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[PODCAST] US Open Rundown 22nd May 2020

  • China’s NPC meeting confirmed no GDP target for 2020 & reiterated intentions to implement the Phase One US-China deal
  • China's draft Hong Kong legislation stated that Hong Kong should finish enacting as soon as possible the regulations in basic law regarding national security; HK activists reportedly intend to protest this
  • APAC indices were heavily weighed upon on the NPC & HK newsflow, sentiment which has hit European bourses & US futures; albeit, currently off lows
  • Fixed is firmer and USD outperforms on safe-haven demand to the detriment of major peers
  • BoJ left rates U/C but implemented a new loan scheme to support small/medium firms while the RBI cut rates by 40bp in an emergency move
  • President Trump said he thinks the US will need more fiscal stimulus, could be one more shot of stimulus and would not close the country if a second wave occurred
  • Looking ahead, highlights include ECB Minutes, ECB’s Lane & China’s NPC Meeting

CORONAVIRUS UPDATE

AFP tweeted there were 1255 deaths in US from coronavirus in 24 hours citing the Johns Hopkins tracker. (Newswires/AFP/Twitter)

President Trump said he thinks the US will need more fiscal stimulus and that there could be one more nice shot of stimulus post coronavirus outbreak, while he stated he will not close the country if a second wave of virus hits. (Newswires)

US Senate Majority Leader McConnell said it is highly likely there will be another rescue package and it is important to incentivize people to work, while he added the Senate is in the same place as the White House and the next coronavirus stimulus package is not far off. (Newswires)

AstraZeneca (AZN LN) and Oxford University are to start Phase II/III human trials for COVID-19 vaccine, next study is to enrol up to 10.26k adults and children and involve number of partners across the country. (Newswires)

Fujifilm (4901 JT) - declined to comment on the potential timeline for the approval of Avigan to combat COVID-19. (Newswires)

ASIA

Asian indices weakened as markets digested today's key events including the BoJ off-schedule meeting and start of China's NPC where it omitted setting a GDP growth target for this year due to the coronavirus pandemic, as well as uncertainties surrounding economy and trade. ASX 200 (-1.0%) declined with energy names pressured by an aggressive pullback in oil prices and with sentiment subdued after Fitch revised its outlook on Australia’s sovereign rating to negative from stable, while Nikkei 225 (-0.8%) suffered the ill-effects of a firmer currency despite the BoJ’s announcement of a new measure to boost lending to small and mid-sized businesses impacted by the coronavirus in which it set aside JPY 75tln for its new loan programme but which was widely anticipated. Hang Seng (-5.6%) and Shanghai Comp. (-1.4%) were lower amid the start of China’s Two Sessions conclave where the Government Work Report refrained from setting an economic growth target but pledged to reduce tax and fee burdens for companies by CNY 2.5tln this year and use several tools to keep liquidity ample. Furthermore, the losses in Hong Kong were exacerbated after China’s attempts to tighten its grip on the Special Administrative Region through a new national security law, and is likely to stoke further unrest for the region which had already been mired by months of protests since the middle of last year. Finally, 10yr JGBs were relatively uninspired with only mild upside seen despite the downbeat risk tone and upside in T-notes, while the conclusion of the BoJ’s emergency meeting and announcement of a new lending scheme also failed to spur any meaningful price action.

PBoC skipped open market operations and were net neutral on the day. (Newswires) PBoC set USD/CNY mid-point at 7.0939 vs. Exp. 7.0969 (Prev. 7.0868)

Chinese Premier Li announced the Government Work Report did not contain a GDP target for 2020 citing global pandemic and uncertainties for global economy and trade, but stated that China will make policy more flexible and will use policy tools such as open market operations, interest rate cut, RRR cut, re-lending and re-discount to keep liquidity reasonably ample. Furthermore, Li stated China is to issue CNY 1tln in special bonds this year and will cut tax and fee burdens for companies by CNY 2.5tln this year although noted China faces unprecedented risks and challenges. China also reiterated its intent to implement phase one of the trade deal with the US despite recent tensions between the two nations. (Newswires)

Chinese Foreign Ministry says that it will fight back if the US attempts to oppress them. (Newswires)

China's draft Hong Kong legislation stated that Hong Kong should finish enacting as soon as possible the regulations in basic law regarding national security. Furthermore, it stated that the Hong Kong government and legal bodies should prevent, stop and punish activities that endanger national security, while the bill is to allow China to set up an agency in Hong Kong to safeguard national security. (Newswires)

Hong Kong Chief Executive Lam says they are to fully co-operate with China to enact the National Security law as soon as is possible. (Newswires)

Hong Kong activists vow to take to the streets in protest against Beijing plans to impose launches a national security law which is seen as one of its fiercest assaults on Hong Kong's autonomy. (AFP/Twitter)

BoJ kept main policy settings unchanged as expected with NIRP maintained at -0.10% and the 10yr JGB yield target at around 0% through 8-1 vote, while it decided on a new loan scheme aimed at boosting lending to support small and mid-sized firms hit by the coronavirus with the programme worth JPY 75tln. BoJ added that the loans are to be conducted from June and it is to actively purchase ETD and REITS for the time being. (Newswires)

Japanese Government is looking at creating a JPY 12trl safety net to provide capital to firms impacted by COVID-19, according to the Nikkei.

Japanese National CPI (Apr) Y/Y 0.1% vs. Exp. 0.2% (Prev. 0.4%). (Newswires) Japanese National CPI Ex. Fresh Food (Apr) Y/Y -0.2% vs. Exp. -0.1% (Prev. 0.4%) Japanese National CPI Ex. Fresh Food & Energy (Apr) Y/Y 0.2% vs. Exp. 0.5% (Prev. 0.6%)

RBI cut the Repurchase Rate by 40bps to 4.00% and Reverse Repo Rate by 40bps to 3.35% in an unscheduled meeting, while it is taking measures on debt relief, supporting trade and steps to ease constraints on state governments. Furthermore, it rolled over the SIBDI facility for another 90 days and Governor Das stated they will continue to be proactive and react to situations as and when it is warranted. (Newswires)

UK/EU

UK Retail Sales MM* (Apr) -18.1% vs. Exp. -16.0% (Prev. -5.1%, Rev. -5.2%)

UK Retail Sales YY (Apr) -22.6% vs. Exp. -22.2% (Prev. -5.8%)

UK Retail Sales Ex-Fuel YY* (Apr) -18.4% vs. Exp. -18.2% (Prev. -4.1%, Rev. -4.2%)

UK Retail Sales Ex-Fuel MM* (Apr) -15.2% vs. Exp. -15.0% (Prev. -3.7%, Rev. -3.8%)

UK PSNB, GBP* (Apr) 61.4B GB vs. Exp. 35.0B GB (Prev. 2.325B GB, Rev. 14.005B GB)

UK PSNB Ex Banks GBP* (Apr) 62.1B GB vs. Exp. 40.0B GB (Prev. 3.05B GB, Rev. 14.730B GB)

BoE Deputy Governor Ramsden says it is possible BoE will do more QE at the June meeting or subsequently, it is reasonable to have an open mind on negative rates but it is complex. (Newswires)

UK PM Johnson is reportedly seeking to end UK reliance on some Chinese imports. (Times)

UK GfK Consumer Confidence (May P) -34 (Prev. -33); lowest since February 2009. (Newswires)

EQUITIES

European majors trade mostly negative (Euro Stoxx 50 -0.3%) but have drifted off lows following a dismal APAC handover in which the Hang Seng was pummelled by the prospect of a resurgence in violent pro-democracy protests, whilst Chinese markets were dragged lower in sympathy as the nation is on course for further escalation with the US and as the NPC did not provide a GDP growth target for the year. Back to Europe, peripheries fare better than the core markets, whilst the FTSE 100 (-0.9%) and SMI (-1.4%) lag European peers, albeit the former weighed on by energy, materials and financials and the latter more-so on catch-up play. Sectors are red across the board but do not reflect a clear risk tone as specific sectors take hits on Hong Kong woes - with Financials and Energy underperforming, the latter amid price action in the complex and the former dragged by a lower yield environment alongside Hong Kong-exposed banks plumbing the depths; HSBC (-5.4%) and Standard Chartered (-4.0%). The wide US-China implication and downbeat sentiment prompts materials sector to trade on a poor footing. Fears of protests also see luxury names on the backfoot; LVMH (-1.2%), Kering (-1.2%), Richemont (-3.1%), Swatch (-1.1%) hold onto losses. In terms of other individual movers: Burberry (+1.8%) holds onto gains after the Co. said it can weather the pandemic with a strong balance sheet and protected liquidity. Renault (-2.0%) opened weaker amid little progress with the French gov’t on state aid; Co. are due to meet with Finance Minister Le Maire today.

NVIDIA Corp (NVDA) Q1 20 (USD): Adj. EPS 1.80 (exp. 1.69), Revenue 3.1bln (exp. 3.0bln); authorised USD 7.24bln in share repurchases through Dec. 2022, evaluating timing of share repurchases. Maintains dividend commitment. DCG: 1.14bln (exp. 1.07bln), Q2 revenue view 3.65bln (+/- 2% (exp. 3.28bln).Gaming revenue 1.34bln (exp. 1.29bln; -10% Q/Q, -27% Y/Y) GM: 65.1% (exp. 65.4%). Co. shares fell 0.5% after-market – some desks believe the stock had recently seen significant rally and figures relative to near-term expectations may not be enough to spur upside. N.B. This would also be against the backdrop of US-China trade uncertainty.

Deere & Co (DE) Q1 20 (USD): EPS 2.11 (exp. 1.77), Revenue 8.22bln (exp. 7.79bln). sees FY net income 1.6-2bln (exp. 2.10bln)

FX

USD/CNH - Not the biggest move in percentage terms, but pertinent in the context of gauging the rising level of US-China angst as the pair climbs to highs not seen since March above 7.1600, and closer to record peaks in early September last year when trade wars were raging. Moreover, confirmation that Beijing is not setting an official 2020 growth target and the NPC drafting legislation on national security for Hong Kong have ruffled the Yuan, with the latter also adding yet another point of dispute to the increasingly long list jeopardising already strained relations between the 2 nations. In terms of the wider repercussions, risk sentiment has deteriorated further to the benefit of the Greenback above all rivals bar the Yen, as the DXY extends its rebound from recent lows and at least 2 close scrapes with the 99.000 level to a 99.838 high, and still seemingly on the up.

AUD/CAD/EUR/GBP/NZD - No surprise to see the Aussie bearing the brunt of the latest Washington-Beijing spat, especially as the Hong Kong Dollar is pegged, but Aud/Usd and Aud/Nzd have also retreated in response to Fitch downgrading the sovereign’s triple A ratings outlook to negative from stable. The former is now hovering nearer 0.6500 from 0.6600+ yesterday and the latter is down through 1.0700 compared to a 1.0830 apex earlier in the week, as the Kiwi manages to stay within sight of 0.6100 against its US counterpart following comments from NZ Finance Minister Robertson about formative discussions on the topic of helicopter money. Meanwhile, the Euro has handed back more gains vs the Buck after its fleeting or false break over the 1.1000 mark on Thursday and has been back under the round number below, but not quite far enough to stir hefty option expiry interest between 1.0885-75 in 2.8 bn. Elsewhere, the Loonie has lost its oil prop and trying to contain declines through 1.400 ahead of Canadian retail sales data, and on that very note Cable is straddling 1.2200 and the Eur/Gbp cross 0.8950 after weaker than expected UK consumption rattled Sterling somewhat more than equally bad public sector finances and tripped some stops in the former at 1.2180. However, underlying bids said to be sitting from 1.2160 to 1.2150 have not been troubled so far.

JPY/CHF - As noted above, the Yen is marginally outperforming vs the Greenback, albeit still rangebound either side of 107.50 and only retaining an element of safe-haven premium after no shocks from the inter-schedule BoJ meeting or more recent joint statement from Governor Kuroda and Japanese Finance Minister Aso expanding on the rationale behind new bank lending provisions. Conversely, Usd/Chf remains elevated on the 0.9700 handle, but the Franc is still unwinding losses relative to the Euro and probing 1.0600 ahead of the ECB minutes (full preview available via the headline feed) and next Monday’s Swiss bank sight deposit balance update.

EM - Aside from broad depreciation on risk aversion, the Indian Rupiah got an unexpected 40 bp RBI rate cut to contend with, though Usd/Idr has reversed after a knee-jerk jump to trade lower on the day.

Fitch revised Australia’s Outlook from Stable to Negative, affirmed rating at AAA. (Newswires)

New Zealand Finance Minister Robertson said helicopter money is being discussed but not at a level where we have details how it will work, while he added they are keen to make sure fiscal policy remains with the government. (Newswires)

FIXED

Core bonds have lost momentum coinciding with a grinding recovery in EU stocks that suggests normal inverse asset correlations have comeback in to play at least partially, and of course the debt/equity trade-off is likely to become more compelling into month end, especially as portfolio rebalancing rears again. On that note, one major bank notes an especially lengthy duration extension for US Treasuries that could keep the complex afloat and the curve continue to flatten. However, Bunds have drifted back from 173.52 at best and Gilts from 138.99 ahead of ECB minutes and a blank US agenda into the long holiday weekend that also sees UK markets shut on May 25.

COMMODITIES

WTI and Brent front month futures experience substantial intraday losses as sentiment takes a hit from developments regarding the Hong Kong legislations as well as wider implications such as escalating trade tensions with the US and souring sentiment with the UK. As such, clear risk aversion is seen – with WTI and Brent July around USD 31.50/bbl and 34/bbl, down around 7% and 5% respectively and with current bases at USD 30.70/bbl and USD 33.50/bbl respectively. Spot gold sees haven demand, residing towards the top-end of its USD 1725-38/oz current range. Copper prices gapped lower below USD 2.4/lb and holds onto sentiment-driven losses, with some also attributing the downside to China refraining from assigning a GDP target.

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