• European bourses are marginally firmer with US futures mixed/flat in quiet newsflow after initial overnight pressure in futures despite a lack of catalysts
• US Senate's infrastructure deal vote is expected today at 11:00EDT/16:00BST
• USD is underpinned to the detriment of safe-haven CHF & JPY while USTs are steady but EGBs/Gilts are bid post-ZEW/DMO issuance
• China's Daily noted that the PBoC may have to cut the RRR or interest rate to spur growth
• North Korea warned the US and South Korean military drills mean they will face even greater security threats; hotline was subsequently reported as having no connection
• Looking ahead, highlights include US Labour Costs/Productivity (Prelim.), Chinese M2, EIA STEO, Fed's Evans & Mester and supply from the US

CORONAVIRUS UPDATE

Australia's New South Wales reports 356 (vs prev. 283) new locally acquired COVID-19 cases - a new record. (Newswires)

Tokyo COVID-19 infections 2,612 vs Friday's 2,884. (Newswires)

ASIA

APAC equities traded mixed in what was a choppy session as the region adopted the lead from Wall Street, whereby the DJIA and SPX posted mild losses whilst the NDX eked out a day of gains - with earnings dying down and the Fed’s Jackson Hole Symposium nearing. Overnight, US equity futures resumed flat and traded with no firm direction for the first half of the session, but later dipped as the risk tone in Asia-Pac soured - with no catalysts at the time. The Nikkei 225 (+0.2%) outperformed at the open on catch-up play after its long weekend, but the index shed its earlier gains of over 1% and conformed to the cautious tone. The ASX 200 (+0.3%) gradually gave up its opening gains, whilst the KOSPI (-0.5%) was subdued throughout the session after North Korea vowed to strengthen pre-emptive strike capabilities as the US and South Korea gear up for their annual military drills this week and the next. The Hang Seng (+1.3%) and Shanghai Comp (+1.0%) were once again volatile as China attempts to balance rising factory-gate prices and slowing growth momentum – with reports overnight via China’s Daily suggesting the PBoC may have to cut the RRR or interest rate to spur growth. Recently, SGH Macro Advisor sources from the Politburo meeting suggested the PBoC is expected to cut the RRR in a targeted way for some institutions, but not to adjust the policy rate. As a reminder, almost exactly a month ago, the PBoC announced a surprise 50bps RRR cut which released some CNY 1tln in long-term funds.

China's Daily noted that the PBoC may have to cut the RRR or interest rate to spur growth. Meanwhile, the People's Daily suggested that there is no need for the PBoC to inject additional short-term OMO funds. (Newswires) Recently, SGH Macro Advisor sources from the Politburo meeting suggested the PBoC is expected to cut the RRR in a targeted way for some institutions, but not to adjust the policy rate.

• 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 6.4842 vs exp. 6.4822 (prev. 6.4840)

US

US Senate Majority Leader Schumer said there’s a deal on the final passage of the bipartisan infrastructure bill. (Twitter) The Senate's infrastructure vote is expected to be at 11:00EDT/16:00BST, according to sources in both parties. (Politico) Schumer said the Senate will move to the budget resolution after it passes the infrastructure bill. (Twitter)

US President Biden talked up his economic plan, noting that "Jobs are up. Unemployment is down." (Twitter)

President Biden's economic team members are generally supportive of nominating Fed Chair Powell to a second term; however, growing resistance from prominent Democrats could lead to his replacement, WSJ citing sources. (WSJ)

• Leading contender, if Powell is to be replaced, is Governor Brainard
• Vice-Chair of Banking Supervision Quarles' term ends in October; admin. officials are reportedly considering former Governor Raskin as a potential candidate
• Also, working to fill a vacancy on the board of governors - two leading contenders are Williams Spriggs and Lisa Cook; Spriggs is currently seen as the more likely selection, according to sources

US NFIB Business Optimism Index (Jul) 99.7 (Prev. 102.5); small business owners are losing confidence in the economies strength and expect a slowdown in job creation. A net 27% of businesses intend to create new jobs over the next three-months, down one point from June. (Newswires)

UK/EU

UK FCA is said to be mulling introducing new rules to block banks from closing high street branches to guarantee reasonable public access to cash facilities, sources state. (FT)

Germany's GDL train driver's union members have voted for strikes at Deutsche Bahn; union adds strike will impact goods traffic as well as travellers, commence today at 1900 local time, running through 13th August at 0200 local time, union says. (Newswires)

German ZEW Economic Sentiment (Aug) 40.4 vs. Exp. 56.7 (Prev. 63.3); Current Conditions (Aug) 29.3 vs. Exp. 30.0 (Prev. 21.9)

• ZEW says that expectations have fallen for the third time in a row and this points to an increasing risk for the German economy; cites potential fourth COVID wave or a slow down in Chinese growth
• Expectations are also weakening due to the higher growth already achieved

EU ZEW Survey Expectations (Aug) 42.7 (Prev. 61.2)

• UK Barclaycard UK July consumer spending +11.6% vs 2019 levels. (Newswires)
• UK BRC Retail Sales YY (Jul) 4.7% (Prev. 6.7%)

GEOPOLITICAL

North Korea warned the US and South Korean military drills mean they will face even greater security threats. North Korea vowed to strengthen pre-emptive strike capabilities. (Newswires/Yonhap) As a reminder, Yonhap sources yesterday suggested that South Korea and the US will conduct a preliminary training this week in the run-up to next week's main summertime military exercise. Subsequently, reported that there was no connection in the inter-Korean hotline at 4pm local time (0800BST), according to Yonhap.

US raised concerns about Huawei in Brazil's 5G telecoms network during a visit by national security adviser. Brazil made no commitments to the US about Huawei during visit by US National Security Adviser. US warned Brazil that Huawei would be facing chip shortages going forward, which would affect consumers. (Newswires)

US Secretary of State Blinken and his Japanese counterpart "reiterated their shared opposition to any unilateral attempts to change the status quo in the East China Sea and activities that undermine, destabilize, or threaten. (Twitter)

Chinese Court is expected this week to rule on the case of the detained Canadian businessman Spavor, sources state. (Newswires) Chinese court reaffirmed the death penalty for a Canadian national convicted of drug smuggling. (WSJ)

CRYPTO

US Senators have blocked changes to crypto reporting rules in the infrastructure bill in a blow to the crypto industry. As such, language for oversight of digital currencies remains in the bill. (Newswires)

AMC (AMC) CEO said the Co. will have the tech to receive payment in Bitcoin by the end of the year. (Newswires)

EQUITIES

European equities (Eurostoxx 50 +0.2%) broadly trade on a marginally firmer footing whilst macro impulses for the region remain light during summer trade. A disappointing German ZEW report did little to shift the dial in Europe despite expectations falling for a third time in a row. The lead from Asia was characterised by choppy price action whilst US futures trade with little in the way of firm direction. Of note for China, China’s Daily suggested the PBoC may have to cut the RRR or interest rate to spur growth. From a US perspective, the Senate is set to vote on the infrastructure deal at 11:00EDT/16:00BST. The bill is expected to pass and head to the House, where lawmakers are set to decide on the internals of the bill. Note, House Speaker Pelosi remains committed to not holding a vote on the bill unless the Senate passes a reconciliation package. Elsewhere, Fed speakers continue to lean in favour of a taper announcement sooner rather than later with Rosengren the latest to back this view. In terms of house calls, Goldman Sachs has upgraded its Stoxx 600 12-month target to 520 from 480 and now sees the FTSE 100 at 7900 vs prev. view of 7600. GS notes that it sees good catch-up trade and value in Banks, Energy and Basic Resources names. Sectors in Europe are mostly firmer with outperformance in the Travel & Leisure sector amid earnings from Flutter Entertainment (+7.7%) who account for around 15.3% of the Stoxx 600 sector index. Limiting upside however, is InterContinental Hotels Group (-2.2%) post-results, whilst Air France (-1.2%) is also seen lower after the US CDC raised the travel advisory to France to its highest level. To the downside, Banking names lag peers, however, the magnitude of the underperformance is relatively modest with little in the way of corporate updates thus far behind the price action. Elsewhere, Bayer (-0.8%) are a touch softer after a court of appeals upheld the USD 86.7mln Roundup verdict relating to the Pilliod case.

Goldman Sachs has upgraded its Stoxx 600 12-month target to 520 from 480 and now sees the FTSE 100 at 7900 vs prev. view of 7600, sees good catch-up trade and value in Banks, Energy and Basic Resources names. (Newswires)

China's CPCA says China sold 1.52mln passenger cars in July; -6.4% Y/Y.

• Tesla (TSLA) sold 32,968 Chinese-made vehicles during July; shipping 8.62k China-made cars in China during July, -69% M/M

Tesla (TSLA) denied media reports claiming its planned R&D centre in Shanghai, the first R&D facility outside of the US, is nearing completion. (Newswires)

FX

DXY - Price formation is looking increasingly constructive for the index and Buck overall as more Fed officials recognise further progress towards max employment and deem that inflation has already satisfied the substantial criteria for tapering. Indeed, the DXY has now probed 93.000 after falling fractionally short on Monday and is eyeing the next peak beyond the round number, having breached 93.028 from July 23rd that came 2 days earlier at 93.194 vs 93.067 at best so far. All this even before another potential midweek boost via US CPI data and further commentary from the Fed later today as Mester and Evans deliver speeches on inflation risks and the economy respectively.

CHF/JPY/NZD - The major casualties of ongoing Greenback strength, as the Franc and Yen concede ground or premium on relative yield and divergent SNB/BoJ-Fed policy dynamics. Usd/Chf is now above 0.9200 and Usd/Jpy testing 110.50, while Nzd/Usd has relinquished 0.7000+ status partly on a change in Aud/Nzd cross flows rather than NZ specifics. However, the Kiwi may glean some traction on technical factors around the 21 DMA at 0.6984 and the fact that its Antipodean counterpart is still feeling the adverse effects of the virus outbreak with NSW suffering another record rise in the number of cases.

GBP/AUD/CAD/EUR - Sterling is still straddling 1.3850 having faded just ahead of 1.3900, but the Pound remains on an upward trajectory vs the Euro following its rally beyond the prior y-t-d apex, and with the single currency looking more prone in general on the back of a disappointing German ZEW survey. In fact, the latter could be the final straw in terms of Eur/Usd tripping stops and filling underlying bids circa 1.1725 that would open the door for a test of the current 2021 base at 1.1704 from March 31. Elsewhere, the Aussie is holding between 0.7344-16 parameters in wake of a marked deterioration in NAB business sentiment and decline in conditions, while the Loonie is deriving support from a bounce in oil prices within a 1.2589-55 band.

SCANDI/EM - The Nok is also benefiting from Brent regaining a degree of momentum over the Usd 70/brl mark, but firmer than forecast Norwegian headline inflation may be providing additional impetus as it underscores expectations for a Norges Bank rate hike next month. Hence, Eur/Nok is back under 10.5000 vs a steadier Eur/Sek either side of 10.2200 following somewhat mixed Swedish ip and new manufacturing orders data. Meanwhile, the Zar has fallen with Gold again, but the Try has pared some downside with the help of a decent drop in Turkish unemployment.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.1700 (655M), 1.1750 (409M), 1.1800-05 (860M), 1.1825-30 (1.3BLN), 1.1850 (2.5BLN)
• EUR/CAD: 1.4810 (1.1BLN)
• USD/JPY: 109.65 (725M), 109.90-110.00 (1BLN), 110.30 (395M)

FIXED

US Treasuries are still trailing behind after their brief pop during APAC trade on a big 10 year futures purchase, but core EU debt futures have regained composure after Bunds and Gilts retreated to fresh intraday lows of 176.41 and 129.47 (-11 ticks and -10 ticks on the day respectively). However, roles are reversing as the latter posts a marginal new Liffe best at 129.77 in wake of decent demand for the latest 2031 DMO offering and the former holds sub its earlier 176.77 Eurex peak irrespective of a rather downbeat German ZEW survey. Ahead, US NFIB business optimism, prelim Q2 labour costs and productivity plus the first leg of the Quarterly Refunding in the form of Usd 58 bn 3 year notes that falls between speeches from Fed’s Mester and Evans.

COMMODITIES

Crude benchmarks have commenced the session firmly on the front-foot and have reclaimed the USD 68/bbl and USD 70/bbl marks in WTI and Brent respectively at best; vs lows of USD 66.58/bbl and USD 68.95/bbl respectively. Fresh drivers from a macro standpoint have been sparse thus far though the calendar ahead features the EIA STEO due 17:00BST/12:00EDT and will be the next point of focus prior to the weekly private inventory report, which is expected to post a headline draw of 1.1mln. The mornings crude performance has extended upon the modest gains seen overnight where the complex derived support from mixed COVID-19 travel updates where the EU said it will not be imposing US travel restrictions. However, the US’ CDC lifted the advisory to France and Israel to its highest level. Since these updates, COVID related newsflow has dried up with the only notable update being from Tokyo where cases were modestly below yesterday’s update. Most recently, the aforementioned upside was seemingly capped by the ZEW release which missed expectations across the board citing a potential fourth COVID wave or a slow down in Chinese growth as factors. Elsewhere, spot gold and silver are little changed on the session though the yellow-metal remains in proximity to the current low of USD 1728.7/oz. Separately, copper prices are bolstered but off best levels as we await further updates on the Chile situation after BHP and the Escondida mines union extended contract talks to avoid a strike; while workers at the Caserones mine in the region, unrelated to BHP, are to begin strike action today after talks broke down yesterday.

BHP (BHP LN/AT) and the union at the Escondida copper mine have extended contract talks in an effort to avoid a strike, according to the union. (Newswires)

NHC notes of gusty winds and heavy rain across the Leeward Islands, with a new tropical storm warning issued. (Newswires) The trajectory shows landfall in Florida on Saturday with the direction still pointing towards the Gulf of Mexico - threatening exports from and around the area.