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[PODCAST] EU Open Rundown 6th May 2020

  • Asian equity markets traded mixed with the region lacking solid conviction after the choppy price action on Wall St
  • The DXY heads into the EU open relatively flat, EUR/USD below 1.0850 and GBP/USD below 1.2450
  • The ECB said it takes note of the German court ruling and remains fully committed to its mandate
  • UK Chancellor Sunak is to wind down the coronavirus furlough scheme amid concerns Britain is addicted to the wage subsidy
  • Looking ahead, highlights include EZ services & composite PMIs, UK construction PMI, EZ retail sales, US ADP, DoEs, supply from the UK and Germany 
  • Earnings: BMW, Dialog Semiconductor, Credit Agricole, Societe Generale, Enel, PayPal, T-Mobile US, General Motors, Metlife, American Electric Power

CORONAVIRUS UPDATE

Reports suggest the White House is looking at winding down the COVID-19 task force. President Trump later responded that we will have something in a different form when asked about winding down the White House Coronavirus Task Force, while he added we will have a different group for safety and reopening of the economy with Dr. Fauci and Dr. Birx to still be involved in advising after the task force is disbanded. (Newswires)

Senate Majority Leader McConnell said Senate Republicans are not ruling out further stimulus but think that a pause is necessary to evaluate how current measures are working. (CNN/Twitter)

US COVID-19 cases rose 1.7% to 1,171,510 (Prev. +1.8%) and death toll rose 1.2% at 68,279 (Prev. +1.4%), while AFP tweeted there were 2,333 deaths in US over the last 24 hours citing the Johns Hopkins tracker. (Newswires/Twitter)

UK COVID-19 cases rose by 4,406 to 194,990 (Prev. 3,985 increase) and death toll rose by 693 to 29,427 (Prev. 268 increase) which has surpassed Italy’s death toll and makes it the highest in Europe. (Newswires)

German federal government agrees with states that states can decide on their own about gradual reopening of various aspects such as universities, restaurants, bars, hotels, trade fairs and cosmetic studios, according to draft document. Furthermore, the document notes that regional restrictions would be reinstated if there are over 50 new infections per 100k inhabitants in counties within last 7 days. (Newswires)

ASIA

Asian equity markets traded mixed with the region lacking solid conviction after the choppy price action on Wall St where all major indices finished higher despite the late slip heading into the close, and amid cautiousness on China’s return against the backdrop of the increased tensions with the US. ASX 200 (-0.5%) retreated below the 5400 level with the declines led by weakness across the large banking names, although losses in the index were cushioned by strength in gold miners as the precious metal held above USD 1700/oz and with tech names galvanized by outperformance of the sector stateside. Hang Seng (+0.7%) and Shanghai Comp. (+0.1%) were varied with the ongoing easing of lockdown restrictions in Hong Kong helping the local bourse weather the 42% slump in retail sales, while mainland China was subdued on reopen from the 5-day closure as it took its first opportunity to react to the increased tensions with US after President Trump’s recent tariff threat and finger-pointing at China for the coronavirus outbreak. Finally, India’s NIFTY (+1.0%) was indecisive and swung between gains and losses with early momentarily wiped out amid a slump in energy names after the government hiked duties on petrol and diesel prices before the index rallied again, while Japan remained closed but is due to return from Golden Week tomorrow.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0690 vs. Exp. 7.0657 (Prev. 7.0571)

China's Hong Kong Affairs Office said violent protestors are destroying the foundation of Hong Kong's prosperity and stability, while it added that Hong Kong has truly fallen into dire straits and that China’s central government will not sit idly by with this recklessly demented force in place. (Newswires)

UK/EU

UK Chancellor Sunak is to wind down the coronavirus furlough scheme amid concerns Britain is addicted to the wage subsidy and will announce plans next week to wind down the scheme from July in efforts to get people back to work as restrictions are eased. (The Times) UK Treasury and BoE are discussing further emergency funding scheme to support SMEs. (Sky News)

ECB said it takes note of the German court ruling and remains fully committed to its mandate, while it noted that the EU Court of Justice ruled in December 2018 that it was acting within its price stability mandate. Furthermore, it remains fully committed to doing everything necessary within its mandate to ensure inflation rises to levels consistent with its medium-term target. (Newswires)

FX

The DXY was marginally firmer and held on to the prior day’s gains that had been mostly due to the weakness in its counterparts including EUR/USD which fell below the 1.0900 handle after the German Constitutional Court ruling, while GBP/USD was also lacklustre with price action contained below 1.2450 after the UK death toll from the coronavirus recently surpassed Italy to become the highest in Europe. Elsewhere, USD/JPY was subdued and took out stops at last week’s lows to briefly trade at its weakest since mid-March amid the cautious tone and continued absence of Japanese participants, while antipodeans were rangebound with AUD/USD consolidating at the 0.6400 handle after mixed Retail Sales data and with only mild gains in NZD/USD after better than expected jobs data was partially offset by softer wage growth.

Australian Retail Sales (Mar) M/M 8.5% vs. Exp. 8.2% (Prev. 0.5%). (Newswires) Australian Retail Sales (Q1) Q/Q 0.7% vs. Exp. 1.7% (Prev. 0.5%)

New Zealand Employment Change (Q1) Q/Q 0.7% Q/Q vs. Exp. -0.3% (Prev. 0.0%). (Newswires) New Zealand Unemployment Rate (Q1) 4.2% vs. Exp. 4.3% (Prev. 4.0%) New Zealand Labour Cost Index (Q1) Q/Q 0.3% vs. Exp. 0.4% (Prev. 0.6%) New Zealand Labour Cost Index (Q1) Y/Y 2.4% vs. Exp. 2.5% (Prev. 2.4%)

Turkish banking watchdog limited Turkish banks' Lira placements and other activities such as repo and loan transactions with foreign banks and branches. (Newswires)

COMMODITIES

Crude futures trimmed gains overnight but with the retreat only marginal compared to the stellar gains yesterday which saw the WTI June contract surge around 20% to briefly test USD 26/bbl where it then met resistance, with the upside spurred amid expectations Saudi crude exports may drop to a decade low of 6mln bpd. In addition, gains were seen following the latest private inventory report which despite posting a larger than expected build in headline crude inventories, also showed a surprise draw in gasoline stockpiles. Nonetheless, prices have since retreated off their highs amid the indecisive risk tone but found a base around the USD 24/bbl. Elsewhere, gold was steady around the USD 1700/oz level amid the mixed risk sentiment and marginally firmer greenback, while copper benefitted from the return of its largest buyer China from the 5-day closure.

US Private Inventory Crude Stocks +8.4mln vs. Exp.+7.8mln (Prev. 9.0mln). (Newswires)

Saudi Arabia's crude oil exports in May are expected to be about 6mln BPD which is the lowest in a decade, while domestic refining output in May is likely to drop and industrial activity is to be weak due to the lockdown, according to sources. (Newswires)

Goldman Sachs lowered expected US natgas production forecast levels for Summer 2020, Winter 2020 and Summer 2021, while it maintained the bearish stance on NYMEX gas this summer driven by storage constraints. (Newswires)

GEOPOLITICS

Twitter sources noted reports of mortar or rocket fire hitting Baghdad International Airport in Iraq, while reports also suggested that 3 projectiles hit the airport and there was heavy air traffic in the vicinity of Baghdad airport after explosions were heard. (Twitter)

US

Yields moved modestly higher in a steepening fashion as a positive risk tone and supply weighed on the curve. The 10-year yield rose to as high as 67bps overnight, with pressure remaining on the TPLEX in the European session amid the weakness seen in EGBs after the German court ruling. However, as Europeans departed yields gradually pared some of their rise, with the 10-year finding its floor around the 65bps area (BMO’s analysts have identified the 0.60-0.65% yield zone as the key range within the broader 0.54-0.78% range). Further retracement was unlikely given the continued ramp-up of corporate issuance post-earnings (May is traditionally the busiest month of the year for IG offerings), as well as the Treasury’s refunding announcement (due Wednesday) after it noted it would be raising a record USD 3trln on Monday. Meanwhile, a strong SPX rally also muted the appetite for haven debt. By settlement major curve spreads were slightly steeper, with 2s unchanged at 0.19%, 5s +1bps at 0.37%, 10s +2bps at 0.66%, and 30s +3bps at 1.33%. US T-note futures (M0) settled 3+ ticks lower at 138-27+.

Federal Reserve is loosening the liquidity coverage ratio (LCR) to neutralize banks' activity in the Money Market Mutual Fund Liquidity Facility (MMLF) and Paycheck Protection Program (PPP). (Newswires)

Fed's Clarida (Voter, Neutral) said recovery could begin in H2 this year but will take time, while he stated that we are living through the most severe contraction in activity and surge in unemployment we have ever seen. Clarida added it is important to make sure the rebound is as robust as possible but can't minimise that we are in recession. Furthermore, he suggested it may be the case that more policy support is needed from the Fed as well as some fiscal policy and that they can expand the lending programmes as needed. (Newswires)

Fed's Bullard (Non-Voter, Dove) noted that interest rates will remain low likely for years not months and believes the market expects this, while he added that unemployment can come down substantially by the end of the year if the stimulus programmes work as planned. (Newswires)

Fed’s Evans (Non-Voter, Dove) said future steps may include elements of yield curve control, while he also stated the Fed will not raise rates for a long time and he does not see a need for forward guidance at this time. (Newswires)

US Aerospace Industries Association congressional testimony states thousands of industry jobs were lost or at risk due to the pandemic, while the industry is seeking temporary and targeted assistance from Congress. In related news, Airlines For America congressional testimony states US airlines are collectively burning over USD 10bln of cash monthly and are at risk of bankruptcy if forced to refund non-refundable tickets or those cancelled by passengers. Furthermore, it noted that carriers are averaging 17 passengers per domestic flight and 29 per international flight, while the industry is bracing for extremely challenging operating environment for the approaching years. (Newswires)

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Does this mean we can ignore any draws from this week's energy inventories? https://t.co/Z6ScKbX7UV