• Sentiment is firmly risk-off with European equity bourses and US futures pressured ES -0.6%, with USD, safe-haven FX and debt bid
• Fresh newsflow has been minimal and action a continuation of APAC weakness post-FOMC Minutes after a downbeat US close
• DXY is firmer but off 93.502 highs as activity/petro-FX slumps but JPY and CHF hold onto marginal gains; USTs outpace EGBs both both are bid
• Base metals are significantly hampered, LME Copper sub 9k/T, but spot-gold is comparatively steady on mixed leads
• Looking ahead, highlights include US weekly jobs, Philadelphia Fed Business Index, supply from the US (30yr TIPS)

CORONAVIRUS UPDATE

US President Biden said the US is still in a pandemic of the unvaccinated and that there are 85mln Americans that are eligible for vaccines but are unvaccinated. Furthermore, he confirmed plans for booster shots eight months after being vaccinated from the week of September 20th. (Newswires)

Johnson & Johnson (JNJ) is engaging with US FDA, CDC and other health authorities and will share new data soon regarding booster shots with its COVID-19 vaccine. In other news, a study by NIH showed there was no significant benefit of convalescent plasma for COVID-19 outpatients with early symptoms. (Newswires)

Oxford study showed AstraZeneca (AZN LN) and Pfizer (PFE) - BioNTech (BNTX) vaccines efficacy dropped in 90 days compared to two weeks after 2nd dose with the AstraZeneca vaccine efficacy at 61% and Pfizer vaccine at 75% at 90 days after 2nd dose. (Newswires)

Australia's New South Wales announced 681 locally-transmitted COVID-19 cases and the state is reportedly to extend lockdown through August 28th. (Newswires)

New Zealand PM Ardern said the current outbreak cases are a close match to a recent returnee from Sydney, while she added they can be fairly certain when the virus entered and the period for cases in the community is relatively short. New Zealand also reported 11 new COVID-19 cases and Health Chief Bloomfield said all cases are in Auckland with the numbers expected to continue to grow. (Newswires)

Tokyo COVID-19 cases 5,534 vs prev. 5,386. (Newswires)

ASIA

Stocks across Asia succumbed to the weakness seen across US peers with global risk sentiment pressured after the dust settled from the FOMC Minutes release which despite being perceived as dovish, noted that most participants judged it could be appropriate to start tapering this year, with the losses heading into the Wall St close also exacerbated as the DJIA broke below 35k and the S&P 500 breached its 20DMA to test the 4,400 level to the downside. ASX 200 (-0.5%) was dragged lower by underperformance in the mining and energy sectors after continued losses in underlying commodity prices and with Australia suffering from its worst day of COVID-19 cases since the pandemic began, while better-than-expected employment data was dismissed after ABS attributed the surprise decline in unemployment to people dropping out of the labour force. Nikkei 225 (-1.1%) failed to benefit from the headway made in USD/JPY as the index was pressured due to the broad risk aversion with Japan also including rare earths to its restrictions for foreign investment and the KOSPI (-2.0%) declined as North Korea effectively put the region on alert for a potential future missile launch. Hang Seng (-2.1%) and Shanghai Comp. (-0.6%) suffered from a collapse in Chinese commodity prices and ongoing regulatory concerns after China's MIIT found 43 apps that violated data transfer rules and ordered the companies involved to make changes or face punishment. The mood was also not helped by the Hang Seng Tech Index declining to its lowest since its launch last year and Alibaba’s Hong Kong shares falling to record lows, as well as the tit-for-tat passenger capacity restrictions imposed on US and Chinese airlines. Finally, 10yr JGBs were flat were subdued after failing to benefit from the negative risk appetite and the BoJ announcement to purchase corporate bonds with 3yr-5yr remaining maturities, while the enhanced liquidity auction results for longer-dated JGBs were relatively inline with the prior.

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 6.4853 vs exp. 6.4860 (prev. 6.4915)

Chinese President Xi is reportedly eyeing a return to communist party roots and signalling more assertively promoting equality amid regulatory crackdown in private sector and 'common prosperity' being increasingly touted. (WSJ)

China July YTD state owned firms' profits rose 112.4% Y/Y and state asset regulator said they will set up a new central government-owned conglomerate focusing on strategic emerging industries. Furthermore, the state-owned assets regulator demands central SOEs to push innovation in basic research, high-end chips, new materials, and new-energy vehicles. (Newswires/Global Times)

China Academy of Social Sciences Blue Book stated that China fiscal policy is at a turning point and the government must shift focus to long-term development including enhancing human capital to boost international competitiveness instead of prioritising short-term growth. (Newswires)

US Transportation Department restricted Chinese air carriers to 40% passenger capacity on flights to the US as a response to Chinese limits on United Airlines (UAL). (Newswires)

Taiwan Finance Ministry reportedly called state owned banks to suggest they purchase stocks amid market declines, according to sources. (Newswires)

UK/EU

German Election Poll: CDU/CSU 22% (U/C), SPD 21% (+2), Greens 19% (-2), according to a Kantar poll. (Kantar)

ECB's Lane says that the symmetry surrounding the inflation target means that the GC views negative and positive deviations from the target to be equally undesirable. (ECB)

GEOPOLITICAL

US President Biden said US is having difficulty getting allies out of Afghanistan although separately commented that US forces will remain in Afghanistan until all Americans are evacuated even if it means staying beyond August 31st. (AFP/ABC)

North Korea reportedly issued a navigational warning for the East Sea in a signal of missile launch preparations. (Yonhap)

Arab coalition intercepts and destroys an armed Houthi drone fired toward Saudi Arabia in the Yemeni airspace. (Newswires)

EQUITIES

European equities (Stoxx 600 -1.6%) have seen a notably softer start to the session following on from the weak Wall St. finish and downside in Asia-Pac stocks. In terms of drivers for the downside, the selling in the US appeared to be of a more technical nature, and seemingly unrelated to the FOMC minutes which were deemed dovish if anything. Nonetheless, sentiment has remained subdued with focus during the overnight session on the Hang Seng Tech Index which declined to its lowest level since its launch last year whilst Alibaba’s Hong Kong shares falling to record lows. Other bearish impulses include the recent Oxford study on vaccine efficacy, geopolitical concerns surrounding Afghanistan and North Korea and concerns over the passage process for the US’ spending plans. That said, it is questionable how much of a direct effect, if any these factors are having on today’s price action. Futures in the US are weaker with the RTY (-1.2%) lagging the ES (-0.5%). Sectors in Europe are particularly weak with the “best performing” sector (Real Estate) lower to the tune of 1.1%. Basic Resources (-3.4%) names sit at the bottom of the pile, in-fitting with price action in the metals complex and following earnings from Antofagasta (-4.1%) who subsequently lowered their copper output guidance for the year. Luxury names are getting hit particularly hard with losses seen in the likes of Kering (-7.2%), Richemont (-4.3%), LVMH (-5.0%), Christian Dior (-4.2%) and Burberry (-4.1%). Some have ascribed the softness to concerns surrounding wealth redistribution plans in China. These reports were initially noted during yesterday’s hours, however, a further circulation today has led some to connect today’s losses with these concerns as participants digest what the impact could be on the Chinese luxury market. The latest Swiss watch export metrics were released in the pre-market but it’s hard to ascribe the magnitude of the losses to this with watch exports +7.6% on 2019 levels. Auto names have been pressured in the wake of reports in the Nikkei stating that Toyota Motors will reduce its global production for September by 40% from its initial plans amid the chip shortage. Elsewhere, Oil & Gas names are also suffering amid developments in the crude complex with WTI now sub-USD 63/bbl

FX

DXY - The broader Dollar and index have extended on its post-FOMC gains during the APAC session, whereby it eclipsed the 93.500 mark (vs 93.214 intraday low) before waning off best levels. The index remains underpinned during early European trade as risk aversion further solidifies. The FOMC minutes were perceived as dovish by market participants, but it is worth noting that the release was from the July meeting – before the blockbuster jobs report, which provided additional fuel to the taper fire and prompted a string of hawkish Fed commentary since. From a Fed standpoint, participants also look ahead to the Fed’s Jackson Hole symposium – with US July PCE overlapping the event on the Friday. Meanwhile, today’s docket sees the US Philly Fed Index for August alongside the weekly jobless claims.

AUD, NZD - The high-beta antipodeans are dealt a double-whammy from the firmer Buck and the downfall in base metals, with the Aussie bearing the brunt of slumping copper and iron ore prices. The Aussie also saw its labour force report overnight, which at first glance seems supportive. However, the Aussie Bureau of Statistics poured cold water on the optimism by suggesting that fall in the national unemployment rate in July should not necessarily be viewed as strengthening of the labour market, while it noted that it is an indication of the extent of reduced capacity for people to be active in the labour market and that unemployed people are dropping out of the labour force due to limited ability to look for work. AUD/USD resides just north of 0.7150 at the time of writing vs its 0.7243 intraday best – with the next potential support point at 0.7143 (5th Nov 2020 low). The Kiwi, meanwhile, is lower to a lesser extent as the AUD/NZD cross dips back below 1.0500, whilst Governor Orr’s commentary failed to spur the Kiwi at the time. NZD/USD resides around 0.6825 at the time of writing (vs high 0.6896), with 0.6808 the next potential point of support (13th Nov 2020 low)

CAD, NOK - The Petro-G10s meanwhile remain under the influence of the slide in crude prices. USD/CAD has topped 1.2700 from a 1.2648 base to a current peak at 1.2741. In terms of upside levels, the pair eyes the 20th July high at 1.2748 ahead of the 19th July peak at 1.2807. The NOK was unfazed by the uneventful Norges Bank decision – which kept the rate unchanged and reiterated its forward guidance. EUR/NOK hit a current high of 10.5226 vs a 10.4150 base – with potential resistance seen at 10.5240 (10th Aug high)

JPY, CHF - Conversely to all the others, the traditional safe havens have gained due to haven demand. USD/JPY declined from its 110.22 peak through its 50 DMA (110.17), 21 DMA (109.85) and 100 DMA (109.65) before finding some support at 109.50. USD/CHF dipped below 0.9150 (vs 0.9206 high) as it eyes its 21 DMA (0.9138) and 100 DMA (0.9124) for near-term support.

EUR, GBP - The EUR and GBP initially moved at the whim of the Buck, but losses in GBP picked up after GBP/USD dipped below recent support at 1.3724 (18th/17th Aug lows), and as EUR/GBP topped its 21 DMA (0.8513) as it looks forward to its 50 DMA (0.8548) and 100 DMA (0.8590) ahead of the psychological 0.8600. Meanwhile, EUR/USD was unreactive to commentary from ECB’s lane, who provided little in the way of new substance, whilst a widening in the EZ current account balance was also shrugged off. EUR/USD trades around the middle of its current 1.1667-1.1715 band ahead of 1.1650 and 1.1603 (4th Nov 2020 low).

EMs - EM FX post losses across the board and to a greater extent vs G10s, although the Yuan bucks the trend with only mild losses following a firmer CNY fix by the PBoC, whilst tomorrow’s LPRs are expected to be unchanged after central bank conducted MLF at a maintained rate last week.

Major FX Option Expiries for today's NY Cut

• EUR/USD: 1.1650 (656M), 1.1675-80 (1.0BLN), 1.1685-90 (1.34BLN), 1.1700 (2.6BLN), 1.1725-30 (1.65BLN), 1.1750 (1.7BLN), 1.1765, (310M), 1.1780 (382M), 1.1790-05 (4.0BLN), 1.1810 (614M), 1.1850 (1.294BLN), 1.1900 (692M).
• USD/JPY: 109.00-04 (770M), 109.10-20 (520M), 109.35-45 (642M), 109.65-75 (1.5BLN), 110.00 (666M), 110.50-60 (1.7BLN)
• AUD/USD: 0.7250 (1.66BLN), 0.7300 (453M), 0.7320-35 (1.3BLN), 0.7345-65 (1.72BLN)
• NZD/USD: 0.6635 (1.37BLN), 0.6800 (1.37BLN), 0.6900 (365M)

Norges Bank leaves its Key Policy Rate unchanged at 0% as expected; Governor reiterates rate will most likely be raised in September. Economic developments have been broadly as projected in the June Report. (Norges Bank)

RBNZ Governor Orr said the view is to raise the cash rate to a more neutral level over the next 18 months and it is highly likely they would have hiked rates if it weren't for the Delta lockdown, while he added they have made it very clear the next move is likely an increase so can afford to wait. Governor Orr also noted that underlying demand for housing is at a very low rate and house prices are assumed to eventually decline as momentum in the housing market fades. (Newswires)

Australian Bureau of Statistics said the fall in national unemployment rate in July should not necessarily be viewed as strengthening of the labour market, while it noted that it is an indication of the extent of reduced capacity for people to be active in labour market and that unemployed people are dropping out of the labour force due to limited ability to look for work. (Newswires)

• Australian Employment Change (Jul) 2.2k vs. Exp. -46.2k (Prev. 29.1k, Rev. 29100.0k)
• Australian Unemployment Rate (Jul) 4.6% vs. Exp. 5.0% (Prev. 4.9%)

FIXED

Core debt remains bid as USTs outpace EGBs with broader sentiment firmly risk-off amid quiet European newsflow taking the impetus from APAC sentiment. After the volatility going into and just after the FOMC Minutes yesterday, which saw the US 10yr yield print a ~1.30% session high and then swiftly retreat on the initial ‘dovish’ take with participants seemingly dividend on the appropriateness of commencing tapering this year/early next. Overnight trade saw USTs extend to the upside where volumes were some 80% of their typical values while JGBs were uneventful but Aus-bonds bid; while USTs were, and are, firmer they still remain within the week’s overall parameters and as such capped by touted resistance at 134.20 (session high 134.17). Broadly speaking, EGBs are underpinned as well on the general risk tone with pertinent fresh newsflow particularly slim thus far and the only notable events being unscheduled commentary from ECB’s Lane that added nothing of value and a well-received OAT outing – the bidding deadline of this coincided with a minor flurry higher in both OATs and Bunds. Continuing with Germany, the 10yr benchmark has extended to session highs of 177.24; albeit, that still leaves us some way off the recent August 5th high at 177.61. Finally, Gilts have managed to slightly outpace their mainland peers and have managed to eclipse the week’s range by a handful of ticks and now look to the August 4th peak of 130.72.

COMMODITIES

WTI and Brent front month futures plumb the depths in early European trade as risk sentiment, a firmer Buck, COVID fears and peak growth concerns all take their toll on prices. One possible (and notable) source of the downside could be emanating from the Oxford study which showed AstraZeneca and the Pfizer/BioNTech vaccines efficacy dropping in 90 days compared to two weeks after a 2nd dose with the AstraZeneca vaccine efficacy at 61% and Pfizer vaccine at 75% at 90 days after 2nd dose – intimating a rising threat from the Delta variant. In terms of the supply side – Iranian nuclear talks remain in the balance whilst OPEC members have also been somewhat quiet in the run-up to the decision-making confab at the start of next month. As a reminder, producers agreed to bring back 400k BPD into the market per month – with higher baseline levels seen after April 2022, contingent on the developments that will be reviewed by the JTC/JMMC beforehand. WTI Oct’21 briefly declined to levels sub-63/bbl, while its Brent counterpart lost its USD 66/bbl status from a USD 70/bbl+ high during yesterday’s session. Meanwhile, spot gold remains buoyed amid its inverse relationship with real yields, whilst haven flows also support the yellow metal and negate the opposing Dollar force. Elsewhere, base metals have been under the spotlight with hefty losses seen across the board. LME copper tumbled under USD 9,000/t for the first time since mid-April to a current low of USD 8,738/t (vs high 9,057/t) as peak growth concerns materialise. Elsewhere, iron ore contracts slumped across Asia with Shanghai and Dalian posting losses over some 7% at one point amid China’s continued crackdown on base metals due to the follow-through from factory-gate prices to consumer prices as flagged by State Media and backed by the Caixin reports. China's Iron and Steel Association (CISA) called on steel companies to correctly understand policies and jointly maintain export order in a self-discipline proposal, via a notice on CISA. Note, last week, China cut its steel output target which some have been suggesting is a vehicle to lower iron ore prices, with some traders noting steel producers re-selling iron ore bought under longer-term contracts to miners after China cut its steel output target.

China Iron and Steel Association (CISA) calls steel companies to correctly understand policies and jointly maintain export order in a self-discipline proposal. (CISA)

Antofagasta (ANTO LN) reduces 2021 copper production guidance to 710-740k tonnes vs prev. 730-760k tonnes. (Newswires)