• US equities finished higher on Friday in which stocks rallied to end the week which contributed to the S&P 500's best month since November of 2020
• APAC stocks traded somewhat mixed as momentum from last week’s earnings-inspired euphoria on Wall St was partially offset by disappointing Chinese PMI data
• DXY continued to soften despite the recent suggestions by Fed’s Kashkari that markets have gotten ahead of themselves regarding views for a cut to interest rates next year
• Former UK Chancellor Sunak vowed to lower the basic rate of income tax by 20% by 2029 if he becomes the next UK PM
• Looking ahead, highlights include German Retail Sales, EZ, UK & US Final Manufacturing PMIs, US ISM Manufacturing PMI, earnings from AXA, and Heineken
• Click here for the Week Ahead preview

US TRADE

• US equities finished higher on Friday in which stocks rallied to end the week which contributed to the S&P 500's best month since November of 2020, thanks to solid earnings reports from Apple (AAPL) and Amazon (AMZN).
• SPX +1.44% at 4,131, NDX +1.81% at 12,947, DJIA +0.97% at 32,846, RUT +0.40% at 1,880.
• Click here for a detailed summary.

NOTABLE US HEADLINES

• Fed’s Kashkari (2023 Voter) said on Friday that he was surprised by markets’ interpretation that the Fed would soon begin to back off and said that 50bps rate hikes at upcoming meetings seem reasonable, while he added that continued higher core inflation could push him to think a 75bps move would be needed and said he doesn’t know what the bond market is looking at reaching the conclusion that Fed may even begin to cut rates next year, according to The New York Times. Kaskari also stated that the US economy is a long way from 2% inflation and that they keep getting surprised on inflation prints, while he also noted that whether or not the US is technically in a recession doesn’t change his analysis, according to CBS.
• White House physician said US President Biden tested positive again for COVID during the weekend after testing negative a few days beforehand but added that President Biden is experiencing no symptoms and feels well, while it is believed that the positive test is a ‘rebound positivity’ which is experienced by some COVID patients, according to The Hill and Reuters. White House also stated that President Biden will isolate until he tests negative and has cancelled trips to Delaware and Michigan.
• US Senator Manchin defended Democrat plans for a 15% minimum corporate tax rate and limit ‘carried interest’ as part of an energy, climate and social spending bill valued at USD 369bln, according to FT.
• At least 26 people were killed amid floods in eastern Kentucky and the death toll is expected to continue increasing, according to the state governor cited by Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

• Ukrainian President Zelensky announced the government decided to conduct a mandatory evacuation of areas in Donetsk that Russia does not control and said that hundreds of thousands of civilians in the combat zone need to leave, according to reports in Reuters and Evening Standard.
• Ukrainian President Zelensky said Ukraine’s harvest could be half the usual amount this year due to the Russian invasion, according to Reuters. It was separately reported that the first Ukrainian grain ship is scheduled to depart this Monday, according to CNN.
• Turkish Defence Ministry said the first grain-carrying ship is to leave Ukraine's Odesa port at 06:30BST on Monday which will be the Sierra Leone flagged Razoni carrying corn which will head to Lebanon while other ships will follow.
• UK military intelligence said it is likely that Ukraine successfully repelled small-scale Russian assaults from the long-established front line near Donetsk and said that Russia is highly likely to prepare for referendums on joining Russia in newly occupied territories in southern Ukraine, while it was separately reported that MI6 chief Moore said Russia is running out of steam in Ukraine, according to Reuters.
• Russia invited UN and Red Cross experts to probe the deaths of dozens of Ukrainian prisoners in a jail controlled by Moscow-backed separatists, while the International Committee of the Red Cross condemned the attack on the Olenivka penal facility and said parties must do everything to determine the facts behind the attack but added it is not its role to carry out public investigations into war crimes and that it has not received official confirmation granting access to the site or POWs affected by the attack, according to Reuters.
• Russian President Putin said the Russian navy will receive new hypersonic Zircon cruise missiles in the next few months and that the area of their deployment would be dependent on Russian interests, according to Reuters.

OTHER

• Iran said it responded to the EU proposal aimed at salvaging the nuclear deal and is seeking a swift conclusion to negotiations, according to Reuters citing a tweet from Iran’s top nuclear negotiator.
• US is mulling sanctions that could target a UAE-based businessman and a network of companies suspected of aiding exports of Iranian oil, according to WSJ.

GLOBAL

• Part of the damaged Beirut port silos collapsed following a weeks-long fire, according to Al Jazeera.

APAC TRADE

EQUITIES

• APAC stocks were choppy as momentum from last week’s earnings-inspired euphoria on Wall St was partially offset by disappointing Chinese PMI data and cautiousness ahead of upcoming risk events including central bank rate decisions, NFP jobs data and US House Speaker Pelosi’s trip to Asia.
• ASX 200 was kept afloat by strength in energy and utilities after the competition regulator’s interim gas report forecast Australia’s east coast could face a shortfall of 56PJ in 2023, while the latest domestic manufacturing PMI data remained in expansion territory.
• Nikkei 225 was also positive with the biggest movers driven by recent earnings releases and reports also noted that Japan’s panel is expected to seek a record increase of at least JPY 30 to minimum wages.
• Hang Seng and Shanghai Comp were initially pressured after Chinese PMI data missed expectations in which the official manufacturing reading printed at a surprise contraction, with sentiment also not helped by US-China tensions as the world second-guesses whether or not US House Speaker Pelosi will defy China’s warnings regarding visiting Taiwan during her Asia trip. However, the mood in Chinese stocks gradually improved and retraced the majority of losses.
• US equity futures marginally pulled back after last week's gains and the S&P 500's best monthly performance since November 2020.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 future -0.4% after the cash market closed higher by 1.5% on Friday.

FX

• DXY continued to soften despite the recent suggestions by Fed’s Kashkari that markets have gotten ahead of themselves regarding views for a cut to interest rates next year.
• EUR/USD marginally benefitted from the subdued greenback and edged slight gains at the 1.0200 handle.
• GBP/USD approached just shy of the 1.2200 level but with upside limited by light pertinent newsflow and with UK business groups warning of an ‘iceberg’ from higher business rates that could sink British businesses unless the government intervenes.
• USD/JPY resumed last week's retreat and briefly tested 132.00 to the downside where support held
• Antipodeans were rangebound owing to the cautious mood and with participants awaiting tomorrow’s RBA policy meeting.

FIXED INCOME

• 10yr UST futures were uneventful but with downside stemmed by a floor at the 121.00 level, while recent hawkish comments Fed’s Kashkari that officials were ‘a long way’ from backing off inflation fight did little to shift the dial.
• Bund futures were subdued after Friday’s choppy price action and continued to ease away from its recent peak near 158.00.
• 10yr JGBs lacked demand amid gains in Japanese stocks and after the BoJ maintained its bond purchase tensions for this month.

COMMODITIES

• Crude prices were slightly pressured following the disappointing Chinese Manufacturing PMI data and with reports also noting that the West have eased back on efforts to curb trade in Russian oil amid fears of rising crude prices and tighter global energy supplies.
• OPEC Secretary General Al-Ghais said OPEC is not in competition with Russia and that Russia is a big main player in the world energy map with its membership in OPEC+ vital for the success of the agreement. Al-Ghais added OPEC doesn’t control oil prices but practices tuning markets in terms of supply and demand, while he added that the recent rise in prices is not just related to the Ukraine crisis but is also due to lack of spare production capacity. Furthermore, he said the current state of the global oil market is very volatile and that the most important factor to affect oil prices by year-end is the lack of investments in the sector, according to an interview with Al Rai newspaper cited by Reuters.
• Libya’s Unity government oil minister said oil production is at 1.2mln bpd, according to Reuters.
• Gazprom said gas flows to Europe via Ukraine were seen at 42.2mln cubic metres on Sunday vs 42.1 MCM on Saturday, while Ukraine’s state gas transit operator said that Gazprom has booked transit capacity of 41.7 MCM for Monday, according to Reuters.
• Gazprom said it is halting gas supplies to Latvia and accused it of violating conditions, while Latvia said that it doesn’t expect Gazprom’s decision to have any major impact, according to Reuters.
• European governments have eased back on efforts to curb trade in Russian oil in which they are delaying a plan to shut Moscow out of the vital Lloyd’s of London maritime insurance market and will permit some international shipments amid fears of rising crude prices and tighter global energy supplies, according to FT.
• Spot gold traded sideways with price action contained within a tight range despite the softer greenback.
• Copper was choppy amid the cautious mood in the region and weak Chinese data.

CRYPTO

• Bitcoin prices were rangebound around the 23,300 level and Ethereum also eked mild gains but failed to hold above 1,700.

NOTABLE APAC HEADLINES

• US House Speaker Pelosi’s official itinerary for her trip to Asia was released which did not mention Taiwan, while Radio France Internationale’s Chinese website quoted sources that stated Pelosi will fly to Taiwan via Clark Air Base in the Philippines on August 4th, according to Dimsum Daily HK.
• China held live-fire drills off the coast opposite Taiwan and its air force said it will resolutely safeguard national sovereignty and territorial integrity regarding Taiwan, according to Associated Press and Chinese state media.
• A senior official in Beijing said the atmosphere of last week’s Biden-Xi telephone conversation was the worst among the five talks between the leaders and President Xi was said to have showed the toughest attitude he has ever shown to any world leader, while the most important topic in the conversation was China-US relations especially the 'Taiwan Question'. Furthermore, the official believes the probability of US House Speaker Pelosi's visit to Taiwan is low, as President Xi’s tough position on Taiwan will push President Biden to put more pressure on Pelosi to bypass Taiwan on this trip and the official warned that an accidental military conflict around the island of Taiwan cannot be ruled out if Pelosi insists on visiting Taiwan, according to SGH Macro Advisors.
• Macau is to permit dine-in services and will reopen gyms, bars and beauty parlours beginning this Tuesday, according to Bloomberg.
• US, South Korea and Japan will begin joint ballistic missile defence exercises in waters off Hawaii this week, according to Yonhap.
• BoK said it sees small incremental rate increases as appropriate going forward as long as inflation and growth trends do not deviate much from expected paths, according to Yonhap. Furthermore, BoK Governor Rhee said inflation will most likely exceed 6% for a few months and it is desirable to raise rates by 25bps instead of 50bps

DATA RECAP

• Chinese NBS Manufacturing PMI (Jul) 49.0 vs. Exp. 50.4 (Prev. 50.2)
• Chinese NBS Non-Manufacturing PMI (Jul) 53.8 vs Exp. 54.0 (Prev. 54.7)
• Chinese NBS Composite PMI (Jul) 52.5 (Prev. 54.1)
• Chinese Caixin Manufacturing PMI Final (Jul) 50.4 vs. Exp. 51.5 (Prev. 51.7)

EU/UK

NOTABLE HEADLINES

• UK business groups warned of an ‘iceberg’ of business rates next spring with business rates set to increase by up to GBP 3bln amid soaring inflation and have urged the government to intervene to avoid sinking British businesses, according to FT.
• Former UK Chancellor Sunak vowed to lower the basic rate of income tax by 20% by 2029 if he becomes the next UK PM, according to Reuters. It was separately reported that current Chancellor Zahawi formally endorsed Liz Truss to be the next Tory party leader, according to The Telegraph.