• APAC stocks traded mixed as early momentum in the region was partially offset by Chinese default and COVID concerns
• US equity futures pulled back after Friday's gains with demand sapped amid the long weekend in the US
• DXY traded rangebound amid the mixed risk appetite, EUR/USD and GBP/USD lacked direction, and USD/JPY remained subdued
• The Biden administration is said to be split on whether to remove Chinese tariffs, according to FT sources
• Russia has accused Ukraine of firing missiles at the border city of Belgorod - on the Russian side
• Looking ahead, highlights include German Trade Balance, Swiss CPI, EZ PPI, Speeches from ECB’s Elderson & ECB’s de Guindos, and US Independence Day holiday
• Click here for the Week Ahead preview.

US TRADE

• US stocks rebounded from opening losses on Friday with early pressure seen after a miss on ISM Manufacturing and US Construction Spending data, although the major indices then recovered in the afternoon as yields declined, liquidity conditions thinned and US players exited for the long weekend.
• SPX +1.06% at 3,825, NDX +0.71% at 11,586, DJIA +1.05% at 31,097, RUT +1.16% at 1,728.
• Click here for a detailed summary.

NOTABLE HEADLINES

• US travellers were warned of flight chaos for the July 4th holiday weekend with a spate of summer cancellations and delays, according to FT.
• US NCSD executive director Harvey said the US has not contained the monkeypox outbreak due to a bureaucratic and slow response, while he added they have lagged streamlining testing, making vaccines available and streamlining access to the best therapeutics, according to The Hill.
• Tesla (TSLA) delivered 254k (vs exp. 256k) vehicles in Q2.

GLOBAL

• Police in Copenhagen, Denmark said several people were killed in a mall shooting in the city with the suspect a 22-year-old Danish male, while they cannot rule out the incident as an act of terrorism, according to Reuters.
• Uzbekistan’s President said some civilians and law enforcement officers were killed amid unrest in the Karakalpakstan province, while other reports noted that thousands of people were hospitalised, according to Reuters citing Russian and Uzbek media reports.
• South Africa’s Eskom said stage 6 load shedding will be implemented on Monday afternoon and there will be varying stages of load shedding implemented during the week, while it cautioned that it will take a few weeks for the power generation system to fully recover to pre-strike levels, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

• At least three people were killed and dozens of residential buildings were damaged in Russia’s Belgorod after several blasts in the city which is near the border with Ukraine, while Moscow alleged it was from a Ukrainian missile attack and the regional governor claimed the attack intentionally targeted civilians although Ukraine has not claimed responsibility for the attack, according to Reuters.
• Belarusian President Lukashenko claimed without providing evidence that Ukraine targeted Belarus with a missile strike mid-last week and that Belarus intercepted all the missiles, while he added that Belarus does not want war with Ukraine, according to Reuters.
• Russian and separatist forces in eastern Ukraine have taken full control of the city of Lysychansk and Russian Defence Minister Shoigu told Russian President Putin that all of the Luhansk region had been liberated by Russian and separatist forces, while Ukraine’s military command confirmed the withdrawal of their forces from Lysychansk which was Ukraine’s last stronghold in the Luhansk region. Furthermore, Ukrainian President Zelensky acknowledged the troop withdrawal from Lysychansk and vowed to return due to tactics and new equipment, according to Tass and Reuters.
• Ukraine’s eastern city of Sloviansk was hit by powerful shelling from rocket launchers on Sunday and the city mayor said many people were killed and wounded from the shelling, according to Reuters.
• Ukrainian forces hit a Russian military base with over 30 strikes in the Russian-occupied southern city of Melitopol according to the city’s exiled Ukrainian mayor, while the local Moscow-installed official said there were no casualties from the strike and some private residential houses near the airfield were damaged, according to RIA and Reuters.
• Senior EU officials are discussing creating an EU-wide sanctions body as they push for tougher and more consistent enforcement of penalties concerning Russia’s war on Ukraine, according to FT.
• German Chancellor Scholz said they are intensely discussing with allies regarding security guarantees for Ukraine in preparation for the time after the war in Ukraine, according to Reuters citing broadcaster ARD.
• Ukrainian Ambassador to Turkey said Turkish customs detained a Russian ship carrying Ukrainian grain which Ukraine said was stolen, according to Reuters.

OTHER

• Iran's chief nuclear negotiator Ali Bagheri Kani said the time and venue of a new round of talks to revive the 2015 nuclear deal are being finalized, according to IRNA news agency.
• Lebanon’s Hezbollah launched three unarmed drones toward an Israeli gas rig in the Mediterranean which were intercepted by Israeli air and naval forces, according to an Israeli security source.
• UK army said its Twitter and YouTube accounts had been breached and an investigation is underway, according to Reuters.

APAC TRADE

EQUITIES

• APAC stocks traded mixed as early momentum was partially offset by Chinese default and COVID woes.
• ASX 200 outperformed with the property industry front running the broad advances amid strong Building Approvals and Home Loans data.
• Nikkei 225 was encouraged by M&A newsflow although gains were capped as the index oscillated around 26k.
• Hang Seng and Shanghai Comp. were varied with the mainland lacking firm direction due to COVID and default woes after some eastern Chinese cities tightened restrictions and following developer Shimao’s failure to pay a USD 1bln bond on Sunday, although the downside was cushioned as the ETF Connect began today and with participants also digesting the announcement to launch a Swap Connect.
• US equity futures pulled back after Friday's gains with demand sapped amid the long weekend in the US.
• European equity futures are indicative of a higher open with Eurostoxx 50 +0.6% after the cash market closed lower by 0.2% on Friday.

FX

• DXY traded rangebound amid the mixed risk appetite and with the US on an extended weekend, while the dollar also lacked commitment ahead of this week’s risk events including the FOMC minutes and NFP data.
• EUR/USD was unchanged as the absence of any major catalyst over the weekend ensured the humdrum mood for the single currency.
• GBP/USD lacked direction as UK PM Johnson faces further political headwinds with Tory rebels plotting to overhaul 1922 Committee rules to allow an immediate leadership challenge and with the PM in the hot seat amid claims he turned a blind eye to warnings regarding a ‘sex pest’ lawmaker’s behaviour who he appointed as Deputy Chief Whip in February.
• USD/JPY remained subdued amid the mixed risk appetite in Asia and sparse overnight calendar.
• Antipodeans were contained despite better-than-expected Building approvals from Australia as participants await tomorrow’s RBA rate decision.

FIXED INCOME

• 10yr USTs were kept afloat after Friday’s ramp-up in prices and fall in yields whereby the US 10yr yield slipped back beneath 3.0%, although price action began the week quietly with US cash markets closed on Monday.
• Bunds traded sideways after the pullback from a monthly high and warnings from S&P of an ‘increasingly murky outlook’ for the region’s credit market with more than EUR 40bln of European corporate bonds said to be at distressed levels.
• 10yr JGBs faded last Friday's after-hours gains, with the BoJ only in the market under its fixed-rate operations.

COMMODITIES

• Crude futures were choppy with early pressure amid China's COVID-19 woes although most of the losses were pared amid ongoing supply concerns and geopolitical risks, while JPMorgan suggested prices could surge to as high as USD 380/bbl in the worst-case scenario that Russia retaliates to a planned price cap on its oil by cutting its output by 5mln bpd.
• Algeria’s January-May oil and gas earnings rose 70% Y/Y to USD 21.5bln, according to state oil and gas producer Sonatrach cited by Reuters.
• Iran is being forced to reduce the price of its already cheap crude as Russia gains a bigger foothold in the key Chinese market, according to Bloomberg.
• Norwegian Oil and Gas Association said up to 13% of Norway’s gas exports could be hit by strikes in the week ahead which could cut oil output by 130k BOE/D and gas by 292k BOE/D, while it added there have been talks but they do not see a solution, according to Reuters.
• NHC commented that Tropical Storm Colin was disorganised and continued to produce heavy rains and strong winds along and off the North Carolina coast with maximum sustained winds of 40MPH, while little change in strength was forecast and Colin is expected to dissipate by early Monday, according to Reuters.
• JPMorgan analysts said oil prices could reach USD 190/bbl if Russia retaliates to G7’s plan to place a price cap on Russian oil by cutting output by 3mln bpd and oil could reach USD 380/bbl in the worst-case scenario that Russia cuts output by 5mln bpd.
• Spot gold mirrored the rangebound trade in the dollar ahead of this week's risk events.
• Copper was lacklustre with price action contained amid the mixed risk tone.

CRYPTO

• Bitcoin prices remained subdued after briefly dipping below the 19,000 level over the weekend.
• ECB is to warn eurozone countries regarding crypto regulation and cites urgent need to harmonise rules before an EU-wide agreement becomes law, according to FT.

NOTABLE APAC HEADLINES

• The Biden administration is said to be split on whether to remove Chinese tariffs, according to FT sources. One proposal cited by sources would be to cut or lower tariffs on some consumed products whilst adding or raising tariffs on others.
• PBoC injected CNY 3bln via 7-day reverse repos with the rate at 2.10% for a CNY 97bln net drain.
• PBoC and Hong Kong’s SFC announced a Swap Connect with the start date to be announced in due course, while it was also reported that China and Hong Kong are to expand the currency swap agreement from CNY 500bln to CNY 800bln, according to Reuters.
• PBoC survey found the profitability of Chinese enterprises improved in Q2 with the profitability index higher by 2ppts at 51.2%, although the business climate index fell to 48.7% from 53.4% the prior quarter, according to the PBoC.
• Cities in eastern China tightened COVID-19 curbs as coronavirus clusters emerged including the manufacturing hub of Wuxi which closed many public venues and suspended dine-in services, as well as asked people to work from home. Si county in the Anhui province locked down its 760,000 residents and suspended public traffic, while Macau launched further COVID-19 testing as cases increased, according to Bloomberg and Reuters.
• China will permit US citizens to enter the country via transit in a third country and US passengers entering China from the US or a third country will be issued with health codes, according to a statement by the embassy cited by Reuters.
• Scientists are keeping an eye on a new COVID-19 variant BA.2.75 which descended from the Omicron variant and has an unusual nine mutations in its spike protein, while the new variant was found in India early last month and has since been spread to other counties faster than other such variants, according to The Jerusalem Post.

DATA RECAP

• Australian Building Approvals (May) 9.9% vs. Exp. -1.8% (Prev. -2.4%, Rev. -3.9%)
• Australian Home Loans MM (May) 1.7% vs Exp. -2.5% (Prev. -6.4%)

EU/UK

NOTABLE HEADLINES

• BoE Governor Bailey said he is against the Treasury plan to overrule financial regulators and expressed disquiet about ‘call-in power’ that will be included in the financial services and markets bill set to be introduced this year, according to Sky News.
• UK Tory party rebels are plotting another vote to oust PM Johnson this month and will try to overhaul 1922 Committee rules so that another leadership challenge can be triggered immediately, according to The Telegraph.
• UK PM Johnson is under increasing pressure to explain his decision to appoint an MP linked to repeated allegations of inappropriate behaviour as a government minister, according to FT.
• ECB is to discuss blocking banks from earning billions of euros of extra profit from ultra-cheap pandemic loans once it begins to raise rates this month, according to FT.