• European bourses hold a modest downside bias while US futures are mixed/flat; ES U/C & NQ +0.3%
• The RBNZ kept its OCR unchanged but tilted more hawkish than was expected; NZD outperforms
• USD is pressured with peers firmer but contained ex-NZD while core debt has bounced after strong German issuance
• US Senate Democrats reached a USD 3.5tln budget deal for spending and tax plans; Biden to meet with Democrats today
• Apple (+1.6% pre-mkt) is looking for up to a 20% increase in new iPhone production in 2021; Apple has been added to JPM's analyst focus list
• Looking ahead, highlights include BoC & CBRT Policy Decisions, Fed's Powell, Kashkari; ECB's Schnabel; BoE's Ramsden
• Earnings from Bank of America, Citigroup, Delta, Wells Fargo

CORONAVIRUS UPDATE

Australia's New South Wales Premier announced to extend the Sydney lockdown for at least two more weeks to July 30th. (Newswires)

London is reportedly set to make wearing face masks compulsory on public transport despite removal of restrictions on Freedom Day, with London Mayor Khan reported to have asked Transport for London to require mask wearing. (Mirror)

EU will not add the UK to their COVID-19 travel green list this week, the inclusion of the UK was not discussed, Guardian's Rankin. (Twitter)

ASIA

Asian equity markets traded mostly lower following the subdued performance across global counterparts as inflationary concerns were stoked in the aftermath of the firmer than expected US CPI. The ASX 200 (+0.3%) was kept afloat amid strength in the commodity-related sectors and just about shrugged off a two-week extension to the Sydney lockdown. Participants also digested the recent announcement of support measures for those impacted by the ongoing restrictions and with some encouragement from the improved Westpac Consumer Sentiment. Nikkei 225 (-0.4%) was lacklustre but with downside stemmed as exporters were kept tentative by an indecisive currency, while the KOSPI (-0.2%) continued to suffer from another record daily increase in COVID-19 cases and with South Korea to toughen social distancing for regions outside of greater Seoul. The Hang Seng (-0.6%) and Shanghai Comp. (-1.1%) were negative due to the ongoing frictions between the world's top two economies. Finally, 10yr JGBs were uneventful following the subdued mood for T-notes in the aftermath of the firmer-than-expected inflation data stateside and weak US 30yr auction, while JGBs prices also failed to benefit from the negative mood in stocks and the BoJ's Rinban announcement for nearly JPY 1.4tln of JGBs that was heavily concentrated in the 1yr-10yr maturities.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires); the PBoC set USD/CNY mid-point at 6.4806 vs exp. 6.4797 (prev. 6.4757) PBoC queried some banks regarding demand for MLF loans, according to sources. (Newswires)

US Secretary of State Blinken underscored the US rejection of China's unlawful maritime claims in the South China Sea and reiterated that the US stands with southeast Asian claimants in the face of China coercion, while he expressed deep concerns about the Myanmar military coup, according to the State Department. There were also separate comments from a senior US administration official that rule of law risks are now increasingly a concern in Hong Kong. (Newswires)

US Deputy Secretary of State Wendy Sherman will meet Chinese Vice Foreign Minister Xie Feng in Tianjin to discuss potential meeting between US Secretary of State Blinken and Chinese Foreign Minister Wang, citing sources. (SCMP)

• Singapore GDP QQ (Q2 A) -2.0% vs. Exp. -1.8% (Prev. 3.1%)
• Singapore GDP YY (Q2 A) 14.3% vs. Exp. 14.2% (Prev. 1.3%)

US

US Senate Democrats reached a USD 3.5tln budget deal for spending and tax plans and Senate Majority Leader Schumer stated the deal includes expansion of Medicaid. Schumer added that President Biden will go to Capitol Hill today to discuss a large infrastructure bill but also noted there is still work ahead on partisan infrastructure bill, while there were also comments from US Democrat Senator Warner that the plan will be fully paid for. (Newswires)

US Senators in bipartisan infrastructure talks said that after last night's meeting, they want to resolve remaining disagreements by Thursday although when questioned if that meant talks would end on Thursday with no deal, Democrat Senator Shaheen responded that they will extend it, according to CNN's Manu Raju. (CNN/Twitter)

US Democrat Senator Manchin on President Biden's two-track agenda stated that both need to be fully paid for and that they have put enough free money out there. (Newswires/Twitter)

Fed Chair Powell and Treasury Secretary Yellen are to discuss financial risks of the hot housing market on Friday; session will be the first time that the FSOC will discuss concerns about the housing market in a substantial way, sources said. The Treasury is increasingly aware of the dangers that a sudden relapse in property prices, sources said, although Yellen’s team is confident that any financial stability risks are manageable. (Newswires)

Fitch affirmed United States at 'AAA'; Outlook Negative. Fitch stated that the Negative Outlook on the rating reflects ongoing risks to the public finances and debt trajectory, notwithstanding the improvement in Fitch's fiscal and debt projections since its last review. Furthermore, it stated the US sovereign rating is supported by structural strengths that include the size of the economy, high per capita income and a dynamic business environment. (Newswires)

UK/EU

UK Treasury officials are examining private equity deals to see if they benefitted local regions, while it was separately reported that UK Business Secretary Kwarteng asked officials to monitor the proposed takeover of Vectura (VEC LN) by Philip Morris International (PM) after concerns were raised regarding the deal. (Times)

UK Trade Secretary Truss met with USTR Tai in which they agreed that the recent civil aircraft deal sets a platform for future challenges including China, according to a statement. (Newswires)

UK CPI YY (Jun) 2.5% vs. Exp. 2.2% (Prev. 2.1%); MM (Jun) 0.5% vs. Exp. 0.2% (Prev. 0.6%)

• Core CPI YY (Jun) 2.3% vs. Exp. 2.0% (Prev. 2.0%); MM (Jun) 0.5% vs. Exp. 0.2% (Prev. 0.8%)

BoE's Cunliffe frames this morning's inflation figures in the context of high inflation as the economy reopens; notes that the question is whether the rise in inflation is persistent. (Newswires)

France reportedly wants EU governments to give the responsibility for overseeing cryptocurrencies to the pan-European markets watchdog, instead of national supervisors. (FT)

EU Industrial Production YY (May) 20.5% vs. Exp. 22.2% (Prev. 39.3%, Rev. 39.4%); MM (May) -1.0% vs. Exp. -0.2% (Prev. 0.8%, Rev. 0.6%)

GEOPOLITICAL

US and Russian consultations regarding strategic stability are to be held in a week, according to IFX citing sources; Russia advocates discussing all types of weapons in discussions with the US next week, according to Ria citing sources. (Newswires)

US DoJ said Iranian intelligence officials were indicted on kidnapping conspiracy charges. In other news, the State Department that noted there were active but indirect talks taking place with Iran on detainees. (Newswires)

Chinese Foreign Ministry expresses firm opposition with regards to US Secretary of State Blinken rejecting China maritime claims in the South China Sea. (Newswires)

An Armenian soldier has reportedly been killed in a clash at the Armenia-Azerbaijan border, Tass reports. (Newswires)

Outgoing Iranian President Rouhani notes that Iran can enrich uranium to 90% if it desires, via local press. (Twitter)

EQUITIES

Bourses in Europe remain under mild pressure following a lacklustre open (Euro Stoxx 50 -0.2%) as the region took the baton from a mostly downbeat APAC session. Ahead of Fed Chair Powell’s appearance at the Semi-annual Monetary Policy Report to the Congress, US equity futures stay contained around the flat mark. However, the NQ (+0.4%) narrowly outperforms after the future printed a top at 14,989.25 yesterday– a whisker away from the 15k mark. Back to Europe, sectors are primarily in the red with the exception of Banks, Basic Resources, Autos and Oil & Gas. The other side of the spectrum sees the Travel & Leisure sector weighed on by Evolution Gaming (-2.5%), who account for around a fifth of the sector in Europe. Banks benefit from the yield environment following the soft 30yr bond auction, whilst Basic Resources welcome stable base metal prices. Overall, sectors do not portray a particular risk tone nor bias. In terms of individual movers, Tullow Oil (+3.2%) remains firm despite the latest turnaround in crude prices and following a trading update, whereby it cut its production guidance due to the sale of its Equatorial Guinea assets, while the CEO said the group has a solid financial footing and is making good progress. Chip names are also broadly firmer following source reports that Apple (+1.3% pre-market) is looking for up to a 20% increase in new iPhone production in 2021 due to a strong demand outlook.

Apple (AAPL) has been added by JP Morgan (JPM) to its analyst focus list. (Newswires)

BlackRock Inc (BLK) Q2 2021 (USD): EPS adj. 10.03 (exp. 9.39/9.18 GAAP), Revenue 4.82bln (exp. 4.61bln). (Newswires)

FX

NZD/DXY - The RBNZ may have already upstaged the CBRT and BoC following its surprise announcement that QE under the guise of the LSAP will stop from next Friday, as risks have switched to a potential overshoot of monetary policy targets compared to undershoot previously. In response, money markets are now fully pricing in a first OCR hike in November and at least three of the more hawkish regional banks are predicting normalisation to start as early as next month. Hence, Nzd/Usd has formed a firmer base above 0.7000 having struggled to retain hold of the handle recently, but relative Kiwi strength is more evident via Aud/Nzd reversing around one big figure between 1.0720-1.0622 parameters as the Greenback retains post-US CPI momentum generally. Indeed, the index is establishing a more solid 92.500+ platform after eclipsing Tuesday’s peak and holding just over 92.600 following a subsequent pull-back within a 92.832-616 range vs 92.816-138 yesterday, and now eyeing PPI before Fed chair Powell part one, Kashkari and the latest Beige Book.

GBP - In similar vein to the Dollar, significantly stronger than anticipated UK headline and core inflation data has lifted the Pound, but like the Kiwi probably better seen in cross terms than Cable that has bounced from another close shave with 1.3800 to retest resistance above the half-round number, while Eur/Gbp has breached prior sub-0.8550 support more convincingly on the way to a 0.8513 low. Ahead, two BoE members get the opportunity to react to the CPI beats, including Cunliffe and Ramsden.

AUD/JPY/EUR/CAD/CHF - All sitting tight against their US peer following heavy losses in wake of the aforementioned hot US inflation report and a rather disappointing long bond sale that also boosted the Buck via a back-up in Treasury yields. However, the Aussie is displaying a degree of resilience either side of 0.7450 with the aid of a marked improvement in Westpac consumer sentiment to offset a further extension to lockdown in Sydney to at least July 30th and is now looking towards jobs data for some fundamental impetus, while the Yen has recovered from circa 110.70 to revisit 110.50. Elsewhere, the Euro is hovering below 1.1800, the Franc under 0.9200 and Loonie just shy of 1.2500, though off Tuesday’s trough irrespective of a retreat in crude prices ahead of Canadian manufacturing sales and the BoC that is expected to continue its measured asset purchase unwind by another Cad 1 bn/week clip.

SCANDI/EM - In contrast to the broad trend, Swedish inflation came in as expected or marginally mixed to leave the Sek on a softer footing near 10.2000 vs the Eur, while the Nok remains hostage to Brent and closer to 10.3500 than 10.3000, but the Try is trading sideways into the CBRT and Zar is striving to stop the rot amidst all the protests and civil backlash in SA that has now permeated oil production with the closure of Sapref’s 170k bpd refinery. Conversely, the Rub and Mxn are outperforming, perhaps on a combination of technical retracement and reports that Russian exporters are beginning to increase sales of foreign currency to cover upcoming dividend payments.

Notable FX Expiries, NY Cut:

• EUR/JPY 129.50 (475M), 130.75-80 (1.0BLN), 131.00 (244M)

RBNZ kept the OCR unchanged at 0.25% as expected and agreed to reduce current stimulatory level of monetary settings with the bank to halt additional asset purchases under the LSAP programme by 23rd July. RBNZ stated that the level of monetary stimulus can now be reduced to minimise risk of not meeting objectives and stated that medium-term inflation and employment would likely remain below objectives but also commented that recent data indicates the domestic economy remains robust and that there will be near-term spikes in headline inflation for Q2 and Q3. Furthermore, the Committee agreed economic conditions since late last year have been persistently firmer than anticipated and that least regrets policy now implied the significant level of monetary support could be reduced sooner. (Newswires)

FIXED

A solid enough 10 year German debt sale gave the core Eurozone bond sufficient impetus to close and marginally cross the opening Eurex gap at + 2 ticks vs -42 ticks at the 173.70 low, albeit briefly, and US Treasuries tagged along for the ride. However, UK bonds remain depressed and Short Sterling futures rattled on the back of CPI data surpassing consensus to cast doubt on the BoE’s notion of transitory inflation. Ahead, more Central Bank input hot on the heels of a hawkish RBNZ and US PPI after Tuesday’s hot CPI before Fed chair Powell, Kashkari and the Beige Book plus commentary from the ECB and BoE.

COMMODITIES

WTI and Brent front-month futures succumbed to some pressure as European traders entered the fray and reacted to the overall bearish private inventory report in the absence of fresh COVID, OPEC+ or JCPOA-related news. The weekly release showed a narrower than expected draw for crude (-4.1mln vs exp. -4.4mln) and gasoline stockpiles (-1.5mln vs exp. -1.8mln), as well as a larger build in distillates (+3.7mln vs exp. +0.9mln). In terms of JCPOA commentary, sources downplayed the chances of a mid-August resumption of negotiations, but it was not denied. Further, outgoing Iranian President Rouhani suggested that Iran can enrich uranium to 90% (weapons-grade), if it desires. As a reminder, there have been no new developments on the Iran-IAEA monitoring deal. In terms of OPEC, analysts at Commerzbank expect the price of oil to end the year around USD 75/bbl, and the German bank still expects an OPEC+ agreement on an appropriate increase in output. Note, some delegates do not see the next meeting taking place until August. WTI resides around the bottom of its current USD 74.73-75.34 range, whilst its Brent counterpart is in a slightly narrower 76.04-76.57/bbl parameter. Elsewhere, spot gold and silver remain contained to their recent ranges around USD 1,800/oz and USD 26/oz, respectively, with not much to report on this front. LME copper remains stable near its recent lows under USD 9,500/oz. Dalian iron ore prices meanwhile edged higher overnight, ending the day with gains of 0.8% despite earlier demand concerns.

US Private Inventory Data (bbls): Crude -4.10mln (exp. -4.4mln), Cushing -1.6mln, Distillate +3.7mln (exp. +0.9mln), Gasoline -1.5mln (exp. -1.8mln). (Newswires)

South Africa's Sapref refinery (170k BPD) has been shut down temporarily due to unrest, according to industry officials. (Newswires)