• Equities drifted at the European cash open but catalysts were slim and performance has been rangebound; most recently, US futures have returned to near unchanged levels
• Crude is pressured given source reports that Russia is considering proposing an increase in OPEC+ oil production at the July 1st meeting; with subsequent reports adding to this
• FX has been relatively contained with the DXY firmer to the detriment of peers while core debt picks up but is in recent ranges
• Fed Chair Powell's prepared testimony to Congress reiterated recent remarks
• Looking ahead, highlights include EZ Consumer Confidence (Flash) & US Existing Home Sales, Fed's Powell, Daly, Mester, ECB's Lane & Schnabel, and supply from the US

CORONAVIRUS UPDATE

UK ministers are to relax travel restrictions from August for those who have been fully vaccinated. (Times) Ministers are set to unveil an overhaul of travel restrictions on Thursday

ASIA

Asia-Pac equities staged a rebound from the prior day's sell-off as the region reacted to the rally seen on Wall Street, whereby the DJIA outperformed whilst the Nasdaq’s upside was hindered by the recovery in yields. Overnight, US equity futures traded flat and near the prior session’s best levels ahead of Fed Chair Powell’s testimony – but before that, 2022-voter Mester is poised to make remarks on monetary policy ahead of commentary from 2021-voter Daly. Over in APAC markets, the ASX 200 (+1.5%) was supported by its Telecoms and Financials sectors whilst the Nikkei 225 (+3.1%) trimmed some of the prior session’s hefty losses as reports of BoJ ETF purchases providing Tokyo with some tailwinds. The KOSPI (+0.7%) saw cautious gains as Yonhap reported that South Korea and the US are mulling ending the working group on North Korean policy, whilst North Korea tempered down expectations of dialogue with the US. Hang Seng (-0.6%) and Shanghai Comp (+0.8%) varied with the former pressured after the US reiterated its concern over Hong Kong’s autonomy, whilst the latter remained within recent ranges. As a side note, crypto markets also saw a rebound following yesterday's bloodbath, albeit Bitcoin and Ethereum remained under 35k and 2k respectively. Finally, JGBs trade narrowly softer in tandem with UST and Bund futures waning off best levels.

Chinese ambassador to the US Cui Tiankai will leave his post and return to China after eight years of service, the ambassador said in a statement. (Twitter)

Reports suggested that China's purchases of US goods fell to the lowest since October 2020. (Newswires)

• PBoC sets USD/CNY mid-point at 6.4613 vs exp. 6.4654 (prev. 6.4546)
• PBoC injects CNY 10bln via 7-day reverse repos for a net neutral daily position; rate unchanged at 2.20%

US

Fed Chair Powell's prepared testimony stated that the US economy has showed sustained improvement from Sept 2020, real GDP is on track to post the fastest growth in decades and the Fed will do everything it can to support the economy for as long as needed. Job gains should pick up in coming months as vaccinations rise, easing some of the pandemic-related factors currently weighing them down. Inflation has increased notably in recent months. The pandemic continues to pose risks to the economic outlook. The sectors most adversely affected by the pandemic remain weak, but have shown improvement. (Fed)

Democratic Senator Maloney has cautioned the Fed against lifting interest rates too soon, suggesting that such a move could could send the US back into a recession. (FT)

US President Biden told Democratic Senators Manchin and Sinema that he was encouraged by the infrastructure deal that has taken shape, but he still has questions regarding policy and financing, via The White House. (Newswires) US Senate negotiators for the bipartisan infrastructure bill are trying to create momentum for a "too-big-to-fail" package by adding an equal number of Democratic and Republican co-sponsors. (Axios)

US Financial Regulators reported that the US financial system is in a strong condition; risks are being mitigated by banks capital, liquidity levels, and healthy household balance sheets. (Newswires)

G20 Finance Ministers draft communique, for July 9th/10th, endorses an expected deal on a minimum global corporate tax rate, no mention of a minimum level for this. (Newswires)

UK/EU

The UK has commenced negotiations to join Asia-Pacific free trade pact. Membership would reduce tariffs on exports such as cars and whisky. (BBC)

UK Chancellor Sunak has been warned by senior government ministers against a pension tax raid who have warned that such a shake-up would fail to make its way through Parliament. (Telegraph)

ECB sources are still some way apart from a new inflation strategy, yet to agree on how specific the strategy should be around an inflation overshoot; hope for a deal on PEPP prior to the September gathering. General consensus that the ECB could tolerate inflation above 2.0%, the new goal, as it has been stuck sub this for much of the prior decade. However, yet to agree on how to phrase the message and how specific they should be on the extent to which an overshoot would be permitted and for how long. (Newswires)

German Elections Insa poll: Merkel's Conservatives 28.5% (+0.5), Greens 19% (-1), SPD 15.5% (-0.5), FDP 14% (+1), AfD 10.5% (-0.5), Linke 7% (+1). (Newswires)

GEOPOLITICAL

Russia has sent a series of proposals to the US on how to stabilise relations, according to an ambassador. (Sputnik)

South Korea and the US agreed to consider ending the 'working group' on North Korea policy. (Yonhap) The sister of North Korean leader Kim Jong Un has dismissed prospects for early resumption of diplomacy with the US, saying Washington's expectations for talks would “plunge them into a greater disappointment”. (AP)

EQUITIES

Ahead of the cash open, European index futures indicated a marginally firmer star to the session. However, as cash markets opened, sentiment dwindled and stocks were pushed into the red (Eurostoxx 50 -0.3%) with no real obvious catalyst behind the move. US index futures ebbed lower at the same time with some minor initial underperformance in the tech-heavy e-mini Nasdaq, albeit moves have been confined to recent ranges as markets await further impetus ahead of a particularly busy week of Fed speak. Since then, we have seen a modest pick-up in the futures taking them nearer to the unchanged mark on the session, but still retaining a negative bias overall. On which, Fed Chair Powell is due to testify to Congress today at 1900BST/1400ET. Pre-released text was a reiteration of recent remarks, however, the Q&A segment could offer some opportunity for the Chair to be pushed on the FOMC’s exit strategy and recent hawkish speakers e.g. Bullard; other Fed speakers today include 2022-voter Mester and 2021-voter Daly. In Europe, sectors are somewhat mixed with Oil & Gas top of the pile amid the recent advances in the crude complex even in-light of today’s pressure on a potential ramping up of OPEC+ production (see commodities), whilst Tech and Health care lag peers with the former hampered by the mini-revival seen in yields since the start of the week which saw the US 10yr initially slip below 1.4%. Kepler Cheuvreux downgraded the European banking sector to neutral from overweight with analysts at the firm concerned that the reflation trade is not a foregone conclusion in a context where the steepening of the USD yield curve appears to have exhausted itself. In terms of stock specifics, BT (+0.6%) are slightly firmer on the session amid reports that Rupert Murdoch's News UK is reportedly looking into a tie-up with BT Sport. Finally, Travel & Leisure names including Ryanair (+1.1%) and IAG (+1.0%) have been provided some support amid suggestions that UK ministers are to relax travel restrictions from August for those who have been fully vaccinated.

TSMC to priorities chip orders from automotive ICs and Apple (AAPL) in Q3-2021, according to DigiTimes citing sources; followed by preference to PCs, servers and network devices. (DigiTimes)

EU regulators are to investigate whether Google (GOOG) favours its own ad-tech business to the detriment of rivals, advertisers and online publishers. Separately, YouTube is not liable for user copyright under certain conditions, according to a top EU court (Newswires)

FX

USD - Some calm after Monday’s relatively lively session amidst pronounced risk-off APAC trade before a steady recovery in sentiment that prompted a retreat in safe-havens on little fresh news or data. Nevertheless, the DXY formed a base below 92.000 and is currently consolidating around its new pivot within a 91.890-92.139 range inside yesterday’s 91.826-92.375 range awaiting further direction that could come from today’s trio of Fed speakers or macro releases in the form of existing home sales and Richmond Fed composite readings. Note, however, the text of chair Powell’s testimony to Congress has already been published so anything new will likely come from the Q&A section.

AUD/GBP - It may be too early to label the day a turnaround Tuesday for the Aussie and Pound, but both have unwound a chunk of their gains vs the Buck after benefiting from its frailty yesterday, and Aud/Usd is also bearing the brunt of another slump in iron ore prices as it struggles to stay within touching distance of the 0.7500 handle. Note also, prelim payrolls and earnings data came in weaker than prior prints overnight ahead of flash PMIs tonight. Meanwhile, Sterling has relinquished 1.3900+ status, and perhaps partly due to a loss of technical momentum given that Cable topped out just pips shy of the 100 DMA (1.3941 vs 1.3937 high), while the Eur/Gbp cross held around 0.8550 before bouncing.

CAD/CHF/NZD/EUR/JPY - A pull-back in WTI towards Usd 73/brl in wake of reports that Russia may push for higher OPEC+ crude output at next week’s summit, has undermined the Loonie ahead of Canadian retail sales on Wednesday, with Usd/Cad back up in the high 1.2300 area, while the Franc is beneath 0.9200 following fairly upbeat economic forecasts from Switzerland’s KOF. Elsewhere, the Kiwi is holding between 0.6995-63 parameters following a marked pick-up in NZ credit card spending and as Aud/Nzd eyes 1.0750 to the downside having been capped circa 1.0800, the Euro is straddling 1.1900 and Yen has retreated through 110.50 against the backdrop of higher US Treasury yields and curve re-steepening.

SCANDI/EM - The Nok, Mxn and Rub have also been rattled by the recoil in oil that has knocked Brent off its Usd 75.30 peak, but the Sek is holding up better amidst somewhat mixed Swedish specifics via conflicting jobless rates and a marginal 2021 GDP upgrade from the Fiscal watchdog. Elsewhere, some solace for the Try as Turkish consumer sentiment improves in June, but the Cny and Cnh have slipped after another soft PBoC onshore fix.

FIXED

Debt remains cautious, but Bunds, Gilts and US Treasuries have found some underlying bids after extending declines to 49 ticks, 32 ticks and 6/32 respectively, at 171.67, 127.30 and 132-00+. Hence, 10 year yields have not breached round number levels convincingly, at -15 bp, 80 bp and 1.5%, while Eurozone periphery bonds are rebounding above par amidst latest reports via sources on the ECB’s strategy review that indicates divergence on formulating a new inflation remit, but broad agreement that there should be more tolerance beyond 2% in similar vein to the Fed’s FAIT. Back to the core, and the UK benchmark has now forged a new Liffe intraday high at 127.65, with Short Sterling futures latching on to the recovery rally.

Demand for the Spanish 10y bond sale has increased to EUR 74bln; priced at a spread of 8bps over outstanding April 2031 bond, according to lead managers. To raise EUR 8bln from the issuance. (Newswires)

COMMODITIES

WTI and Brent have seen downside, -0.5% and -0.4% respectively, after what was a relatively uneventful APAC session for the benchmarks. The pressure came just after the European cash equity open, which was softer than futures had implied, amid reports that Russia is considering proposing an increase in OPEC+ oil production at the July 1st gathering, according to officials. As Russia expects the global supply shortfall to persist over the medium-term horizon; note, Russian VP Novak is set to meet with various domestic oil companies today. This report sparked pressure in the benchmarks sending WTI and Brent August’21 futures below USD 73.00/bbl and USD 75.00/bbl respectively – a smaller bout of further pressure was seen on subsequent source reports that it is possible to increase supply gradually from August. Such an alteration would be in-fitting with the most recent IEA MOMR which wrote that “OPEC+ needs to open the taps to keep world oil markets adequately supplied; production hikes at current pace set to be nowhere near the levels needed to prevent further stock draws”. As a reminder, the current OPEC+ quotas which were set in April envisage 700k BPD and 850k BPD of oil re-entering the market in June and July respectively. Moving to metals, spot gold and silver are modestly softer on the session given upside in both the USD and yields this morning; however, the magnitude of ranges for the precious metals are contained when compared with action seen over the last week. On gold, JP Morgan retains its long-term bearish view on the metal in-light of last week’s FOMC updates and look for copper prices to ease into H2 as supply/demand imbalances resolve, taking the view that the metal peaked in Q2.

Russia is reportedly considering proposing an increase in OPEC+ production at next week's meeting. Subsequently, further sources indicate that OPEC+ is holding talks on a potential additional hike in output as of August, however, no decision has been made yet on volumes. Finally, and in-fitting with the above Russian report, Russian energy sources states it is good timing to further ease oil cuts in August despite expected Iranian oil export return given that the market is in deficit. (Newswires)

Citi forecasts: Brent at USD 72/bbl, +4/bbl for 2021 and USD 67/bbl, +8/bbl for 2022; see Brent touching USD 85/bbl before Q4-2021. Forecast narrower Brent and WTI spreads given changing market conditions, mainly in the US; "Lumpy risks on the demand side, making a bearish view more likely than a more bullish view". Look for Palladium prices to rebound above USD 3k/oz, as balances tighten over the next 3-months and cuts zero-three month price target to USD 1750/oz, -USD 50/oz. Holds the sub- USD 1.6k/oz baseline with a 'weak conviction'.