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[PODCAST] US Open Rundown 18th March 2020

  • US Equity futures have resided at limit-down throughout the European session
  • Debt complex has been heavily subdued while the DXY has printed fresh YTD highs
  • Fed established a primary dealer facility to support market function beginning March 20th which will last at least 6 months for 90-day loans
  • Former VP Biden was declared winner in the Florida, Illinois and Arizona Democrat primaries
  • Looking ahead, highlights include US Building Permits and Housing Starts, Canadian CPI, DoEs, NZ GDP, Japanese CPI

CORONAVIRUS UPDATE

Mainland China reported 13 additional cases of coronavirus and 11 additional deaths on March 17th vs. Prev. 21 additional cases and 13 additional deaths on March 16th, to bring the total number of coronavirus cases in China to 80894 and death toll at 3237. (Newswires)

South Korea reported 93 more cases of new coronavirus for total of 8413 and the death toll rose by 3 to total of 84. (Yonhap)

Japanese PM Abe states that Japan will be putting together an ample economic package and will be conducting expert hearings on the package from tomorrow. (Newswires)

US Treasury Secretary Mnuchin said the virus will yield 20% jobless rate without policy action, while there were separate reports that the US coronavirus plan to combat coronavirus warned policy makers last week that pandemic will last for 18 months involving shortages. (Newswires/New York Times)

US President Trump tweets that money is coming for those out of work due to containment measures, adding that "The onslaught of the Chinese Virus is not your fault!". (Twitter)

Nevada ordered the shutdown of non-essential businesses including casinos for 30-days. (Newswires)

US and Canada will announce an agreement to partially close the border on Wednesday while permitting trade and commerce to continue. (The Globe and Mail)

Canada is to announce CAD 27bln economic and aid package on Wednesday to offset coronavirus impact, according to a government source. Furthermore, the package will boost unemployment insurance payments, child benefits and push back tax deadlines, although the source added that Canada is not yet ready to offer aid to airlines. (Newswires)

Germany's total coronavirus cases rose to 9257 vs. 6012 on Tuesday, according to Der Spiegel; RKI Institute sees an exponential growth of the virus in Germany. (Newswires)

German Finance Minister Scholz says they are thinking on how they can directly support some firms given the coronavirus crisis, according to Die Zeit; can help in the case of big companies such as airlines and cruise companies - not aiming to nationalise. (Newswires)

Italy could extend the current lockdown beyond April 3rd, according to La Stampa. (La Stampa)

Irish PM Varadkar said Ireland could see 15000 cases of coronavirus by end of the month and that at some point, we will tell the elderly and those with underlying illnesses to stay at home for a number of weeks. Furthermore, he added that there will be help from banks and government utilities for those who lost jobs, while damage to the economy will be significant and lasting with the bill enormous although noted it is possible to borrow billions of EURs on financial markets if needed. (Newswires)

ASIA

Asian equity markets were indecisive as the region failed to sustain the rebound on Wall St from its worst sell-off since 1987, where sentiment was underpinned by efforts to address the coronavirus fallout including reports US plans stimulus of as much as USD 1.2tln consisting of a USD 300bln deferral in IRS payments and sending checks to citizens within 2 weeks, while the Fed also announced it will establish a commercial paper funding facility to support credit flow. ASX 200 (-6.4%) underperformed amid heavy losses in the tech and energy sectors, as well as a retreat in US equity futures after-hours which hit limit down, while Nikkei 225 (-1.6%) was initially positive following better than expected trade data despite Exports remaining at a contraction for the 15th consecutive month but the pared gains heading into the close. In terms of the notable stock movers, Fujifilm Holdings hit limit up after reports that China said the Co.’s influenza medicine was effective against coronavirus and are said to plan officially recommending the drug’s use for treatment, while SoftBank shares were at the other side of the spectrum on news it is backing away from part of the planned WeWork bailout. Hang Seng (-4.1%) and Shanghai Comp. (-1.8%) also conformed to the indecision and ahead of key earnings from Hong Kong heavyweight Tencent with broad selling later triggered after US equity futures hit limit down. Finally, 10yr JGBs declined as they tracked the recent losses in T-noted, and although prices initially rebounded off their lows after finding support at 152.00 and with the BoJ in the market for nearly JPY 1.2tln of JGBs heavily concentrated in 1yr-10yr maturities, this was short-lived and selling was then exacerbated on a break below the aforementioned support.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 7.0328 vs. Exp. 7.0286 (Prev. 7.0094)

China’s Foreign Ministry spokesman Geng said they are very angry with US President Trump’s reference to ‘Chinese virus’. (Newswires)

Japanese Trade Balance (Feb) 1109.8B vs. Exp. 917.2B (Prev. -1312.6B, Rev. -1313.2B) Japanese Exports (Feb) Y/Y -1.0% vs. Exp. -4.3% (Prev. -2.6%) Japanese Imports (Feb) Y/Y -14.0% vs. Exp. -14.4% (Prev. -3.6%, Rev. -3.5%)

US

Fed established a primary dealer facility to support market function beginning March 20th which will last at least 6 months for 90-day loans and noted the interest rate will be at the discount window rate, while it will accept broad range of investment grade debt for collateral for loans to primary dealers. (Newswires) New York Fed is to offer USD 1trln in overnight repo operations for the remainder of the week (USD 500bln both in the morning and afternoon). (Newswires)

USD - Operations

-        ECB takes USD 75.8bln in its ECB 84-day USD operation

-        SNB allots USD 315mln in their 84-day USD repo operation, at a rate of 0.38%

-        BoE allot USD 7.245bln in their 84-day USD repo operation

Fed's George (Non-Voter, Hawk) says KC Fed continues to carry out key functions in this extraordinary time and we stand ready to lend through discount window, as well as address any regulatory or supervisory concerns. (Newswires)

Fed's Bostic (Non-Voter) says Fed actions are meant to show there will be maximum stimulus available now and when US gets on the other side; term auction facility among the next possible steps from the Fed which needs to consider and "be creative" in ways to aid SMEs. (Newswires)

Former VP Biden was declared winner in the Florida, Illinois and Arizona Democrat primaries. (Newswires)

UK/EU

European member states are reportedly divided over when and under what conditions the EUR 500bln ESM could be used to support the Euro Zone, according to diplomats. (FT)

German Finance Ministry and Financial Regulator announces that anti-counter cyclical capital buffer to cut to 0% from 0.25% starting April 1st, until at least year-end; new regulations will give German banks a capital boost of over EUR 5bln. (Newswires)

France and Belgium announced short-selling bans for a month each; while Italy is to implement a ban for 3-months. (Newswires)

ESCB is intervening, via the Bank of Italy, to ensure orderly conditions in the market, according to Bank of Italy sources; interventions are flexible in timing and markets, will continue for as long as is necessary. Interventions are aimed at clarifying if markets have any doubt regarding the decisions taken by the ECB GC. (Newswires)

ECB's Holzmann says the monetary toolbox is well equipped and monetary policy has not reached its limit. (Newswires) Note, these comments were a walk-back of his overnight remarks and we’re clarified by the ECB.

ECB's Schnabel says they are lowering their growth forecast, and we are experiencing a major economic shock; are closely monitoring credit markets for companies and governments are ready to act quickly if it is necessary. (Newswires)

EQUITIES

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Further detrimental losses seen in the European equity space [-5.9%] as optimism surrounding yesterday’s US intervention faded in overnight trade as virus fears continue to materialise, with Western countries’ operations coming to halt amid lockdown procedures in an attempt to slow the spread. Meanwhile, US equity futures have been locked in limit down since late-APAC trade following yesterday’s fleeting reprieve. Italy’s FTSE MIB (-2.5%) cushions some losses after Italy implemented a carpet ban on short-selling Italian stocks for three months. France’s CAC (-5.5%) fails to derive much support from its one-month short-sell ban. European sectors are mostly in the red, albeit defensives fare slightly better than cyclicals. Telecom names outperform drastically as consumers confined work-from-homes and self-quarantines exercise broadband use- with BT (+3.8%), Telecom Italia (+5.0%), and Orange (+5.1%) all benefitting as such. Energy meanwhile lags in the region, in-fitting with price action in the complex. Individual story-driven movers prove to be futile at this stage, although MTU Aero Engines (-17.9%), Rolls-Royce (-13.6%) experiences extra downside from broker downgrades.

Boeing (BA) says it supports a minimum of USD 60bln in access to liquidity for the airline industry; additionally, House Speaker Pelosi spoke with airline CEOs in which they agreed large and immediate action was required to help the aviation sector. (Newswires)

FX                        

USD - Demand for the Dollar is becoming insatiable and the scramble is stretching well beyond the realms of the currency markets, as stocks, bonds and commodities are dumped in near fire sale fashion. As a result, the index has posted a marginal new 2020 peak at 99.917 and it almost seems inevitable or destined to cross the 100.000 barrier at some stage.

NZD/CAD/AUD/GBP - The weakest G10 links and worst performers vs the Greenback as the funding and liquidity squeeze is compounded by renewed risk aversion, with the Kiwi now down under 0.5900, Loonie approaching 1.4350 and Aussie below 0.5950. Meanwhile, Sterling only gleaned brief support from the UK Government’s whopping additional coronavirus economic support package as Cable relinquished more big figures on the way through the psychological 1.2000 level, while Eur/Gbp has extended its rally beyond 0.9100 to circa 0.9175.

JPY/CHF/EUR - All displaying a degree of resilience and resistance to the general attraction of the Buck, but not impervious by any means with the Yen straddling 107.00, Franc pivoting 0.9600 and still wary of the SNB either sticking to its quarterly policy review timetable or deciding to strike early. On that note, the Euro has already digested the ECB’s latest policy measures and is now taking on board what EZ Governments have (left) to offer while keeping tabs on 1.1000.

SCANDI/EM - No surprise that the Scandinavian Crowns have fallen prey to the latest bout of risk aversion, while the Nok is also watching the steeper slide in crude prices anxiously along with the Mxn and Rub that has Brent weakness and spread to WTI convergence to contend with. However, some retracement in Eur/Nok after the Norges Bank more than trebled daily FX purchase on behalf of the Government and also noted that more oil revenue will have to be converted for financing anti-COVID-19 initiatives. Elsewhere, the Rand appears vulnerable to a test of 17.0000 ahead of SA retail sales data and post-CPI that was firmer than forecast, but not sufficient to alter consensus for a 50 bp SARB rate cut tomorrow. Sticking with Central Bank easing, not much respite for the Try from cheaper crude costs after the full point intermeeting CBRT move on Tuesday.

Norges Bank are to increase currency sales on behalf of the Norwegian Government; from NOK 500mln to an amount equivalent to NOK 1.6bln. (Newswires)

FIXED INCOME

It would be premature if not profligate to suggest that the storm may have passed in debt markets, but futures have pared some losses after Bunds plunged to 168.37, Gilts hit a 130.99 Liffe low, 10 year T-notes slumped to 134-02+ and BTPs plummeted to 124.02. Consolidation and short covering doubtless played a part in the partial recovery given extreme oversold conditions, but like equities via circuit breakers and short selling bans/restrictions, the beleaguered Eurozone benchmarks also got a lifeline from official or orchestrated avenues in the form of ESCB intervention, according to sources. For the record, long end German issuance was absorbed adequately, but not welcomed with open arms given a huge concession, but spread divergence that was reaching blow-out proportions has abated somewhat.

COMMODITIES

WTI and Brent front-month futures continue to slide with both contracts bleeding below the USD 30/bbl mark – with the former declining below its YTD low of ~USD 27.40 and ts 2016 low of USD 26.06/bbl. Brent meanwhile sees its 2016 low of USD 27.10/bbl, having tested levels close to USD 28/bbl in early EU trade. Underlying themes remain unchanged, with the demand picture further deteriorates as the number of countries implementing lockdowns stack up in a bid to slow down virus contagion. Elsewhere, the breakdown amongst OPEC members provides further pressure for the complex, with ING expecting weak oil prices for a prolonged time as Saudi and Russia do not show signs of backing away from production hikes. Elsewhere, spot gold meanders around the USD 1500/oz mark as it clocks in losses of over USD 30/oz amid the ongoing liquidating issues. Finally, copper prices see further detrimental losses amid demand concerns, a firmer Buck, traders on the sidelines and the overall sentiment, with the red metal approaching USD 2/lb vs. Monday’s USD 2.52/lb high.

US Private Inventory Crude Stocks (w/e 13th Mar) -0.42mln vs. Exp. +3.3mln (Prev. +6.4mln). (Newswires)

Russia's Kremlin states that the current oil price is low, they would like this to be higher. (Newswires)

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