• European bourses are firmer and building on Monday's upside, Euro Stoxx 50 +1.1%; US futures are modestly outperforming, ES +1.7%, post-market holiday
• DXY is downbeat and sub-104.00 at worst; benefitting G10 peers ex-JPY given the region sticking to its monetary policy stance
• Core debt is within ranges and little changed overall though USTs are incrementally softer and the curve flitting between flattening/steepening
• Crude lifts amid broader risk sentiment while Denmark and Sweden declare “early warning” stage of gas supply preparedness
• Looking ahead, highlights include Canadian Retail Sales, New Zealand Trade Balance, Speeches from Fed’s Barkin & Mester.

As of 11:30BST/06:30ET

LOOKING AHEAD

• Canadian Retail Sales, New Zealand Trade Balance, Speeches from Fed’s Barkin & Mester.
• Click here for the Week Ahead preview

GEOPOLITICS

RUSSIA-UKRAINE

• Kremlin spokesperson says no attempts by Ukraine to restart negotiations; cannot rule out the death penalty for captured US citizens, via Reuters.
• Russian President Putin says Russia will strengthen its armed forces, says the Sarmat ballistic missile will be deployed for duty by the end of this year, via Reuters.
• EU Ambassador to Moscow is to be summoned to the Russian Foreign Ministry on Tuesday regarding the Kaliningrad transit ban, according to Reuters.
• EU member states are set to formally grant Ukraine candidate status later this week following a meeting on Monday where none of the EU ambassadors opposed the decision, according to Bloomberg
• US Treasury Secretary Yellen said they continue to have productive conversations on restricting energy revenues to Russia without spillovers to the global economy and that a Russian oil price cap is an important way to prevent spillover effects to low-income countries, according to Reuters.
• Canadian Finance Minister Freeland said she cannot think of a more appropriate source of funding to rebuild Ukraine than confiscated Russian assets and that the Russian economy is only now beginning to feel the impact of restrictions on exports to Russia, according to Reuters.
• Russia Security Council secretary says Russia will retaliate after 'blockade' of Kalningrad region by Lithuania, IFX reports, says Lithuania's decision is hostile, via Reuters.

OTHER

• Turkish Presidential spokesman said talks with Finland and Sweden on NATO bids will continue and the Madrid summit is not a deadline, according to Reuters.
• IAEA report stated that they verified Iran was ready to feed uranium into a cascade of advanced IR-6 centrifuges at Fordow that has not been used for enrichment before and Iran informed the IAEA that passivation of the cascade, which is a process that is carried out before enrichment, began on Sunday, according to Reuters.

EUROPEAN TRADE

CENTRAL BANKS

• ECB’s Lane said very high inflation means there is a risk inflation psychology could take hold and said the larger increment for rate increase in September does not represent a red alert assessment of inflation. Lane also commented that he doesn’t see a situation where they would need to revisit the plan for a July decision and there is no preview beyond September of what will be the appropriate pace of tightening, according to Reuters.
• ECB’s Villeroy said the new instrument should be available as much as necessary to make the no-limit commitment to protect the Euro very clear and the more credible such an instrument is, the less it may have to be used in practice. Villeroy added the new instrument will have rules but there will be elements of judgement also and said they would not necessarily need to hold purchases of government or private sector securities to maturity, according to Reuters.
• ECB's Rehn says EZ inflation pressured are broader and stronger; very likely the September move is more than 25bp in magnitude.
• BoE's Pill says if there is evidence of persistent price pressures, the MPC is certainly prepared to act, expects further tightening in the coming months, need to consider the exchange rate when assessing inflationary pressures. Worries that using monetary policy to stabilise the FX rate in the short-term would be a distraction from the BoE's goals.
• HKMA purchases HKD 9.6bln from the market, as the HKD hits the weak-end of the trading range.

EQUITIES

• European bourses are firmer and building on Monday's upside, Euro Stoxx 50 +1.1%; thus far, newsflow has largely focused on familiar themes.
• Additionally, participants are awaiting the return of the US after Monday's market holiday. Currently, ES +1.7% with the region incrementally outperforming European peers.
• Elon Musk says there a still a few unresolved matters with Twitter (TWTR) including the number of spam users, via BBG TV; still awaiting a resolution, very significant. Adds, they are reducing the salaried workforce of Tesla (TSLA) by circa. 10% over the next three-months.
• Lennar Corp (LEN) Q2 2022 (USD): EPS 4.49 (exp. 3.97), Revenue 8.4bln (exp. 8.11bln).
• Click here for more detail.

FX

• Euro firm as risk revival continues and ECB’s Rehn says 50bp hike in September is highly probable, EUR/USD eyeing 1.0600 after breaching 1.0550, but could be capped by 1bln option expiry interest between 1.0575-85.
• Sterling rebounds ahead of CBI industrial trends and after BoE chief economist Pill underlines willingness to act if price pressures prove persistent; Pound probes 1.2300 vs Dollar as DXY slips further from recent peaks through 104.000.
• Loonie and Nokkie boosted by firmer crude prices, as former awaits Canadian retail sales data; USD/CAD close to 1.2900 vs circa 1.3078 double top, EUR/NOK sub-10.4000 within 104.4200+/10.3400 range.
• Kiwi and Aussie underpinned by improvement in risk appetite, but hampered as NZ consumer sentiment slides to record low and RBA Governor Lowe pushes back on the amount of 2022 tightening priced in at present; NZD/USD hovers above 0.6350 and AUD/USD shy of 0.7000.
• Franc and Yen remain divergent with SNB and BoJ policy paths, latter largely ignoring latest verbal intervention; USD/CHF pivots 0.9650 and USD/JPY back above 135.00.
• Israel PM Bennett and Foreign Minister Lapid agreed on dissolving the Knesset and going for an early election, while the vote will take place next week and Lapid will become PM once the vote passes, according to Walla News.
• Click here for more detail.

Notable FX Expiries, NY Cut:

• EUR/USD: 1.0470-80 (824M), 1.0495-00 (340M), 1.0560-65 (320M), 1.0575-85 (1.0BN), 1.0650 (470M)
• USD/JPY: 134.00 (1.35BN), 134.40-50 (685M)
• AUD/USD: 0.6850-60 (720M), 0.6895-00 (540M), 0.7000 (1.2BN), 0.7010-15 (727M), 0.7025 (330M), 0.7070 (402M)
• Click here for more detail.

FIXED INCOME

• Debt divergent and erratic awaiting the return of US cash markets from long holiday weekend.
• Bunds hold within 143.05-144.01 range and Gilts between 111.11-68 parameters.
• Treasury futures retreat and curve flits from marginal flattening to steepening ahead of US existing home sales and more Fed speak via Mester and Barkin
• Click here for more detail.

COMMODITIES

• WTI and Brent are bid amid broader risk sentiment with newsflow focusing on familiar themes primarily around the reduction in Russia's gas supply to Europe.
• Thus far, Brent has tested but failed to connivingly breach the USD 116.00/bbl mark ahead of touted USD 116.37/bbl resistance.
• US Treasury Secretary Yellen said she does not see resuming the Keystone XL oil pipeline as a short-term measure that can address high oil prices, while she added it would take years to have an impact. Yellen also commented that evidence is mixed on the level of pass-through from a gasoline tax holiday to lower prices and said that an exception or ban on insurance for certain Russian oil shipments would effectively provide a price cap on oil, according to Reuters.
• Brazilian Economy Minister Guedes said Brazil is part of the western energy security, particularly for Europe, while he added that privatising and moving Petrobras to Novo Mercado would increase its market cap from BRL 450bln to BRL 750bln. Guedes added that they will conduct new measures again if the war in Ukraine is escalating, according to Reuters.
• PetroEcuador may have to stop exports if protests continue and it declared a force majeure to avoid contract penalties, according to Reuters.
• Vitol CEO says markets are faced with underinvestment and falling production capacity for crude and there is a relatively tight refining situation, via Reuters; if China exports some more products, the tightness felt today won't be felt.
• Denmark's energy agency declared an 'early warning' stage of gas supply preparedness, according to Reuters.
• German regulator says they are not in a hurry to declare the highest gas emergency level yet, via Reuters citing BR; however, Sweden declares an "early warning" stage of gas supply preparedness for Western and Southern parts of the nation.
• Codelco's union presidents ratified the start of a national strike beginning on Wednesday, according to Reuters; an update which, alongside broader risk, is supporting LME Copper.
• Click here for more detail.

NOTABLE EUROPEAN HEADLINES

• French President Macron will invite all parties able to form a group in the new parliament for talks on Tuesday and Wednesday, according to Reuters.
• BDI revises down 2022 German GDP forecasts: 1.5% (prev. 3.5%); return to pre-COVID level expected at end-2022 at the earliest

NOTABLE US HEADLINES

• Fed's Bullard (2022 voter) said he expects the economic expansion to continue this year and that the Fed must meet market expectations for rate hikes, while he added that effects of Fed guidance on the economy and CPI are taking hold. Bullard also stated that high inflation has come up like a storm and the economy is slowing to the trend rate of growth, as well as noted that the current balance sheet reduction is a good place to begin with and they may not need to go as far on QT as it might seem, according to Reuters.
• US Treasury Secretary Yellen said 2017 tax cuts were not successful in boosting private investment and the goal should be equitable and sustainable growth. Yellen also said that once some countries implement a global corporate minimum tax, other countries will follow suit or lose revenues, according to Reuters.
• Click here for the US Early Morning note.

CRYPTO

• Bitcoin is bid and comfortably above the USD 21k mark, after last week's slip to a sub-USD 18k low.
• Elon Musk says he intends to personally support Dogecoin, via BBG TV.
• Coinbase (COIN) says connectivity issues across Coinbase and Coinbase Pro could cause failed trades and delayed transactions; issue was subsequently resolved.

APAC TRADE

EQUITIES

• APAC stocks gained across amid a broad constructive global risk tone despite a lack of fresh macro drivers and the recent holiday closure in the US, with Bitcoin and Chinese commodity prices also stabilising after the recent tumultuous price action.
• ASX 200 was led higher by the energy sector and after RBA's Lowe effectively ruled out a 75bps hike next month.
• Nikkei 225 outperformed and reclaimed the 26,000 level amid a predominantly weaker currency.
• Hang Seng and Shanghai Comp. were positive with sentiment in Hong Kong underpinned by news the SAR is to propose a quarantine-free business travel corridor with mainland China, while mainland bourses lagged with the US ban on imports from Xinjiang taking effect from today.
• Japan's PM Kishida says rapid JPY weakening is a source of concern, must closely watch FX moves and consider monetary policy and FX measures separately.
• Macau is urging residents to remain at home, will continue to close most public services Wednesday to Friday.