• Equities are firmer this morning with a pro-cyclical bias in play; Euro Stoxx 50 +1.4%, ES +0.4% & RTY +0.9%
• DXY has been choppy around the 93.00 mark with peers rangebound and USD/JPY contained by OpEx
• Core debt is pressured given the risk tone and, unlike Tuesday, the Bund outing not offering any assistance to EGBs; US yield curve is bear-steepening, 10yr ~1.25%
• US 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
• Focus is on earning updates with the DAX lagging on Daimler & SAP, though ASML lifts the overall tech sector while travel and leisure outperforms
• Looking ahead, highlights include EIA Inventories, supply from the US. Earnings from Verizon, 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 (+0.8%) 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 (+0.6%) 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 (-0.1%) and Shanghai Comp. (+0.7%) 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)

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%)

US

US 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)

UK/EU

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)

GEOPOLITICAL

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

EQUITIES

Stocks in Europe have extended on the gains seen at the cash open (+1.3%) after a sentiment picked up following a somewhat mixed APAC session. This optimism has also seeped across the pond, with the US equity future all higher but the NQ (+0.1%) the laggard as yields rebound. Macro news flow has been quiet throughout the morning with today’s calendar also on the lighter side ahead of tomorrow’s ECB Policy Decision (Full preview available on the headline feed), although earnings have started picking up. Germany’s DAX (+0.6%) lags the region on the back of SAP’s (-2.4%) post-earnings losses, despite raising guidance, as the Co. missed on revenue expectations whilst operating profits also declined. Further, Daimler (-0.9%) is pressured in-spite of stellar earnings as it noted that the chip shortage will impact H2 (albeit not as bad as H1), whilst cutting its Mercedes-Benz forecast. SAP and Daimler together account for just under 15% of the DAX. The AEX (+1.6%) meanwhile resides as one of the top performers, in part supported by ASML (+3.5%) who announced a new share buyback programme and saw its guidance exceed analyst forecasts. ASML hold a 17.6% weight in the Dutch index and the stock has also lifted peers in tandem, with Infineon (3.0%), Micro Focus (+5.9%) and STM (+2.9%) all on the firmer footing. Sectors are firmer across the board and clearly portray a cyclical picture and a risk-on bias. Travel & Leisure tops the charts after the Delta-related decline earlier this week. The gains can mostly be attributed to Evolution Gaming (+5.0%), who hold a 19% weighting for the sector. Retail follows a close second aided by Next (+7.7%) as sales during the last seven weeks were materially above forecast, whilst the Co. plans to distribute its surplus cash as a special dividend. However, Next does not expect these exceptionally strong sales to continue. Other earnings-related movers include Iberdrola (+0.3%), Novartis (+0.9%), Julius Baer (-1.0%), Nordea (+2.6%) and Telia (-3.3%).

Please see here for the Daily European Equity Opening News and the Additional Equity News for the morning's European earnings/stories, which include: ASML, Daimler, Evolution Gaming, Novartis and SAP among others.

FX

DXY/AUD/JPY - As Westpac aptly puts it, the Dollar is effectively in a win-win situation, as it retains a firm underlying bid when sentiment turns bearish due to heightened concerns about the adverse impacts of the Delta variant, but also during periods of less anxiety and when attention switches back to the more hawkish-leaning FOMC alongside risks that inflation may not be transitory. Hence, Buck bulls are eager to buy into any dips and apparently getting increasingly impatient given ascending lows and highs in the index to 93.194 so far off a 92.951 base compared to 93.172-92.799 and 93.041-92.627 ranges yesterday and on Monday respectively. Looking ahead, only weekly MBA mortgage applications are scheduled on the US data front, but Usd 24 bn 20 year issuance seems to be in focus as Treasury yields back up pretty sharply and the curve flips into re-steepening mode. Elsewhere, the Aussie has regained a degree of composure after briefly relinquishing 0.7300+ status in wake of appreciably weaker than anticipated retail sales data overnight and the ongoing COVID-19 lockdowns, but the Yen is now relenting and relying on 1 bn option expiry interest between 110.00-15 along with sentimental support to contain declines having reversed further from best levels seen so far this week to circa 110.18.

NZD - The Kiwi is taking advantage of the situation and supportive external factors after its recent sharp retracement from post-RBNZ peaks, but Nzd/Usd still looks tentative on the 0.6900 handle in contrast to the Aud/Nzd cross that has reversed more emphatically through 1.0600 on the aforementioned bearish Aussie factors.

GBP/CAD/EUR/CHF - All narrowly mixed against their US peer and relatively rangebound, as Sterling tries to secure a firmer grip of the 1.3600 handle following a scrape with the 50 WMA on Tuesday, while the Loonie is gleaning traction from a recovery in oil and risk sentiment between 1.2730-1.2670 parameters, the Euro is holding within a 1.1783-52 band and Franc is hovering under 0.9200.

SCANDI/EM - Much needed respite for the Nok via Brent reclaiming Usd 70+/brl terrain vs sub-Usd 67.50 at one point yesterday, but little solace for the Zar as Gold slips back towards Usd 1800/oz again to offset fractionally firmer than forecast SA inflation data. Meanwhile, more diplomatic angst for the Try as France’s Foreign Minister laments Turkey's attitude regarding Cyprus, and will raise the matter with the UN, not to mention the fairly pronounced rebound in crude prices.

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

Notable FX Expiries, NY Cut:

• USD/JPY: 110.00-15 (1BLN), 110.50 (820M)
• EUR/USD: 1.1700 (1.3BLN), 1.1770 (289M), 1.1800 (312M), 1.1825-35 (633M), 1.1850 (670M)

FIXED

Supply could well be an issue given somewhat mixed German 2028 auction results and perhaps caution before the latest 20 year US offering given past demand deficiencies (albeit not last time), but the latest and more concerted downturn in debt may also be a sign of overbought conditions and an extension too far ahead of this week’s big risk events (including the ECB tomorrow and preliminary PMIs on Friday). Whatever the reason, Bunds have now been as low as 175.47 (-38 ticks on the day and 81 ticks under Tuesday’s Eurex pinnacle), Gilts down to 129.49 (-41 ticks and 99 ticks beneath yesterday’s Liffe peak) and the 10 year T-note at 134.10+ (-10/32) or 1.25%+ in yield terms vs 135-07 and sub-1.15% respectively during the prior session.

COMMODITIES

WTI and Brent front month futures have been tracking sentiment higher throughout the session following the recent correction in the crude complex emanating from COVID-related woes. Prices were pressured overnight after the surprise build in the headline private inventories (+0.8mln bbls vs exp. -4.5mln bbls), alongside gasoline (+3.1mln vs exp. -1.0mln). However, sentiment improved throughout the European morning despite news flow being scarce. As such, WTI Sep has managed to reclaim USD 68/bbl (vs low USD 66.44) whilst its Brent counterpart topped USD 70/bbl (vs low 68.63/bbl). Elsewhere, the precious metals complex moves in tandem with yields, with spot gold in a tight range just above USD 1,800/oz (1,803-13/oz) and spot silver north of USD 25/oz (24.76-25.12/oz). Looking ahead, prices are likely to follow sentiment ahead of the weekly DoE release. Base metals have nursed overnight losses as the risk appetite across the markets offers base metals with some solace from China’s NDRC resuming its jawboning. Chinese state media noted that China is to auction 30k tonnes of copper, 90k tonnes of aluminium, and 50k tonnes of zinc from state reserves later this month, whilst the NDRC urged stepping up supervision on commodity prices and ensure overall price level targets this year.

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 is to auction 30k tonnes of Copper, 90k tonnes of aluminium, 50k tonnes of zinc from state reserves later this month, according to state media. (Newswires)