• Equities are firmer this morning as a modest risk-on bias is present amid quiet newsflow; Euro Stoxx 50 +0.8%, ES +0.5%
• The DXY is firmer but still capped by 93.00 with peers slightly softer overall and JPY lagging amid the absence of Japanese participants
• EZ Flash PMIs beat across the board though sparked little reaction while the UK release missed expectations and core retail sales disappointed; GBP edged lower after the latter release
• Core debt is downbeat, but well off weekly troughs, amid the marginally constructive risk tone with the US yield curve bear-steepening
• GOP Senator Collins said the bipartisan infrastructure deal release is to be on Monday at the earliest
• Looking ahead, highlights include Flash US PMIs, Canadian Retail Sales. Earnings from American Express

CORONAVIRUS UPDATE

Advisory Committee on Immunization Practices workgroup said it supports the continued use of the Johnson & Johnson's (JNJ) vaccine despite warnings of low risks of rare GBS from the shot. Furthermore, the workgroup gave preliminary support for booster doses to immunocompromised people although are waiting for regulatory action before providing a formal recommendation and there were separate comments from an FDA official that they are actively exploring all options to provide access to additional COVID-19 vaccine doses. (Newswires)

New Zealand PM Ardern confirmed her decision to suspend quarantine-free travel with Australia for a minimum of eight weeks. In relevant news, Australia's New South Wales Premier Berejiklian said they will not be able to lift Sydney restrictions on July 30th and that the situation for some parts of the city are considered as a national emergency. (Newswires)

French Government adviser Delfraissy believes they could reach ~50k new COVID-19 cases a day by the start of August. (Newswires)

ASIA

Asian stocks traded mixed with the region indecisive following on from a choppy performance stateside and with the continued absence of Japanese participants, as well as rising COVID-19 cases adding to the subdued mood. ASX 200 (+0.1%) swung between gains and losses with strength in tech, healthcare and consumer stocks offset by weakness in the top-weighted financials and commodity-related sectors, while the mood was also kept tentative by New Zealand PM Arden’s announcement to pause the trans-Tasman travel bubble for eight weeks and after New South Wales Premier Berejiklian flagged an extension to the Sydney lockdown beyond July 30th. KOSPI (+0.1%) was positive as earnings took centre stage including the nation’s largest bank KB Financial Group which topped forecasts for Q2 net, although gains for the index were limited by rampant infections which has forced the government to extend social distancing rules for another two weeks. Hang Seng (-1.5%) and Shanghai Comp. (-0.7%) were negative whereby healthcare led the declines across defensives and property developers were pressured after Chinese banks tightened mortgage lending in various cities, while local authorities also bolstered measures aimed at curbing home prices. In addition, tensions continued to linger ahead of US Deputy Secretary of State Sherman’s visit to China from Sunday with the US said to be disappointed by China's response to the WHO plan for a phase two probe of COVID origins and stated that this is not a time for China to be stonewalling.

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 6.4650 vs exp. 6.4671 (prev. 6.4651)

China FX regulator official says Yuan exchange rate will see two-way fluctuations in H2 and will stay basically stable; expects export growth to fall in the future and trade in goods surplus to remain stable. (Newswires)

Certain Chinese banks have reportedly tightened mortgage lending in various cities such as Guangzhou and Chengdu, while local authorities have bolstered measures aimed at curbing home prices. (Newswires)

US

US Treasury Secretary Yellen told the World Bank and other development banks to increase focus on climate adaptation and they discussed ways to mobilize more private-sector capital to combat climate change. (Newswires)

US Senator Collins said there are three or four issues which need to be resolved but is optimistic that by working through the weekend, they will be able to have a proposal on Monday. (Newswires/Fox)

UK/EU

ECB's Villeroy sees the mid-point of its forecasts horizon for the 2% inflation target arising in around 12-18 months, totally justified to retain an accommodative policy stance for now. Will look at APP in the Autumn, will keep PEPP. (Newswires)

ECB's Wunsch says dissent should not be dramatised; is not comfortable with committing for such a long time. Could be faced with fiscal dominance and is not comfortable with committing for 5-6 years, would have pleaded for an escape clause in forward guidance. Logical to conclude PEPP in March and then go back to APP and other instruments. (CNBC)

Hungarian PM Orban says the EU is to seek a two-month delay in discussions over the Hungarian recovery plan, according to a radio interview. (Newswires)

DUP Leader Donaldson threatened that Northern Ireland ministers will unilaterally suspend checks on goods coming in from Britain if PM Johnson agrees to an unacceptable Brexit deal. (The Times)

EU Markit Composite Flash PMI (Jul) 60.6 vs. Exp. 60.0 (Prev. 59.5)

• Manufacturing Flash PMI (Jul) 62.6 vs. Exp. 62.5 (Prev. 63.4)
• Services Flash PMI (Jul) 60.4 vs. Exp. 59.5 (Prev. 58.3)

UK Flash Services PMI (Jul) 57.8 vs. Exp. 62.0 (Prev. 62.4)

• Manufacturing PMI (Jul) 60.4 vs. Exp. 62.5 (Prev. 63.9)
• Composite PMI (Jul) 57.7 vs. Exp. 61.7 (Prev. 62.2)

UK Retail Sales MM (Jun) 0.5% vs. Exp. 0.4% (Prev. -1.4%); YY (Jun) 9.7% vs. Exp. 9.6% (Prev. 24.6%)

- Ex-Fuel MM* (Jun) 0.3% vs. Exp. 0.6% (Prev. -2.1%); YY* (Jun) 7.4% vs. Exp. 8.2% (Prev. 21.7%)

UK GfK Consumer Confidence* (Jul) -7 vs. Exp. -8.0 (Prev. -9.0)

EQUITIES

Bourses in Europe remain on the front foot as the region holds onto the gains seen at the open (Euro Stoxx 50 +0.8%), although momentum has somewhat stalled with this week’s risk events out of the way, with sights now set on next week’s FOMC. US equity futures also conform to the mild risk appetite with broad-based gains across the majors. News flow has remained light and Flash PMIs varied, with the EZ largely topping forecasts whilst the UK disappointing, but nonetheless, the Delta variant themes resonated across all releases alongside the likelihood of higher costs feeding through to higher consumer prices in coming months. Sectors are predominantly in green with no overarching theme. Autos top the charts, closely followed by Basic Resources, Tech, and Retail, whilst Oil & Gas, Travel and Media lag. In terms of individual movers, Vonovia (+0.1%) and Deutsche Wohnen (-1.3%) came under pressure amid source reports the latter’s takeover will likely fail and the 50% vote threshold likely not be reached. Venovia said it is still counting shares tendered by Wohnen shareholders and the result is expected on Monday. In terms of earnings-related movers, Vodafone (+2%) is underpinned after topping revenue forecasts. Valeo (+7.5%) extends its earlier gains after constructive earnings but warned of rising raw material prices.

US President Biden's administration is set to expand assistance programs for borrowers today who fell behind on mortgage payments during the pandemic. (WSJ)

Tesla (TSLA) writes to the Indian government seeking lower import tax of 40% on EVs, according to sources. (Newswires)

FX

DXY/JPY/GBP - The Dollar is firmer almost across the board after recovering from several bouts of selling pressure on Thursday post-ECB and IJC that pushed the index down to within a whisker of 92.500 at one stage before a firm, late bounce. The DXY is hovering just under 93.000 within a 92.964-777 band vs yesterday’s 92.926-504 range, and looking for further direction from Markit’s preliminary US PMIs beyond outside influences that may well prompt more pronounced price action in the interim, like a marked change in overall risk sentiment or yield and curve backdrop. On that note, the Yen looks very vulnerable as the general market mood continues to improve and Treasuries bear-steepen at the end of a second consecutive Japanese market holiday, with Usd/Jpy now approaching 110.50 having breached a series of recent highs just shy of 110.40 plus the 21 DMA that comes in at 110.42 today and tested, but respected or rejected 110.00 a couple of times. Similarly, the Pound seems prone to another fall following fades at fractionally lower peaks vs the Greenback and Euro, not to mention far from flash UK PMIs, as Cable pulls back below 1.3750 and Eur/Gbp rebounds through 0.8550.

CHF/CAD - Also unwinding residual safe haven premium and losing out due to unfavourable rate dynamics, the Franc has retreated to 0.9200 vs the Buck and nearer 1.0850 than 1.0800 against the Euro, while the Loonie has lost some traction from oil awaiting Canadian retail sales for some independent impetus as it meanders inside 1.2600-1.2550 extremes.

NZD/EUR/AUD - All marginally divergent against their US rival, with the Kiwi benefiting from another change in crosswinds vs the Aussie after a slide in Australia’s services PMI under the key 50.0 threshold and NSW’s Premier warning that Sydney’s lockdown will have to be extended again beyond next Friday due to conditions in parts of the city deemed to be at national emergency levels. Nzd/Usd is holding above 0.6950, whereas Aud/Usd has backed off from 0.7400 and Aud/Nzd from just over 1.0600. Elsewhere, the Euro is still keeping afloat of 1.1750, and with the aid of upbeat German preliminary PMIs that underpinned the Eurozone prints following sub-consensus French readings. However, Eur/Usd is capped into 1.1800 where 1 bn option expiries reside.

EM - Very little reaction to standard 2-way, but basically stable Yuan mantra from China’s FX regulator, understandably, but the Zar has extended post-SARB and Eskom power shutdown declines and the Rub is looking for guidance from the CBR that is expected to hike 50 bp amidst comparative calm in Brent crude prices between Usd 73.97-32/brl.

Notable FX Expiries, NY Cut:

- EUR/USD: 1.1700-10 (1.5BLN), 1.1725 (920M), 1.1775 (332M), 1.1800 (1BLN), 1.1865-70 (1BLN)

Australian Composite PMI (Jul P) 45.2 (Prev. 56.7)

Australian Services PMI (Jul P) 44.2 (Prev. 56.8)

Australian Manufacturing PMI (Jul P) 56.8 (Prev. 58.6)

FIXED

Barring another marked turn of events before the week draws to a close, it appears that bonds may well have reached peak levels on Tuesday and are ripe for further retracement on a combination of profit taking, consolidation and long liquidation or position paring. Indeed, having closed the opening gap and peering just a 1 over parity, Bunds recently reversed to a new 175.64 Eurex low and Gilts only managed to climb 2 ticks above yesterday’s 129.68 Liffe close before recoiling to 129.46, while US Treasuries remain mostly softer and the curve steeper ahead of the Markit PMIs. On that note, mixed flash surveys so far, as French and UK outcomes were disappointing vs more bullish German findings that propped up the pan Eurozone prints.

COMMODITIES

WTI and Brent front-month futures have been consolidating within tight ranges overnight after yesterday’s settlements with a gain of over USD 1.50/bbl apiece. The overnight holding pattern came amid a lack of fresh catalysts and with Japanese players away from their desks due to a domestic holiday. The demand picture remains at the helm of COVID variant developments and the race to double-vax (and a possible booster jab), whilst the supply side of the equation holds some near-term certainty with the OPEC+ quotas set and the next meeting slated for September. In the absence of developments that impact the supply/demand balance, crude prices are likely to take a cue from the broader market sentiment, with WTI meandering around USD 71.75/bbl and within a relatively tight USD 71.46-79 band. The Brent contract trades on either side of USD 73.50/bbl in a USD 73.32-86 intraday range, with the arb between the two front-month contracts steadier around the USD 2/bbl mark. Elsewhere, spot gold has been contained within a USD 10/bbl range throughout most of the session in the absence of news flow and with key risk events out of the way, but the yellow metal resently dipped below USD 1,800/oz. LME copper briefly reclaimed the USD 9,500/t handle as the constructive risk appetite throughout the week (so far) alongside the rosy demand fundamentals. That being said, IHS in their Flash EZ PMI release noted “Supply chain delays remain a major concern for manufacturing, however, constraining production and pushing firms’ costs higher. These higher costs have led to a near record increase in average selling prices for goods and services, which is likely to feed through to higher consumer prices in coming months.” – highlighting some fears that prompted China’s crackdown on the surge in base metal prices.

BofA still sees a dip in crude and distillate triggered by OPEC+ as a buying opportunity and forecasts Brent hitting USD 100/bbl in 2022; supply-demand suggests a 2021 1.4mln BPD deficit and a 400k BPD deficit in 2022. (Newswires)

CME raised natural gas Henry Hub futures maintenance margins to USD 2475/contract from USD 2250/contract. (Newswires)

China will review anti-dumping measures for steel imports from Japan, South Korea and the EU following the expiry of anti-dumping tariffs that were in place for five years. (Newswires)