• European bourses are mixed/lower, Euro Stoxx 50 -0.2%, in relatively quiet newsflow aside from mixed ZEW; ES U/C
• The OPEC+ meeting was cancelled with no new date set. As such, current quota levels will be maintained; benchmarks are underpinned but off highs
• DXY has picked up notably from initial pressure going into today's US data and before tomorrow's FOMC Minutes with peers now mixed
• RBA kept rates unchanged and extended bond purchases at a lower rate through to mid-November; as such, AUD is the clear outperformer
• Looking ahead, highlights include US Final Services & Composite PMI, ISM Services PMI

CORONAVIRUS UPDATE

UK PM Johnson said he sees a strong UK recovery and stated that the government is no longer telling people to work from home, while he suggested the government will have to take steps to protect the public if another variant is discovered that does not respond to vaccines. Furthermore, UK PM Johnson said the government plans to reopen all remaining businesses including nightclubs from July 19th without restrictions on capacity, while Health Secretary Javid also stated that they will remove legal requirements on how businesses operate. (Newswires/Sky News)

UK Chief Medical Adviser Whitty said the Delta variant’s increase transmissibility is against us and responded that winter will be tricky when asked about more restrictions in winter, while he also stated that he would wear a mask in any crowded situation indoors. (Newswires)

Germany lifted its ban on travellers from UK, Portugal, Russia, India and Nepal with the countries to now be considered as high-incidence areas instead of virus variant areas, according to the health agency. (Newswires)

Israeli study found the Pfizer vaccine to be less effective against the Delta variant with only a 64% chance of halting the infection for those fully vaccinated vs. estimated 94% efficacy against prior strains. (FT)

Brazilian President’s Office announced an extension of emergency COVID-19 cash transfers for three months, while Economy Minister Guedes stated that the Health Minister expects the pandemic will be brought under control during those three months. (Newswires)

Japanese Government is likely to extend the quasi state of emergency by one month, according to Kyodo News; extension is for the greater-Tokyo area. (Newswires) The Olympics starts on July 23rd

ASIA

Asian equity markets traded indecisively as the region lacked conviction ahead of this week’s looming central bank events and in the absence of a lead from Wall St where markets were closed for the Independence Day weekend. ASX 200 (-0.7%) was initially kept afloat by strength in energy as oil prices rose to fresh cyclical highs after the cancellation of the OPEC+ meeting with no new date set and which means that the current quota levels will stand, although gains were later reversed amid cautiousness heading into the RBA policy decision where the central bank kept rates unchanged and extended bond purchases at a lower rate through to mid-November when it will then conduct a further review. Nikkei 225 (+0.2%) eked marginal gains after better-than-expected Household Spending data and with Labour Cash Earnings at its largest gain in three years, but with upside restricted by a mixed currency, as well as COVID-19 concerns which threaten an extension of the quasi-restrictions in Tokyo and with the opening ceremony of the Olympics reportedly to be held without spectators. Hang Seng (-0.3%) and Shanghai Comp. (-0.1%) were subdued as concerns regarding China’s fresh tech crackdown persisted and with calls by the PBoC for banks to provide additional credit supply for SMEs doing little to spur risk appetite, although there were some success stories with oil names mostly helped by the gains in underlying energy prices and with Suning.com surging by the daily limit after it received a bailout from a consortium including a state fund and Alibaba. Finally, 10yr JGBs traded lower amid a similar lacklustre picture in T-note futures and after a slip beneath the psychologically key 152.00 level, while support from the firmer results at the 30yr JGB auction was only brief with price action not helped by increased corporate supply as Nomura, Mizuho and Xiaomi plan USD-denominated bond offerings.

PBoC injected CNY 10bln via 7-day reverse repos with rate at 2.20% for a net daily drain of CNY 20bln. (Newswires) PBoC set USD/CNY mid-point at 6.4613 vs exp. 6.4627 (prev. 6.4695)

China’s cybersecurity watchdog had previously suggested that Didi (DIDI) delay its IPO which took place last week and urged for it to conduct a thorough assessment of its network security, according to sources with knowledge of the matter. (WSJ)

• Japanese All Household Spending MM (May) -2.1% vs. Exp. -3.7% (Prev. 0.1%)
• Japanese All Household Spending YY (May) 11.6% vs. Exp. 10.9% (Prev. 13.0%)
• Japanese Average Labor Cash Earnings YY (May) 1.9% vs. Exp. 2.1% (Prev. 1.6%); highest since June 2018.
• Japanese Overtime Pay YY (May) 20.7% (Prev. 6.4%, Rev. 5.4%); highest on record.

UK/EU

EU's Sefcovic says will step up legal proceedings without moves from the UK to remedy the violation of the Brexit agreement concerning. (Newswires)

ECB’s De Guindos stated that the increase in Euro area inflation is transitory and that they must make sure the inflation spike isn’t permanent, while he also noted that they are monitoring potential second-round effects on prices and that non-bank finance is also required for the Euro zone’s revival. (Newswires)

ECB Supervisory Chief Enria said he does not want tighter bank capital buffers while the crisis is still impacting bank balance sheets and that banks should be cautious in releasing provisions. (Newswires)

The European Parliament is set to condemn Hungary over a "clear breach of the EU values, principles and law,” (re LGBTIQ+ issues) according to a draft resolution, to be debated on Wednesday. Additionally, the Parliament will invite EU nations to sue Hungary "should the Commission not act". (Politico)

**German ZEW Economic Sentiment (Jul) 63.3 vs. Exp. 75.2 (Prev. 79.8)

• Current Conditions (Jul) 21.9 vs. Exp. 5.0 (Prev. -9.1)**
• Economic developments continue to normalise, the situation indicator has clearly overcome the COVID-related decline and market experts expect the overall economic situation to be extraordinarily positive for the next six-months.

German Industrial Orders MM* (May) -3.7% vs. Exp. 1.0% (Prev. -0.2%, Rev. 1.2%)

EU IHS Markit Construction PMI (Jun) 50.3 (Prev. 50.3)

• ZEW Survey Expectations (Jul) 61.2 (Prev. 81.3)

UK Markit/CIPS Construction PMI (Jun) 66.3 vs. Exp. 63.8 (Prev. 64.2)

GEOPOLITICAL

Russian Deputy Foreign Minister Ryabkov says that Moscow is hoping to hold the first round of discussions on nuclear strategic stability in July, according to RIA; while an Iranian Government spokesman says there has not been a change in Iran's negotiating team and it is time for Washington to make a decision. (Twitter)

There was a drone attack next to the US Embassy in Baghdad, Iraq although Iraqi security sources stated that the drone was shot down near US Embassy in Baghdad, Iraq without causing any casualties. (Newswires)

Taliban will present the first written peace plan to Afghan government at talks as soon as next month, according to a spokesperson. (Newswires)

EQUITIES

European equities (Eurostoxx 50 -0.3%) trade predominantly lower with prices having drifted south since the cash open amid a lack of noteworthy fundamental catalysts and a mixed German ZEW release. US participants will be returning to the fray today after the extended weekend with futures stateside hovering near the unchanged mark and exerting no real bias. Upcoming risk events including the ISM Services print due later today and FOMC minutes from the June meeting tomorrow, however, it is unclear how much traction in the market these will garner with the latter somewhat mitigated by the recent flurry of Fed-speak. In a recent note, analysts at Citi suggest that one-side positioning in equity markets, particularly the Nasdaq 100, could see limited scope for further rallies with the index potential vulnerable to profit-taking. Back to Europe, sectors are relatively mixed with Travel & Leisure names top of the pile as investors are taking some comfort from news that Germany is to lift its ban on travellers from the UK, Portugal, Russia, India and Nepal. Oil & Gas names have also been supported throughout the session amid the ongoing advances in the crude complex amid the OPEC+ breakdown yesterday. To the downside, Auto names lag with softness seen in some of the German names with some observers highlight disappointing domestic Industrial Orders for the month of May. In terms of stock specifics, Ocado (+2.6%) sits near the top of the Stoxx 600 after reporting a 21.4% increase in H1 revenues and 41.2% rise in H1 EBITDA. Also of note for the UK supermarket sector, Sainsbury’s (+0.8%) reported a 1.6% increase in Q1 LFL sales which was ahead of Co. expectations. Elsewhere, Sartorious (+5.1%) is the best performer in the Stoxx 600 after upgrading FY21 forecasts. To the downside, Alstom (-4.0%) is a standout laggard after flagging that it expects negative free cash flow for the fiscal year as it looks to integrate Bombardier’s rail unit.

PBoC's Beijing office has warned of cryptocurrency risks, ordering the shutdown of a software-maker in Beijing suspected of trading crypto. (Newswires)

FX

USD - A flurry of activity in the currency markets even before US participants return from their extended July 4th celebrations as the Buck succumbed to more broad selling pressure that tipped the index to the brink of 92.000. The Greenback remains heavy on the back of last Friday’s mixed NFP release, but also felt the heat from another spike in oil prices as the OPEC+ stalemate continues, while several major rivals are rebounding in their own right for independent reasons. However, the DXY clung on and just carved out a new high at 92.424 after the Dollar defended incursions and/or approaches towards several psychological levels following the loss of some technical supports in the run up to final Markit services and composite PMIs, the non-manufacturing ISM and employment trends.

NZD/AUD - The Kiwi and Aussie are clearly outperforming, albeit off best levels circa 0.7105 and 0.7599 respectively vs their US peer in wake of an upbeat NZIER Q2 survey overnight and relatively hawkish RBNZ rate calls from ASB Bank and BNZ that are both touting hikes in November. Meanwhile, Aud/Usd dipped initially as the RBA extended its QE remit until mid-November at least and reaffirmed guidance for unchanged rates through to 2024 at the earliest, but then bounced firmly on the improved economic assessment and taper for the third round of bond buying to a Aud 4 bn/week pace from Aud 5 bn. Nevertheless, the Aud/Nzd cross remains anchored around 1.0700 after Governor Lowe re-emphasised a data rather than date dependent timeline for tightening and reiterated that the Bank is not thinking about lifting the cash rate in 2023.

GBP/JPY - No additional boost for the Pound via a much stronger than expected UK construction PMI, so 1.4000 in Cable looks elusive after a very near miss, but Sterling is having another look at 0.8550 against the Euro after PM Johnson confirmed that almost all remaining virus restrictions will be removed on July 19. Elsewhere, the Yen is holding firmly above 111.00 where hefty option interest resides (1.8 bn) and may have drawn some encouragement from not as weak as anticipated Japanese household spending data.

CHF/EUR/CAD/NOK - The G10 laggards, or handing back more ground to the recovering Buck than others to be more precise as the Franc retreats through 0.9200, Euro reverses from just shy of 1.1900 and a probe beyond the 10 DMA (1.1893 today), Loonie retraces from even closer to 1.2300 and Norwegian Crown trades nearer 10.1850 vs the Euro than peaks a tad over 10.1400. Note, Eur/Usd is now sub-1.1850 and digesting a mixed ZEW survey that may hamper the headline pair along with option expiries between 1.1865-70 (1.1 bn) and straddling the big figure above at 1.1895-1.1905 (1.7 bn). Back to Usd/Cad and Eur/Nok, correlations with crude appear to be decoupling even though WTI and Brent remain bid and not too far from nigh on Usd 77/brl and Usd 77.84/brl pinnacles.

SEK/EM - Although the Swedish Krona has not been unduly ruffled by the political void, Eur/Sek is eyeing 10.1300 to the downside within a circa 10.1526-10.1249 following the return of PM Lofven in relief over continuity more than anything else perhaps. However, recovery gains in Bitcoin and other cryptos are fading on the back of another warning from the PBoC over risks attached in contrast to Gold scaling the 100 DMA on the way to reclaiming Usd 1800/oz+ status.

Notable FX Expiries, NY Cut:

• EUR/USD 1.1840 (494M), 1.1865-70 (1.1BLN), 1.1875-80 (945M), 1.1895-1.1905 (1.7BLN)
• USD/JPY 109.60-70 (3.1BLN), 110.70-75 (605M), 111.00 (1.8BLN), 111.20 (715M), 111.50 (300M), 112.00 (573M)

RBA maintained the Cash Rate Target and 3yr yield target unchanged at 0.10% as expected and announced it will retain the April 2024 bond for its 3yr yield target, while it plans a third round of bond purchases in which it will buy AUD 4bln per week (prev. 5bln) until at least mid-November and will conduct a further review in November which would allow the board to respond to the state of the economy at that time. RBA said the Board is committed to maintaining highly supportive monetary policy and will not raise the cash rate until inflation is sustainably within the 2%-3% target, while it added that it is unlikely that employment and inflation goals will be achieved before 2024 and will continue to purchase bonds as it remains a distance from goals. (Newswires)

ASB Bank forecasts the RBNZ to raise the OCR in November this year, while BNZ also forecasts the RBNZ to raise the OCR in November, citing the improvement in business survey data. (Newswires)

NZIER said inflation pressures are increasing and that 60% of financial services sector firms expect interest rates to increase during the coming year. (Newswires)

• New Zealand NZIER Confidence (Q2) 7.0% (Prev. -13.0%)
• New Zealand NZIER QSBO Capacity (Q2) 94.9% (Prev. 93.3%)

Turkish President Erdogan expects GDP to grow by over 20% in Q2 and annual growth of more than 5.8% this year. Erdogan stated that the CBRT is determined to solve the high inflation issue and needs to alleviate structural issues that spur inflation, while he also stated the government is developing policies to make TRY more attractive and the country’s corporate tax rate will be cut to 20% in 2023. (Newswires)

FIXED

Once again, the frantic moves in FX may mask if not fully overshadow what has been an arguably just as impressive revival in fortunes for debt futures as the Dollar given the fact that Bunds are now approaching 173.00 from the just a tick beneath the half round number below, while Gilts have extended their rebound from only 3 ticks above 128.00 to 128.37 (+19 ticks on the day) with some assistance from a robust 2031 DMO sale awaiting the 2061 offering. Similar recovery in US Treasuries ahead of the return of cash markets from the long weekend and a fairly busy agenda including the final Markit services and composite PMIs, non-manufacturing ISM and employment trends that might hold more interest than usual in view of last Friday’s somewhat conflicting BLS update.

COMMODITIES

Crude remains underpinned this morning, though off best levels, after the breakdown in OPEC+ negotiations and with no clear time for a resumption in the talks; currently, WTI and Brent benchmarks post gains of USD 1.20/bbl and USD 0.20/bbl respectively for the August/September’21 contracts. To recap, Saudi Arabia and Russia are saying the meeting has been cancelled and as such production will now continue at current levels for August; however, the UAE has briefed that the meeting has just been postponed while their proposal is considered. (see below for the state-of-play prior to the breakdown in talks) The likes of Iraq believe the situation is ‘normal’ and expects a solution to arise soon while widely followed journalist Reza Zandi writes that the discussions could be reactivated at any moment. However, thus far there has been no fresh update on the status of talks or any timeline for another meeting. A number of desks have given their views on the situation including ING who believes that if output levels are maintained then this will be bullish for prices; however, they do not have a high conviction in members keeping output steady. UBS looks for Brent to hit USD 80/bbl in September. Away from the oil benchmarks, Credit Suisse equity research cautions that the upside in equities may be comparably more muted given the conflicting leads from increased earnings-upside in H2 and concerns around a lessening of OPEC+’s solidarity. Crude aside, spot gold and silver are firmer this morning in-spite of the increasing upside the USD is experiencing as the metals perhaps take support from the marginally lower yield environment given subdued equity trade; taking the former above USD 1800/oz (vs. low of USD 1791.04/oz). Separately, base metals continue to make ground after strong APAC trade in-spite of the broader indecisive overnight tone.

The situation going into the talks on Monday featured all members accepting the Saudi-Russia proposal for an extension to the deal and an increase in production – with the exception of the UAE, which is also calling for increased production but wants a review of the baseline production level. Furthermore, the UAE suggested taking a decision to increase August’s output in-line with the current agreements expiry but postpone to a later date the decision around extending the output deal. In response, the Saudi Energy Minister has said he cannot agree to the UAE’s demands as this would set a precedent.

Iraq’s Oil Minister said they are committed to the agreement with OPEC+ and that what occurred on Monday were normal discussions and they think a solution will be reached soon, while he added that they do not want a price war, nor do they want prices to rise above current levels. Furthermore, Iraq’s Oil Minister stated they support an extension of the current agreement until the end of next year, as well as a gradual increase in production and hopes that in 10 days, there could be a date for the next meeting. (Newswires)

Iraqi PM advisor said any oil production increase must be cautious and coordinated, while the adviser warned that a new price war could develop if there is a lack of collaboration and understanding amongst OPEC producers. (Newswires)

UAE reportedly briefed that the meeting was postponed while Saudi and Russia consider UAE’s proposal, although Saudi and Russia are stating that the meeting has been cancelled and production will continue at current levels, according to FT energy correspondent Raval. (FT)

Oil and energy journalist Reza Zandi stated that the situation is fluid and that the group could reactivate discussions at any moment, while he added that with prices up around 50% this year, producers may feed additional pressure from consuming countries regarding rising inflation. (Twitter)

White House is reportedly keeping a close eye on the OPEC+ discussions and members of the Biden administration have urged OPEC+ to find a middle ground. (Newswires)

Mexico’s government transferred control of the country’s largest oil discoveries to state-owned PEMEX following months of deliberations. (Newswires)