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[PODCAST] US Open Rundown 6th May 2020

  • European bourses are overall mixed in a choppy and relatively quiet session so far
  • China are reportedly considering dropping their numerical GDP growth target for 2020.
  • European Commission Spring Economic Forecasts: EZ 2020 GDP to contract 7.7% before rebounding 6.3% in 2021
  • DXY has reclaimed the 100.00 mark, touching 100.20 at best, much to the detriment of G10 peers
  • Looking ahead, highlights include US ADP & DoEs
  • Earnings from: PayPal, T-Mobile US, General Motors, Metlife, American Electric Power

CORONAVIRUS UPDATE

President Trump said 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)

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)

Italian PM Conte says that Italy does not need the ESM, hard for the EU recovery fund to begin before the summer; new stimulus package to be approved by week-end valued at EUR 55bln, according to a paper. Rules out nationalisation of companies; but, the state could take a more active role regarding financing Co's which are struggling given the COVID-19 crisis. (Newswires)

ASIA

Asian equity markets traded predominantly firmer 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 (+1.1%) and Shanghai Comp. (+0.6%) 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 are reportedly considering dropping their numerical GDP growth target for 2020. (Newswires)

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)

US

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)

UK/EU

EU Markit Composite Final PMI (Apr) 13.6 vs. Exp. 13.5 (Prev. 13.5)

-        Services Final PMI (Apr) 12.0 vs. Exp. 11.7 (Prev. 11.7)

UK Markit/CIPS Construction PMI (Apr) 8.2 vs. Exp. 22.0 (Prev. 39.3)

European Commission Spring Economic Forecasts: EZ 2020 GDP to contract 7.7% before rebounding 6.3% in 2021

-        Full release available via Newsquawk headline feed

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)

Iranian President Rouhani says that President Trump made a mistake by exiting the 2015 Tehran nuclear deal; Tehran will give a crushing response if the arms embargo is extended. (Newswires)

EQUITIES

Mixed trade in the equity-sphere in Europe (Euro Stoxx 50 Unch) as the region follows suit from a similar APAC performance – which are experiencing a lack of conviction as markets balance reopening economies with the resurfacing of a potential escalation in protectionism. That being said, US equity futures continue their grind higher in EU trade. FTSE 100 (+0.6%) has been leading the gains across the region, potentially aided by a softer Sterling alongside the recovery in the energy markets. The cash index briefly dipped below its 38.2% Fib (move from 6151 to 5702) at 5873 to a low of 5838, before regaining a footing above the level. Sectors also see a mixed performance with no clear standouts or reflection of the current risk sentiment. The energy sector nursed earlier losses but remains a laggard alongside Consumer Discretionary. In terms of the breakdown, Travel & Leisure resides at the bottom but does not see significant underperformance. In terms of individual movers, Dialog Semiconductor (+5.3%), ITV (+4%) and Hannover Re (+4.2%) are among the top post-earning gainers in the Stoxx 600, with the former also aiding the likes of Infineon (+4%) in sympathy. BMW (-3.1%) extends on losses after noting that the highest negative impact is expected in Q2 2020 and PBT is still predicted to be significantly lower. Wirecard (-1.5%) holds onto losses after a 4.4% stakeholder called for a board shakeup.

FX

EUR/GBP - Having held up relatively well when German factory orders fell around 50% more than forecast, the Euro couldn’t ignore single digit services PMIs in the Eurozone periphery or weaker than expected pan retail sales that accompanied bleak Spring economic projections from the EC. However, Eur/Usd has contained losses below 1.0800 unlike Cable that extended declines from circa 1.2450 through the 50 DMA (1.2411) and 1.2400 on the way to a new low for May around 1.2360. Some suspicions that a significantly worse than anticipated UK construction PMI was pressuring Sterling prior to the official release, while fix-related demand for Eur/Gbp was likely compounded by stops when the cross breached a key technical level in the form of the 200 DMA yet again (0.8722). Next up for the Pound, BoE super Thursday that kicks off at the unusually early time of 7.00BST and comes with the latest MPR and FSR.

USD - The Dollar is revelling in the plight of others and fragile risk sentiment, with the DXY back on the 100.00 handle ahead of ADP that offers the first monthly US jobs data proxy for Friday’s NFP release, albeit not always a reliable indicator for the BLS headline number. From a technical perspective, 100.209 forms near term resistance for the index and represents pre-month end highs before the Greenback succumbed to the weight or rebalancing sales to hit a 98.645 low on May 1, and the peak so far is 100.200 vs 99.749 at the other extreme.

CHF/NZD/CAD/AUD - The Franc has been caught in the cross-fire of Buck strength vs Euro weakness, as Usd/Chf hovers near 0.9750 in contrast to Eur/Chf trending back down towards 1.0500, while the Kiwi, Aussie and Loonie are all paring gains vs their US counterpart, with Nzd/Usd retreating from 0.6072 in wake of mixed NZ jobs data overnight, Aud/Usd fading from 0.6451 after similar conflicting retail sales figures for March and Q1 overall, and Usd/Cad losing some crude attraction following a close test of 1.4000 yesterday on the back of a better Canadian trade balance compared to consensus and the US.

JPY/SEK/NOK - In contrast to the broad G10 trend, the Yen is outperforming and edging closer to 106.00, albeit still without the usual level/depth of domestic input given the final day of Golden Week ahead of tomorrow’s return from the extended holiday break. Similarly, the Scandinavian Crowns retain bullish momentum against the backdrop of widespread single currency depreciation that has seen Eur/Jpy trade at 3 year lows well under 115.00, with Eur/Sek testing 10.6200 and Eur/Nok sub-11.0900 at one stage in the run up to tomorrow’s Norges Bank policy meeting.

EM - Usd/Try is extending its apparent unstoppable mission to revisit record highs at 7.2362 vs 7.1680 or so thus far today, even though Turkish banks are still selling the pair and the banking authority has tightened limits on trade with foreign institutions further in an attempt to stop the rally. Perhaps Treasury and Finance Minister Albayrak can turn the tide for the Lira via a conference call to global investors from 13.00GMT, but it’s seemingly a tall order. Elsewhere, the Real could fall prey to bears in the aftermath of Fitch downgrading Brazil’s BB- rating to negative amidst the rising political instability that has already propelled Usd/Brl beyond 5.5700.

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)

FIXED

Multi-covered cash auctions are far from rare and certainly common place in the case of UK Gilts from the DMO to date, but for a 5 year German offering, or any maturity for that matter is quite an achievement. However, Bobl futures remain below 136.00 and in negative territory alongside Bunds sub-174.00, albeit off lows of 135.78 and 173.89 respectively, while the 10 year UK benchmark has not been able to emulate Tuesday’s performance as 138.00 keeps rebounds from 137.81 in check. Elsewhere, US Treasuries are also under par with the curve a bit steeper pre-ADP and refunding details.

COMMODITIES

WTI and Brent front month futures are back on the rise after some ovrnight consolidation from the prior day’s mammoth gains which saw the contracts settle north of USD 24.50/bbl and USD 30/bbl respectively – aided by the demand side of the equation looking brighter as global economies plan to come back online. Meanwhile, supply side issues appear to be tempering amid the OPEC+ pact, whilst sources also noted that Saudi’s May exports are expected to fall to around 6mln BPD vs. ~9.4mln BPD in April. Over in the US, Texas regulators decided against curtailing the state’s output of over 5mln BPD, albeit this was expected. WTI June resides just under USD 25.50/bbl and towards the middle of its current USD 24-26/bbl intraday band. Brent July meanders south of USD 32/bbl after waning off its USD 32.27/bbl overnight high. Spot gold remains in limbo within a tight USD 7/oz range amid an indecisive risk tone heading into key risk events later this week including the US Labour Market report. Copper meanwhile tracks the gains in US equity futures and sees some support after dipping below but failing to close below its 21 DMA for three consecutive sessions.

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

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