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[PODCAST] EU Open Rundown 15th June 2020

  • Asian equity markets traded negative and US equity futures also began the week on the backfoot in which the E-Mini S&P gapped below 3000
  • Beijing reported 36 new local cases on Monday bringing the total confirmed cases to 79 – with eight out of 16 districts in Beijing reporting cases on Monday according to Global Times
  • Beijing shut a fruit and vegetable market and imposed lockdown restrictions on residential areas nearby
  • Several US States have experienced a record increase in coronavirus cases during the past 3 days
  • UK PM Johnson is to tell EU leaders today that Brexit talks must be concluded by autumn at the latest
  • Looking ahead, highlights include US NY Fed Manufacturing, UK PM Johnson & EU Commission President von der Leyen meeting, Fed’s Kaplan

CORONAVIRUS UPDATE

Beijing shut a fruit and vegetable market and imposed lockdown restrictions on residential areas nearby after dozens of people associated with the wholesale market were tested positive for coronavirus. It was later reported that Beijing shut down another market and neighbouring residential areas, while AFP noted that there were 10 additional neighbourhoods locked down and China Vice Premier Sun warned risks are high for Beijing coronavirus outbreak to spread. Mainland China reports 49 new coronavirus cases on June 14th vs. Prev. 57 additional cases on June 13th. Meanwhile, 36 new local cases were reported on Monday bringing the total confirmed cases to 79 – with eight out of 16 districts in Beijing reporting cases on Monday according to Global Times. Furthermore, Global Times reported, citing Beijing CDC, that the Genome sequencing shows the Xinfadi food market outbreak has a European source. (Newswires/AFP)

US CDC reported coronavirus cases rose by 25,468 to 2,063,812 and death toll rose by 646 to a total 115,271, while it previously commented that if cases go up dramatically again, further mitigation efforts like what was seen in March may be needed. There were also reports that several US states including Alaska, Arizona, Arkansas, California, Florida, North Carolina, Oklahoma and South Carolina all experienced a record increase in coronavirus cases during the past 3 days. (Newswires)

UK coronavirus death toll rose by 36 to a total 41,698. In related news, UK PM Johnson commented that the 2-metre social distancing rule is under constant review ahead of further easing lockdown on July 4th and that lower incidence of COVID-19 in population increases the margin for manoeuvre on social distancing. PM Johnson added that Britons should shop with confidence from Monday, while observing social distancing. (Newswires)

France plans to gradually open non-Schengen borders beginning July 1st. There were also comments from French President Macron that the country will go into “green” zone regarding coronavirus risks and restaurants are to reopen in the Paris region, while he added that the new stage will allow the country to accelerate re-opening of its economy and that they will not finance new expenses by increasing taxes. Furthermore, Macron stated that France has mobilized around EUR 500bln to prop up the economy in light of the coronavirus crisis and suggested the coronavirus exposed how reliant Europe is on supply chains from China, as well as others and wants to build up an independent Europe. (Newswires)

Germany is to permit tourists to fly to Spain for safe corridor trial. (Sky News)

EU leaders are to discuss the EU Recovery Fund on June 19th, as expected. (Newswires)

ASIA

Asian equity markets traded negative and US equity futures also began the week on the backfoot in which the E-Mini S&P gapped below its 200DMA (3011.20) and the key 3000 focal point, with investor sentiment weighed by coronavirus second wave fears after several US states recently suffered a record number of additional cases including 2 of the 4 largest populated states - California and Florida. ASX 200 (-1.2%) and Nikkei 225 (-2.0%) declined at the open amid the downbeat tone although losses in Australia were briefly reversed amid resilience in tech and with authorities planning to fast track infrastructure projects valued over AUD 72bln to speed up the recovery, while exporter sentiment in Tokyo was dragged by unfavourable currency effects. Hang Seng (-1.0%) and Shanghai Comp. (Unch.) were subdued after an outbreak prompted a lockdown of some areas in Beijing and following disappointing activity data in which Chinese Industrial Production and Retail Sales both missed expectations, but with pressure in the mainland cushioned after the PBoC conducted a CNY 200bln MLF operation. Finally, 10yr JGBs were relatively flat with prices only marginally benefitting from the weakness in stocks as participants also digested the inline-to-soft enhanced liquidity auction results for longer-dated JGBs and with the BoJ kicking off its 2-day policy meeting.

PBoC skipped repo operations but conducted CNY 200bln 1-year MLF operation with rate kept at 2.95%. (Newswires) PBoC set USD/CNY mid-point at 7.0902 vs. Exp. 7.0892 (Prev. 7.0865)

Chinese Industrial Production (May) Y/Y 4.4% vs. Exp. 5.0% (Prev. 3.9%). (Newswires) Chinese Retail Sales (May) Y/Y -2.8% vs. Exp. -2.0% (Prev. -7.5%) Chinese House Prices (May) Y/Y 4.9% (Prev. 5.1%)

US Secretary of State Pompeo is planning a trip to meet with Chinese government officials in Hawaii, although a date and time has not yet been decided, sources state. (Newswires)

UK/EU

UK PM Johnson is to tell EU leaders today that Brexit talks must be concluded by autumn at the latest to provide certainty for companies impacted by the Brexit and will make it clear UK is prepared to exit the EU whatever happens on December 31st. (Telegraph) Note: the videoconference is scheduled for 13:30BST

A cross-party group of MPs will urge the government today to allow a vote on extending the transition period. (Times)

Industry leaders are to warn UK ministers that the Downing Street-led review of the 2m social distancing rule must be completed by next week or risk hotels, bars, and restaurants sacking tens of thousands of staff. (Telegraph)

EU reportedly wants the power to block foreign aided companies buying more than 35% of EU companies with help of unfair foreign subsidies, which would apply to EU companies with over EUR 100mln in turnover, according to a document. (Newswires)

Germany’s contribution to the EU budget will increase 42% in the approaching years, according to calculations by its Finance Ministry based on long-term EU budget proposals. (Welt)

German parliament’s official researchers believe that the Bundesbank must be responsible for examining whether ECB’s PSPP is proportionate. The legal opinion also called on the German parliament and government to challenge the ECB on the matter. (Newswires)

Ireland's Fianna Fail leader Martin said party leaders will sign off on an agreement to form a government tomorrow morning. (Newswires)

Fitch affirmed Germany at 'AAA'; Outlook Stable and affirmed Spain at 'A-'; Outlook Stable, while Moody’s affirmed Norway at AAA; Outlook Stable. (Newswires)

UK house prices in June were higher by 1.9% than in March with average values at around GBP 338k, according to Rightmove Plc. (Newswires)

FX

In FX markets, the DXY failed to sustain early momentum and retreated back towards the 97.00 level as the surge in coronavirus cases across several US states threatens the economic reopening agenda, which helped the USD’s major counterparts recover from the early stagger. Nonetheless, price action in the greenback’s transatlantic peers left much to be desired with EUR/USD little changed nearby a EUR 1.5bln option expiry at 1.1260 for today’s New York cut, while GBP/USD briefly retreated below the 1.2500 handle ahead of today’s high level talks. Elsewhere, USD/JPY and JPY-crosses mirrored the lacklustre risk tone and antipodeans were also pressured amid weakness across the commodities complex and following the disappointing Chinese data.

COMMODITIES

Commodities were subdued with underperformance seen in oil prices amid a surge in coronavirus cases for some of the largest US states, which threatens their reopening agenda and subsequently pressured WTI crude futures below the USD 35.00/bbl level, while focus this week for the complex turns to the OPEC+ JMMC meeting on June 18th. Elsewhere, gold prices were little changed with the precious metal unable to take advantage of a lacklustre greenback and broad negative risk tone, while copper was pressured from the coronavirus-related concerns and weaker than expected Chinese activity data.

Baker Hughes US rig count (w/e June 12th): Oil rigs -7 at 199, Nat Gas +2 at 78, Total -5 at 279. (Newswires)

OPEC+ are looking at July 14th and 15th for the JTC/JMMC meeting after the upcoming June meeting. (Newswires)

Iraq agreed with major oil companies for deeper cuts in June and the Oil Minister said Iraq’s exports will be at an average 2.8mln bpd in June and that it is beneficial for the country to comply with the OPEC+ agreement. Furthermore, he added they will demand the Kurdish region to contribute to the output cut agreement and almost all foreign companies responded positively to reviewing service contracts although one company rejected. (Newswires)

GEOPOLITICS 

North Korean leader's sister Kim Yo-Jung threatened that North Korea will take its next step against South Korea for betrayal and crimes against North Korea. Furthermore, North Korea’s army has been entrusted to plan and take any necessary action, while a local newspaper warned of continued retaliation against South Korea. (Newswires)

Twitter reports noted large-scale Turkish airstrikes on PKK targets in northern Iraq, while Turkey later confirmed they had conducted strikes in the area. (Newswires/Twitter)

US

The Treasury curve pared some of its strength on Friday following a week of pronounced bull-flattening. The bear-steepener saw the 10-year yield retreat to the 70bps region again, after hitting a weekly low of 65bps on Thursday amid the market turmoil, and a pronounced difference from the 96bps high seen last Friday after the blowout NFP report. Rather than a news-driven risk-on day, today’s yield rise was more a function of a reversion of Thursday’s distress call as the recent rally seemingly hit its limits, where newswires/pundits were quick to assign a resurgence of COVID cases as the trigger, although more market-attuned analysts draw attention to the exhaustion of the upside. Going forward, BMO expects the 10-year yield falling beneath 60bps would prove to be a selling opportunity, “or if nothing else a compelling level from which to reset steepener.” The bank concludes, “Overall, the price action has the tone of a technical correction rather than a paradigm shift of the macro narrative – the next few sessions will provide greater clarity”. T-note futures (U0) settled 10 ticks lower at 138-23+.

Fed’s Kaplan (voter, dove) stated the US is on its way down now regarding unemployment and that there will be positive job growth beginning in June, while he also noted that fiscal policy will be a critical element of the recovery. (Newswires)

Fed's Barkin (non-voter, hawk) reiterated he does not see negative rates happening in the US and that the Fed is to launch the Main Street Lending programme in the next week or so. (Newswires)        

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😴😴😴 That is us done for the week. Wishing all you rascals across the pond a great Independence Day! Meanwhile, f… https://t.co/SdJYlrxqbh