• Asia-Pac stocks traded higher following the extended rebound across global counterparts
• In FX, the DXY remains sub-93.00, EUR/USD eyes 1.18 and GBP/USD sits on a 1.37 handle
• The US Senate voted to block the opening of the debate on the bipartisan infrastructure plan
• Democrat Senator Manchin stated that they made significant progress in bipartisan infrastructure negotiations and are close to an agreement
• Looking ahead, highlights include ECB policy announcement and President Lagarde press conference, US weekly jobs data, existing home sales, SARB rate decision, EZ consumer confidence. Earnings from ABB, Roche, Unilever and AT&T

CORONAVIRUS UPDATE

US President Biden said children under 12 should be eligible for vaccination by end-August or the start of September, while other reports noted that White House officials are debating reviewing mask guidance amid a spike in infections. (Newswires/Washington Post)

NIH's Dr Fauci said vaccines work quite well with the Delta variant of COVID-19 and he would be astounded if the FDA do not fully approve COVID-19 vaccines, while Fauci added that he doesn't see a central mandate for vaccinations but sees local mandates. (Newswires)

AstraZeneca (AZN LN) and Pfizer (PFE) vaccines are highly effective against symptomatic disease from the Delta variant of the coronavirus following two doses, according to a study published in the New England Journal of Medicine. The report noted that effectiveness against symptomatic disease from two doses from the Pfizer-BioNTech vaccine was 93.7% among persons with the Alpha variant and 88.0% among those with the Delta variant, while effectiveness of two doses of the AstraZeneca vaccine was 74.5% among persons with the Alpha variant and 67.0% among those with the Delta variant. (NEJM)

UK supermarket supply chains are "starting to fail" as a result of the "pingdemic" which has forced thousands of workers into self-isolation, according to food industry leaders. (Telegraph)

China's National Health Commission official said they were taken aback by the WHO's call for a lab leak investigation and said they are against politicising the COVID-19 origins study, while the official also stated China will not follow the suggested WHO plan regarding a second phase of the study and the plan has language that doesn't respect science. (Newswires)

ASIA

Asia-Pac stocks traded higher following the extended rebound across global counterparts including the continued cyclical outperformance stateside where the mood was also helped by several blue-chip earnings. ASX 200 (+0.9%) was led higher by strength in the commodity-related sectors as energy spearheaded the advances after oil prices gained by around 4.5% on Wednesday and with mining names also lifted by quarterly production updates which propelled Orocobre and Iluka Resources to the top performers list. The latest data releases also provided some slight encouragement including stable NAB Quarterly Business Confidence which benefitted from an upward revision to the prior and the preliminary trade data showed that Exports and Imports rose 8% M/M. Hang Seng (+1.8%) and Shanghai Comp. (+0.3%) were positive as reports that US Deputy Secretary of State Sherman is to visit China for talks between 25th-26th July, spurred some hopes for a potential de-escalation in tensions, although other commentary remained hawkish including from US Secretary of Defense Austin who vowed to counter 'unfounded' China claims in the South China Sea. Nonetheless, Hong Kong led the gains in the region as the broad strength permeated across various industries including property, energy, tech and financials, while Evergrande found some relief after resolving the dispute with Guangfa Bank, although the advances for the mainland were capped after the recent flooding catastrophe and with China’s trade-weighted currency rose to a fresh 5-year high. KOSPI (+1.1%) was also underpinned by the broad constructive mood in the region with some earnings releases helping divert attention away from another record daily increase in infections, and Japanese markets are closed for the rest of the week due to Marine Day and Sports Day holidays.

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 6.4651 vs exp. 6.4677 (prev. 6.4835)

US State Department stated that Deputy Secretary of State Sherman intends to use the China visit to show what responsible and healthy competition can look like, while they want to ensure there are 'guardrails' with China and that competition does not go into conflict. Furthermore, it noted there needs to be constructive dialogue with Beijing and other reports stated that China is to urge the US not to harm the country's interest at the meeting. (Newswires)

USTR Tai told her Australian counterpart that the US is closely monitoring the trade situation between Australia and China, while Tai added the US stands with Australia to support rules-based trade and address China's state-led and non-market practices. (Newswires)

Chinese local governments are reportedly rushing to launch rescue funds valued at billions of dollars to bailout SOEs following a recent bout of bond defaults. (FT)

UK/EU

UK officials are reportedly on the alert to risk of companies defaulting on state-backed pandemic-relief loans during the next stages of the pandemic, with the UK Government Investments head noting that they are monitoring large exposures in the government's loan portfolio for the Treasury. (FT)

FX

In FX markets, the DXY was uneventful and somewhat dispirited following a retreat to beneath the 93.00 level alongside the positive risk tone and despite the bear-steepening in US treasuries. Attention in Washington remained on the Senate which voted to block the opening of the debate on the bipartisan infrastructure plan, although Senate Majority Leader Schumer can call another vote to debate the infrastructure bill next week and there was some optimism despite the failed vote as Democrat Senator Manchin stated that they made significant progress in bipartisan infrastructure proposal negotiations and are close to an agreement. EUR/USD was rangebound as recent advances were capped by resistance near 1.1800 and with participants looking ahead to the ECB meeting later today where analysts are eyeing a dovish tweak to forward guidance to reflect the central bank’s recent strategic review and new symmetrical inflation target of around 2%, while GBP/USD plateaued at the 1.3700 handle as frictions surrounding the Northern Ireland Protocol lingered and with the UK also dangling the threat of potentially invoking Article 16 in the future. Elsewhere, USD/JPY and JPY-crosses slightly pulled back from the prior day’s gains amid the lack of Japanese participants and antipodeans were flat with AUD/USD kept afloat by somewhat lukewarm data releases.

Australian Treasurer Frydenberg said he hopes for Australia to dodge a recession and that lockdowns are costing around AUD 300mln per day, while he sees the next GDP figure to be negative. (Newswires)

• Australian NAB Quarterly Business Confidence (Q2) 17 (Prev. 17, Rev. 19)
• Australian Preliminary Trade Balance (AUD)(Jun) 13.3B (Prev. 9.7B)
• Australian Exports MM (Jun) 8% (Prev. 6%)
• Australian Imports MM (Jun) 8% (Prev. 3%)

COMMODITIES

Commodities traded mixed overnight as WTI crude futures marginally pulled back following yesterday's advances that were spurred by the continued recovery in risk assets and briefly lifted prices back above the USD 70/bbl despite the bearish the bearish inventory data. Gold prices were subdued and retested the psychological USD 1800/oz level to the downside, while copper prices eked marginal gains amid the broad constructive risk tone but with gains capped amid weakness in Chinese commodity prices including Dalian iron ore futures which languished at its lowest in nearly three weeks.

GEOPOLITICAL

US senior diplomat (on Nord Stream 2) confirmed Germany committed that if Russia seeks to use energy as a weapon, Germany will take action at a national level including sanctions. Furthermore, Germany committed to seek an extension of the Russia-Ukraine transit agreement and US is looking for a ten-year extension. (Newswires)

US senior diplomat said further major purchases of Russian arms by Turkey will bring new US sanctions against Turkey. Furthermore, US condemns the Turkish announcement on Varosha and urged Turkey to reverse its decision, while it noted that President Biden remains committed to maintaining US sanctions on Turkey for the purchase of the Russian missile system. (Newswires)

US

Treasuries sold off chunky on Wednesday – cash 10s led the yield rise – ahead of supply and as broader risk appetite perked up. 2s +1.4bps at 0.208%, 3s +2.9bps at 0.386%, 5s +5.9bps at 0.733%, 7s +7.0bps at 1.038%, 10s +7.6bps at 1.285%, 20s +7.1bps at 1.854%, 30s +6.4bps at 1.933%; TYU1 volumes were better than average. 5yr TIPS -0.2bps at -1.782%, 10yr TIPS +3.9bps at -1.022%, 30yr TIPS +2.6bps at -0.269%. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. T-Notes then hit a European morning low of 134-10+, which held for a few hours until US players arrived, where dealers were touted to be on the defensive ahead of the 20yr auction. There was a reported 8k USU1 (long bond futures) sale, which then led to a 7.5k T-Note block sale as yields continued to climb. Aside from auction concession, corporate issuance expectations post Q2 earnings blackout were also weighing on USTs, as was the broader cyclical rally today, with value stocks and commodities outperforming. T-Notes found their lows just ahead of the 20yr auction at 134-00/cash 10s at 1.30%. The USD 24bln reopening did not go so well, tailing 1.2bps, marking another tail for bond supply after last Tuesday's 30yr auction. The internals were relatively more encouraging, however, with the B/C ratio of 2.33x in line with the average, while Dealers continued to take less than average. But overall, the 20yr has failed to see the same degree of demand that it saw last month when it yielded a more alluring 2.12%. But, there were little follow-through sales to the rest of the curve after the auction, likely due to the chunky rise in yields that had already occurred. T-note (u1) futures settled 18 ticks lower at 134-03+.

Fed Chair Powell has broad support among top Biden aides for a new Fed term although reports added that advisers have not discussed Chair and other Fed posts with Biden, while the decision on Powell’s reappointment is not expected before September. (Newswires)

US President Biden said that most experts believe long-term inflation will likely not get out of hand and he added that his economic plans will reduce inflation longer-term, while he expects the Senate to vote on Monday to begin the debate on the bipartisan infrastructure plan. (Newswires)

US Senate voted to oppose the opening debate on the bipartisan infrastructure plan with the final vote on the motion to invoke cloture and proceed at 49 YEAs vs 51 NAYs in which Senator Majority Leader Schumer changed his vote to NAY to be able to conduct a vote again, while it was reported that Schumer can call another vote to debate the infrastructure bill next week and that Republicans want to finalize the bill before starting a debate. Furthermore, Democrat Senator Manchin later stated that they made significant progress in bipartisan infrastructure proposal negotiations and that they are close to an agreement. (Newswires)

US Senate Minority Leader McConnell commented that Democrats' infrastructure spending plans are threatening the financial stability of the economy. There were earlier comments from Republican Senator Romney that he “absolutely” had clear commitments from at least 10 Republicans to eventually vote for a bipartisan infrastructure package, while Republican Senator Collins said 11 GOP senators are sending a letter to Senate Majority Leader Schumer stating that they will vote for cloture on Monday if there’s a bipartisan infrastructure agreement. (Newswires/Huffington Post)

US Senate Republicans on Wednesday threatened to vote against an increase to the debt ceiling unless Congress first agrees to new spending cuts or other reforms. In relevant news, US CBO said the government will exhaust its borrowing authority most likely in October or November unless Congress approves a debt-limit increase. (Newswires/Washington Post)