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[PODCAST] US Open Rundown 18th May 2020

  • Sentiment has strengthened following a hefty weekend of central bank speak notably from Fed Chair Powell
  • Fed Chair Powell reiterated the US will not have negative interest rates and post coronavirus recovery could last through 2021; not out of ammo & suggested there are no limits to what we can do
  • President Trump commented that he has lost a little flavour for the China trade deal
  • EU Medicines Agency says Gilead's (GILD) Remdisivir could be granted conditional market authorisation in Europe in the coming days
  • Sterling had slipped on dovish remarks from BoE’s Chief Economist Haldane, but has fought back to the expense of the EUR while the DXY remains towards session highs
  • Looking ahead, today’s calendar sees a lack of Tier-1 releases

CORONAVIRUS UPDATE

President Trump commented that he has lost a little flavour for the China trade deal but separately noted 2021 will be a great year from an economic standpoint and that the US is ready to begin moving forward, while he tweeted the number of coronavirus cases is strongly trending downward throughout the US with few exceptions. (Newswires/Twitter)

US House on Friday narrowly passed the new USD 3tln coronavirus stimulus relief bill which was largely along party lines with the vote count at 208-199. (Newswires) However, it is worth noting that Republican Senators have branded the bill as “dead on arrival”.

US House Ways and Means Committee’s Brady said tax incentives that accelerate return of production lines to the US from China are a pretty smart thing to do and that payroll tax holiday is better than another round of direct cheques to Americans. (Fox)

Chinese Foreign Ministry says it is premature to immediately begin a COVID-19 investigation. (Newswires)

Italy’s government approved the decree to lift some coronavirus-related restrictions beginning this Monday, while facilities such as gyms, swimming pools and sports centres will reopen from May 25th although travel between regions will remain banned until June 3rd. Elsewhere, Spanish PM Sanchez said they are seeking to extend its State of Emergency by 1 month to combat the coronavirus. (Newswires)

Germany’s confirmed coronavirus cases rose by 342 to a total of 174,355 and there were 21 additional deaths, according to reports citing the RKI Health Institute. (Newswires)

UK COVID-19 death toll rises to 34,636 (Prev. 34,446); deaths rise by 170 vs. Saturday’s 468. Case count rises by 3,142 vs. prev. 3,451 increase. (DHSC)

Tokyo has 10 new cases of COVID-19, according to local media reports. (Newswires)

AstraZeneca (AZN LN) – If trials are successful, Co. will produce as many as 30mln COVID-19 vaccines available to the UK by September. Co. has also committed to delivering 100mln vaccine doses this year. Late-stage trials could be initiated by the middle of the year. (Newswires)

EU Medicines Agency says Gilead's (GILD) Remdisivir could be granted conditional market authorisation in Europe in the coming days. (Newswires)

ASIA

Asia-Pac bourses began the week with modest gains and US equity futures extended on their rebound as participants digested recent comments from Fed Chair Powell who continued to dismiss the prospect of negative rates but suggested the Fed was not out of ammunition and that further action may be required. ASX 200 (+1.0%) outperformed with the advances led by strength across mining names after gold prices rose above USD 1750/oz and WTI crude futures reclaimed the USD 30/bbl level. Nikkei 225 (+0.5%) was also higher but with gains capped following GDP data which was better than expected but still showed Japan’s economy moved into a recession. Hang Seng (+0.6%) and Shanghai Comp. (+0.2%) were kept afloat after Chinese officials pledged further support including PBoC Governor Yi Gang who reiterated that China will implement more powerful monetary policy and China’s Government Work Report draft also stressed the launching of stronger macro policies. However, the gains were limited by ongoing tensions following the US move to prevent Huawei from acquiring semiconductors and chipsets made using US technology, while India’s NIFTY (2.3%) failed to hold on to opening gains with sentiment pressured after India extended the lockdown again to May 31st and surpassed China in the number of coronavirus cases. Finally, 10yr JGBs were initially flat with price action kept lacklustre amid the gains in stocks, weak GDP data from Japan and with participants awaiting the 5yr JGB auction which resulted in firmer accepted prices and in turn spurred JGBs upon return from the lunch break.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.1030 vs. Exp. 7.1036 (Prev. 7.0936)

Chinese House Prices (Apr) Y/Y 5.1% (Prev. 5.3%). (Newswires)

China Commerce Minister Zhong Shan said coronavirus caused a huge shock to China's economic and social developments but added they will boost domestic demand and promote consumption. Furthermore, Zhong stated that foreign demand has slumped significantly and China’s trade faces unprecedented challenges, while Chinese companies are having an extremely difficult time amid the outbreak. (Newswires)

Huawei's rotating chairman Ping says the group is committed to complying with US rules while fulfilling obligations to orders. Huawei sees no immediate solution to Washington's chip restrictions. (Newswires)

US Secretary of State Pompeo stated that Beijing threatened to interfere with the work of journalists in Hong Kong which could affect US assessment of Hong Kong’s autonomy and status. (Newswires)

Japanese GDP (Q1 P) Q/Q -0.9% vs. Exp. -1.2% (Prev. -1.8%, Rev. -1.9%) Japanese GDP (Q1 P) Y/Y -3.4% vs. Exp. -4.6% (Prev. -7.1%, Rev. -7.3%) Japanese Economic Minister Nishimura said weakness in external and domestic demand underscores severe state of Japan's economy, while he suggested the economy is expected to slump significantly due to soft overseas demand amid the pandemic and noted that notes April and May have been severe. Nishimura also suggested that they are looking into additional policy measures and want a solid response in 2nd extra budget. (Newswires)

US

Fed Chair Powell reiterated the US will not have negative interest rates and post coronavirus recovery could last through 2021, while he added the Fed is not out of ammunition and can do more if needed in which he suggested there are no limits to what we can do. Powell added that projections of 20%-25% unemployment peak sounds about right but noted US not at risk of 2nd Great Depression, while he suggested that the Fed and Congress may have more to do to respond to economic fallout from pandemic. Furthermore, Powell stated that companies and families may need 3-6 months more of financial help to avoid insolvency and that the Fed can expand existing programmes or add to new ones, as well as increase purchases as required. (Newswires)

GEOPOLITICS

China’s Global Times Editor called for China to step up its nuclear weapons and deterrence in which he stated the US is very powerful and being unfriendly towards China, and that China needs enough capability so that US does not proactively attack China under any circumstances. (Twitter)

Iranian Military Official says Iran is to give due response to any attack on international waters to its ships and oil tankers, via Press TV. (Newswires)

UK/EU

BoE’s Haldane suggested the Bank was looking at options beyond and alongside negative rates, while he noted there is more that can be done in the gilt side and corporate bond side of QE. (Telegraph)

The UK's Office for Budget Responsibility has conceded that the economy is likely to see a "slower recovery" from COVID-19 than initially anticipated. (Telegraph)

The EU is prepared to back down from its hard-line approach on fishing rights once EU leaders get involved in post-Brexit trade talks, according to senior sources in Brussels. (Times) UK has reportedly increased planning for a no-deal Brexit with senior government sources stating that the UK was preparing to walk away from discussions with Brussels in the next month unless the EU gives ground. (Times)

ECB's de Cos says the COVID-19 shock will last longer than initially expected; ECB has to act to avoid fragmentation among EZ countries. Adding, European response to COVID-19 crisis has been insufficient. (Newswires)

Fitch affirmed France at AA; Outlook Revised to Negative from Stable and affirmed Austria at AA+: Outlook Revised to Stable from Positive, while S&P affirmed Netherlands at AAA; Outlook Stable. (Newswires)

EQUITIES

European bourses post gains across the board [Euro Stoxx 50 +2.4%] and piggy-back on the positive lead APAC lead following supporting comments from Fed Chair Powell that the Central Bank was not out of ammo and can do more if needed in which he suggested there are no limits to what we can do, meanwhile BoE’s Haldane posited the Bank was looking at options beyond and alongside negative rates. That being said, investors need to juggle COVID-19 and the prospect of escalating protectionism between US and China. Earlier source reports via Nikkei noted TSMC has stopped orders from Huawei, albeit this was downplayed by the chip-company as “market rumours”, adding that it cannot disclose order information. If true, this can mark a major blow to the Chinese telecom and could prompt China’s unveiling of “unreliable entity list”. As a reminder, China’s Global Times’ Chief Editor last week said: “if US further blocks key technology supply to Huawei; will restrict or investigate US companies such as Qualcomm (QCOM), Cisco and Apple (AAPL), and suspend the purchase of Boeing (BA) planes.” Back to Europe, sentiment seems more driven by Central Bank comments thus far and as economies continue to ease lockdown restrictions, with broad-based gains seen across major indices; albeit, Italy’s FTSE MIB (+1.3%) is the laggard after Italy’s regulator lifted the short-selling carpet ban ahead of schedule and in synchrony with France, Spain, Greece, Belgium, and Austria. Sectors are all in positive territory with the energy sector the outperformer whilst cyclicals outperform defensives – reflecting risk appetite. The breakdown also shows gains led by oil and mining-related sectors, while Travel & Leisure also resides towards the top. In terms of individual movers, Deutsche Telekom (+1.4%) rises with the market but underperforms the DAX (+2.9%) amid reports SoftBank Group is said to be in discussions to sell a large chunk of its T-Mobile (TMUS) stake to Deutsche Telekom. If the transaction is completed, it would boost Deutsche Telekom’s share to over 50%. according to WSJ citing sources. Note: T-Mobile’s largest shareholders are Deutsche Telekom (42.1% stake) and SoftBank (23.8% Stake). Meanwhile, Diageo (+2%) is underpinned by reports Co. is said to be mulling options to delist United Spirits, according to CNBC-TV18 citing sources. Ryanair (+7%) was bolstered post-FY earnings in which it expects a smaller Q2 loss vs. Q1, Co. also boosted its liquidity. Finally, AstraZeneca (+1.4%) outpaces the broader Pharma sector amid reports it will produce as many as 30mln COVID-19 vaccines available to the UK by September if trials are successful. However, FT’s Elder, on the Co. being the largest FTSE 100 by market cap, suggested that such rises “most commonly, feel like a sell signal”.

FX

AUD/NZD/CAD - The non-US Dollars are revelling in a risk on start to the new week, or rather clawing back lost ground amidst high flying precious metals (Gold Usd 1760+ per oz at one stage) and the ongoing revival in crude prices (WTI Usd 31+ and Brent almost Usd 34 per barrel). The Aussie is building a firmer base on the 0.6400 handle and Kiwi is pivoting 0.5950, while the Loonie has rebounded from under 1.4100 even though the DXY remains firm above 100.000 within a 100.470-280 range on the back of gains forged vs ‘safer-havens’ and other G10s with a bigger weighting in the index.

JPY/CHF/EUR/GBP - Renewed risk appetite has sapped demand for the Yen relative to the Greenback in the low 107.00 area, but Usd/Jpy looks capped ahead of 107.50 where hefty option expiries reside (2.2 bn), while the Franc remains mixed after comments from SNB’s Maechler noting that the currency would be significantly stronger without increased levels of intervention evident in yet another marked rise in Swiss bank sight deposits. Usd/Chf is currently above 0.9700, but Eur/Chf still eyeing 1.0500 as the Board member also refuted that the round number is a line in the sand akin to the old official 1.2000 floor that was pulled in January 2015. Moreover, the Euro still looks top heavy vs the Buck on ventures through 1.0800 following Fitch cutting France’s AA ratings outlook to negative from stable and also downgrading Austria from positive to stable. Elsewhere, dovish guidance from BoE’s Haldane has added to the Pound’s seasonal weakness, though Cable has rebounded from sub-1.2100 and Eur/Gbp is off 0.8950+ peaks ahead of more from the MPC via Tenreyro with specific focus on any further mention of NIRP.

SCANDI/EM - No shock to see the Nok, Rub and Mxn welcoming the latest rally in oil, while the Sek is tagging along on broadly bullish risk sentiment and the Try has extended its already impressive recovery to almost 6.8300 vs the Usd after Clearstream and Euroclear both suspended Lira trade on electronic platforms citing a lack of liquidity due to COVID-19 restrictions. On that note, Chinese President Xi will open the World Health Assembly and the Yuan is on a weaker footing in advance of his address and the NPC. Eur/Nok is hovering near 11.0000, Usd/Rub circa 73.0500, Usd/Mxn under 23.9000, Eur/Sek below 10.6400 and Usd/Cnh just shy of 7.1450..

SNB’s Maechler acknowledged the CHF’s appreciation, but stated it would have been much more pronounced if we hadn’t been prepared to intervene more heavily; when asked if 1.05 in EUR/CHF was being an informal upper limit responded ‘no, we look at the entire currency situation’. Additionally, rejected the possibility of a special profit payout from the SNB to the Swiss Gov’t given COVID-19. (Newswires/NZZ)

FIXED

Gilts have now breached 138.00, though could not build sufficient steam to challenge last Friday’s 138.40 Liffe session peak before fading at 138.13, while Bunds have been unable to keep hold of the 174.00 handle within 174.09-173.42 extremes against the backdrop of an even more pronounced bounce in Italian BTPs or lagging French OATs after the Fitch outlook downgrade. However, US long bonds are the real underperformers as the Treasury curve re-steepens ahead of Wednesday’s substantial 20-year supply, with NAHB and Fed’s Bostic of note for today, plus BoE’s Tenreyro from an EU perspective.

COMMODITIES

Oil futures continue on their upwards trajectories, aided by a rosier demand prospect as economies reopen and with supply contained by producers. Furthermore, reports via Energy Intel noted that OPEC+ could reportedly extend current production cuts to year-end. The production cuts are to be eased from July according to the original pact. Sticking with OPEC, Saudi and Kuwait also agreed to suspend output at the Khafji field in the neutral zone in June, expected cuts to total 80mln BPD. Meanwhile, Friday’s Baker Hughes Rig Count continued to show receding US drilling activity. WTI June and July both trade comfortably above USD 30/bbl, with the front-month holding up heading into tomorrow’s June expiry, thus far suggesting subsiding fears of storage scarcity. Despite a lion’s share of open interest and volume in the July contract, participants will be observing the June contract after WTI May fell deep into negative territory heading into its expiration. Brent July also remains on the front-foot, towards the top if a USD 32.69-34.00/bbl intraday band. WTI June had risen over WTI July in early trade. Spot gold extend its post-Powell gains after the Fed Chair noted that stocks and asset prices could suffer a significant hit and the post coronavirus recovery could last through 2021, while he added the Fed is not out of ammunition and can do more if needed in which he suggested there are no limits to what we can do. The yellow metal sits at an over-seven-year high at USD ~1760/oz (vs. range USD 1743.33-1764.46/oz). Copper prices are supported by the overall risk appetite, but the red metal trades within recent ranges. Meanwhile Dalian Iron ore rose over 6% at one point amid higher demand prospects with economies and factories reopening.

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