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[PODCAST] EU Open Rundown 26th March 2020

  • US Senate voted unanimously (96-0) to pass the USD 2tln coronavirus response bill which sends the bill to the House
  • US House Majority Leader Hoyer's office stated the House will convene at 0900EDT on Friday to consider the bill
  • Asia equity markets traded cautiously amid headwinds from the US where most major indices finished in the green although pulled back heading into the Wall St. close
  • In FX markets, the DXY softened and retreated back below the 101.00 level; EUR/USD above 1.09, USD/JPY below 111.00
  • Looking ahead, highlights include German GfK, UK Retail Sales, BoE Rate Decision, US GDP (Final), PCE Price (Final), & Initial Jobless Claims, Fed’s Bullard, supply from the US

CORONAVIRUS UPDATE

US Senate voted unanimously (96-0) to pass the USD 2tln coronavirus response bill which sends the bill to the House, while Senator Sasse’s amendment to change unemployment insurance provisions in the bill was voted 48-48 and fell short of the 60 needed for passage. (Newswires)

US President Trump said he approved disaster declarations by various states and said probably some sections of the country can return to work before other sections. President Trump also stated Congress is very close to passing stimulus bill and that he will sign coronavirus relief bill as soon as it reaches his desk, while he added they are open to more stimulus and suggested they will go back for more money if needed. (Newswires)

US House Majority Leader Hoyer's office stated the House will convene at 0900EDT on Friday to consider the bill and it expected the bill will pass by voice vote, while there were also comments from House Speaker Pelosi that she is optimistic the bill will pass in the House and suggested there will be further legislation from Congress to address the coronavirus. (Newswires)

US Defense Secretary Esper issued a stop movement order to halt all travel and movement abroad for up to 60 days, while Washington D.C. ordered all non-essential businesses to close through to April 24th. (Newswires)

G7 Foreign Minister failed to agree on a statement on Wednesday as the Trump administration insisted on referring to the coronavirus outbreak as the Wuhan virus. In related news, China and US are expected to set aside their coronavirus blame game and focus on the challenges of the pandemic when G20 leaders hold a video conference today. (Washington Post/Twitter/SCMP)

Italy COVID-19 total cases rose to 74,386 (prev. 69,176) and the death toll rises to 7,503 (prev. 6,820). There were also comments from Italian PM Conte that the government is working on extra measures to support the economy on the same scale as the EUR 25bln already announced. (Newswires)

UK coronavirus cases rose to 9529 from 8077 and death toll rose to 463 from 422. (Newswires)

Mainland China reported 67 additional cases and 6 additional deaths on March 25th vs. 47 additional cases and 4 deaths on March 24th, which brings the total number of cases in mainland China to 81285 and the total death toll to 3287. (Newswires)

South Korea reported 104 additional coronavirus cases to take total to 9241 and 5 additional deaths for a total of 131, while there were 414 newly recovered to take the total to 4144. (Newswires)

ASIA

Asia equity markets traded cautiously amid headwinds from the US where most major indices finished in the green although pulled back heading into the Wall St. close after the USD 2tln coronavirus relief bill hit a snag at the Senate. This follows reports GOP Senators Graham, Sasse and Scott noted they won't speed up the bill until a drafting error in the stimulus bill is addressed which otherwise could provide an incentive for employees to be laid off, while Democrat Senator Sanders threatened he will demand restrictions on USD 500bln fund for corporates if the 3 Republican Senators do not drop their objections to unemployment insurance expansions. Nonetheless, the bill was eventually passed via unanimous vote which gets sent to the House for a vote on Friday. ASX 200 (+2.3%) gained as the RBA remained active in its QE efforts and with notable outperformance in tech and defensive sectors such as healthcare and utilities. Nikkei 225 (-5.0%) was heavily pressured as exporters including index heavyweight Fast Retailing staggered on the detrimental currency flows and with SoftBank also among the worst hit after its credit rating was downgraded 2 notches and deeper into junk status by Moody’s, while participants were also ruffled by the Tokyo Governor’s requests for residents to stay at home during the weekend to curb the spread of COVID-19. Hang Seng (-0.9%) and Shanghai Comp. (-0.3%) were indecisive as focus also shifted to earnings including the upcoming releases by the Big 4 banks which are set to begin announcing their results from today. Finally, 10yr JGBs were higher due to the underperformance of risk sentiment in Japan and following similar rebound in T-notes, with weaker results at the latest 40yr JGB auction doing little to stall the overnight bond rally.

PBoC skipped open market operations and sold CNY 10bln of 6-month bills in Hong Kong. (Newswires) PBoC set USD/CNY mid-point at 7.0692 vs. Exp. 7.0839 (Prev. 7.0742)

BoK is planning weekly repo purchase system and is to expand operations for 3 months to provide unlimited liquidity which a BoK official can be viewed as QE, while the BoK is said to be concerned about possible quarter-end liquidity crunch at financial institutions and may purchase more government bonds if required. (Newswires)

Singapore GDP (Q1) Q/Q -10.6% vs. Exp. -6.3% (Prev. 0.6%)

Singapore GDP (Q1) Y/Y -2.2% vs. Exp. -1.5% (Prev. 1.0%)

UK/EU

ECB stated the self-imposed issuer limits used in QE will not apply to the temporary pandemic emergency purchase programme, according to the legal text. (Newswires)

FX

In FX markets, the DXY softened and retreated back below the 101.00 level amid the brief stimulus bill snag at the Senate. Nonetheless, the greenback’s losses were limited amid mixed price action in its major counterparts and ahead of today’s US GDP and jobless claims data, as well as Fed Chair Powell’s rare televised interview at 0705EDT. EUR/USD extended on its gains but was off its highs as it battled to hold on to the recently reclaimed 1.0900 handle and GBP/USD consolidated after a failed attempt at 1.1900. Elsewhere, USD/JPY slipped firmly below 111.00 owing to the continued USD-reversal although eventually found a base around 110.50, while antipodeans were choppy as the ill-effects to the high beta currencies from the indecisive risk tone was offset following a surprise firmer fixing by the PBoC and the unanimous passage of the record stimulus bill at the US Senate.

COMMODITIES

Commodities were subdued amid the indecisive risk tone overnight which kept oil prices rangebound around USD 24.00/bbl after the prior session’s choppy performance where the latest EIA inventory report showed a narrower than expected build, albeit still at an increase compared to the surprise draw seen in the latest private sector inventories. Furthermore, there were mixed comments overnight from Goldman Sachs which suggested the significant expected drop to demand this and next month would overshadow any action by OPEC, but also suggested risks of a potential sharper rebound for Brent crude in Q4. Elsewhere, gold prices were stuck around the USD1600/oz level and failed to benefit from the pull back in USD, while copper conformed to the lacklustre tone across the complex amid the mixed risk tone and weakness in its largest purchaser China.

CME raised COMEX 5000 silver futures maintenance margins by 12.5% to USD 9000/contract and raised palladium futures NYMEX margins by 13.2% to USD 43000/contract from USD 38000/contract. (Newswires)

Goldman Sachs forecasts oil demand to fall by 10.5mln bpd in March and 18.7mln bpd in April, while it suggested that a demand shock of this magnitude will overwhelm any supply response including core-OPEC freeze or cut. However, Goldman Sachs also noted it is seeing increasingly risks of a price rebound to be sharper than its base-case rally back to USD 40/bbl for Brent by Q4 2020. (Newswires)

GEOPOLITICS

There were reports of explosions in Baghdad's Green Zone in Iraq and that sirens are sounding at the US Embassy, while other reports noted that 2 rockets were launched at the Green Zone area. (Newswires)

US

The TPLEX bull steepened on Wednesday, likely catching momentum from the short-end, where some Bills crossed into negative rates. With a strong take-up in the Fed’s reverse repo operation, and low overnight collateral rates, dealers have enough cash for the time being, which is potentially pushing them into Bills. Furthermore, the Treasury’s 5-year note auction was well received, stopping through the 0.55% WI by 1.5bps, while covering 2.53x (above the six-auction average of 2.42x), dealers took a larger share than usual, but one desk notes the strong takeup as not a “hot-potato toss”, but rather a desire for the notes, instead of immediately selling them. Meanwhile, the belly to long-end likely saw less of a bid due to the equity rally, as well as the increased corporate supply. By settlement, 3m -6bps at -0.0457%, 2s -4.5bps at 0.332%, 10s +3.5bps at 0.853%, 30s +4.5bps at 1.414%. Spreads: 2s10s +4.4bps at 51bps, 2s30s +6.5bps at 108bps; 3-month FRA-OIS +5bps at 106bps. T-note (M0) futures settled 3+ ticks lower at 137-11.

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