• Equity indices are firmer but contained pre-Fed after the lacklustre APAC handover with movers dominated by earnings; Euro Stoxx 50 +0.7%, ES +0.2%
• Large cap US earnings sees Apple lower pre-market trade, Microsoft marginally firmer and Alphabet higher; all beat on top and bottom lines
• USD is choppy but rangebound with peers exhibiting similar performance and core debt is similar, US yield curve is modestly bear-steepening
• Looking ahead, highlights include Canadian CPI, DoEs, FOMC rate decision and Fed Chair Powell Press Conference
• Earnings from GlaxoSmithKline, Boeing, Ford, Facebook, Pfizer, Qualcomm, McDonalds

CORONAVIRUS UPDATE

US 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)

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 (-0.7%) 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 (-1.4%) 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 (+1.5%) 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)

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)

US

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

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

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)

EQUITIES

European equities trade marginally firmer (Stoxx 600 +0.4%) in what has been a busy morning of earnings for the region, with macro developments relatively light ahead of the FOMC policy announcement. In terms of commentary on European stocks, Barclays notes that the pullback in reopening plays has presented a buying opportunity and subsequently upgraded the Travel & Leisure sector to overweight. Travel & Leisure names have been supported throughout the session with stocks also likely bolstered by reports suggesting that the UK is considering relaxing travel restrictions from the US and EU. Sectors in Europe show a largely positive bias with outperformance in Tech names following large-cap US earnings after hours yesterday. Autos are on a firmer footing with Renault (+5.4%) a key performer in the sector following earnings from Nissan, in which it holds a 43% stake. To the downside, Chemical names lag peers amid losses in BASF (-1.4%) post-earnings. Elsewhere, Barclays (+4.5%) stand near the top of the FTSE 100 after solid earnings and plans to pay out billions via share buybacks and dividends. Other notable banking names reporting include Deutsche Bank (-0.3%) and Santander (-0.2%) with the former unable to appease investors after exceeding profit expectations with some concern surrounding investment banking revenues and unanticipated costs. For the luxury sector, Kering (-3%) are trading higher after strong performance in Gucci boosted sales metrics for the Co. For a full breakdown of earnings in Europe, please refer to the Daily European Equity Opening News. Stateside, futures are a touch firmer with mild outperformance in the Russell (+0.5% vs. ES +0.1%, NQ +0.1%). Focus in the pre-market will fall on after-hours earnings yesterday which saw heavyweights Google (+3.9%), Microsoft (+0.8%) and Apple (-0.9%) report, with the latter cautioning that chip shortages could impact iPhones and iPads during the current quarter.

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) -1.0% in the pre-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) +0.8% in the pre-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) +1.6% in the pre-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) +0.4% in the pre-market. [5.8% SPX weight, 11.9% NDX weight, 5.4% Dow weight]

TSMC (2330 TW) has received final approval to build a 2-nm chip facility in Hsinchu, Taiwan, Nikkei citing sources; approval was granted by the ERC on Wednesday, allows the Co. to start construction early-2022 and installing equipment by 2023. (Nikkei)

Please see here for the Daily European Equity Opening News and the Additional Equity News for the morning's European earnings/stories.

FX

DXY - The index maintains the caged horizontal trade experienced overnight amid the looming FOMC statement and Chair Powell’s accompanying presser. Policy parameters are expected to be unchanged, but participants will be eyeing the tone of the statement and presser for any potential policy impacts from the Delta variant, whilst inflation is expected to be passed off as transitory. (full preview available in the Newsquawk Research Suite). In the run-up to the Fed, the Buck could be influenced by a notable change in sentiment or yields, but in the absence of pertinent news flow and a light data/speakers docket, action throughout the European morning will likely be contained. DXY currently resides around the middle of the current 92.398-587 range. Heading into month-end with Citi’s model pointing to mild USD selling for the month-end FX hedging.

CNH - The Yuan has held onto a bulk of yesterday’s losses, although USD/CNH has somewhat stabilised around the 6.5000 area, with comments from Chinese media overnight attempting to soothe the crackdown-induced sullied sentiment, whilst the PBoC unsurprisingly opted for a softer CNY fix overnight, in line with expectations. China Securities Journal suggested that investors should not be pessimistic due to stock declines, while a separate Chinese press report suggested 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. USD/CNH remains above its 200 DMA (6.4907) but off yesterday’s 6.5285 high.

EUR, GBP, JPY, CHF - All trade flat vs the Buck and against each other. EUR/USD meanders just north of 1.1800 within a 23-pip range, unfazed by the sub-par German Gfk Consumer Sentiment for the month ahead. Traders should however be cognizant of lumpy option expiries for the pair ahead of today’s NY cut – which in absence of catalysts may sway exchange rates - with EUR 1.1bln at strike 1.1800 and around EUR 1bln on each side of the round figure. GBP/USD earlier failed to test 1.3900 to the upside after losing steam at 1.3895 and thereafter trickled off best levels to a base at 1.3865. EUR/GBP is also caged above 0.8500 with little reaction seen to reports that the European Commission has paused legal action against the UK for its alleged breach of the post-Brexit deal on Northern Ireland. USD/JPY circles the 110.00 handle ahead of its 50 DMA at 110.03, with a current range between 109.75-99. USD/CHF first with the 0.9150 handle having had moved around 10 pip on either side of the semi-round figure.

AUD, NZD, CAD - The non-US Dollars diverge with the antipodeans narrowly underperforming in the G10 bunch. The subdued mood across Australia and New Zealand is in part a function of their largest trading partner China encountering investor jitters amid mass crackdowns. Further, the AUD also bears the brunt of a four-week lockdown extension for Australia’s most populous city which has prompted forecasts for an economic contraction in Q3. This also comes ahead of the RBA policy meeting next week, whereby noise has been growing regarding the need to U-turn on the RBA’s prior taper announcement. Aussie CPI overnight surged from the prior month but largely matched expectations and failed to spur much action. AUD/USD trades on either of USD 0.7350, with yesterday’s trough at 0.7337. NZD/USD has dipped below 0.6950 and resides closer to session lower at 0.6937 (vs high 0.6969). The Loonie in contrast narrowly outperforms the G10 space amid an underlying bid in crude following a larger-than-expected drawdown in Private Inventory stocks, ahead of the Canadian CPI figures at 13:30BST.

EM - EMs are consolidating following yesterday’s broad-based losses, although the ZAR bucks the trend and remains modestly softer amid the recent social unrest in the country, and despite avoiding an immediate rating downgrade at S&P yesterday. Elsewhere, Czech Central Bank Governor remarked that he is in favour of "relatively fast" interest rate hikes, prompting some modest strength in the CZK whereby EUR/CZK dipped from 25.70 to 25.64.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1835-40 (675M), 1.1850-60 (2.1BLN), 1.1785-90 (900M), 1.1800 (1.1BLN), 1.1820 (1BLN), 1.1825-30 (675M)

Australian CPI QQ (Q2) 0.8% vs. Exp. 0.7% (Prev. 0.6%); 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%); YY (Q2) 1.6% vs. Exp. 1.6% (Prev. 1.1%)

FIXED

A directionless and contained mid-week session for both core and periphery benchmarks as newsflow is minimal and attention is entirely on the FOMC – and more so Powell’s accompanying presser – given the otherwise sparse schedule. Currently, USTs are a handful of ticks softer but remain within earlier ranges and well within the parameters of the week thus far. The yield curve is exhibiting some modest bear-steepening ahead of the arrival of US players. On this and ahead of the FOMC, ING writes that a hawkish Fed should lead to some yield upside as hikes are priced in once more, particularly for the short-end of the curve; however, they caution that if the Fed is overly-hawkish then we could see long-end rates fall as such a tightening could hamper the pace of the recovery. Specifically, they highlight the possibility of the 10yr yield eventually approaching 1.0% on such an outcome (current session low 1.2310%). As a reminder, the full newsquawk preview for the Fed policy announcement is available on the feed/research suite. Crossing the pond, both the UK and German benchmarks are pivoting the unchanged mark as they have been for the vast majority of the session; newsflow has been sparse but Gilt traders in particular will be eyeing the developments on England’s potential border reopening to the EU & US. The sole auction this morning was a 15-year Bund sale which, on face value, was poor as the b/c dropped from the prior and was technically uncovered alongside the retention ticking up notable. However, given the negative average yield compared to the prior sales marginally positive return the low cover is not the worst outcome; little-to-no reaction on the sale. For reference, if we break out of the current sub-30 tick range for the Bund benchmark then support lies at 176.10 in the form of a 50% fib of yesterday’s move before that session’s trough of 175.82. To the upside, 176.50 is the next resistance mark.

COMMODITIES

WTI and Brent front month futures trade on a firmer footing with the former back near the USD 72.50/bbl mark (vs low 71.80/bbl) and the latter north of USD 75/bbl (vs low 74.58/bbl). The bid in the crude complex has been supported by the larger-than-expected drawdown in Private Inventories (Crude -4.73mln vs exp. -2.9mln), with the internals also bullish. News flow for the complex has remained light in the run-up to this week’s main central bank event. Fed aside, markets will be eyeing COVID-19 and international travel developments to gauge upcoming demand, although desks maintain their view of a deficit in the summer followed by a demand lull in H1-2022 – with prior sources via Energy Intel suggesting that OPEC+ may pause the monthly production hikes to accommodate this. Elsewhere, spot gold and silver trade sideways around USD 1,800/oz and under USD 25/oz awaiting the Fed. LME copper meanwhile remains subdued under USD 9,750/oz, but off recent lows and re-eyeing the USD 10k/t mark to the upside, with traders increasingly citing the red metal’s demand prospects, but cautioning over China’s interference.

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)