• European equities/US futures are hindered as sentiment slips on China updates and NZ returning to lockdown; ES -0.5%
• DXY is firmer but within ranges as safe-haven's remain little changed but antipodeans lag, particularly NZD pre-RBNZ on updated calls; core debt is bid but off best
• China's market regulator issued draft regulations on banning unfair competition in the internet sector
• Fed's Rosengren would be supportive of announcing a taper program in September if there is another strong jobs report
• New Zealand is to enter a level 4 lockdown from Wednesday, according to PM Ardern; nationwide lockdown for three days and a Auckland lockdown for seven days
• US President Biden defended his decision to withdraw from Afghanistan
• Looking ahead, highlights include US retail sales, industrial production, Fed's Powell, Kashkari and earnings from Walmart

CORONAVIRUS UPDATE

US is to advise booster shots for most Americans eight months following vaccination and could offer booster to non-immunocompromised individuals in mid-September. In other news, the US CDC lowered its COVID-19 advisory for India to level 2 but issued a level 4 advisory for Turkey and urged citizens to avoid travel. (Newswires/NYT)

Lancet study findings suggested that the overall increased risk of Bell's Palsy from Sinovac's (SVA) CoronaVac vaccine. (Newswires)

Japan's government confirmed it is to seek an extension of the coronavirus emergency in Tokyo through to September 12th and will extend it to seven additional prefectures, while the expert advisers panel approve government plans to extend and widen the state of emergency. There were also comments from Japanese Economic Minister Nishimura that COVID-19 infections are spreading at an unprecedented rate and they will ask shopping malls to restrict entry. Tokyo COVID-19 cases 4,377 vs prev. 2,962. (Newswires)

New Zealand officials are to investigate a COVID-19 case in Auckland and confirmed the first community case in New Zealand since February. (Newswires)

New Zealand is to enter a level 4 lockdown from Wednesday, according to PM Ardern; nationwide lockdown for three days and Auckland lockdown for seven days. Economic support will be made available. PM adds they are not yet sure if the case is Delta variant or not. Follows an investigation by officials into one Auckland case, the first community case since February

ASIA

Asian equity markets were subdued following the mixed performance on Wall Street, where the S&P 500 and DJIA recovered from the initial data-triggered pressure to post a 5th consecutive session of record closes and with the former having fully doubled from its pandemic lows, although the gains were only mild and led by defensives, while cyclicals lagged and both the Nasdaq and Russell 2000 finished in the red. ASX 200 (-0.9%) was dragged lower by continued underperformance in the top-weighted financial sector and as energy names suffered from the recent softer oil prices. In addition, a deluge of earnings updates and elevated local infections for New South Wales added to the headwinds for the Australian benchmark. Nikkei 225 (-0.3%) faded early advances with sentiment hampered by unfavourable currency conditions and with the government seeking to extend the state of emergency in Tokyo to September 12th which will be widened to seven additional prefectures, and the government is to also ask shopping malls to restrict entry. Hang Seng (-1.6%) and Shanghai Comp. (-2.0%) were cautious on what is a busy week for earnings releases and due to concerns of Beijing’s tighter scrutiny after the regulator issued draft regulations on banning unfair competition in the internet sector, while there were also reports that Tencent Music Entertainment's planned USD 5bln share sale alongside the Hong Kong listing could be delayed until next year amid China's crackdown on online platforms. Finally, 10yr JGBs were flat amid the non-committal tone seen in Japan and after the recent whipsawing in T-notes which had initially been propped up by weak US data, while the lack of purchases by the BoJ contributed to the uninspired picture with the central bank only in the market for treasury discount bills.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4765 vs exp. 6.4769 (prev. 6.4717)

China's market regulator issued draft regulations on banning unfair competition in the internet sector and said operators should not use data, algorithms or other technical means to hijack traffic or influence user choice, while it added that third-party institutions should be hired to audit data in certain cases involving violations. (Newswires)

China's military said it launched exercises in air and sea near Taiwan which are a solemn response to external interference and provocations by Taiwan's independence forces. (Newswires)

Chinese Foreign Minister Wang told US Secretary of State Blinken that the sudden withdrawal of US forces already caused a serious negative impact in Afghanistan and if the next step from US is to create new problems, it is not a responsible attitude. Furthermore, Blinken said to Wang that he agrees with peaceful co-existence and cooperation between the US and China, while he added it is important for US and China to seek constructive, practical methods to deal with regional security issues such as the situation in Afghanistan. (Global Times)

SGH Macro Advisers stated it is their understanding that Chinese President Xi sent a message to US President Biden recently via diplomatic channels and suggested a de-escalation in tensions would be in the best interest of both nations, while President Xi noted that finding ways to ease the confrontation between the two countries is of vital importance to the world and reiterated calls for solving problems through “dialogue and mutual understanding”. Furthermore, Xi dismissed the US policy of containment of China through alliances as not feasible and pointed to the clear areas of necessary cooperation such as climate change, COVID-19, nuclear proliferation, terrorism and development imbalances, while senior officials in Beijing have also taken note of reports that Treasury Secretary Yellen is mulling a trip to China in the coming months. (SGH Macro Advisers)

China's Top Legislature is to discuss the inclusion of anti-foreign sanctions law into Annex III of Hong Kong basic law on Friday, according to local media. (Newswires)

US

Fed's Rosengren (2022 voter) said his view is that substantial further progress was made and he has no concern about meeting the inflation part of the Fed’s mandate. Rosengren added that he would be supportive of announcing the taper program in September if there is another strong jobs report and that his preference would be to start tapering in the fall, potentially October or November and no later than December. Furthermore, he suggested bond purchases are not as effective at the moment because there are shortages of supply and labour in the economy and stated that if wages increase more rapidly than expected, it might be a reason to start thinking about increasing rates more quickly, although he doesn't expect that. (Newswires)

Some US Democrats are reportedly considering allocating a portion of the USD 3.5trl budget plan towards refugee resettlement for those coming from Afghanistan. (Axios)

UK/EU

UK ILO Unemployment Rate (Jun) 4.7% vs. Exp. 4.8% (Prev. 4.8%); Employment Change (Jun) 95k vs. Exp. 75k (Prev. 25k)

• Claimant Count Unemployment Change (Jul) -7.8k (Prev. -114.8k)
• Average Week Earnings 3M YY* (Jun) 8.8% vs. Exp. 8.6% (Prev. 7.3%); ex-Bonus (Jun) 7.4% vs. Exp. 7.4% (Prev. 6.6%)

EU GDP Flash Estimate QQ (Q2) 2.0% vs. Exp. 2.0% (Prev. 2.0%); YY (Q2) 13.6% vs. Exp. 13.7% (Prev. 13.7%)

• Employment Flash QQ (Q2) 0.5% vs. Exp. 0.5% (Prev. -0.3%); YY (Q2) 1.8% vs. Exp. 1.5% (Prev. -1.8%)

GEOPOLITICAL

US State Department that Iran should cease its nuclear escalations and return to negotiations towards full implementation of the nuclear agreement, while it added that the US is not imposing a deadline on talks but the window is not indefinite. (Newswires)

US President Biden defended his decision to withdraw from Afghanistan in which he stated that the US mission in Afghanistan was never supposed to be nation building and that the terrorist threat has grown well past Afghanistan to other countries, while he added that it is wrong to order American troops to step up when Afghan forces would not. (Newswires)

US Secretary of State Blinken spoke with China's Foreign Minister Wang Yi regarding Afghanistan developments; Yi said the sudden withdrawal of US forces already caused serious negative impact in Afghanistan and if the next step from US is to create new problems, it is not a responsible attitude. (Newswires)

Russian military transport plane crashes on the outskirts of Moscow, and three soldiers have reportedly been killed, according to Al Jazeera. (Twitter)

EQUITIES

European equities (Stoxx 600 -0.2%) started on a softer footing before trimming losses with the Stoxx 600 pulling back from its longest winning streak in over 10 years. Losses in Europe came in the wake of a despondent Asia-Pac session with downside observed in China amid further scrutiny from regulators in Beijing after issuing draft regulations on banning unfair competition in the internet sector. COVID concerns in New Zealand have also added to the negativity with NZ entering into a three-day nationwide lockdown (Auckland will lockdown for seven days); adds to recent restrictive measures in Australia and Japan. The situation in Afghanistan continues to dominate headlines, however, it is not posing much in the way of market significance at this stage. That said, the defiant tone of President Biden last night will have ruffled some feathers in the Democratic Party. Whether this has any follow-through into Congressional support for Biden’s economic agenda remains to be seen. In the immediacy, focus for the US turns to today’s Retail Sales and Industrial Production metrics; US equity futures are softer with the RTY lagging peers with losses of 1.1% vs. ES -0.4%. Note, DJIA constituent Walmart (2.8% weighting) is due to report at 12:00BST, whilst Home Depot (6.2% weighting) beat on top and bottom lines but comp sales missed, and thus shares are -4.5% in the pre-market. Sectors in Europe are mostly lower with laggards predominantly consisting of pro-cyclical names. Notably lagging the trend is Basic Resources amid gains in BHP (+6.9%) after the Co. announced alongside encouraging earnings that it is to pursue a petroleum merger with Woodside and change its structure to a single primary listing on the ASX. Elsewhere, Just Eat Takeaway (+2.8%) is the second-best performer in the FSTE 100 post results after posting a small-than-expected loss in H1 2021. Finally, Swiss Life (-1.8%) sits at the foot of the SMI post-H1 results which saw the Co. report a 7% decline in Premium Income.

Chinese government has acquired a stake in the subsidiary that control the domestic social media platforms of ByteDance, Washington Post; the article notes that the ownership stake does not appear to directly affect TikTok. (Washington Post)

Home Depot Inc (HD) Q1 2022 (USD): EPS 4.53 (exp. 4.44), Revenue 41.1bln (exp. 40.79bln); comp. sales +4.5% (exp. +5.6%). (PR Newswire) -1.5% in pre-market trade

FX

NZD - An eventful session for the Kiwi to say the least, as domestic COVID fears are stoked on the eve of the RBNZ policy decision. The central bank was initially wholly expected to hike its OCR by 25bps tomorrow with another 50bps of tightening seen through the rest of the year, but one community-transmitted COVID case in Auckland has put a spanner in the works. The case has prompted the government to issue a three-day nationwide lockdown alongside a seven-day Auckland-specific lockdown in a bid to stem a potential outbreak at the root. This development has triggered an unwind of hawkish bets, with Westpac and ASB now expecting an unchanged OCR tomorrow (both previously called for 25bps hikes), whilst the OIS strip now prices in some 80% of a hike tomorrow (vs prev. 100%). Granted, COVID has always been a risk flagged by the government and central bank, and it is also worth keeping in mind the string of strong data seen from NZ – with desks at the time noting that the Kiwi economy is fast heading into full employment and sharp increases in inflationary pressure – with both areas poised to run hotter than the RBNZ’s prior round of forecasts. Nonetheless, the hawkish unravel took NZD/USD below the 50 DMA (0.7014). through the 0.7000 level, and to a current low of 0.6907 – just shy of its 0.6881 YTD trough. Meanwhile, the AUD/NZD cross has also been in focus as a play between the RBA and RBNZ's diverging policy stances and the overall dichotomy between the Aussie/Kiwi economies. The cross rebounded to around 1.0540 from firm support around 1.0420 (30th Nov low) - a level which traders have been heavily flagging in recent days.

AUD, CAD - The AUD and CAD are the next set of straddlers after the Kiwi, with the common denominator for the high-beta softness once again a risk-averse tone. Zooming in, the AUD continues to tackle rising domestic cases and fears of a China slowdown. The Aussie currency came under pressure after the RBA Minutes noted that board members considered the case for a delay to the taper despite reaffirming the previously announced change in bond purchases at the meeting. However, the notable upside in AUD/NZD has kept the AUD somewhat cushioned but failed to stop AUD/USD from printing a fresh YTD low at 0.7279 (vs high 0.7341)– briefly dipping under the 24th Nov 2020 low of 0.7283. The next area of support is seen around 0.7265, marking the 20th and 23rd November low. Elsewhere, the Loonie remains underwhelmed by the COVID-hit (and sentiment-hit) crude prices, with the pair topping 1.2600 (vs low 1.2567).

DXY - The Dollar index had retained an underlying bid as the risk remains defensive, whilst traders look ahead US Retail Sales, and later Fed Chair Powell’s appearance at 18:30BST/13:30EDT who will be hosting a town hall discussion, but focus will likely fall on the accompanied online Q&A against the backdrop of Fed officials tilting towards the hawkish side. Rosengren (2022 voter) has become the latest to suggest that in his view, substantial further progress was made – and his preference would be to start tapering in the fall, potentially October or November and no later than December, contingent on another strong job report. DXY remains caged to its 92.616-777 range, with some questioning why the non-Dollar declines are not providing much more upside. On this, it is worth noting that the antipodeans do not contribute to the DXY basket.

JPY, CHF - The safe-haven FX diverge with the JPY remaining softer amid its domestic COVID situation. Japan's government confirmed it is to seek an extension of the coronavirus emergency in Tokyo through to September 12th and will extend it to seven additional prefectures. Furthermore, the widening yield spread between the US-Japanese 10yr yields remains supportive for USD/JPY. The pair match confirmed yesterday’s 109.12 low as interim support before recoiling to a high of 109.42. Meanwhile, the USD/CHF eyes 0.9100 to the downside from a 0.9136 intraday peak.

EUR, GBP - Sterling and the Single Currency are also experiencing a mild divergence, but Sterling remains subdued by its high-beta properties after shrugging off an overall upbeat jobs report. The EUR similarly side-lined the mostly in-line EZ GDP (2nd) and employment data – although the YY topped forecasts at 1.8% (exp. 1.5%). EUR/USD remains within a tight 1.1761-84 range whilst GBP/USD meanders on either side of 1.3800 but closer to the bottom of its 1.3787-3845 range with traders also flagging the 200DMA at 1.3776. EUR/GBP continued rising further above the 0.8500 mark to a peak of 0.8535 ahead of its 50 DMA at 0.8548.

RBA Minutes from the August Meeting stated that recent outbreaks of the Delta variant of COVID-19 had interrupted the recovery and the board reaffirmed the previously announced change in bond purchases although board members considered the case for a taper delay. Minutes noted that the near-term outlook was highly uncertain and dependent on health outcomes, while the board should be ready to respond to further bad news on the health front if it should lead to a more significant setback for the economic recovery. RBA reiterated that it will not increase the Cash Rate until inflation is sustainably within the 2%-3% target and the central scenario is for this condition to not be met before 2024. Furthermore, it stated that fiscal policy is more appropriate than monetary policy in providing support and that it remains committed to maintaining highly accommodative monetary conditions. (Newswires)

RBNZ updates for Wednesday's policy announcement following a return to Level 4 lockdown

• Westpac now expects the RBNZ to leave the OCR unchanged vs prev. forecast of a 25bps hike. "... there is nothing to be gained from pushing the OCR higher now, rather than waiting for more clarity on the Covid situation."
• ASB expect the OCR to be left unchanged
• Capital Economics says "... we don’t yet know how long the lockdown will last, the uncertainty will probably be enough for the RBNZ to dial down its hike to just 25bps"

FIXED

Core debt remains bolstered and has extended on overnight upside which saw USTs bid in-line with APAC bonds and amid a dip in equity futures given the COVID situation, particularly in New Zealand, and China’s market regulator issuing draft regulations. USTs are in proximity to session peaks printed in European hours as a broader risk-off move was seen following the announcement that New Zealand is returning to lockdown after one COVID case; albeit, the move was more gradual/contained when compared to the initial FX reaction. Technically, the session peak of 134.19+ is within reach of potential 61.8% fib resistance of the recent move lower that lies at 134.20. Crossing to EGBs, where Bunds are portraying the same picture as their stateside counterparts though technically have a larger band of clean air prior to the next resistance mark at 177.61 which is the high from August 5th. The mornings issuance was well received, but prompted little reaction, as is generally the case for uneventful short-end issuance. Leaving the EZ and turning to Gilts that have been tracking the broader macro themes rather than taking impetus from the mornings jobs data that showed hourly earnings increasing notably, as expected, perhaps reflecting the labour shortages, although this view is caveated by mechanics from the reference period – a labour issue that doesn’t look set to resolve itself soon as vaccines continue to climb. Note, the 2046 Gilt sale saw the b/c pick-up from the prior even given a lower average yield that was below 1.00%; however, the benchmark was unreactive to the sale. Finally, BTPs have, broadly speaking, been fairly contained in summer trade since the highs printed towards the start of the month on the lighter trading activity and as the volume of specific newsflow dips. In-light of this, the BTP-Bund spread has been in a ~10bp parameter for the month so far.

COMMODITIES

WTI and Brent front month future remain subdued amid the overall market risk sentiment, concerns of peak China growth and ongoing COVID concerns as reports of new cases prompt tighter restrictions across some APAC economies. WTI Sept oscillates on either side of USD 67/bbl (vs high USD 67.65) whilst Brent Oct resides just north of USD 69/bbl having dipped below the figure in a fleeting move. Goldman Sachs notes that the move lower in oil prices continues to reflect concern around the impact of the COVID-19 Delta wave on demand; base case remains that this will be a transient demand hit. GS believes the deficit will persist through to year-end, eventually requiring sharp increases in OPEC's output and a further rebound in shale activity and is still forecasting Brent to hit USD 80/bbl by Q4-2021. While breakthrough infections are increasing concerns about the medium-term demand outlook, GS sees growing and offsetting downside risks to global supply and estimate global demand at around 98mln BPD vs August view of 97.8mln BPD. Elsewhere, spot gold and silver have been grinding higher as yields continue to dwindle, with the former some USD 5/oz off USD 1,800/oz (vs low 1,784/oz). LME copper remains subdued by the risk tone alongside China concerns. BHP meanwhile in its earnings noted that they expect Chinese iron demand to be lower than today, which is in-fitting with China’s move to cut its steel output target.

US Justice Department appealed a court ruling against the oil leasing pause and the Interior Department said it will proceed with oil and gas leasing during appeal. In relevant news, the American Petroleum Institute and 11 other groups filed a lawsuit against the Biden administration to compel the Department of Interior to reinstate oil and gas lease sales, after drilling auctions on federal lands and waters were banned. (Newswires)

China's NDRC said it will continue to monitor commodity prices, while it added it will use more reserves and imports to stabilize commodity prices. (Newswires)

NHC says Tropical Depression Grace has become a Tropical Storm again, could be near hurricane strength when it approaches the Yucatan coast of Mexico in a couple of days. (Newswires)