• APAC equities saw a cautious session; Hong Kong lagged as gaming stocks were hit by China's renewed crackdown
• US equity futures overnight resumed trade with mild broad-based gains
• In FX, DXY held onto 92.00; EUR, GBP, and JPY were uneventful whilst antipodeans saw central bank updates
• Fed Governor Waller suggested the Fed could make a taper announcement by September for an October start and should be a position to increase rates in 2022 if required
• The RBA unexpectedly left its QE taper plans unchanged vs expectations for a delay. The Cash Rate and 3yr yield target at 0.1% as expected
• The RBNZ is now considering tighter lending standards to reduce the risks associated with excessive mortgage borrowing, as house prices are above their sustainable level
• Looking ahead, highlights include US Factory Orders, Fed's Bowman, supply from the UK
• Earnings: Generali, Societe Generale, Stellantis, BMW, Infineon, BP, Standard Chartered, Alibaba, Phillps 66, Eli Lilly, ConocoPhillips

CORONAVIRUS UPDATE

Austin, Texas health officials said the city has now crossed into Stage 5 risk for COVID-19 spread, according to local press. (Newswires) White House said seven states with the lowest vaccination rates account for over 17% of US COVID cases, with one in three of the cases nationwide in Florida and Texas. (Newswires)

The Biden administration is planning a first-of-its-kind, global leader-level summit focused on ending the COVID-19 pandemic and preparing for future pandemics, according to sources. (Axios)

China's Wuhan city will be conducting city-wide tests after COVID infections were found. (Newswires)

Australia's New South Wales reports 199 new COVID cases vs yesterday's joint record of 207. (Newswires)

GLOBAL

The IMF has approved a general allocation of Special Drawing Rights (SDRs) equivalent to USD 650bln to boost global liquidity. (Newswires)

ASIA

Asia-Pac equities adopted a cautious tone after the majors on Wall Street gave up earlier gains, whilst a hawkish tilt by Fed Governor Waller added to the gloom across equities. The S&P 500, DJIA, and R2k ended the day with mild losses whilst the Nasdaq clung on to modest gains with the aid of the softer yields. US equity futures overnight resumed trade with mild broad-based gains but thereafter drifted lower as losses across Chinese markets dampened sentiment. The Hang Seng (-0.7%) and Shanghai Comp (Unch) rebounded off worst levels after initially tumbling over 1% apiece amid renewed woes over Beijing crackdowns, with the Chinese gaming sector hit hard on the back of commentary from China's Economic Information Daily calling online gaming a widespread addiction and warning of health impacts. Tencent and NetEase shares plunged 8% and 10% respectively at the open and extended their declines, whilst the Hang Seng Tech index fell over 3%. Focus also turns to global online gaming names (Microsoft, Activision Blizzard, Electronic Arts, Ubisoft) and CPU/GPU manufacturers (Nvidia, AMD, Intel) as China is estimated to be the largest consumer of games. Elsewhere, the ASX 200 (-0.4%) was pressured by losses in its heavyweight mining sector as growth concerns weighed on base metals, but losses deepened in a knee-jerk reaction after the RBA unexpectedly opted to stick to its QE taper plans. The Nikkei 225 (-0.7%) traded with losses following the prior day’s rally, with industrial and mining names pressuring the index, whilst gaming names Sony, Nintendo, Konami and Bandai Namco all retreated after getting caught in China's crackdown crossfires. The KOSPI (-0.1%) meanwhile conformed to the caution tone across the region, and with geopolitical tensions on the radar as Seoul and Washington gear up for annual military drills.

China's Economic Information Daily called online gaming a widespread addiction and warned of health impacts. (Newswires)

Chinese market regulators have launched investigations into auto chip distributers for price manipulation. (Newswires)

China has set new procurement guidelines for state-run firms. (Newswires)

PBoC injected CNY 10bln via 7-day reverse repos at a maintained rate of 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4610vs exp. 6.4607 (prev. 6.4660)

CENTRAL BANKS

Fed's Waller (voter) stated inflation is running well above the 2% target and the Fed could make an announcement on taper by September for an October start, and they should do it early and fast in order to be in position to increase rates in 2022 if needed. On tapering, Waller said there is no reason to go slow on the taper. Waller does not see exact timing and speed of taper having a big impact on financial markets and was in favour of MBS first but most of the committee did not want it to go that way. Waller would still be in favour of tapering MBS purchases faster than treasuries. On the labour market, Waller said If we get 800k-1mln jobs in the next two jobs report will have regained 85% of jobs lost, which is significant further progress and could taper in October, adding that the labour market should really take off starting in August and September. On the Delta variant, the Fed member does not think delta variant will have a large impact on the US directly. On inflation, Waller suggests that inflation expectations are well anchored and expects inflation to cool off by October or November, but notes of upside risks - although that is not his baseline view. (CNBC)

The RBA unexpectedly left its QE taper plans unchanged vs expectations for a delay. The Cash Rate and 3yr yield target were held at 0.1% as expected. Bond purchases will continue at the rate of AUD 5bln a week until early September and then AUD 4bln a week until at least mid-November. The Board will maintain its flexible approach to the rate of bond purchases. The RBA reiterated its forward guidance that “The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.” The RBA noted that the economic and labour market recoveries were faster than expected. (RBA)

The RBNZ is now considering tighter lending standards to reduce the risks associated with excessive mortgage borrowing, as house prices are above their sustainable level. One option is to require borrowers to front with a larger share of the purchase price (deposit) to reduce their exposure to mortgage debt. These tools are known as loan-to-value (LVR) restrictions. Another option – which can be used simultaneously – is to impose rules on banks to ensure they do not lend unless the borrower is able to weather a wide range of possible mortgage interest rates and income shocks. These tools are known as debt-to-income ratios and interest rate floors. These are the tools that the RBNZ can now operationalise following the signing of a Memorandum of Understanding with the Government. "The Reserve Bank’s Monetary Policy Committee needs to think about when and how we would return interest rates to more normal levels, which are neither unnecessarily giving the economy a push forward nor holding it back." (RBNZ)

FX

In FX, DXY probed 92.00 to the downside throughout the session, having dipped to a 91.911 low yesterday. The Dollar was subdued as APAC players reacted to the ISM Manufacturing metric which, alongside China’s Caixin PMI, spurred concerns over “peak growth” and the potential for further slowdown ahead. The index caught a mild bid on hawkish remarks by Fed Governor Waller, who suggested that the Fed could make a taper announcement by September for an October start, and the Fed should do it early and fast – which would enable them to be in a position to increase rates in 2022 if required. Meanwhile, there are concerns of a COVID outbreak at Capitol Hill after fully-vaccinate Senator Graham, who attended the weekend gathering of senators, tested positive – with some questioning whether this will hamper the swift passage of the USD 1tln infrastructure bill. Elsewhere, EUR/USD was uneventful around 1.1875 whilst GBP/USD once again found overnight resistance at 1.3900. USD/JPY looked somewhat heavy amid the cautious sentiment across markets, but the pair retained its 109.00 status. Antipodeans were far more interesting; the NZD outperforms after the RBNZ said it will soon begin consulting on ways to tighten mortgage lending standards, with NZD/USD grinding towards 0.7000 since the release, whilst overnight indexed swap (OIS) strip now prices in an 80% chance of a 25bps hike at the August meeting vs 65% yesterday, whilst a subdued pre-RBA AUD kept the AUD/NZD cross pressured under 1.0550 for most of the night. Thereafter, AUD/USD popped higher back onto a 0.7400 handle after the RBA unexpectedly left its QE taper plans untouched vs expectations for a delay, whilst the Board also noted that the economic and labour market recoveries were fast than expected. Note, the rest of the week will see a speech from RBA Governor Lowe alongside the RBA Statement on Monetary Policy (SOMP).

COMMODITIES

WTI and Brent futures took their cues from the overnight sentiment and erred lower throughout the session, but within contained USD 0.60/bbl ranges. The demand side continues to remain in focus amid the Delta COVID variant and concerns of peak growth, whilst traders look ahead to the Private Inventory report later today for a scheduled catalyst. Elsewhere, spot gold and silver were lacklustre but the former again found an overnight floor at its 21 DMA at USD1,809/oz. Turning to base metals, LME copper recovered overnight following the prior day's growth-induced declines, with the clock also ticking down to strike actions at BHP's Escondida copper mine. Overnight, Shanghai rebar and hot-rolled coil futures extended their declines in a continuation of the downside sparked after China updated its stance on its carbon reduction scheme.

GEOPOLITICAL

Germany on Monday sent a warship to the South China Sea. (Newswires)Russia says the US has asked 24 of its diplomats whose US visas are expiring to leave the country by September 3rd. (Tass) US State Department states Russian Ambassador's characterisation of situation regarding 24 Russian diplomats in the US is not accurate. (Newswires)

Russia’s lead negotiator in Iranian nuclear talks notes there is no alternative to the restoration of the original nuclear deal (JCPOA).(Press TV)

North Korea wants Washington to allow metal exports, alongside imports of fuel and necessities, in order to resume negotiations, according to press citing a South Korean spy agency. (Newswires)

US

Treasuries were modestly bid out of APAC after disappointing Chinese PMI data was offset by a decent recovery in global indices. It wasn't until US participants began returning from the weekend that bonds gradually pushed to new session highs, aided by the onset of oil's decline and a more mixed performance for European stocks. It wasn't until the miss on US July ISM Manufacturing that the bid really ramped up, with T-Notes legging higher and sustaining a bid into the European close. T-Notes printed a session high of 135-05, just off their recent peak of 135-07 from mid-July, while cash 10s printed session lows of 1.151%, compared to its July trough of 1.128%. Yields came gently off their lows into the US afternoon, but not by far ahead of the Treasury quarterly financing estimates later on Monday, with many expecting more details from the Treasury on its previously touted coupon auction size cut, not to mention the reimposed debt ceiling and the associated issuance limits. There is also no coupon supply this week for dealers to make concession for, providing more tailwinds for bond bulls. T-Note (U1) Futures settled 17+ ticks higher at 135-00.

US Senate Democratic Caucus to convene virtually on Wednesday after concerns about coronavirus grow on the Hill, according to Fox's Pergram. (Newswires)

US Treasury expects to issue USD 673bln of net marketable debt in Q3 (down from prior estimate USD 821bln). Treasury said the decrease in borrowing estimate is due to higher beginning of quarter balance and lower outlays. (Newswires) US Treasury Secretary Yellen announced debt issuance suspension period for a portion of civil service retirement and disability fund through September 30th. The Treasury will not be able to invest fully in the so-called G fund for federal retirees beginning on Monday. (Newswires)

Senate Minority Leader McConnell warned against any artificial timetable for consideration of bipartisan infrastructure bill; believe draft text provides good jumping off point. (Newswires)

US Labour Board official recommends fresh Amazon (AMZN) union elections, according to a press release. (Newswires)