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[PODCAST] US Open Rundown 13th May 2020

  • European bourses remain in proximity to negative opening levels while US futures are modestly firmer ahead of Fed Chair Powell before the open
  • US Republican Senators proposed legislation which would empower President Trump to impose sanctions on China if it does not provide a "full accounting" for the coronavirus outbreak.
  • Ahead of Powell (preview on Newsquawk feed), Fed’s Mester (Voter) said she would like to stay away from negative rates because it would impact money markets and suggested that negative rates won’t work in the US economy
  • RBNZ kept the OCR unchanged at 0.25% and boosted the Large Scale Asset Purchases programme to NZD 60bln; added, negative OCR becomes an option in the future
  • Looking ahead, highlights include US PPI, DoEs, OPEC monthly oil report, ECB's Lane, de Guindos, Fed's Powell, supply from the US

CORONAVIRUS UPDATE

University of Washington's coronavirus mortality model now projects 147k deaths in US by August which is 10k higher than previous forecast. (Newswires)

House Democrats Progressive Caucus asked House Speaker Pelosi to delay planned Friday vote on a new stimulus bill to next week. Furthermore, US Senate Majority Leader McConnell stated that he will insist on a narrow coronavirus response bill if there is to be one (CNN/Newswires)

US officials say Chinese and Iranian hackers could be hampering developments towards a vaccine, WSJ reports; Some have suggested there could be the prospect that such efforts are tantamount to an act of war. (WSJ)

Tokyo has 10 new cases of COVID-19, according to TBS

ASIA

Asian equity markets were mostly negative following the late slump on Wall St. and with sentiment soured by fears of a 2nd coronavirus wave, as well as efforts in the US Senate to impose sanctions on China. ASX 200 +0.4%) and Nikkei 225 (-0.5%) were lower as the Australian benchmark suffered from the withered ties with China and amid initial losses in financials after the largest bank CBA reported a drop in cash profit and spike in loan impairment expenses, while sentiment in Tokyo was pressured by a firmer currency and with a slew of earnings releases dominating newsflow. Hang Seng (-0.3%) and Shanghai Comp. (+0.2%) were both lacklustre as US-China concerns were stoked by reports of several measures in the US Senate against China including proposed legislation by Republican Senators that would empower President Trump to impose sanctions on China if it does not provide a "full accounting" for the coronavirus outbreak and with the Senate is also planning to move on legislation that would impose sanctions on Chinese officials over human rights abuses against Uighur Muslims. India markets bucked the trend with the Sensex (+2.0%) and Nifty (+2.0%) both surging at the open after PM Modi’s recent announcement of a special economic support package totalling INR 20tln, but with some of the gains pared amid the broad cautious tone in the region. Finally, 10yr JGBs were flat with the gains in T-notes, weakness in stocks and the BoJ presence in the market for JPY 810bln of JGBs all failing to spur prices.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0875 vs. Exp. 7.0867 (Prev. 7.0919) US Republican Senators proposed legislation which would empower President Trump to impose sanctions on China if it does not provide a "full accounting" for the coronavirus outbreak. In related news, the US Senate is planning to move on legislation that would impose sanctions on Chinese officials over human rights abuses against Uighur Muslims, while US Senator Cruz introduced legislation to incentivize mining companies to produce in the US and electronic manufacturers to use US based rare earths over China imports. (Newswires/The Hill/AFP)

Chinese Gov't advisor reportedly stated that the two sessions, referring to the NPC meeting, will not have much direct bearing for the trade deal; however, the language used will show how Beijing is to approach future deals with Washington. (SCMP)

China's Foreign Ministry, on President Trump's efforts to push TSP fund to halt planned investments, says Wanton placement of obstructions on US investors runs counter to economic law. (Newswires) 

BoJ cut Japanese ETF purchases today to JPY 100bln (Prev. 120bln). (Newswires)

US

Fed's Mester (voter, hawk) said this is the worst and speediest deterioration in the labor market many of us have ever seen and that Q2 will show most severe impact on the economy but added the baseline outlook is for economy to begin growing again in H2. Mester also said she would like to stay away from negative rates because it would impact money markets and suggested that negative rates won’t work in the US economy due to effects on banking system and mutual funds, while she noted that no tool is off the table but her preference is to use forward guidance and other measures first. (Newswires)

Fed's Barkin (non-voter, hawk) said he thinks we are at the bottom and headed up, while he reckons a clear plan to manage risks around the pandemic will inspire confidence to begin a recovery. (WSJ)

UK/EU

UK GDP Estimate MM (Mar) -5.8% vs. Exp. -8.0% (Prev. -0.1%)

UK GDP Preliminary QQ (Q1) -2.0% vs. Exp. -2.5%

UK GDP Estimate YY (Mar) -5.7% vs. Exp. -7.2% (Prev. 0.3%)

UK is reportedly on course for a budget deficit of GBP 337bln this year compared to the GBP 55bln forecast in March’s budget, according to reports citing a government document. As such, reports note that the Treasury could have to set out a proposed “policy package” of spending reductions and tax increases within weeks. (Telegraph) However, Chancellor Sunak later remarked that it would be premature to think about how the cost of COVID-19 can be repaid. (Newswires)

COVID-19 has "removed any prospect" of a full UK and US trade deal being finalised this year, according to a Harvard Kennedy School paper. The report notes that a "mini" deal could be reached but it would be of limited economic benefit to the UK and carry political costs. (Times) 

Barclaycard said UK consumer spending fell 36.5% Y/Y in April which was the largest decline since the survey began in 2015, while UK supermarket spending rose 14.3% Y/Y in April. (Newswires)

UK BRC Sales Like-For-Like (Apr) Y/Y 5.7% (Prev. -3.5%) excludes temporarily closed stores but includes online sales. (Newswires)

European Commission has proposed prolonging travel restrictions for people entering EU or Schengen State from outside to June 15th; setting out guidelines to allow safe resumption of tourism activities. (Newswires)

Italian PM Conte's Cabinet is poised to approve Italy's EUR 55bln package. (Newswires)

EQUITIES

European equities see losses across the region [Euro Stoxx 50 -1.3%] after a mixed APAC trade failed to induce upside in Europe. That being said, US equity futures eke mild gains early doors. Sentiment is weighed on over signs of a resurgence in COVID-19 cases across some economies opening “too early” – which could potentially prolong the reopening of those that are planning to in the immediate future. Further, worries over how the US-China trade situations will pan out also provides uncertainty to investors. Broad-based losses are seen across Europe, Switzerland’s SMI (-0.8%) fares slightly better as inflows into defensive stocks cushion the Pharma-heavy index. Sectors all reside in the red with defensives performing better than cyclicals – reflecting risk aversion; Consumer Discretionary names underperform. The sector breakdown provides little colour. In terms of individual movers; Anglo American (-1.9%), Glencore (-3.5%) and RWE (-2.6%) are weighed on by reports Norway’s sovereign wealth fund has sold its stakes in the Cos amid a breach of guidelines regarding the use of coal. The fund owned 2.4% of Anglo American, 1.2% of Glencore and 0.6% of RWE. Meanwhile, BHP (+0.2%), Enel (-2%) and Uniper (-0.7%) have been put on watch for a potential similar breach. The pre-market saw earnings from ABN AMRO (-7.2%) and Commerzbank (-6.6%), in which both banks reported deeper net losses and higher impairment charges than forecast. A.P. Moller Maersk (-5.9%) holds onto post-earning losses despite topping revenue and EBITDA estimates, as the Co. noted that Q2 volumes across all businesses could fall 20-25%, affecting both profitability and cash flow. Finally, no reprieve for Wirecard (-6%) after law firm TILP filed a lawsuit stating that Wirecard is liable to pay damages to shareholders amid a series of incorrect, omitted and incomplete capital market information.

Tencent (700 HK) - Q1 revenue CNY 108.065bln vs. Exp. CNY 101bln. Net CNY 28.896bln vs. Prev. CNY 27.210bln. Operating prof CNY 37.3bln vs. Exp. CNY 30.6bln. Combined WEIXIN and WECHAT MAUs 1.202bln vs. Prev. 1.1117bln

FX

NZD/AUD - A relatively large 815 mn option expiry at the 0.6000 strike may keep the Kiwi afloat, but the NIRP factor has really rattled the Nzd again after the RBNZ kept the door wide open to the possibility that the OCR could be lowered from the current 0.25% to sub-zero. To recap, QE was increased to Nzd 60 bn from Nzd 33 bn, as widely expected, and linkers will now be included in the asset purchase remit, but rate guidance was considerably more dovish than many envisaged to leave Nzd/Usd hovering just above the round number and Aud/Nzd not far from 1.0800 compared to around 1.0620 at one stage before the policy meeting. Conversely, the Aussie has gleaned some traction from an encouraging rebound in Westpac consumer sentiment that posted a record monthly rise in percentage terms on the eve of jobs data, with Aud/Usd nudging back up towards 0.6500 where 1 bn expiries roll off at today’s NY cut.

GBP/SEK/NOK - The Pound has recovered from another bout of seasonal May selling pressure, partly on technical grounds as Cable narrowly survived a test of key support at 1.2248, but also due to UK GDP and output for March/Q1 confounding consensus for significant declines, albeit still extremely weak. However, Sterling remains on the back foot below 1.2300 vs the Dollar and well under 0.8800 against a more rangy, resilient Euro in similar vein to the Swedish Crown that has retreated through 10.6000 in wake of headline and core inflation turning negative and sending another signal to the Riksbank that it may yet have to follow its Scandinavian neighbour with a conventional policy response. On that note, Eur/Nok has reversed more post-Norges Bank knee-jerk gains through 11.0000, but unconvincingly so far as Governor Olsen reiterates that the benchmark depo rate is unlikely to fall further from 0%.

CAD/EUR/CHF/JPY - Renewed risk aversion and a downturn in crude prices have not undermined the Loonie, though Usd/Cad is pivoting 1.4050 after touching 1.3900, as the DXY pares Tuesday’s relatively heavy retracement losses between 100.090-99.894 parameters awaiting Fed chair Powell’s address for the definitive word on negative rates and any other policy insight. Note also, hefty 1.5 bn expiry interest at the 1.4000 strike may keep the pair elevated ahead of Powell if not the NY cut. Meanwhile, the single currency and Swiss Franc have also lost momentum amidst the broad Buck revival, with Eur/Usd unable to challenge yesterday’s best and straddling 1.0850, Usd/Chf over 0.9700 again and Eur/Chf slightly firmer within a 1.0517-28 band, in contrast to the Yen that has rediscovered its safe-haven allure and eyeing 107.00 resistance and offers.

EM - Perhaps the most poignant test so far of the Lira’s new found power to resist bearish impulses as Usd/Try remains below the psychological 7.0000 level even though Turkey’s current account shortfall surpassed forecasts and almost quintupled in March from the previous month to a near 2 year wide deficit.

RBNZ kept the OCR unchanged at 0.25% and boosted the Large Scale Asset Purchases programme to NZD 60bln from NZD 33bln as expected, while it stated the LSAP programme will now include NZ government inflation indexed bonds and it expects retail interest rates to decline further. The Committee reaffirmed forward guidance that the OCR will remain at 0.25% until early 2021 but noted negative OCR will become an option in the future and that discussions with financial institutions regarding a negative OCR are ongoing. Furthermore, the central bank stated that financial institutions are not operationally ready for negative rates but they have asked banks to be ready by end of the year for negative rates and they agreed that a least regrets monetary policy approach is needed, delivering stimulus sooner rather than later. (Newswires)

FIXED

It’s been a slow grind from mixed starting points, but the midweek session is panning out much more positively for bonds across the board. Indeed, even BTPs and Bonos are back on the front foot after some initial qualms about ongoing German-ECB conflictions about asset buying, with the former also unwinding auction-related underperformance. Meanwhile, and not necessarily in tandem with deepest declines in equities, Bunds extended gains to 173.92 and Gilts to 138.00 before topping out at new, albeit marginal highs for the week. Elsewhere, US Treasuries remain firm and the curve flatter into the last leg of this week’s bumper refunding and Fed chair Powell, with PPI somewhat overshadowed by CPI.

COMMODITIES

WTI and Brent front month-futures extended on losses from the APAC session as sentiment across the market remains on the backfoot. Prices waned off OPEC sources highs potentially on worries surrounding US-Sino relations, but participants note that concerns over hitting storage capacity have eased as demand gradually recovers, whilst supply cuts also provides a less bearish outlook vs. March. Yesterday’s API printed a larger-than-expected build of 7.6mln barrels vs. Exp. 4.1mln, but Cushing saw a draw of 2.216mln barrels – traders will be eyeing today's DoEs for confirmation. Looking at the WTI forward curve, a chunk of open interest resides in the December 20 contract – reflecting funds’ moves from front-month to further down the line. Elsewhere, EIA STEO cut 2020 world oil demand growth forecast by 2.9mln BPD to a decline of 8.13mln BPD Y/Y and its 2021 world oil demand forecast was cut by 580k BPD to 6.99mln BPD Y/Y increase, while it sees inventories to begin drawing in July 2020 and with draws continuing through the end  of 2021. The OPEC MOMR will be released later today. WTI June and Brent July both meander off session lows of USD 25.10/bbl (vs. high USD 25.81/bbl) and USD 28.92/bbl (vs. high USD 29.69/bbl) respectively. Meanwhile, spot gold remains lacklustre in a tight USD 6/oz range on either side of 1700/oz, awaiting Fed Chair Powel’s speech on current economic issues at 1400BST. Copper prices meanwhile initially extended on losses amid concerns on the US-China trade front coupled by resurfacings COVID-19 cases in some countries believed to have been “success stories”.

US Private Inventory Crude Stocks (w/e 8th May) +7.6mln (exp. +4.1mln, prev. +8.4mln). (Newswires)

Saudi Arabia is committed to support stability of global oil markets and its cabinet urged OPEC+ countries to adhere to reduced rates to contribute to restoring balance in global oil markets, according to Saudi Press Agency. (Newswires)

CME raised crude oil NYMEX maintenance margins by 20% to USD 12000/contract from USD 10000/contract. (Newswires)

Citi upgraded Q2 average gold price outlook to USD 1710/oz and said its base case market outlook continues to forecast a breach of USD 2000/oz next year, while it expects platinum prices supported through H2 this year on improved economic sentiment and investment demand. (Newswires)

GT citing analyst says China will likely cut LNG imports from Australia, adding that US and Qatar are eyeing Australia's share. (Newswires)

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