• European bourses/US futures are softer with FX-havens bid but core debt pulling back after initial upside on weekend/overnight updates; ES -0.2%
• Focus has been on 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
• DXY benefits from pressure in activity currencies and particularly the AUD while crude benchmarks are lower but off earlier troughs
• 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)

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; Tokyo COVID-19 cases 2,962 vs prev. record of 5,773. (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 (-0.6%) 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 (-1.6%) 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 (-0.8%) and Shanghai Comp. (+0.1%) 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%)

US

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)

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)

CRYPTO

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

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)

"Several people died after the US military opened fire on Afghans at the Kabul airport", RIA Novosti citing a source in the security forces. (RIA Novosti) Note, thus far these reports only appear to be emanating from Ria and Sputnik - awaiting confirmation from additional sources/reports

EQUITIES

European equities (Eurostoxx 50 -0.7%) have kicked the week off on the backfoot in the wake of lacklustre Chinese data and ongoing COVID concerns. 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 Australia, sentiment was also pressured by the ongoing COVID-19 situation that has forced an extension of lockdowns across several state capitals, whilst Japan is likely to extend the state of emergency to additional prefectures as soon as this week. A lot of newsflow has centred around events in Afghanistan whereby the Taliban has taken control of Kabul which prompted a mass exodus of foreigners and embassy personnel from the city. However, the market implications at this stage remain unclear as the West ponders its response to events, if any. In terms of market commentary, JP Morgan notes, that Q1 and Q2 European reporting seasons have produced significant positive surprises, to the tune of 24% and 16%, respectively. Since January, consensus projected European EPS for the year has been revised higher by 16%, the strongest move on record. As such, JPM has set out new index targets, “looking for a further 4-7% upside into year end, with SX5E at 4500, on top of the already very strong 19% Eurozone equity return delivered ytd, ex dividends.” Sectors in Europe are mostly in the red with underperformance in Basic Resources, Travel & Leisure and Retail. Retail names are lagging post-Chinese Retail Sales with Kering (who account for nearly 30% of the Stoxx 600 retail index) lower to the tune of 1.8%, whilst LVMH is down 2.5% and Burberry sits at the foot of the FTSE 100 with losses of 2.6%. To the upside, Real Estate and Telecoms are the only sectors in positive territory. The notable individual outperformer is Faurecia (+8.7%) after agreeing to acquire the Hueck Family's controlling stake in Hella (-3.0%) in a deal valued at EUR 6.7bln. Elsewhere, Deutsche Lufthansa (-3.2%) are lower on the session after the German Economic Stabilisation Fund said it will be selling a maximum 5% stake in Lufthansa over the next few weeks, accounting for around 25% of its total stake.

Tencent (700 HK/TCHEY) Music Entertainment's plans with regards to the sale of USD 5bln in shares alongside the Hong Kong listing could be delayed until next year amid China's crackdown on online platforms. (Nikkei)

FX

DXY, JPY, CNH - Safe haven flows see the DXY and JPY retaining their underlying bids caught since the deterioration in the APAC mood. Sentiment weakened as Chinese retail sales and IP missed the mark – and thus backed the notion of a slowdown in the world’s second-largest economy’s growth momentum. Further, geopolitical developments in Afghanistan have dominated the news, but it is too early to assess any near-term market implications. Meanwhile, the Yen may also see some tailwinds from the above-forecast Q2 GDP growth metric, although it’s worth noting the data may be stale as the COVID situation in Japan has worsened since the Tokyo Olympics - which kicked off at the start of Q3. The DXY sees mild gains after finding a floor around Friday’s 92.470 low and looks ahead to the NY Fed Manufacturing – which would mark the first August data point, whilst traders also keep tomorrow’s Fed Chair Powell appearance and Wednesday’s FOMC minutes in mind. USD/JPY has declined further below 110.00 and whilst taking out its 100 DMA (109.35) to the downside. The pair eyes mild support at 109.19 (2nd Aug low) ahead of the psychological 109.00. The CNH meanwhile has remained somewhat stabilised after overnight choppiness on the back of further evidence pointing to slowing economic growth momentum, but some observers expect China to negate these effects with looser policy. However, CNH bulls felt some reprieve after the PBoC conducted the MLF at a maintained rate of 2.95%, which adds to the likelihood of the LPRs being maintained later this week. That being said, reports last week suggested that any form of easing will likely take place in the RRR and interest rate. USD/CNH resides under just 6.4800 within a 6.4750-4815 range, with the 200DMA.

AUD, NZD, CAD - The non-US dollars are all softer with the common denominator being risk sentiment. The AUD is the marked underperformer amid the disappointing Chinese data overnight, coupled with the ever-deteriorating Aussie COVID picture. That being said, the AUD/USD currently remains within the ranges seen in the past two sessions, with the 0.7333 proving to be formidable support. Some have been flagging AUD/JPY – a key APAC risk gauge – as the cross inches closer to 80.00 to the downside, dipping below 80.25 from today’s 80.87 peak. NZD/USD meanwhile is in the red but losses are cushioned in anticipation of an RBNZ rate hike later this week. Thus, the AUD/NZD cross has dipped below 1.0450 and continues to print fresh YTD lows as the cross eyes 1.0418 (2nd Dec 2020 low) ahead of 1.0400. The Loonie remains on the backfoot amid headwinds from COVID-suppressed oil prices, whilst the weekend saw Canadian PM Trudeau calling a snap summer general election on September 20th, some two years ahead of schedule – although a rebound in polls could pave the way for Trudeau to secure a majority government from the current minority. USD/CAD inches higher towards 1.2550 and its 200 DMA at 1.2565 as the Loonie looks ahead to July inflation data this week.

EUR, GBP - Both the Single Currency and Sterling trade flat vs the Buck and against each other. EUR/USD tested but failed to breach 1.1800 to the upside whilst GBP/USD recovered from a 1.3837 base and once again makes its way to the 50 DMA around 1.3882. Analysts at ING note of a downside bias for the EUR amid a lack of firm bullish catalysts, with ECB-Fed policy divergence and summer trading conditions posing tail risks for the EUR/USD pair – “we could see the pair moving back to the lower half of the 1.1700/1.1800 range”, says the Dutch Bank. GBP meanwhile eyes a plethora of data including retail sales, employment and inflation, with traders eyeing indications to back the BoE’s upbeat outlook. EUR/GBP remains flat on either side of 0.8500.

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)

FIXED

USTs have commenced the week with a modest bid in decent volumes in-spite of the relatively thin docket for today’s session; upside that was present initially but clearly exacerbated overnight on the soft China data. A narrative of note as the likes of ING look for a further slowdown in August given flood events, a notable factor in their view behind the overnight data dip, and COVID. Currently, USTs retain an underlying bid but have pared back the vast majority of aforementioned upside, hovering around the 134.04 mark vs session high 134.12; yields are lower across the board, but the curve does not have any overwhelming bias as action is most substantial in the belly. EGBs initially benefitting from the UST bid, but failed to capitalise on this and over the quiet European morning have dipped into negative territory on the session. Bunds are a handful of ticks lower overall with little near-term support offered aside from the psychological 176.50 and last-week’s 176.21 low. It is worth caveating/highlighting that this price action comes amid a thin docket today and this week for the EZ and we do see the return of notable supply with some EUR 14bln set to feature vs last week’s EUR 4bln via one auction; however, a plausible concession narrative should perhaps be taken with a pinch of salt, as Rabobank highlight that net issuance this week will likely be EUR 3bln into negative territory, accounting for ECB activity. Elsewhere, Gilts have been following their EZ peers but within smaller parameters thus far. UK related newsflow features as today marks the end of the ‘pingdemic’ for the double jabbed and PM Johnson will likely postpone a Cabinet reshuffle until ~November; however, the read across of these factors is limited thus far.

COMMODITIES

WTI and Brent front month futures remain subdued as the complex keeps an eye on the global COVID situation alongside the growth momentum slowdown experienced in the second-largest economy. Meanwhile, the situation in Afghanistan has grabbed all the headlines today as the Taliban overthrew the government, but from a market standpoint, the direct impact at the moment is too early to tell – but it’s worth keeping in mind that Russia, China and Iran have signalled an acceptance of the new government. Aside from this, traders will also be cognizant of the start of Hurricane season near the Gulf of Mexico (GoM), with Tropical Storm Fred set to make landfall around the Florida panhandle, whilst Grace reawakened to a Tropical Depression with the trajectory pointing towards the west of the GoM. WTI resides just north of USD 67/bbl after briefly losing the level (vs high 68.12/bbl), whilst Brent trades around USD 69.50/bbl (vs high USD 70.45/bbl). Elsewhere, spot gold trades with modest losses around USD 1,775/oz, but in a USD 10/oz range as the yellow metal balances a firmer Buck and softer yields. Base metals meanwhile are mostly lower across the board, with LME copper back under USD 9,500/t as the overnight Chinese data backs the notion of growth momentum slowing in the world’s largest copper consumer.

NHC: Tropical storm Fred is around 140 miles south-southwest of Apalachicola, Florida with maximum sustained winds of 50MPH; after landfall, Fred is set to weaken quickly. (Newswires)

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

Russian oil and gas condensate has fallen to 10.42mln BPD for August 1-15th vs. 10.46mln BPD average seen in July, according to sources. (Newswires)