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[PODCAST] EU Open Rundown 15th May 2020

  • Asian equity markets initially traded indecisively before moving into broadly positive territory
  • The session saw mixed Chinese data in which Industrial Production topped estimates but Retail Sales disappointed
  • The DXY traded choppy beneath resistance at 100.50, EUR/USD rangebound above 1.0800, GBP/USD consolidated above 1.2200
  • US Senate passed legislation to impose sanctions on China over human rights abuses against Uighur Muslims
  • The White House will likely support a fresh round of stimulus checks, according to sources
  • Looking ahead, highlights include German GDP (Q1), EZ GDP & Employment, US Retail Sales, Industrial Production, Uni. of Michigan, Baker Hughes

CORONAVIRUS UPDATE

US CDC issued guidelines on reopening schools, transit, workplaces and restaurants. US CDC also reported total coronavirus cases increased to 1,384,930 (Prev. 1,364,061) and total death toll rose to 83,947 (Prev. 82,246), while AFP tweeted there were 1754 deaths in US from coronavirus in 24 hours citing the Johns Hopkins tracker. (Newswires/Twitter/AFP)

US Treasury Secretary Mnuchin said China needed to provide a lot more information about coronavirus and that President Trump is reviewing all his options on China. Mnuchin also stated that giving additional money out to states right now is unnecessary and instead they need to see how current aid plays out, while he added that we are just beginning to see impact of USD 3tln virus relief and that President Trump will do everything to protect the economy and workers. (Newswires)

US Senate Majority Leader McConnell said he anticipates having to act again to support economy amid coronavirus, while he added they are not ruling out another fiscal package and that Republicans' "red line" for coronavirus relief is that liability protection must be included. (Newswires)

White House will likely support a fresh round of stimulus checks, according to sources. In other news, sources also noted the White House is readying an executive order to require certain essential drugs be manufactured in the US. (CNBC)

New York Governor Cuomo stated that 5 regions including central New York will be ready to reopen on May 15th, although he was later reported to have extended the stay-at-home order for the state until June 13th. (Newswires/Business Insider)

ASIA

Asian equity markets initially traded indecisively before moving into broadly positive territory; Wall St saw a financial-led session of gains. The APAC session saw mixed Chinese data in which Industrial Production topped estimates but Retail Sales disappointed with a larger than expected contraction. ASX 200 (+1.2%) was buoyed by strength in mining names and with financials cheering the outperformance of their Wall St peers, while Nikkei 225 (+0.6%) initially outperformed due to confirmation the government will lift the State of Emergency in 39 prefectures although the gains were briefly wiped out considering that Tokyo was not included in those areas and with the index oscillating around the 20K level. Hang Seng (+0.5%) and Shanghai Comp. (+0.2%) were choppy due to the mixed data releases and following the PBoC’s tepid actions whereby it announced a CNY 100bln Medium-term Lending Facility which was half of what had expired yesterday and kept the rate unchanged at 2.95%, but noted that the second phase of its previously announced RRR cuts took effect from today and would release about CNY 200bln of long-term liquidity. Finally, 10yr JGBs were higher but with the gains only marginal amid the indecisive overnight risk tone and with the BoJ also present in the market for relatively reserved JPY 80bln in up to 1yr JGBs, as well as JPY 370bln in the belly.

PBoC skipped reverse repo operations but announced a CNY 100bln 1-year Medium-term Lending Facility at 2.95% vs. Prev. 2.95%, while it stated that the second phase of previously announced RRR cut went into effect today which releases about CNY 200bln of long-term liquidity. (Newswires) PBoC set USD/CNY mid-point at 7.0936 vs. Exp. 7.0943 (Prev. 7.0948)

Chinese Industrial Production (Apr) Y/Y 3.9% vs. Exp. 1.5% (Prev. -1.1%). Chinese Retail Sales (Apr) Y/Y -7.5% vs. Exp. -7.0% (Prev. -15.8%)

China stats bureau said it is confident about China's economic outlook and expects the recovery to continue, but also stated that the economic recovery faces challenges and is still weak, while employment pressure is relatively large exports face relatively big challenges due to increased global recession risks. (Newswires)

US Senate passed legislation to impose sanctions on China over human rights abuses against Uighur Muslims via unanimous consent which goes back to the House for a vote which had previously added export-control language to the bill last year but was not included in the Senate bill. (Newswires)

US Secretary of State Pompeo reiterated criticisms of China regarding the coronavirus and added that PRC-affiliated actors are trying to steal COVID-related research from the US, while they condemn these attempts and call on the PRC to cease this malicious activity. (Newswires)

FX

The DXY traded choppy beneath resistance at 100.50 with price action contained amid US-China tensions and after President Trump’s recent rhetoric including his jawboning on negative rates and suggestion that it was a great time to have a strong USD. EUR/USD was kept rangebound around 1.0800 and GBP/USD consolidated above 1.2200 after recent comments from BoE Governor Bailey who suggested not to rule out negative rates forever although it was not something the Bank was currently contemplating. Elsewhere, USD/JPY mirrored the flimsy risk appetite in Japan, while antipodeans marginally pulled back after the mixed Chinese data releases and the indecisiveness tone in overnight trade.  

Mexico Central Bank cut rates by 50bps as expected to 5.50% through unanimous decision, while it stated that although the magnitude and duration of the effects of the pandemic are still unknown, these are expected to intensify during the second quarter and to result in a significant contraction of employment. Furthermore, it added that balance of risks to inflation remains uncertain and slack conditions continue to widen considerably, in a context in which the balance of risks for growth is significantly biased to the downside, while Central Bank Governor Diaz de Leon said they will not rule out further unscheduled rate cuts and that MXN flexibility is a shock absorber. (Newswires)

COMMODITIES

WTI crude futures re-approached the prior day’s highs and closer towards the USD 28.00/bbl level with oil prices encouraged as officials including IEA’s chief Birol and ADNOC’s CEO were said to see signs of a rebalancing in the global oil market, while Saudi had also reportedly cut its oil sales by half in US and EU. Elsewhere, copper extended on its rebound despite the indecisive risk tone and gold prices plateaued, while silver prices outperformed and rose above USD 16/oz with upward momentum gaining traction as Shanghai commodity traders came online.     

UAE’s ADNOC CEO sees signs oil markets have tightened recently and will rebalance over time. (Newswires)

GEOPOLITICS

US is mulling measures to take in response to Iran's shipment of fuel to Venezuela and is said to have a high degree of certainty that Venezuela is paying for with tons of gold. (Newswires)

North Korea media slammed South Korea regarding the recent human rights report on North Korea which it called a grave political provocation. (Yonhap) 

US

Treasuries continued to bull-flatten on Thursday amid fading risk appetite and hunger for yield. By settlement, yields were down between 1-6bps. After two sessions of losses in major US equity bourses, it appeared that the trend was set to continue for a third day following another red open, although bourses managed to claw back losses through the session. Nonetheless, the TPLEX was less convinced by the reversal, and maintained its flattening bias. Note that after the heavy duration supply this week from the Treasury, in addition to corporates and SSAs, there was likely some additional upward pressure for USTs – although next week’s ’20-20-20’ supply looms. Meanwhile, participants would be well reminded to pay attention to Friday’s week ahead schedule form the NY Fed to see whether or not it will continue to taper its asset purchases. US T-note futures (M0) settled 6+ ticks higher at 139-13+.

Fed's Kaplan (voter, neutral) reiterated he does not favour Fed using negative rates and suggested it could do great damage for the US, while repeated the view that unemployment rate will reach 10% by year-end and stated more fiscal stimulus is required to work that down, sees annualized GDP contraction of 25%-30% in Q2 then grow in H2. (Newswires)

NYSE President said will reopen trading floor to subset of brokers on May 26th, while floor brokers will return in smaller numbers at first and will wear protective masks. (WSJ)

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