• Asia-Pac stocks traded with a positive bias as the region partially took impetus from the rebound on Wall St
• In FX, the DXY held above 93.00, EUR/USD trades on a 1.17 handle and GBP/USD holds on to 1.36 status
• US Democrat Senator Manchin said they are getting close on the infrastructure deal
• UK ministers are to say that Brussels has three months to sort out the Northern Ireland Protocol or Britain will go it alone, according to The Telegraph
• Looking ahead, highlights include EIA Inventories, supply from Germany & the US. Earnings from ASML, Daimler, Novartis, Verizon, Johnson & Johnson, Coca-Cola

CORONAVIRUS UPDATE

WHO Chief Tedros said the world's leading economies could bring the pandemic under control in the months ahead and stated that profits and patents must come second in the pandemic. (Newswires)

A study suggested that one dose of the Johnson & Johnson (JNJ) vaccine is ineffective against the Delta variant and that those inoculated with the JNJ vaccine may need a booster shot. (NYT)

ASIA

Asia-Pac stocks traded with a positive bias as the region partially took impetus from the rebound on Wall St where the COVID-triggered risk aversion abated to help the major indices retrace Monday's declines and with the recovery spearheaded by outperformance in cyclicals. ASX 200 (+1.0%) was underpinned by strength across most commodity-related industries, led by energy and with quarterly updates in focus including CIMIC which was among the biggest gainers despite posting weaker half-year net, as its revenue jumped and it also maintained full-year net profit guidance. This helped the index ignore a continued rise in domestic COVID-19 infections and disappointing Retail Sales data to reclaim the 7,300 level and briefly move to about 50+ points from all-time highs. Nikkei 225 (+0.4%) surged at the open following better than expected trade data including a 48.6% jump in Exports and reports that the government is to extend the employment subsidy program through end-December, but with gains then capped amid further infections of athletes as the first events of Tokyo 2020 got underway. Hang Seng (-0.5%) and Shanghai Comp. (+0.6%) were mixed with Hong Kong dragged lower after plans to ease rules on arrivals were delayed, while notable pressure was seen in cyclicals and WuXi Biologics suffered heavily due to its parent offloading 80mln shares. The mainland was positive amid conflicting views on the PBoC with some analysts suggesting that the PBoC may further reduce financing costs in H2, although attention was on the deadly flooding in Henan which has led to dam collapses in the region, mass evacuations and at least a dozen casualties with many more trapped in a flooded subway. Finally, 10yr JGBs were lacklustre amid the positive mood in Japanese stocks and recent whipsawing in USTs, although downside for Japanese bonds are also limited amid the BoJ’s presence in the market for almost JPY 1.4tln of JGBs with mostly 1yr-10yr 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 6.4835 vs exp. 6.4816 (prev. 6.4855)

A dam collapsed occurred amid heavy flooding in Henan and 12 people were reported to have died and many were trapped in a subway at the provincial capital of Zhengzhou, while 200k have reportedly been evacuated in the central China city due to flooding. (Newswires/AFP)

US Deputy Secretary of State Sherman said the US has no greater friend in Northeast Asia than Japan and South Korea, following a trilateral meeting with Japanese Vice Foreign Minister Mori and South Korean First Vice Foreign Minister Choi, while the State Department noted that the US will continue to engage with Chinese officials. There were also comments from Japanese Vice Foreign Minister Mori that Japan, South Korea and US will continue to cooperate on North Korea issues, while they agreed to work on denuclearisation of North Korea and held honest discussions on China's activities the East and South China Seas, as well as Taiwan-related issues. (Newswires)

Chinese factories that supply Apple (AAPL) and make other products sold in the US are shunning workers from Xinjiang, as Western countries increase scrutiny of the region. (WSJ)

PBoC's decision to keep the Loan Prime Rate unchanged for July implies stable monetary policy in H2, according to China Securities Times. However, a separate report noted comments from analysts that the PBoC may further reduce financing costs in H2 including bank lending rates and companies' capital raising, despite leaving the LPR unchanged this month. (China Securities Times/Economic Information Daily)

BoJ Minutes from the June meeting stated members agreed the economy is to recover as the impact from the pandemic gradually subsides and agreed that consumption is stagnating largely due to downward pressure in services spending. Members also agreed consumption will remain subdued for the time being but then pick up as vaccinations progress, while a few members said if rising input cost persist, it could weigh on the economy and a member suggested that inflation is likely to accelerate in H2 due to pent up demand. (Newswires)

Southeast Asia's technology supply has been impacted by the ongoing COVID-19 situation in the region which reportedly threatens to exacerbate the semiconductor chip crunch. (FT)

• Japanese Trade Balance (JPY)(Jun) 383.2B vs. Exp. 460.0B (Prev. -189.4B)
• Japanese Exports YY (Jun) 48.6% vs. Exp. 46.2% (Prev. 49.6%)
• Japanese Imports YY (Jun) 32.7% vs. Exp. 29.0% (Prev. 27.9%)

UK/EU

UK ministers are to say that Brussels has three months to sort out the Northern Ireland Protocol or Britain will go it alone with UK Secretary of State for Northern Ireland Brandon Lewis and Chief Negotiator of Task Force Europe Lord Frost to tell the EU to improve the deal by September 30th and do not rule out walking away from it if no progress is made. (The Telegraph)

UK Foreign Secretary Raab accused European Commission of undermining UK sovereignty over Gibraltar after Brussel's unveiled draft guidelines for negotiations regarding the territory. (FT)

FX

In FX markets, the DXY held above the 93.00 level after benefitting from a recent rebound in yields and with the greenback largely ignoring the improved risk appetite stateside. Attention also remained on Congress with Democrat Senator Manchin supportive of Senate Majority Leader Schumer's plan for a Wednesday vote and noted that the two sides were not far apart in bipartisan infrastructure negotiations, while Senate Minority leader McConnell had suggested that a procedural defeat will not slow down the bipartisan infrastructure bill. EUR/USD continued to languish beneath 1.1800 and GBP/USD briefly approached towards the 1.3600 level to the downside amid cross-Channel frictions with UK ministers set to warn Brussels that it has three months to sort out the Northern Ireland Protocol or Britain could go it alone and with the UK also criticizing the European Commission on its draft guidelines for negotiations concerning Gibraltar. USD/JPY was stable just beneath the 110.00 handle amid the mostly positive risk tone and after outdated BoJ minutes for the June meeting, while antipodeans languished as the greenback remained steadfast with AUD/USD slipping to a floor near 0.7300 following recent downgrades to Q3 GDP growth forecasts for Australia which is now seen at 0.1% vs. prior forecast of 0.9%.

• Australian Retail Sales MM (Jun P) -1.8% vs. Exp. -0.4% (Prev. 0.4%)

COMMODITIES

Commodities were lacklustre overnight with WTI crude futures contained beneath the USD 67/bbl level as the prior day's risk-fuelled recovery was cut short by a bearish private sector inventory report which showed a surprise build in headline crude and gasoline stockpiles, while ongoing COVID-19 restrictions in Asia and global fears associated with the Delta variant continue to weigh on the outlook for demand. Gold prices languished at the prior day's lows near the USD 1800/oz level amid the firmer greenback, while copper prices were pressured alongside pressure in Chinese commodity prices amid the recent flooding in central China and with demand sapped by Beijing scrutiny in which the NDRC urged stepping up supervision on commodity prices.

US Private Inventory Data (bbls): Crude +0.81mln (exp. -4.5mln), Cushing -3.57mln, Distillate -1.23mln (exp. +0.6mln), Gasoline +3.31mln (exp. -1.0mln). (Newswires)

China's NDRC urged stepping up supervision on commodity prices and ensure overall price level targets this year. (Newswires)

GEOPOLITICAL

UK is to permanently station two of its naval ships in Asia. (Telegraph)

White House that US President Biden still has concerns about the Nordstream 2 pipeline which threatens European and Ukrainian security, while it was separately reported that the US is asking Ukraine not to complain as it nears a Russia-Germany Nord Stream 2 pipeline agreement. (Newswires/Politico)

US

The Treasury curve bear-steepened on Tuesday as Monday's acute risk aversion began to abate ahead of supply. 2s -1.4bps at 0.196%, 5s -1.1bps at 0.679%, 10s +3.1bps at 1.212%, 30s +5.6bps at 1.871%; TYU1 volumes were strong again. 5yr TIPS +0.8bps at -1.775%, 10yr TIPS +2.5bps at -1.057%, 30yr TIPS +4.2bps at -0.294%. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. The recent rally initially continued heading into the US session, taking yields to new lows, where some mixed US housing data was accompanied by reported chunky hedge fund futures buying, seeing cash 10yr and 30yr yields print sessions lows of 1.13% and 1.78%, respectively; T-Notes printed highs of 135-07. It's also worth noting that it was the belly of the curve that led the charge higher in the US morning, with decent volume in Eurodollar midcurves amid a slew of block trades going through. Anyway, bond prices hit their apex after the US cash equity session got off on the front foot, with profitable longs reported to have taken profits with fast money accounts pilling into the fresh bearish flow to take cash 10s back above the 1.20% benchmark as the curve bear-steepened into Wednesday's 20yr Treasury bond auction. T-note (U1) futures settled half-a-tick lower at 134-21+.

White House spokesperson said it continues to expect Congress to raise the debt limit, while the Biden administration sees a gain in chip supply and relief ahead for carmakers. (Newswires)

US Democrat Senator Manchin said they are getting close on the infrastructure deal but would not say if he’d agree to move ahead with the USD 3.5tln budget resolution, while it was stated that Schumer had asked for assurances that all 50 Democrats be on board by Wednesday although Senator Manchin suggested he never heard of that. Furthermore, it was later reported that Senator Manchin supports Senate Majority Leader Schumer's plan for a Wednesday vote and said that the two sides are not far apart in infrastructure negotiations. (Newswires/CNN)

US Senate Democrats are considering a Plan B valued at USD 4.1tln if the bipartisan infrastructure negotiations fail to reach an agreement, which will include USD 600bln that Republicans have already agreed to and a USD 3.5tln plan they could go alone with. (Axios)

US Senate Minority leader McConnell said a procedural defeat will not slow down the bipartisan infrastructure bill. There were separate comments from GOP Senator Romney who predicts all infrastructure bill issues can be resolved by the end of week and urged for Senate Majority Leader Schumer to delay the vote until Monday, while GOP Senator Collins also said the GOP is seeking support to delay infrastructure deadline vote until Monday. (Newswires)

US GOP Senator Capito said the bipartisan infrastructure plan is in a precarious situation with more specifics needed and that it will be difficult convincing lawmakers the bill is paid for, while it was also said that there are still some very sticky issues with the plan. (Newswires)

US House Majority Leader Hoyer said the House might take up more fiscal 2022 spending bills than those in the seven-bill package, while there were separate comments from GOP Senator Lindsey Graham that he will lay out GOP demands next week in exchange for vote to suspend debt ceiling. (Newswires/Twitter)

US bank regulators are expected to agree to work together on an overhaul of rules governing hundreds of billions of dollars of lending each year in low-income and minority neighbourhoods. (WSJ)