• Sentiment has recovered in quiet newsflow after yesterday’s pronounced sell-off
• Chinese PLA officer was reportedly arrested and charged with visa fraud as he tried to leave the US
• UK government reportedly will formally rule out a Brexit deadline extension today and plans temporary light-touch customs checks with EU from next year, according to sources
• Two new COVID-19 cases confirmed in Beijing as they close part of their key meat market
• DXY is downbeat and towards lower-end of day’s range while the US yield curve is bear-steepening
• Looking ahead, highlights include US University of Michigan (Prelim) & Import/Export Prices

CORONAVIRUS UPDATE

Beijing shuts down a part of its key wholesale meat market as a coronavirus related countermeasure, Beijing News reports. This comes alongside reports of two new confirmed cases in the city, albeit it is unclear if these are domestic or imported. (Newswires)

ASIA

Asian equity markets suffered losses after the bloodbath on Wall St where risk appetite collapsed due to several factors including coronavirus 2nd wave fears triggered by a surge in cases and following the recent glum outlook from the Fed, while a push back in stimulus hopes added to the depressed mood with the White House and Republicans said to not be planning formal negotiations on a fourth coronavirus stimulus package until late July. As such, the DJIA slumped by nearly 1900 points and the S&P 500 posted its worst day since March 16th with almost all its constituents closing in the red, although futures nursed some of the losses overnight after the E-Mini S&P and Mini Dow futures found a floor at the 3K and 25K levels respectively. Nonetheless, ASX 200 (-1.9%) and Nikkei 225 (-0.8%) weakened from the open with energy and financials front running the declines in Australia and with sentiment also not helped by the souring ties with China which reportedly moved to curb coal imports by stepping up customs checks, while the Japanese benchmark briefly retreated below the 22K level before paring the majority of losses in late trade with price action at the whim of currency fluctuations. Hang Seng (-0.7%) and Shanghai Comp. (U/C) conformed to the widespread negativity after another net liquidity drain by the PBoC and ongoing tensions between the global powerhouses as reports noted a Chinese PLA officer was arrested and charged with visa fraud as he tried to leave the US after having documented an incorrect rank on the visa application, while KOSPI (-2.0%) was also dragged by geopolitical concerns in which North Korea stated relations with US have currently shifted to despair and that it will build up a more reliable force to confront the US military threat. Finally, 10yr JGBs traded marginally higher amid the broad losses in global stock markets and following the bull flattening seen in US, while the BoJ were also present in the market today for nearly JPY 700bln of JGBs heavily concentrated in 1yr-5yr maturities.

PBoC injected CNY 100bln via 7-day reverse repos at rate of 2.20% for a net daily drain of CNY 50bln. (Newswires) PBoC set USD/CNY mid-point at 7.0865 vs. Exp. 7.0941 (Prev. 7.0608)

China Vice Finance Minister Xu said will set up special transfer payments on CNY 2tln of funds from special treasury bonds and increased budget deficit and will ensure fiscal funds will directly reach city and county levels under special transfer payments. Furthermore, Xu added the funds will help employment and expand consumption, as well as investment. (Newswires)

US Treasury Secretary Mnuchin said the US may restrict capital flows through Hong Kong, regarding the national security law. (SCMP)

Chinese PLA officer was reportedly arrested and charged with visa fraud as he tried to leave the US, while reports added that the officer with a similar rank to that of a major, had documented an incorrect rank on his visa application. (SCMP)

US

Kansas City Fed said Jackson Hole Symposium will be conducted virtually on August 27th-28th with the theme to be 'Navigating the Decade Ahead: Implications for Monetary Policy'. (Fed)

UK/EU

UK government reportedly will formally rule out a Brexit deadline extension today and plans temporary light-touch customs checks with EU from next year, according to sources. The customs regime is expected to be detailed by Cabinet Minister Gove. (Twitter/Newswires)

Outgoing Eurogroup President Centeno said the negotiations on the European Recovery Fund will be conducted by leaders at the European Council. Centeno added that finance ministers will focus on the quality of expenditure and work on the complementarity of national and EU level recovery plans. (European Council)

UK GDP Estimate MM (Apr) -20.4% vs. Exp. -18.4% (Prev. -5.8%); 3M/3M -10.4% vs. Exp. -10.0% (Prev. -2.0%)

-        GDP Estimate YY (Apr) -24.5% vs. Exp. -22.6% (Prev. -5.7%)

GEOPOLITICS

North Korea said relations with US have currently shifted to despair and US is hell-bent of exacerbating tensions. Furthermore, it stated that US policy proves US remains a long-term threat and sees no improvement in relations by maintaining the Trump-Kim relationship, while it added it will build up a more reliable force to confront the US military threat. (Newswires/KCNA)

China's Foreign Ministry said the US should take concrete measures in response to North Korea concerns. (Newswires)

US Secretary of State Pompeo said US is deeply troubled by Turkish court conviction of US Consulate employee in Istanbul, while he added the charges are baseless and the conviction harms US-Turkey relations. (Newswires)

Chinese and Indian border troops are conducting multi-level meetings on the ground to promote the implementation of a high-level consensus and to bring divergences under control at the frontline, Global Times citing sources. (Global Times)

EU foreign ministers to hold call with US Secretary of State Pompeo on Monday; agenda includes China (Hong Kong), Middle East & Turkey. (Newswires) 

EQUITIES

A rocky start to the final European session of the week, but stock futures in the region managed to nurse initial losses of almost 2% to trade higher on the day by around a percent. Cash markets meanwhile continue to recover from yesterday’s sell-off [Euro Stoxx 50 +1.7%], whilst participants remain wary on a second wave resurging – with Beijing reportedly shutting down a part of its key wholesale meat market as a coronavirus related countermeasure, which came alongside two confirmed cases in the city, whilst Houston is mulling reimposing stay-at-home orders. Sectors have shifted from a more defensive bias at the cash open to a cyclical tilt – with the Energy sector going from zero to hero as the session is underway. Financials follow a close second whilst healthcare falls to the bottom of the pile. The breakdown paints a similar picture whilst mirroring yesterday’s performance. In terms of individual movers, UBI Banca (+1.5%) and Intesa Sanpaolo (+1.4%) muster support from the lower yield environment alongside reports the Italian market regulator is likely to approve the Intesa takeover.

FX

USD - The Dollar has clawed back some losses, with the DXY on a relatively firmer footing between 96.940-491 parameters after recent dips just below 96.000. However, sellers continue to fade rebounds in the Greenback and the Buck is still underperforming G10 counterparts aside from safer havens that soared on Thursday amidst heightened risk aversion due to second wave coronavirus concerns and spill-over from the Fed’s cautious economic outlook. Looking ahead, US import/export price data is unlikely to be pivotal in terms of direction or insight, but the more timely preliminary Michigan sentiment survey could be insightful as a gauge of economic conditions for the current month.

NZD/AUD/CAD/NOK/SEK - Not quite all change following yesterday’s abrupt retreat, though the Kiwi, Aussie and Loonie have all regained some composure within 0.6395-0.6472, 0.6800-0.6900 and 1.3666-1.3553 respective ranges. A degree of stability in crude and commodities is keeping the high beta and risk sensitive currencies afloat, albeit with the Aud still wary about escalating trade and diplomatic tensions between Australia and China as the latter turns its attentions to coal imports for more stringent customs scrutiny. Conversely, a fillip for the Nzd via a rebound in the manufacturing PMI, while the Cad will be eyeing Canadian Q1 capacity utilisation for some independent impetus. Elsewhere, the Scandinavian Crowns are benefiting from the mildly constructive or less destructive risk tone, as Eur/Nok and Eur/Sek reverse from 10.9300+ and 10.5500+ to nestle under 10.8500 and 10.5000.

GBP/EUR - Both pivoting round numbers vs the Buck and well within this week’s extremes, at 1.2600 and 1.1300, with Cable shrugging off a raft of mostly worse than expected UK data on the basis that it was widely anticipated to be bad in April during almost complete COVID-19 lockdown, but the Eur/Gbp cross elevated alongside prospects of a no deal Brexit given the ongoing stalemate and Britain sticking to its December 2020 transition deadline. Meanwhile, Eur/Usd has not really been hampered by no further Eurogroup progress on the Recovery Fund, but ran into resistance ahead of 1.1350 and could be anchored by 1.2 bn option expiry interest residing just above 1.1300 (1.1305-10) even though the headline pair has breached the 200 HMA (1.1284).

CHF/JPY - In contrast to all the above, safe haven unwinding has pushed the Franc and Yen off Thursday’s lofty pinnacles, as Usd/Chf bounces firmly from sub-0.9400 and Usd/Jpy circa one big figure from 106.40.

EM - Broad recovery gains, with even Usd/Try paring some of its upside irrespective of significantly weaker than forecast Turkish ip and a wider current than expected current account deficit.

FIXED

Aside from a blip to marginally firmer peaks at 175.33 and 137.34 respectively, Bunds and Gilts have been conceding ground to EU equities, albeit in choppy and consolidative trade in contrast to the more dramatic swoons seen in stocks on Thursday that propelled core debt to fresh mtd pinnacles. The former is now holding just above worst levels, but latter just dipped below 137.00 to a deeper Liffe trough at 136.93 more in keeping with the margin of retracement in US Treasuries that also had to absorb 30 year supply. Ahead, 2nd tier US inflation data and Michigan sentiment amidst more pre-weekend position squaring and reflection on yesterday’s manic market moves.

ECB says banks are to repay EUR 214bln of the TLTRO fund early, which will be ahead of the June 18th TLTRO tender. (Newswires)

COMMODITIES

WTI and Brent front month futures have drifted off lows now reside in positive territory as the complex nursed losses seen during APAC hours, with fears of a second COVID-19 wave weighing on the demand side of the equation during overnight trade. That being said, the benchmarks saw some support from headlines nothing that China imports of US crude are on track to reach a record level next month. In terms of Bank commentary, Barclays said it raised its oil price forecasts in which it sees Brent at USD 41/bbl and WTI at USD 37/bbl this year but remains cautious regarding the curve near-term, while it suggested the pace of recovery in oil prices is likely to slow as the steepest decline in supply and fastest improvement in demand is likely behind us. WTI futures currently reside around USD 36/bbl, having printed a current base at USD 34.50/bbl, while its Brent counterpart found overnight support at USD 37/bbl. Looking ahead to next week, the OPEC and IEA monthly oil reports will be released but focus is likely to remain on the JMMC meeting and any accompanying sources, where the committee will review secondary source data alongside current market fundamentals before proposing policy recommendations. Sources last week said that OPEC+ is to move cautiously to rebalance the market amid easing lockdowns, while anticipated Shale resumptions could also weigh on eastern producers’ minds. Participants will also give credence to compliance and how the heads of the group plan to enforce full/over-compliance – namely among the known laggards Iraq and Nigeria – who reaffirmed commitment. On that front, Iraq has already hinted at possible problems regarding making up for its shortfall, whilst compliance enforcement also remains in question as producers are to “self-police” adherence to the pact. Elsewhere, spot gold continues to grind higher amid the softer USD with prices now above its 50 DMA at USD 1729.70 as it eyes its 100 DMA at USD 1744.55/oz. Copper tracks the recovery in stocks with added impetus from a weaker Buck.

Total’s Port Arthur, Texas refinery reportedly cut back on output, according to sources. (Newswires)

China imports of US crude are reportedly on course to reach an all-time next month, according to Refinitiv data. (Newswires)

Barclays said it raised its oil price forecasts in which it sees Brent at USD 41/bbl and WTI at USD 37/bbl this year but remains cautious regarding the curve near-term, while it suggested the pace of recovery in oil prices is likely to slow as the steepest decline in supply and fastest improvement in demand is likely behind us. (Newswires)