• Asian equity markets traded mostly lower following on from the subdued mood in global counterparts
• Large cap US earnings saw Apple lower in after-market trade, Microsoft marginally firmer and Alphabet higher; all beat on top and bottom lines
• DXY is lacklustre around 92.50 ahead of FOMC. EUR/USD and GBP/USD trade on 1.18 and 1.38 handles respectively
• Looking ahead, highlights include German GFK Consumer Sentiment, Canadian CPI, DoEs, FOMC rate decision and Fed Chair Powell Press Conference
• Earnings from Deutsche Bank, BASF, Santander, Barclays, BAT, GSK, Rio Tinto, Boeing, Ford, Facebook, Pfizer, Qualcomm, McDonalds and Spotify

CORONAVIRUS UPDATE

US President Biden said more vaccinations and mask wearing in the areas most impacted by the Delta variant, will enable the US to avoid the kind of lockdowns it faced in 2020. It was also reported that President Biden will announce on Thursday a requirement for all federal employees and contractors to be vaccinated against COVID-19 or conduct regular testing. (Newswires)

US CDC Director Walensky said data suggests vaccinated people can spread COVID-19 in rare cases based on evidence from several states and other countries, while the CDC is collecting data on people nationwide to study breakthrough infections and expects to report on the data soon. US CDC recommended that fully vaccinated individuals wear masks in public indoor settings to help prevent the spread of the Delta variant in areas with high COVID-19 transmission rates and recommended universal indoor masking for teachers and students at K-12 schools, regardless of vaccinations status. Furthermore, it recommended that community leaders encourage vaccination and masking to prevent further outbreaks in areas of high transmission rates and for students to return to full-time in person learning in the fall. (Newswires)

UK PM Johnson is expected to approve the reopening of England's borders to double-vaccinated tourists from the EU and the US; visitors will be able to enter without quarantining. (FT)

Australia's New South Wales Premier Berejiklian confirmed a four-week extension for the lockdown in Sydney, while Australian PM Morrison separately noted that they will raise support payments for workers affected by the lockdown. (Newswires)

Japanese prefectures of Chiba, Saitama and Kanagawa are seeking state of emergency declarations due to COVID-19. (Nikkei)

ASIA

Asian equity markets traded mostly lower following on from the subdued mood in global counterparts with risk appetite sapped by the recent China sell-off, pre-FOMC cautiousness and mixed US data. Focus was also on the mega-cap tech earnings which failed to inspire index futures despite Alphabet, Apple and Microsoft all beating on top and bottom lines with shares in the iPhone maker pressured after-hours as it also warned that chip shortages could impact iPhones and iPads during the current quarter. ASX 200 (-0.8%) was dragged lower by underperformance in tech and commodity-related sectors, while growth concerns were also stoked after the New South Wales Premier announced a four-week extension to the lockdown in Sydney with CBA and ANZ Bank now forecasting a quarterly contraction for Q3 of 2.7% and 1.3%, respectively. Nikkei 225 (-1.6%) was pressured by the recent haven flows into the JPY and amid reports that several prefectures were seeking state of emergency declarations due to the ongoing COVID-19 outbreak. Hang Seng (-0.1%) and Shanghai Comp. (-0.6%) were choppy whereby the former attempted a rebound from this week’s bloodbath with early reprieve for the tech sector and education stocks. However, the recovery for tech and the Hong Kong benchmark was then briefly wiped out alongside the continued rout in the mainland where reports that China may raise fiscal spending and instigate new supportive policies in H2, as well as several attempts by Chinese press to soothe investor concerns regarding the stock rout, ultimately fell on deaf ears. Finally, 10yr JGBs eked marginal gains amid the downbeat mood in Tokyo stocks and with the BoJ also in the market for over JPY 1tln of JGBs, mostly concentrated in 3yr-10yr maturities although the upside for JGBs was only marginal amid the flat overnight picture for Bunds and T-note futures with the FOMC on the horizon.

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 6.4929 vs exp. 6.4934 (prev. 6.4734)

China may impose an anti-sanctions law on Hong Kong and is expected to begin the process next month which could create complications for multinationals. (SCMP)

China Securities Journal suggested that investors should not be pessimistic due to stock declines and that there will not be systemic risk in China's A-share market as a whole with the loose monetary environment to support equity assets, while a separate Chinese press report noted that the China stock plunge is unsustainable and the market will stabilise. Furthermore, Chinese press noted that China may raise fiscal spending in Q3 to support the economy and may expand domestic demand with new policies in H2. (Newswires)

Satellite images reportedly appeared to show China building a new network of silos for launching nuclear missiles, according to a US think tank, while this would be the second such project that American analysts have accused Beijing of advancing in recent weeks. In relevant news, China’s Global Times noted that a rapid deterioration of Sino-US relations and the US' all-out pressure on China as its No. 1 strategic adversary has triggered a sense of urgency among many Chinese to accelerate efforts to improve their nuclear deterrence. (WSJ/Global Times)

BoJ Summary of Opinions from July 15th-16th Meeting stated that Japan's economy has picked up as a trend although has remained in a severe situation due to the impact of COVID-19 at home and abroad, while it added that from a somewhat long-term perspective, the recovery trend in the economy is projected to strengthen due to continuing accommodative financial conditions and an expected increase in business fixed investment. It was stated that the BoJ must be mindful of its mandate in introducing the climate change scheme, while there was also the opinion that if the BoJ directly intervenes in addressing climate change, various distortions in the financial system could occur. Furthermore, the BoJ must not prematurely tighten monetary policy as there is still a distance to stably achieving 2% price target and it must continue to be mindful of downside risks to economic and price outlook, while there were no major changes seen in inflation expectations even as commodity prices increase. (Newswires)

UK/EU

The European Commission has paused legal action against the UK for its alleged breach of the post-Brexit deal on Northern Ireland with a spokesperson stating that the pause would give the EU time to consider the proposals put forward by the UK last week. (Telegraph)

ECB's De Cos said he wants to keep bond buying flexible after the pandemic and noted that uncertainty in the Euro Area is still very high, while he added that PEPP should last as long as pandemic impacts the economy and that new guidance is the first example of ECB’s resolve to act. (Newswires)

Bank of Italy called on 'less significant banks' to keep a careful approach in deciding payout policies and share buybacks. (Newswires)

• UK BRC Shop Price Index YY (Jul) -1.2% (Prev. -0.7%)

FX

In FX markets, the DXY was lacklustre around the 92.50 level amid the recent declines in real yields and mixed data with the greenback tentative ahead of today’s FOMC announcement and heading into month-end with Citi’s model pointing to mild USD selling for the month-end FX hedging. EUR/USD was flat after the prior day’s whipsawing through the 1.1800 level and with the recent comments from ECB's De Cos and Holzmann both underscoring the high uncertainty for the Euro area with the former wishing to keep bond buying flexible after the pandemic. GBP/USD traded sideways after stalling near 1.3900 although saw momentum heading into yesterday’s London fix and with the EU pausing the threat of legal action against the UK regarding the Brexit deal. USD/JPY languished beneath 110.00 and JPY-crosses were subdued by the risk aversion, while antipodeans lacked direction after mostly inline CPI data from Australia and the four-week lockdown extension for Australia’s most-populous city which has spurred forecasts for an economic contraction in Q3, as well as prompted CBA to push back its RBA rate hike forecast to May 2023 from late-2022.

• Australian CPI QQ (Q2) 0.8% vs. Exp. 0.7% (Prev. 0.6%)
• Australian CPI YY (Q2) 3.8% vs. Exp. 3.8% (Prev. 1.1%)
• Australian RBA Trimmed Mean CPI QQ (Q2) 0.5% vs. Exp. 0.5% (Prev. 0.3%)
• Australian RBA Trimmed Mean CPI YY (Q2) 1.6% vs. Exp. 1.6% (Prev. 1.1%)

COMMODITIES

Commodities notched mild gains overnight in which WTI crude futures reclaimed the USD 72/bbl level after recovering from the prior day's early declines which had been a fallout from the broad risk aversion and recent China stock rout. Nonetheless, prices have kept afloat during Asia hours with some mild support as the sell-off in China moderated and following the latest private sector inventory report which showed a larger than expected draw in headline crude and gasoline stockpiles. Gold prices marginally advanced after it reclaimed the USD 1800/oz status but with upside capped heading into the FOMC announcement later, while copper remained unaffected by the downbeat sentiment and took advantage of the lacklustre greenback to resume its recent uptrend.

US Energy Inventory Data (bbls): Crude -4.73mln (exp. -2.9mln), Cushing -0.13mln, Gasoline -6.23mln (exp. -0.9mln), Distillate -1.88mln (exp. -0.4mln). (Newswires)

GEOPOLITICAL

US President Biden warned that cyber attacks could result in war as he suggested that if the US ends up in a real shooting war with a major power, it will be as a consequence of a cyber breach, while he noted that threats such as ransomware attacks are increasingly capable of inflicting damage and disruption in the real world. (FT)

US

Treasuries bull-flattened on Tuesday amid risk aversion and positioning ahead of FOMC. 2s -1.3bps at 0.204%, 3s -1.3bps at 0.362%, 5s -1.7bps at 0.696%, 7s -3.0bps at 0.995%, 10s -4.0bps at 1.236%, 20s -3.9bps at 1.805%, 30s -3.4bps at 1.891%; TYU1 volumes were light. 5yr TIPS -5.7bps at -1.922%, 10yr TIPS -7.9bps at -1.128%, 30yr TIPS +0.6bps at -0.358%. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. Yields gradually rose off their lows ahead of Treasury supply until US players arrived, where a chunky block buy in Ultra 10yr Note futures rejuvenated the bond bid, with the disappointing June Durable Goods print only supporting the move to take T-Notes to their daily peak (134-18) ahead of the NY stock open. Yields rose slightly off their session lows (just beneath 1.23% for cash 10s) as the US session got underway, with a solid Consumer Confidence report and impending Treasury supply keeping the bid capped. The lacklustre 5yr auction didn't see much follow-through for the curve, with participants likely cautious to gain exposure ahead of the FOMC on Wednesday. T-note (U1) futures settle 8+ ticks higher at 134-15.

US bipartisan infrastructure bill may include extension to low-income broadband payment support enacted during the pandemic, according to sources. (Newswires)

Apple Inc (AAPL) - Q3 2021 (USD): EPS 1.30 (exp. 1.01/1.00 GAAP), Revenue 81.4bln (exp. 73.3bln). Revenue breakdown: iPad 7.37bln (exp. 7.15bln), iPhone 39.57bln (exp. 34.00bln), Mac 8.24bln (exp. 8.07bln), Other Products 8.78bln (exp. 7.80bln), Services: 17.49bln (exp. 16.33bln). Qtrly Dividend: 0.22 (exp. 0.22). CEO Cook said Co. has 700mln subscribers on its platforms vs prev. 660mln Q/Q. Sales impact from global chip shortage was below the low end of its previous estimates of USD 3bln-4bln. AppleCare subscription revenue rebounded in Q3 as many retail stores were open. iPhone 12 Pro and Pro Max were strong sellers, while supply constraints tempered growth in iPad and Mac sales. Co. guides Q4 revenue growth of double-digits but below the Q3 growth of 36%, expects supply constraint in Q4 to be greater than Q3 and which will primarily impact iPhones and iPads. (Business Wire) Shares fell 2% after market. [6.6% SPX weight, 13.5% NDX weight, 2.8% Dow weight]

Alphabet Inc (GOOGL) Q2 2021 (USD): Adj. EPS 27.26 (exp. 19.34/19.33 GAAP), Revenue 61.88bln (exp. 56.16bln). Google Services revenue USD 57.07bln (exp. 51.95bln). Google Cloud revenue USD 4.63bln (exp. USD 4.34bln). Other bets revenue USD 192mln (exp. 185.4mln). Operating income USD 19.36bln (exp. 15.04bln). Operating margin 31% (exp. 26%). Google Services operating income USD 22.34bln (exp. 18.08bln). Google Cloud operating loss USD 591mln (exp. loss 1.29bln). Other Bets operating loss USD 1.40bln (exp. loss 1.07bln). (Newswires) Shares rose 3% after market. [5.8% SPX weight, 11.9% NDX weight, 5.4% Dow weight

Advanced Micro Devices Inc (AMD) - Q2 2021 (USD): Adj. EPS 0.63 (exp. 0.54/0.47 GAAP), Revenue 3.85bln (exp. 3.62bln); Raises FY21 revenue growth view to +60% Y/Y (Prev. +50% Y/Y) driven by all businesses. Q3 2021 Revenue View: 4.1bln (exp. 3.82bln) primarily driven by data centre and gaming. Computating And Graphics: 2.25bln (exp. 2.19bln). Enterprise, Embedded And Semi - Custom: 1.60bln (exp. 1.40bln). Adjusted gross margin 48% (exp. 47%, prev. 44% y/y). Capital Expenditure USD 64mln. (Globe Newswires) Shares rose 1% after market. [0.3% SPX weight, 0.6% NDX weight]

Microsoft Corp (MSFT) - Q4 2021 (USD): EPS 2.17 (exp. 1.92/1.92 GAAP), Revenue 46.2bln (exp. 44.24bln). Intelligent Cloud: 17.4bln (exp. 16.34bln). More Personal Computing: 14.1bln (exp. 13.86bln). Productivity And Business Processes: 14.7bln (exp. 13.91bln). Operating income was USD 19.1 billion and increased 42%. Net income was USD 16.5 billion and increased 47%. Co. guides Q1 rev. USD 43.3bln-44.3bln (exp. 42.2bln), sees Q1 productivity and business process rev. USD 14.5bln-14.75bln, sees Q1 Intelligent Cloud rev. USD 16.4bln-16.65bln. (Newswires) Shares rose 0.2% after market. [5.8% SPX weight, 11.9% NDX weight, 5.4% Dow weight]