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[PODCAST] US Open Rundown 18th June 2020

  • US futures are mixed/flat in a choppy session for sentiment thus far which has been dictated by a downbeat APAC handover and further COVID-19 updates
  • The COVID-19 outbreak in Beijing is now under control, according to a Chinese CDC expert – subsequently, caveated that more cases will emerge in the coming days
  • China said the two sides articulated their positions in the meeting between top diplomat Yang and US Secretary of State Pompeo in Hawaii and agreed this was constructive dialogue
  • SNB left rates unchanged and as alluded to by the Governor in May lowered the CHF classification
  • Norges Bank left rates unchanged but the NOK was bolstered by the raising of the long-end repo path and upbeat commentary
  • Looking ahead, highlights include BoE Rate Decision, US initial jobless claims, Philadelphia Fed business index, JMMC meeting, ECB's de Guindos, BoE's Broadbent & Tenreyro, supply from the US

CORONAVIRUS UPDATE

US President Trump suggested the US is very close to a vaccine and close to therapeutics, while he added they won’t be closing the country again. (Newswires)

The COVID-19 outbreak in Beijing is now under control, according to a Chinese CDC expert. Subsequently, Global Times tweet "Beijing outbreak under control, but more cases will emerge in coming days", citing CDC epidemiologist. (Newswires/Global Times)

Beijing reportedly shut down all hotels and similar entities in areas considered high risk, while it was also reported that 1460 flights were cancelled in and out of Beijing as of Thursday morning, although there were comments from a local security officials that Beijing is not sealed off. (Newswires/Twitter)

ASIA

Asian stocks traded mostly negative with investor sentiment dampened by concerns regarding a resurgence of coronavirus cases stateside and as participants digested the latest bout of weak data from the region, as well as ongoing US-China tensions. ASX 200 (-0.9%) and Nikkei 225 (-0.4%) were lower with Australia pressured by losses in nearly all sectors including early underperformance in the top-weighted financials and with disappointing employment data adding to the soured mood, while exporters in Japan buckled under the strain of a firmer currency. Elsewhere, Hang Seng (U/C) and Shanghai Comp. (+0.1%) were both subdued amid ongoing US-China tensions as China responded to President Trump’s recent signing of the Uighur human rights legislation which it firmly opposed and warned the US to correct its mistakes or it will resolutely respond with the US to bear the consequences. However, losses were cushioned in the mainland after the PBoC conducted open market operations to inject liquidity in which it utilized 14-day reverse repos for the first time since February and lowered the respective rate by 20bps to 2.35%, while JD.com was among today’s success stories in which the Co. shares rose about 6% at the open of its Hong Kong debut. Finally, 10yr JGBs were higher with prices underpinned in tandem with upside in T-notes and amid the broad negative risk tone in the region, although some of the gains were retraced after weaker results at the 5yr JGB auction.

PBoC injected CNY 50bln via 7-day reverse repos and CNY 70bln via 14-day reverse repos for a daily net injection of CNY 40bln, while it maintained the 7-day reverse repo rate at 2.20% but cut the 14-day reverse repo rate by 25bps to 2.35% vs. Prev. 2.55%. (Newswires) PBoC set USD/CNY mid-point at 7.0903 vs. Exp. 7.0866 (Prev. 7.0873)

China expressed strong indignation and firm opposition to the US law regarding Uighurs and noted that Xinjiang is purely China's affairs and urged US to correct its mistakes or it will resolutely respond and US must bear consequences. Furthermore, China’s Foreign Ministry said China demands US handles Taiwan-related issue carefully and properly. (Newswires)

China said the two sides articulated their positions in the meeting between top diplomat Yang and US Secretary of State Pompeo in Hawaii and agreed this was constructive dialogue, while the sides also agreed to implement consensus reached by their leaders and to continue engagement, as well as communication. Furthermore, Yang told Pompeo cooperation between the 2 countries is the only correct choice and conveyed China's position on issues including Taiwan, Hong Kong and Xinjiang, while he added the US should stop using Xinjiang related issues to interfere with China's internal affairs. (Newswires)

China State Council said the country needs to better leverage policy tools such as RRR cuts and re-lending to maintain reasonably sufficient liquidity and intensify efforts to make financing more accessible to help enterprises. (Newswires)

China Vice Premier Liu He said China and US should jointly create conditions and atmosphere to implement Phase 1 trade agreement. Liu also noted that the economic situation has gradually improved and that China is maintaining appropriate levels of overall liquidity, while he added China will firmly support reforms and opening up, as well as support Hong Kong's position as a key financial centre. (Newswires)

Asia Development Bank lowered 2020 growth forecast for developing Asian countries to 0.1% from 2.2%, while it cut China 2020 growth forecast to 1.8% from 2.3% but sees 2021 China growth at 7.4%. (Newswires)

CENTRAL BANKS

SNB leaves policy rate unchanged at -0.75% as expected; CHF “highly valued” vs. Prev. “even more highly valued”; maintains expansionary monetary policy; will remain active in FX market

-        CPI forecasts: 2020 -0.7% (Prev. -0.3%), 2021 -0.2% (Prev. 0.3%); 2022 0.2% (Prev. 0.7%)

-        GDP Growth: 2020 -6% (Prev. -1.5% to 2%)

-        The conditional inflation forecast is based on the assumption that the SNB policy rate remains at –0.75% over the entire forecast horizon

-        Further loosening of the measures is likely to contribute to a significant economic recovery in the third quarter

-        SNB's Governor Jordan says that monetary policy at the bank has nothing to do with FX manipulation or trying to obtain an advantage

Norges Bank leaves its Key Policy Rate unchanged at 0% as expected; Decision unanimous; raised long-end of repo path for 2022 and 2023

-        The policy rate forecast implies a rate at the current level over the next couple of years, followed by a gradual rise as economic conditions normalise.

-        Since the monetary policy meeting in May, activity has picked up faster than expected. Unemployment has fallen more than anticipated and oil prices have risen...is considerable uncertainty surrounding the path to recovery.

Note, the BoE policy announcement is due at 1200BST. There is no formal press conference, however, the BoE will be hosting a non-public call during which journalists will be free to brief the media on at 1430BST.

Fed's Mester (voter, hawk) said a lot of Americans will remain out of work and that further fiscal support will be required. Mester added that the Fed is continuing to search for gaps where it can use tools and that interest rates need to stay low for a lot longer to support the economy, while she also stated that negative rates is not a tool they would want to use in US and that she could envision the Fed using yield curve control in tandem with forward guidance on the short end of the curve. (Newswires)

ECB's Weidmann has informed lawmakers in Germany that he is optimistic a solution can be found to address the German constitutional court's ruling on ECB bond purchases. (FT) 

Brazilian Central Bank cut the Selic Interest Rate by 75bps to 2.25%, as expected. Brazil Central Bank said inflation risks are pointing both directions and the current state of affairs continues to recommend unusually strong stimulus, but it recognizes remaining space for stimulus is uncertain and should be small. (Newswires)

US

President Trump also stated that no one has been tougher on China and Russia than him and added that former National Security Adviser Bolton broke the law by writing his book. Bolton’s books contains several damaging claims against the President, including one suggesting that Trump asked Chinese President Xi to help him win the 2020 election. (WSJ)

UK/EU

USTR Lighthizer has warned that it will be almost impossible to sign a UK-US FTA ahead of the November Presidential election. (Telegraph) 

EU Brexit negotiator Barnier criticised the UK for attempting to reopen an agreement to protect EU regional food specialities such as champagne and feta, while he stated the move was “not compatible” with a sustainable future relationship (FT)

French Finance Minister Le Maire confirms he has received a letter from US Treasury Secretary Mnuchin, which confirms the US' desire not to proceed with talks on digital service taxes; considers the US' decision to pull-out of talks as an act of provocation (Newswires)

German Chancellor Merkel reiterates she does not expect a final decision on EU Finances at tomorrow's European Council Summit; just an exchange of views; Merkel calls on an agreement before Summer break. (Newswires)

GEOPOLITICS

US President Trump extended existing sanctions on North Korea for one-year. (Yonhap)

North Korea newspaper warned the demolition of liaison office was just the beginning and there could be additional retaliatory steps against South Korea that could go far beyond imagination. Furthermore, North Korea appeared to have deployed soldiers to empty guard posts in the DMZ and a South Korea nuclear envoy arrived in US, although the government have not disclosed reason for the visit. (Yonhap)

EQUITIES

European equities kicked the session off in an uninspiring manner but kept grinding higher in earlier trade before received further impetus on headlines that Beijing has controlled the second outbreak in the city. Stocks have since given up some of its recent gains and meander around the unchanged mark with a better performance seen in UK’s FTSE 100 (+0.1%) as exporters benefit from a softer Sterling ahead of the BoE policy decision. Broader sectors are mixed with no clear risk-reading to be derived as cyclicals and defensives remain a broken compass. The sectoral breakdown however trade saw a more cyclical bias early trade as Healthcare lost its earlier top-spot and traded at the bottom of the pile, whilst Travel & Leisure clawed its way from the bottom to one of the top performers, alongside Insurance, Chemicals, Banks and Tech, albeit the picture has turned more mixed since early morning with Oil & Gas now the laggard. Individual stock focus has been on DAX-listed Wirecard (-46%), who’s shares tanked over 60% at one point as expectations for a results being released today were again dashed due to indications of presentation of spurious balance confirmations. The group said it will announce a revised date for the release in due time but if certified annual and consolidated financial statements cannot be made available until June 19, 2020, loans made to Wirecard AG amounting to approximately EUR 2 billion can be terminated. Elsewhere, Carnival (-2.4%) shares failed to catch tailwind from the recovery in the broader Travel & Leisure amid a broker downgrade at Berenberg, althought the group’s earnings, which were released during the session, provided little by way of share price action despite missing on both top and bottom line. UBS (+1.0%) and Credit Suisse (+0.6%) were buoyed by the SNB stating the banks are robust enough to weather the pandemic.

FX

CHF/NOK/GBP - It’s 2 down and 1 to go in terms of today’s EU Central Bank bonanza, with the SNB and Norges Bank both sticking to the script by leaving benchmark rates on hold at -0.75% and zero respectively. However, the former formally upgraded its assessment of the Franc to highly valued from even more highly valued in March in acknowledgement of its softening since the previous quarterly policy review, while the latter delivered a more upbeat economic outlook based on a faster recovery than envisaged at its prior meeting in May. In response, Usd/Chf and Eur/Chf remain largely rangebound around 0.9500 and sub-1.0700, but Eur/Nok has fallen sharply towards 10.6250 from circa 10.7500 highs also in recognition of the revised depo rate path flagging a rise after 2022. Conversely, the Pound has been apprehensive and under pressure awaiting the BoE at noon amidst expectations of at least Gbp 100 bn additional QE, but no change in the Bank rate, with Cable testing stops through Wednesday’s low (1.2510) and Eur/Gbp back up near 0.9000 from 0.8950 at one stage. Note, a full preview of the MPC policy decision and minutes can be found in the Research Suite or via the Headline Feed.

USD - Beyond the divergent moves noted above, the Dollar and major counterparts are still relatively restrained between recent/familiar boundaries and exemplified by the DXY hardly deviating from 97.000 and not even tempted to stray far on a knee-jerk rise in broad risk sentiment amidst reports that Beijing has managed to get the latest COVID-19 outbreak under control. Ahead, US weekly claims alongside Philly Fed may prompt a bit more price action.

CAD/EUR/JPY/AUD/NZD - All narrowly mixed vs the Greenback, as the Loonie pares losses from sub-1.3600 towards 1.3520 in the run up to Canadian new house price and wholesale trade data before a speech by BoC’s Schembri, while the Euro is holding off yesterday’s lows and close to decent option expiry interest between 1.1245-60 (1.3 bn) after little reaction to the latest ECB monthly bulletin or TLTRO take-up near the upper end of the forecast range. Elsewhere, the Yen is meandering from 106.71-107.07 following a modest climb overnight when markets were somewhat more jittery, but still marginally outperforming the Kiwi and Aussie that have both been hampered by disappointing data (GDP and jobs). Indeed, Nzd/Usd and Aud/Usd have retreated from circa 0.6900 and 0.6480 respectively, albeit off worst levels under 0.6840 and 0.6425.

Australian Employment Change (May) -227.7k vs. Exp. -100.0k (Prev. -594.3k). (Newswires) Australian Unemployment Rate (May) 7.1% vs. Exp. 7.0% (Prev. 6.2%) Australian Participation Rate (May) 62.9% vs. Exp. 63.7% (Prev. 63.5%)

Australian Bureau of Statistics said total job losses at 835k since March and that the increase in unemployment rate was reduced by larger than usual amount of people leaving the labour force, while it added that said unemployment rate would have reached about 9.6% if those who had lost jobs were considered actively looking for work. (Newswire)

New Zealand GDP (Q1) Q/Q -1.6% vs. Exp. -1.0% (Prev. 0.5%) (Newswires) New Zealand GDP (Q1) Y/Y -0.2% vs. Exp. 0.3% (Prev. 1.8%)

FIXED

A bit more price action in bonds, but ultimately no major breaks out of recent parameters, although Gilts look poised to climb further in contrast to Sterling as high noon approaches. The 10 year UK bond just nudged up to 137.62 (+21 ticks on the day) in what could be deemed hedging for a more dovish MPC or front-running in the event that QE is raised beyond the Gbp 100 bn anticipated to be precise, while Bunds have recovered from fresh 175.16 Eurex lows and US Treasuries remain firm with the curve flatter after a solid 20 year auction. Also ahead, the latest post-COVID trough initial claims update.

ECB TLTRO-III 4th Allotment: EUR 1.31trl (TLTRO-III 3rd Allotment EUR 115bln). (ECB)

COMMODITIES

WTI and Brent crude futures have recouped overnight losses heading into the OPEC+ JMMC meeting later today after yesterday’s JTC which reportedly made no recommendations for further cuts. Eyes will nonetheless remain on compliance and any enforcement mechanisms touted to ensure 100% or more compliance. On that front, sources stated Iraq, Kazakhstan to present plan for oil production cuts and compensation for overproduction at the meeting. Saudi and Russia will lead a presser after the meeting, although leaks are anticipated (Full Primer available here). Futures were also bolstered higher in early trade amid comments from a Chinese CDC expert who deemed the Beijing outbreak contained – providing impetus to overall risk appetite and pushing WTI July north of USD 38/bbl (vs. low 37.11/bbl) and Brent August above USD 41/bbl (vs. low 40.06/bbl). Meanwhile, spot gold piggy-backed on the softer USD and built on gains above USD 1730/oz having had an uneventful overnight session. Copper prices meanwhile remain little changed on the day despite the rise in stocks whilst iron ore prices fell below USD 100/t after Vale was given the green light to reopen its Itabira complex following coronavirus measures.

Oman reportedly stepped up its plan to build the largest oil tank farm in the Middle East. (Newswires)

Vale is to resume iron ore mining at the Itabira complex gradually. (Newswires)

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