• Asia-Pac stocks and US equity futures began the week on the back foot; Hong Kong underperformed
• In FX, DXY held on to Friday's mild gains, EUR/USD tested 1.1800 to the downside and USD/JPY dipped below 110.00
• ECB reportedly disagreed on stimulus guidance drafts for the 22nd July meeting, while talks on bond buying will reportedly not happen until the September meeting, according to sources
• Oil prices are softer after OPEC+ reached an agreement on gradually increasing output from August by 400k BPD on a monthly basis
• OPEC+ agreed to extend supply management until end of next year; baselines for Saudi, Russia, UAE, Iraq and Kuwait will be raised from May 2022
• China's military conducted a beach assault drill on Friday as a warning to the US and Taiwan
• Looking ahead, highlights include BoE’s Haskel, and earnings from Assa Abloy and IBM

CORONAVIRUS UPDATE

UK Health Minister Javid tested positive for COVID-19, while PM Johnson and Chancellor Sunak were initially reported to not be planning self-isolating despite having contact with the health minister, although later did a U-turn and will now self-isolate in line with national guidelines. (Newswires/BBC) Note, the Health Minister received both doses of the AstraZeneca/Oxford vaccine

UK PM Johnson said it is important that everyone sticks to the same rules regarding self-isolation and urged people to self-isolate when told to do so, while he urged the nation to be cautious as they unlock and questioned that if they do not unlock now, then when will they ever do it? (Newswires)

Britain has decided against mass COVID-19 vaccinations of children and teenagers, while it is instead preparing to offer vaccinations for vulnerable people aged 12 to 15 and those about to turn 18.In relevant news, Britain is reportedly facing a disruption to food supplies, transport networks and industry as a third wave of the coronavirus intensifies. (Telegraph/Sunday Times)

UK government re-imposed quarantine rules on travellers returning from France in which arrivals have to isolate at home for up to 10 days and complete two COVID-19 tests even if they have two vaccinations. It was also reported that French PM Castex said they will reinforce COVID-19 restrictions for arrivals from UK, Spain, Portugal, Netherlands, Greece and Cyprus. (Newswires)

Australia's Victoria State Premier announced that the lockdown will be extended, while it was also reported that lockdown restrictions for Sydney are being intensified with stricter rules for retail trading and additional movement restrictions for some local hotspots. (Newswires)

Tokyo officials confirmed the first case of COVID-19 at the Olympic athlete village and a Tokyo 2020 spokesperson later noted that the rate of positive cases of athletes and other games-related people visiting Japan is around 0.1%. (Newswires)

ASIA

Asia-Pac stocks and US equity futures began the week on the back foot, following last Friday's losses on Wall Street as global sentiment remained dampened by US-China tensions and recent mixed data releases. The ASX 200 (-0.8%) was dragged lower by broad weakness across its industries with the declines led by the commodity-related sectors, including energy after OPEC+ reached an agreement on output over the weekend. Sentiment was also subdued by the ongoing COVID-19 outbreak that has forced an extension of the lockdown in Australia's Victoria State - with many including the largest domestic bank CBA, anticipating the ongoing restrictions to severely impact the Australian economy, while Altium shares were the worst hit after reports it rejected an increased offer from Autodesk and with the latter planning to walk away, although Altium later denied that it had received any further offer. The Nikkei 225 (-1.2%) was pressured by haven flows into the JPY, and with virus fears also in focus after the first COVID-19 cases were confirmed from the Olympic athletes' village just days before the start of the Tokyo 2020 games. The Hang Seng (-1.9%) and Shanghai Comp. (Unch) were also negative amid US-China frictions after the Biden Administration issued Hong Kong-related sanctions and highlighted the growing risks related to China's democracy crackdown in Hong Kong despite threats by China to retaliate to such action, while the losses were exacerbated by tech underperformance amid lingering concerns of tighter regulations by Beijing. Finally, 10yr JGBs were marginally higher amid the safe-haven flows and as they tracked recent upside in T-notes which briefly broke above the 134.00 level, while the BoJ had also announced to buy JPY 75bln of corporate bonds from July 26th with 3yr-5yr maturities.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires)PBoC set USD/CNY mid-point at 6.4700 vs exp. 6.4710 (prev. 6.4705)

US Treasury Secretary Yellen said a China trade deal has "hurt American consumers" and argued that it has not addressed fundamental problems with Beijing, while the agreement remains under review. (NYT)

US Congress is aiming to hamper China’s ability to recruit scientists and academics in the US with a recently passed House bill to bolster American research and development, which would bar scientists and academics from participating in US-funded research projects if they are also receiving support from Beijing. (Newswires)

China NDRC official said the nation's economic recovery still faces difficulties and challenges, while it will take proactive actions in response to new situations in the economic recovery. There were also separate reports that China is said to be revealing new policy to attract foreign investment and is said to consider a trial program that would permit foreign institutions to invest offshore yuan (CNH) in stocks listed on Shanghai Star Board. (Newswires/China Securities Journal)

China MOFCOM assistant minister Ron Hongbin stated China is to open more sectors to overseas capital by reducing items on negative lists and said that string supply chain amid global COVID-19 pandemic helps to attract foreign investment. (China Securities Journal)

UK/EU

UK PM Johnson and Chancellor Sunak are said to disagree regarding plans for a tax valued at as much as GBP 10bln annually that would fund social care reforms and cut NHS waiting lists. This follows a prior report that UK Chancellor Sunak was drawing up tax-raising options to fund social care and insisted that PM Johnson’s hoped-for reforms must be fiscally sustainable. It was also noted that PM Johnson hoped to announce a plan for social care before MPs depart on their summer holidays later this month and one government official stated it was “50-50” whether he could strike a deal with the Chancellor in time, while Sunak has made it clear any long-term solution for England’s creaking social care system would require “sustainable funding” or in other words, a tax increase, and officials added that PM Johnson was grudgingly coming around to the idea. Furthermore, a source said “no decisions have been taken” but confirmed a report that the Budget might be pushed back until spring 2022 because of continuing economic turbulence. (Sunday Times/FT)

UK will unveil details of its Developing Countries Trading Scheme today which aims to stimulate trade with 70 developing economies by reducing tariffs and making rules simpler. (Newswires)

German Chancellor Merkel said the situation on flood-hit regions is surreal and terrifying, while she added that the government will provide financial aid quickly due to the devastation from the record floods which have resulted in over 180 deaths in Germany and Belgium. (Newswires)

ECB reportedly disagreed on stimulus guidance drafts for the 22nd July meeting and discussions were said to have been heated, while talks on bond buying will reportedly not happen until September meeting, according to sources. (Newswires)

ECB's Schnabel's optimism on inflation reportedly includes not just 2021 but 2022 and also 2023, according to SGH Macro Advisor sources. Meanwhile, one source suggested that the central bank's persistence in accommodative monetary policy could be compared to the Fed's "lower for longer" strategy. (SGH Macro Advisors)

Czech Republic Governor Rusnok said they should raise rates again at the 5th August policy meeting and that tightening could continue after. (Newswires)

UK Rightmove House Prices MM (Jul) 0.7% (Prev. 0.8%). (Newswires)

FX

In FX, the DXY held on to Friday's mild gains after it was spurred by the downbeat risk tone and with the Greenback unfazed by the slightly softer yields, nor by the recent mixed data releases. EUR/USD was flat near 1.1800 with the mood sombre following the deadly flooding that claimed over 180 lives in Germany and Belgium - ahead of the German elections. Meanwhile, participants look ahead to this week's ECB meeting after source reports previously noted disagreements on the stimulus guidance draft, with discussions said to be heated and talks on bond buying are reportedly not to occur until the September meeting. GBP/USD was also uninspired on 'Freedom Day' with PM Johnson urging caution as restrictions are removed today, although the attention has been on PM Johnson and Chancellor Sunak's U-turn regarding self-isolation in which they initially had planned to not self-isolate despite having contact with Health Minister Javid who recently tested positive for COVID-19, before backtracking on the decision and will now both self-isolate in line with national guidelines. USD/JPY gradually retreated beneath the 110.00 level and JPY-crosses are pressured by the broad risk-aversion, while antipodeans were also constrained due to their high-beta statuses and as the lockdown restrictions in Australia threaten to severely impact the national economy.

South African President Ramaphosa said there is no need to impose a state of emergency and a South African Cabinet Minister believes that the social unrest situation is "fully stabilised" now. (Newswires)

Former South African President Zuma is expected to appear in court today; he is expected to ask the court to rescind the 15-month jail sentence against him on the grounds that it was made in his absence. (Newswires)

COMMODITIES

WTI crude futures were pressured following the impromptu OPEC+ meeting on Sunday where producers reached a deal to raise output by 400k BPD monthly from August and an extension to the supply management agreement through to end-2022, as well as an increase in baseline levels for Saudi, Russia, UAE, Iraq and Kuwait which is seen to add 1.63mln BPD supply beginning May next year. This briefly pressured WTI to beneath the USD 71.00/bbl level and spurred ANZ Bank to pullback its 3-month forecast for Brent to USD 78/bbl, although others remained including Goldman Sachs which stated the OPEC+ deal represents USD 2/bbl upside to its USD 80/bbl summer forecast and USD 5/bbl upside to its USD 75/bbl 2022 Brent forecasts. Gold prices were rangebound as the Greenback held on to last Friday's gains, while copper prices were pressured by the broad risk-aversion and with the China's NDRC noting that they will continue to release metals reserves in batches including copper, aluminium and zinc.

OPEC+ convened a new meeting on Sunday and key producers reached an agreement on gradually increasing output from August by 400k BPD on a monthly basis until phasing out the 5.8mln BPD production adjustment and will reassess market developments and performance of participating nations in December this year. OPEC+ agreed to extend supply management until the end of next year and agreed a new baseline for the UAE of 3.5mln BPD from 3.17mln BPD, 150k BPD baseline increases each for Iraq and Kuwait, while Saudi and Russian baselines will be adjusted to 11.5mln BPD from 11.0mln BPD each from May 2022. Furthermore, the group will convene in September and aims to complete the phasing out of cuts by September 2022 which is dependent on market conditions, while the OPEC+ baseline revisions are said to add 1.63mln BPD to supply beginning in May next year, according to newswire calculations. (Newswires)

Saudi Arabia’s Energy Minister stated that they will hopefully phase out all cuts by September next year and that the spirit of OPEC is to maybe even go beyond 2022, while he also noted that OPEC+ is here to stay. (Newswires)

Russian Deputy PM Novak stated that Russia will raise its oil output on a monthly basis by 100k BPD beginning in August and expects to return pre-crisis levels of production in May next year. Novak added that they see a deficit in the global oil market and that Russian budget could get an additional RUB 400bln from the new agreement with an average oil price of USD 60/bbl. (Newswires)

Iraq’s Oil Minister said the oil market has seen an improvement in demand, as well as a decline in surplus and inventories, while he added that the OPEC+ meeting on Sunday emphasized a strengthening collective cooperation. (Newswires)

Baker Hughes Weekly Rig Count: Oil rigs +2 to 380; NatGas rigs +3 to 104; Total rigs +5 to 484. (Newswires)

GEOPOLITICAL

China's military conducted a beach assault drill on Friday as a warning to US and Taiwan. (Newswires)

Afghanistan government and Taliban negotiators issued a joint statement that the sides committed to continue high-level negotiations until they reach a settlement and have issued instructions to expedite negotiations, although the Taliban’s political office stated that it did not suggest a truce during the Doha discussions. (Newswires)

US State Department official said regarding North Korea that there is no doubt that any way forward will need China's cooperation. (Newswires)

US

At Friday's settlement, the curve was pretty much unchanged with yields not too far from neutral levels across the curve; spreads are generally tilting steeper, although not by a great magnitude. There was an undecided feel to Treasury trading, with modest selling seen in wake of a decent retail sales report (prior revisions weren't great, however), although buyers emerged after University of Michigan sentiment data showed inflation expectations rising to a post-pandemic high in July (which follows this week's hot CPI, and the NY Fed's consumer survey which showed inflation expectations surging in June). A cross-sectional view also implies the price pressures resulted in lower real retail spending, and there are increasing concerns that the higher prices will weigh on consumers through the crucial recovery period, despite Fed officials remaining calm about the upside. Some desks noted that the Treasury complex was probably subject to some profit taking in the belly as some rate hike re-pricing in the belly was happening this week, while others cited a Bank of America research note (US GDP view cut to 6.50% from 7.0%) which apparently gave an excuse an excuse to some hedge funds and dealers to cover shorts near the lows. T-note (U1) futures settled half-tick lower at 133-25.

White House Press Secretary Psaki responded that she had no personnel updates and no timeline for a decision when asked if the Biden Administration will reappoint Fed Chair Powell for another term. (Newswires)

US reportedly clashed with Mexico and Canada on car rules in a risk to USMCA. (Newswires)

Johnson & Johnson (JNJ) are exploring placing its baby powder and talcum powder liabilities into bankruptcy, according to sources although its consumer unit said it has not yet decided on any particular course of action. (Newswires)