• Asian stocks traded somewhat mixed and failed to fully sustain the early momentum from the US
• The S&P 500 and Nasdaq extended on record highs amid notable strength in cyclicals
• US VP Harris suggested that the US needs to increase pressure on Beijing and challenge its bullying
• The House voted to approve the USD 3.5tln budget blueprint and advance the USD 1tln infrastructure bill
• The DXY heads into the European open marginally firmer, EUR/USD trades sub-1.1750, CAD lags G10 FX
• Looking ahead, highlights include German IFO, US Durable Goods, DoEs, ECB's de Guindos, US 5yr supply

CORONAVIRUS UPDATE

US President Biden received a report on COVID-19 origins although it was noted that challenges still remain in how to deal with China, while it was later noted that the US intelligence report did not make definitive conclusions regarding origins of COVID-19 and officials stated the investigation was hindered by lack of information from China. (Newswires/WSJ)

NIH's Fauci stated that monoclonal antibody COVID-19 treatment is being underused and recommends utilising it to its fullest. In relevant news, a large study of US health workers found that the effectiveness of the Pfizer (PFE) and Moderna (MRNA) COVID-19 vaccines against infections declined to 66% from 91% after the Delta variant became more dominant. (Newswires/AFP)

Japanese Economic Minister Nishimura confirmed the government is seeking to widen the state of emergency to an additional 8 prefectures, while it was separately reported that Japan will spend an additional JPY 1.4tln from its reserves on COVID-19. (Newswires)

ASIA

Asian stocks traded somewhat mixed and failed to fully sustain the early momentum from the US where the S&P 500 and Nasdaq extended on record highs amid notable strength in cyclicals, with upside limited as participants continued to await taper clues from Friday's Jackson Hole Symposium. ASX 200 (+0.1%) was kept afloat amid outperformance in tech and mining names and with earnings releases also driving the biggest moving stocks including WiseTech Global which rallied around 30% after its FY net profit doubled, while Nine Entertainment and Seven Group were at the other end of the spectrum despite posting improved results, with the latter’s Chairman and billionaire Kerry Stokes to step down in November. Nikkei 225 (-0.1%) was indecisive amid a mixed currency and as Japan seeks to extend its state of emergency to include an additional 8 prefectures, with comments from BoJ board member Nakamura also not providing much to excite markets as he stuck to the BoJ’s all too familiar script. Hang Seng (-0.5%) and Shanghai Comp. (+0.3%) traded tentatively despite the PBoC increasing its liquidity efforts to meet month-end demand, as participants also digested the latest varied US-China related headlines. These include the US approval of Huawei license applications to buy auto chips valued at hundreds of millions of dollars although it was separately reported that the SEC are to demand all Chinese firms to disclose more regarding investor risks including firms already trading in the US. Furthermore, insiders noted that China and the US should strengthen cooperation on cross-border regulation but stressed that China won't back down on bottom-line issues such as key data utilized by some Chinese companies related to national security, while there were more comments from US VP Harris who maintained a hawkish tone on China. Finally, 10yr JGBs were flat amid the indecisive mood in the region and following the lacklustre picture in T-notes despite a strong US 2yr auction and disappointing Richmond Fed survey, with the BoJ presence in the market for nearly JPY 1tln of JGBs also doing little to spur prices.

PBoC injected CNY 50bln via 7-day reverse repos with the rate at 2.20% for a net daily injection of CNY 40bln. (Newswires) PBoC set USD/CNY mid-point at 6.4728 vs exp. 6.4697 (prev. 6.4805)

US VP Harris suggested that they need to increase pressure on Beijing and challenge its bullying, while it was separately reported that US climate envoy John Kerry is expected to visit China next month. (Newswires)

US SEC is to demand all Chinese firms say more regarding investor risks with the SEC requirement to apply to firms already trading in the US, while SEC Chief Gensler laid out the plan for enhanced disclosure in an interview. In other news, Wall Street representatives and Chinese officials will revive discussions as they seek a common ground, while source reports noted the US approved Huawei license applications to buy auto chips valued at hundreds of millions of dollars. (Newswires)

China's Ningbo port resumed operation on Wednesday after shutting down for two weeks due to a COVID-19 case. (Newswires)

Japan and Taiwan will conduct their first bilateral security discussions on Friday. (FT)

FX

In FX, the greenback recovered from the prior day’s losses after having been pressured by the positive risk tone and amid mixed data, with the DXY briefly reclaiming the 93.00 level overnight. Price action this week has proven to be choppy heading into the Jackson Hole Symposium on Friday where markets will be eyeing any clues regarding the Fed’s tapering, in which Goldman Sachs now sees a greater probability of a Fed taper announcement in November of 45% from 25% and with its likelihood for December lowered to 35% from 55%. Attention was also on Congress where the House voted to approve the USD 3.5tln budget blueprint and advance the USD 1tln infrastructure bill after the Democrat leaders agreed with the group of moderates on a path to advance the budget and infrastructure package which requires an infrastructure vote by September 27th. The greenback’s major counterparts pared some of their recent gains with a pullback in EUR/USD to beneath 1.1750 to test its 200-HMA of 1.1732 where its 10-DMA also resides, while GBP/USD was subdued after recently failing to break above a 38.2% Fibonacci retracement level at 1.3748. USD/JPY and JPY-crosses lacked firm direction amid the mixed risk mood and following unsurprising comments from BoJ’s Nakamura who reiterated the view that Japan's economy remains in a severe state but is picking up as a trend and will likely recover as the pandemic impact starts to ease. Antipodeans were also lacklustre as the rally in commodities eased overnight and following softer than expected Australian Construction Data which feeds into next week’s GDP, while a recent note from Westpac suggested near-term risk for AUD/USD to retreat to the 0.7000 level although it kept its year-end target of 0.7800.

• Australian Construction Work Done (Q2) 0.8% vs. Exp. 2.5% (Prev. 2.4%)
• New Zealand Trade Balance (Jul) -402M (Prev. 261.0M, Rev. 245M)
• New Zealand Exports (Jul) 5.75B (Prev. 5.95B, Rev. 5.96B)
• New Zealand Imports (Jul) 6.16B (Prev. 5.69B, Rev. 5.71B)

COMMODITIES

Commodities were softer overnight as the greenback recovered from recent losses which saw WTI crude futures give back some of the prior day's 3% gains but remain above the USD 67/bbl level with price action not helped by the smaller than expected drawdowns for headline crude stockpiles and most product components in the latest private sector inventory data. Gold prices marginally retreated below the USD 1800/oz level amid the rebound in the USD but with price action contained with participants tentative heading into the Jackson Hole event, while copper conformed to the uninspired mood across the complex amid the somewhat indecisive mood in Asia and after with recent comments from the Codelco CEO who expects production to be slightly higher than last year but also noted that strong long-term fundamentals remain intact.

US Private Energy Inventory Data (bbls): Crude -1.6mln (exp. -2.7mln), Cushing -0.5mln, Gasoline -1.0mln (exp. -1.6mln), Distillate -0.25mln (exp. -0.3mln). (Newswires)

US Department of the Interior said it expects to publish a sale notice for the Gulf of Mexico oil and gas auction in September, while it continues to review oil and gas leasing program. (Newswires)

Dubai set official crude differential to DME Oman for November at a discount of USD 0.20/bbl. (Newswires)

GEOPOLITICAL

US President Biden told G7 leaders he is aiming to get US troops out of Afghanistan by August 31st due to the 'very high' risk of a terrorist attack but also told leaders there was a possibility of extending the US mission in Afghanistan. Furthermore, US President Biden later confirmed the US is currently on pace to finish Afghanistan mission by August 31st and asked the Pentagon and State Department for contingency plans to adjust Afghanistan withdrawal if needed, while he added that completing evacuation by the deadline depends on the Taliban continuing to cooperate and that the G7 will stand united in approach to the Taliban. (Newswires)

World Bank said it paused disbursements in Afghanistan and is closely observing the situation, while it added it is exploring ways to remain in engaged in the country and preserve development gains. (Newswires)

US

The treasury curve bear steepened throughout the session while equities push on to record highs and the 2yr auction sees strong demand. By settlement, 2s +0.0bps at 0.226%, 3s +0.9bps at 0.447%, 5s +2.1bps at 0.793%, 7s +2.7bps at 1.074%, 10s +3.3bps at 1.289%, 20s +3.5bps at 1.826%, 30s +3.5bps at 1.907%. 5yr TIPS -0.9bps at -1.728%, 10yr TIPS +0.7bps at -1.019%, 30yr TIPS +1.7bps at -0.289%. SOFR unch. at 5bps and EFFR unch. at 9bps. Focus in Treasuries lied in the 2yr auction, which came in very strong. T-notes saw a high of 134-07+ this morning and a low at 133-30+ heading into the close while the curve bear steepened throughout the session. Data today saw a disappointing Richmond Fed survey and new home sales falling in line with expectations, but focus remains on Jackson Hole at the end of the week. Meanwhile, with month-end approaching, analysts at UBS expect US Treasury index duration to extend by 0.12yrs at the end of the August rebalancing, in line with the 3yr average for August. The desk notes that refunding months, including August, "typically see higher duration lengthening due to larger amount of bond drop-outs from the index". On TIPS, the desk expect US TIPS index to show large extension of roughly 0.14yrs at the August rebalancing owing to 30yr TIPS supply. T-note (u1) futures settled 7+ ticks lower at 133-31+.

Federal Reserve discount rate minutes stated that overall, Federal Reserve Bank directors were positive about the economic outlook and continued to report strengthening activity across sectors and Districts, while Federal Reserve Bank directors were positive about the economic outlook and continued to report strengthening activity across sectors and Districts. Minutes also stated that in light of the uncertainties associated with the economic outlook, the directors judged that it would be appropriate for the FOMC to maintain the current stance of policy to continue to support economic recovery and foster progress toward the FOMC's long-run goals of maximum employment and stable prices. Furthermore, most directors reported that businesses were still having difficulty hiring and retaining workers of all skill levels, but particularly hourly workers, and that labour shortages were putting upward pressure on wages. (Newswires)

US House voted 220 vs. 212 to approved the USD 3.5tln budget blueprint and advance the USD 1tln infrastructure bill which was as expected after House Democrats agreed on a path to advance budget and infrastructure package, while the House rules required an infrastructure vote by September 27th and adopting USD 3.5tln budget. (Twitter/Politico)

Fitch said global recovery is continuing in face of supply constraints and stronger than expected price increases look to have played a part in weaker than expected real GDP growth in the US in Q2 21. (Newswires)