• Asia-Pac stocks traded mostly subdued and US equity futures pulled back from record levels
• Participants digested disappointing activity data from China, while weekend newsflow was dominated by events in Afghanistan
• The Taliban effectively took control of Kabul which prompted a mass exodus of foreigners and embassy personnel from the city
• In FX, the DXY was choppy around 92.50, EUR/USD eyes 1.18 ahead of the European open
• BoE Governor Bailey and ECB President Lagarde will not be attending the Jackson Hole Symposium this year
• Looking ahead, highlights include NY Fed Manufacturing

CORONAVIRUS UPDATE

NIH’s Dr Fauci stated the US will be “absolutely prepared” to distribute a third shot of the coronavirus vaccine quickly to a wider population if required but didn’t provide a timeline. There were also separate comments from NIH Director Collins that US could see more than 200k daily cases as the Delta variant spreads at a fast pace. In relevant news, the CDC panel voted on Friday to recommend a third shot for the immune compromised. (Newswires/Fox News)

UK ministers and experts warned that there could be a spike in COVID-19 cases during the approaching weeks due to the Delta variant and increase in social mixing since “freedom day”. (FT) UK Vaccine Manufacturing & Innovation Centre is seeking to combine flu and COVID-19 vaccine jabs into one shot in an effort to speed up vaccination programmes and are examining the effectiveness of a single-jab model in reducing manufacturing time. (Telegraph)

Dutch PM Rutte stated that COVID cases are falling but some restrictions are needed for now and they may lift social distancing rules in September as COVID cases ease. (Newswires)

Sinovac (SVA) is to seek approval to conduct additional testing before October on a COVID-19 shot that specifically targets the Delta variant of the coronavirus. (Newswires/Global Times)

Japan's government is considering extending the state of emergency to more prefectures as early as this week and it was separately reported that Japan is to decide on extending the Tokyo COVID-19 emergency as early as this Tuesday. (Newswires)

Australian PM Morrison announced that they secured an additional 1mln doses of the Pfizer (PFE) COVID-19 vaccine from the Polish government. In relevant news, Australia's Northern Territory capital of Darwin is to enter a three-day lockdown and the lockdown in Sydney was extended to the entire New South Wales for a week, while the lockdown in Melbourne was extended for another two weeks. (Newswires)

ASIA

Asia-Pac stocks traded mostly subdued and US equity futures also pulled back from record levels due to ongoing COVID concerns and as participants digested disappointing activity data from China, while weekend newsflow was dominated by Afghanistan-related headlines after the Taliban effectively took control of Kabul which prompted a mass exodus of foreigners and embassy personnel from the city. ASX 200 (-0.3%) was led lower by weakness in energy and financials with the worst performers having recently announced their full-year results, while sentiment was also pressured by the ongoing COVID-19 situation that has forced an extension of lockdowns across several state capitals. Nikkei 225 (-1.7%) was the worst performer amid detrimental currency flows and with Japan likely to extend the state of emergency to additional prefectures as soon as this week after COVID-19 cases recently topped the 20k level for the first time which overshadowed the better-than-expected GDP data. Hang Seng (-0.7%) and Shanghai Comp. (+0.4%) traded mixed after Chinese Industrial Production and Retail Sales data both missed expectations with the stats bureau noting that the recovery remains uneven citing sporadic virus outbreaks and natural disasters. In addition, the PBoC announced a CNY 600bln MLF operation and although this was lower than the CNY 700bln of maturing MLF loans, the central bank noted that the liquidity released in last month's RRR cut can partially repay the MLF, while the KOSPI remained closed in observance of Liberation Day. Finally, 10yr JGBs were higher amid the underperformance of Japanese stocks and similar gains in T-note futures as the US 10yr yield declined by around 5bps to breach the 1.2500% level. However, upside was capped for Japanese bonds after better-than-expected GDP data, while Economic Minister Nishimura stated that they are ready to take flexible action on the economy by tapping into JPY 4tln in reserves and will conduct flexible macroeconomic policy without hesitation to achieve sustained economic growth.

PBoC injected CNY 10bln via 7-day reverse repos with the rate maintained at 2.20% for a net neutral daily position and the central bank also conducted a CNY 600bln 1-year MLF operation vs CNY 700bln maturing with the rate maintained at 2.95%, while it added that the liquidity released in last month's RRR cut can partially repay for the MLF. (Newswires)

PBoC set USD/CNY mid-point at 6.4717 vs exp. 6. 4684 (prev. 6.4799)

PBoC may raise reverse repo injections during the week, while other reports noted that Chinese press continues to speculate the PBoC will need to ease policy further as the recent COVID-19 outbreak will add more risks to growth. (Newswires/China Securities Journal)

China Stats Bureau spokesman said China's economic recovery is still not solid and remains uneven due to the impact of sporadic COVID-19 outbreaks and natural disasters, while the spokesman noted that the economy faces more complex and severe external situation amid pandemic developments. (Newswires)

China’s securities regulator punished 19 institutional investors regarding STAR Market IPOs amid tightening scrutiny regarding price-setting behaviours. In other news, China National Radio editorial urged government regulators to impose a stricter vetting process for online games and show zero tolerance on games that distort history, while a separate article stated that the government should remove tax breaks for the video game industry. (Newswires)

• Chinese Industrial Production YY (Jul) 6.4% vs. Exp. 7.8% (Prev. 8.3%)
• Chinese Retail Sales YY (Jul) 8.5% vs. Exp. 11.5% (Prev. 12.1%)
• Chinese Fixed Assets Investment Ex. Rural YY (Jul) 10.3% vs. Exp. 11.3% (Prev. 12.6%)
• Chinese House Prices YY (Jul) 4.6% (Prev. 4.7%)
• Japanese GDP QQ (Q2 P) 0.3% vs. Exp. 0.2% (Prev. -1.0%)
• Japanese GDP Annualised (Q2 P) 1.3% vs. Exp. 0.7% (Prev. -3.9%)

UK/EU

UK PM Johnson is expected to postpone a Cabinet reshuffle until after the COP26 climate change summit in November and until the government is confident the worst of the COVID-19 outbreak has passed. (FT)

UK’s older working population are reportedly at risk of being left out of the economic recovery as recent data showed they were more likely to be stuck on the furlough than people under the age of 25. (Telegraph)

Sources within the UK's Department for International Trade have stated that an announcement on a New Zealand trade deal could be made before the end of August. (Telegraph)

BoE Governor Bailey and ECB President Lagarde will not be attending the Jackson Hole Symposium this year as the ongoing pandemic has forced organisers to prioritise American attendees. (Telegraph)

Support for German Chancellor Merkel’s ruling bloc declined for a second consecutive week with support down one ppt to 25%, while support for SPD rose by two ppts from the prior week to 20% and Greens remained at 18%, according to an INSA poll. (Newswires)

Moody’s affirmed Ireland sovereign rating at A2; Outlook revised to Positive from Stable. (Newswires)

FX

In FX markets, the DXY was choppy around the 92.50 level amid softer yields and following last Friday’s failed attempt to reclaim 93.00 status. EUR/USD was flat but held on to its recent gains as it flirted with the 1.1800 handle and after having recently surged through both its 100- and 200-hour moving averages at 1.1743 and 1.1775, respectively. GBP/USD was also relatively unchanged amid a lack of pertinent newsflow although experts have warned that there could be a spike in COVID-19 cases during the approaching weeks due to the Delta variant and increase in social mixing since “freedom day”. In addition, it was confirmed that BoE Governor Bailey and ECB President Lagarde will not be attending this year’s Jackson Hole Symposium set for later this month as the ongoing pandemic has forced organisers to prioritise American attendees. USD/JPY and JPY-crosses remained pressured amid the underperformance in Japan and after the stronger-than-expected GDP data, with MUFG’s trade of the week to buy USD/JPY with a target of 112.50 having little success so far with the pair down by nearly a point since the recommendation was made late last week. CAD softened alongside weakness in oil prices and with parliament dissolved ahead of a snap election next month, while antipodeans were lacklustre following the weaker than expected Chinese activity data although the downward pressure in NZD was cushioned ahead of this week’s RBNZ meeting where a 25bps rate increase by the central bank is fully priced in and with the Shadow Board calling for tightening, alongside economists’ forecasts for a total of 75bps of hikes this year according to the latest newswire survey.

Canadian PM Trudeau announced that the federal election will be held on September 20th, while Canada’s Governor General dissolved parliament ahead of the election. (Newswires)

COMMODITIES

Commodities were mostly subdued with WTI crude futures pressured beneath the USD 68.00/bbl level with the recent COVID-19 surges and lockdowns in the Asia-Pac region weighing on the demand outlook for oil, while there have also been warnings of potential spikes in cases for both sides of the Atlantic and the latest Baker Hughes rig count showed the largest weekly increase in oil rigs since April. On the geopolitical front, attention was on Afghanistan where the Taliban effectively took control of Kabul and will soon declare an Islamic Emirate of Afghanistan. Gold prices traded sideways as the greenback consolidated overnight and copper prices were slightly pressured by the predominantly negative risk appetite and disappointing Chinese activity data.

US Baker Hughes (w/e August 13th): Oil +10 at 397, Nat Gas -1 at 102, and Total +9 at 500. (Newswires)

NHC stated that Fred has turned into a tropical storm again over the eastern Gulf of Mexico, while it was about 200 miles southwest of Tampa, Florida and was moving north-northwestward with sustained winds of 40mph. (Newswires)

Russia's Rosneft said it is able to increase oil output by 25k tonnes per day, while it expects its gas production to rise by 2-3bcm in 2021 and by another 10bcm in 2022. (Newswires)

Force Majeure was declared at the Forcados oil export terminal in Nigeria. (Newswires)

GEOPOLITICAL

Taliban said they will soon declare an Islamic Emirate of Afghanistan after entering Kabul and taking control of the presidential palace, while President Ghani has fled the country to Tajikistan and the Taliban Political Office later stated that they assured everyone they will provide safety for citizens and diplomatic missions. It was also reported that several hundred US Embassy employees were evacuated and that the Pentagon authorised an additional 1,000 troops to help with the evacuation, while the US military was later reported to have secured the Kabul airport perimeter and confirmed safe evacuation of all Embassy personnel was complete with personnel at Kabul airport. Furthermore, US Secretary of State Blinken earlier warned the Taliban that there would be a swift and decisive response if it interfered with US personnel and the UN Security Council will meet on Monday morning, while the UK Parliament will be recalled this week to discuss the Afghanistan situation. (Newswires)

CRYPTO

Walmart (WMT) is said to be looking to hire a digital currency and cryptocurrency product lead. (Coindesk)

US

Treasuries bull-flattened in thin Friday trade – 2s30s -7bps – with the disappointing UoM survey providing enough fuel to bring the curve back to the little changed mark on the week. By settlement, 2s -1.0bps at 0.217%, 3s -2.1bps at 0.438%, 5s -4.2bps at 0.789%, 7s -5.7bps at 1.080%, 10s -6.9bps at 1.299%, 20s -7.4bps at 1.845%, 30s -7.6bps at 1.950%; TYU1 volumes were low. 5yr TIPS -0.6bps at -1.824% 10yr TIPS -3.6bps at -1.087% 30yr TIPS -4.1bps at -0.296%. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. There was some weakness in Treasuries at the NY handover, although that seemed mainly to be spillover from Bunds, with desks highlighting the pick-up in EGB supply next week (EUR 14bln vs this week's EUR 4bln), and even then, that soon reversed into the NY morning as the bull-flattener resumed. The going got tough for bond bears on the back of a surprise fall in the University of Michigan prelim. survey for August, which also saw short-term consumer inflation expectations tick lower. In thin trade, that was fuel to fire for price action with the long-end leading the charge firmer. The 10yr yield hit its lows of just beneath 1.30% as Europe departed for the weekend, which has brought the benchmark back to unchanged on the week. T-note (U1) futures settled 16 ticks higher at 133-30+.

Fed's Kashkari (2023 voter) said he wants a few more strong jobs reports prior to tapering and noted that the goal is to restore the labor market to at least pre-pandemic levels. (Newswires/Twitter)

US House Committee on Financial Services quietly shelved plans to ban payment for order flow and opted to "study" the issue after Robinhood (HOOD) lobbies moderates on committee that PFOF has "democratized" trading, according to FBN's Gasparino. (Twitter)