• Asia-Pac equities traded mostly higher; Hong Kong outperformed with the Hang Seng Tech Index rising over 3%
• US equity futures overnight resumed trade modestly softer and were caged throughout the session
• In FX, DXY probed 92.000, EUR, GBP and JPY were uneventful whilst the NZD was bolstered by a solid jobs report
• China's Caixin Services PMI topped forecasts, but companies reported having higher staff, fuel and raw material costs during July
• The US military is expected to reposition at least one vessel to monitor a hijacked tanker off the coast of the UAE; suspected to be linked to Iran
• Looking ahead, highlights include EZ, UK, US Composite & Services PMIs (Final), US ISM Services PMI, Fed's Clarida, the US Quarterly Refunding announcement and supply from Germany
• Earnings: Commerzbank, Intesa Sanpaolo; Legal & General; General Motors, Kraft Heinz, Uber

CORONAVIRUS UPDATE

Japan's Top Health Advisor noted of discussions on whether the State of Emergency should be nationwide. (Newswires)

Spain is set to remain on the UK's "amber" travel list and avoid being placed on the "red" list amid a significant fall in cases and lack of capacity in hotel rooms for travellers to quarantine in. (Times)

The Infectious Diseases Society of America has cautioned that the spread of the delta variant has pushed the threshold for herd immunity to over 90% and potentially near 90%. (Newswires)

Australia's New South Wales reports 233 new COVID cases vs yesterday's 199 (vs record 239). (Newswires)

ASIA

Asia-Pac equities traded mostly higher after initially overlooking the gains on Wall Street, in which the S&P 500 rose to another record high heading into Friday’s US jobs report. US equity futures overnight resumed trade modestly softer and were caged throughout the session, albeit the ES, NQ, and RTY remained above 4400, 15000, and 2200 respectively. Back to APAC, newsflow remained light overnight, the ASX 200 (+0.5%) pulled back after fleetingly topping 7,500, whilst the Nikkei 225 (-0.3%) experienced early underperformance and briefly dipped below 27,500 as chatter regarding a potential nationwide State of Emergency kept the index subdued. The Hang Seng (+1.5%) and Shanghai Comp (+0.6%) initially conformed to the sluggish trade seen across the region at the time, before a notable beat in the Caixin Services PMI bolstered the two indices – with the constituents in the former also cheering China tempering down its crackdown language. SMIC and Tencent both rose some 4% whilst the Hang Seng Tech Index rebounded over 3%. The KOSPI (+1.3%) also welcomed China’s softened stance. Elsewhere, the Japanese 10yr yield fell to zero for the first time since December.

SGH Macro Advisors' understanding is that the recent Chinese Politburo meeting warned that the risk of holding US Treasuries is increasing amid the rising US financial deficit and debt levels, alongside China's concerns over a potential US recession. It was reportedly agreed that US Treasury holdings should continue to be reduced rather than increased. The State Council was reportedly told to speed up oversight and guide “platform companies” to make “comprehensive rectifications” in-line with regulatory requirements. The meeting is said to have also stressed the importance of keeping strong pressure on virtual currency trading; a senior official said the PBoC's goal is to ensure that there will be no more virtual currency trading in China by the end of the year. The meeting also called for improving the oversight mechanism for Chinese overseas IPOs. Furthermore, sources said new loans in H2 will be guided to remain at or slightly above 2020 levels, whilst the PBoC will utilise “low-profile tools” to inject long-term liquidity. (SGH Macro Advisors)

• Chinese Caixin Services PMI (Jul) 54.9 vs. Exp. 50.6 (Prev. 50.3) - "Companies reported having higher staff, fuel and raw material costs during July. Consequently, prices charged by services companies also increased during July, as firms looked to alleviate pressure on their operating margins. The rate of inflation was the quickest seen in the year to date and solid overall" (IHS)
• Chinese Caixin Composite PMI (Jul) 53.1 (Prev. 50.6)

PBoC injected CNY 10bln via 7-day reverse repos at a maintained rate of 2.20% for a net neutral daily position

PBoC set USD/CNY mid-point at 6.4655 vs exp. 6.4654 (prev. 6.4610)

Chatter in China noted that new guidelines for literature & art could impact short video firms such as ByteDance, Kuaishou, and Bilibili (BILI), according to CNBC's Yoon citing CPC News. (Twitter)

Japan's LDP Party proposes leadership contest ballot counting to be done between September 20-29th. (NHK)

UK/EU

The Times’ shadow committee of rate setters have said the BoE should scrap the final GBP 50bln of its planned QE and deliver a clear signal that it is worried about rising inflation at this week’s policy decision. (The Times)

FX

In FX, DXY again probed the 92.000 level after confirming near-term support around the 91.90 area in the prior session. News flow overnight remains light for the Buck and thus the index traded choppy in a tight range. EUR/USD and GBP/USD were uneventful and largely dictated by the Dollar, with the latter topping its 100 DMA (1.3921) and testing its 50 DMA (1.3930) to the upside. USD/JPY traded on either side of 109.00 but within the prior session’s parameters. Once again, the antipodeans took the spotlight after a solid Kiwi jobs report pressured the AUD/NZD cross below 1.0500, and subsequently provided a second boost for the NZD/USD pair to eclipse 0.7050 (vs low 0.7015) and its 50 DMA at 0.7052. The jobs reported prompted Kiwi Banks ANZ, ASB & BNZ to all adjusted their RBNZ calls – all three now expect the Official Cash Rate at 1.00% by year-end, aligning their views with Westpac, while the OIS strip now prices 30bp of tightening at the August 18th meeting, and a 20% chance of a 50bps hike. AUD/USD encountered a wall around 0.7400, with upside capped as COVID cases Australia's New South Wales remain elevated near record levels.

• New Zealand HLFS Unemployment Rate (Q2) 4.0% vs. Exp. 4.5% (Prev. 4.7%, Rev 4.6%)
• New Zealand HLFS Job Growth QQ (Q2) 1.0% vs. Exp. 0.7% (Prev. 0.6%)
• New Zealand HLFS Participation Rate (Q2) 70.5% vs. Exp. 70.6% (Prev. 70.4%)
• New Zealand Labour Cost Index - YY (Q2) 2.2% vs. Exp. 2.0% (Prev. 1.6%)
• New Zealand Labour Cost Index - QQ (Q2) 0.9% vs. Exp. 0.6% (Prev. 0.4%)
• Australian Retail Trade (Q2) 0.8% vs. Exp. 0.9% (Prev. -0.5%)
• Australian Retail Sales MM Final (Jun) -1.8% vs. Exp. -1.8% (Prev. -1.8%)

ANZ, ASB & BNZ have all adjusted their RBNZ calls and now expect the Official Cash Rate at 1.00% by year-end. (Newswires)

COMMODITIES

WTI and Brent futures were contained overnight within USD 0.50/bbl ranges amid a lack of fresh catalysts and quiet newsflow. The smaller-than-expected draw in Private Inventories prompted some modest downside, although this was then offset by the bullish internals. Participants will also be cognizant of the geopolitical situation off the UAE coast, where Iranian-backed forces are suspected of seizing a tank. Iran has denied any role in the incident but the West is not convinced. The US military is expected to reposition at least one vessel in the general vicinity of the tanker to monitor the situation. Elsewhere, spot gold popped higher overnight after rebounding off its 21 DMA (1,809/oz), with technicians eyeing the 200 DMA (1,818.50/oz) and the 50 DMA (1,823/oz) as the next immediate resistant levels above yesterday's high. LME copper meanwhile nursed earlier losses in tandem with the rebound in Chinese markets.

US Energy Inventory Data (bbls): Crude -0.879mln (exp. -3.1mln), Cushing +0.659mln, Gasoline -5.751mln (exp. -1.8mln), Distillate -0.717mln (exp. -0.5mln). (Newswires)

GEOPOLITICAL

Tuesday saw reports of at least four ships/tankers off the coast of UAE on Tuesday losing steering, with the Panama-flagged Asphalt Princess reported to have been hijacked. The latest reports from Lloyd's List say the "tanker owned by Dubai-based Prime Tanker LLC was hijacked by heavily armed unauthorised persons who demanded the vessel sail for Iran." Sky News suggested that a group of eight or nine armed individuals were believed to have boarded the tanker. The Times noted that British sources are working on the assumption Iranian military or proxies have boarded the vessel. There was a tweet from Refinitiv Energy's Twitter account claiming missile fire had taken place, although the tweet has since been deleted and no other reports have suggested such. Since, Iran has come out in denial of the claims it was involved, suggesting the accusations are a pretext for "hostile action" against Tehran. Meanwhile, the UK reportedly intends to blame Iran for a tanker attack in a letter to the UN, bringing a dispute before the UN Security Council. The US has said it is still too early to offer a judgment on the situation. The US military is expected to reposition at least one vessel in the general vicinity of the Asphalt Princess to keep a closer eye. Officials add this is to monitor the situation rather than any imminent military moves, via Reuter's Foreign Correspondent. (Twitter/Newswires)

US State Department said an appropriate response to the attack on the "Mercer Street" tanker is forthcoming and the US is consulting with governments in the region on a response. (Newswires)

US State Department states getting the release of unfairly detained American citizens in Iran is an absolute priority. (Newswires)

Saudi Foreign Minister said they would support the nuclear deal with Iran as long as that deal ensures Iran will never get nuclear weapons. (Newswires)

US

Mild gains in European stock indices saw USTs creep lower from their APAC levels, with T-Notes (U1) printing a session low of 134-25. The US was less convinced on the positive risk tone, with stocks beginning to creep lower at the handover, which coincided with a sustaining bid for Treasuries despite no tier 1 data/fresh catalysts on Tuesday morning. One desk noted real and fast money accounts seized the dip in USTs, with algos reportedly running buy programmes as support yields held. The desk added that a hedge fund led the early bounce amid a chunky lift of USU, with more buyers queued up at the CME open. T-Notes printed their highs of the session close at the US cash equity open at 135-06, matching Monday's lows in cash 10s at just above 1.150%, only to pare through the rest of the session to the unchanged levels. Participants now look to Wednesday's Treasury refunding announcement (see below), while employment data picks up into Friday's US jobs report. T-Note (U1) futures settled unchanged at 135-00.

Fed's Bowman (voter) said it may take time for some people to reenter the labour force and employment is still far below where it was despite recent gains; more work needs to be done to get the US economy back on a strong footing. (Newswires)

US CDC says the new residential eviction order will expire on October 3rd, according to a statement. (Newswires)

Apple (AAPL) is tapping more suppliers in China for key roles in producing the iPhone 13 production. (Nikkei)

Boeing (BA) and NASA will not proceed with Wednesday's launch of Starliner Orbital Flight Test-2 due to an issue - additional time is needed to complete the assessment. (Newswires) Boeing holds a 4.3% weighting in the Dow

US DoJ is reportedly mulling a lawsuit to block UnitedHealth's (UNH) USD 8bln Change Healthcare (CHNG) acquisition. (The Information) UnitedHealth is the largest-weighted Dow stock with a 7.9% weighting