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[PODCAST] US Open Rundown 19th May 2020

  • Sentiment has slipped on a few factors with trade in focus and as the European short-selling ban has been removed; US futures are subdued ahead of Powell
  • WTI has been firmer for much of the session but has slipped marginally into negative territory on the day ahead of today’s June’20 future expiry
  • FX, sees the USD softer to the benefit of most major counterparts aside from the JPY afflicted by the BoJ to hold an off-schedule meeting on May 22nd
  • US President Trump criticized the World Health Organization in which he stated it has done a sad job and is a puppet of China
  • Looking ahead, highlights include US building permits & housing starts, Fed Chair Powell, Kashkari, Rosengren, ECB's Lane, earnings from Walmart & Home Depot

CORONAVIRUS UPDATE

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)

Chinese Foreign Ministry, regarding US President Trump's letter to WHO, says US' letter attempts to mislead public to smear China and tries to shift blame of its own "incompetent" response. (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)

China is reportedly considering targeting Australian wine, dairy, fruit, oatmeal, and seafood amid its COVID-19 investigation dispute, according to sources. Officials are said to have made a list of potential goods targeted by potentially stricter quality checks, anti-dumping probes or tariffs alongside encouraging consumer boycotts, sources said. (Newswires)

Tokyo confirms 5 new COVID-19 cases, TBS. (Newswires)

ASIA

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 (+1.8%) 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 (+1.5%) 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 (+1.9%) and Shanghai Comp. (+0.8%) 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)

BoJ to hold an off-schedule meeting on May 22nd at 0900JST/0100BST on further measures to provide funding for banking sector. (Newswires)

US

Fed Chair Powell & US Treasury Secretary Mnuchin at the Senate Banking Committee: 10:00ET/15:00BST

-        Link to Fed Chair Powell’s Testimony

-        Link to US Treasury Secretary Mnuchin’s Testimony

GEOPOLITICS

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

UK/EU

UK announces new most favoured nation tariff regime, to replace the EU common external tariff as on January 1st 2021, removing tariffs on GBP 30bln of imports; to benefit consumers/households by cutting red tape/ reducing costs of thousands of products. (Newswires)

UK Claimant Count Unemployment Change (Apr) 856.5k vs. Exp. 676.5k (Prev. 12.1k)

UK ILO Unemployment Rate (Mar) 3.9% vs. Exp. 4.4% (Prev. 4.0%)

UK Average Week Earnings 3M YY (Mar) 2.4% vs. Exp. 2.6% (Prev. 2.8%)

UK Average Earnings (Ex-Bonus) (Mar) 2.7% vs. Exp. 2.6% (Prev. 2.9%)

German ZEW:

- Economic Sentiment (May) 51.0 vs. Exp. 32.0 (Prev. 28.2)

- Current Conditions (May) -93.5 vs. Exp. -88.0 (Prev. -91.5)

- Economic growth expected to pick up pace in Q4 2020

- 2019 economic output levels will be reached only in 2022

EQUITIES

European equities have shaved gains since the open and now reside in a sea of red [Euro Stoxx 50 -0.9%] – as the strained relations between US and China continue to hover as a grey cloud on investor sentiment. Meanwhile, despite Germany and France proposing a EUR 500bln European Recovery Fund, the unanimous approval itself could prove to be complex. Netherlands, Austria, Denmark, and Sweden are not fond of the fund being distributed as grants, whilst the touted launch in 2021 may further strain peripheries hit harder by the pandemic such as Italy and Spain. On that note, FTSE MIB (-1.4%) and IBEX (-2.3%) are the marked underperformers thus far whilst core indices see broad-based losses between 0.1-0.4%. Trade updates aside, today marks the first session since the European short-selling ban was remove, as per yesterday’s announcements, potentially providing price action with some influence. Sectors are mostly in the red; breakdown also sees broad-based losses across most sectors, but financials fare better on initial optimism on the EU recovery fund. In terms of individual movers: Thyssenkrupp (+5.4%) holds onto opening gains after it said it is mulling the sale of their steel and warships divisions. Sources also noted that talks with Tata Steel never broke off and both the Cos is still in talks about consolidation. Handelsblatt reported that SSAB and Baoshan Iron & Steel were interested in a majority of the steel unit. Meanwhile, Wirecard (-1.6%) extended on losses amid source reports Germany’s accountancy watchdog FREP last year opened a probe into the Co. following allegations of accounting fraud. Carnival (-0.5%) is weighed on after being downgraded to Junk at Moody’s.

Home Depot Inc (HD) Q1 20 (USD): EPS 2.08 (exp. 2.27), Revenue 28.3bln (exp. 27.54bln); suspends 2020 outlook

FX

NZD/GBP/AUD - The Kiwi has extended recovery gains in wake of commentary from RBNZ Deputy Governor Bascand indicating no rush to deliver more monetary stimulus via an expansion of QE or adopting NIRP, as the Bank waits so see how data pans out before deciding whether it needs to adjust policy further. Nzd/Usd topped out just shy of 0.6100 and Aud/Nzd has retreated sharply through 1.0800 as Aud/Usd respects resistance at recent peaks around 0.6570 and the Aussie reflects on reports that China may add more exports to the higher tariff list on top of barley. Note, no added insight on the RBA front from minutes overnight that merely reiterated the grounds for maintaining rates and asset purchases at present levels while monitoring the impact or recent actions including the introduction of YCC. Meanwhile, the Pound has regained some poise across the board following latest negative interest rate chat from the BoE via Tenreyro and irrespective of UK data revealing a bigger than forecast jump in the claimant count alongside slightly softer than expected wages, with Cable back up above 1.2200 and briefly nibbling stops at 1.2266 and Eur/Gbp easing from 0.8950+ even though the Euro remains elevated independently on additional fiscal support to combat the adverse effects of COVID-19.

EUR - The single currency is consolidating towards the top of a circa 1.0956-03 range vs the Dollar and contributing to a depressed DXY around 99.500 in advance of US housing data, testimony from Fed chair Powell and comments from Rosengren. As noted above, another financial recovery fund for the Eurozone and agreement between Germany and France to issue joint EU debt as a means of paying for the Eur500 bn pot has given the Euro a boost amidst formative signs of an improvement in ZEW’s forward-looking economic sentiment indices.

JPY - A previously unscheduled BoJ meeting to discuss bank funding measures preannounced in April and timetabled for this Friday prompted a bit more Yen weakness against the Greenback within 107.60-30 parameters, but the headline pair may be capped ahead of decent option expiry interest between 107.65-75 in 1.5 bn into the NY cut.

NOK - The Norwegian Krona has pared gains alongside crude prices and waning risk appetite, with perhaps some acknowledgment of remarks from Norges Bank Governor Olsen repeating that the depo rate has likely reached its lower bound, but there is more room in terms of economic policy.

EM - Usd/Try has now breached 6.8000 to the downside and reports that the CBRT has arranged swap lines with the BoE and BoJ are helping the Lira continue its retracement, while the Idr has been very volatile following the BI’s unchanged rate decision that confounded consensus for a 25 bp cut.

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)

FIXED

Bunds got to within 5 ticks of parity when broad risk sentiment and periphery bond wings were clipped by reports from France quoting Finance Minister Le Maire to the effect that EU recovery funds will not be ready to tap before next year. However, relatively upbeat remarks from the ZEW institute to supplement a better than anticipated sentiment reading and counter a dour DIHK outlook appear to have scuppered the recovery within a 173.11-172.54 band vs yesterday’s 173.16 Eurex close. Similarly, Gilts bounced further from worst levels to reach 137.81 (+33 ticks vs -10 ticks at the early Liffe low) amidst book building for the 2061 UK syndication, but have drifted all the way back towards parity after pricing and sizing at zero premium vs the existing 2060 Gilt and Gbp 7 bn respectively. In contrast, US Treasuries have been largely side-lined throughout with futures hovering just below overnight session highs and the curve re-flattening ahead of jobs data, Fed chair Powell and Rosengren.

COMMODITIES

WTI and Brent futures trade mixed after intially eking mild gains in what seems to be a breather from yesterday’s pronounced upside – whilst WTI June heads into its futures expiry with its head above USD 30/bbl. In terms of underlying fundamentals, on the demand side - participants continue to eye reopening economies for any signs of potential risk of reclosures. Meanwhile looking at supply, OPEC+ cuts are underway, with eyes on the June 8th JMMC meeting for further details as to whether current cuts will be extended as per source which floated potential extension to year-end as opposed to a wind-down of agreed curbs. Meanwhile, unsurprisingly, OPEC+ cut oil exports sharply in the first half of May, according to trackers – which boils down to a function of lower supply and lower demand. WTI July meanders around 31.50/bbl whilst its Brent counterpart failed to reclaim USD 35/bbl to the upside, with both contracts contained withing ~USD 2/bbl intraday bands. Elsewhere, spot gold trades flat in recent trade after failing to nurse some of yesterday’s sentiment-induced losses, with the yellow metal now waiting for the Powell/Mnuchin double testimony as a scheduled potential catalyst. Copper prices have given up overnight gains as the sentiment in Europe somewhat soured as US-Sino tensions remain elevated, whilst the EU still has to overcome obstacles before launch of their Recovery Fund, touted to be implemented January 2021.

CME lowered crude oil NYMEX margins by 25% to USD 9000/contract from USD 12000/contract. (Newswires)

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