of Chinese citizens in South Africa, Global Times. (Newswires/Twitter)

EQUITIES

Bourses in Europe have held onto the relatively mixed picture seen at the cash open (Euro Stoxx 50 -0.3%), with price action somewhat choppy in recent trade. US equity futures remain flat across the board, with the RTY (+0.3%) recovering a touch more following yesterday's underperformance. News flow has been light thus far, with no headline driving the price action. However, the lessening dovish/increasingly hawkish rhetoric among some of the "non-core" G10 central banks is indeed worth keeping on the radar – with Westpac now expecting the RBNZ to hike its OCR three times this year following the NZ CPI metrics. Overnight Indexed Swaps (OIS) now pricing two full 25bp OCR hikes by year-end. Back to Europe, sectors are mixed with no apparent risk profile nor overarching theme, and essentially a reversal of yesterday's performance. Travel & Leisure resides at the top after the sector lagged in the prior session, whilst Oil & Gas makes its way up the ranks as the broader crude complex gains traction. Telecoms is at the bottom of the pile on the back of Ericsson (-7.9%), whose share slumped after revenues missed analyst forecast. However, the group said it remains cautiously optimistic for the rest of the year. The morning saw a pickup in European earnings, with Richemont (-0.9%) yielding gains of some 2% seen at the cash open with some possible profit taken, whilst others are citing concerns on the outlook ahead. Puma (-2%) opened lower despite raising its 2021 outlook after noting supply chain constraints due to container shortages and port congestion. Elsewhere, Deutsche Bank (-0.3%) is pressured after FT sources stated the Co. might have mis-sold foreign exchange derivatives to between 50 and 100 companies in Spain, suggesting the scandal is wider than previously thought. Finally, in terms of US M&A, Intel (+0.9% pre-market) is said to be in talks to acquire GlobalFoundries for around USD 30bln, according to WSJ.

Intel's (INTC) acquisition of Globalfoundries unlikely, Digitimes reports

FX

NZD/AUD - The Kiwi has not advanced on its post-RBNZ peaks vs its US counterpart, but has forged fresh highs against the Aussie in wake of blistering NZ inflation data overnight. To recap, CPI rose well above consensus in Q2 and the Bank’s own forecast to breach the upper end of its 1-3% target band for the first time in a decade, justifying the decision to curtail QE at the end of next week and the assessment that risks are now skewed towards an overshoot of the RBNZ’s policy remit. In response, Nzd/Usd has reclaimed 0.7000+ status and the Aud/Nzd cross is probing 1.0600 to the downside, as Aud/Usd continues to lag under 0.7450 amidst the renewed COVID-19 outbreaks and lockdowns that have dented economic recovery momentum and the hitherto upbeat outlook.

USD/GBP/CAD - Kiwi outperformance and relative strength in a few other major rivals aside, the Greenback is holding ground amidst a reversion to bear-steepening along the US Treasury curve, with the DXY looking more solid above 92.500 having eclipsed yesterday’s intraday peak within a 92.720-528 range. However, the index and broad Buck remain off best levels recorded after the latest surge in inflation (92.832 on Wednesday in the case of the former) as the spotlight switches to consumption and the last scheduled Fed speech before the start of the blackout period for July’s FOMC from Williams. Conversely, the Pound has rebounded quite firmly following a deeper retreat from its recent peaks, while also taking advantage of a rather lethargic Euro as Cable trades above 1.3850 vs sub-1.3800 and Eur/Gbp circa 0.8525 compared to 0.8550+. Sterling may be gleaning some traction from a recovery in Brent and the same could be said for the Loonie given WTI’s recovery to just over Usd 72/brl from Usd 71.13, with Usd/Cad paring back from 1.2600 in the run up to Canadian housing starts and wholesale trade.

EUR/CHF/JPY - As noted above, the Euro appears somewhat reluctant to deviate far against the Dollar, albeit more responsive to moves elsewhere, as it meanders mostly beyond 1.1800 in tight 1.1820-1.1797 confines, but the Franc and Yen are lagging against the backdrop of recovering risk sentiment due to their stronger safe-haven properties. Indeed, Usd/Chf has peered through 0.9200 again and Usd/Jpy is back on the 110.00 handle after a routine BoJ policy outcome bar revisions to latest Outlook Report forecasts.

SCANDI/EM - Some retracement for the Nok vs the Sek and Eur, but only partial compared to the likes of the Try and Zar that are seeing a more pronounced correction from record or extreme bases, irrespective of reports that a Turkish ship opened fire on a Cypriot border guard patrol and ongoing riots in SA that have prompted President Ramaphosa to deploy 25k soldiers in an attempt to diffuse the situation. Meanwhile, the Cnh and Cny seem transfixed with the on-off-on again China-US meeting between the respective Deputy Secretaries of State.

Notable FX Expiries, NY Cut:

- USD/CAD 1.2350 (835M), 1.2500 (3.825BLN)

New Zealand RBNZ Sectoral Factor Model Inflation (Q2) 2.2% (Prev. 1.9%)

New Zealand CPI YY (Q2) 3.3% vs. Exp. 2.8% (Prev. 1.5%)

New Zealand CPI QQ (Q2) 1.3% vs. Exp. 0.8% (Prev. 0.8%)

FIXED

Bunds and Gilts seem to have refueled following a setback that culminated in the 10 year German and UK debt futures paring best gains of 28 and 39 ticks on the day respectively to just 7 and 13 ticks on Eurex and Liffe. However, upside chart hurdles and psychological yield levels may still be exerting influence along with UST underperformance and a return to bear-steepening that some are attributing to an admission by Fed chair Powell that inflation is well above target, although in truth this appears quite flimsy and a case of finding a cause to fit the move, as he has never really denied the fact. Instead, it could be pre-weekend positioning and consolidation ahead of retail sales and Williams, with an eye on looming supply after a dearth of Treasury issuance this week.

COMMODITIES

WTI and Brent front month futures have rebounded off their overnight and weekly lows, with prices now higher by around USD 0.5/bbl apiece, with the former back above USD 72/bbl (vs low 72.13/bbl), whilst the latter is eyeing USD 74/bbl after confirming support at USD 73/bbl. News flow for the complex has been light of the OPEC+ deliberations, rising cases of the Delta COVID variant, and an expected boom in demand over the summer. As such, in the absence of any macro updates, prices are likely to take their cue from technical and risk sentiment. Elsewhere, spot gold and silver are subdued around USD 1,825/oz (vs high 1,832/oz) and USD 26.15/oz (vs high 26.44/oz), with prices moving in tandem with yields but still within recent ranges. LME copper hold modest gains in a tight parameter after briefly topping USD 9,500/t. Meanwhile, LME nickel high near five-month highs with traders citing robust demand and low supply.