• European equities, Stoxx 50 +0.3%, are dictated by earnings updates with Oil names outperforming on BP and autos diverging after Daimler and Stellantis
• Stateside, futures are firmer and the RTY is outperforming ahead of further large-cap earnings
• In FX, DXY lost 92.00; EUR, GBP, and JPY are firmer but relatively contained whilst antipodeans outperform on central bank updates
• 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
• Earnings: Alibaba, Phillips 66, ConocoPhillips

CORONAVIRUS UPDATE

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)

Japan's Medical Association head is urging a nationwide state of emergency, Kyodo; Tokyo COVID-19 cases 3,709 vs prev. 2,195 on Monday. (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 (-0.2%) and Shanghai Comp (-0.4%) 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 (-0.2%) 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 (-0.5%) 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 (+0.4%) 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) Subsequently, reported that Xinhua's Economic Information Daily report against video gaming was deleted from the publications website and WeChat, due to the attack against the gaming industry not representing Beijing's official stance, according to sources. (SCMP)

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

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)

Fed's Bullard (2022 voter) wants crisis-era policies to end soon so the Fed can move in smaller increments rather than risk a 'scramble' if high inflation persists. (Newswires)

US

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 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)

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

GEOPOLITICAL

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)

EQUITIES

European equities (Eurostoxx 50 +0.1%) trade marginally firmer after a cautious start to the session, which followed on from a similar APAC lead. Macro developments from a European perspective remain light. However, the broader backdrop continues to be clouded by further crackdowns in Beijing with Chinese market regulators launching an investigation into auto chip distributers for price manipulation. Additionally, China's Economic Information Daily called online gaming a widespread addiction and warned of health impacts, something which hampered gaming names in the region; note, these reports were later walked back. Nonetheless, the travel and leisure sector is the European laggard given the heavy weighting of gaming names such as Evolution Gaming (-3.7%). Elsewhere, the tenor of developments in the central banking sphere have leaned hawkishly amid comments from Fed’s Waller, RBA continuing with taper plans and the RBNZ tightening lending standards to reduce risks associated with excessive mortgage borrowing. Stateside, futures are broadly firmer with outperformance in the RTY (+0.7% vs. ES +0.3%, NQ +0.1%). In a recent note, analysts at Citi have highlighted that positioning for the Nasdaq 100 remains one-sided and very extended net long, leading to an asymmetric risk from current positioning. Back to Europe, sectors are mostly firmer as earnings reports dictate some of the divergences across industries. To the upside, Oil & Gas names lead the charge higher in the wake of earnings from BP (+5.1%) who reported a beat on net income expectations and an increase in its dividend. Banking names have been supported by earnings and an increase to FY guidance from SocGen (+5.6%), whilst Standard Chartered (+2.8%) are gaining to a lesser extent after positivity from its dividend announcement was mitigated by cautious commentary. For the auto sector, Stellantis (+5.8%) are one of the top performers in Europe after raising guidance alongside earnings, whilst its German competitor BMW (-4.2%) lags after concerns over the impact of the global chip shortage overshadowed encouraging Q2 earnings; as such, the sector is little changed. Finally, Tech names are seen lower on the session amid losses in Infineon (-1.1%) as it struggles to battle with tight market conditions.

FX

NZD/AUD - The RBNZ stole the limelight from the RBA overnight in some respects, and certainly in terms of price action given that the Kiwi is securing a firmer grasp of 0.7000 vs its US rival than the Aussie on the 0.7400 handle, while the Aud/Nzd cross is straddling 1.0550 ahead of NZ jobs data. In short, the former signalled its intent to tighten lending standards in an effort to reduce the risks associated with excessive mortgage borrowing, as NZ house prices are above their sustainable level in advance of the latter confounding expectations and sticking to its plan to taper QE from next month.

DXY/GBP - In contrast to the bullish reaction down under, the Dollar has derived little or nothing from the hawkish leanings of Fed’s Waller who argues that with inflation running well above the 2% target an announcement on taper could come in September for an October start, and the FOMC should do it early and fast in order to be in position to increase rates in 2022, if needed. In fact, the Buck is still on the back foot against almost all major counterparts and EM currencies, as the index continues to pivot 92.000 and skirt round numbers vs several G10 peers, like the Pound either side of 1.3900 in the run up to ‘super’ BoE Thursday and NFP the day after.

EUR/JPY/CHF/CAD - The Euro and Yen remain restrained just below 1.1900 and 109.00 respectively, with offers into the psychological levels keeping both in check, but the former well supported around 1.1850 where decent option expiry interest sits (1.6 bn between 1.1855-40 to be precise), while the latter is gleaning traction from a relatively favourable yield backdrop and fragile risk sentiment to offset Japan’s deteriorating COVID-19 situation. Elsewhere, the Franc is straddling 0.9050 again and taking marked improvements in Swiss consumer sentiment largely in stride, but the Loonie is lagging within 1.2489-1.2526 extremes in the run up to Markit’s Canadian manufacturing PMI and veering further away from 1.3 bn option expiries at 1.2480 regardless of relative stability in crude prices.

SCANDI/EM - Some respite for the Nok after defending another approach towards 10.5000 vs the Eur, while the Try is testing 8.3000 against the Usd following firmer than forecast Turkish CPI that will tie the hands of the CBRT for longer from the perspective of having to maintain a tight policy rein. A pick-up in Brazilian IPC-Fipe inflation may also give the Brl a lift later and the Zar is outperforming as Gold forms a base over Usd 1800/oz and hovers near the 21 DMA.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1840-55 (1.6BLN), 1.1875-80 (526M), 1.1890-1.1900 (650M)
• USD/CAD: 1.2450 (290M), 1.2480 (1.3BLN), 1.2505 (310M), 1.2540 (468M)

FIXED

Solid sponsorship for the DMO’s 30 year issuance and an eye-catching sub-1% average yield, but the sale came with a tail to leave UK debt off best levels. However, the 10 year bond remains just above par within a 130.22-01 band and a neck ahead of its rivals, as Bunds and USTs hover over new intraday lows, at 176.67 and 134-25+ respectively in advance of a relatively light pm docket including US Redbook and factory orders either side of the ECB’s gross PEPP purchases and redemptions all before a late speech (for EU traders) from Fed’s Bowman.

COMMODITIES

A firmer start to the session for crude benchmarks although newsflow specific to the complex has been minimal aside from energy updates on a slim schedule where private inventories will be the highlight. Currently, WTI and Brent are firmer by USD 0.50/bbl, but well within yesterday’s parameters. This morning saw the Q2/half-year update from BP on the oil market the major looks for a continuation of the rebalancing process and for demand to recover throughout the year. Currently, they expect a return to pre-COVID demand levels in H2-2022. For Brent, there H2-2021 forecast is USD 60/bbl and upgrade from the USD 50/bbl expected for 2021 at the time of their FY20 earnings; further out, the 2025 view is lifted by USD 10/bbl to USD 60/bbl and 2030 maintained at USD 60/bbl. Returning to the private inventories, expectations for both tonight’s release and tomorrows EIA report looks for a headline crude draw of 2.9mln and draws for both distillate and gasoline as well; albeit, at the comparatively smaller 0.2mln and 1.4mln respectively. Moving to metals, spot gold and silver are diverging slightly around the unchanged mark though price action has been very contained throughout the European morning and spot gold continues to retain the USD 1800/oz handle. While copper prices are softer at present in a break from the overnight performance and following yesterday’s gains in the European session on Chile strike concerns, on which no updates have arisen thus far. As such, the metal has retreated further from the USD 10k/T mark, but is off the current sessions low of circa USD 9.5k/T.