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[PODCAST] US Open Rundown 11th March 2020

  • Sentiment is somewhat mixed, with US futures lagging their European peers who are bolstered by stimulus measures
  • BoE cut rates by 50bp to 0.25%, in a unanimous emergency decision. Cut the counter cyclical buffer and announced a new term funding scheme
  • Italian PM Conte says the Government has set aside a total of EUR 25bln to assist the economy given the coronavirus
  • Saudi Aramco has received a directive from the Energy Ministry to increase maximum sustainable capacity from 12mln BPD to 13mln BPD
  • Former VP Biden has won primaries in Michigan, Idaho, Missouri and Mississippi
  • Looking ahead highlights include US CPI, DoEs, EIA STEO, OPEC Monthly Report, BoE’s Bailey, Supply from the US

BOE EMERGENCY RATE CUT

BoE cut rates to 0.25% from 0.75%, emergency rate cut - decision was unanimous; Maintain gilt purchase target & UK corporate bond purchases. Will introduce a new term funding scheme for small businesses; Term Funding Scheme will, over the next 12 months, offer four-year funding of at least 5% of participants’ stock of real economy lending at interest rates at, or very close to, Bank Rate; experience from the Term Funding Scheme launched in 2016 suggests that the TFSME could provide in excess of £100 billion in term funding. FPC have reduced the UK's counter-cyclical buffer to 0.0% vs. Prev. 1.0% which was due to reach 2.0% by December 2020; will release support of up to GBP 190bln to businesses. Prudential Regulation Authority (PRA) has today set out its supervisory expectation that banks should not increase dividends or other distributions, such as bonuses, in response to these policy actions. BoE will take all further necessary steps to support the UK economy and financial system, consistent with its statutory responsibilities.

-        An emergency decision which caused immediate upside in Bund June’20 futures (as a proxy) as well as downside in Sterling. Note, minutes for this meeting will be released on Friday 13th March at 12:00GMT, and this meeting was taken with Carney at the helm. As a reference point, on March 16th Andrew Bailey will be taking over as Governor and he is due to speak later today at 17:30GMT. This action comes ahead of the first budget of UK PM Johnsons gov’t at approx. 12:30GMT which is expected to provide support to the economy in wake of the coronavirus, and there was some expectation for joint action between the BoE and Treasury to occur. Full Newsquawk preview for the Budget available in the Research Suite.

Press Conference with Governor Carney & Incoming Governor Bailey: Notes that Bailey took part in today’s decisions.

-        Carney: can cut rates to below 0.25% to close to but above the 0% mark, QE and asset purchases are very much part of the toolkit. Fiscal policy is needed to complement monetary policy. Different form of shock to 2008, no reason for this shock to turn into a repeat of 2008

CORONAVIRUS UPDATE

Mainland China reported 24 additional cases of coronavirus and 22 additional deaths on March 10th vs. Prev. 19 additional cases and 17 additional deaths on March 9th, to bring the total number of cases in mainland China to 80778 and death toll at 3158. (Newswires) China's Hubei province said will implement return to work according to different levels of risk in an ordered manner and that key sectors in Wuhan are allowed to return to work including public transport, medical supplies and daily necessities, while it added it will continue to strictly ban people from leaving Wuhan and Hubei. (Newswires)

Tokyo Olympic Games organising executive is to propose a possible postponement to the games, Kyodo. (Kyodo) In contrast to earlier reports from the Games organisers that there were no plans to do so at present.

South Korea reported 242 additional coronavirus cases to bring total to 7555 and 6 additional deaths to increase death toll to 60. Elsewhere, Japan is reportedly planning to declare a state of emergency due to the coronavirus outbreak after the number of domestic cases rose by the largest daily increase of 59 to a total of 1278, while the total death toll was at 19 and there were 427 discharged from hospital on Tuesday. (Yonhap/Kyodo/NHK)

Italy’s total coronavirus cases rose to 10,149 (Prev. 9172) and the death toll increased to 631 from Prev. 463. Italian PM Conte says the Government has set aside a total of EUR 25bln to assist the economy given the coronavirus; Economy Minister will ask to increase 2020 deficit spending to EUR 20bln, cabinet to approve on Friday virus measures worth EUR 12bln. Conte does not rule out taking further restrictive measures. (Newswires)

US cases of coronavirus surpassed 1000 and the director of the Centers for Disease Control and Prevention said some parts of the country are now beyond containment efforts while Michigan Governor Whitmer declared a state of emergency after 2 coronavirus cases were declared in the state. (Newswires/NYT)

US VP Pence said the US is bringing the full resources of Federal government to the virus efforts and that President Trump proposed a stimulus package to Congress which includes payroll tax relief. There were also comments from White House Economic Adviser Kudlow that President Trump would prefer payroll tax 'holiday' to continue through year-end, while he added they are working on economic package details right now and will outline a more detailed package in the near future. (Newswires)

Canadian PM Trudeau is to make announcement about economic support measures against coronavirus today at 0900EDT, according to CBC Chief Political Correspondent Barton. (Twitter)

ASIA-PAC

Asia-Pac stocks were lower as the prior session’s firm rebound on Wall St that was spurred by stimulus hopes, failed to resonate across the region and US equity futures also pulled back after the White House press conference provided very few details regarding economic measures and where President Trump was a no-show, which overshadowed the Democrat Primaries where mainstream candidate and former VP Biden is set for another decisive victory. ASX 200 (-3.6%) and Nikkei 225 (-2.2%) were lower with the former dragged by heavy losses in gold miners and its largest weighted financials sector to finish in bear market territory, while the Japanese benchmark extended its retreat from the 20k level to reach its lowest level since 2018 as USD/JPY slipped back below 105.00. Hang Seng (-0.6%) and Shanghai Comp. (-0.9%) were indecisive amid a lack of fresh catalysts and as the PBoC continued to withhold from liquidity operations, while the latest update from mainland China showed a slight pick-up in the number of additional coronavirus cases and related deaths although this was only marginal and in-fitting with the stabilization narrative. Finally, 10yr JGBs traded slightly higher amid weakness in Tokyo stocks and following the swings in T-notes, while the BoJ were also present in the market today for JPY 430bln of JGBs mainly concentrated in the belly.

PBoC skipped open market operations for a daily net neutral position. (Newswires)

PBoC set USD/CNY mid-point at 6.9612 vs. Exp. 6.9529 (Prev. 6.9389)

PBoC says it will continue to work with relevant departments to provide friendlier and more convenient investment environment for foreign investors. (Newswires)

US

Former VP Biden has won primaries in Michigan, Idaho, Missouri and Mississippi, while Biden and Sanders were tied at 33% each in the Washington Democrat Primary after an estimated two-thirds of the vote count, while Twitter reports noted unconfirmed rumours Sanders is to pull out of campaign. (Newswires)

US Treasury is likely to delay April 15th tax filing deadline as part of an effort to mitigate the effects of the coronavirus on US households and businesses. (Newswires/WSJ)

White House plans to meet with tech giants to discuss coronavirus and said that it had sent principles for drug pricing reform to Capitol Hill, while the White House is also likely to pursue Federal aid for shale companies that are hit by the virus and oil shock. (Newswires/Washington)

UK/EU

UK Chancellor Sunak is to signal end of austerity with a jump in borrowing and said the UK will triple average net investment seen over the past 40 years by the end of this Parliament, while other reports noted that the Budget is to boost infrastructure spending by GBP 100bln and public sector net investment is to rise to 3.0% of GDP from 2.2%. (ITV)

UK GDP Estimate MM (Jan) 0.0% vs. Exp. 0.2% (Prev. 0.3%); Estimate YY (Jan) 0.6% vs. Exp. 0.9% (Prev. 1.2%)

-        3M/3M (Jan) 0.0% vs. Exp. 0.1% (Prev. 0.0%)

EU is gearing up to rebuff UK's demand for a quick decision on market access rights for London, with EU officials warning that the process will drag on until later in the year at a minimum. (FT) This comes after UK Chancellor Sunak urged the EU for rapid process on necessary approvals by a June deadline.

EU source say that the plan is for the Brexit trade negotiations to go ahead next week "at the moment" but suggests that could change, according to Telegraph's Crisp. (Twitter)

ECB President Lagarde reiterates that ECB is looking at all policy tools, particularly relating to super-cheap funding, and has urged EU leaders that action is needed now, Europe risks a 2008-style crisis. (Newswires)

EQUITIES

Sentiment has recovered from the downbeat tone in the APAC regions as futures resurfaced into positive territory following the surprise BoE rate reduction in a bid to cushion the impacts of the virus outbreak. Cash markets also opened higher to the tune of ~2% [Eurostoxx 50 +1.8%] with broad-based gains seen across the board, but with UK’s FTSE choppy and moving from the top gainer to the laggard on Sterling action ahead of the UK budget unveiling later today (Full preview available on the Newsquawk Research Suite). Sectors are mostly in the green with the exception of the energy sector given the decline in prices in the oil complex whilst financials lead the gains. Unsurprisingly, UK banks have received a tailwind from the BoE cut - with Barclays (+1.5%), Lloyds (+2.0%), Standard Chartered (+3.3%) and HSBC (+1.6%) all in firm positive territory. However, analysts at Goldman Sachs see the announcement of the New Term Funding Scheme as a positive for smaller banks and negative for larger banks as it reduces the latter’s potential hedge from mortgage pricing. Elsewhere, Adidas (-6.4%) shares plumbed the depths post-earnings after noting that the virus outbreak had a material negative impact on China revenues – which are expected to be between EUR 0.8-1.0bln below the prior year’s levels. Similarly, Puma (-3.3%) also issued a negative warning regarding virus impacts, as such these cautious comments have brought down the likes of Kering (-0.7%) and Richemont (-1.1%) in sympathy. Other earnings-related movers include Clas Ohlson (-4.4%) and Mediaset (-0.1%). Meanwhile State-side, desks note US democratic candidate Sanders’ poor performance on Super Tuesday is a mild positive for stocks, although Biden could eventually prove to be a headwind to stocks as the market would prefer a second Trump term.

FX

GBP - Not the biggest net mover by any means, but the Pound has been among the liveliest majors following the pre-Liffe, UK Budget and timetabled March MPC policy meeting ½ point rate cut. The emergency action induced all round Sterling weakness akin to the Dollar’s post-50 bp FOMC ease decline last Tuesday, as Cable recoiled from 1.2900+ to sub-1.2850 and Eur/Gbp jumped to circa 0.8840 from just under 0.8800. However, as the BoE statement and subsequent presser underscored the coordinated nature of measures taken, including funding for SMEs and a 1% reduction in counter-cyclical buffers for banks to zero, and fiscal loosening to come from the Chancellor, Cable and the cross retraced all and more of their initial moves while largely if not totalling shrugging off data in the form of January GDP, IP and output plus trade.

NZD/JPY/AUD/EUR/CAD/NOK - All firmer vs the Greenback, as the DXY fades alongside recovering risk sentiment partly due to the lack of anything material from the US in terms of major steps to counter the adverse economic/social impact of COVID-19, not to mention a degree of disappointment that President Trump was conspicuously absent from the official White House event. The Kiwi is currently top G10 performer, albeit consolidating gains on the 0.6300 handle with the aid of favourable Aud/Nzd tailwinds as the Aussie lags in wake of dovish sounding remarks from RBA Assistant Governor Debelle (underlining QE and forward guidance as potential anti-nCoV contagion tools). Aud/Usd is pivoting 0.6500 and the cross is hovering just above 1.0300, both some distance from recent peaks. Elsewhere, the Yen has pared losses between 105.67-104.11 parameters on the aforementioned flagging risk appetite after Tuesday’s part revival as the Japanese Government prepares supplementary budget initiatives, but the Euro has retreated further from Monday’s near 1.1500 highs to straddle 1.1300 awaiting tomorrow’s ECB meet and the bloc’s fiscal response to the coronavirus. Conversely, the Loonie continues to nurse losses around 1.3700 in the run up to Canadian Q4 cap u that is due alongside US CPI, but also eyeing crude prices like the Norwegian Krona and Russian Rouble that are losing momentum due to crude topping out – Eur/Nok back above 10.8500 and Usd/Rub over 71.5000 again.

RBA Deputy Governor Debelle said coronavirus is causing large increase in risk aversion and uncertainty, while he added the global economy will be materially weaker in Q1 and period ahead but also noted lower interest rates will help offset demand shock from virus. Furthermore, Debelle also stated that there are scenarios where QE would have to be considered and that they would also consider forward guidance as well as keeping bond yields low. (Newswires)

FIXED

Another very volatile first half for EU debt, with German bonds lagging initially and BTPs leading the chorus cheering comments from ECB President Largarde promising decisive monetary and fiscal injections to help prevent COVID-19 turning into a repeat of the GFC. However, Gilts grabbed the spotlight on their return to Liffe and adopted a defensive position post-BoE rate cut and SME lending scheme, awaiting a big budget splurge from 12.30GMT. Conversely, US Treasuries have held a firm underlying bid for the most part overnight and still erring towards risk sentiment souring after a let down in terms of specifics and a final roll out of US Government ‘steps’ to cushion the nCoV blow. In terms of tops and bottoms, Bunds have been up to 177.91 and down to 176.55 vs Tuesday’s 177.59 close, Gilts 137.57-136.82 vs 137.95, 10 year USTs 138-19-137-07 vs 137-20 and BTPs 144.88-142.74 vs 142.60.

COMMODITIES

Another wild ride so far in the energy complex with WTI and Brent front month-futures sliding from overnight highs in wake of further supply prospects and the readying from major oil producers for a prolonged period of low energy prices. Saudi Aramco has received a directive from the Energy Ministry to increase maximum sustainable capacity from 12mln BPD to 13mln BPD, with oil production capacity to be raised to 13mln BPD as soon as possible. This follows yesterday’s Aramco announcement that it will be supplying customers with 12.3mln BPD starting April 1st – the timeframe for 13mln BPD output is unclear thus far. Furthermore, Saudi Arabia has asked government departments to submit proposals for 20-30% cuts to their budgets, according to sources. This alludes to the Kingdom readying for a longer period of low energy prices to balance its books. Meanwhile, Russia has shown no signs of caving in – the Finance Ministry highlighted that Moscow is better prepared than any other country with oil revenues. That said, Energy Minister Novak stated that dialogue with OPEC will continue and representatives will be present at the March 19th JTC meeting. UAE has also become the latest producer to increase output, with ADNOC stating that they are in a position to supply markets with 4mln BPD in April and will accelerate to 5mln BPD capacity target, brought forward from 2030. As mentioned above, the contracts have wiped up overnight gains with WTI Apr’20 slipping from USD 36.28/bbl to a current low of ~USD 33.08/bbl whilst Brent Apr’20 similarly declined from a high of USD 39.60 to a low of ~USD 35.73/bbl. Subsequently, UBS lowered its Brent price forecast for end-June to USD 30/bbl vs. Prev. USD 40/bbl & WTI to USD 28/bbl vs. Prev. USD 37/bbl. Elsewhere, spot gold retains an underlying bit given the weaker Buck, with the yellow metal drifting further north of USD 1650/oz. Copper prices meanwhile remain within yesterday’s range and above USD 2.5/lb as the red metal bides time for fresh macro news-flow.

Saudi Aramco has received a directive from the Energy Ministry to increase maximum sustainable capacity from 12mln BPD to 13mln BPD, with oil production capacity to be raised to 13mln BPD as soon as possible. Subsequently, Saudi Arabia has asked government departments to submit proposals for 20-30% cuts to their budgets, according to sources. (Newswires)

Russian Energy Minister Novak says that unfortunately out partners have not agreed to out proposal for oil cuts rollover, will be discussing Russian Co. production plans; acknowledge the strong announcement from Saudi on price discount. (Newswires)

US Private Inventory Crude Stocks +6.4mln vs. Exp. +2.3mln (Prev. +1.7mln). (Newswires)

Oil lobbyists were reportedly calling on the Trump administration to take advantage of the recent collapse in prices and purchase oil barrels on the cheap to replenish the SPR. (Newswires)

Kuwait set export crude OSP to Asia at Dubai/Oman minus USD 4.65/bbl which is USD 6/bbl lower from the prior month. (Newswires)

Brent's premium to Dubai swaps have flopped to discount for the first time since 2010. (Newswires)

CME raised natgas Henry Hub futures maintenance margins by 11.5% to USD 1450/contract from USD 1300/contract. (Newswires)

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