What to watch

There have been three distinct themes emerging through the Asia-Pac session, the ramifications and follow-on from which will continue to be watched by markets through the European session today.

1. The PBOC provided an upside surprise to the USDCNY fixing, with our overnight team noting that this was the largest upside surprised since at least June 2018 (i.e. weaker CNY fixing). This follows the return from Lunar New Year.
2. ECB comments: Speaking on Dutch TV, DNB President and member of the ECB GC, Klaas Knot said that he expected the ECB to raise interest rates in Q4 this year with a second hike in Q1-23, noting that he has no reason to believe the moves wouldn't be 25bp increases (as is customary). This morning Latvian Central Bank Governor Martins Kazaks pushed back on market expectations of an initial move by the ECB in July, noting that "July would imply an extremely and unlikely quick pace of tapering" (the ECB has said before it will end QE "shortly before" raising rates). Peripheral spreads are a little wider this morning on the open.
3. UK politics continues to throw up headlines. Johnson has carried out a reshuffle of his staff but has had another (formerly) loyal backbencher express that he thought it was time for Johnson to go.