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[PODCAST] US Open Rundown 23rd March 2020

  • European bourses are subdued this morning, with US futures lifted off the limit-down level they touched overnight
  • US Senate voted 47-47 on the coronavirus bill which failed to reach the 60 votes required to pass the first procedural hurdle
  • US President Trump approved New York, Washington and California disaster declarations which allows federal funds to flow into the states.
  • German Government intends to set up a rescue package of EUR 500bln for companies and banks
  • German Public Health Institute Head says we are seeing first signs that the exponential upward curve in virus infections in Germany is flattening
  • FX sees the DXY in proximity to session highs, to the detriment of G10 peers; while RBNZ announced NZD 30BLN in large-scale asset purchases

CORONAVIRUS UPDATE

US Senate voted 47-47 on the coronavirus bill which failed to reach the 60 votes required to pass the first procedural hurdle. The legislation involved would have amounted to around USD 2trl vs. the touted USD 1trl last week; includes around USD 1.3-1.4trl of spending with the remainder coming in the form of loans that would eventually be paid back. Senate Democrats were reportedly sending signals to Republicans on the need to revise the bill while negotiations continue. Following the defeat, US Senate Majority Leader McConnell initially said the Senate will re-vote on the motion to proceed at 0945EDT on Monday, although reports later noted that this will be later than previously planned as the Senate is to return at 1200EDT, while Senate Democratic Leader Schumer believes coronavirus bill issues can be resolved in next 24 hours. (Newswires)

US President Trump said US is marshalling every resource available to fight the "Chinese virus" and that it is important Americans follow guidance on social distancing. Furthermore, President Trump also stated we are fighting a war against an invisible enemy but added it is going to be a great victory. (Newswires) US President Trump approved New York, Washington and California disaster declarations which allows federal funds to flow into the states. (Newswires)

Italy raised COVID-19 restrictions in which it stated people cannot exercise outside and ordered a halt to almost all industrial production during a 2-week period. This comes after the death toll reached 5476 over the weekend, with 651 on Saturday alone.

German Government intends to set up a rescue package of EUR 500bln for companies and banks; expected to authorize EUR 350bln in new debt to fight the coronavirus. (Newswires/Der Spiegel) The Government is expected to pass a EUR 156bln supplementary budget, which includes a EUR 33.5bln drop in tax-revenue and EUR 122.8bln in new spending; raising EUR 150bln in additional debt. Ministers are to seek authorisation to suspend the debt brake. (FT) German Chancellor Merkel tightens restriction amid the coronavirus in which no more than 2 people may be together in public places unless they are family or living together, while restaurants will be closed aside from takeout and delivery for initially a 2-week period. In other news, German Chancellor Merkel reportedly quarantined herself at home after coming into contact with a doctor that tested positive for coronavirus. (Newswires)

German Public Health Institute Head says we are seeing first signs that the exponential upward curve in virus infections in Germany is flattening. (Newswires)

Spanish PM Sanchez is to seek parliamentary approval to extend state of emergency to April 11th. (Newswires)

Australian Prime Minister Scott Morrison ordered the closure of most venues from Monday, including pubs, casinos, gyms and cinemas, while there were comments from the Queensland Premier that the state government will close state borders in a move to stop the spread of coronavirus. (Newswires)

New Zealand PM Ardern said coronavirus alert level is raised to 3 today which will go to the highest level of 4 within 48 hours, while she added all non-essential businesses must close and country must prepare to go to self-isolation. (Newswires) New Zealand Finance Minister Robertson announced to expand wage subsidies and that the government is freezing rent increases in New Zealand, while it is also looking at significant support for mortgage holders. (Newswires) RBNZ announced a NZD 30bln large scale asset purchase programme of NZ government bonds over 12-months which is to be purchased across a range of maturities in the secondary market. (Newswires)

India announced all districts in New Delhi are to be locked down and that the financial hub around Mumbai must keep non-essential business closed until March 31st. (Newswires) RBI to conduct variable rate term repos of INR 1tln, as special case, standalone primary dealers are to be allowed to participate in auctions with other eligible partners, all other T&Cs will remain the same

Hong Kong is to ban all tourists to the city from Wednesday, due to the coronavirus. (Newswires)

Japanese PM Abe says options will be kept wide open on what steps to take to support the economy, this will include fiscal, monetary and tax measures. Subsequently, Japan are likely to compile additional budget for FY2020, aimed to be complete by May 1st, according to JiJi citing sources. (Newswires/JiJi)

ASIA

Asian stock markets mostly traded with hefty losses amid further coronavirus-related disruptions and a rising death toll. As such, risk sentiment was spooked which was exacerbated as US equity futures hit limit down within a matter of minutes from the open to set the gloomy tone across the Asia-Pac region with ASX 200 (-5.6%) weighed heavily amid double digit losses across the big 4 banks and with NZX 50 (-7.6%) registering its worst intraday drop on record of more than 10% after the announcement of shutdown measures. Elsewhere, Hang Seng (-4.9%) and Shanghai Comp. (-3.1%) were lower as China conformed to the global coronavirus fears and after continued PBoC liquidity inaction. Nikkei 225 (+2.0%) bucked the trend on return from its extended weekend and with some finding comfort after Japanese PM Abe ruled out the cancellation of the Olympics but was instead open to a postponement, while SoftBank shares surged on the announcement of a JPY 4.5tln asset sale to fund a share buyback in which the Co. will retire 45% of stock. Finally, 10yr JGBs were higher amid the predominantly negative overnight risk tone and with the BoJ also present in the market today which includes unscheduled purchases of JPY 300bln in 3-5yr and JPY 500bln in 5yr-10yr JGBs.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC sets USD/CNY mid-point at 7.0940 vs. Exp. 7.0985 (Prev. 7.1052)

Japanese Finance Minister Aso and BoJ Governor Kuroda are to participate in G20 Finance Ministers and Central Bank Governors emergency conference call today, although sources noted that the G20 will not issue a statement after its conference call on Monday. (Newswires)

Japanese PM Abe said may have to postpone Olympics if holding them in complete form is impossible but added that cancelling the Tokyo games is not an option. (Newswires)

UK/EU

ECB’s De Guindos warned the virus outbreak will place Europe into a recession but noted it should be transitory and that the regional economy will be back into expansion on the 2nd semester, while he added Eu should consider Eurobonds to deal with the coronavirus. (Newswires)

ECB’s Visco says the ECB is ready to increase size of bond purchase programme, change its composition and length in time. (Newswires)

ECB’s Schnabel said the ECB is in a comfortable position of having a large set of tools which have not been used to full extent, while she added we stand ready to conduct further measures if required. (Newswires)

EU’s Dombrovskis said the EU Commission is likely to present a tool for the Euro zone’s ESM bailout fund to fight the effects of the coronavirus epidemic which could unlock unlimited sovereign bond buying. (Newswires)

EU Economic Commissioner Gentiloni believes a fiscal support deal from the EU could be agreed in time for an EU Leaders video conference on Thursday. With three cited options: ESM credit lines, narrow liquidity facilities for emergency health-care and introduction of coronabonds. (FT)

 

EQUITIES

Another detrimental start to the week for European equities (Euro Stoxx 50 -3.0%), as the negative APAC sentiment reverberated to Europe after US Senate failed to reach the required number of votes to pass its coronavirus bill, although Senate Majority Leader McConnel stated that a re-vote of the motion will proceed 15 minutes after the US Cash open. US equity futures briefly hit the 5% limit down but clambered off lows, whilst major European bourses experience broad-based losses, with the DAX having briefly lost the 8500 level and the FTSE 100 south of 5000. Sectors again reside deep in negative territory, although Telecom names fare somewhat better given the increasing broadband demand as large parts of the world are forced to work from home. Travel & Leisure names meanwhile see more pronounced downside on continued decaying demand. In terms of individual movers, CAC-giant Airbus (-0.4%) fell as much as 10% at the open after withdrawing FY20 guidance, pulling FY19 dividend proposals whilst it also secured a EUR 15bln credit line which will not be covered by the French government’s guarantee scheme. Elsewhere, ITV (-11.0%) sees downside after withdrawing its respective FY20 guidance whilst also announcing cost-cutting measures. Finally, Swedbank (-3.8%) sees losses relatively in-line with the broader market following a report into its money laundering practices which noted that the bank’s Estonian and Latvian arms actively pursued high-risk customers, but the report stopped short of concluding that money laundering practices took place.

FX

USD/NZD/AUD/CAD - The Greenback has resumed its march higher after a relatively brief bout of consolidation, with the DXY back above 102.50 and aiming for a retest of resistance just below 103.00 where it faded on Friday following the Fed’s enhanced and expanded liquidity lines to other global Central Banks. However, the ensuing recovery in rival currencies has been rather short-lived as the Kiwi retreats towards 0.5600 in wake of the RBNZ rolling out a Nzd30 bn asset purchase program for 12 months, while the Aussie is back below 0.5800 alongside renewed Yuan weakness circa 7.1400 and Loonie looks destined to test 1.4500 again ahead of Canadian wholesale trade and against the backdrop of waning WTI.

EUR/CHF/GBP - Also unwinding corrective gains vs the US Dollar as the nCoV pandemic prompts the ECB and BoE to pledge more stimulus via additional QE and/or funding, while the latest rise in Swiss sight deposit balances reveal the extent of heightened SNB intervention to curb the Franc’s appreciation. Eur/Usd has subsequently lost grip of the 1.0700 handle, Usd/Chf is approaching 0.9900 and Cable has recoiled through 1.1600 as Eur/Gbp hovers above 0.9200 in the run up to preliminary EU PMIs on Tuesday.

NOK/JPY - The G10 outperferformers, with the Norwegian Krona deriving a degree of protection from crude price erosion via heftier Norges Bank foreign currency selling, while the Yen has pared declines on renewed safe-haven demand. Eur/Nok has pulled back from 12.7400+ peaks and Usd/Jpy is meandering within a wide 111.24-109.68 band after another record amount of BoJ ETF buying and Japanese Government supplementary budget reports.

SEK/EM - Risk off sentiment and the Riksbank’s QE activity are keeping Eur/Sek afloat above 10.1500, while EM currencies are broadly weaker with Usd/Mxn, Usd/Rub and Usd/Try circa 24.8660, 80.6000 and 6.6000 after the Banxico’s pre-meeting ease, in advance of Russia’s next meeting with oil companies circa 14.00GMT and as the coronavirus toll jumps in Turkey.

FIXED

Bunds, Gilts and US Treasuries are all retaining the bulk of their latest recovery gains having topped out at 171.39, 134.56 and 138-02 respectively, but the big moves in debt markets of late have been at the Eurozone margins where Spanish bonds have erased all and a bit more of their hefty declines to trade at 154.00 vs 152.71 at one stage, while Italian BTPs have popped just over 140.00 from 138.74. Nothing to substantiate the notion, but it could be that ESCB management and intervention could have kept yields/spreads from spiking/diverging further, or simply the ECB steering QE in that direction according to market conditions. Ahead, the next round BoE APF buying and EZ preliminary consumer sentiment.

COMMODITIES

WTI and Brent front-month futures have been unable to escape the broader market selloff in the aftermath of a roadblock in the US Senate amid a failure among lawmakers to agree on a COVID financial aid package. WTI May contract briefly slipped below the USD 21/bbl mark to levels last seen in Q1 2002, whilst similarly, its Brent counterpart dipped below USD 25/bbl to hit Q1 2003 levels. Prices continue to feel underlying pressure from parts of the global economy coming to a halt amid coronavirus lockdowns, whilst OPEC+ indecision/uncertainty only adds further pain for the complex. On that front, Russian Energy Minister Novak will be convening with Russian oil producers (1400GMT/1700 local time) to discuss the current environment and low energy prices. This meeting is key to determine Moscow’s stance in OPEC+ and will give an insight as to how much longer Russia can tolerate the continuing slide in crude prices – with the Kremlin noting at the back-end of last week that low prices are unpleasurable but not a catastrophe. Meanwhile, Energyintel’s Bakr has played down the prospect of consensus being reached on an output cut ahead of the meeting. One thing to keep an eye on will be any reaction aimed at Saudi after the Kingdom’s output hike and OSP cuts. As a reminder, Russia's government spokesperson Peskov on Friday said Moscow sees Saudi oil plan to ramp production as blackmail and will not back down but stated that the country remains ready for contact on prices. Elsewhere, spot gold continues to suffer from position liquidations as investors convert to cash/fund margins – with the yellow metal hovering below the USD 1500/oz mark ahead of last week’s USD 1451/oz low. Copper meanwhile, resumes its slide as COVID’s impact on fundamentals, supply chain and sentiment continues to pressure the red metal which hovered just above the USD 2/lb mark, having dipped below the figure last week.

Energyintel's Bakr states that there are currently no signs that Russian Energy Minister and Russian energy companies will be talking about production cuts. (Twitter)

US

Fed's Kashkari (Voter, Dove) said the US will at least have a mild recession and that that the Fed will ensure banks have enough cash to meet demand. Kashkari also stated the Fed is being very aggressive but there is more we can do if needed and that the Fed has infinite cash to support the financial system. (Newswires)

Fed’s Bullard (non-voter, dove) reiterated that the Fed was willing to do more to help address the coronavirus crisis and warned that unless more was fiscally done, unemployment could reach 30% in Q2 due to virus shutdowns, while he also suggested that GDP could decline greater than 50%. (Newswires)

US Senator Romney is going into self-isolation as he was reported to have sat next to Senator Paul for extended periods recently, and Senator Paul had recently tested positive for coronavirus. (Newswires)

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