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[PODCAST] US Open Rundown 17th June 2020

  • European bourses have been choppy and are currently modestly firmer with US future posting similar performance at present
  • Crude downside seemingly led the deterioration in general risk sentiment with WTI & Brent still negative on the day; separately, DXY remains towards top-end of the day’s range
  • Group of prominent republican operatives that includes former officials from the Trump and George W. Bush administrations are launching a super PAC to turn out GOP voters for Joe Biden in November, Axios
  • Indian PM Modi says the sacrifice of Indian soldiers in yesterday's clash with China will not go in vain, adding that India wants peace but can reply suitable if provoked.
  • North Korea is to deploy the army to Kaesong and Mt. Kumgang after it rejected South Korea’s requested to send an envoy to North Korea
  • Looking ahead, highlights include US building permits, housing starts, Canadian CPI, DoEs, NZ GDP, OPEC Monthly Oil Market Report, Fed's Powell, Mester, supply from the US

CORONAVIRUS UPDATE

NIH's Fauci said a panel of US experts are reviewing whether to recommend dexamethasone, calling the Oxford trial results "positive" and "important". (FT) 

China's Global Times tweeted that a total of 1,255 flights in and out of Beijing were cancelled after the city increased its emergency response to level 2. (Twitter) Beijing City Officials says that it is not possible to ruled out that the number of COVID-19 cases in the City will remain at current levels for some time. (Newswires)

Germany are to ban large events until the end of October, according to NTV. (Newswires)

ASIA

Asian equity markets failed to fully sustain the positive handover from Wall St with regional bourses indecisive amid geopolitical tensions, COVID-19 fears and with early underperformance in Japan due to a firmer currency and weaker than expected trade data. ASX 200 (+0.8%) and Nikkei 225 (-0.6%) traded mixed as upside in consumer stocks and tech kept the Australian benchmark afloat, while sentiment among Tokyo exporters was subdued by a firmer currency and after the latest trade data showed a larger than expected slump in Exports Y/Y, with Japan’s US-bound exports at the fastest pace of decline since March 2009 and its trade surplus with the US at a record low. KOSPI (+0.1%) swung between gains and losses on increasing tensions in the Korean peninsula after North Korea demolished its inter-Korean liaison office in Kaesong yesterday and is reportedly to deploy the army to Kaesong and Mt. Kumgang. There were also criticism from North Korean leader Kim’s sister on South Korean President Moon which prompted a response from the Blue House that it will not tolerate North Korea's senseless remarks anymore and the Defense Ministry warned that North Korea will pay the price if it takes actual military action. Hang Seng (+0.6%) and Shanghai Comp. (+0.1%) conformed to the non-committal tone after another net liquidity drain by the PBoC and amid concerns regarding the outbreak in Beijing where the city government raised its COVID-19 emergency response to level II from level III and resulted to the cancellation of 1255 flights. In addition, deadly clashes between India and China at the Himalayan border where 20 Indian soldiers were killed also contributed to the ongoing geopolitical concerns. Finally, 10yr JGBs were slightly higher after having rebounded off support just below 152.00 although the underperformance of Japanese stocks and BoJ’s presence in the market only provided marginal gains for JGBs. 

PBoC skipped reverse repo operations for a net daily drain of CNY 60bln. (Newswires) PBoC set USD/CNY mid-point at 7.0873 vs. Exp. 7.0902 (Prev. 7.0755)

Japanese Trade Balance (JPY)(May) -833.4B vs. Exp. -560.0B (Prev. -931.9B). (Newswires) Japanese Exports (May) Y/Y -28.3% vs. Exp. -22.7% (Prev. -21.9%) Japanese Imports (May) Y/Y -26.2% vs. Exp. -12.9% (Prev. -7.1%)

Hong Kong citizens who are in breach of the incoming National Security Law could be extradited to mainland China for trial, according to the delegate to China's top legislative body cited by SCMP.

US

Group of prominent republican operatives that includes former officials from the Trump and George W. Bush administrations are launching a super PAC to turn out GOP voters for Joe Biden in November, Axios citing organisers. (Axios)

-        Aim is to identify former President Trump supporters who have cooled to the president's approach in office and convince them to vote for Biden

Fed's Kaplan (Voter, Dove) said the economy probably bottomed out in May and that we're going to grow pretty strongly from here but added there are both upside and downside risks to the recovery. Fed's Kaplan also commented the Fed’s toolbox is not dry at all and there is plenty of dry powder if required, while he added the jury is out on negative rates and he is skeptical of yield curve control. (Newswires)

UK/EU

UK Chancellor Sunak is reportedly preparing to break the Conservatives’ "Triple Lock" pledge which aims to protect the state pension against inflation, amid concerns it may become unaffordable due to fallout from the pandemic. (FT)

Australia is aiming for a trade deal with the UK by the end of 2020, one that would eliminate tariffs and quotas on goods, according to Australia's trade minister.  (FT)

EU & UK Brexit negotiations are to enter a 'hot phase' in September, UK are reportedly building pressure within negotiations hoping to achieve last-minute success, according to a German Gov't document. (Newswires)

The Times' Shadow MPC says the BoE should do the minimum required in terms of stimulus in order to keep its powder dry in case of a potential second spike in infections. (Times) 

UK CPI YY (May) 0.5% vs. Exp. 0.5% (Prev. 0.8%); MM (May) 0.0% (Prev. -0.2%)

-        Core CPI YY (May) 1.2% vs. Exp. 1.3% (Prev. 1.4%)

European Council President Michel believes EU governments are far apart on a recovery plan, adding that a deal will take weeks. (Newswires)

GEOPOLITICS

North Korea is to deploy the army to Kaesong and Mt. Kumgang after it rejected South Korea’s requested to send an envoy to North Korea, while North Korean leader Kim's sister Kim Yo Jong condemned a speech made by South Korean President Moon. This prompted a response from the South Korea Presidential Office which stated it will not tolerate North Korea's senseless remarks anymore and that North Korea should bear all consequences from remarks and actions. South Korea also asked North Korea to be more polite and stated that recent comments on President Moon were rude, while the Defense Ministry warned North Korea will pay the price if it takes actual military action. (Newswires)

US Secretary of State Pompeo tweeted that the IAEA confirmed Iran is denying access to 2 of its past nuclear sites and that this obstruction is deeply concerning and unacceptable, while he added the international community must demand Iran cooperate fully and immediately. (Twitter)

Turkey launched a new anti-terror operation against PKK/YPG terrorists in northern Iraq, according to reports citing the Turkish Defence Ministry. (Twitter)

Chinese Foreign Ministry says that China and India are in close communication on resolving relevant issues through both diplomatic and military channels, according to the Global Times. (Twitter) Later it was reported that Major General level talks being held between India and China in the Galwan valley to further defuse the situation, army sources state. Most recently, Indian PM Modi says the sacrifice of Indian soldiers in yesterday's clash with China will not go in vain, adding that India wants peace but can reply suitable if provoked. (Newswires)

Russia says four of their nuclear-capable bombers have carried out planned flights near the US border, according to agency comments. (Newswires)

EQUITIES

European equities had a tame start to the session as bourses opened with very modest gains following a mixed APAC handover, before the region edged higher since the cash open. Europe has since given up early gains [Euro Stoxx 50 +0.1%] to return to levels seen around the cash open. Peripheries lag with Spain’s IBEX (-0.9%) is the marked underperfomer thus far and Italy’s FTSE MIB (-0.1%) also in the red – potentially heading into the European Council meeting with pessimistic rhetoric from Chancellor Merkel and European Council President Michel on the likelihood of a concensus on the Recovery Fund being reached on Friday. The periphery could also be seeing jitters of a second wave having been hit hard by the initial outbreak. Sectors are mixed with defensives overall faring better than cyclicals, whilst the breakdown sees Travel & Leisure the laggard amid fears of further disruptions to operations due to a second wave. On that front, Carnival (-3.5%) shares continue to deteriorate alongside the update from Norwegian Cruse Line – who cancelled all voyages until October. Elsewhere, European Auto names and part makers remain under pressure as May car registrations slumped 57% YY, with Renault (-1.2%), Daimler (-1.1%), Continental (-1.8%) and Ferrari (-1.5%) all at the foot of their respective bourses. HSBC (+0.1%) trades choppy but just about holds onto gains amid reports the group is poised to cut headcount by some 35k over the medium term; however, the firm could be further embroiled in politics, with Global Times stating that some observers have said the Anglo-Sino bank may experience more severe consequences for their collusion with the US against Huawei.

Tesla (TSLA) - New car registrations for Tesla vehicles fell by a combined 37% in April and May it in its critical California market, according to Dominion Enterprise data cited by WSJ.

FX

USD - A rather muted start to the midweek EU session, as the Dollar consolidates following yesterday’s revival on encouraging US economic recovery leads via retail sales. However, the DXY remains relatively underpinned within a narrow 97.264-96.796 band amidst similarly tight ranges vs major counterparts in the run up to Fed Chair Powell’s 2nd semi-annual testimony and more data that could provide further evidence for or against the circa April COVID-19 trough theory in the form of housing starts and building permits.

NOK/SEK/AUD/CHF/NZD - The Norwegian Crown continues to rebound from Monday’s deep risk aversion and crude retracement lows, with Eur/Nok testing support ahead of 10.7000 awaiting further confirmation from the Norges Bank tomorrow that benchmark rates have hit the lower (zero in this case) bound. Meanwhile, the Swedish Krona has also regained some poise amidst mixed NIER GDP forecast revisions and jobs data, as Eur/Sek hovers near 10.5100 compared to a high just shy of 10.5800. Similarly, the Aussie and Kiwi have regrouped after more volatile trade overnight and Tuesday’s even sharper swings to revisit 0.6900 and pivot 0.6450 against their US peer respectively, and with the latter now looking for independent inspiration from NZ GDP tonight. Elsewhere, the Franc and Loonie are both meandering, around 0.9500 and 1.3550, eyeing the SNB on Thursday and Canadian CPI later today.

JPY/GBP/EUR - Marginal G10 underperformers, with the Yen still restrained below 107.00 in wake of a wider than expected Japanese trade deficit on weak internals and stymied by decent option expiry interest at 107.25 (1.1 bn), while Cable topped out ahead of 1.2600 and the 200 DMA again, albeit holding around the 100 DMA (1.2526) after little reaction to in line/softer UK inflation metrics. The Euro is also fading from a test of round number/psychological resistance at 1.1300, and testing support through the 50 DMA (1.1233) that sits close to recent sub-1.1230 lows and stops said to be residing on a break of 1.1228.

EM - Broad sentiment is notably more fragile against the backdrop of several geopolitical hotspots that could spiral given recent developments, and on that note the Lira is underperforming as Turkey steps up its offensive against PKK/YPG targets in Northern Iraq, with Usd/Try back over 6.8500 at one stage in contrast to flat/fractionally softer trade in Usd/Zar and Usd/Mxn.

FIXED

Bunds and Gilts are both back above big figures from 174.80 and 136.91 respective lows (-60 and -39 ticks on the day), but remain below parity amidst somewhat conflicting impulses and are still lagging behind US Treasuries that sit a few ticks above Tuesday’s closing levels. In truth, price action is choppy and erratic overall after a pronounced retreat from safe-haven peaks at the start of the week and markets on tenterhooks awaiting further COVID-19 specific developments against the backdrop of several rising and fractious geopolitical points of contention/conflict that could flare up. Ahead, more US data and Fed chair Powell’s House testimony before the 2nd 20 year auction.

COMMODITIES

WTI and Brent front-month futures initially grinded higher in early European trade, having had somewhat of a lacklustre APAC session with the complex pressured by Beijing curbing some 60% of its flights in a bid to stem a second virus outbreak, whilst a surprise build in Private Inventories added to the downside factors. Nonetheless, the complex has given up recent gains as traders eye the release of the OPEC Oil Market Report for June alongside the start of the JTC meeting, and against the backdrop of heightened geopolitical tensions. Tomorrow’s JMMC meeting will see the committee (composed of Saudi, Russia, Iraq, UAE, Kuwait, Nigeria, Algeria, Venezuela and Kazakhstan) reviewing secondary source data alongside current market fundamentals before proposing policy recommendations – no policy will be set at this meeting. In terms of compliance, reports note that Iraq is aligning its cuts with the OPEC+ pact, shipping data and industry sources suggest the second largest OPEC member’s exports have declined some 300k BPD thus far in June. WTI July reliquinshed the USD 38/bbl to the downside (vs. 37.21/bbl low) whilst Brent August similarly lost its USD 41/bbl handle (vs. 40.03/bbl low). In terms of other scheduled events, the weekly DoEs could provide some volatility (in the short term at least) – with headline crude stocks seen drawing 152k barrels (vs. Private Inventory build of 3.9mln barrels). Elsewhere, spot gold succumbs to a firmer Buck as the yellow metal prints fresh session lows. It’s worth noting for precious metals that ETFs increased holdings gold holdings for a fifth consecutive session in which it added almost 48k oz yesterday to bring this year’s net buying to 18mln oz. Copper prices see modest gains well within yesterday’s ranges amid the indecisive APAC tone – prices remain north of USD 2.50/lb but just under USD 2.60/lb.

US Private Inventory Crude Stocks +3.9mln vs. Exp. -0.2mln (Prev. +5.7mln). (Newswires)

OPEC+ reportedly sees May crude compliance among members at 87%, according to delegates. (Newswires)

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