• APAC stocks mostly traded with cautious gains, Nikkei 225 outperformed, and US equity futures were rangebound overnight
• DXY remained above the 108.00 level and closer to 108.50, EUR/USD weakened, and USD/JPY extended above 138.00
• 10yr USTs declined after the post-CPI fluctuations, Bunds continued to retreat, and 10yr JGBs were marginally lower
• Crude futures remained choppy, spot gold was kept rangebound, and copper traded sideways
• Looking ahead, highlights include Swedish CPIF, US IJC, Speech from Fed's Waller, Earnings from JPMorgan, Morgan Stanley & Charles Schwab
• Click here for the Week Ahead preview

US TRADE

• US stocks declined amid a global risk-off Monday as the China COVID flare-up and European gas woes were touted catalysts in an otherwise quiet, summer session. All major indices finished lower with the more speculative sectors hit the hardest, while quality and defensives relatively outperformed.
• SPX -1.15% at 3,854, NDX -2.19% at 11,860, DJIA -0.52% at 31,174, RUT -2.11% at 1,732.
• Click here for a detailed summary.

NOTABLE US HEADLINES

• Fed's Beige Book stated that economic activity expanded at a modest pace on balance, since mid-May. However, several Districts reported growing signs of a slowdown in demand and contacts in five Districts noted concerns over an increased risk of a recession.
• Fed's Mester (2022, 2024 voter) said that they don't need to make a decision on rates today but added inflation is too high and the CPI report was uniformly negative, while she has not seen any convincing evidence inflation has peaked and expects the Fed will need to go beyond the neutral rate. Mester also said they will discuss the policy path at the July meeting and that the risk of recession has increased but the Fed must lower inflation.
• Fed's Barkin (2024 voter) declined to say if he would favour a 75 bps or 100 bps increase at the July FOMC meeting and said he's more concerned about achieving positive real interest rates, while he suggested real rates need to get into positive territory in the short end to have the kind of impact wanted on inflation, according to the WSJ.
• Fed's Bostic (2024 voter) said everything is in play when asked about the possibility of a 100bps July rate hike, while he said the June inflation report suggests the inflation trajectory is not moving in a positive way.
• Fed's Daly (2024 voter) said her most likely posture is a 75bps increase for July but added that 100bps is within the range of possibilities, according to NYT.
• Fed nominee Barr secured enough votes in the Senate for confirmation as Fed Governor.
• US Deputy Treasury Secretary Adeyemo said prices remain too high in America and the administration needs to do everything it can to bring down inflation.
• US Commerce Secretary Raimondo said lawmakers appear to be coalescing around a plan to carve off USD 52bln chip funding from a larger bill, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

• Turkey's Defence Minister announced a deal with Russia, Ukraine, and the UN which targets a resumption of Ukrainian grain exports and includes the formation of a coordination centre for the export of grains, according to SCMP.

OTHER

• US President Biden said he will use force to stop Iran from getting a nuclear weapon, according to The Telegraph.
• US intelligence report warned that Iran may attempt to assassinate Donald Trump, Mike Pompeo or other former senior officials in revenge for the death of General Soleimani in 2020, according to Daily Mail.

APAC TRADE

EQUITIES

• APAC stocks mostly traded with cautious gains after the recent hotter-than-expected US inflation data which printed at a fresh 40-year high and spurred hawkish market pricing with Fed Fund Rate futures leaning towards a 100bps Fed rate hike this month.
• ASX 200 was kept afloat amid strength in the commodity-related sectors although gains were capped as blockbuster jobs data raised the odds for the RBA to deliver a more aggressive 75bps hike at its next meeting.
• Nikkei 225 outperformed its major counterparts on the back of further currency depreciation.
• Hang Seng and Shanghai Comp. were initially pressured by weakness in the property sector although the downside in the broader market was cushioned and eventually reversed after recent policy support pledges in which the PBoC said it will step up support for the real economy and deepen interest rate reforms.
• STI and PSEi were the laggards and traded in the red after both the Monetary Authority of Singapore and the Philippines Central Bank tightened their monetary policies in unscheduled announcements.
• US equity futures were rangebound overnight and took a breather from the post-CPI volatility.
• European equity futures are indicative of a higher open with Eurostoxx 50 +0.3% after the cash market closed with losses of 1.0% yesterday.

FX

• DXY was rangebound and remained above the 108.00 level in the aftermath of the hotter-than-expected US CPI data which spurred market pricing of a 78% chance for a 100bps hike by the Fed this month.
• EUR/USD weakened amid political uncertainty with Italian PM Draghi’s government on the brink of collapsing.
• GBP/USD was subdued after yesterday's volatility and failure to benefit from strong monthly GDP and output data.
• USD/JPY extended above 138.00 which prompted familiar jawboning from the government.
• Antipodeans were mixed with AUD/USD lifted by strong jobs data which saw OIS price in a 44% chance for a 75bps hike by the RBA next month, while Goldman Sachs also revised its call to 75bps from 50bps for August.
• SGD and PHP benefitted from the off-schedule policy tightening by their respective central banks.

FIXED INCOME

• 10yr USTs declined after the post-CPI fluctuations and pronounced curve flattening as markets priced in a more aggressive Fed, which resulted in a deeper inversion for the 2s/10s yield curve.
• Bunds continued to retreat after pulling back from resistance at 153.00.
• 10yr JGBs were marginally lower amid gains in Tokyo stocks and with downside cushioned following a stronger 20yr auction.

COMMODITIES

• Crude futures remained choppy after the US CPI data and a lack of fresh overnight catalysts, although oil prices have eked marginal gains and Brent crude just about reclaimed the USD 100/bb level.
• White House Economic Adviser Rouse said President Biden is focused on getting more oil into the market and his Saudi visit will help get more oil into the market.
• Spot gold was kept rangebound as the greenback held on to recent gains.
• Copper traded sideways alongside the broad humdrum mood across commodities.

CRYPTO

• Bitcoin was choppy overnight and stuck to a relatively tight range above the 20,000 level.

NOTABLE APAC HEADLINES

• US SEC Chair Gensler said there was no confidence regarding a US and China deal on auditor access, according to Bloomberg.
• Tokyo is expected to raise the COVID warning to its highest level, according to FNN.
• Monetary Authority of Singapore announced to re-centre the mid-point of the SGD NEER policy band up to the prevailing level in an unscheduled meeting, while there was no change to the slope and width of the band. MAS said the move is to help slow the momentum of inflation and that inflation pressures are to remain elevated in months ahead, while it is appropriate to further tighten monetary policy further.
• Philippines Central Bank raised its key rates by 75bps to 3.25% in an unscheduled policy decision. Philippines Central Bank Governor said they recognised that a significant further tightening of monetary policy was warranted by sustained broadening price pressures, while they are ready to take further action and said the economy can accommodate further tightening.

DATA RECAP

• Australian Employment (Jun) 88.4k vs. Exp. 30.0k (Prev. 60.6k)
• Australian Unemployment Rate (Jun) 3.5% vs. Exp. 3.8% (Prev. 3.9%)
• Australian Participation Rate (Jun) 66.8% vs. Exp. 66.7% (Prev. 66.7%)
• Singapore GDP Q/Q (Q2) 0.0% vs Exp. 1.0% (Prev. 1.4%)
• Singapore GDP YY (Q2) 4.8% vs Exp. 5.4% (Prev. 3.7%)

EU/UK

NOTABLE HEADLINES

• The first round of the Conservative leadership ballot saw Sunak, Mordaunt, Truss, Tugendhat, Badenoch, and Braverman make it to the next round, while Hunt and Zahawi were eliminated.
• Italy's 5-Star leader Conte said the party will not participate in the confidence vote on Thursday, according to Reuters.
• EU draft report cut 2022 EU GDP forecast to 2.6% from 2.8% and for 2023 to 1.4% from 2.3%.

DATA RECAP

• UK RICS Housing Survey* (Jun) 65 vs. Exp. 70 (Prev. 73, Rev. 72)