• European bourses are softer but well off lows following a mixed APAC handover where China underperformed; Euro Stoxx 50 -0.4%
• Chinese Vice Foreign Minister Xie Feng said the relationship with the US is in a stalemate and now faces difficulties
• Modest further pressure was seen in sentiment after the downbeat Ifo release and supply-side commentary pushing core debt to session highs and US real yields (10yr TIPS) to record lows
• USD has been choppy but ultimately pressured as GBP, EUR & JPY squeeze the index while crude tracks broader sentiment amid light newsflow
• US Senators stated that lawmakers were nearing an agreement on the text of the USD 1tln bipartisan infrastructure spending
• Looking ahead, highlights include US New Home Sales, US 2yr Note Auction. Earnings from Lockheed Martin, Tesla

CORONAVIRUS UPDATE

US President Biden administration’s health officials increasingly believe that vulnerable populations will require booster doses despite continuing research into how long the COVID-19 vaccines remain effective, while there were separate comments from NIH’s Dr. Fauci that a COVID-19 booster shot may be required for immune-compromised people. (Newswires/New York Times)

The UK recorded 29,173 new cases on Sunday (vs. prev. W/W 48,161); number of new infections by date reported has fallen for five days in a row for the first time since February. (BBC)

UK health experts including from the British Society for Immunology, NHS Providers and the Joint Committee of Vaccination and Immunisation have warned the government that it needs to urgently increase efforts to ensure more young adults are vaccinated against COVID-19 amid concerns the current low take-up of jabs among 18- to 25-year-olds could result to a pile-up of vaccine campaigns in September, when other groups are scheduled to get booster injections and also to be inoculated against the flu. (The Guardian)

UK politicians and scientists are concerned that people are deleting the official COVID-19 mobile phone app or are turning off its tracing function to avoid having to self-isolate, this was after the number of people “pinged” and instructed to self-isolate by the app rose to a record of nearly 620k people in England and Wales last week vs prev. 530k the week before. Furthermore, the scientist behind the NHS COVID app is urging people not to delete it from phones, but is calling on the Government to axe the requirement to self-isolate after being pinged, while there were also reports that the UK economy could suffer a hit of more than GBP 4.6bln in four weeks if rules on self-isolation following a COVID-19 “ping” from the NHS app aren’t relaxed, according to reports citing data from the Centre for Economics and Business Research. (Newswires)

UK ministers are expected to agree to plans that would require spectators to be fully vaccinated to attend mass events with more than 20,000 spectators including watching Premier League matches. In relevant news, Public Health England said that of those hospitalised with COVID-19 between 21st June and 19th July, 54.3% were unvaccinated and 29.6% had received both doses, while other reports noted the UK could halt quarantines for travel from France next week as fears surrounding the Delta variant fade. (Newswires/Telegraph/Times

Tens of thousands of people demonstrated in France against mandatory COVID-19 vaccinations for health workers and a sanitary pass that would ban the unvaccinated from going to the cinema, sports venues and shopping malls, as well as taking long-distance transportation. (AFP)

German CDU candidate Laschet says those who test negative or have a COVID-19 vaccine should be exempt from restrictions, in contrast to Chancellor Merkel's Braun who said vaccinated individuals will have more freedoms and the unvaccinated may not be able to partake in some activities. (Politico)

South African President Ramaphosa said the peak of the third virus wave has passed and he announced to relax some COVID-19 restrictions with the country to move to adjusted alert level 3, while alcohol sales will be permitted at retail outlets from Monday to Thursday. Ramaphosa also stated people aged 18-34 can be vaccinated from September 1st and that they will receive 31mln doses from Pfizer (PFE) and J&J (JNJ). Furthermore, he stated they will offer social disaster relief grant to people impacted by civil unrest till end-March and will ensure state-owned insurer Sasria is able to honour all liabilities to businesses that were affected by the rioting. (Newswires)

Australian PM Morrison warned that weekend protests in Australia’s largest cities where thousands of maskless demonstrators breached stay-at-home orders, risks fuelling new COVID-19 infections and an extension of restrictions. There were also reports that Australia's New South Wales government is meeting on Monday in which a lockdown extension is expected through to mid-September although the New South Wales Premier denied reports that Sydney will be under a lockdown until September, while South Australia's Premier announced they are on track to remove lockdown on Wednesday. (Newswires)

Australia reached an agreement for 60mln additional doses of the Pfizer (PFE) - BioNTech (BNTX) COVID-19 vaccine next year and 25mln doses in 2023, which would allow the country to offer booster shots, according to the government. Furthermore, it reversed the previous advice on AstraZeneca (AZN LN) vaccine in which authorities were told that adult residents in areas with current outbreaks including Sydney, to seriously consider using the option. (Newswires)

South Korea is to widen social distancing measures outside the capital Seoul from Monday whereby gatherings of over five people will be banned, while it was also reported that South Korea passed a 6th extra budget of the pandemic valued at KRW 34.9tln and spending plan which includes a KRW 250K cash handout for most people. (Newswires)

ASIA

Asian equity markets were mixed as the early momentum following last week’s record-setting session across the major indices on Wall St. was partially offset by cautiousness ahead of this week’s risk events including the latest FOMC meeting, mega-cap tech earnings and month-end, with underperformance seen in China after Beijing tightened its regulatory screws. ASX 200 (Unch.) was kept afloat for most of the session by strength in mining names in which Lynas the biggest gainer on improved output levels and Rio Tinto shrugged off the announcement of a strike involving about 900 workers at its aluminium smelting facilities in Kitimat, British Columbia. However, gains for the index were limited amid varied COVID-19 headlines including speculation that the Sydney lockdown could be extended to mid-September which the state premier denied and neighbouring South Australia is set to exit its lockdown mid-week. Nikkei 225 (+1.0%) outperformed as it played catch-up from the four-day weekend to briefly break above the 28,000 level where it then met resistance and with some of the gains pared on currency moves. Hang Seng (-4.1%) and Shanghai Comp. (-2.3%) underperformed due to a further regulatory crackdown by China including its announcement to ban companies that offer tutoring on the school curriculum from going public or raising capital and is considering for them to go non-profit, which imposes a new set of restrictions on the USD 100bln education tech industry and resulted to losses of as much as 40% for New Oriental Education & Technology Group. Property names were also pressured after the PBoC asked Shanghai lenders to raise mortgage rates and Tencent (700 HK) was among the worst performers in the Hong Kong benchmark after China’s market regulator issued an order for the Co. to waive its exclusive rights to music labels. The rhetoric from China’s Vice Foreign Minister Xie Feng in the meeting with US Deputy Secretary of State Sherman was quite punchy as although he stated China is willing to deal with the US on an equal footing and wants to seek common ground, he urged for the US to correct its extremely wrong mindset and extremely dangerous China policy, as well as criticized that the US is not in a position to talk human rights issues in front of China. Finally, 10yr JGBs were little changed with demand sapped by the strength in Japanese stocks and lack of BoJ presence in the market today, although downside was also limited as Bunds and T-notes gained amid the China regulatory woes.

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 6.4763 vs exp. 6.4749 (prev. 6.4650)

China Vice Foreign Minister Xie Feng said the relationship with US is in a stalemate and now faces difficulties, while he added that China is willing to deal with the US on an equal footing and wants to seek common ground and shelve differences with US. However, Xie noted that some people in US are treating China like an imaginary enemy and urged for the US to correct its extremely wrong mindset and extremely dangerous China policy. Xie further added that the US should choose to meet China halfway and alleged the US wants to change international rules to bully the weak, while he added that US is not in a position to talk human rights issues in front of China. In relevant news, there were prior comments from Chinese Foreign Minister Wang Yi said that China and the international community as a whole bear the responsibility to teach the US a lesson, while other reports had also noted that US Deputy Secretary of State Sherman will tell China in their discussion that the US welcomes competition although there needs to be a level playing field and guardrails to ensure ties do not veer into conflict, according to US officials. (Newswires)

China's Vice Foreign Minister, in a meeting with US Deputy Secretary of State Sherman, has asked the US to remove sanctions on Chinese leaders and officials, remove student and communist party visa restrictions. (Newswires)

China banned companies that offer tutoring on the school curriculum from going public or raising capital and is considering for them to go non-profit, which imposes a new set of restrictions on the USD 100bln education tech industry, while they are also not permitted to receive foreign investment and listed firms will also probably no longer be allowed to invest in or acquire education firms teaching school subjects, according to a State Council notice. (Newswires)

China is reportedly increasing restrictions related to local government financing vehicles and seeking to limit risks related to hidden debt. In other news, China's industry ministry said it will launch a crackdown on the internet sector including illegal behaviour that violates user rights and endangers data security, while PBoC asked Shanghai lenders to raise mortgage rates to 5.00% from 4.60% for first time home buyers and raise rates to 5.70% from 5.25% for second-home buyers. (Newswires)

US Department of Justice abandoned individual cases against five Chinese researchers accused of hiding ties to the Chinese military on Friday. There were also separate reports that President Biden’s administration has no immediate plans to sanction Chinese officials in response to the Microsoft Exchange hack that the US blames on Beijing, according to sources. (Newswires/Axios)

UK is examining ways to exclude Chinese state-owned China General Nuclear Power Group (1816 HK) from future power projects in the UK. (FT)

US

US Senators stated that lawmakers were nearing an agreement on the text of the USD 1tln bipartisan infrastructure spending in which Republican Senator Portman suggested they were about 90% of the way there, although other reports noted comments from a Democrat source that several major issues have not yet been resolved including wage rates, water funding, broadband, highway and bridges spending, as well as using unspent virus relief funds to pay for the programme. (Newswires/FT)

US Senate negotiators are finalizing details on how to pay for the bipartisan infrastructure package including utilizing unused COVID-19 relief funds and targeting a Medicare rebate rule, according to sources. There were also reports on Friday that Democrats may strip bipartisan infrastructure bill of USD 20bln for public-private finance initiative after Republicans opposed labour standards provisions. (Newswires/Axios)

Chinese Commerce Ministry has extended its anti-dumping investigation on polyphenylene ether imported from the US until February 3rd 2022. (Newswires)

Amazon (AMZN) is looking at accepting Bitcoin payments by year-end and exploring its own token for next year, according to a Co. insider. (City A.M.)

UK/EU

UK PM Johnson is reportedly facing a cabinet revolt amid increasing opposition to his plan to overhaul social care by raising national insurance payments and at the same time on maintaining the triple lock on pensions, which would be unfair on younger workers and boost payments to pensioners that are exempt from paying national insurance. Furthermore, a separate source report stated that Downing Street and the Treasury held discussion about suspending the guarantee on pension increases alongside raising NI contributions. (Sunday Times/Telegraph)

UK PM Johnson was reportedly prepared to overhaul the Northern Ireland Protocol during the past week but was talked out of it by Brexit Minister Lord Frost and is said to be convinced of the need to invoke Article 16 if Brussels doesn’t agree to a renegotiation of the NI Protocol. In relevant news, EU diplomats met in Brussels on Friday where they backed the commission’s line of no renegotiation of the Irish protocol and that any changes must be within the withdrawal agreement, while one diplomat stated that no one wants a new negotiation and that it would be opening Pandora’s box. (Newswires/Telegraph)

UK PM Johnson and Foreign Secretary Raab risk losing their seats at the next election because of the chaos over foreign travel as they hold seats in constituencies with the largest number of aviation jobs threatened by the government’s border closures, according to report backed by a former Conservative Party Chairman. (Telegraph)

UK government is to remove some post-tape on wine imports in which import certificates will no longer be required, which could save British consumers GBP 130mln annually. (FT)

UK Banks are on course to meet the BoE's deadline to be prepared for negative interest rates, should they ever be required. (Newswires)

German Ifo Business Climate New (Jul) 100.8 vs. Exp. 102.1 (Prev. 101.8, Rev. 101.7); Current Conditions New (Jul) 100.4 vs. Exp. 101.6 (Prev. 99.6, Rev 99.7)

• Expectations New (Jul) 101.2 vs. Exp. 103.3 (Prev. 104.0, Rev. 103.7)
• IFO says that supply issues are weighing on the domestic economy in both industry and retail and nearly 64% of industrial firms have complained about materials shortages and prices have risen "massively"
• Tourism and consumer sectors are more worried about the fourth COVID-19 wave

EU Trade Commissioner/VP Dombrovskis says a resolution to the EU-US dispute over steel and aluminium tariffs could fall short of removing all barriers, is prepared to look at other possible solutions. (FT)

INSA poll showed Germany’s ruling conservatives support at 27% (prev. 29%) vs. Greens at 18% (Prev. 18%) following the recent flooding. (Newswires)

DBRS affirmed European Stability Mechanism raring at AAA with a Stable Trend and affirmed Switzerland at AAA; Outlook Stable. (Newswires

GEOPOLITICAL

Tunisian President Saied froze all powers of the House of Representatives and relieved PM Mechichi of his post. Furthermore, the Tunisian Parliament Speaker accused the President of a coup against the revolution and constitution, while Tunisia Parliament Speaker also urged Tunisians to take to the streets to end President Saied's coup. (Newswires)

EQUITIES

Stocks in Europe trade predominantly lower (Stoxx 600 -0.4%), following on from a downbeat Asia-Pac session which saw notable losses in Chinese bourses (Shanghai Comp -2.3%, Hang Seng -4.1%). Sentiment in China was hampered by a further domestic regulatory crackdown, including an announcement to ban companies that offer tutoring on the school curriculum from going public or raising capital and considerations for them to go non-profit. Property names were also pressured after the PBoC asked Shanghai lenders to raise mortgage rates and Tencent (-7.7%) was among the worst performers in the Hong Kong benchmark after China’s market regulator issued an order for the Co. to waive its exclusive rights to music labels. Furthermore, tensions between the US and China have been another source of pessimism with Chinese Vice Foreign Minister Xie Feng stating that the relationship with the US is in a stalemate and now faces difficulties. The above, allied with ongoing COVID concerns and subsequent political unrest in various nations prompted losses in European bourses, which were then exacerbated by a soft Ifo report from Germany. Ifo economists noted that supply issues are weighing on the domestic economy in both industry and retail, adding that industry cannot produce as much as it would like. Sectors in Europe are predominantly lower with the exception of Travel & Leisure which has been bolstered by earnings from Ryanair (+3.9%), which saw the Co. revise up its FY traffic guidance. Basis Resources are also firmer with Antofagasta (+1.6%) an outperformer in the sector following a broker upgrade at Peel Hunt. To the downside, Autos lag after a strong outing on Friday, whilst Banks are softer amid the less favourable yield environment and therefore shrugging off Friday’s decision by the ECB to lift restrictions on dividends. Stateside, futures are softer (ES -0.2%, NQ -0.1%, RTY -0.2%) with underperformance seen initially in the Russell ahead of what is a particularly busy week of earnings with over a third of the S&P 500 due to report; highlights include Alphabet, Apple, Facebook, Tesla. On the stimulus front, the final version of the bipartisan infrastructure bill could be unveiled today, however, it is worth noting that House Speaker Pelosi continues to insist that the House will not open the debate on the legislation unless the Senate passes the reconciliation legislation.

FX

DXY - The index remains within a contained narrow band having had traded sideways overnight following a tense US-Sino meeting over the weekend, and in the run-up to the FOMC showdown, before facing US GDP, PCE and month-end flows. Elsewhere, the bipartisan infrastructure bill continues to make progress, although outstanding issues remain. Getting a bipartisan bill on the President’s desk without reconciliation legislation is framed as a positive as it dwindles tax hike risks, although House Speaker Pelosi on Sunday maintained that both bills need to be in hand before voting. The index remains under 93.000 having printed a 92.686 overnight base, with Friday’s 93.024 peaks also within a reaching distance. Technicians will also be cognizant of the “golden cross” formed as the 50 DMA (91.378) mounts the 200 DMA (91.354). Westpac’s FX model meanwhile has implemented “a decidedly risk-averse slant for the week ahead”. The Aussie bank notes that “overweight longs in CAD and NOK are ditched, small shorts in AUD are opened; while on the safe-haven currency side, USD shorts are exited and CHF longs are opened”

JPY - The risk aversion across markets has fed the JPY with haven flows, and with Japanese players back in the market following the long weekend and the start of the Olympics. USD/JPY has pulled back from its 110.58 overnight top and resides around the 110.25 area at the time of writing, with formidable support expected at the 110.00 and stops beneath, with the 50 DMA also present at 109.99 and the 10 DMA beneath that at 109.53.

CAD, NZD, AUD - The non-US Dollar high-betas are the clear G10 laggards amid the soured risk sentiment. The antipodeans underperform with the Aussie bearing the brunt following a tense US-Sino meeting, losses in base metals and with the AUD/NZD pair around 1.0550, whilst AUD/USD itself loses further ground under 0.7400. Technicals have also turned bearish for the AUD alongside the fundamentals, although overnight rumours of Sydney lockdown extensions were refuted by the NSW premier. NZD/USD struggles to regain a footing above 0.7000 following the post-RBNZ unwind in gains, with an overnight base printed at 0.6947 and clean air seen until the round number to the downside. The Loonie’s gains meanwhile remain capped by losses across the crude sector, with USD/CAD currently meandering the 1.2575 area, with the 200 DMA seen just north of 1.2600 at 1.2614.

EUR, GBP - EUR/USD and GBP/USD post modest gains vs the Buck, with the former unfazed by sub-par German Ifos (and downward revision to the priors), which followed the Flash PMIs for July on Friday. The Ifo reinforced the themes covered by the PMIs, i.e. delta variant concerns and supply chain issues, while it maintained its German GDP growth forecasts of 1.3% in Q2 and 3.6% this quarter. Elsewhere, ECB-hawk Weidmann voiced his concerns against a prolonged low-rate environment, suggested that Germany’s inflation is heading towards 5% by year-end. Weidmann was one of the Governing Council members that opposed the new forward guidance last week. From a technical perspective, EUR/USD sees a cluster of hourly moving averages nearby, although these have provided little influence thus far. Cable has drifted higher from its overnight range (albeit modestly), with the pair still sub-1.3800 vs its 1.3736 overnight base. Sterling experiences positive omen as COVID cases saw a marked W/W decline, whilst there are also calls by scientists to scrap nine-day isolation if pinged by the NHS app

FIXED

Core debt is currently firmer on the session though it has pulled back from the post-Ifo peak given the broader stabilisation in risk sentiment. Specifically, EGBs saw a firmer start to the European day as sentiment was softer following the spill-over from APAC trade where China lagged. As the session progressed further upside came shortly after the German Ifo release as the metrics all missed on expectations but more pertinently the commentary was downbeat on COVID-19 concerns and supply-side issues – in a similar vein to last week’s IHS PMIs. As such, the Bund Sep’21 contract was lifted from 176.22 to a peak of 176.42; the read across to USTs was initially more muted though the benchmark then saw a delayed spur higher sending real yields (10yr TIPS) to an all-time-low of -1.12% ahead of Wednesday’s FOMC. Furthermore, given the Fed, today’s session features a USD 60bln 2yr Note issuance followed by a 5yr and 7yr sale of USD 61bln and USD 62bln later in the week. Currently, it doesn’t appear as if concession is featuring too heavily ahead of today’s issuance though if the most recent pullback in debt continues that could start to impact – particularly as the docket for the remainder as the session is relatively sparse aside from earnings and home sales data for June. Away from the EZ/US, and Gilts are moving very much in tandem with their aforementioned peers as newsflow is sparse but COVID-19 concerns are at the forefront as the ‘pingdemic’ continues to impact ahead of scheduled remarks from outgoing-MPC member Vlieghe which will be scrutinised to see if the typically dovish member stays true too form or sides with the hawks. Note, he will be replaced by Mann from September onwards who has already marked her stance as a policy-dove, in the current environment at least. Ahead, if the retreat persists then attention will turn to a near-term support ban of 175.76-81 in the Bund followed by Friday’s low at 175.56 with geopolitical/US-China and infrastructure updates likely drivers for the remainder of the session.

COMMODITIES

WTI and Brent front-month futures have trimmed overnight losses, but sentiment across markets remains to the downside, whilst the US and China underwent a tense first day of meetings. Despite these influences, overarching factor dictating oil is the supply/demand balance. Thus, investors remain wary of the COVID hindrance in the recovery, as expressed in the Flash PMIs on Friday and the German Ifo figures today, albeit, the summer months are still expected to see a supply deficit. Elsewhere, OPEC remains out of the question (barring a major shock) until September, whist Iranian nuclear talks look to get underway next month. Until then, sentiment, COVID developments will likely dictate price action, alongside major scheduled events such as the Fed policy decision on Wednesday, followed by US GDP and PCE at the end of the week. WTI has reclaimed a USD 71/bbl handle after dipping to a base of around USD 70.60/bbl, whilst Brent inches closer towards USD 74/bbl from a USD 72.80.bbl low. Elsewhere, spot gold and silver remain underpinned above USD 1,800/oz and USD 25/oz as the US 10yr real yield fell to a record low, although gains are capped by the Buck. Copper overnight hit near-six-week highs amid expected demand following the floods in China, although LME copper is more subdued amid the risk profile across Europe.

China's state planner is to lower the price of domestic diesel and gasoline by CNY 95/tonne and CNY 100/tonne respectively as of July 26th. (Newswires)