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[PODCAST] US Open Rundown 15th June 2020

  • European equities opened with substantial losses but have since recuperated much of the downside
  • 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
  • UK PM Johnson is to tell EU leaders today that Brexit talks must be concluded by autumn at the latest
  • In FX, DXY oscillated between gains and losses above 97.000, high-betas and EMs remain pressured; stateside, the yield curve is bull-flattening but too a much lesser extent than initially
  • 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) Subsequently, Beijing is reportedly to pause the re-opening of entertainment venues, CCTV reports. (Newswires)

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 (-2.1%) and Nikkei 225 (-3.5%) 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 (-2.1%) and Shanghai Comp. (-1.0%) 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%)

China's Stats Bureau says China's recovery has not yet returned to normal levels, still faces pressure, external risks have clearly increased. (Newswires)

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) US and China are maintaining close communications via diplomatic channels, more information will be given when available; according to Global Times citing the Foreign Ministry Spokesman. (Twitter)

US

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)

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)

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)

German Chancellor Merkel’s Chief Budget Lawmaker states Germany’s overall new borrowing will rise to EUR 218bln this year, according to Bild. (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)

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)

US Ambassador to Russia says the conviction of Whelan will hurt US-Russian relations. (Newswires) This comes after Russian court sentenced former US Marine Paul Whelan to 16yrs in prison over espionage.

Russia's Foreign Ministry says the US' plan to allow US defense contractors to sell more American manufactured drones would be a blow to the Cold-War era arms control deals, according to Ria. (Ria)

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)

EQUITIES

Europe kicks the week off with sizeable losses [Euro Stoxx 50 -1.2%], albeit well off worst levels, as the region conformed to the global risk aversion amid growing fears of a second wave – with Beijing now seemingly the epicenter of a second outbreak, whilst 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. Bourse have drifted off worst levels as the session is underway, potentially due to short covering, but nonetheless remain in firm negative territory. Sectors are predominantly in the red and post an anti-cyclical performance, with energy recouping some losses but still retaining its spot as the laggard whilst healthcare names fare the best, marginally into positive territory. The detailed breakdown pains a similar picture, with Travel & Leisure one of the worst performers amid fears of further sectoral disruption. In terms of individual movers and shakers – BP (-3.5%) shares are pressured (alongside lower oil prices) as it anticipates Q2 charges of USD 13-17.5bln. Additionally, the group are cutting their long-term price assumptions as part of a review of development plans. Meanwhile, Commerzbank (-1.0%) reportedly rejected Cerberus’ demands for two seats on the supervisory board, according to sources; subsequently, Cerberus reportedly said they expected this to happen and will announce next steps in due course. On the flip side, AstraZeneca (+1.0%) are buoyed amid comments from Italy’s Health Minister who stated that Italy, Germany, France & Netherlands have signed a contract for 400mln doses of a COVID-19 vaccine – Co. CEO said the group will know by the end of Summer if a working vaccine is viable.

Walmart (WMT) has partnered with Shopify (SHOP) to grow its web marketplace business. (Newswires)

FX

USD/XAU/JPY - The Dollar has retained some safe-haven allure alongside Gold and the Yen as 2nd wave coronavirus concerns spark another bout of broad risk aversion, with the DXY holding above 97.000 and well off mtd lows just under 96.000. However, the Greenback is still tussling with bullion and the Jpy given new outbreaks of COVID-19 across several US states and eight seeing a record rise in the number of cases over the last 3 days. Hence, Xau/Usd looks underpinned around the 10 DMA (Usd 1715/oz) and Usd/Jpy appears capped ahead of 107.60, albeit also mindful of decent option expiry interest between 107.20-15 (1.1 bn).

NOK/AUD/CAD - Another downturn in crude prices and a further deterioration in Norway’s trade balance has undermined the Crown, while the Aussie is weaker in wake of Chinese ip and retail sales missing consensus to offset latest fiscal initiatives to support the economy via infrastructure spending. Meanwhile, the Loonie is also tracking oil down ahead of Canadian manufacturing sales, with Eur/Nok elevated within a 11.0187-10.8561 range, Aud/Usd pivoting 0.6800 and Usd/Cad firmly above 1.3600. Ahead, a big week for the Aussie kicks off with RBA minutes tomorrow and culminates in jobs data and retail sales on Thursday and Friday respectively.

NZD/SEK - Also on the back foot, but the Kiwi benefiting to a degree from favourable Aud/Nzd cross flows towards the bottom of 1.0644-1.0583 parameters and the Swedish Krona holding up better than its Scandinavian counterpart by the same token, as Nzd/Usd sits more comfortably on the 0.6400 handle and Eur/Sek in a tighter 10.5835-5070 band.

CHF/EUR/GBP - All pretty flat with the Franc near the middle of 0.9500-50 extremes vs the Buck and even tighter against the Euro between 1.0730-1.0695 after more deflationary Swiss data (import/producer prices) and latest sight deposits showing a big rise in domestic bank accounts in the run up to Thursday’s SNB policy review. Elsewhere, Eur/Usd seems constrained by 1.1225/30 bids and 1.1270 offers, 1.1270 with 1.5 bn option expiries at 1.1260 also keeping the headline pair in check, while Cable has reclaimed 1.2500+ status and Eur/Gbp is back under 0.9000 amidst reports of demand for Sterling via the cross before attention turns to UK PM Johnson’s Brexit call with EC President von der Leyen at 13.30BST.

EM - Widespread declines on the lack of risk appetite, but especially for the Rub, Mxn, and Zar, while the Try is under pressure following Turkey’s airstrikes on PKK targets in Northern Iraq.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1260 (1.5BLN), 1.1265 (300M), 1.1300 (841M), 1.1310-15 (600M), 1.1325 (370M)

-        USD/JPY: 107.00 (405M), 107.15-20 (1.1BLN), 108.00 (650M), 108.30 (600M)

FIXED

A marked rebound in stocks and appreciably less aversion to risk than was apparent in early EU trade has sapped strength from core bonds, with Bunds back down near overnight Eurex lows just 2 ticks above parity (175.59) having got to within the same margin of 176.00 at one stage, while Gilts have retreated to a new 137.22 Liffe low vs 137.54 at best and last Friday’s 137.11 close. However, US Treasuries are closer to the middle of their ranges and the curve retains a re-flattening bias ahead of June’s NY Fed manufacturing survey and another speech by Fed’s Kaplan.

COMMODITIES

WTI and Brent front-month futures bear the brunt of the overall risk aversion coupled with demand woes emanating from the resurgence in COVID-19 cases in the US and in Beijing. WTI has since reclaimed the 35/bbl handle (vs. 36.12/bbl high) as has Brent for the USD 38/bbl figure (vs. 38.80 high); as newsflow slows and prices grind higher ahead of US’ entrance. The week could prove to be a volatile period, barring COVID-headlines, the monthly OPEC and IEA oil market reports are due later this week, whilst the JMMC meeting will be underway on the 18th June. 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 may give less credence to the oil market reports as the prospect of rising cases could prove the reports stale. Moving to metals where, spot gold trades lacklustre around USD 1720/oz (vs. 1735 high), as the yellow metal decouples from its safe-haven properties amid early USD strength, although as the Dollar recedes, gold is seemingly weighed on by investors potentially on the sidelines as they observe the state of play. Copper prices have been moving broadly with the risk aversion. Reports noted that CME May copper volumes slid 40%, whilst LME volumes fell 26% as funds fled from high volatility amid the pandemic. Meanwhile, Dalian iron ore futures remained steady despite the second wave-woes amid falling stockpiles of the raw material.

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)

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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