• European bourses began the session firmer in a mild paring of yesterday's losses but have since retraced the bulk of this; Euro Stoxx 50 +0.3%
• Similarly, US futures pulled back but retain an underlying bid with the RTY, +0.9%, outperforming
• The DXY is firmer but sub-93.00 with peers only modestly pressured and activity currencies lagging once more while the JPY is flat
• Core debt received a boost from strong UK and German issuance, even given the yield environment, with the US yield curve little differed overall
• US Senate Majority Leader Schumer confirmed he will set a vote on the motion to proceed to debate on the bipartisan USD 1.2tln infrastructure bill on Wednesday
• Looking ahead, highlights include US Building Permits and Housing Starts. Earnings from Phillip Morris, Netflix & United Airlines

CORONAVIRUS UPDATE

NIH’s Dr Fauci said the Delta variant is becoming more dominant in the US and that vaccinated people are generally protected but not completely, while he suggested there is a 93-94% chance of protection if vaccinated. (Newswires)

French government spokesman said that they have entered into the fourth wave of the COVID-19 epidemic. (Newswires)

South Australia will go into a seven-day lockdown from 18:00 local time today; subsequently, New Zealand has paused quarantine travel from the region. (Newswires)

ASIA

Asian equity markets traded lower after the region inherited a negative mood from global peers in which risk appetite was pummelled by ongoing Delta variant fears that forced fresh restrictions for several regions around the world and prompted the US to raise the UK to the highest risk level, as well as issue a "do not travel" warning. However, the declines in Asia were milder and US equity futures also attempted to recoup some of their recent losses. ASX 200 (-0.5%) was led lower by underperformance in energy after oil prices tumbled by over 7% due to COVID-19 concerns and the recent OPEC+ agreement to lift output, although Oil Search bucked the trend following a merger approach from Santos that it rejected although remains open for a revised proposal. Mining names were pressured after BHP announced its quarterly iron ore production figures which declined from a year ago and with another state lockdown announcement, this time for South Australia, adding to the downbeat tone. Nikkei 225 (-1.0%) declined to its lowest levels in six months shortly after the open as it suffered the ill-effects of the haven flows into its currency and amid ongoing virus woes with Hokkaido to seek quasi-emergency measures. Hang Seng (-0.8%) and Shanghai Comp. (-0.1%) were subdued as several countries took aim at China for cyber hacking which China dismissed as groundless, while the PBoC refrained from any adjustments to the Loan Prime Rate for a 15th consecutive month to the disappointment of the outside calls for a 5bps cut. Attention also remained on Evergrande shares which extended on the prior day’s 16% slump with another double-digit decline after a Chinese city halted sales of the Co.’s projects which added to its ongoing debt concerns. Finally, 10yr JGBs were supported by the recent downbeat picture in risk assets and bull flattening in USTs that saw a drop of around 10bps for the US 10yr yield, although upside for 10yr JGBs was capped as the 152.50 level provided a magnet for price action and amid softer demand in the Japanese enhanced liquidity auction for longer-dated bonds.

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 6.4855 vs exp. 6.4817 (prev. 6.4700)

• PBoC 1-Year Loan Prime Rate (Jul) 3.85% vs. Exp. 3.85% (Prev. 3.85%)
• PBoC 5-Year Loan Prime Rate (Jul) 4.65% vs. Exp. 4.65% (Prev. 4.65%)
• Japanese National CPI YY (Jun) 0.2% vs. Exp. 0.2% (Prev. -0.1%)
• Japanese National CPI Ex. Fresh Food YY (Jun) 0.2% vs. Exp. 0.2% (Prev. 0.1%)
• Japanese National CPI Ex. Fresh Food & Energy YY (Jun) -0.2% vs. Exp. -0.2% (Prev. -0.2%)

US

US Senate Majority Leader Schumer confirmed he will set a vote on the motion to proceed to debate on the bipartisan USD 1.2tln infrastructure bill on Wednesday and stated that the Senate aims to make more progress this week. There were also comments from Republican Senator Cornyn that he is a no regarding Wednesday's procedural vote and he doesn't think there will be 10 Republicans to open debate if there isn't a bipartisan agreement on infrastructure made by then, while Republican Senator Collins said they cannot meet Wednesday's infrastructure deadline. (Newswires)

Apple (AAPL) is to delay bring employees back to offices until at least October. (MacRumours)

UK/EU

UK PM Johnson agreed with senior ministers to hike national insurance to fund reforms to social care with national insurance payments to increase by one percentage point which will raise over GBP 10bln annually. (The Times)

UK PM Johnson's former senior aide Cummings claimed that PM Johnson had dismissed a lockdown for last Autumn as the people that were dying were over 80 years old. (Sky News)

German Election Poll: CDU/CSU 31.5% (+2), Green 18% (-3.5), SPD 16.5% (-0.5), AfD 9.5% (+0.5), FDP 12% (+1) and Linke 6.5% (-0.5) via Allensbach (FAZ Poll)

The European Commission will, later today, publish a report criticising Hungary over multiple issues including insufficient anticorruption and the state of media freedom, according to a draft. Additionally, to publish plans for a more robust anti money-laundering system. (Politico)

ECB Lending Survey: Euro area banks reported broadly unchanged credit standards on loans to enterprises and households in Q2 2021. (Newswires) Link to full release

GEOPOLITICAL

US State Department senior official stated the US is expected to announce initial steps following the Cuba review, as well as in response to protests and the government crackdown, while the US is seeking workarounds to restore flow of remittances to Cuba and ensure the government cannot seize funds. (Newswires)

The Biden administration decided to link prisoner exchange to nuclear deal file, this decision is "unacceptable and unnecessary" according to the Iranian government. (Twitter)

EQUITIES

Major bourses in Europe saw a broadly positive cash open and held onto gains through much of the morning before losing momentum and reversing (Euro Stoxx 50 +0.1%). US equity futures meanwhile trade sideways with modest broad-based gains of around 0.4% across the board. News flow remains light this morning as participants keep tabs on COVID developments, US-Sino tensions and central bank rhetoric, given some of the hawkish noises emanating from some G10 economies; though, both the ECB and Fed are now in their quiet/blackout periods. In terms of scheduled risk events for the week, the ECB on Thursday and Flash PMIs on Friday will likely steal the limelight. Sectors are predominantly in the green but do not portray a clear theme nor bias. Construction, Insurance, Food & Beverage and Media reside as the winners whilst Tech, Healthcare, and Oil & Gas lag. In terms of individual movers, earnings season is kicking off in Europe with UBS (+3.1%) holding onto most of its opening gains after revenues topped forecasts and the group announced a share buyback under the current programme. Other earnings-related movers include Alstom (+2.7%), Alfa Laval (+6.1%), Telenor (+2.6%), Volvo (-3.6%) and easyJet (+3.0%). Finally, Swatch (+0.4%) and Richemont (+0.2%) glean some support as Swiss Watch Exports rose by some 12.5% vs 2019 levels.

UBS (UBSG SW) CEO says they are very cautious with clients crypto investments, see these as speculative. (Newswires)

FX

NZD/DXY/AUD - The Kiwi’s sharp fall from grace continues, as bullish/hawkish fundamentals dissipate further and technical impulses become more and more negative in Nzd/Usd and Aud/Nzd irrespective of the fact that the COVID-19 situation is worsening in Australia with lockdowns being extended and widened. The headline pair has now lost ‘key’ support on some charts at 0.6915 and is striving to keep tabs with the round number below, while the cross is probing above 1.0600 having held a few pips over the semi-psychological 1.0550 level on Monday, and with little new emerging from the RBA minutes that underscored the decision to maintain rate guidance and taper QE after some deliberation. However, Westpac is now warning that the economy may contract in Q3 and the Board may have to reverse its Aud 1 bn/week unwind in bond purchases to spur growth, leaving Aud/Usd in the low sub-0.7350 area ahead of retail sales data. Conversely, the Greenback has regained poise after losing out to safer-havens amidst the risk rout yesterday, and the index is straddling 93.000 within a 93.039-92.799 range against the backdrop of re-steepening along the US Treasury curve and a rebound in outright yields pre-building permits and housing starts.

JPY/CHF - As noted above, the Yen and Franc have both handed back some safety premium to the Dollar on the grounds of improving risk sentiment that has prompted a re-widening of UST/other bond spreads, with Usd/Jpy back over 109.50 and Usd/Chf approaching 0.9200 again vs lows of around 109.07 and 0.9163 respectively at one stage on Monday. Note, no real reaction or independent direction gleaned from in line Japanese CPI or a wider Swiss trade surplus in advance of trade and M3 money supply tomorrow, while the Yen looks confined between 108.85-109.00 to 109.95-110.10 extremes given decent expiry option interest either side (1 bn and 1.6 bn).

EUR/GBP/CAD - All marginally softer vs their US peer, but the Euro managing to contain declines through 1.1800 following its stop-loss decline to circa 1.1764 yesterday and capped by option expiries at the big figure (1.2 bn) as the clock continues to tick down to Thursday’s ECB policy meeting. Elsewhere, Sterling remains soft across the board under 1.3700 in Cable terms and beneath 0.8625 in Eur/Gbp, while the Loonie pivots 1.2750 with some help from relative stability in crude after Monday’s mauling.

SCANDI/EM - The Nok looks shell-shocked and unable to derive any real traction from Brent’s partial recovery or the aforementioned upturn in the broader market tone, but most EM currencies are faring better including the Cnh/Cny in wake of the PBoC extending its run of unchanged LPRs to 15 months in a row and the Zar backed by Gold forming another Usd 1800/oz+ base.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1750 (424M), 1.1770 (339M), 1.1800 (1.2BLN), 1.1815 (556M), 1.1850-60 (834M)
• USD/JPY: 108.85-109.00 (1BLN), 109.95-110.10 (1.6BLN)

RBA Minutes from the July meeting stated that the board remains committed to maintaining highly supportive monetary conditions and will not raise the cash rate until inflation is sustainably within the 2%-3% target, while the Bank's central scenario is that conditions for a rate hike will not be met before 2024 and meeting rate hike conditions will require the labour market to be tight enough to spur materially higher growth in wages. RBA stated that a recovery in the labour market continued to be faster than anticipated but added that outcome for nominal side of the economy have not been as positive and stated that members agreed that there should be flexibility to raise or lower weekly bond purchases in the future due to high uncertainty about the outlook. (Newswires)

A South African court has adjourned the trial of former-president Zuma, regarding arms deal corruption, until August 10th. (Newswires)

FIXED

It’s arguable whether bonds needed another push or even excuse to resume their upward trajectory give almost self-sustaining and self-propelling momentum, but well received German and UK auctions have provided buyers with additional rationale anyway, as Bunds peer beyond 176.00 and Gilts get closer to Monday’s 130.00+ Liffe high, at 176.09 and 130.23 respectively. The latest leg up has also filtered through to hitherto lagging or lethargic US Treasuries, and added incentive could be emanating from equities and oil slipping back further from their recovery peaks. Ahead, US housing data, ECB gross PEPP and redemptions.

COMMODITIES

WTI and Brent September contract remain choppy in early European hours after the benchmark settled lower by around USD 5/bbl apiece yesterday. The complex remains pressured by concerns surrounding the Delta variant as more APAC regions enter tighter lockdowns (Indonesia and Singapore recently), whilst travel corridors are being reviewed to stem the spread. Double-vaccinated international travel has also come under question after the UK imposed travel restrictions on travellers from France who have been double-dosed, in turn posing a threat to the anticipated demand path for jet fuel heading into summer. Some have been pointing the finger at OPEC+ for yesterday’s decline, although the overall outcome of the meeting was constructive. Seemingly the timing of the OPEC+ decision to add more barrels and bearish COVID development were the main factors behind yesterday’s correction. WTI and Brent trade around USD 66.50/bbl (vs high 67.29/bbl) and just under USD 69/bbl (vs high 69.60/bbl). Elsewhere, spot gold and silver trade sideways in a tight range around USD 1,815/oz and USD 25/oz respectively as the Dollar remains steady. Turning to base metals, LME copper consolidates under around the USD 9,275/oz mark, whilst Shanghai copper fell as much as 2% overnight amid a firmer Dollar and COVID concerns. Meanwhile, Dalian coking coal futures rose to two-month highs, with traders citing the lower supply.