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[PODCAST] EU Open Rundown 12th May 2020

  • Asian equity markets traded cautiously following the indecisive performance of Wall St peers as US-China trade concerns resurfaced
  • US President Trump stated he is not happy with China and that he is not interested in reopening the US-China trade deal
  • DXY extended on gains above 100.00, EUR/USD and GBP/USD briefly slipped below 1.0800 and 1.2300 respectively, AUD lags
  • Fed’s Bostic and Evans both pushed back against the idea of negative rates for the US
  • UK Brexit negotiators are to reportedly tell the EU that a new fisheries agreement cannot be part of a free trade agreement.
  • Looking ahead, highlights include US CPI, EIA STEO, Fed's Bullard, Harker, Mester, supply from Germany and the US

CORONAVIRUS UPDATE

US NIH’s Fauci said COVID-19 is so transmissible and widespread throughout the world, that even if our infections get well controlled and go down dramatically during the summer, there is virtually no chance it will be eradicated. Furthermore, other reports noted that Fauci is to warn the Senate there are risks of reopening too soon which can lead to needless suffering and death. (NBC/NYT)

US Treasury released details on USD 150bln state aid from coronavirus relief fund in which it is to make direct payments to state governments and territories, while the funds may only be used to cover expenses related to the coronavirus. (Newswires)

US CDC reported total coronavirus cases as of previous day increased to 1,324,488 (Prev. 1,300,696) and total death toll was at 79,756 (Prev. 78,711), while AFP noted the total number of US deaths have surpassed 80,000 citing the Johns Hopkins tracker. (Newswires) An emergency hospital set up in New York's Central Park started to be dismantled on Monday with the city past the worst of the pandemic, while a temporary hospital was set up in Washington DC in the event there is a jump in infections. (Newswires/AFP)

Turkey President Erdogan announced a four-day lockdown from May 16th until after the May 19th national holiday. (Newswires)

Philippines extended the lockdown in biggest cities of Manila and Cebu until May 31st. (Newswires)

ASIA

Asian equity markets traded cautiously following the indecisive performance of their Wall St peers as US-China trade concerns resurfaced with President Trump later noting he was not interested in renegotiating the phase on deal after earlier reports suggested that China could opt for a renegotiation. ASX 200 (-1.5%) suffered broad losses amid weak business confidence and as escalating tensions with China added to the glum after Australia’s largest trading partner imposed an import ban on 4 Australian abattoirs which some viewed to be retaliation for PM Morrison’s calls for an independent inquiry to the coronavirus outbreak. Nikkei 225 (-0.1%) was subdued by unfavourable currency flows and with focus on earnings releases including Toyota which was pressured after it failed to provide net guidance due to the virus and saw a slump in its FY operating profits. Hang Seng (-1.8%) and Shanghai Comp. (-0.6%) were also lacklustre due to the increased trade concerns surrounding China but with downside in the mainland cushioned by recent stronger than expected lending data. Finally, 10yr JGBs were marginally higher after prices found support around 152.15 and amid the cautious tone in stocks, while the gains also coincided with a rebound in T-notes from the losses in the prior session that were partly triggered by heavy supply and following mostly better received 10yr JGB auction.

PBoC skipped open market operations and are net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0919 vs. Exp. 7.0892 (Prev. 7.0769)

Chinese CPI YY (Apr) 3.3% vs. Exp. 3.7% (Prev. 4.3%). Chinese PPI YY (Apr) -3.1% vs. Exp. -2.6% (Prev. -1.5%)

US President Trump stated he is not happy with China and that he is not interested in reopening the US-China trade deal. This followed reports that Chinese officials may consider invalidating the Phase One trade deal or negotiating a new one to “tilt the scales more to the Chinese side,” after US President Trump’s hyped anti-China conspiracy. (Newswires/Global Times)

US Senate approved bill regarding Taiwan Observer Status in the World Health Organization. (Newswires)

UK/EU

UK PM Johnson stated it will be a difficult task to reopen the hospitality industry in July and stated we would have to think about how to adapt the economy if we cannot get a vaccine quickly. (Newswires)

UK Brexit negotiators are to reportedly tell the EU that a new fisheries agreement cannot be part of a free trade agreement. Instead, Britain are looking for a Norway-style fishing agreement, something that is set to infuriate EU Chief Brexit Negotiator Barnier. (Telegraph) Leader of the Opposition Starmer has rebuffed calls looking for an extension to the current transition period, arguing that he would prefer negotiations to be completed “as quickly as possible”. (Times)

EU Trade Commissioner Hogan spoke with China's Commerce Minister and noted the EU is ready to make joint efforts with China to conclude negotiations over the China-EU bilateral investment treaty within the year. (Global Times)

Germany’s BDI, France’s Medef and Italy’s Confindustria business organisations have reportedly jointly called for further ‘fiscal solidarity by common resources for those countries most strongly affected’. (FT)

FX

The DXY extended on gains above the 100.00 level as it benefitted from the cautiousness triggered by the calls from China to renegotiate the trade agreement and following comments from Fed speakers in which Fed’s Bostic and Fed’s Evans both spoke against the idea of negative rates for the US. The gains in the greenback weighed on its transatlantic peers which dragged EUR/USD and GBP/USD briefly below the 1.0800 and 1.2300 handles respectively, with Brexit uncertainty adding to the woes as UK negotiators will reportedly tell the EU that a new fisheries agreement cannot be part of a free trade agreement. USD/JPY and JPY-crosses were dampened by the cautious sentiment which also weighed on the risk-sensitive antipodean currencies, with AUD/USD further pressured by the deteriorating Sino-Aussie ties, softer Chinese CPI data and weak Australian Business Confidence.

China imposed an import ban on 4 Australian abattoirs. There were later comments from the Australia Trade Minister Birmingham that he believes Australian meat exports are having minor technical breaches with China and should be able to resolve the issues, while he sees the suspension as unrelated to coronavirus inquiry and added that there should be a thorough investigation regarding the coronavirus. (ABC News/Newswires)

Australian NAB Business Confidence (Apr) -46 (Prev. -66). (Newswires) Australian NAB Business Conditions (Apr) -34 (Prev. -21)

COMMODITIES

WTI crude futures took a breather after the price fluctuation seen yesterday upon the announcement of an additional 1mln bpd voluntary cut by Saudi and with UAE and Kuwait also joining in with a respective 100k bpd and 80k bpd additional reductions on top of their OPEC+ commitments. Nonetheless, the gains were short-lived as markets eventually viewed the cuts as underwhelming given the large drop in the demand and as reports last month had touted a potential 2mln bpd of additional cuts. Elsewhere, gold prices were flat with price action contained around the USD 1700/oz level and copper was also kept subdued due to the cautious risk tone triggered by the resurfacing of trade concerns.

Saudi Arabia said the additional cuts in output are designed to support rebalancing the market and encourages other producers to make further voluntary cuts, while they would be more than surprised if by the next OPEC+ meeting in June the picture is not brighter. (Newswires)

US

The TPLEX sold off on Monday amid a chunky supply pipeline and strength in equities. Yields had been heading modestly lower in European trade as equity futures reversed their strength set at the open on Sunday, however, a pick-up in equities, led by the NQ, saw duration come under pressure. Furthermore, participants had, and still have, a slew of supply to digest this week, where the US sold USD 42bln of three-year notes as part of its refunding today (stopped through the 0.233% WI by 0.3bps, covered 2.54x and Dealers took 32.59%). At the same time, the Dollar corporate issuance continued to churn post Q1 earnings, with today’s big deals pricing include Disney’s USD 11bln six-trancher and PayPal’s USD 4bln four-trancher. By settlement, yields were up between 3-6bps (3 on the short-end, 6 on the long-end) and the curve had bear-steepened. US T-note futures (M0) settled 10+ ticks lower at 138-20.

NY Fed said the Secondary Market Corporate Credit Facility will begin purchases of ETFs today which may purchase US-listed ETFs whose investment objective is to provide broad exposure to the market for US corporate bonds, Furthermore, it added the majority of ETF holdings will be on those focused on exposure to US investment grade corporate bonds and remaining will be those with primary exposure to US high-yield corporate bonds. (Newswires)

Fed’s Quarles (voter, hawk) said banks are well-positioned to be a source of strength not strain in the current crisis, while he reiterated the view from other members that the Fed may be required to do more before the end of the crisis. (Newswires)

Fed's Bostic (non-voter, dove) said he is not a "big fan" of negative rates and considers it among the weaker tools in the tool kit, while he does not believe the Fed would be inclined to buy equities. Bostic added that inflation could come one day, but not in the next six to twelve months and that the Fed would respond "accordingly" if it were to come. (Newswires)

Fed's Evans (non-voter, dove) said he does not anticipate negative rates would be used as a tool in the US but sees rates near zero for quite some time. Evans added that a return-to-growth scenario in H2 2020 is only "a bit" more likely than the more pessimistic scenarios and added that while there is evidence that recent monetary and fiscal policy is cushioning the blow, more stimulus will be needed. (Newswires)

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