[PODCAST] EU Open Rundown 16th June 2020
- Asia-Pac bourses notched considerable gains as the region took impetus from Wall Street's recovery
- Optimism in the US was spurred by the pace of infections slowing in key US states and the Fed’s decision to directly purchase corporate bonds
- WHO said more than 100 cases have now been confirmed in Beijing and China warned there is a very high risk of the new Beijing coronavirus cluster spreading
- The BoJ kept policy settings unchanged but noted the size of market operations and lending facilities to address the pandemic is likely to increase to around JPY 110tln
- The DXY was softer and retreated further below 97.00, AUD and GBP lead G10 peers
- Brussels is preparing to back down regarding fishing and admit that EU fleets do not have automatic rights to fish in UK waters, according to The Times
- Looking ahead, highlights include UK labour market report, German ZEW, US retail sales, industrial production, Fed Chair Powell testimony, Fed's Clarida, supply from the UK
US CDC reported COVID-19 deaths rose by 373 vs. Prev. +646 and case count rose by 21,957 vs. Prev. +25,465. There were also reports that California cases rose 1.7% vs. Prev. 7-day average of 2.1% and Florida cases rose 2.3% vs. Prev. 7-day average of +2.4%, while Texas cases rose 1.4% vs. Prev. 7-day average of 2.3%. (Newswires)
Institute for Health Metrics and Evaluation (IHME) raised US COVID-19 death forecast to 201,129 from 169,890 by October 1st and raised Florida death forecast by 186% to 18,675 from 6,559. (Newswires)
NEC Director Kudlow said there is no intention of even thinking about a second shutdown and that COVID trends are not worrisome at this point, while he sees a 'steep V' shaped recovery. (Newswires)
WHO said more than 100 cases have now been confirmed in Beijing and China warned there is a very high risk of the new Beijing coronavirus cluster spreading. Furthermore, other reports suggested that the Beijing coronavirus outbreak may be more infectious than the Wuhan one, although China Global Times later tweeted that Beijing has no possibility of becoming a second Wuhan despite new infection and that excessive restrictions which would hinder the economic recovery are not necessary, citing an expert. (Newswires/CBS/Global Times/CCTV)
Beijing locked down 7 compounds in central Xicheng district to contain coronavirus outbreak and closed 11 food markets, as well as sanitized 276. It was also reported that 3 highway terminuses have stopped bus services into Beijing and Shanghai is to quarantine all people from mid- to high-risk areas in China for 14 days. (Newswires)
IMF’s Managing Director Georgieva says the IMF will be downgrading its outlook for ‘the majority of countries’, but some nations such as Germany are performing better than originally anticipated. Additionally, warned that the Fund may not have enough current resources to assist in the event of a second-wave of COVID-19. (Sky News) Note, the next IMF Update is typically released in July and the second 2020 World Economic Outlook will be published in October
Asia-Pac bourses notched considerable gains as the region took impetus from Wall Street's recovery after the pace of infections slowed in key US states and the Fed announced its Secondary Market Corporate Credit Facility will begin purchasing corporate bonds. ASX 200 (+4.1%) and Nikkei 225 (+4.4%) surged from the open with energy and tech leading the firms gains in Australia and Viva Energy the biggest gaining stock following its guidance, while stocks in Tokyo also rallied as they coat-tailed on the recent favourable currency moves and with focus on the BoJ announcement in which the central bank kept policy settings unchanged as expected but noted the size of market operations and lending facilities to address the pandemic is likely to increase to around JPY 110tln from the current JPY 75tln. Hang Seng (+3.0%) and Shanghai Comp. (+0.9%) were also positive amid some moderation in the US-China related headlines with the US to permit Chinese carriers to continue to operate 4 flights from China per week and with the US to also allow companies to work with Huawei to develop 5G standards despite its blacklisting, although gains for the mainland were relatively reserved compared to its peers after the PBoC’s net liquidity drain. Finally, 10yr JGBs were lower in which they briefly fell below the 152.00 level amid spill over selling from USTs and as stock markets surged, while the losses in bonds also followed the BoJ decision to maintain its monetary policy settings as expected.
PBoC skipped reverse repo operations for a net daily drain of CNY 60bln. (Newswires) PBoC set USD/CNY mid-point at 7.0755 vs. Exp. 7.0769 (Prev. 7.0902)
US is to post an amendment allowing US companies to work with China's Huawei to develop 5G standards despite blacklisting and the amendment is said to be awaiting publication in the federal register according to sources. However, industry officials said the rule change should not be viewed as a sign of weakening US resolve against Huawei. (Newswires)
US Department of Transport said it is to permit Chinese carriers to continue to operate 4 flights from China per week, while US government is to continue to press for complete restoration of air travel between US and China. (Newswires)
BoJ maintained policy setting as expected with rates kept at -0.10% and 10yr JGB yield target at around 0% in which the decision on YCC was made by 8-1 with Kataoka the dissenter. BoJ added that the size of money pumped out through market operations and lending facilities will likely increase to JPY 110tln from current JPY 75tln and that it will take additional monetary easing steps without hesitation if needed with close eye on pandemic. Furthermore, the BoJ stated exports and output are falling sharply with the economy in a severe state but added it will likely improve as fallout from the virus subsides. (Newswires)
Brussels is reportedly preparing to back down regarding fishing and admit that EU fleets do not have automatic rights to fish in UK waters. (The Times)
The DXY was softer and retreated further below 97.00 after the resurgence of stocks spurred haven outflows and which followed the Fed announcement to directly purchase corporate bonds. This benefitted its major counterparts in which EUR/USD reclaimed the 1.1300 status before breaching its 100-Hour and 200-Hour MA levels at 1.1315 and 1.1307 respectively, while GBP/USD extended on gains due to Brexit-related optimism with reports suggesting that Brussels is willing to backdown on fishing. USD/JPY was underpinned by the elevated risk appetite which has also been the main catalyst for antipodean currencies, especially considering that the RBA minutes from the June meeting was largely a reiteration in which the central bank stated it would not increase the cash rate until progress is made on its targets and that it is prepared to scale up bond purchases if needed, but also noted it had only purchased government bonds on one occasion since the prior meeting. However, it did mention it would consider purchasing bonds in the secondary market to ensure short-term yields are consistent with the target for three-year yields after 1yr-2yr yields rose above yields for 3yr bonds.
RBA Minutes from June 2nd Meeting affirmed the target for 3yr yields would be maintained and the central bank will also not increase the cash rate until progress was made on its employment and inflation targets. The minutes stated that members recognized the global economy was in a severe downturn and that the Australian economy was experiencing its largest contraction since the 1930s, while it is prepared to scale up bond purchases if needed but also noted it had only purchased government bonds only on one occasion since the prior meeting. Furthermore, members noted yields on bonds with 1-2 years to maturity had risen to be a few basis points higher than the yields on 3-year bonds and if this should continue, they would consider purchasing bonds in the secondary market to ensure that these short-term yields are consistent with the target for three-year yields. (Newswires)
Crude prices were marginally lower despite the heightened risk appetite, as prices took a breather from the prior day’s gains and with WTI hitting resistance just above USD 37/bbl. The oil related headlines has been somewhat light so far this week ahead of Thursday’s JMMC, although there were comments from the UAE Energy Minister who believes that demand will recover at a pace to make OPEC+ oil cuts sufficient barring a 2nd wave of the pandemic, while focus shifts to the upcoming stockpile data later today. Gold prices were rangebound overnight after having rebounded off support ahead of the USD 1700/oz level, while copper prices outperformed with momentum exacerbated on news the Trump administration was working on a draft USD 1tln infrastructure proposal.
UAE Energy Minister said the country is looking to raise its oil output capacity to 5mln BPD by 2030 and believes that demand will recover at a pace to make OPEC+ oil cuts adequate unless there is a second COVID-19 wave. (Newswires)
Norway is reducing domestic production by about 250,000 bpd in June and 134,000 bpd in H2 2020, while it is delaying several start ups until next year which would result to Norway’s production being 300k BPD lower than planned in December 2020, according to OPEC Secretariat. (Twitter)
North Korea is mulling plan to enter demilitarized zones and its army is preparing to implement government orders, according to North Korea state media. In related news, South Korean President Moon called on North Korea to not stop the peace journey despite some troubles. (Yonhap/Newswires)
T-notes settled unchanged after the clawback in risk appetite reversed an earlier bull-flattener – 10-year yield unchanged at 70bps. Overnight the risk tone was bearish, with US equity futures approaching limit downs as growing COVID cases in US states and Beijing over the weekend heightened concerns of a second wave, seeing the 10-year hit lows of 65bps. However, heading into US trade, equities came off their lows to eventually trade positive, with duration being offered. Big flow accentuated the move further, where one fund was reported to have sold 2k 30-year futures and 8k ten-year futures while at the same time buying a chunky amount of S&P futures, there were other such reallocation trades said to have been made too. The Fed’s announcement to expand its corporate bond-buying programme saw yields move to unchanged by settlement. Looking ahead, retail sales and industrial production (May) are to print on Tuesday, with Wednesday’s 20-year USD 17bln Treasury auction looming. Furthermore, the week is peppered with scheduled Fed speak post-blackout, as well as Powell’s testimony to Senate, although the latter is likely not bear any new fruit. US T-note futures (U0) settled unchanged ticks at 138-23+.
Fed said its Secondary Market Corporate Credit Facility will begin purchasing corporate bonds on Tuesday to create a corporate bond portfolio based on a broad, diversified market index of US corporate bonds to support liquidity and availability of credit for large employers. The Fed is to utilize an indexing approach for purchases in which it aims to create a portfolio with the index to be made up of all the bonds in the secondary market that have been issued by US companies that satisfy the facility's minimum rating, maximum maturity, and other criteria. (Newswires)
Fed announced a proposal to expand its main street lending program to include access to credit for non-profit organizations in which the rates, deferral of principle and interest payments, as well as 5-year term will be the same as for main street business loans. Fed added that each non-profit must meet thresholds and must be a tax-exempt organization, while the Fed is seeking public comment by June 22nd regarding the proposal. (Newswires)
Fed's Bostic (non-voter, dove) said he expects unemployment at about 10% in Q4 and sees need for further fiscal support, while he added that the Fed needs to meet its dual mandate before raising rates. (Newswires)
Fed's Daly (non-vote, dove) said much more will be needed than the trillions already spent on emergency relief and sees the Fed keeping current highly accommodative policy until the economy has largely recovered. Furthermore, Daly expects the Fed and fiscal policymakers would do more if faced with a 'second wave' and that the Fed wants to return unemployment to pre-crisis levels. Daly also commented that YCC is not a first-choice tool and would use other proven tools first, while she added commercial real estate sector is worth watching as a gauge of financial stability. (Newswires)
US President Trump administration is working on a draft plan for USD 1tln infrastructure proposal to stimulate the economy which would focus on 5G and rural broadband, although reports added it would still under discussion and would need the backing of congress. (Newswires)
Des Moines/Mediacom Iowa poll showed US President Trump leading former VP Biden at 44% vs. 43% in a poll of 674 likely voters taken June 7th-10th with a margin of error at +/- 3.8 points. (Twitter)