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[PODCAST] US Open Rundown 15th May 2020

  • European bourses were extending on opening gains but Huawei reports waylaid this; sending US futures into negative territory
  • US is moving to prevent Huawei from acquiring semiconductors and chip-sets made using US software/technology, Commerce Department; expects this will be the final '90-day extension'
  • 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
  • White House are reportedly likely to support a fresh round of stimulus checks and US Senate Majority Leader McConnell said he anticipates having to act again to support the economy
  • German Gov't is expected to suspend the debt break in 2021, Handelsblatt citing Gov't Officials; subsequently, pushed back by the Finance Ministry
  • USD is rangebound, but has spent much of the session softer, with EUR and JPY the main hindrances to the USD
  • Looking ahead, highlights include 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)

China's National Health Commission Vice Minister says Phase II trials for some coronavirus vaccines are poised to be completed in July. (Newswires)

Italy is poised to allow the free-movement inside the regions from May 18th and from within the country from June 3rd, according to a draft document. (Newswires)

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 (+1.4%) 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 (-0.1%) and Shanghai Comp. (U/C) 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)

China's Foreign Ministry calls for cooperation with the US in response to US President Trump's comments regarding cutting ties with China. (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

US are moving to prevent Huawei from acquiring semiconductors and chip-sets made using US software/technology, Commerce Department; warns expects Huawei license extension will be final '90-day extension', via amending foreign direct product rule to 'strategically target Huawei acquisitions' of semi-conductors. (Newswires)

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)

GEOPOLITICS

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

UK/EU

German Gov't is expected to suspend the debt break in 2021, Handelsblatt citing Gov't Officials, (Handelsblatt) Note, this does contrast with remarks from German Finance Minister Scholz recently

German GDP Flash QQ SA* (Q1) -2.2% vs. Exp. -2.2%

German GDP Flash YY NSA* (Q1) -1.9% vs. Exp. -1.6% (Prev. 0.3%)

EU Employment Flash QQ (Q1) -0.20% vs. Exp. -0.40% (Prev. 0.30%)

EU Employment Flash YY (Q1) 0.30% vs. Exp. 0.20% (Prev. 1.10%)

German Economy Ministry says economic contract with accelerate in Q2, recession should have bottomed in April; as of April, indicators do not show signals of hope, but a turnaround looks palpable at start of May. (Newswires)

UK and EU Brexit negotiators are still at odds, according to The Times' Waterfield, says negotiations are still early in the process however, not at the stage where compromises would be made, which if were to happen, would take place in June. (Twitter)

EQUITIES

European stocks initially held onto gains [Euro Stoxx 50 +0.6%], having missed out yesterday’s post-Europe rally. However, reports that the US is moving to block Huawei from acquiring US integrated semiconductors and chip sets pressured sentiment and stock markets. Spain’s IBEX (-0.5%) is the region’s underperformer amid steep losses in its Financial names – broad-based upside is seen across the rest of the region. Sectors are all in the green with Energy relinquishing its top spot to later underperform; sector breakdown sees Basic Resources and Autos outperforming while Banks reside alongside Construction & Materials. In terms of individual movers, BT (+4.9%) rose as much as 10% at the open amid source reports via the FT that the Co. is in talks to sell a "multibillion-pound stake" in its GBP 20bln Openreach unit to infrastructure investors, adding that talks were reportedly held with Macquarie. However, an internal memo pushed back against this speculator, thus shares trimmed some gains. Elsewhere, Richemont (-2.6%) shares lag the market amid a slew of downbeat YY metrics in which FY20 adj net, operating profit, diluted EPS and net cash position eroded. William Hill (+6.6%) trades higher after announcing that cash burn reduced to around GBP 15mln per month and liquidity in excess of EUR 700mln. The group also said revolving credit facility covenants waived for 2020 and reset for 2021.

FX

JPY/DXY - Notwithstanding an element of Friday fatigue and cautious trade ahead of potentially market-moving US data in the form of retail sales and ip ahead of preliminary Michigan sentiment, the Yen and Dollar look tightly bound above 107.00 amidst a recovery in broad sentiment and particularly large expiries rolling off at the NY cut, with over 2 bn at the figure and 107.50 keeping Usd/Jpy contained. Moreover, the remaining Greenback/G10 pairings are also sticking to relatively tight lines awaiting more decisive direction following choppy and erratic price action so far this week, as the DXY consolidates just off yesterday’s new mtd high (100.56) within a 100.390-160 range.

EUR/AUD/CAD/CHF - As noted above, not much deviation or adverse reaction to Eurozone GDP data that was remarkably close to consensus and largely ignored on the basis that the current quarter will be more telling in terms of gauging COVID-19 contagion. Indeed, after Germany’s 2.2% q/q contraction the Economy Ministry noted no improvement in April vs tangible evidence of recovery from this month, but still predicts a 10% fall overall in Q2. However, the single currency is clinging to 1.0800 vs the Buck following Thursday’s foray below the round number that almost tripped stops at 1.0775. Meanwhile, the Aussie, Loonie and Franc are all meandering between narrow bands against their US counterpart around 0.6460, 1.4045 and 0.9725 respectively, with the former not gleaning much from mixed Chinese data overnight, but the Cad cushioned by firm crude prices and the Chf still wary about ongoing official intervention given further retracement from recent peaks against the Eur to fresh multi-year highs less than 10 pips from 1.0500.

GBP/SEK/NOK/NZD - Cable remains on the cusp of steeper declines unless 1.2200 continues to provide psychological support or the Pound survives another test of 1.2166 from a technical perspective awaiting updates on this week’s last session of UK-EU trade negotiations. Conversely, the Swedish and Norwegian Kronas appear to have run in to some resistance in Euro cross terms ahead of 10.5800 and 10.9500 respectively, but both retain upward thrust towards the upper bounds of 10.7100-10.5600 and 11.1855-10.9250 extremes on the week so far, in contrast to the Kiwi that is languishing under 0.6000 vs its US peer and not far from 1.0800 against the Aussie in wake of clear NIRP inferences from the RBNZ.

EM - Most regional currencies are going through the motions, but the Lira has now touched 6.9000 as its resurgence gathers more steam and the Mexican Peso is taking the Banxico’s latest 50 bp ease in stride. However, the Czech Koruna has been hit by comments from CNB Governor Runok playing down the prospect of implementing an FX regime and resorting to negative rates following mixed Q1 GDP reads vs forecasts, albeit q/q and y/y contractions vs better than expected Hungarian, Polish and Romanian prints.

Notable FX Expiries, NY Cut

-        USD/JPY: 106.00 (940M), 106.25 (1.5BLN), 106..50 (1.25BLN), 107.00 (2.44BLN), 107.50 (2.2BLN), 107.75 (310M), 108.00 (2.6BLN)

FIXED

Bunds, Gilts and US Treasuries have not quite matched yesterday’s peaks, but the 10 year benchmarks have regained poise despite more talks about debt brakes being lifted and gentle denials. Indeed, the former has now edged above 174.00, while its UK peer remains above 138.00 and T-note afloat between 139-09+ to 139-16+ overnight session parameters. Although weak Eurozone data and projections of worse to come have not really prompted much obvious upside, bonds haven’t been too unsettled by a decent rebound in stocks as the asset classes decouple and head into pre-weekend US data in short-covering/consolidation mode.

COMMODITIES

WTI and Brent front-month continue to grind higher amid rosier demand and storage prospects alongside a more bullish supply backdrop. Furthermore, the IEA’s more optimistic comments regarding the demand slump not being as steep as feared underpin the complex. That being said, desks note that despite the above, the market remains in surplus, but the magnitude of inventory builds has declined vs. April levels – resulting in strengthening time spreads and narrower contango – suggesting that market improving fundamentals. “we still believe that in the near-term, the upside is limited given that we are still in a surplus environment and as there is plenty of inventory for the market to digest.” ING writes. WTI June hovers around USD 28.00/bbl having printed a base at USD 27.24/bbl, whilst Brent July dipped just below 32/bbl in a USD 30.84-32.50/bbl intraday band. For reference, OPEC Secretary General Barkindo will be appearing on Bloomberg TV at 1500BST. Meanwhile, spot gold tracks Dollar action and gains further ground above 1700/oz – eyeing potential resistance at USD 1738.50/oz (April 23rd high), having traded in a USD 1729-38/oz band thus far. Copper prices move higher in tandem with the broader risk sentiment, but prices remain contained within recent ranges.

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

Russian oil and condensate (May 11-14) 9.43mln BPD, sources state. (Newswires)

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