• APAC stocks were mostly positive following the tailwinds from the US while participants also reflected on China's support efforts.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.3% after the cash market closed up by 0.5% yesterday.
• DXY has extended further beneath 102, EUR/USD is back above 1.10, JPY leads the majors with USD/JPY below 141.
• Crude futures were marginally firmer owing to the risk tone, USTs slightly extended on gains ahead of US CPI data.
• Looking ahead, highlights include UK Jobs report & German ZEW Survey, Fed Discount Rate Minutes, NATO Summit & EIA STEO, Speech from Fed's Bullard, Supply from Netherlands, Germany & US.

US TRADE

EQUITIES

• US stocks finished in the green with the indices led by continued outperformance in the small-cap Russell 2k and amid some promising inflationary signs ahead of Wednesday's CPI data after the Manheim used car priced index tumbled further in June which could be crucial for bringing down core CPI in the months ahead. Furthermore, there was plenty of fanfare around the fall in the New York Fed's 1-year ahead consumer inflation expectations to the lowest since April 2021 and surprisingly little focus on the rise to series peaks for the 5-year ahead inflation expectations.
• SPX +0.24% at 4,410, NDX +0.06% at 15,046, DJI +0.62% at 33,944, RUT +1.64% at 1,895
• Click here for a detailed summary.

NOTABLE HEADLINES

• Fed's Williams (voter) said he doesn't have a recession in his forecasts and thinks they have pretty slow growth, while he has lowered his growth forecasts for next year, according to FT.
• Fed's Bostic (non-voter) reiterated he does not see rates needing to rise any further and said this is a hard judgement call, while he added the path forward is no longer obvious and inflation reduction will take longer than expected.
• Fed's Mester (non-voter) said they will need to tighten somewhat further to lower inflation and Fed policy is less restrictive compared to history, while she added that raising rates again will reduce the risk of more action in the future. Furthermore, she hasn't decided yet on a July rate hike with more data needed and said her outlook for the terminal rate matches or is just above the June Fed median forecast.

APAC TRADE

EQUITIES

• APAC stocks were mostly positive following the tailwinds from the US where cyclicals benefitted from encouraging inflation proxies ahead of this week's US CPI data, while participants also reflected on China's support efforts.
• ASX 200 traded higher with the index led by the tech and mining-related industries, while risk sentiment was also facilitated by an improvement in Westpac consumer confidence and NAB business surveys.
• Nikkei 225 was the laggard and gave back most of its early gains with the upside capped by a firmer currency.
• Hang Seng and Shanghai Comp conformed to the upbeat mood as developers benefitted after China extended two financial policies to support the stable and healthy development of the real estate market to the end of 2024.
• US equity futures were uneventful and flatlined overnight despite the optimistic tone in Asia.
• European equity futures are indicative of a higher open with the Euro Stoxx 50 +0.3% after the cash market closed up by 0.5% yesterday.

FX

• DXY was marginally weaker overnight and extended further beneath the 102.00 level after the recent decline in yields and softer inflation proxies from the US heading into Wednesday's inflation data.
• EUR/USD benefitted from the softer dollar which helped the single currency reclaim the 1.1000 status.
• GBP/USD edged higher and printed its best level in more than a year after BoE Governor Bailey and Chancellor Hunt pledged to see the job through and do what is necessary to return inflation to the target.
• USD/JPY trickled lower to beneath the 141.00 level owing to the recent narrowing of yield differentials.
• Antipodeans were kept afloat by the mostly positive risk tone and another firmer-than-expected PBoC fix.
• PBoC set USD/CNY mid-point at 7.1886 vs exp. 7.2177 (prev. 7.1926)

FIXED INCOME

• 10yr UST futures slightly extend on the prior day’s gains after benefiting from encouraging inflationary signals.
• Bund futures gained but with upside limited after their recent choppy performance and unsurprising comments from ECB's Nagel that euro-area inflation remains too high.
• 10yr JGB futures were kept afloat after gains in global peers and after mixed results at the 5yr JGB auction which showed firmer demand but lower accepted prices.

COMMODITIES

• Crude futures were marginally firmer owing to the risk tone and weaker dollar, while it was also reported that Indonesia's coast guard seized an Iranian-flagged tanker suspected of illegal oil transhipment.
• IEA's Birol reiterated a warning of oil market tightness in the second half of the year with oil demand from China and developing countries set to be strong.
• Indonesia seized an Iranian-flagged tanker due to alleged illegal transhipment of oil, according to Reuters.
• Russian and Gulf top diplomats agreed to work on the development of energy resources supply chains. according to TASS.
• Gold traded rangebound despite the softer dollar as participants await today's US inflation data.
• Copper benefitted from the constructive mood across Asia following China's latest support measures.

CRYPTO

• Bitcoin eked mild gains overnight with price action choppy around the USD 30,500 level.

NOTABLE ASIA-PAC HEADLINES

• US Treasury Secretary Yellen agreed with Chinese officials to maintain open communication and deepen talks on areas of concern. It was also noted that China's technological innovations may be transferable around the world to reduce the cost of fighting climate change, while Yellen sees a desire on the part of both the US and China to stabilise the relationship.
• Australian PM Albanese is reportedly considering delaying a trip to Beijing until next year as the government prepares the appointment of a new ambassador to China, while turning down an invitation would be seen by China as a snub, according to Sydney Morning Herald.

DATA RECAP

• Australian NAB Business Confidence (Jun) 0.0 (Prev. -4.0)
• Australian NAB Business Conditions (Jun) 9.0 (Prev. 8.0)
• Australian Westpac Consumer Confidence Index (Jul) 81.3 (Prev. 79.2)
• Australian Westpac Consumer Sentiment MM (Jul) 2.7% (Prev. 0.2%)

GEOPOLITICS

• US President Biden is to meet with Ukrainian President Zelensky during the NATO summit on Wednesday, while Japanese PM Kishida also plans to meet with Zelensky at the NATO summit, according to CNN and Nikkei.
• NATO agreed on regional plans detailing how the alliance would respond to a Russian attack, while the revival of the plans signifies a major shift as it is the first time NATO has drawn up such plans since the end of the Cold War, according to Reuters citing sources.
• Turkey agreed to advance Sweden's NATO bid and that Turkey received the assurances it needed, while NATO Secretary Gen Stoltenberg also confirmed Turkish President Erdogan has agreed to send Sweden's NATO bid to the Turkish parliament and noted it is a clear commitment which President Erdogan said will happen ASAP.
• Office of the Director of National Intelligence said Iran is no longer taking steps towards a testable nuclear device at this time.
• North Korean leader Kim's sister said the US spy plane entered its economic water zone eight times on July 10th and warned US forces will face critical flight in case of repeated illegal intrusion, according to KCNA.

EU/UK

NOTABLE HEADLINES

• UK PM Sunak considers delaying cabinet reshuffle until September, according to The Telegraph.
• UK Chancellor Hunt said lowering inflation puts more money in people's pockets than any tax cut, while Hunt added that he and the BoE governor will do what is necessary, for as long as necessary, to return CPI to 2%. Hunt also stated that borrowing to fund public sector pay rises is inflationary and that widening corporate profit margins benefits no one if it feeds inflation.
• Barclays said UK consumer spending in June rose 5.4% Y/Y which was boosted by warm weather and noted that food price inflation pushed the annual increase in grocery spending in June to the highest since February 2021, according to Reuters.
• ECB's Nagel said euro-area inflation remains too high and GDP may slow but he is convinced a hard landing can be avoided.

DATA RECAP

• UK BRC Retail Sales YY (Jun) 4.2% (Prev. 3.7%)
• UK BRC Total Sales YY (Jun) 4.9% (Prev. 3.9%)