• Asia-Pac equities traded mixed with the breadth of the price action narrow; US equity futures saw mild gains
• In FX, DXY held onto the Clarida-induced gains; the non-US Dollars saw some upside and the JPY narrowly lagged
• Fed's Daly (2021, 2024 voter) said her modal outlook is the Fed will be able to taper later this year or early next - but emphasized data dependency
• UK is removing the quarantine requirement for fully jabbed travellers coming back from France, and added Germany, Austria, and Norway to the Green List
• The BCB unanimously hiked the Selic rate by 100bps as expected and see another 100bps increase at the next meeting
• Looking ahead, highlights include US Initial/Continued Jobless Claims, Canadian Trade Balance, BoE Policy Announcement & Press Conference, Fed's Waller, Supply from France and Spain
• Earnings: Adidas, Bayer, Continental, Credit Agricole, Lufthansa, Deutsche Post, Siemens, Glencore, Rolls Royce, WPP, ViacomCBS, Kellogg

CORONAVIRUS UPDATE

UK is removing the quarantine requirement for fully jabbed travellers coming back from France, and added Germany, Austria, and Norway to the Green List. (Twitter)

US President Biden Administration is developing a plan to require nearly all foreign nationals traveling to the US to be fully vaccinated; WH is not immediately planning on lifting international travel restrictions but it is developing a policy. (Newswires)

Canada’s plan to reopen its border next week to US tourists could be in trouble as the union representing customs and immigration officers said it is ready to cut services unless a deal is struck, reports WSJ. (WSJ)

Los Angeles city leaders will consider a proposal to require proof of COVID-19 inoculation as a condition of entry to a host of indoor public spaces such as restaurants, gyms and sporting events. (LA Times)

Japan proposed expanding the COVID-related restrictions to eight more prefectures. (NHK)

Australia's New South Wales reported 262 new locally-acquired COVID-19 cases - a new record high. (Newswires)

ASIA

Asia-Pac equities saw a mixed session with the breadth of the price action narrow following a subdued lead from Wall Street, in which the DJIA shed 0.9% and the S&P 500 dipped around 0.5%, but the NDX eked out a day of gains. US equity futures resumed trade with mild and broad-based gains across the board, with the ES above 4400 for most of the session. The futures were unfazed by Fed's Daly (2021/24 voter) joining the club calling for a potential QE taper this year, although at several points during her interview she stressed data dependency - ahead of Friday's jobs data. Back to APAC, the ASX 200 (+0.3%) held its head above 7,500, but losses in its heavyweight mining sector capped gains. Nikkei 225 (+0.4%) saw mild tailwinds from currency dynamics, but traders remained cautious as Japan proposed expanding the COVID-related restrictions to eight more prefectures - note, some are urging for a nationwide State of Emergency. The KOSPI (+0.2%) remained caged amid a lack of catalysts. The Hang Seng (-0.2%) and Shanghai Comp (+0.1%) were choppy and dipped at the open following reports in China’s Securities Times targeting gaming tax – albeit Chinese markets thereafter conformed to the tentative tone. Finally, 10yr JGB futures were modestly softer in tandem with their US peer.

China's Securities Times says the tax on the gaming sector should be moderately similar to the traditional industry, noting that the current taxes allow more people to be addicted to games. (Newswires)

A magnitude 6.5 earthquake hit an area near Taiwan. (Newswires)

PBoC injected CNY 100bln via 7-day reverse repos at a maintained 2.20% rate for a net daily drain of CNY 20bln. (Newswires)

PBoC set USD/CNY mid-point at 6.4691 vs exp. 6.4683 (prev. 6.4655)

CENTRAL BANKS

Fed's Daly (2021, 2024 voter) said her modal outlook is the Fed will be able to taper later this year or early next - but emphasized data dependency. Daly passed inflation off as transitory and said high inflation could last until next year but not forever. Daly noted the rise in house prices is a supply-demand issue which will be resolved as supply comes back online, and she noted the Delta variant is starting to temper activity across the country. (PBS Newshour)

Fed’s Kaplan (2023 voter) reiterated tapering should start soon and be gradual, and added that doing so would give it more flexibility to be "patient" on raising interest rates. He questioned the efficacy of the Fed's asset purchase programme, and said it will not speed the labour market matching process. Kaplan said faster taper does not mean Fed will raise rates faster and it is critical to divorce decision on taper from decision on rates He could envisage reducing the Fed's purchases of Treasuries by perhaps USD 10bln per month, and its MBS purchases by USD 5bln per month and expects taper process to take about eight months. Kaplan said the Delta variant of COVID could slow job gains, but it will not slow the recovery unless vaccines prove less effective in preventing hospitalisations and deaths. He will reassess next month his own view from June that a 2022 interest rate hike would be appropriate. (Newswires)

The Brazilian Central Bank hiked its Selic rate by 100bps as expected, to 5.25% from 4.25% in a unanimous decision. The Bank sees another 100bps hike at the next meeting in September. The BCB noted that the baseline scenario and balance of risks indicate that a rate hike cycle to a level above neutral is appropriate, the rate hike reflects the view that recent inflation dynamics and reopening of the economy could further increase inflation expectations. However, the risks to baseline scenario remain in both directions. (Newswires)

UK/EU

Kantar poll for Focus: German Chancellor Merkel's Conservative Bloc at 24%, Greens at 22%, and SPD at 18%. (Newswires)

FX

In FX, DXY held onto the prior day's spoils with the Buck underpinned as Daly joined Fed members Waller, Bullard, Kaplan, and Clarida in the "more hawkish" camp in the run-up to Friday’s US jobs data. The index hovered in a tight range around the 92.300 mark, and inched closer to the 21 DMA at 92.447. EUR/USD and GBP/USD traded sideways and at the whim of the Dollar; EUR/USD meandered above its 21 DMA (1.1825), and GBP/USD again encountered overnight resistance at 1.3900 while its 50 and 100 DMAs converge (at 1.3924 and 1.3920 respectively) as the Sterling looks ahead to the BoE (Click here for the full Newsquawk preview). The non-US Dollars saw mild commodity-related tailwinds as the session progressed, with the AUD/USD drifting back towards 0.7400. NZD/USD traded on either side of its 50 DMA around 0.7050, and USD/CAD ebbed further under 1.2550. JPY marginally underperformed as the APAC region adopted a mild constructive tone, with the USD/JPY testing its 100 DMA (109.60) to the upside shortly after the first set of APAC cash open. An upside breach of the 100 DMA may open the door to the 21 DMA (109.89) followed by the 50 DMA (110.09) just above 110.00.

Brazilian President Bolsonaro reiterated that the payment of the social programme "Bolsa Familia" will be readjusted by 50%. Brazil has to be cautious with resources, but will take Bolsa Família for BRL 300, which could go 400 (currently at BRL 190). (Newswires)

Turkish President Erdogan hopes for more than 7% growth in 2021 and sees inflation to fall after August; adds no way inflation will go further up and no high interest rates and it will bring inflation. (Newswires)

COMMODITIES

WTI and Brent futures erred higher in tandem with the modest upside bias seen across assets, with news flow for the complex also light. In the grander scheme, prices remain subdued in fear of "peak growth" and pending COVID developments, whilst this week's inventory data only reinforced bearish sentiment. On a more constructive note, UK Transport Secretary Shapps announced that fully vaccinated people arriving in the UK from France no longer need to quarantine after Sunday, whilst Germany, Austria, and Norway were among seven nations added to the green list. WTI Sep' printed a base just under USD 68/bbl whilst Brent Oct' found support above USD 70/bbl - with both contracts contained within USD 0.50/bbl overnight ranges. Elsewhere, spot gold and silver were uneventful and traded within recent tight ranges. In terms of base metals, LME copper tracked sentiment higher before encountering resistance around USD 9,500/t, whilst Iron ore futures in Shanghai and Singapore slumped around 5% apiece amid continued fears over China's commodity crackdown, whilst earlier this week, the Dalian Commodity Exchange said it investigated almost 50 cases of "abnormal trading behaviour" in July.

GEOPOLITICAL

The Biden administration has approved its first arms sale to Taiwan, a potential USD 750mln deal. (Newswires)

US President Biden's new US weapons export policy has neared completion with briefings to congress, and will contain additional screening layer for human rights issues at customer countries, according to sources. (Newswires)

UK Foreign Minister Raab says the UK and US are united in condemnation of Iran's attack on MV Mercer Street off the coast of Oman. (Newswires)

Israel Defence Minister Gantz stated Iran is 10 weeks from breakout to a nuclear weapon, according to the Jerusalem Post. (Jerusalem Post)

Israeli military confirmed it had conducted air strikes against areas in South Lebanon in response to an earlier rocket fire. (Newswires)

US

T-Notes tracked sideways along 135-00 through the APAC session, with decent Chinese Services PMI data offsetting chatter of new lockdown measures in Japan. Yields tracked sideways through the European morning too. It wasn't until the EU/US handover that yields started their descent as stocks saw some selling too. That price action gained traction after the ADP miss (+330k vs exp. +695k) cast a shadow ahead of Friday's jobs report – one desk noted that "convexity hedgers, CTA short-covering, massive hedge fund buying, and new algo buy programs" were all driving the bid. There was little reaction to the Treasury Quarterly Refunding Announcement, which as expected, saw no cuts in auction sizes just yet (more details below). And the sustained bid saw T-Notes print a session high of 135-14 just prior to Clarida and ISM Services, with cash 10s printing a low of 1.127%, sneaking below the July low of 1.128%. That was swiftly reversed after the solid ISM Service data beat, with a jump in the Employment sub-index. Adding particularly selling pressure was the Fed's influential Clarida, who prepped the runway for tapering and even touted potential 2022 rate hikes. T-Notes printed a session low of 134-20 shortly after, before paring slightly into the latter session. Along the cash curve, 5s30s was again in focus with the spread flattening as traders priced in a more aggressive rate hike path along the belly, while the long-end was in fact richer on the session with the rationale being that a more hawkish Fed reduces the longer-term growth/inflation outlook. T-Note (U1) Futures settled 5+ ticks lower at 134-26+.

US Senator Warren said Brainard has strong dissents on deregulatory actions and makes a good case for the Fed being 'cop on the beat'. (Newswires)

US CBO will release the cost estimate for the infrastructure bill on Thursday. (Newswires)

Senate Democrats will likely exclude a debt limit hike in their budget resolution; instead, they’re eyeing a must-pass CR as the next opportunity for action, relying on GOP support. (Politico)

US Treasury Secretary Yellen said they are trying everything to simplify rental assistance steps, and expects monthly inflation rates will come down by the end of the year to levels consistent with price stability. (Newswires)

JP Morgan (JPM) launched an in-house Bitcoin fund for wealthy clients, according to Coindesk. (Coindesk)