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US stocks declined on Monday as reported worries of the Delta variant remained. The Dow Jones declined by 100 points while the S&P 500 fell by 10 points. Investors believe that the current Covid-19 wave in the US and other countries will affect corporate profits and derail the economy. In the US, health officials confirmed more than 60,000 new cases. This pushed more states to announce new mask mandates even among the vaccinated. Meanwhile, more companies will publish their quarterly results this week. Some of the most closely-watched are Uber, Ford Motor, and Square. On Monday, Square agreed to spend $29 billion of its stock to acquire AfterPay.

The Japanese yen strengthened during the Asian session after the country published the latest Tokyo inflation data. According to the statistics agency, the Tokyo core CPI increased from 0% in June to 0.1% in July. This increase was better than the median estimate of 0%. Meanwhile, the headline CPI declined by 0.1%. While Japan has one of the lowest unemployment rates in the world, its inflation rate has remained substantially low for years. This is partly because of its ageing population and the overall savings culture.

The Australian dollar was little changed ahead of the latest Reserve Bank of Australia (RBA) interest rate decision. With the country under strict restrictions, analysts expect that the bank will maintain a dovish tone. They expect it to leave interest rates unchained and extend its quantitative easing and yield curve control program. Earlier on, data showed that the country’s building approvals declined by 6.7% in June after falling by 7.6% in July.

AUDUSD

The AUDUSD pair was little changed ahead of the RBA interest rate decision. The pair is trading at 0.7370, where it has been in the past few days. On the four-hour chart, the price is hovering at the 25-day moving average while oscillators like the MACD and the Relative Strength Index (RSI) are at the neutral level. Therefore, the pair will likely break out lower after the RBA decision. If this happens, the next key level to watch will be 0.7288, which was the lowest level on July 22.

EURUSD

The EURUSD pair was also little changed during the Asian session today. It is trading at 1.1875, which is slightly below the intraday high of 1.1900. On the four-hour chart, it is slightly above the 25-day moving average. It is also between the middle and upper line of the Bollinger Bands. The Relative Strength Index (RSI) is slightly below the overbought level of 70 while the MACD has made a bearish divergence pattern. Therefore, with no data scheduled today, the pair will likely remain in this range.

AUDNZD

The AUDNZD pair declined to 1.0530, which was slightly above last week’s high of 1.0520. On the four-hour chart, the price is below the 25-day moving average. It has also formed a descending channel that is shown in yellow. It is slightly above the lower side of this channel while the RSI has moved close to the oversold level. Therefore, the pair is likely to maintain the bearish trend.

Market movers today

• Another quiet day on the macro data front will give markets plenty of time to focus on corporate earnings and Covid-19 headlines.
• Danmarks Nationalbank will release currency reserve figures for July.

The 60 second overview

Key market questions: With little news overnight investors are still dwelling with questions on slowing industrial growth, COVID-19 delta fears impacting services, the persistency of higher inflation and the timing of Fed monetary policy tightening. We still stick to the narrative of peak reflation which historically has tended to coincide with lower returns on risk assets but no bear markets, an end to outperformance of cyclical equities over defensives, a stabilisation in metal prices, positive returns on US and German fixed income markets, a decent flattening of the US yield curve and a decline in inflation expectations. This is very much what we have seen in markets during July. That said, given the extent of the global fixed income rally in recent weeks and with a Fed tapering announcement looming in September we slowly see the balance of risk skewed towards higher yields in H2 and not least in Q4.

Manufacturing slowdown in the US: Yesterday's ISM manufacturing release slowed for the second consecutive month and at 59.5 also fell short of analyst expectations. While this still constitutes strong manufacturing growth it does illustrate how the global industrial cycle is slowing. Initially the slowdown was led by China but now the developed markets support also seems to be slowing with the extraordinary boost from US Q1 fiscal easing fading.

Interestingly the report concluded that "all segments of the manufacturing economy are impacted by near record-long raw-material lead times, continued shortages of critical basic materials, rising commodities prices and difficulties in transporting products." This shows how bottlenecks remain an issue for production. With inventories for production quickly being depleted it should keep a hand under future production as order backlogs remain elevated. This is also evident from the order-inventory balance which rose after two months of declines. On the other hand, these bottlenecks - including labour shortages - are contributed to rising inflation pressures of which the persistency is still unclear. The next key release for the US economy and markets is Friday's nonfarm payrolls report.

Reserve Bank of Australia (RBA): This morning the RBA kept its key policy rate and its 3Y bond yield target both unchanged at 0.1% - this was widely expected. Meanwhile, RBA stuck to its tapering plan of reducing its bond buying to AUD 4bn a week in September. Markets had speculated that RBA could postpone these plans following the rise in Australian COVID-19 cases and the introduction of new lockdown measures. AUD rates rose and AUD/USD moved above 0.74 upon announcement.

Equities: Equites were higher yesterday with MSCI world ending just shy of the all-time high reading from last week. The lift in global indices came despite most US markets ended lower after positive opening. It was not just the risk appetite that changed during the day but also the preference for styles and sectors vent from value/cyclicals to growth/defensives. VIX is back above 19 and for us, this is another example of fact that professional investors are a lot more cautions than retail investors are currently. We still see record inflow to equities from retail investors despite the savings rate having more or less normalized.

FI: Following yesterday's ISM release the 10Y US Treasury bond yield fell below 1.20% and 10Y German government bond yield is testing -0.50%. Furthermore, the periphery outperformed German government bonds. There is plenty of support for the European government bonds given yesterday's QE data from ECB. ECB continue to buy at an elevated pace in the PEPP. Furthermore, in the PSPP, the buying of Germany and Italy continues to be above the capital key. We have also seen the same picture in Austria and Belgium, where the ECB buy more than the capital key indicate. The solid purchase from ECB do explain a part of the performance of German government bonds relative to swaps, where the Bund ASW-spread is above 40bp.

FX: Moves in FX major space have been relatively limited so far this week. That said the drop in oil prices have weighed on oil FX in the likes of CAD and not least NOK which continues to trade heavy. EUR/SEK is little changed around 10.20 while EUR/GBP has rebounded to 0.8550 after yet another test of 0.8500. On the back of this morning's RBA announcement AUD has joined ZAR as this week's top performer.

Credit: Credit markets did not move much yesterday with iTraxx Xover tightening 1bp (to 235bp) and Main unchanged at 46½bp. HY bonds closed marginally wider and IG widened 1bp.

General trend

• Nikkei has remained modestly lower; Mitsubishi UFJ declined after earnings report; Companies due to report earnings include Nippon Steel, Japan Airlines; Fast Retailing is due to report Jul sales.
• S&P ASX 200 traded modestly lower ahead of the RBA decision [Resources, Energy and Financial indices declined].
• Hang Seng and HK TECH indices have moved lower; Tencent dropped over 10%; Financials traded generally weaker ahead of Standard Chartered’s earnings; Alibaba and SJM are expected to report after the market close.
• Shanghai Composite pared decline during morning session.
• Companies due to report during the NY morning include Blue Apron, Arconic, Allegheny Technologies, Alibaba, Franklin Resources, Bausch Health, Clorox, Cummins, ConocoPhillips, Corsair Gaming, DowDuPont, Discovery Inc, Eaton Corp, Henry Schein, International Game Technology, Ingredion, IPG Photonics, KKR, L3Harris Technology, Eli Lilly, Louisiana Pacific, Marriott International, Nikola, Owens & Minor, Pitney Bowes, Phillips 66, Ralph Lauren, Sabre Corp, Echostar, Sealed Air, Sunoco, SolarWinds, Under Armour, Westlake Chemical, Willis Towers Watson, Warner Music, Zimmer Biomet, Zebra Technologies.
• New Zealand dollar and 2-yr yield rise on possible mortgage curbs.
• New Zealand Q2 labor market data is due on Wed (Aug 4th).

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened 0.0%.
• (AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 0.10%; AS EXPECTED, maintains plans to taper bond buying in Sept, but will continue to watch markets.
• CCP.AU Reports FY21 (A$) Net 88.1M v 79.6M y/y, Rev 374.8M v 313.4M y/y.
• (NZ) New Zealand PM Ardern getting COVID tested after becoming sick (follow up: tested negative).
• (AU) Australia Jun Home Loans Value M/M: -1.6% v 2.0%e; Investment lending M/M: 0.7% v 8.0%e.
• (AU) AUSTRALIA JUN BUILDING APPROVALS M/M: -6.7% V -4.0%E.
• (NZ) Reserve Bank of New Zealand (RBNZ) may restrict high leverage mortgages to 10% of lending, effective Oct 1st.
• (AU) Australia PM Morrison: Delta variant is creating a fierce battle for Australia.

Japan

• Nikkei 225 opened -0.7%.
• (JP) JAPAN JULY TOKYO CPI Y/Y: -0.1% V +0.1%E; CPI (EX-FRESH FOOD) Y/Y: 0.1% V 0.0%E; CPI (ex-fresh food/energy) Y/Y: 0.0% v 0.0%e.
• (JP) Japan Fin Min Aso: It is true that Japan Fiscal situation is deteriorating, should return to normal once vaccinations proceed; Not considering additional extra budget at this point.
• (JP) Japan Econ Min Nishimura: Hospital Bed situation has become severe, Shifting to home care for milder cases.
• (JP) Japan Government Pension Fund (GPIF) said to have cut its US government bonds and bills from 47% to 35% of its foreign holdings - financial press.
• 8002.JP Reprots Q1 Net ¥112.1B v ¥58.1B y/y; Op ¥69.2B v ¥52.0B y/y; Rev ¥2.13T v ¥1.59T y/y.
• (JP) Japan MoF sells ¥2.6T v ¥2.6T indicated in 0.1% 10-year JGBs; avg yield 0.0090% v 0.0580% prior; bid to cover: 3.33x v 3.54x prior.

Korea

• Kospi opened -0.1%.
• (KR) SOUTH KOREA JULY CPI M/M: 0.2% V 0.0%E; Y/Y: 2.6% V 2.4%E (annual CPI matches the fastest pace since Apr 2012, above target for 4th straight month).
• (KR) South Korea Govt: No unusual signs in health of North Korea Leader Kim - Yonhap.

China/Hong Kong

• Hang Seng opened +0.2%; Shanghai Composite opened -0.5%.
• (CN) China Gold Association: H1 Gold Production 152.8T, -10.2% y/y; Consumption 547.1T,+69.2% y/y.
• (CN) Reportedly China set new 'buy Chinese' targets for state run companies – press.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net CNY0B v Net CNY0B prior.
• (CN) China PBOC sets Yuan reference rate: 6.4610 v 6.4660 prior.
• (CN) China Securities Times front-page: China should boost domestic economy with Monetary and fiscal policies; sees room to step up monetary and fiscal policies; China may further loosen monetary and fiscal policies.
• (CN) China State Council requires students to reasonably use electronic products and prevent online game addiction (gaming names down on the announcement).

North America

• TBIO Sanofi reportedly made offer to acquire Translate Bio; Translate's board to meet later today to consider bid – press.
• NXPI Reports Q2 $1.46 v $2.32e, Rev $2.60B v $2.58Be; Guides Q3 Rev well above ests.
• MOS Reports Q2 $1.17 v $1.01e, Rev $2.80B v $2.93Be.
• (US) Fed's Waller (hawk, voter): Personal opinion is that Fed could make an announcement on taper in Sept; If we get 800K to 1M new jobs in next two jobs reports we will have regained 85% of jobs lost, which is 'significant further progress' - CNBC.

Europe

• MAERSK.DK Reports prelim Q2 EBITDA $5.1B v $4.7Be, Rev $14.2B v $13.8Be; Raises guidance.
• (UK) PM Johnson said to have cancelled plans for an "amber" COVID watch list after Cabinet was vehemently against and worried about cancelled vacations to the UK as a result - UK press.

Levels as of 01:15ET

• Hang Seng -0.1%; Shanghai Composite -0.4%; Kospi +0.2%; Nikkei225 -0.7%; ASX 200 -0.4%.
• Equity Futures: S&P500 +0.2%; Nasdaq100 +0.2%, Dax +0.4%; FTSE100 -0.1%.
• EUR 1.1883-1.1868; JPY 109.35-109.14; AUD 0.7408-0.7358; NZD 0.7014-0.6964.
• Commodity Futures: Gold -0.5% at $1,813/oz; Crude Oil +0.0% at $71.28/brl; Copper +0.1% at $4.44/lb.

Daily Pivots: (S1) 1.1855; (P) 1.1876; (R1) 1.1893; More...

Intraday bias in EUR/USD stays neutral first. A short term bottom was formed at 1.1751. On the upside, above 1.1907 will resume the rebound to 1.1974 resistance first. Firm break there should argue that whole corrective pattern from 1.2348 has completed. On the downside, however, break of 1.1751 will resume the fall from 1.2265 to 1.1703 support instead.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally could be seen to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). This will remain the favored case as long as 1.1602 support holds. Reaction from 1.2555 should reveal underlying long term momentum in the pair. However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again.

Daily Pivots: (S1) 1.3864; (P) 1.3898; (R1) 1.3921; More....

Intraday bias in GBP/USD remains neutral for more consolidation below 1.3982 temporary top. Outlook is unchanged that corrective pattern from 1.4240 could have completed with three waves down to 1.3570. Further rise is expected as long as 1.3766 support holds. On the upside, break of 1.3982 will resume the rise from 1.3570 to retest 1.4248 high. However, break of 1.3766 support will dampen this bullish view and bring retest of 1.3570.

In the bigger picture, as long as 1.3482 resistance turned support holds, up trend from 1.1409 should still continue. Decisive break of 1.4376 resistance will carry larger bullish implications. However, firm break of 1.3482 support will argue that the rise from 1.1409 has completed. GBP/USD would then be seen in another leg of long term range pattern between 1.1409 and 1.4376. Deeper fall could then be seen to 61.8% retracement of 1.1409 to 1.4248 at 1.2493, and even below.

Daily Pivots: (S1) 0.9037; (P) 0.9053; (R1) 0.9067; More....

Intraday bias in USD/CHF remains on the downside and outlook is unchanged. Rebound from 0.8925 should have completed at 0.9273. Deeper fall would be seen to retest 0.8925 low. On the upside, above 0.9116 support turned resistance will mix up the near term outlook and turn intraday bias neutral first.

In the bigger picture, failure to sustain above 55 week EMA (now at 0..9183) affirms medium term bearish in USD/CHF. Break of 0.8925 support should resume the whole decline form 1.0342 (2016 high) through 0.8756 low. For now, risk will stay on the downside as long as 0.9273 resistance holds, in case of rebound.

Daily Pivots: (S1) 109.08; (P) 109.43; (R1) 109.66; More...

Intraday bias in USD/JPY remains neutral first and further decline is expected as long as 110.58 resistance holds. On the downside, break of 109.05 will resume the decline from 111.65. Next target is 38.2% retracement of 102.58 to 111.65 at 108.18. On the upside, above 109.82 minor resistance will bring stronger recovery first.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. For now, outlook won't turn bullish as long as 111.71 resistance holds, even in case of strong rebound.

Daily Pivots: (S1) 1.2466; (P) 1.2491; (R1) 1.2528; More...

USD/CAD is staying in consolidation from 1.2421 and intraday bias remains neutral. Also, further fall is expected as long as 1.2605 resistance holds. On the downside, break of 1.2421 will resume the decline from 1.2805 to 1.2301 cluster support (61.8% retracement of 1.2005 to 1.2805 at 1.2311). However, firm break of 1.2605 will turn bias back to the upside for retesting 1.2805 resistance.

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). It should have completed after hitting 1.2061 (2017 low) and 50% retracement of 0.9406 to 1.4689 at 1.2048. Sustained break of 38.2% retracement of 1.4667 to 1.2005 at 1.3022 will pave the way to 61.8% retracement at 1.3650 and above. Overall, medium term outlook remains neutral at worst with 1.2048/61 support zone intact.

Daily Pivots: (S1) 0.7335; (P) 0.7358; (R1) 0.7387; More...

AUD/USD is still staying in consolidation from 0.7288 and intraday bias remains neutral first. Near term outlook stays bearish with 0.7443 support turned resistance intact, and further decline is in favor. On the downside, break of 0.7288 will resume the whole fall from 0.8006 and target 161.8% projection of 0.8006 to 0.7530 from 0.7890 at 0.7120 next. On the upside, break of 0.7443 will bring stronger rebound to 0.7530 support turned resistance instead.

In the bigger picture, rise from 0.5506 medium term bottom could have completed at 0.8006, after failing 0.8135 key resistance. Correction from there could target 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051). We'd look for strong support from there to bring rebound. However, sustained break of this level would argue that the whole medium term trend has indeed reversed.

Australia Dollar rebounds notably after RBA surprised markets by sticking to its tapering plan. Kiwi appears to be a touch stronger, but Aussie is not far away. Yen is also firm on falling treasury yields. On the other hand, Canadian Dollar is trading generally lower as oil price retreated. Dollar is following as next weakest and then Sterling.

Technically, while Aussie rebounds, there is no confirmation of underlying bullishness yet. At least, AUD/USD will have to break through 0.7443 resistance. EUR/AUD will also have to break through 1.5925 support. Otherwise, selling in Aussie could still come back any times.

In Asia, at the time of writing, Nikkei is down -0.73%. Hong Kong HSI is down -0.43%. China Shanghai SSE is down -0.28%. Singapore Strait Times is down -0.72%. Japan 10-year JGB yield is down -0.009 at 0.012. Overnight, DOW dropped -0.28%. S&P 500 dropped -0.18%. NASDAQ rose 0.06%. 10-year yield dropped -0.065 to 1.174.

RBA maintains tapering plan, left rate unchanged

RBA maintained cash rate target unchanged at 0.10%. Also, target for April 2024 government bond yield was also kept at 0.10%. More importantly, it maintained the tapering plan unchanged. Weekly purchases will be lowered from AUD 5B to AUD 4B starting early September, until at least mid-November.

RBA also pledged to "maintain its flexible approach to the rate of bond purchases". The conditions for rate hike is not expected to be met before 2024.

The central bank said the outlook for the coming months is "uncertain" and depends up on the "evolution of the health situation and the containment measures". Then, the central scenario is for the economy to grow by "a little over 4 per cent over 2022 and around 2½ per cent over 2023."

Unemployment is expected to trend lower to 4.50% at the end of 2022, and then 4.0% at the end of 2023. Inflation is expected to be at 1.75% over 2022 and than 2.25% over 2023.

Fed Waller: Depending on job growth, could be ready to announce tapering in Sep

Fed Governor Governor Christopher Waller told CNBC that if August and September jobs report show growth in 800k range, that would be "substantial progress". Fed could then be "ready to do an announcement in September" on tapering asset purchases.

"That depends on what the next two job reports do," he added. "If they come in as strong as the last one, then I think you've made the progress you need. If they don't, then you're probably going to have to push things back a couple months."

"In my view, with tapering we should go early and go fast in order to make sure we're in position to raise rates in 2022 if we have to," he said. "I'm not saying we would, but if we wanted to, we need to have some policy space by the end of the year."

Waller also expected inflation to return to normal once the impacts of the pandemic wane. "My concern is just anecdotal evidence I'm hearing from business contacts, who are saying they're able to pass prices through. They fully intend to. They've got pricing power for the first time in a decade," he said. "Those are the sorts of issues that make you concerned that this may not be transitory."

US 10-year yield tumbled on delta concerns

US benchmark treasury yields dropped sharply overnight on concern of the spread of delta variant in the country. According to latest CDC data, There were more than 72k new COVID cases a day on average in the US in the last seven days. That's a level not seen since February. The fall in treasury yield lifted Yen generally higher, in particular against Dollar.

10-year yield dropped -0.065 to close at 1.174, after dipping to as low as 1.151. The development suggests that corrective fall from 1.765 is probably resume to resume through 1.128 low. Still, we'd continue to expect strong support between 0.985/1.134 (50% and 61.8% retracement of 0.504 to 1.765) to contain downside to finish off the correction eventually.

Elsewhere

Japan Tokyo CPI core rose to 0.1% yoy in July, above from 0.0% yoy, above expectation of 0.0% yoy. Monetary base rose 15.4% yoy, below expectation of 20.5% yoy.

Looking ahead, Swiss SECO consumer climate and Eurozone PPI will be released in European session. Canada will release PMI manufacturing later in the day. US will release factory orders.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7335; (P) 0.7358; (R1) 0.7387; More...

AUD/USD is still staying in consolidation from 0.7288 and intraday bias remains neutral first. Near term outlook stays bearish with 0.7443 support turned resistance intact, and further decline is in favor. On the downside, break of 0.7288 will resume the whole fall from 0.8006 and target 161.8% projection of 0.8006 to 0.7530 from 0.7890 at 0.7120 next. On the upside, break of 0.7443 will bring stronger rebound to 0.7530 support turned resistance instead.

In the bigger picture, rise from 0.5506 medium term bottom could have completed at 0.8006, after failing 0.8135 key resistance. Correction from there could target 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051). We'd look for strong support from there to bring rebound. However, sustained break of this level would argue that the whole medium term trend has indeed reversed.

Economic Indicators Update