• Equity indices remain firmer with sectors/movers in Europe dictated by earnings updates with US futures firmer though magnitudes slimmer; Euro Stoxx 50 +1.1%, ES 0.2%
• The USD has been choppy but has recently dipped from highs though peers remain contained ex-AUD & GBP
• GBP was briefly pressured on dovish Broadbent commentary re. inflation with Gilts seeing more pronounced, but equally short-lived upside as debt retreats across the board
• 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.

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)

German Chancellor Merkel says that infection numbers are increasing at a concerning rate. (Newswires)

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 (+1.1%) 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)

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)

US

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 Democrat Senator Manchin stated that they made significant progress in bipartisan infrastructure proposal negotiations and that they are close to an agreement. (Newswires)

UK/EU

BoE's Broadbent says the extent of the increase in inflation is a bit surprising. Is not convinced that the current inflation in retail goods prices should in and of itself mean higher inflation 18-24 months ahead, the horizon more relevant for monetary policy. Quite a bit of the current rise in inflation is actually coming directly from the higher price of oil, something that is likely to fall away through the early part of 2022; there’s a clear parallel with changes in oil prices. In that case the most reasonable assumption is generally that the direct effect on inflation will be gone in a year or so, before monetary policy could do much about it. Is not quite there with MPC member Saunders on the duration of good price inflation; specifically, goods prices are more likely to be pulling down rather than pushing up inflation in two years time. (BoE/Newswires)

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)

EQUITIES

Major Euro bourses trade higher (Euro Stoxx 50 +1.1%) as the region adopted the positive performance seen across APAC. This come as earnings in the continent pick up in pace ahead of the ECB policy decision, which is expected to enforce a more dovish pursuit of its new inflation mandate (full preview available in the Research Suite). Meanwhile, the UK’s FTSE 100 (+0.3%) and Switzerland’s SMI (-0.2%) lag, with the former weighed on by a firmer Pound alongside the ill-effects of losses in both benchmarks’ heavyweight pharma sectors. US equity futures are flat with a positive bias, with the NQ (+0.2%) initially outperforming the ES (+0.2%), YM (+0.3%) and RTY (+0.2%) amid a more favourable yield environment, albeit that faded with the contracts now seeing modest broad-based upside. The yield picture is once again a cyclical. Travel & Leisure is again the winner, closely followed by Autos & Parts, Basic Resources and Tech. The other end of the spectrum consists of the defensives: Healthcare, Consumer Staples and Telecoms, albeit with some possible idiosyncratic influences. The former is weighed on by pharma-giant Roche (-1.1%) post-earnings, who in-spite of beating on main metrics, underwhelmed investors who expected upgraded guidance. Consumer Staples sees hefty losses in Unilever (-4.5%) as earnings were largely in-line with analyst expectations but the group expects FY margins to remain flat as a result of rising costs. Meanwhile, Telecoms have clambered off the lows seen at the cash open in the aftermath of Spain’s 5G auction, whereby Orange (+0.1%), Telefonica (+0.4%) and Vodafone (+1%) have together paid over EUR 1bln. In terms of other moves, NatWest (-1.5%) is pressured amid reports that the UK government is looking to offload NatWest shares, with the earliest sale to occur on August 12%. ABB (+1.9%) is bolstered by earnings beats alongside plans for its EV charging spin-off early next year.

Amazon (AMZN) has been accused by India's antitrust regulator of concealing facts and making false submissions when it opted to gain approval for its 2019 investment in Future Group Unit, according to a letter. (Newswires)

China is reportedly considering a unprecedented penalty for DiDi (DIDI) following the IPO. (Newswires)

Please see here for the Daily European Equity Opening News and the Additional Equity News for the morning's European earnings/stories, which include: ABB, Roche and Unilever among others.

FX

EUR - The ECB has been afforded top billing in terms of this week’s main events and potential market movers following the strategy review and shift to a new inflation target, and on this occasion the 12.45BST policy announcement may well take centre stage before the spotlight shifts to President Largarde for the post-meeting press conference and Q&A. Indeed, rate guidance will change by definition to reflect symmetry around 2% rather than the old ‘close to, but below’ remit, and the wording or phrasing could be pivotal from the perspective of perception and determining whether the GC retains a dovish bias or not, just as much as the tone of the text and responses to questions 45 minutes later. Note, a full preview is available via the Research Suite and will be re-posted on the Headline Feed in due course. In the run up to the ECB, the Euro remains relatively rangy and tactically, if not necessarily well positioned pending the outcome after almost guaranteed initial knee-jerk moves, with Eur/Usd hovering below 1.1800 where 1.3 bn option expiries start and end at 1.1810, Eur/Gbp pivoting 0.8600 and the 50 DMA that comes in at 0.8590 today, Eur/Jpy straddling 130.00 and Eur/Chf rotating around 1.0825.

GBP/AUD/DXY - Sterling seems to have weathered a set-back amidst fairly benign views on inflation from BoE’s Broadbent (see 9.30BST post on the Headline Feed for details) allied to a broad Buck bounce that pushed the index back over 92.800 between 92.868-704 parameters, as Cable consolidates recovery gains through 1.3700 and the 200 DMA, while the Aussie is also rebounding further and has breached half round number resistance against its US peer at 0.7350 with some traction coming via preliminary trade data overnight showing a wider surplus and acceleration in both exports and imports. However, hefty 1.5 bn option expiry interest between 0.7370-75 could cap Aud/Usd in the same vein as the psychological 1.0600 level in Aud/Nzd as attention turns to flash PMIs. Back to the DXY and Greenback in general, upcoming IJC tallies and existing home sales appear more influential than the national activity or leading indices as the increasingly buoyant risk backdrop detracts from a more supportive yield landscape (outright and curve profile).

JPY/CHF/CAD/NZD - The Yen is holding within 110.36-07 confines absent of many Japanese participants due to Marine Day and also braced for another market holiday before the weekend given Sports Day on Friday, so pointers and direction will largely be gleaned from elsewhere. Conversely, the Franc is closer to w-t-d peaks than lows having rebounded from 0.9232 to 0.9164, like the Loonie that has derived momentum from the improving market mood and pronounced revival in WTI crude to top Usd 71/brl compared to lows only a cent above Usd 65 on Tuesday. Usd/Cad is currently circa 1.2560 vs 1.2525 at one stage and 1.2800+ at the start of the week, while Nzd/Usd is meandering from 0.6971-47 following the turn in cross tides noted above that has undermined the Kiwi to an extent.

SCANDI/EM - More fuel to fire the Nok’s comeback from under 10.7000 against the Eur to 10.4000+ at one stage, as Brent nears Usd 73/brl for a Usd 5.5 or so surge from worst levels, and the Rub is also gleaning some traction. Elsewhere, the Cnh and Cny remain firmer following confirmation that the meeting between Chinese and US Deputy Secretaries of States is back on and the Zar is on the front foot into the SARB.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1710 (1.1BLN), 1.1800-10 (1.3BLN), 1.1870 (270M), 1.1900 (600M)
• AUD/USD: 0.7370-75 (1.5BLN)

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%)

FIXED

In hindsight, the writing may well have been on the wall early on Wednesday when debt futures resumed their upward trajectory after another bout of consolidation and pause for breath, but failed to reach the heady heights scaled the day before and continue the pattern of posting ascending highs. However, there is more evidence to suggest that the bull run is over and recent price action suggests that the winning streak could end barring intervention from a dovish ECB or other supportive factor, like an extremely weak set of US jobless claims numbers, abject existing home sales etc. For now, Bunds, Gilts and the 10 year T-note are languishing near 175.43, 129.15 and 133-30 respective lows vs 176.28, 130.49 and 135-07 when the going was good ahead of the midweek meltdown.

COMMODITIES

WTI and Brent front month futures are firmer on the day as the complex experiences tailwinds from another risk-on day. Furthermore, the supply/demand balance remains in favour of a deficit over the second half the year. Analysts at Morgan Stanley reaffirmed their view that the oil market will be in a deeper deficit in H2 vs H1 2021. The bank maintained its forecast for Brent to trade in the mid-to-high 70s for the remainder of the year. Meanwhile, Barclays raised its 2021 oil price forecast by USD 3-5/bbl due to expectations of a faster-than-forecast normalisation in OECD inventories. The British bank does warn that prices could rise to USD 100/bbl over the coming months if OPEC+ is slow to meet demand. Looking ahead, MS sees OPEC maintaining a slight deficit in 2022. Note, other desks expect demand in H1 2022 to be somewhat sluggish before seeing a pick-up in H2. Barclays downgraded its 2022 oil price forecasts by USD 3/bbl. This sentiment also been echoed by sources via Energy Intel earlier this week who “see the potential for a significant dip in oil demand in the first half of next year…. it is likely they [OPEC+] will take a pause [from production hikes] from monthly increases this December." Over to the US, Barclays sees US oil demand growing by 1.6mln BPD YY this year vs 1.4mln BPD earlier, and forecast the Brent-WTI spread to average USD 2/bbl in H2 2021, with risks to the downside on a potentially continued inventory draw-down at the Cushing hub. WTI and Brent Sept reside north of USD 70.50/bbl and USD 72.50/bbl respectively from USD 69.88/bbl and USD 71.74/bbl at worst, with the benchmarks now closer to the round numbers on the upside. Elsewhere, spot gold and silver are swayed by the Buck. Spot gold briefly dipped below its 100DMA (USD 1,795/oz) to a base at USD 1,791/oz, whilst the 21DMA also resides nearby at USD 1,796.80/oz. LME copper is on a firmer footing with traders citing lower-than-expect sales plans by China, although the constructive risk tone is also providing the red metal with tailwinds. Finally, Dalian iron ore fell some 5% as participants point to a double whammy of factors with higher imports and lower demand from China.