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[PODCAST] US Open Rundown 10th March 2020

  • Risk sentiment remains firmer in EU hours after a strong APAC handover; though the overall narrative hasn’t changed fundamentally
  • DXY is modestly firmer as the JPY retreats in-line with other safe havens
  • President Trump announced he is to hold a press conference today on economic measures to respond to the coronavirus and suggested that economic steps will be major
  • Japan is reportedly planning to spend JPY 430.8bln in second package of steps on virus outbreak; BoJ are considering expanding their ETF purchase programme
  • Saudi Aramco CEO said the Co. will supply customers with 12.3mln BPD in April; Russia Energy Minister Novak says Russian companies may boost oil output by up to 300k BPD
  • RBNZ Governor Orr said they have not and still do not need to use alternative monetary policy instruments
  • Looking ahead highlights include APIs & supply from the US

CORONAVIRUS UPDATE

Mainland China reported 19 additional coronavirus cases and 17 additional deaths on March 9th vs. Prev. 40 additional cases and 22 additional deaths on March 8th, to bring the total number of cases in China to 80754 and death toll to 3136. (Newswires) Chinese President Xi arrived in Wuhan for the first time following the outbreak, while there were also reports that China’s Hubei province is to implement a health code system to start permitting people to travel within the province. (Newswires)

China says all temporary coronavirus hospitals are now shut, according to state media. (Newswires)

38 out of the 42 Apple (AAPL) stores in Chinese mainland have reopened as of Tuesday as coronavirus outbreak eased, but some with shorter business hours, 3 stores in Tianjin and 1 in Suzhou remain close, according to Global Times. (Twitter)

South Korea coronavirus cases increased by 131 to a total of 7513 and its death toll increased by 3 to a total of 54. Separately, South Korean regulator will ban short selling of overheated stocks for 10 days starting March 11th. (Newswires)

US President Trump said he will speak about possible payroll tax relief with Congress and is working with industries including airline and cruise ship industries. President Trump also announced he is to hold a press conference today on economic measures to respond to the coronavirus and suggested that economic steps will be major, while reports later suggested that the coronavirus aid package will leave out the travel industry for now but will include payroll tax cut and short-term paid sick leave. (Newswires)

Japan is reportedly planning to spend JPY 430.8bln in second package of steps on virus outbreak, according to sources. (Newswires) Prior to this, Japanese Finance Minister Aso said the government is to announce a 2nd package of steps on coronavirus on Tuesday and that G7 agreed to take fiscal and monetary steps as appropriate. There were also later comments from PM Abe who confirmed he will submit an emergency measure package to parliament today and will implement what is needed without hesitation to respond to coronavirus situation, while the second emergency package will include steps related to jobs and small firms. (Newswires) BoJ are reportedly mulling the expansion of ETF purchase program, according to Kyodo. (Kyodo)

England's Deputy Chief Medical Officer said that many thousands of cases of the virus will appear in the UK in due course, according to Sky News. (Sky News)

Head of Germany's Ifo Institute sees recession in Germany due to the virus outbreak and global economy is on the brink of crisis. (Newswires)

Italy's Industry Minister said the government will adopt measures worth EUR 10bln to tackle the virus outbreak. And the government will ask for the review of EU stability pact and fiscal compact rules due to the virus outbreak. (Newswires) 

ASIA-PAC

Asian equity markets eventually traded mostly higher as markets began to pick up the pieces from the recent oil-triggered devastation, which resulted in losses of over 7% among most major US indices for the worst performance on Wall St. since 2008. Nonetheless, US equity futures found some reprieve overnight despite briefly dipping into bear market territory with the rebound helped by hopes of policy action with President Trump set to discuss payroll tax relief with congress and to hold a press conference on economic measures to respond to the coronavirus which he suggested will be major steps, while Japanese is to submit a 2nd package of steps on coronavirus to parliament. ASX 200 (+3.1%) and Nikkei 225 (+0.9%) gained in which the former shrugged off opening losses of around 4% led by the recovery in the energy and financials sectors, while the Japanese benchmark also nursed losses helped by favourable currency moves. Hang Seng (+1.4%) and Shanghai Comp. (+1.8%) were initially indecisive after continued PBoC liquidity inaction but eventually surged following a further reduction in China’s additional coronavirus cases and President Xi’s visit to the Wuhan coronavirus epicentre for the first time since the outbreak which was seen to be symbolic of China’s progress in its battle against the epidemic. Finally, 10yr JGBs slipped below 155.00 as it tracked the pullback in USTs after the recent safe-haven surge and as equity markets stabilized, while prices were also pressured after weaker results at the 5yr JGB auction.

PBoC set USD/CNY mid-point at 6.9389 vs. Exp. 6.9562 (Prev. 6.9260). (Newswires)

PBoC skipped open market operations for a daily net neutral position

Chinese CPI (Feb) Y/Y 5.2% vs. Exp. 5.2% (Prev. 5.4%). (Newswires)

Chinese PPI YY (Feb) -0.4% vs. Exp. -0.3% (Prev. 0.1%)

UK/EU

Britain is set to table its plans for a Canada-style free trade agreement with the EU ahead of the next round of negotiations, according to the government. (Times)

Senior Conservative MPs are to back an amendment to end Huawei’s role in the UK’s 5G network; via an amendment to the Telecommunication Infrastructure bill, up to 30 Tory MPs are seen backing the bill. (BBC)

UK BRC Sales Like-For-Like (Feb) Y/Y -0.4% (Prev. 0.0%). (Newswires)

Barclaycard said UK consumer spending rose 2.2% Y/Y in Feb. vs. 3.9% Y/Y increase in January, while it added that coronavirus fears led to 28% of respondents avoiding the high street and other busy places. (Newswires)

Discussions between Turkish President Erdogan and the EU regarding a resolution to the ongoing refugee crisis ended without an agreement on Monday. (Newswires)

EQUITIES

European stocks consolidate [Eurostoxx 50 +4.0%] following the prior session’s detrimental sell-off sparked by further coronavirus woes and considerable downside in energy markets. Overnight, APAC bourses reflected a similarly conciliatory tone as stocks recovered following a mixed open – with desks pointing to hopes of US stimulus announcements in the form of payroll tax relief. European bourses got off to a shaky start with futures erasing a chunk of its overnight gains ahead of the cash open before reversing course to fresh session highs at the time of writing. The Italian bourse is conforming to the broad gains in the region despite Italy’s country-wide lockdown. The index remains buoyed by a raft of Italian stimulus including a ramp-up in measures to EUR 10bln from EUR 7.5bln. Meanwhile, sectors trade in positive territory and reflect a “risk-on” mood as cyclicals fare better than defensive. The energy sector outperforms following the prior session’s hefty losses and as the oil complex rebounds, with similar action seen in financials. Stoxx 600 movers largely reflect an inverse of yesterday. Oil giants Shell (+12.5%), Total (+9.0%) and BP (+8.5%) amongst the top gainers. On that front, Exane BNP remains of the view that cash dividends will continue to see support despite yesterday’s sharp sell-off in oil and energy names, with preferred names remaining BP, Total and Equinor. In terms of more micro-movers, Deutsche Post (+6.3%) shares are supported amid an increase in YY Q4 revenue and a reaffirmance of its 2022 guidance. Italian-listed Diasorin (+17.4%) rose to the top of the FTSE MIB as the Co. completed its studies regarding a launch of coronavirus tests by end-March.

FX

NOK/JPY - Still flanking the G10 ranks, but the Norwegian Krona is now in pole position and Yen at the back of the pack in contrast to Monday when oil prices were tanking and risk aversion rife. Eur/Nok has recoiled further from nigh on 11.0000 to sub-10.7550 at one stage and almost oblivious to significantly weaker than expected inflation data or a downbeat regional survey even before the full extent of the coronavirus contagion has been taken into consideration. Conversely, Usd/Jpy has rebounded from near 101.00 yesterday to just over 105.00 as broad sentiment stabilises alongside crude, despite more exchanges between Saudi Arabia and Russia on the supply front.

USD - The Dollar has benefited from the relative calm in financial markets, partly instilled by US pledges via President Trump and Treasury Secretary Mnuchin to unveil big fiscal support measures, which in turn have flipped Treasuries back into bear steepening mode and eroded some appeal from safer currency and other havens. Hence, the DXY has pared losses from yesterday’s new 94.650 ytd base and briefly topped 96.000 within a 96.006-95.199 range.

CHF/EUR/GBP/NZD/AUD - All softer vs the Greenback due to the aforementioned turnaround in mood from extreme depression, with the Franc below 0.9300 again, Euro sub-1.1400, Cable under 1.3100 and Antipodeans losing a degree of their yield appeal from 0.6600+ and 0.6350+ respectively overnight. The Aussie also had drops in NAB business conditions and confidence to digest, while the Kiwi is absorbing comments from RBNZ Governor Orr indicating that there is more room to reduce the OCR (to zero or even negative if needed) rather than resorting to unconventional policy easing.

CAD/SEK -The Loonie is deriving some comfort from oil finding a base (for the time being at least) between 1.3706-1.3608 extremes vs its US counterpart and the Swedish Crown has regrouped amidst more Riksbank guidance steering away from a reversal in the repo rate in favour of QE if it need to take emergency policy action. Eur/Sek hovering around 10.7200 from 10.8100+ earlier and like the Nok cross not unduly bothered about data (household consumption).

EM - Respite after the rout, and with the Rouble not just gleaning traction from Brent clawing back outsize declines, but also the CBR’s intervention to stop the Rub depreciating in line with other regional Central Banks and bodies attempting to stem the tide.

Australian NAB Business Confidence (Feb) -4 (Prev. -1). (Newswires) Australian NAB Business Conditions (Feb) 0 (Prev. 3)

RBNZ Governor Orr said they have not and still do not need to use alternative monetary policy instruments and they are fortunate to have time to prepare for alternative steps unlike other OECD countries, while he also commented that zero bound for rates is far from most likely outcome but cannot be ruled out and that steps being considered include forward guidance, negative rates and rate swaps. Furthermore, Orr suggested need to be considered and realistic as to how effective rate changes will be in buffering the economy and that they will continue to use conventional policy until it is exhausted such as when OCR reaches 0%. (Newswires)

Norges Bank Regional Network Survey (Q1)

-        Initial Survey (27th Jan to 14th Feb)

o    Regional Network contacts, activity growth has continued to decline through winter

o    Enterprises expect growth to continue to drift down in the next six months. After the ordinary survey, the spread of coronavirus has increased.

o    Weak demand from export markets, lower residential construction activity and reduced retail sales are having a dampening effect on growth.

-        Phone Survey (March 4th – 6th) taken to account for the coronavirus

o    Suggests that the virus outbreak will weigh on activity in the Norwegian business sector ahead.

o    Over 1/3 of enterprises have revised down their growth outlook in recent weeks.

o    Few enterprises are planning workforce reductions, but some mentioned the possibility of layoffs.

Riksbank Remarks before the Riksdag:

-        Governor Ingves: Do not see a lower policy rate as the most important measure at present, assess the balance sheet should not be reduced in the coming year. Spread of the virus will have effect on the economy, but too early to determine the magnitude. Could be more generous terms for loans to banks and/or direct purchases of securities; assessment right now is that maintaining the supply of liquidity is the most important thing.

-        Breman: Confident we can act to stabilise the Swedish economy, toolbox can be used in full. Measures taken will depend on the situation; opportunities to counteract a decline in the Swedish economy will also improve when several policy areas make a contribution. Adds, Riksbank’s actions are not automatically influenced by actions by other central banks; one option would be to lend to Co's via banks rather than purchasing corporate bonds

Russian Central Bank says will sell foreign currency from today to lower market volatility, will conduct RUB 500bln repo operations, will increase currency swap operations limit to USD 5bln today, moves are pre-emptive measures. (Newswires)

FIXED

Rather mixed UK auction results have not really altered the current trend of core debt unwinding more of Monday’s huge safe-haven gains and yield compression amidst long end outperformance in recognition of the general revival in risk sentiment. Gilts, Bunds and US Treasuries are all in the region of 1 ¾ to 2 points adrift as oil prices bounce and more Governments commit funds to help fight the economic impact of VOVID-19 alongside ongoing efforts to stop the outbreak reaching pandemic proportions, like Italy’s nationwide lock down. However, all is far from normal in the bond and financial markets as Russia pulls its regular weekly OFZ auction for Wednesday due to unstable conditions. Ahead, the more routine API inventory update for crude and other products.

GEOPOLITICS

Turkish Foreign Minister says the Russian S-400 defence systems are not an obstacle to deploying US patriot systems and reiterates that if Syria breaks the ceasefire they will retaliate. (Newswires) 

US reportedly began withdrawal of troops in Afghanistan as part of a peace deal with the Taliban and is to cut the number of forces in the country to about 8.6k from around 13.0k. (Newswires)

COMMODITIES

A day of respite, consolidation and potential short covering in the energy markets following yesterday’s violent Saudi-induced sell-off. WTI front month futures found an overnight base at ~USD 30/bbl and Brent April contracts touched APAC lows of just under USD 33.50/bbl – ahead of Saudi-fuelled lows around USD 27.40/bbl and USD 31.45/bbl respectively. Prices could also be experiencing some underlying support from OPEC delegates downplaying the expanding rift between Saudi and Russia, as they noted it is too early to give up on the alliance. That being said, Saudi Aramco’s CEO stated that it will supply its customers with 12.3mln BPD of oil starting April 1st – a number higher than the touted step-by-step increase as per sources, which noted the Kingdom could raise output to 11mln BPD before ramping production. As such, energy futures came under belated pressure and have been pushed to session lows of USD 30.20/bbl for WTI and USD 35.00/bbl for Brent, but nonetheless remain in positive territory following the gap higher at the reopen of electronic trade. Prices then found mild reprieve amidst comments from the Russian Energy Minister as he noted Moscow does not rule out join action with OPEC, despite also noting that Russian companies may boost oil output by up to 300k BPD and has potential to increase by 500k BPD – in fitting with comments from Russia’s Rosneft yesterday. Novak also noted of the next joint meeting to take place in May/June; OPEC’s website has scheduled this for June 10th. Sources stated that Russian Energy Ministry has called a meeting with Russian oil companies for tomorrow which is expected to discuss future co-operation with OPEC. Elsewhere, it’s worth noting that the monthly EIA STEO has been delayed to tomorrow to incorporate the recent oil market events. Onto metals, spot gold remains under pressure amid the overall risk tone in the market and as the Buck recoups some of its recent losses, with the yellow metal still above 1650/oz but notably below the USD 1680/oz overnight high. Copper prices meanwhile rebound with a vengeance after the prior session’s aggressive downside amid the risk tone and APAC stimulus measures (specifically from Japan), with the red metal back on a 2.5/lb handle.

Saudi Aramco CEO said the Co. will supply customers with 12.3mln BPD in April. (Newswires) Note, yesterday reports noted this could be increased to over 10.0mln BPD with some reports of as much as 12.0mln BPD – from their current (Feb) production of 9.7mln BPD

Russia Energy Minister Novak says Russian companies may boost oil output by up to 300k BPD and has potential to increase by 500k BPD; after initial reaction, markets are now more balanced– next OPEC+ meeting will be planned for May/June. (Newswires) Subsequently, Saudi Energy Ministry state they do not see the point in holding such a meeting only to demonstrate failures in dealing with ongoing crisis. (Newswires)

Russian Energy Ministry has called a meeting with Russian oil Co's for tomorrow, expect the Energy Ministry to discuss future co-operation with OPEC, according to sources. (Newswires)

China may buy additional oil at cheaper prices for its strategic stockpile, but those purchases may be limited, top govt researcher Wang Yongzhong said, cited by SCMP. (Twitter)

CME raised crude oil NYMEX futures margins by 17.1% to USD 4100/contract from USD 3500/contract and raised RBOB gasoline futures margins by 12.2% to USD 4600/contract from USD 4100/contract. (Newswires)

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