Original insights into market moving news

[PODCAST] EU Open Rundown 19th May 2020

  • Asian equity markets were higher across the board as the region took impetus from the global stock rally
  • Germany and France proposed a EUR 500bln recovery fund and to give grants–not loans–to member states
  • White House spokesperson called China's USD 2bln pledge to the WHO a "token" to distract from China's failure to warn the world of what was coming
  • BoE's Tenreyro said MPC has not ruled out any policy tool and that it is her personal view that negative rates have had a positive impact in Europe
  • In FX, DXY remains below 100, EUR/USD and GBP/USD have reclaimed 1.0900 and 1.2200 respectively
  • Looking ahead, highlights include UK labour market report, German ZEW, US building permits & housing starts, Norges Bank's Olsen, Fed Chair Powell, Kashkari, Rosengren, ECB's Lane, earnings from Walmart & Home Depot


US President Trump said extending the PPP time frame for the funds to be used "should be easy" and that the administration is mulling an "explore America" tax credit. President Trump also commented that some "big announcements are coming" and have already come out on therapeutics and vaccines for the coronavirus. In related news, the Trump administration will reportedly announce a USD 354mln deal on Tuesday with Phlow Corp which will seek to domestically manufacture generic medicines and pharmaceutical ingredients for treating coronavirus. (Newswires/NYT)

US President Trump criticized the World Health Organization in which he stated it has done a sad job and is a puppet of China, while he is to make a decision soon and was considering reducing the US contribution to the WHO to USD 40mln (currently around USD 400mln) but said some felt that was too much. Furthermore, he later shared the letter he sent to the WHO which warned if they do not commit to substantive improvements within next 30 days, the US will permanently freeze its funding and reconsider membership. (Twitter)

White House spokesperson called China's USD 2bln pledge to the WHO a "token" to distract from China's failure to warn the world of what was coming and stated that China has a responsibility to give more to WHO in the wake of the crisis. (Newswires)

US Treasury is to begin sending 4mln economic impact payments via prepaid debit cards this week. (Newswires)

NY Governor Cuomo said the western New York region is set to reopen Tuesday and urged sports teams to reopen without fans, while New Jersey Governor Murphy permitted some additional outdoor activities to reopen as the coronavirus spread continues to abate and Texas Governor Abbot stated that bars can reopen with limited capacity from Friday. (Newswires)

US COVID-19 cases rose by 13,284 to 1,480,349 (Prev. 1,467,065) and death toll rose by 698 to 89,407, while AFP tweeted US surpassed 90,000 deaths from coronavirus and 1.5mln confirmed cases citing the Johns Hopkins tracker. (Newswires/Twitter)

UK COVID-19 death toll rose to 34,796 (Prev. 34,636) which was an increase of 160 vs. Prev. 170 increase and the case count rose by 2,684 vs. Prev. 3,142 increase. (Newswires)


Asian equity markets were higher across the board as the region took impetus from the global stock rally spurred by several bullish factors including the reopening of economies, coronavirus vaccine hopes and stimulus efforts after Germany and France proposed a EUR 500bln recovery fund. As such, ASX 200 (+2.3%) shrugged off the increasing Aussie-Sino tensions from China’s import duties on Australian barley and briefly climbed above the 5600 level with upside led by the energy sector after the gains in oil prices and as its top-weighted financial sector also outperformed. Nikkei 225 (+2.0%) coat-tailed on the recent favourable currency moves which helped participants overlook the weak earnings from the likes of Panasonic, while SoftBank shares eventually slumped as plans to tap into its Alibaba and T-Mobile stakes to raise funds failed to offset selling pressure from a record FY loss. Hang Seng (+2.1%) and Shanghai Comp. (+0.5%) conformed to the upbeat tone as China continued to tout more favourable policies including SOE reforms, interest rate liberalization, further opening up and lower tariffs, with the gains in Hong Kong exacerbated after rule changes in the Hang Seng Index which paves the way for the inclusion of Chinese internet giants such as Alibaba, Xiaomi and Meituan Dianping. Finally, 10yr JGBs are lower amid spillover selling in T-notes as the demand for safe havens was sapped by the heightened global risk appetite, while the BoJ presence in the market for JPY 770bln also did little to inspire a turnaround in JGBs.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0912 vs. Exp. 7.0815 (Prev. 7.1030)

Nasdaq is said to be tightening listing rules and restricting IPOs of Chinese companies according to sources. (Newswires)

Japan’s LDP is considering JPY 10tln in financing for companies impacted by the virus, while it was separately reported that the government decided to provide financial support to students from reserve funds and that Tokyo will boost credit line for SMEs by JPY 1tln. (Newswires/Nikkei/Jiji)


BoE's Tenreyro said MPC has not ruled out any policy tool and that it is her personal view that negative rates have had a positive impact in Europe, while she added there are some considerations that would be more specific to the UK. (Newswires)

Germany and France have for the first-time proposed joint EU debt issuance, a pivotal moment in the bloc’s history. The nations have proposed a EUR 500bln recovery fund to give grants–not loans–to member states. Merkel said the combined aid package now has a volume of EUR 3trln. The bonds would be paid back via the EU national budget, German Chancellor Merkel said, and repayment would be over a long-time frame (Germany’s share would be 27%, as in the EU budget). National Parliaments will also have to give the green light; there is the possibility of an EU Treaty change in the long-term, but this proposal is focussed on the short-term. French President Macron said the proposals had been made in conjunction with consulting the likes of Italy and Netherlands (the latter has reportedly been against the idea, while the former is set to be a key beneficiary).

ECB President Lagarde welcomed the Franco-German "ambitious and targeted" proposal for an EU recovery fund, while she added there is no risk to the euro and that the currency is irreversible. There were also comments from German Chancellor Merkel who stated the repayment of the EUR 500bln will be over a long time period and Germany's share will be as it is in the regular EU budget at 27%. (Newswires)

Italy is to offer state guarantees of up to EUR 19bln of new bonds that are issued by Italian banks with the measure to be effective for 6 months, according to a draft paper. (Newswires)


The DXY was lacklustre below the 100.00 level after having suffered from the heightened risk appetite and recent strength across its major counterparts. There were also comments from Fed Chair Powell who reiterated the pledge to maintain near-zero rates until the economy has weathered the crisis and that the Fed will use its full range of tools to support the economy, which precedes his upcoming testimony at the Senate Banking Committee later and the FOMC Minutes on Wednesday. The greenback’s major counterparts held on to most their gains with EUR/USD above 1.0900 after it was boosted following the proposal by Germany and France for a EUR 500bln recovery fund to provide grants to member states hit worst by the coronavirus outbreak, while GBP/USD attempts to hold on to the 1.2200 handle after benefitting from the USD-woes. Elsewhere, USD/JPY and JPY-crosses remain underpinned due to the risk appetite which coupled with the strength in commodities, also lifted antipodean currencies although some of the gains in AUD/USD were later pared after the RBA Minutes which noted that members assessed the best course of action was to maintain policy settings but were prepared to boost government bond purchases again if necessary to achieve the yield target.

RBA Minutes stated that members assessed the best course of action was to maintain current policy setting and monitor economic and financials outcomes closely as support package had been introduced only recently, while it noted that the board determined it would not raise cash rate until progress is made towards full employment and inflation targets. Furthermore, the RBA agreed that policy package was working broadly as expected but is prepared to scale up government bond purchases again if necessary, to achieve the yield target. (Newswires)

RBNZ Deputy Governor Bascand said RBNZ could extend and expand asset purchase programme further but added they will see how data plays out and provide more stimulus if required. Bascand added no decision has been made to buy foreign assets or launch negative rates which are among the many options available to the committee, while he reiterated they asked banks to be ready to transact negative rates in wholesale markets by year-end. (Newswires)


Commodities were mostly higher overnight in which oil prices extended on the prior day’s strength, while there also reports that China’s oil demand has nearly returned to pre-COVID levels and data began to show slight increases in US air travel. Nonetheless, WTI crude futures are off best levels heading into the European open following a pullback below USD 33/bbl for the June contract which expires today. Copper prices notched mild gains amid the heightened global risk appetite and gold was rangebound overnight.

EIA said total shale regions oil production for June expected to be down by 197k BPD to 7.822mln BPD. (Newswires) CME lowered crude oil NYMEX margins by 25% to USD 9000/contract from USD 12000/contract. (Newswires)


A rocket attack hit near the US Embassy in Baghdad's Green Zone although no casualties were reported according to security sources. (AFP/Newswires)


The Treasury curve bear-steepened on Monday amid a risk-on tone that swept across major assets to kickstart the week; yields rose from 3bps at the front-end to 13bps in the long bond. The downside in USTs and EGBs began in European trade as value/cyclical/’real-economy’ stocks found their footing, particularly after constructive Fed Chair Powell comments from the weekend, and the news on a successful Phase 1 study of Moderna’s COVID vaccination – the pedigree duration-sensitive stocks were underperformers. The back-up in yields sustained into the US session, with bullish flows sparse amid the surprise Franco-German announcement of proposals for joint Euro issuance (coronabonds), emboldening risk appetite further, as well as raising the probability of further supply for the sovereign markets – Wednesday’s USD 20bln 20-year auction draws nearer, too. Supply indigestion was also made worse after Pfizer served the IG market with a four tranche USD 4bln deal, as well as continued offerings from other corporates on both sides of the Atlantic. Furthermore, the Fed has tapered its weekly asset purchases by another USD 1bln per day; analysts question how much further the Fed can realistically taper given the record debt issuance and strained primary dealer balance sheets – the recent easing of the supplementary leverage ratio will have provided a much needed cash buffer for such. US T-note futures (M0) settle 23+ ticks lower at 138-19.

Fed Chair Powell reiterated pledge to maintain near-zero rates until the economy has weathered the crisis and Fed will use full range of tools to support the economy, while he noted that the passage of CARES act in March is critical to Fed's ability to expand credit programmes to help the economy. (Newswires)

NY Fed intends to conduct a small value contingency securities lending operation for the purpose of testing its contingency operation infrastructure. Reports added that the small value contingency operation will be conducted in addition to the regularly scheduled securities lending operation which will occur this Thursday. (Newswires)

NEC Director Kudlow believes the US economy is starting to turn, while he added the demand for housing, gasoline and the Apple mobility index are looking better. (Newswires)

Does this mean we can ignore any draws from this week's energy inventories?