• European bourses are firmer with sectors similarly supported while US futures are incrementally higher pre-ISM and after a constructive APAC handover
• Tesla outperforms in the pre-market after record Q2 deliveries, TSLA +6.2%
• In FX the USD recovers post-Friday’s data while CHF lags post-CPI, EUR hit on PMIs and JPY dented as yield differentials widen
• Crude benchmarks were initially contained but have seen renewed upside on the Russian and Saudi production cut extensions
• Fixed benchmarks are choppy in thinned conditions with EGBs bid on data while USTs slip as yields continue to lift, short-end most pronounced
• Looking ahead, highlights include US Manufacturing Final PMI, US ISM Manufacturing PMI.

EUROPEAN TRADE

EQUITIES

• European bourses are firmer across the board, Euro Stoxx 50 +0.4%, after a modestly supportive open given Friday's Wall St. tailwind and APAC strength on this and data.
• As such, sectors primarily reside in the green with Basic Resources gaining on APAC strength while Autos draw focus after Tesla's record Q2 deliveries, TSLA +6.2% in pre-market.
• Stateside, futures are ticking higher but yet to deviate significantly from the unchanged mark in thin pre-holiday trade though the docket features ISM PMI; ES U/C.
• Japan is said to be leaning towards softer AI rules compared to the EU, according to an official cited by Reuters; goal is to work out an AI approach by year-end with rules that align more with the US. EU Industry Chief Breton says EU has similar economic concerns to Japan and discussed a lot about AI in talks in Tokyo.
• Click here for more detail.
• Click here and here for a recap of the main European updates.

FX

• Buck recovers following post-PCE and Chicago PMI setbacks as DXY bounces from 102.860 to 103.270.
• Franc flounders as Swiss CPI misses consensus marginally, but headline slows to 1.7% y/y from 2.2% previously, USD/CHF tops 0.9000 from sub-0.8950 low.
• Euro undermined by mixed to weaker EZ PMIs, with EUR/USD losing 1.0900+ status amidst a decent spread of expiry interest.
• Yen weakens as UST/JGB differentials widen and regardless of better than forecast Japanese Tankan survey, USD/JPY above 144.50 within 144.23-88 range.
• Aussie defensive ahead of RBA as analysts are split between another 25 bp hike and pause, AUD/USD pivots 0.6650 and AUD/NZD cross retreats through 1.0850 regardless of booming building approvals.
• PBoC set USD/CNY mid-point at 7.2157 vs exp. 7.2464 (prev. 7.2258)
• Czech Central Bank Governor Michl said they are not considering cutting rates and will likely get inflation to below 10% in the next two months, while he added that inflation can be more persistent than they think and they would have to raise rates if demand was to revive, according to Pravo.
• Click here for more detail.
• Click here for the notable option expiries.

FIXED INCOME

• Bonds choppy at the start of the new month in NA holiday-thinned volumes, EGBs mostly firmer amidst mixed EZ manufacturing PMIs and weak German VDMA engineering orders as Bunds hold within 134.14-133.62 range.
• Gilts fade from 95.55 to 95.10 as upward tweak to final UK manufacturing PMIs outweighs cooler Citi/YouGov inflation expectations.
• T-note depressed between 112-06/111-29 confines after big block sale and ahead of US PMI, ISM construction spending before early pre-Independence Day close.
• Click here for more detail.

COMMODITIES

• Crude benchmarks spent the initial part of the session contained before seeing some modest two-way action with catalysts light prior to the renewed upside on the below Russian and Saudi production cut extensions.
• Currently, WTI Aug'23 and Brent Sep'23 are at the top-end of USD 69.93-71.77/bbl and USD 74.75-76.60/bbl parameters.
• Saudi Press Agency reports that Saudi will extend the voluntary cut of 1mln BPD for an additional month to include August.
• Russian Deputy PM Novak says Russia will reduce oil supply in August by 500k BPD, via cutting exports by this figure to the global market.. Subsequently,
• Russian Deputy PM Novak says they will cut production by an extra 500k BPD.*
• Iraq’s June oil exports averaged 3.3mln bpd, according to the Oil Ministry, cited by Reuters.
• Kuwait's KIPIC has put out the fire at the Al-Zour (615k BPD, at peak) without any reported injuries, via Reuters; operations back to normal; production and export operations continue.
• Indian refiners have reportedly began paying in Yuan for some Russian crude oil imports, via Reuters citing sources; in June, IOC was the first state refiner to use Yuan for such payments.
• Spot gold is slightly softer given the USD's strength with the yellow metal erring towards the lower end of USD 1910-1920/oz bounds, while base metals are somewhat mixed though with Copper underpinned on the latest data from the National Statistics Institute of Chile showing that domestic copper output contracted for a second consecutive month.
• Click here for more detail.

NOTABLE US HEADLINES

• US President Biden is to travel to the UK, Finland and the NATO summit in Lithuania from July 9th, according to the White House.
• US President Biden tweeted that his administration will deliver high-speed internet to all Americans, while he also noted that his administration beat big pharma to cap the cost of insulin for seniors on Medicare but their work isn’t done until they extend the cap for everyone.
• Unconfirmed rumours are circulating on Twitter that SEC Chairman Gensler submitted his resignation following an internal investigation, according to Twitter sources.
• Tesla (TSLA) delivered a record number of vehicles in Q2 following price cuts earlier this year with deliveries up 10.4% Q/Q and 83.5% Y/Y to over 466k units, while production reached nearly 480k units, according to FT. It was also reported that Tesla China is to offer discounts on inventory cars of Model S and Model X, according to Reuters.
• Click here for the US Early Morning Note.

EUROPEAN DATA RECAP

• Swiss CPI YY (Jun) 1.7% vs. Exp. 1.8% (Prev. 2.2%); MM (Jun) 0.1% vs. Exp. 0.2% (Prev. 0.3%)
• EU HCOB Manufacturing Final PMI (Jun) 43.4 vs. Exp. 43.6 (Prev. 43.6); German HCOB Manufacturing PMI (Jun) 40.6 vs. Exp. 41 (Prev. 41)
• On the EU Manufacturing PMI Metric, HCOB writes: "There is growing evidence that the capital-intensive industrial sector is reacting negatively to the ECB's interest rate hikes."
• UK S&P GLBL/CIPS Manufacturing PMI FNL (Jun) 46.5 vs. Exp. 46.2 (Prev. 46.2).

NOTABLE EUROPEAN HEADLINES

• Financial advisers warned that steps by banks and building societies to help UK borrowers cut their monthly mortgage payments risk storing up financial trouble in later life as they face a higher total interest bill and lower income in retirement, according to FT.
• French President Macron postponed his state visit to Germany amid unrest in France and met ministers to discuss a response to the unrest, while he asked his ministers to continue mobilising until complete calm is restored. It was also reported early on Sunday that the arrests in France overnight had increased to 719 and that the Paris suburb mayor’s home was attacked using a burning car.
• Foreign buyers are reportedly driving up demand and prices of real estate in Spain with buyers, especially from the US and northern Europe snapping up homes on Spain’s southern coast, according to Bloomberg.
• Germany's VDMA says German engineering orders in May -10% Y/Y (domestic +9%; Foreign -18%); May-May orders -12% Y/Y.
• German Finance Ministry record budget of EUR 51.8bln planned in defence for 2024 and EUR 19.2bln outflows from special funds, via Reuters citing sources.
• UK Citi/YouGov Inflation Expectations: 1-year ahead 5.0% (prev. 4.7%); 5-10yrs ahead 3.3% (prev. 3.5%).

CRYPTO

• Bitcoin is modestly firmer and continuing to hold firmly above the USD 30k mark with specifics light in recent trade after overnight attention on the unconfirmed social media rumours that SEC's Gensler is to resign.

GEOPOLITICS

• Russian President Putin is reportedly seeking control of more than 100 Wagner Group companies and Russian security services raided Wagner Group institutions, according to Al Jazeera.
• Russian Duma defence committee head said the Wagner Group's departure from Russia's operation does not threaten Russia's combat potential and there is no need for a new conscript mobilisation wave, according to TASS.
• Ukrainian President Zelensky said a serious threat remains at the Zaporizhzhia nuclear plant because Russia is technically ready to provoke a localised explosion at the facility, according to Reuters.
• Ukrainian Deputy Defence Minister Maliar said Russian troops are advancing in four frontline areas in eastern Ukraine amid fierce fighting, while she added that Ukrainian troops were making advances in one eastern area and two southern areas, according to AFP.
• Ukraine urges the US to follow the EU's four-year funding pledge, while it was also reported that the EU considers a Russian bank concession to safeguard the Black Sea grain deal, according to FT.
• CIA Director Burns said it is always a mistake to underestimate Russian President Putin’s fixation to control Ukraine and that the war in Ukraine has already been a strategic failure for Russia, while he also stated that the disaffection in Russia is a once in a generation opportunity for an intelligence agency such as the CIA which is not letting it go to waste, according to Reuters.
• Belarusian President Lukashenko signed a law allowing to ban media from ‘unfriendly countries’ in Belarus, according to RIA.
• Chinese military declaration visited the UK and France from June 4th and July 1st to discuss the development of bilateral defence relations, according to Reuters.
• China's Defence Minister met with Russian Navy Commander-in-Chief on Monday in Beijing, according to Reuters; hopes both sides will strengthen communication at all levels.
• Iran's MOF Spokesperson says, on talks to remove sanctions, that recently they have observed some signs of realism and a shift away from non-constructive attitudes. Though, this is not enough. In talks to achieve an outcome.

APAC TRADE

• APAC stocks began the new trading month on the front foot with momentum from last Friday's rally on Wall Street and as participants digested key data releases including an improved Tankan survey and better-than-expected Chinese Caixin Manufacturing PMI.
• ASX 200 was positive as gains in the commodity-related sectors offset the losses in tech stocks and with encouragement from a surge in Building Approvals, although further upside was capped ahead of tomorrow’s RBA meeting with analysts near-evenly split regarding forecasts for a hike or a pause.
• Nikkei 225 was underpinned following the BoJ’s quarterly Tankan survey which mostly topped estimates and showed Japanese large manufacturers' sentiment improved for the first time in seven quarters.
• Hang Seng and Shanghai Comp conformed to the positive mood after Chinese Caixin Manufacturing PMI topped forecasts for its second consecutive monthly expansion and the PBoC recently pledged that China will continue to provide inclusive loan support for small and micro businesses. In addition, the US confirmed that Treasury Secretary Yellen will visit China on July 6th-9th for meetings with senior Chinese officials although a Treasury official already tempered expectations and noted that no significant breakthrough was anticipated.

NOTABLE ASIA-PAC HEADLINES

• PBoC Deputy Governor Pan Gongsheng was named as the PBoC’s Party Secretary which was suggested to likely be a prelude to becoming Governor, while PBoC Governor Yi and former Party Secretary Guo stepped down from their party roles, according to WSJ and FT.
• PBoC survey found that China’s urban residents were more willing to raise consumption in Q2 compared with Q1 and residents are hoping to increase their spending mostly on education, medical care and tourism in Q3.
• China’s MOFCOM expressed dissatisfaction regarding export controls of semiconductor products imposed by the Netherlands, while it urged the Netherlands to not hinder bilateral cooperation in the semiconductor industry and to not abuse export controls, according to Reuters.
• US Treasury said Treasury Secretary Yellen will visit China on July 6th-9th for meetings with senior Chinese officials and will underscore that targeted US actions are not intended to gain economic advantage. US senior Treasury official said the US is not seeking to decouple US and Chinese economies, while the US is looking for open communication and cooperation on global challenges. Furthermore, the official is not expecting significant breakthroughs from Yellen's visit and noted they are seeking to expand communications at a sub-cabinet level, while US concerns about Chinese actions on Micron are expected to come up broadly during Yellen's meetings, according to Reuters.
• US National Counterintelligence and Security Center warned about the risk of engaging in business with China after Beijing implemented a revised counterespionage law on July 1st.
• CIA Director Burns said the answer is not to decouple from an economy like China’s which would be foolish, while he added the answer is to sensibly de-risk and diversify by securing resilient supply chains, protecting US’s technological edge and investing in industrial capacity, according to Reuters.
• More than 50,000 were affected and nearly 7,000 were evacuated after heavy rain in China’s Hunan Province, according to China.org.cn.
• China's Commerce Ministry bans the exports of Gallium and Germanium related products, from August 1st.

DATA RECAP

• Chinese Caixin Manufacturing PMI Final (Jun) 50.5 vs. Exp. 50.2 (Prev. 50.9)
• Japanese Tankan Large Manufacturing Index (Q2) 5.0 vs. Exp. 3.0 (Prev. 1.0); Outlook (Q2) 9.0 vs. Exp. 5.0 (Prev. 3.0)
• Japanese Tankan All Industry Capex (Q2) 13.4% vs. Exp. 10.1% (Prev. 3.2%)
• Australian Building Approvals (May) 20.6% vs. Exp. 2.0% (Prev. -8.1%)