• US equity futures are firmer off-best levels, with NQ modestly outperforming while European bourses are mixed/lower after a firmer start
• In FX, the DXY trades above 93.000, EUR/USD encountered resistance ahead of 1.1750 while Cable briefly lost 1.37 and antipodeans outperform
• RBNZ's Hawkesby said the RBNZ considered raising the OCR by 50bps at the recent meeting; decided to hold rates due to a communications challenge not economic risks.
• US VP Harris said China's actions in the South China Sea continue to undermine rules-based order and sovereignty of nations
• Looking ahead, highlights include US New Home Sales, ECB's Schnabel and supply from the US

CORONAVIRUS UPDATE

Australia's New South Wales state reported 753 locally transmitted cases and reports noted that NSW Premier will announce an easing of restrictions later this week for those that are fully vaccinated. Elsewhere, New Zealand reported 41 new cases of COVID-19. (Newswires)

Japan is reportedly to include Hokkaido and 3 other prefectures to the state of emergency; Tokyo COVID-19 cases 4,220 vs prev. 2,447. Subsequent reports indicate that the state of emergency will be extended to eight more prefectures. (Newswires/Kyodo)

China's Beijing city has fully contained the latest COVID-19 outbreak, according to Global Times. (Times)

UK booster jabs for the most vulnerable people could start within two weeks but the healthy over-70s may have to wait. (Times)

ASIA

Asia-Pac stocks sustained the momentum from Wall St where the S&P 500 and Nasdaq notched fresh record highs, while the advances were led by energy after oil prices rallied over 5% and with some tailwinds from the FDA's full approval of the Pfizer/BioNTech COVID vaccine. The ASX 200 (+0.2%) was propped up by strength in energy names and gold miners - which were buoyed by the recent upside in underlying commodity prices, but with gains in the index capped amid ongoing Delta variant concerns and as participants digested a slew of earnings with the list of worst-performing stocks heavily populated by Cos that reported. The Nikkei 225 (+0.9%) was positive as most exporters benefitted from the recent currency moves and the global constructive mood which helped the index brush off reports of a potential expansion of the State of Emergency to Hokkaido and three other prefectures. The Hang Seng (+2.5%) and Shanghai Comp. (+1.1%) both traded higher as tech spearheaded the outperformance in Hong Kong with the sector also encouraged as JD.com shares rallied following a beat on earnings, although the mainland had a sluggish start after the US SEC issued disclosure requirements for Chinese companies seeking a US listing which added to the recent IPO-related woes following yesterday’s reports that Chinese bourses halted processing of over 40 IPOs amid investigations concerning intermediaries in the deals. Finally, 10yr JGBs are flat with demand subdued by the broad positive risk sentiment and despite the slightly improved results at this month's 5-year JGB auction, while the Aussie 10yr yield was higher by around 3bps after Australia sold AUD 3.25bln in 2032 indexed-bonds through syndication.

China cyberspace regulators said the new critical infrastructure rules are not aimed at foreign trade or overseas listed firms. (Newswires)

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 6.4805 vs exp. 6.4827 (prev. 6.4969)

US

Punchbowl News' Sherman initially tweeted that the House rule vote planned for last night would be to deem the budget passed and does not include any specific language regarding infrastructure being brought up by a certain date, although it was later noted that House will not vote on Monday night and that House Speaker Pelosi said the House will be in at noon to consider the rule for budget and infrastructure. (Twitter)

GEOPOLITICAL

US Vice President Harris said South East Asia is critically important for US security and that partnerships with Singapore, the South East and Indo Pacific are top priorities for the US. Furthermore, VP Harris said Beijing continues to coerce and intimidate in the South China Sea, while she added that China's actions continue to undermine rules based order and sovereignty of nations. (Newswires)

US President Biden is expected to decide within 24 hours on whether to extend the August 31st withdrawal deadline from Afghanistan to provide the Pentagon time to prepare although some advisers oppose an extension due to security reasons, while President Biden is to speak at 12:00EDT regarding the Afghanistan withdrawal deadline. (Newswires)

US House Intelligence Committee Chairman Schiff thinks it is very unlikely that US will complete the evacuation from Afghanistan by August 31st. Furthermore, a NATO diplomat said all foreign force members are working towards meeting the August 31st deadline for evacuating from Afghanistan and that Taliban officials have been briefed about evacuation and logistical process at Kabul Airport. (Newswires)

North Korean newspaper called for Japan to make reparations for colonial-era brutality and stated that Japan had forced Korea to sign a treaty in 1910 which was a "fabricated" and "illegitimate" treaty. (Yonhap)

EQUITIES

Stocks in Europe lost some steam (Stoxx 600 +0.1%) as the initial modest optimism, which reverberated from APAC, wore thin in the absence of catalysts and ahead of the Fed’s Jackson Hole Symposium. US equity futures have held onto their mild overnight gains - the NQ (+0.3%) narrowly outperformed in early trade vs the ES (+0.1%), RYT (+0.2%) and YM (+0.2%), potentially on the recent moderation in yields. European equity futures are also mixed with the breadth of the market narrow. Sectors remain pro-cyclical but to a lesser extent than the morning. Travel & Leisure top the chart with some tailwinds emanating from the US FDA fully approving the Pfizer/BioNTech vaccine, whilst China’s Global Times also noted that the COVID outbreak in Beijing city is contained. In Europe, reports via UK press indicated that the most vulnerable Brits would be offered a booster jab, but healthy over-70s may have to wait. Autos & Parts also remain supported, with some potential follow-through from source reports that Ford has doubled the production target for electric f-150 trucks based on solid pre-launch demand. Defensive names predominantly reside at the bottom, but banks have also been hit as yields faltered. Healthcare also lags with sector behemoth Novartis (-1.1%), extending on losses after its Phase III BELINDA study did not meet the primary endpoint of event-free survival.

FX

NZD/AUD - The Kiwi was already elevated on the back of an acceleration in NZ retail sales overnight, but got a further boost from RBNZ assistant Governor Hawkesby who revealed that raising the OCR by 50 bp rather than 25 bp was under consideration last week and the Bank only refrained from tightening due to communication challenges as opposed to economic risks. Hence, the decision to stand pat constitutes a pause and underlines market perceptions of a hawkish hold before a hike next time - see 7.57BST post on the Headline Feed for more snippets from his interview and some analysis. In response, Nzd/Usd extended beyond 0.6940 towards Fib resistance at 0.6947 (50% retracement from m-t-d peak to last Friday’s 0.6805 trough), while Aud/Nzd is back below 1.0450 even though the Aussie has breached 0.7200 vs its US counterpart amidst the ongoing recovery in commodities and other risk assets.

USD - Some consolidation for the Dollar after Monday’s more pronounced set-back or correction that saw the DXY relinquish 93.000+ status amidst the upturn in sentiment and outflows from safer-havens. However, the index remains somewhat hesitant within a 93.084-92.949 range awaiting this week’s main event from Jackson Hole in the form of Fed chair Powell’s keynote speech that may well be shaped by data in the run up, such as IJC and PCE metrics, if either represent further progress towards the substantial levels set for tapering.

CAD/GBP/CHF/JPY/EUR - All narrowly mixed against the Greenback, with the Loonie and Pound still gleaning support from crude’s impressive revival yesterday and the latter also deriving more impetus via the Eur/Gbp cross while it holds below 0.8600. Nevertheless, Usd/Cad has not been able to crack 1.2600, while Cable ran into a formidable chart hurdle a fraction under 1.3750 as 1.3748 represents 38.2% of the fall from 1.3983 to 1.3602 and there are two Fib supports in Eur/Gbp protecting 0.8500, at 0.8538 (38.2%) and 0.8522 (50%). Elsewhere, the Franc has extended further beyond 0.9150, the Yen through 110.00 and the Euro is inching nearer 1.1750, though all still eyeing yield differentials alongside the broad market tone, and Usd/Jpy is flanked by decent option expiry interest as well (109.00-10 in 1.04 bn, 109.60-65 in 1.07 bn and 109.90-00 in 1.17 bn).

SCANDI/EM - Brent’s extension to within 25 cents of the Usd 70/brl mark has given the Nok another boost, but the Zar is lagging as Gold flags into converging 100 and 200 DMAs and SA unemployment rose in Q2, while the Cny and Cnh are somewhat betwixt and between following a firmer PBoC midpoint fix for the on-shore unit, but GDP and Yuan downgrades from ING.

RBNZ's Hawkesby said the RBNZ considered raising the OCR by 50bps at the recent meeting; decided to hold rates due to a communications challenge not economic risks. Policy decisions are not going to be tightly linked to COVID/lockdowns. Lockdowns have delayed spending, not taken it away. (Newswires)

Major FX option expiries for today's NY cut

• USD/JPY: 108.60-65 (767M), 108.82 (1.0BLN), 109.00-10 (1.04BLN), 109.45-50 (665M), 109.60-65 (1.07BLN), 109.90-00 (1.17BLN), 111.00 (656M)
• AUD/USD: 0.7210-20 (270M), 0.7295-00 (1.4BLN), 0.7340 (473M)

FIXED

The 10 year EU benchmarks appear to have acknowledged satisfactory if not quite rapturous receptions for the latest German and UK debt offerings, leaving US Treasuries hanging on to see if the 2 year note sale is also adequately absorbed. However, extensions to Bund and Gilts highs were only marginal on Eurex and Liffe following a firm rebound in the run up to 2028 and 2026 auctions, at 177.08 and 130.29 (+19 and +16 ticks on the day vs -23 and -20 ticks at worst respectively). Meanwhile, UST futures remain just under par and the curve fractionally steeper ahead of new home sales data, Richmond Fed surveys and Discount Rate meeting minutes.

COMMODITIES

WTI and Brent front month futures hold onto the mild gains seen overnight, with the complex kept afloat by the broader constructive risk tone across the market. There were also reports yesterday that the US Energy Department is planning to auction off some 20mln bbls of crude – marking the largest sale in seven years. Some analysts state that the US will likely not encounter problems with this sale, given that supply has not caught up to demand. News flow remains light in the summer lull, and aside from the scheduled weekly Private Inventory data later today and in the absence of COVID newsflow, prices will likely take their cues from the overall risk tone. WTI Oct’ trades just under USD 66.50/bbl (vs low USD 65.41/bbl) while its Brent counterpart resides north of USD 69.50/bbl (vs low USD 68.50/bbl). Spot gold and silver trade sideways, awaiting further catalysts. The former lies just north of USD 1,800/oz, but participants also note the converging 100 and 200 DMAs at USD 1,809.60/oz and USD 1,810.29/oz, respectively. Elsewhere, LME copper holds onto modest gains but remains above USD 9,000/t within a tight range amid the lack of catalysts. Overnight, Dalian coking coal and coke futures surged to hit limit up again as prices remain underpinned by supply woes.