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[PODCAST] US Open Rundown 19th June 2020

  • European bourses and US futures have been choppy with spurs of volatility on quad witching but retain an underlying bid
  • Texas coronavirus cases rose by 3516 to a total of nearly 100,000 which was the largest daily increase on record for the state
  • China is reportedly planning to step up purchases of US farm goods following on from discussions.
  • Fox News poll showed former VP Biden leading US President Trump by 50% vs. 38% (Prev. 48% vs. 40%), with the survey conducted June 13th-16th
  • FX sees the USD firmer and around session highs with GBP bearing the brunt
  • Looking ahead, highlights include Canadian retail sales, Fed's Rosengren, Powell, Mester, EU's Von der Leyen, ECB's Lagarde, quadruple witching

CORONAVIRUS UPDATE

US CDC reported coronavirus cases increased by 22,834 to 2,155,572 and deaths increased by 754 to 117,632. It was also reported that NY cases rose by 618 or 0.2% vs. Prev. 7-day average of 0.2%, Texas coronavirus cases rose by 3516 to a total of nearly 100,000 which was the largest daily increase on record for the state. (Newswires) US NIH's Fauci said further US lockdowns are not required to get the outbreak under control, despite the increase in the national daily rate. (AFP)

UK CMO says that COVID-19 alert level should be reduced to 3 from 4. (Newswires)

European Gov'ts are working with the US on plans to overhaul the WHO, according to a top European Health Official. (Newswires)

ASIA

Asian equity markets attempted to shrug-off Wall Street’s pre-quadruple witching indecision with a slightly upbeat tone seen in the region. ASX 200 (+0.1%) was higher with initial outperformance in Australia spearheaded by a surge in the consumer discretionary sector following a record jump in preliminary sales data, while advances in the Nikkei 225 (+0.5%) were limited by uninspiring currency moves and after early momentum was stalled by resistance around the 22550 level. Hang Seng (+0.7%) and Shanghai Comp. (+1.0%) were mixed amid the overall non-committal tone seen across global markets and as US-China frictions lingered with US President suggesting the US maintains the option of a complete decoupling from China and US Assistant Secretary of State Stilwell noted China’s attitude in Hawaii talks cannot be described as forthcoming and that the relationship between the sides is said to be tense overall, although the mainland indices remained afloat following the PBoC’s liquidity efforts in which it utilized both 7-day and 14-day reverse repos for a 2nd consecutive day. Finally, 10yr JGBs are flat with demand hampered as Japanese stocks remained afloat and amid the lack of BoJ presence in the market, although downside was also stemmed by a floor just above the 152.00 level.

PBoC injected CNY 70bln via 7-day and CNY 110bln via 14-day reverse repos with rates kept unchanged PBoC set USD/CNY mid-point at 7.0913 vs. Exp. 7.0938 (Prev. 7.0903)

US Assistant Secretary of State for the Bureau of East Asian and Pacific Affairs Stilwell said China’s attitude in Hawaii talks cannot be described as forthcoming and will have to wait to see in a couple of weeks if the discussions were productive, while he added Chinese actions have not been really constructive lately citing India, Hong Kong, South China Sea and trade in which Chinese actions on trade have not lived up to the billing. Furthermore, US and China relationship is said to be tense overall and China made a clear commitment to follow through regarding the Phase One trade deal. (Newswires)

Bankers are reportedly pitching secondary offerings to a number of US-listed Chinese companies amid the heightened tensions between US and China. Bankers and lawyers say that more US-listed Chinese stocks could follow in the steps of JD.com which could see Hong Kong markets profit handsomely. (FT) 

BoJ Minutes from April and May meetings stated that members agreed there is strong uncertainty regarding timing of when pandemic will be contained, as well as the impact on economies domestic and abroad, while a few members said prolonged economic weakness could lead to rising credit costs for banks. Furthermore, Japan's economy had been in an increasingly severe situation and was likely to remain severe for the time being due to the impact of the spread of COVID-19 at home and abroad, while financial conditions had been accommodative on the whole but less so in terms of corporate financing, as seen in deterioration in firms' financial positions. (Newswires)

Japanese National CPI (May) Y/Y 0.1% vs. Exp. 0.2% (Prev. 0.1%). (Newswires) Japanese National CPI Ex. Fresh Food (May) Y/Y -0.2% vs. Exp. -0.1% (Prev. -0.2%) Japanese National CPI Ex. Fresh Food & Energy (May) Y/Y 0.4% vs. Exp. 0.4% (Prev. 0.2%)

US

China is reportedly planning to step up purchases of US farm goods following on from discussions. (Newswires)

Fed's Kashkari (voter. dove) said the recovery is likely to be bumpy and muted, while he also stated the real US unemployment rate is probably around 20% and that a way to help small businesses get through the crisis is make sure they take advantage of the paycheck protection program and Fed's Main Street lending program. (Newswires)

US President Trump's administration is considering significant expansion of visa restrictions for foreign workers, in which cabinet members and advisers met to discuss possible executive order to suspend visa issuance for several classes of individuals. (Newswires)

Fox News poll showed former VP Biden leading US President Trump by 50% vs. 38% (Prev. 48% vs. 40%), with the survey conducted June 13th-16th. (Fox News)

UK/EU

BoE, BoJ, ECB & SNB are reducing the frequency of 7-day USD liquidity operations from July 1st; operations reduced from daily to 3 times per week. 84 day operations will continue on current schedule. (Newswires)

UK PM Johnson is expected to announce on June 29th that air bridges deals are put in place for a small number of countries with low coronavirus levels with the UK aiming to have the first deals with countries which are likely to include France, Spain, Greece and Portugal. (Telegraph)

The Head of the UK's Treasury Committee says the government could need to suspend the wages element aspect of the "triple lock" system for pensions temporarily. (Newswires)

UK Retail Sales MM* (May) 12.0% vs. Exp. 5.7% (Prev. -18.1%, Rev. -18.0%)

-        Retail Sales YY* (May) -13.1% vs. Exp. -17.1% (Prev. -22.6%)

UK GfK Consumer Confidence* (Jun) -30 (Prev. -34.0). (Newswires)

Austrian Chancellor Kurz says it is important that the EU recovery fund is a one-off action, must not enter a backdoor debt union; hopes an agreement occurs in July. (Newswires)

ECB President Lagarde reportedly told EU leaders that the EZ economy is headed for a "sharp decline" of 13% in Q2 QQ, sources state; whilst 2021 could see a rebound of 5.2%. (Newswires)

EU Parliament will not agree to the next EU long-term budget unless an agreement is made on fresh taxes for the EU and a timeline for their introduction. (Newswires)

GEOPOLITICS

India could consider imposing anti-dumping duties on Aluminium composite panels which have been imported from China, according to sources. (Newswires) China's Foreign Ministry, in response to India's China product boycott, says Responsibility for the border clash rests entirely on the Indian side. China attaches great importance to China-India relations, via Global Times.

Australian PM Morrison said a state-based actor was conducting a cyber-attack targeting all levels of Australia's government, industry, political organizations, education, health and essential service providers. Morrison added that the frequency of attacks had been increasing over many months but refrained from making any public attribution regarding identity of state actor. (Newswires)

UN Nuclear Watchdog has passed a resolution asking Iran to cooperate with the IAEA and stop denying access to two old sites. (Newswires)

EQUITIES

Stocks in Europe continue to gain ground on the final trading session of the week [Euro Stoxx 50 +1.3%] as the region mimic the positive APAC performance overnight – whilst sentiment was bolstered amid reports China will be accelerating its US ag purchases under the Phase One trade deal. As a reminder, today marks the Q2 quad witching (full schedule on the newsquawk headline feed), and thus the stock markets could see increased volume and volatility – with analysts at Goldman Sachs suggesting S&P 500 option expiries of almost USD 2bln in the pipeline. Back to Europe, major bourses see broad-based gains with UK’s FTSE (+1.2%) the marginal top performer on Sterling dynamics, having initially kicked the session off as a laggard. Sectors are in the green across the with clear outperformance in Energy amid as the sector benefits from the gains in the complex, whilst Material names see notable underperformance. The breakdown meanwhile provides little by way of a clear risk tone. In terms of individual movers, focus remains on Wirecard (-50%) as shares continue to erode having opened with losses deeper than 20% amid news Management Board Member Jan Marsalek has been suspended on a revocable basis, couple with reports of a rogue employee falsified documents which were related to Wirecard. Lufthansa (+1.2%) eased off best levels after pilot union VC stated the state aid package is needed for the Co’s survival, following reports that the aid envelop could be rolled back.

FX

AUD/GBP - Not quite the biggest G10 movers, but marginally divergent against the buoyant US Dollar as the DXY remains elevated near 97.500 after rebounding to a fresh mtd high on Thursday at 97.586. The Aussie is hovering just above 0.6870 in wake of a record rise in retail sales that almost reversed April’s steep decline and compensating for more angst between the nation and China amidst accusations over cyber-attacks. However, the Pound remains depressed despite UK consumption exceeding expectations in May, with Cable teetering on the 1.2400 handle and Eur/Gbp towards the upper end of a 0.9007-39 range as Government debt tops 100% of GDP for the first time since 1963.

CHF/EUR/CAD/JPY/NZD - All rangy vs the Greenback, as the Franc continues to straddle 0.9600, while the Euro has tentatively reclaimed 1.1200+ status and may derive underlying support ahead of yesterday’s 1.1186 low given decent 1.1200-1.1195 option expiry interest (1.2 bn) in the run up to the post-EC Recovery Fund videoconference press statement (for more on this see our primer on the headline feed at 8.20BST). Elsewhere, the Loonie is gleaning traction within 1.3615-1.3569 parameters from a firmer rebound in crude prices awaiting Canadian retail sales data and the Yen is still relatively restrained either side of 107.00 as it maintains a tight inverse correlation with the Buck on risk factors offset against JGB-UST yield differentials/curve dynamics. Back down under, the Kiwi is lagging in the low 0.6400 zone and facing Aud/Nzd headwinds on the aforementioned modest Aussie outperformance as the cross trades near top of a 1.0700-1.0656 band.

SCANDI/EM - Some support for the Nok, Rub and Mxn via the oil complex with WTI and Brent back over Usd 40 and approaching Usd 43/brl respectively, but the Rouble will be eyeing the CBR for rate guidance beyond the looming 100 bp cut anticipated and well telegraphed by the Governor before turning attention to May economic indicators at 11.30BST and 17.00BST respectively. Meanwhile, the Cnh is firmer and testing 7.0650 vs the Usd following reports that China has agreed to revert to Phase 1 trade deal compliant levels of US farm imports.

Australian Preliminary Retail Sales (May) M/M16.3% (Prev. -17.7%). Australian Bureau of Statistics said May retail sales showed the largest increase on record and a rise across every industry with a big increase seen in clothing, footwear, personal accessories, cafes, restaurants and food takeaways. (Newswires)

FIXED

Bunds have bounced relatively firmly from a deeper Eurex base at 175.30 to set a fresh peak at 175.70, but still not breaching this week’s extremes and looking rather aimless. However, the core Eurozone bond is outperforming peers as Gilts flounder having breached yesterday’s wtd trough and the next closely aligned bearish chart targets (136.54 and 136.52) before finding some underlying bids just under 136.50. UK debt remains somewhat disappointed that the BoE opted to raise QE by Gbp 100 bn rather than exceed expectations, while latest public sector finance data revealed bigger than forecast borrowing requirements and the debt/GDP ratio rising above 100%. Meanwhile, bear-steepening has resumed along the US Treasury curve ahead of more Fed speakers including chair Powell and Mester again, but kicking off with Rosengren after Q1 current account data.

COMMODITIES

WTI and Brent crude future continue marching higher in early European trade as the complex is buoyed by overall risk appetite following reports that China will be stepping up purchase of US farms goods, whilst the contracts are also supported after yesterday’s JMMC meeting where Iraq and Kazakhstan submitted their proposals to compensate for overproduction, although the committee have delayed the press conference to next week as Nigeria and Angola have not yet submitted their compliance proposals. That being said, Energy Intel stated that the mood at the JMMC wasn’t very positive according to delegates. News-flow has been light for the complex during European trade but traders will be eyeing further COVID-19, US-China or OPEC-related headlines. In the absence of that, the weekly Baker Hughes rig count rounds off the schedule. WTI July has reclaimed a USD 40/bbl handle (vs. low 38.75/bbl), whilst Brent August extended its footing over USD 42/bbl (vs. low 41.50/bbl) and currently eyes the next round number to the upside. Elsewhere, spot gold gained impetus early-doors as the DXY retreated in early trade, but the yellow metal has since waned off highs to stabilise around USD 1730/oz from a low of 1721/oz. Meanwhile, copper prices rise with the overall risk appetite and as copper front-month futures surpass the USD 2.6/lb mark to a current high of USD 2.6340/lb.

CME lowered Comex 100 Gold futures (GC) and Gold enhanced delivery futures initial margins for speculators by 10.4% to USD 9,020 from USD 10,065, while it lowered Palladium futures NYMEX initial margins by 11.4% to USD 42,900 per contract from USD 48,400 and lowered Platinum futures NYMEX initial margins by 11.1% to USD 4,400 per contract from USD 4,950. Furthermore, it lowered Comex 5000 Silver futures maintenance margins by 11.1% to USD 8,000 per contract from USD 9,000 and lowered Comex Copper (HG) maintenance margins to USD 2900 per contract from USD 3250. (Newswires)

Goldman Sachs raised 3-month gold forecast to USD 1800/oz from USD 1600/oz, 6-month forecast to USD 1900/oz from USD 1650/oz and 12-month forecasts to USD 2000/oz from USD 1800/oz, while it added that inflation would need to move above 2% target and be met with a muted policy response for gold prices to surpass USD 2000/oz. Furthermore, it raised 3-month silver forecast to USD 19/oz from USD 13.50/oz, 6-month forecast to USD 21/oz from USD 14/oz and 12-month forecast to USD 22/oz from USD 15/oz. (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