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[PODCAST] EU Open Rundown 11th May 2020

  • Asian equity markets begun the week on the front foot after last Friday’s gains on Wall St
  • US source familiar with recent discussions stated US officials acknowledged China was largely delivering its pledges on structural issues
  • US Chamber of Commerce called on China to dramatically accelerate purchases of US goods under the Phase One trade deal
  • Japan is reportedly considering lifting the state of emergency declaration in most prefectures this month
  • UK PM Johnson outlined a conditional 3-step plan to reopen the economy in which the “stay at home” message was adjusted to “stay alert”
  • DXY is lacklustre with price action rangebound after largely ignoring the recent NFP jobs data
  • The Eurogroup have reached a deal on a EUR 240bln Treasury line for countries that wish to use it
  • Looking ahead, highlights include ECB asset purchases, ECB's Mersch, Fed's Evans, US 3yr Note Auction

CORONAVIRUS UPDATE

US CDC reported total coronavirus cases as of previous day increased to 1,300,696 (Prev. 1,274,036) and total death toll was at 78,771 (Prev. 77,034), while AFP tweeted that there were 776 deaths in US from coronavirus in 24 hours, citing the Johns Hopkins tracker. (Newswires/AFP/Twitter)

US President Trump said he is relying on US state governors when asked about releasing CDC reopening guidelines and commented that they are in no rush to negotiate a Phase 4 stimulus package. (Newswires)

NEC Director Kudlow stated that formal talks on next stimulus package are paused and won’t resume till late-May or early June, while prior reports also noted that the White House hopes to have a Phase 4 Covid-19 stimulus package soon and encourages the House of Representatives to reconvene. (Newswires)

New Zealand PM Ardern said coronavirus case numbers remain low and the country is ready to move to level 2 lockdown from level 3 on May 14th, with retail, malls and cinemas to start reopening that day. PM Ardern stated they will further ease restrictions and that schools will reopen May 18th, while bars will reopen May 21st and most businesses will be open in the next 10 days. (Newswires)

Japan is reportedly considering lifting the state of emergency declaration in most prefectures this month in which 34 out of the 47 prefectures could be removed from the state of emergency status but it will continue to urge caution in some areas including Tokyo. Furthermore, Economic Minister Nishimura later confirmed they will mull lifting the state of emergency in many of the mildly hit prefectures although it could be reinstated if there are signs of overshooting following the cancellation. (Newswires/Nikkei)

UK PM Johnson outlined a conditional 3-step plan to reopen the economy in which the stay at home message was adjusted to stay alert, control the virus and save lives although he added this was not a plan to end lockdown this week but instead were the first careful steps to modify measures. The first step is a message that those that cannot work from home should be actively encouraged to go to work but should avoid public transport if possible as social distancing must be maintained. PM Johnson added they may be able to begin a phased reopening of shops and schools under step 2 which will be on June 1st at the earliest, while some of the hospitality industry and other public places will be able to reopen in step 3 at the earliest by July subject to conditions. Furthermore, UK PM Johnson unveiled a 5-level Covid alert system. PM Johnson also stated that he will provide more details regarding his announcement on Monday in Parliament and that they will impose a quarantine on people flying in from abroad. (Newswires)

ASIA

Asian equity markets begun the week on the front foot after last Friday’s gains on Wall St where stocks were underpinned by the easing of US-China trade tensions to help the major indices disregard the abysmal US jobs data In addition, efforts to ease coronavirus restrictions and a slowing pace of deaths from the pandemic have added to the optimism. ASX 200 (+1.7%) and Nikkei 225 (+1.3%) were higher as earnings updates were also in focus for Australia and with risk appetite in Tokyo stoked amid reports the Japanese government will compile a 2nd extra budget to address the coronavirus and may lift the state of emergency declaration early in many prefectures. Hang Seng (+2.0%) and Shanghai Comp. (+0.4%) were also positive after the PBoC pledged to resort to more powerful policies and step up counter-cyclical adjustments to support the economy and fend off risks, with outperformance in Hong Kong led by a surge in tech and gambling names. Finally, 10yr JGBs were lower on spillover selling from T-notes and amid the upside in risky assets, but with downside cushioned due the BoJ’s presence in the market in which the central bank upped purchases of 3yr-5yr JGBs by JPY 50bln to a total of JPY 350bln.

PBoC skipped open market operations and are net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0769 vs. Exp. 7.0784 (Prev. 7.0788)

US Chamber of Commerce called on China to dramatically accelerate purchases of US goods under the Phase One trade deal as the economy in China returns to normality. (Newswires)

US source familiar with recent discussions stated US officials acknowledged China was largely delivering its pledges on structural issues such as opening market access and improving IP protection but they have yet to agree in some details including IP action plan and easing equity caps for foreign investors. Furthermore, the source stated fallout from the virus meant agreement on purchasing US goods has become much more important and that many believe China needs to increase pace on purchases, while reports also noted that a Chinese government adviser suggested the deal itself was fragile. (SCMP)

BoJ Summary of Opinions from April 27th meeting stated Japan’s economy is likely to remain in a severe state for the time being and that it is appropriate for the Bank to further enhance monetary easing. BoJ also stated that further easing measures, mainly to provide liquidity, are necessary this time as well and that is important to fully prepare for a possible further worsening of the situation. Furthermore, it noted that policymakers must act boldly to avoid repeating the Great Depression and that there is room for more fiscal and monetary policy coordination as Japan faces risk of deflation. (Newswires)

Japan government will compile a 2nd extra budget to combat coronavirus pandemic and pass through in current Diet session, which is to mainly fund rent assistance, students facing falling income and expansion of corporate subsidies. (Nikkei)

UK/EU

UK ministers are expected to extend the job retention scheme until end-September although at a reduced rate of 60% in which Chancellor Sunak could announce the changes to the furlough scheme as early as this Monday. (Telegraph)

EU Officials have reportedly warned that progress in Brexit talks needs to be made in parallel on all areas or talks will slow; specifically, fishing issues. Additionally, EU diplomats say they have now accepted that the UK is unlikely to extend the transition period – as such, any deal probably needs to be achieved by October to be implemented in time. (FT) UK is drawing up plans to bypass the French port of Calais by developing ports on the UK's East Coast which is said to be due to COVID and Brexit, as well as reduce dependence on France. (FT)

 

French Finance Minister said the Eurogroup have reached a deal on a EUR 240bln Treasury line for countries that wish to use it and that ESM credit line will be operational on June 1st, while reports also noted ESM coronavirus credit line loan is to be for up to 10-years maturity. (Newswires)

German Finance Minister Scholz in Eurogroup meeting that he was confident there would be a solution to allow the Bundesbank to keep buying bonds after the three month deadline, while he insisted this was a German and not an ECB issue to be dealt with. (FT) European Commission President von der Leyen has said that the bloc could take legal action against Germany following last week’s constitutional court ruling. (Newswires)

Italian PM Conte said EU aid is insufficient and recovery fund is needed. (Newswires)

FX

In FX markets, the DXY is lacklustre with price action rangebound after largely ignoring the recent NFP jobs data, while its major counterparts eke mild gains with EUR/USD approaching the 1.0850 level to the upside after the Eurogroup reached a deal for a EUR 240bln extension to credit lines late last week. GBP/USD is also marginally higher after rebounding from support at 1.2400 and following PM Johnson’s announcement of a conditional 3-step plan on easing the lockdown with the first step being a shift of the government’s emphasis to actively encourage workers that cannot work from home to go to work, although they should avoid public transport if possible. USD/JPY extended on gains due to the risk appetite but then retraced some of the advances after hitting resistance at 107.00, while antipodeans also benefit from the constructive tone but with gains in NZD/USD limited by poor business survey data and heading into the RBNZ’s policy meeting in which there is anticipation for the central bank to boost its QE program.

New Zealand ANZ Business Confidence (May P) -45.6 (Prev. -66.6). (Newswires) New Zealand ANZ Activity Outlook (May P) -42.0 (Prev. -55.1)

SNB Chairman Jordan stated they are making a substantial commitment regarding FX intervention, while he stated they stepped up intervention and are staying course on negative rates to ease the upward pressure on CHF. (Newswires)

COMMODITIES

Commodities were mixed in which WTI crude futures traded choppy and briefly fell below the USD 24.00/bbl as the heightened risk appetite was overshadowed by the ongoing demand woes, with Goldman Sachs also noting there is concern oil prices will remain weak next year citing worries of a second wave of coronavirus. Elsewhere, gold prices were rangebound with mild gains overnight amid a softer greenback and after the USD 1700/oz level provided a base for the precious metal, while copper eked marginal gains on the constructive risk tone. 

Baker Hughes Rig Count: Oil -36 at 338, Natgas -1 at 80, Total -34 at 374. (Newswires)

White House said US President Trump and Saudi King Salman spoke about the virus and energy markets on Friday in which they agreed on the importance of stability. (Newswires)

Saudi Arabia announced to increase its VAT to 15% from 5% and it cancelled the cost of living allowance, while it noted that low oil demand and prices, as well as impact from the coronavirus pressured state finances to a level that will be difficult to address without impacting the economy on a medium to long-term. Furthermore, Saudi Arabia Finance Minister later commented that the VAT increase will not have much of an impact this year and that the measure is to prepare finances for post-coronavirus phase. (Newswires)

Iraq’s Finance Minister Ali Allawi has been named as acting Oil Minister until the position is filled. (Newswires)

US

The TPLEX endured an erratic session as participants digested a less-dire-than-expected NFP print – albeit still a record slump – as well as another push towards NIRP. The T-Note had been modestly firming overnight before it legged lower on the release of the NFP report, amid a wider risk on environment. However, the losses in the TPLEX soon reversed course not long after the cash equity open, led by another rally in short rates, which saw shorter maturity Fed Funds futures move above par, seeing the 2-year yield print a new all-time low of 10.5bps. The sharp move lower pared heading into the latest NY Fed USTs purchases schedule announcement, which saw the Fed taper its daily purchases to around USD 7bln per day from around USD 8bln. Looking at the changes within the buckets, it kept its long-end purchases unchanged (20- to 30-year) but made the largest proportion of cuts at the front-end – perhaps to counter the recent leg lower in front-end yields towards NIRP as well as addressing recent steepening post the Treasury quarterly refunding announcement. Following the updated schedule release, yields continued to edge higher, to which by settlement, all yields along the curve had risen on the session: 2s +2.5bps at 0.15%, 5s +3bps at 0.33%, 10s +5bps at 0.68%, 30s +7bps at 1.39%. US T-note futures (M0) settled 11 ticks lower at 138-30+.

NY Fed cut Treasuries/TIPS purchases to USD 7bln per day for next week (Prev. USD 8bln). (Newswires)

US President Trump announced the US will purchase USD 3bln in agricultural products from US farmers beginning in early in the approaching week. (Newswires)

US Vice President Pence is reportedly to self-isolate after an aide tested positive for coronavirus, although other sources dismissed this. (Newswires)

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