• Risk-off sentiment is portrayed across markets as the downbeat APAC tone reverberates into Europe; Euro Stoxx 50 -2.1%, ES -0.9%
• US equity futures are lower across the board with the RTY (-1.7%) underperforming whilst losses in the NQ (-0.3%) are cushioned
• DXY eclipsed 93.00 with activity/crude currencies lagging and JPY outperforming while USTs are bid as the 10yr yields dips below 1.25%
• OPEC+ agreed to extend supply management until end of next year; baselines for Saudi, Russia, UAE, Iraq and Kuwait will be raised from May 2022
• ECB reportedly disagreed on stimulus guidance drafts for the 22nd July meeting, while talks on bond buying will reportedly not happen until the September meeting, according to sources
• China's military conducted a beach assault drill on Friday as a warning to the US and Taiwan
• Looking ahead, highlights include earnings from IBM and the BoE's MPC pre-appointment hearing

CORONAVIRUS UPDATE

UK Health Minister Javid tested positive for COVID-19, while PM Johnson and Chancellor Sunak were initially reported to not be planning self-isolating despite having contact with the health minister, although later did a U-turn and will now self-isolate in line with national guidelines. (Newswires/BBC) Note, the Health Minister received both doses of the AstraZeneca/Oxford vaccine

UK PM Johnson said it is important that everyone sticks to the same rules regarding self-isolation and urged people to self-isolate when told to do so, while he urged the nation to be cautious as they unlock and questioned that if they do not unlock now, then when will they ever do it? (Newswires)

Britain has decided against mass COVID-19 vaccinations of children and teenagers, while it is instead preparing to offer vaccinations for vulnerable people aged 12 to 15 and those about to turn 18.In relevant news, Britain is reportedly facing a disruption to food supplies, transport networks and industry as a third wave of the coronavirus intensifies. (Telegraph/Sunday Times)

UK government re-imposed quarantine rules on travellers returning from France in which arrivals have to isolate at home for up to 10 days and complete two COVID-19 tests even if they have two vaccinations. It was also reported that French PM Castex said they will reinforce COVID-19 restrictions for arrivals from UK, Spain, Portugal, Netherlands, Greece and Cyprus. (Newswires)

Australia's Victoria State Premier announced that the lockdown will be extended, while it was also reported that lockdown restrictions for Sydney are being intensified with stricter rules for retail trading and additional movement restrictions for some local hotspots. (Newswires)

Tokyo officials confirmed the first case of COVID-19 at the Olympic athlete village and a Tokyo 2020 spokesperson later noted that the rate of positive cases of athletes and other games-related people visiting Japan is around 0.1%. (Newswires)

ASIA

Asia-Pac stocks and US equity futures began the week on the back foot, following last Friday's losses on Wall Street as global sentiment remained dampened by US-China tensions and recent mixed data releases. The ASX 200 (-0.9%) was dragged lower by broad weakness across its industries with the declines led by the commodity-related sectors, including energy after OPEC+ reached an agreement on output over the weekend. Sentiment was also subdued by the ongoing COVID-19 outbreak that has forced an extension of the lockdown in Australia's Victoria State - with many including the largest domestic bank CBA, anticipating the ongoing restrictions to severely impact the Australian economy, while Altium shares were the worst hit after reports it rejected an increased offer from Autodesk and with the latter planning to walk away, although Altium later denied that it had received any further offer. The Nikkei 225 (-1.3%) was pressured by haven flows into the JPY, and with virus fears also in focus after the first COVID-19 cases were confirmed from the Olympic athletes' village just days before the start of the Tokyo 2020 games. The Hang Seng (-1.9%) and Shanghai Comp. (U/C) were also negative amid US-China frictions after the Biden Administration issued Hong Kong-related sanctions and highlighted the growing risks related to China's democracy crackdown in Hong Kong despite threats by China to retaliate to such action, while the losses were exacerbated by tech underperformance amid lingering concerns of tighter regulations by Beijing. Finally, 10yr JGBs were marginally higher amid the safe-haven flows and as they tracked recent upside in T-notes which briefly broke above the 134.00 level, while the BoJ had also announced to buy JPY 75bln of corporate bonds from July 26th with 3yr-5yr 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 6.4700 vs exp. 6.4710 (prev. 6.4705)

US Congress is aiming to hamper China’s ability to recruit scientists and academics in the US with a recently passed House bill to bolster American research and development, which would bar scientists and academics from participating in US-funded research projects if they are also receiving support from Beijing. (Newswires)

China NDRC official said the nation's economic recovery still faces difficulties and challenges, while it will take proactive actions in response to new situations in the economic recovery. There were also separate reports that China is said to be revealing new policy to attract foreign investment and is said to consider a trial program that would permit foreign institutions to invest offshore yuan (CNH) in stocks listed on Shanghai Star Board. (Newswires/China Securities Journal)

China MOFCOM assistant minister Ron Hongbin stated China is to open more sectors to overseas capital by reducing items on negative lists and said that string supply chain amid global COVID-19 pandemic helps to attract foreign investment. (China Securities Journal)

US

The bipartisan group made some progress this weekend on the infrastructure package, according to sources close to the talks, but there’s still a number of outstanding decisions on both policy and pay fors to be made. (Punchbowl)

White House Press Secretary Psaki responded that she had no personnel updates and no timeline for a decision when asked if the Biden Administration will reappoint Fed Chair Powell for another term. (Newswires)

Johnson & Johnson (JNJ) are exploring placing its baby powder and talcum powder liabilities into bankruptcy, according to sources although its consumer unit said it has not yet decided on any particular course of action. (Newswires)

UK/EU

BoE’s Haskel says the risk of a pre-emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation. For the foreseeable future, “in my view, tight policy isn’t the right policy.”. Anticipation of improved supply brings demand forward now and might add to inflationary pressure. In addition the economy is not fully recovered yet and faces two headwinds over the coming months: the highly transmissible Delta variant and a tightening of the fiscal stance

UK will unveil details of its Developing Countries Trading Scheme today which aims to stimulate trade with 70 developing economies by reducing tariffs and making rules simpler. (Newswires)

German Chancellor Merkel said the situation on flood-hit regions is surreal and terrifying, while she added that the government will provide financial aid quickly due to the devastation from the record floods which have resulted in over 180 deaths in Germany and Belgium. On this, the Interior Minister said that government aid for communities and private people to rebuild after floods will go into the 'billions of euros' figure. (Newswires)

Bundesbank says German economic growth can accelerate further in the summer; sees German output reaching pre-crisis levels in Q3

ECB reportedly disagreed on stimulus guidance drafts for the 22nd July meeting and discussions were said to have been heated, while talks on bond buying will reportedly not happen until September meeting, according to sources. (Newswires)

ECB's Schnabel's optimism on inflation reportedly includes not just 2021 but 2022 and also 2023, according to SGH Macro Advisor sources. Meanwhile, one source suggested that the central bank's persistence in accommodative monetary policy could be compared to the Fed's "lower for longer" strategy. (SGH Macro Advisors)

Czech Republic Governor Rusnok said they should raise rates again at the 5th August policy meeting and that tightening could continue after. (Newswires)

UK Rightmove House Prices MM (Jul) 0.7% (Prev. 0.8%). (Newswires)

GEOPOLITICAL

China's military conducted a beach assault drill on Friday as a warning to US and Taiwan. (Newswires)

Iranian Foreign Ministry says the UAE will be responsible for repercussions of any Israeli actions that could undermine the security of the region. (Twitter)

Afghanistan government and Taliban negotiators issued a joint statement that the sides committed to continue high-level negotiations until they reach a settlement and have issued instructions to expedite negotiations, although the Taliban’s political office stated that it did not suggest a truce during the Doha discussions. (Newswires)

EQUITIES

Major bourses in Europe have extended the decline seen at the cash open (Euro Stoxx 50 -2.1%), as the region coattails on the negative APAC lead. US equity futures also trade lower across the board but to a lesser extent than their peers over the pond, with the RTY (-1.7%) the underperformer vs the ES (-0.8%), NQ (-0.4%), and YM (-1.0%) – in fitting with the anti-cyclical bias being experienced in Europe. The soured sentiments come against the backdrop of a heated US-Sino rhetoric, a worsening COVID picture, alongside increasing hawkish noises from some central banks – ahead of the ECB this week and the Fed meeting in the next. However, it is worth mentioning that the COVID situation in Australia (with Victoria State extending its lockdown) has prompted a couple of prominent RBA watches to discuss the potential for the RBA to pull back on its recent tapering announcement. Back to trade, Europe mostly sees broad-based losses among bourses, but the FTSE MIB (-2.6%) underperforms amid hefty losses in banks in a low-yield environment, whilst the SMI (-1.0%) is cushioned by its heavyweight pharma sector. Sectors are all in the red and, as mentioned above, portray a clear anti-cyclical bias. Defensives reside at the top of the bunch, with Healthcare, Food & Beverages and Telecoms seeing less pronounced downside than cyclical peers. Travel & Leisure is the worst performer at the time of writing, with the UK's move of imposing travel restrictions from France for double-dosed individuals surfacing questions about vaccinated travel in the future. Oil & Gas meanwhile succumb to the slide in oil prices amid the soured risk tone and following the OPEC+ confab. In terms of individual movers, Vivendi (-1.3%) trades softer after Pershing Square's (PSTH) board has unanimously decided not to move forward with the Universal Music Group transaction, has agreed to assume the Vivendi indemnity agreement and the UMG transaction costs. Subsequently, Bill Ackman has decided that his investment funds will replace the Pershing Square interest in this transaction, contingent on approval of US regulators; equity interest acquired will now be 5-10% vs prev. 10%. Meanwhile, Ocado (-3.4%) is hit as it will be unable to fulfil some online orders for several days following a fire at its largest warehouse caused by a malfunctioning robot.

FX

DXY - Risk aversion and a much more pronounced reversal in oil prices on the back of OPEC+ striking a pact have given the Buck a fresh boost to clear more technical and psychological levels that were tested, but held last week, with the index now probing 93.000 having eclipsed its post-FOMC peak at 92.844 and a late March high, at 92.964 along the way. However, the DXY could yet be thwarted by outperformance in the Yen as a safer-haven and/or further bull-flattening in Treasury yields that has nudged the 10 year benchmark down through 1.25%, although the correlation between the Greenback and rates along with the curve has broken down of late. Ahead, NAHB’s housing market survey is the sole scheduled US release as Fed officials observe their usual pre-FOMC purdah.

CAD - A double-whammy for the Loonie as crude craters and sentiment sours more broadly, as noted above. Indeed, WTI is now sub-Usd 69.50/brl and Usd/Cad is inching closer to 1.2800 after scaling a twin top from early March at 1.2737 and 1.2750 to expose 1.2783 from February 8.

AUD/NZD - No surprise that the so called high beta Aussie and Kiwi are reeling in risk-off conditions, with the former also taking heed of the deteriorating pandemic situation that has prompted lockdown to be extended in the state of Victoria and restrictions in Sydney ramped up. Aud/Usd is now hovering above 0.7350 precariously, as Aud/Nzd sits a similar paltry distance off 1.0550 and Nzd/Usd unwinds more post-RBNZ strength towards 0.6960. Note, RBA minutes are due overnight, but unlikely to provide the Aussie with much comfort amidst growing calls that the economic recovery will be hampered by the aforementioned extension and intensification of lockdowns.

EUR/GBP/CHF - All unable to withstand the Dollar’s advances, with the Euro succumbing to some stop sales on the break below a former double bottom (1.1772) and Cable only a few pips away from the 200 DMA (bang on 1.3700 today) at one stage, while the Franc has fallen beneath 0.9200, but is keeping pace in Eur/Chf cross terms either side of 1.0850 unlike the Pound that is also weaker vs the single currency in wake of a speech from BoE’s Haskel that was not as hawkish as Ramsden and Saunders last week.

JPY - The Yen is bucking the overall trend and may glean sufficient momentum to challenge earlier July pinnacles at 109.66 and 109.53 against the Greenback if risk appetite continues to plunge before attention turns to Japanese inflation data on Tuesday.

SCANDI/EM - Almost a perfect storm for the petro-currencies as Brent skids through Usd 72 to the detriment of the Nok and Rub especially, while the Try failed to traverse 8.5000 and has not been helped by a decline in Turkish consumer confidence. Elsewhere, the Zar is eyeing Gold to see if it can hold above Usd 1800/oz having closed below the 200 DMA for the first session in three on Friday.

South African President Ramaphosa said there is no need to impose a state of emergency and a South African Cabinet Minister believes that the social unrest situation is "fully stabilised" now. (Newswires)

Former South African President Zuma is expected to appear in court today; he is expected to ask the court to rescind the 15-month jail sentence against him on the grounds that it was made in his absence. (Newswires)

FIXED

Minor new highs and lows in the 10 year benchmarks, but Bunds, Gilts and US Treasuries are still underpinned against the backdrop of risk-off flows in stocks and oil, with the former holding just above 175.00 and not suffering a deeper setback after dipping under last Friday’s 175.04 Eurex low to 175.02. Meanwhile, its UK peer is nearer 129.44 Liffe peak than trough vs a 129.12 prior settlement price in wake of less hawkish remarks from BoE’s Haskel compared to Ramsden and Saunders summed up succinctly by the phrase that ‘tight policy is not the right policy in his opinion. Elsewhere, UST remain firmer and flatter ahead of July’s NAHB housing market index.

COMMODITIES

WTI and Brent front-month futures are pressured amid the sour risk sentiment and in the aftermath of the impromptu weekend OPEC+ meeting. To recap, ministers met on Sunday and ironed out an agreement that sees total group production increase by 400k BPD on a monthly basis from August (subject to market conditions), with the pact also extended to the end of 2022 from April 2022. For the extended period (from May 2022), baselines have been revised higher for the UAE (3.5mln vs prev. 3.168mln), Iraq (4.803mln vs prev. 4.653mln), Kuwait (2.959mln vs prev. 2.809mln), Saudi and Russia (both to 11.5mln vs prev. 11mln). Russian Deputy PM Novak stated that Russia would raise its oil output on a monthly basis by 100k BPD beginning in August and expects to return to pre-crisis levels of production in May next year. Desks have framed the deal as a short-term negative (i.e., supply hikes from August and baseline revisions for more members than expected) but supportive in the long term as producers remain in unison, taking out uncertainty and quashing the risk of a price war. Further, the supply/demand balance remains in favour of a near-term deficit amid summer demand. That being said, COVID developments remain in focus, with Australia's Victoria state extending its lockdown and the UK imposing travel restrictions from France for double-dosed individuals. Sources via Energy Intel note that OPEC+ producers "see the potential for a significant dip in oil demand in the first half of next year, and sources say it is likely they will take a pause from monthly increases this December." In-fitting with this outlook, analysts at PVM, expect 2022 demand growth to outpace the OPEC+ supply expansion, but demand in H1 is seen as sluggish before a significant improvement in H2 2022. Meanwhile, Goldman Sachs sees the weekend OPEC+ accord as "supportive to our constructive oil price view." The bank adds, "while the baselines were raised more than expected, the production path instead implies 1H22 output 0.65 mb/d below our prior expectations (with a threat of a price war now removed)." UBS expects Brent to reach USD 80/bbl before levelling off to USD 75/bbl on higher OPEC+ production. WTI and Brent Sept' futures have dipped below USD 70/bbl and USD 72/bbl, respectively, from highs of USD 71.40/bbl and USD 73.34/bbl. Elsewhere, spot gold and silver are lackluster as the rampant Dollar pressures the complex, although losses are somewhat cushioned by haven properties alongside yields. Spot gold trades just north of USD 1,800/oz (vs high 1,828.50/oz), whilst spot silver found near-term support at USD 25.30/oz (vs high 26.65/oz). LME copper is losing further ground under USD 9,500/t with the risk aversion and stronger Buck weighing on prices and with China's NDRC noting that they will continue to release metals reserves in batches including copper, aluminium and zinc. Furthermore, there were reports that China is intending to add advanced coal production capacity of as much as 110mln/TPY in H2-2021, with the State Planner later adding that they have plans to build coal inventory of at least 7-days consumptions by July 24th.

OPEC+ convened a new meeting on Sunday and key producers reached an agreement on gradually increasing output from August by 400k BPD on a monthly basis until phasing out the 5.8mln BPD production adjustment and will reassess market developments and performance of participating nations in December this year. OPEC+ agreed to extend supply management until the end of next year and agreed a new baseline for the UAE of 3.5mln BPD from 3.17mln BPD, 150k BPD baseline increases each for Iraq and Kuwait, while Saudi and Russian baselines will be adjusted to 11.5mln BPD from 11.0mln BPD each from May 2022. Furthermore, the group will convene in September and aims to complete the phasing out of cuts by September 2022 which is dependent on market conditions, while the OPEC+ baseline revisions are said to add 1.63mln BPD to supply beginning in May next year, according to newswire calculations. (Newswires)

Saudi Arabia’s Energy Minister stated that they will hopefully phase out all cuts by September next year and that the spirit of OPEC is to maybe even go beyond 2022, while he also noted that OPEC+ is here to stay. (Newswires)

Russian Deputy PM Novak stated that Russia will raise its oil output on a monthly basis by 100k BPD beginning in August and expects to return pre-crisis levels of production in May next year. Novak added that they see a deficit in the global oil market and that Russian budget could get an additional RUB 400bln from the new agreement with an average oil price of USD 60/bbl. (Newswires)

Iraq’s Oil Minister said the oil market has seen an improvement in demand, as well as a decline in surplus and inventories, while he added that the OPEC+ meeting on Sunday emphasized a strengthening collective cooperation. (Newswires)

China State Planner has power plans to build coal inventory of at least 7-days consumptions by July 24th, sources state; earlier reports noted that China is intending to add advanced coal production capacity of as much as 110mln/TPY in H2-2021, State Planner. (Newswires)

UBS expects Brent to reach USD 80/bbl before levelling off to USD 75/bbl on higher OPEC+ production. (Newswires)