• Asia-Pac equities traded saw a mixed session with a downside bias and a cautious tone; China lagged
• FX markets were quiet; DXY remained in a tight range sub-93.000, EUR/USD and GBP/USD were flat
• White House said the outreach to OPEC is aimed at long-term engagement and not necessarily an immediate response
• OPEC members have not collectively discussed output increases following the White House statement, according to sources
• US Treasury Secretary Yellen is said to be considering a trip to China in the coming months, according to sources
• Looking ahead, highlights include UK GDP, EZ Industrial Production, US Initial/Continued Jobless Claims, Banxico & CBRT Policy Announcements IEA & OPEC MOMRs, supply from the US
• Earnings: Deutsche Telekom, RWE, Disney

CORONAVIRUS UPDATE

Australia's capital Canberra is expected to enter a lockdown, according to Canberra Times. (Canberra Times) Three extra local government areas will face increased restrictions in Sydney, Australia, according to an Australian Journalist. (Twitter)

New Zealand will gradually open up its international borders next year and will also speed up the its vaccine rollout. (FT)

Tokyo Panel of Experts said the COVID situation is now out of control. (Newswires)

US FDA is poised to amend the emergency use authorizations for the Pfizer (PFE) and Moderna (MRNA) Covid-19 vaccines Thursday to allow people with compromised immune systems to get a third dose, sources stated (NBC News)

White House has started to see some levelling off of COVID infections in states seeing surge. (Newswires)

ASIA

Asia-Pac equities traded saw a mixed session with a downside bias and a cautious tone after a Wall Street closed mostly higher; cyclicals and value continued to show outperformance and tech failed to sustain a bid despite lower Treasury yields on the back of cooling CPI. The DJIA outperformed while the NDX lagged, and the VIX fell beneath 16 for the first time since early July. US equity futures resumed trade little changed, and remained flat throughout the night, with mild underperformance experienced in the NQ (-0.1%) vs the ES (Unch), YM (Unch), and RTY (+0.1%). European equity futures meanwhile traded sideways with mild gains; DAX and FTSE 100 Sept contracts +0.2%. Back to APAC, the ASX 200 (-0.1%) gave up its earlier gains as Australia’s COVID woes deepen, with areas in Sydney tightening restrictions and Canberra tipped to enter a lockdown. The Nikkei 225 (+0.1%) was kept afloat by its manufacturing sector, although a firmer JPY and cautious risk tone capped upside. The KOSPI (Unch) remained on guard as North Korea did not respond to South Korea’s calls for a third straight day, in the run-up to annual military drills between Washington and Seoul. Elsewhere, the Hang Seng (-0.4%) and Shanghai Comp (-0.1%) traded downbeat amid reports of further sectorial crackdowns, this time the insurance and aesthetic medicines sectors, whilst peak growth and COVID concerns simmer in the background for China.

China is instructing local authorities to "buy Chinese" products under procurement guidelines covering such high-tech items as X-ray machines and weather instruments as it pushes foreign suppliers to shift to local production, according to Nikkei. (Nikkei)

Some Chinese exchanges are said to have banned "aesthetic medicine installment loans" in Asset-Backed Security transactions, according to reports citing Chinese press. (Twitter)

Chinese Industry Minister said auto maker should strengthen data protection, in relation to smart vehicles. (Newswires)

US Treasury Secretary Yellen is said to be considering a trip to China in the coming months, sources told Bloomberg News reporter Mohsin; no decision has been made yet, spokesperson said there are no plans for a trip "in the fall". (Twitter)

US Deputy Secretary of State Sherman will meet on Thursday with China's new ambassador to Washington. (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 6.4754 vs exp. 6.4750 (prev. 6.4831)

Fitch affirmed Japan at A; Outlook Negative. Fitch expects BoJ's 2% inflation target to be out of reach in the next few years. (Fitch)

CENTRAL BANKS

Fed's Daly (2021,2024 voter) thinks the Fed could taper QE later this year or early next, via an FT interview. She is optimistic on the economy. She noted progress in the labour market, but she believes that it is not there yet. (FT)

Fed's George (2022 voter) said the time has come to dial back the settings on monetary policy. She said the taper timeline is not mechanically connected to the timing of any policy rate adjustment. George added that normalisation is going to be long and bumpy, and the pre-pandemic labour market may not be the best guidepost for assessing maximum employment. She noted that temporary pandemic factors likely contributing to a tight labour market, and expects growth to step down by remaining robust. She believes the labour market will continue to recover, inflation will moderate but warned the Delta threats could delay recovery. (Newswires)

Fed's Kaplan (2023 voter) said if the economy unfolds between now and September meeting as he expects, he is in favour of announcing a plan at September meeting and begin taper in October; Fed still expects broadening of inflation pressures into next year. On taper, Kaplan noted a range of views at the Fed on when to taper - FOMC is in a much better place on taper than it was two months ago and wants taper to occur over a period of 8 months. He is also separating his decision on taper from raising rates, and will look at different criteria for increasing interest rates. (Newswires)

UK/EU

Kantar poll for Focus: German Chancellor Merkel's Conservative Bloc at 22%, Greens at 21% and SPD at 19%. (Newswires)

UK PM Johnson is set to backtrack on mid-2030s gas boiler ban. (FT)

UK RICS Housing Survey (Jul) 79 vs. Exp. 76.0 (Prev. 83.0, Rev. 82). (Newswires)

FX

FX markets were quiet, DXY was stable after the CPI-induced pullback under 93.000, with the index retaining an underlying bid not too far under the psychological level in APAC hours, whilst G10 Dollar pairs held onto the prior day’s spoils. EUR/USD and GBP/USD were once again dormant overnight as the former meandered just under 1.1750, whilst the latter was sandwiched between its 21 DMA (1.3832) and 50 DMA (1.3894). USD/JPY remained heavy with technicians flagging the 50, 21, and 100 DMAs to the downside at 110.16, 109.94, and 109.68 respectively. The non-US Dollars narrowly lagged with the Aussie the underperformer amid the COVID situation in the region, with the AUD/NZD cross struggling to gain a footing above 1.0475.

• New Zealand 1yr Inflation Expectations (Q3) 3.02% (Prev. 1.87%
• New Zealand 2yr Inflation Expectations (Q3) 2.27% (Prev. 2.05%)

COMMODITIES

WTI and Brent front-month futures traded horizontally following the prior day’s volatility which largely revolved around US’ OPEC+ concerns. After the European close, prices were bolstered on White House commentary which intimated no immediate nor sudden pressure on OPEC+, stating that efforts are aimed at long-term engagement and not necessarily an immediate response. Furthermore, EnergyIntel sources suggested that OPEC members have not collectively discussed output increases beyond the agreed 400k BPD monthly additions following the White House statement. Meanwhile, Texas Governor Abbot tweeted that Texas can easily ramp up production in response to the White Houses' plea to OPEC. For reference, Texas produced some 4.74mln BPD in May 2021 according to EIA data, with pre-pandemic production (Jan 2020) just under 5.50mln BPD. WTI and Brent futures were propelled back above USD 69/bbl and USD 71.50/bbl – and have traded around these levels throughout the night thus far. Next up, from a crude-specific standpoint, the IEA and OPEC will both release their monthly oil market report today, with more focus on forward-looking demand commentary, particularly related to the COVID. Elsewhere, spot gold holds onto the prior day's gains and fluctuates on either side of USD 1,750/oz, whilst spot silver drifted lower beneath USD 23.50/oz. Base metals traded mostly higher. LME copper tested USD 9,600/t to the upside with two unions poised to strike at Codelco's Andina mine in Chile after rejecting the latest contract offer. Finally, Shanghai nickel rose over 4% with traders citing supply concerns.

White House said the outreach to OPEC members is ongoing and added that efforts are aimed at long-term engagement and not necessarily immediate response. The White House said it has not asked US oil producers to increase output. (Newswires) Texas Governor Abbott tweeted that Texas can easily produce the oil that the White House is calling for from OPEC+. (Twitter)

OPEC members have not collectively discussed output increases beyond the agreed 400k BPD monthly additions following the White House statement, according to an OPEC source cited by EnergyIntel. (Twitter)

Two earthquakes magnitude 6.5 and 7.2 hit the Philippines. (CNBC/Newswires)

Tropical Storm Fred has weakened into a Tropical Depression near Haiti and the Dominican Republic; slow re-intensification is forecast to begin on Thursday night. (Newswires)

GEOPOLITICAL

North Korea did not answer South Korea's phone calls via cross-border communication lines for the third straight day Thursday, according to Yonhap citing officials. (Yonhap)

A Chinese military plane entered Taiwan’s air defense identification zone (ADIZ) on Wednesday, marking the second intrusion this month. (Taiwan Times)

Armenia and Azerbaijan exchanged fired in the Yeraskh section of the border between the nations, according to the Armenian Ministry of Defence. (Newswires)

CRYPTO

As many as three agencies inside the Biden administration are at odds with each other over who will take the lead in regulating cryptocurrencies and the broader digital coin business, Fox Business sources said. Senator Warren appears to be backing the development of new legislation that would give the SEC enhanced powers to regulate crypto. (FBN)

US

The belly led the rally on the back of that as long-end Treasury auctions loomed. T-Notes gyrated around 133-18 into the 10yr auction, only to spike higher after the eye-gouging 3.2bps tail, with the 2.65x B/C the highest since May 2020 (more details below). T-Notes printed a high of 133-29 and cash 10s a low of 1.30%, before paring half the move all within 30mins as over 200k T-Note contracts were traded, a big move and participation for an auction. One desk noted that real money, including accounts that had already participated in the auction, joined the chase higher, "lifting TYU as a hedge in size as dealers have been reluctant sellers into the bid and that is exacerbating the move. Banks desk are part of the bid with limited CTA flow so far." However, heading into futures settlement, the long-end saw selling pressures that filtered down the curve to take T-Notes back to pre-auction levels in quite the turnaround. Indeed the 30s auction on Thursday looms, so it could be some dealer concession, but the sales were somewhat odd given the undoubtedly solid demand picture seen for the 10s offering. T-Note (U1) futures settled 1 tick higher at 133-18+.

US President Biden said they keep a careful eye on inflation and trust the Fed to take appropriate action as needed, and added that the admin is bringing together industry and labour to speed up port operations. (Newswires)

US Senate Majority Schumer said a compromise voting rights bill will be Senate's first order of business in September; does not believe Republicans will let US default on the debt ceiling. (Newswires)

Source: Newsquawk