• APAC stocks were mostly kept afloat following US House Speaker Pelosi’s safe arrival in Taiwan but upside was capped by China's response.
• 21 PLA jets entered Taiwan's ADIZ, while Chinese battery giant CATL is reportedly pausing its North American battery plant announcement.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 future -0.2% after the cash market closed down 0.6% yesterday.
• DXY is softer but remains on a 106 handle, JPY is the marginal G10 outperformer, EUR/USD is back below 1.02.
• Looking ahead, highlights include EZ, UK & US Composite/Services PMI, German Trade Balance, Swiss CPI, EZ Retail Sales, US Factory Orders & ISM Services PMI, OPEC+, Speeches from Fed's Barkin, Harker & Kashkari, Supply from Germany.

US TRADE

• US equity markets ultimately finished lower amid hawkish Fed rhetoric and heightened US-China tensions due to House Speaker Pelosi's trip to Taiwan which briefly saw an unwinding of some of the selling pressure following her safe arrival. Nonetheless, China reacted by implementing military drills around Taiwan and 21 PLA jets entered Taiwan's ADIZ, while Chinese battery giant CATL is reportedly pausing its North American battery plant announcement due to the Taiwan trip.
• SPX -0.67% at 4,091, NDX -0.30% at 12,901, DJIA -1.23% at 32,396, RUT +0.18% at 1,886.
• Click here for a detailed summary.

NOTABLE US HEADLINES

• Fed's Bullard (2022 voter) said the Fed is committed to the inflation target and needs to get into more restrictive territory on rates, while he also noted that if inflation 'hangs up' higher, then they will have to be higher for longer but doesn't think a US recession will happen and believes growth in H2 will be better than H1, according to Reuters.
• Fed's Mester (2022 voter) said she hasn't seen anything that suggests inflation is even levelling off yet and that inflation is not going to come down quickly. Mester also said she does not believe they are in a recession and said they don't have a slowdown in labour markets, while there is more work to do as they have not seen a turn in inflation, according to a Washington Post interview.
• Fed's Evans (non-voter/departing) said a 50bps rate hike is a reasonable assessment for the September meeting and that 75bps is a possibility too if inflation does not improve, but he is still hopeful for 50bps in September and 25bps from there until Q2 2023.
• US President Biden signed the bill to boost China competition and US chip production, according to CNBC.
• White House Competition Adviser Wu is expected to leave the White House to return to academia in the coming months.
• US Moderate Democrat Senator Manchin said he had a good talk with Senator Sinema on the climate and drug bill, while he responded "absolutely" when asked about a path on the mountain valley pipeline approval, according to Reuters.
• National Retail Federation said the economy is strong enough to keep a recession at bay despite two consecutive quarters of economic contraction and it expects 2022 retail sales will grow between 6-8% Y/Y, according to Reuters.

GEOPOLITICS

RUSSIA-UKRAINE

• US State Department said the US designated 24 Russian defence and technology-related entities, while the US is imposing visa restrictions on 893 Russian officials and 31 foreign government officials.
• First grain-carrying ship to leave Ukraine ports under the new UN deal was sighted off the Turkish coast ahead of Wednesday's inspection, according to Reuters.

OTHER

• IAEA's Grossi said Iran's nuclear programme is moving ahead very, very quickly and is growing in ambition and capacity, according to Reuters.
• Yemen's warring parties extended their truce for two months, while US President Biden later commented that the Yemen truce is an important step but not enough in the long-run, according to Reuters.

APAC TRADE

EQUITIES

• APAC stocks were mostly kept afloat with markets somewhat relieved following US House Speaker Pelosi’s safe arrival in Taiwan but with upside capped given China’s response including the announcement of military drills and bans on trading certain items with Taiwan.
• ASX 200 was dragged lower by weakness in consumer-related sectors despite better-than-expected Retail Sales.
• Nikkei 225 gained amid earnings updates and with exporters underpinned after yesterday’s resumption of the currency depreciation.
• Hang Seng and Shanghai Comp rebounded from recent losses but with the recovery contained by the geopolitical concerns and mixed Chinese Caixin Services and Composite PMI data in which both remained in expansion territory albeit with a slowdown in the latter.
• US equity futures lacked firm direction following the prior day's whipsawing and hawkish Fed speak; ES +0.2%.
• European equity futures are indicative of a softer open with the Euro Stoxx 50 future -0.2% after the cash market closed down 0.6% yesterday.

FX

• DXY faded some of the prior day’s advances which had been spurred by haven demand and upside in yields amid a bout of hawkish Fed rhetoric.
• EUR/USD found some slight reprieve from the prior day’s weakness but remained at a sub-1.0200 level.
• GBP/USD bounced off this week’s lows albeit with upside limited after the recent slide across activity currencies.
• USD/JPY took a breather after the prior day’s rally with price action largely influenced by yield differentials.
• Antipodeans eked mild gains with price action contained after disappointing New Zealand jobs data.

FIXED INCOME

• 10yr UST futures retraced some of yesterday’s hefty bond selling which was triggered by hawkish Fed commentary and with prices not helped by corporate supply including a five-part Intel deal.
• Bund futures struggled to nurse losses and remained beneath the 158.00 level.
• 10yr JGBs suffered from spillover selling from global peers, while the BoJ’s presence in the market for nearly JPY 1.2tln of JGBs on top of its regular fixed-rate operation did little to spur prices.

COMMODITIES

• Crude prices were choppy with participants tentative ahead of today's OPEC+ meeting and following mostly bearish private sector inventory data.
• US Private Inventory Data (bbls): Crude +2.2mln (exp. -0.6mln), Cushing +0.7, Distillates -0.2mn (exp. +1.0mln) and Gasoline -0.4mln (exp. -1.6mln).
• OPEC+ are considering either a modest increase in oil production or maintaining output at current levels when they meet on Wednesday and the alliance is seeking more time to assess a possible slowdown in global energy demand, according to WSJ citing delegates.
• Spot gold edged mild gains as the dollar and yields cooled overnight.
• Copper was subdued amid ongoing growth concerns and geopolitical headwinds.
• Chile's Codelco copper production (June) -14.3% Y/Y to 129.9k tonnes, while Escondida mine copper production +23.6% to 102.5k tonnes and Collahuasi mine copper production -6.9% to 50.2k tonnes, according to Reuters.

CRYPTO

• Bitcoin prices were mildly pressured after a failed attempt to reclaim the 23,000 level.

NOTABLE APAC HEADLINES

• US House Speaker Pelosi said there is bilateral support for Taiwan in the US and that her visit is a reminder of the bedrock promise America to always stand with Taiwan, while she added that the delegation came to Taiwan to make it unequivocally clear that they will not abandon Taiwan. Pelosi also said they explored deepening trade ties with Taiwan and a trade agreement may be imminent, according to Bloomberg and Reuters.
• Taiwan President Tsai told Pelosi she is one of Taiwan's most devoted friends and the visit shows firm US support for Taiwan, while she thanked Pelosi for her unwavering support of Taiwan on the international stage. President Tsai also said Taiwan will not back down in facing deliberately heightened military threats and Taiwan will do whatever it takes to strengthen its self-defence.
• White House National Security Council Coordinator for Strategic Communications Kirby said the US is monitoring Pelosi's travel and has taken measures to ensure her safety, while he added that China has positioned itself to take further steps and the White House expects China to react beyond Pelosi's trip including by scheduling live fire exercises, while other steps by China could include economic coercion, according to Reuters.
• Taiwan said 21 PLA aircraft entered the southwest ADIZ on Tuesday, while Taiwan's Defence Ministry said China attempts to threaten key ports and cities with drills around Taiwan but added that the military has the determination, ability and confidence to safeguard security.
• Taiwan Defence Ministry said Chinese drills have invaded Taiwan's territorial space and they will counter any move that violates Taiwan's territorial sovereignty, while it added that Chinese drills violate UN rules and amount to a blockade of Taiwan's air and sea space, according to Reuters.
• China's Taiwan Affairs Office said it will take disciplinary actions against two Taiwan foundations which will be banned from financially cooperating with mainland firms and individuals. China also announced a stoppage of certain fruit and fish imports from Taiwan and halted exports of natural sands to Taiwan which is a key component used in chip-making, according to Bloomberg. Furthermore, China will adopt criminal penalties regarding Taiwan separatists and vowed criminal punishments for Taiwan-independence diehards, according to Xinhua.
• China's Foreign Ministry summoned the US ambassador and said that China firmly opposes and strongly condemns Pelosi's visit to Taiwan, while it urged the US to immediately correct its mistakes and take practical measures to eliminate the bad influence of Pelosi's visit to Taiwan, according to state TV.
• China's Vice Foreign Minister Xie lodged representations regarding Pelosi's Taiwan visit, according to Xinhua.
• Chinese city of Yiwu imposed COVID restrictions and locked down some areas, according to Reuters.

DATA RECAP

• Chinese Caixin Services PMI (Jul) 55.5 (Prev. 54.5)
• China Caixin Composite PMI (Jul) 54.0 (Prev. 55.3)
• Australian Retail Trade (Q2) 1.4% vs. Exp. 1.2% (Prev. 1.2%, Rev. 1.0%)
• New Zealand HLFS Job Growth QQ* (Q2) 0.0% vs. Exp. 0.4% (Prev. 0.1%)
• New Zealand HLFS Unemployment Rate* (Q2) 3.3% vs. Exp. 3.1% (Prev. 3.2%)

EU/UK

NOTABLE HEADLINES

• UK Conservative leadership candidate Truss has 60% support among party members while Sunak has 26% support among party members/councillors, according to a YouGov/Times poll.
• UK Tory party leadership ballots have reportedly been delayed due to risk of cyber fraud, according to The Telegraph.