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[PODCAST] US Open Rundown 25th March 2020

  • European sentiment began firm but has since deteriorated significantly ahead of the US’ approach to market
  • US Senate Majority Leader McConnell confirmed the they have reached a bipartisan deal and said the stimulus package would rush financial assistance to Americans
  • ECB's Lagarde asked EZ Finance Ministers yesterday to seriously consider a one-off joint debt issue of coronabonds, according to officials; was opposed by Northern states
  • Japan is discussing a USD 500bln stimulus package, Cash handouts for households hit by coronavirus and business aid to come in May, package translates to ~10% of GDP
  • Spain covid cases rises to 47,610 from 39,673 on Tuesday; death toll at 3434 from 2696
  • Looking ahead, highlights include US Durables, DoE’s, US 5yr Note supply

CORONAVIRUS UPDATE

US Senate Majority Leader McConnell confirmed the they have reached a bipartisan deal and said the stimulus package would rush financial assistance to Americans, while he added help is on the way and we will pass this legislation later today, while a source noted the stimulus deal was worth USD 2tln. (Newswires) US Senate Democrat leader Schumer says legislation has been improved and we have an agreement on the largest rescue package in history, while he added the bill provides more than USD 130bln to aid hospitals and USD 150bln to support state and local governments. (Newswires) NEC Director Kudlow said stimulus 3 will be USD 6tln including around USD 2tln for direct relief such as check payments, unemployment insurance, as well as grants and loans for businesses, while around USD 4tln will be in Fed lending. In related news, a US aide said the deal on stimulus bill is close although a vote on Tuesday night was unlikely. (Newswires) 

Mainland China reported 47 additional coronavirus cases and 4 additional deaths on March 24th vs. 78 additional cases and 7 deaths on March 23rd, to bring the total cases in mainland China to 81,218 and total death toll at 3,281. (Newswires) South Korea reported 100 additional coronavirus cases to take total to 9,137 and 6 additional deaths for a total of 126, while there were 223 newly recovered to take the total to 3,730. (Newswires)

Spain covid cases rises to 47,610 from 39,673 on Tuesday, according to its Health Ministry; death toll at 3,434 from 2,696 on Tuesday. (Newswires)

Japan is discussing a USD 500bln stimulus package, Cash handouts for households hit by coronavirus and business aid to come in May, package translates to ~10% of GDP, via Nikkei. (Nikkei)

German CSU lawmaker Dorbindt says that government stimulus measures are seen at being worth at EUR 1.4trl. (Twitter)

India likely to finalise a stimulus package of USD 20bln, to fight the virus; likely to increase 2020/21 borrowing plan to support this - asked RBI to buy part of additional bond issuance. (Newswires) New Zealand declared a national emergency due to the coronavirus. (Newswires)

ASIA

Asian equity markets traded with firm gains as the region took impetus from the historic rally on Wall St where the DJIA jumped by over 2100 points or around 11.4% for its largest daily point gain on record and biggest percentage jump since 1933, with sentiment underpinned by hopes of a stimulus breakthrough which eventually materialized as negotiators reached a deal on the coronavirus stimulus bill and with US President Trump touting a reopen of the US economy by Easter. ASX 200 (+5.5%) surged as the stellar performance stateside reverberated across the region with Real Estate, Industrials and Financials front-running the gains which briefly saw the index notch its biggest intraday gain since October 2008 to briefly surmount the 5k level, while Nikkei 225 (+8.0%) was lifted by the recent JPY-weakness and with the BoJ Summary of Opinions from last week’s emergency meeting suggesting the central bank was flexible and open to another off-schedule meeting. Elsewhere, Hang Seng (+3.8%) and Shanghai Comp. (+2.2%) benefitted from the heightened global risk tone and amid reports the Trump administration is said to mull a 90-day deferral of tariffs on all imported goods from around the world, although the gains were somewhat capped as White House Trade Adviser Navarro refuted the prospects of a tariff deferral and following continued PBoC liquidity inaction. Finally, 10yr JGBs were relatively flat with demand subdued by gains in stocks and in the absence of BoJ purchases in the market today, while the announcement of a coronavirus bill agreement later weighed on prices and to break down support at the 152.00 level.

PBoC skipped open market operations for a net neutral daily position and announced a CNY 5.0bln central bank bill swap operation today. (Newswires)

PBoC set USD/CNY mid-point at 7.0742 vs. Exp. 7.0735 (Prev. 7.0999)

PBoC is said to be in talks to lower the rates banks pay on savings accounts and may lower the deposit rate in approaching days. (FT)

BoJ Summary of Opinions from the March 16th emergency meeting stated they must strengthen monetary easing to prevent worsening of corporate and household confidence, while it noted they should enhance monetary easing through three perspectives which is providing ample funds so that financial institutions can sufficiently fulfill the functioning of financial intermediation, doing its utmost to facilitate corporate financing, and ensuring stability in financial markets by restraining the expansion in risk premia through an increase in purchases of assets such as exchange-traded funds. Furthermore, it noted they can respond flexibly including holding an emergency meeting again and increase the pace of JGB buying up to its JPY 80tln annual guideline. (Newswires)

US

US President Trump's administration was initially reported to mull a 90-day deferral of tariffs on all imported goods from around the world, although White House Trade Adviser Navarro later refuted the reports and stated that the White House is not considering a 3-month tariff deferral. (Newswires)

UK/EU

ECB's Lagarde asked EZ Finance Ministers yesterday to seriously consider a one-off joint debt issue of coronabonds, according to officials. (Newswires)

-        Lagarde suggested that the joint issuance would be on top of the use of the bailout fund

-        Joint issuance plan was opposed by Northern European nations, however, support did come from beyond southern states

UK CPI YY (Feb) 1.7% vs. Exp. 1.7% (Prev. 1.8%); MM (Feb) 0.4% vs. Exp. 0.3% (Prev. -0.3%)

-        UK Core CPI YY (Feb) 1.7% vs. Exp. 1.5% (Prev. 1.6%)

German Ifo Business Climate New (Mar) 86.1 vs. Exp. 87.7 (Prev. 96.1)

-        Expectations New (Mar) 79.7 vs. Exp. 81.9 (Prev. 93.4)

-        Curr Conditions New (Mar) 93.0 vs. Exp. 93.6 (Prev. 98.9)

EQUITIES

As we stand, European equities have wiped out earlier gains (Eurostoxx 50 -1.4%) following the monumental upside seen on Wall Street and in the APAC session overnight amid a concoction of stimulus announcements from the regions. Focus remains on the States after Senators agreed to the Trump administration’s virus rescue bill – which sources note could be worth USD 2.5tln, and with voting to take place later today although details remain light. Back to Europe, the positive sentiment initally resonated across the region, with Germany’s DAX (-2.2%) reclaiming the 10k milestone. However, the 10k level was conceded therafter alongside reports that ECB’s Lagarde asked EZ Finance Ministers yesterday to seriously consider a one-off joint debt issue of coronabonds; a request that was rejected by northern European nation, however, support came from beyond just the southern states. UK’s FTSE (-1.0%) initially underperformed the region before later receiving a boost due to its large financial, mining and energy exposures. European sectors now mostly red, with the exception of Energy names. Airlines experience a bout of reprieve – potentially on back of the anticipated US stimulus package support for domestic carriers acting as a catalyst; easyJet (+8.7%), Ryanair (+1.5%), and Air France-KLM (+5.7%) all trade closer to the top of the Stoxx 600. Elsewhere, E.ON (+9.2%) was bolstered at the open amid YY improvements in results and underlying utility demand from nations working from home. Finally, Adidas (+3.4%), Puma (+5.6%) and Sports Direct (+10.0%) all see tailwinds emanating from Nike earnings – whose shares show gains in excess of 12% pre-market. In terms of bank calls, UBS sees Stoxx 600 index at 340 by year-end and sees a greater upside in UK equities amid cheaper valuations. The Swiss Bank targets FTSE 100 at 6400. As earning season looms, UBS sees European companies reporting a 33% drop in 2020 EPS, with the expectations incorporating a deep recession forecast.

FX

AUD/GBP/NZD/CAD/EUR - The Aussie has extended recovery gains vs its US counterpart and outperformance against most G10 peers amidst another broad upturn in risk sentiment or sheer relief that the US Senate has resolved differences on the circa Usd2 tn Stimulus C bill, including Usd400 bn for the TSF that can be multiplied up to 10 times by the Fed. Aud/Usd has now breached the psychological 0.6000 mark on the way through 0.6050 as Aud/Nzd approaches 1.0300 and the Kiwi meets some resistance around 0.5900 in wake of NZ declaring a state of emergency due to COVID-19. Meanwhile, corrective trade and short covering has carried Cable up beyond 1.1900 and over last year’s 1.1959 low, with Eur/Gbp retreating well below 0.9100 as the single currency stumbles into 1.0850 vs the Greenback in wake of more pronounced weakness in Germany’s final Ifo survey compared to preliminary prints. However, Eur/Usd appears well supported above 1.0800 where decent option expiries roll off (1.2 bn), and with the DXY slipping back from 101.920 to 101.150 within a slightly wider 102.000-101.00 range. Elsewhere, the Loonie is also taking advantage of relative weakness in the Buck, but losing impetus alongside WTI between 1.4297-1.4482 parameters.

CHF/JPY - The Franc and Yen are narrowly mixed against the US Dollar either side of 0.9800 and 111.00 respectively, but the former holding up better despite waning risk appetite and a sharp deterioration in Swiss investor sentiment.

SCANDI/EM - The Norwegian and Swedish Crowns are still in bear retracement mode with Eur/Nok sub-12.0000 and Eur/Sek under 11.0000, while EM currencies are also benefiting from less acute angst over the adverse impact of the coronavirus, for the time being at least as global Central Banks and Governments expend even more efforts to counteract the economic contagion.

New Zealand Trade Balance (Feb) 594M (Prev. -340.0M, Rev. -414M). (Newswires) New Zealand Exports (Feb) 4.92B (Prev. 4.73B, Rev. 4.69B) New Zealand Imports (Feb) 4.33B (Prev. 5.07B, Rev. 5.10B)

FIXED

A rather abrupt change in direction, albeit nothing compared to the wild swings in sentiment and related market moves seen since the spread of China’s pandemic beyond the country across the globe. Nevertheless, equity gains have eroded more rapidly in recent trade and debt futures have pared declines to the extent that Gilts have registered a fresh Liffe high (135.07 vs 134.33 at one stage), Bunds are back in positive terrain above 170.00 compared to their 169.54 Eurex low and 10 year US Treasuries are close to flat again within 137-01 to 137-17+ overnight session extremes. Hence, an element of safe-haven positioning has resurfaced and it could be due to the latest nCoV update from Spain or more Eurozone disagreement on concerted fiscal support to counter the virus.

COMMODITIES

WTI and Brent front-month futures continued their sentiment-driven climb off near-multi-decade lows, before paring gains amid a broader pullback in sentiment in recent trade. Desks continue to highlight that underlying fundamentals remain largely unchanged, but stimulus hopes provide support for the complex, in the short term at least. Although data has been overshadowed, last night’s Private Inventory data was seemingly constructive for the market – having printed a surprise draw of 1.2mln barrels vs. Exp. build of 2.8mln - traders will now eye the DoE figures for confirmation. That being said, the inventory numbers later today are unlikely to have a sustained impact in prices as the complex takes its cue from macro themes/sentiment. In terms of metals, spot gold trades on either side of USD 1600/oz and re-eyes its 21 DMA to the downside at ~USD 1591.90, with losses seemingly triggered due to increasing flows into riskier assets. Copper prices initially conformed to the risk appetite but have since waned off highs, with relatively uneventful price action in the red metal below 2.25/lb.

US Private Inventory Crude Stocks -1.2mln vs. Exp. +2.8mln (prev. -0.4mln). (Newswires)

CME raised COMEX copper futures margins by 17.2% to USD 3750/contract from USD 3200/contract, while it is to launch a new gold futures contract with expanded, flexible delivery in 100 ounces, 400 ounce or 1 kilo bars. (Newswires) 

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