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[PODCAST] US Open Rundown 22nd June 2020

  • European bourses are off lows in choppy trade but have pulled-back slightly to unchanged/mixed; stateside, futures are firmer but off highs
  • Germany coronavirus reproduction rate surged to 2.88 on Sunday from 1.79 the day before based on a 4-day average, while the 7-day average was 2.03; albeit, caveated by RKI due to the small case number
  • UK PM Johnson is to unveil latest lockdown easing plan and review regarding 2-metre rule on Tuesday; separately, Chancellor Sunak is reportedly planning a VAT cut
  • China unveiled draft HK Security Law, while the PBoC stood pat on the 1yr & 5yr LPR
  • DXY remains downbeat to the benefit of major peers with USTs firmer and the yield curve a touch flatter
  • Looking ahead, highlights include US existing home sales, EZ consumer confidence, ECB's de Guindos, Lane, Fed's Kashkari, BoC's Macklem

CORONAVIRUS UPDATE

WHO reported the largest single-day increase of coronavirus infections with 183,000 new cases. (AP/Twitter)

US CDC reported 32,411 new coronavirus cases for a total of 2,248,029 which is a 1.6% increase vs. Prev. 7-day average of 1.2% increase and the death toll rose by 560 to 110,625. Florida COVID-19 cases +3.7% vs. 7-day average 3.5%. (Newswires) 

AFP tweeted that US President Trump said on Saturday that he was encouraging administration health officials to slow down coronavirus testing in which he noted that increased testing leads to more cases being discovered. (Twitter)

Germany coronavirus reproduction rate surged to 2.88 on Sunday from 1.79 the day before based on a 4-day average, while the 7-day average was 2.03. (Newswires) As a caveat to the update, RKI notes that the r-value "reacts sensitively to short-term changes in case numbers, such as those caused by individual outbreaks. This can lead to relatively large fluctuations, especially if the total number of new cases is small"

UK coronavirus death toll rose by 43 to 42,632, while zero fatalities were reported in London. (DHSC)

UK PM Johnson is to unveil latest lockdown easing plan and review regarding 2-metre rule on Tuesday and other reports noted that PM Johnson is set to announce a one metre plus rule for all venues including restaurants, pubs and schools which will be effective from July 4th. Furthermore, UK Health Secretary Hancock suggested customers may need to register when visiting pubs and restaurants, while it was separately reported that the UK government may announce foreign travel could resume from July 4th. (Newswires/Telegraph)

South Korea is already in second wave of virus outbreak, according to Yonhap citing Chief of KCDC. (Yonhap)

Hong Kong recorded around 30 new imported COVID-19 cases on Monday, marking the highest daily rate in two months, according to SCMP citing medical sources. (Newswires)

ASIA

Asian equity markets began the week cautiously as sentiment was clouded by reports of increasing COVID-19 infections rates globally in which the World Health Organization reported a record daily increase of 183k cases, while new cases in the US topped the 7-day average and Germany’s reproduction rate surged to 2.88 from 1.79. This initially pressured US equity futures at the open and also weighed on ASX 200 (U/C) and Nikkei 225 (-0.2%), although US index futures have since fully recovered and Asia-Pac bourses also retraced their early declines with outperformance seen in commodity-related sectors, in particular Australia’s gold miners after the precious metal resumed its rally and broke above the USD 1750/oz level. Hang Seng (-0.5%) and Shanghai Comp. (-0.1%) were mixed with price action rangebound after the PBoC maintained its 1-year and 5-year Loan Prime Rates at 3.85% and 4.65% respectively as expected, while it also conducted a CNY 120bln net liquidity injection which was welcomed by mainland bourses. Furthermore, there were reports that China is planning to step up purchases of US farm goods following recent discussions and that President Trump deferred sanctions on Chinese officials related to Uighur minorities as it may impact the US-China trade deal, although Hong Kong lagged after the release of the draft Hong Kong National Security Law which the Standing Committee of the NPC is speculated to enact when it meets on June 28th-30th. Finally, 10yr JGB traded subdued as the intraday recovery in Japanese stocks weighed on bond prices but with downside also cushioned by the BoJ’s presence in the market for over JPY 1tln of JGBs with 1yr-10yr maturities and with the Japan Securities Dealers Association noting regional banks bought a record amount of ultra-long JGBs last month.

PBoC injected CNY 40bln via 7-day reverse repos and CNY 80bln via 14-day reverse repos for a daily net injection of CNY 120bln, while the 7-day and 14-day reverse repo rates maintained at 2.20% and 2.35% respectively. (Newswires) PBoC set USD/CNY mid-point at 7.0865 vs. Exp. 7.0868 (Prev. 7.0913)

PBoC 1-Year Loan Prime Rate 3.85% vs. Exp. 3.85% (Prev. 3.85%) PBoC 5-Year Loan Prime Rate 4.65% vs. Exp. 4.65% (Prev. 4.65%)

China released draft Hong Kong Security Law and will set up a national security office in Hong Kong to collect, analyze and deal with criminal cases related to national security, while reports added that Hong Kong police and courts will maintain their jurisdiction although Chinese authorities would have the ability to exercise jurisdiction regarding some cases under specific circumstances. Furthermore, it was also reported that the Standing Committee of the NPC will meet June 28th-30th where it is speculated to enact the Hong Kong Security Law. (Newswires/Xinhua)

US President Trump said during an interview on Friday that he deferred sanctions on Chinese officials regarding Xinjiang mass detention camps as it may impact the US-China trade deal. (Axios)

Huawei is reportedly set to win UK government approval to build a GBP 400mln research centre to develop chip technology in the UK. (Sunday Times)

US

US President Trump suggested that new restrictions on visa will be announced today which could impact an estimated 240,000 people across various sectors but noted there will be very few exclusions. (Fox)

White House Economic Advisor Hassett is reportedly to leave the administration this summer, via Axios

Moody’s affirmed US sovereign rating at AAA; Outlook Stable. (Newswires)

UK/EU

UK Chancellor Sunak is reportedly planning an emergency VAT cut and has instructed officials to prepare options for lowering VAT such as a reduction in the headline VAT and zero rate on more products for a specified period. (Telegraph)

UK Business Minister Sharma said the government will change the law to allow scrutiny regarding certain foreign takeovers to ensure they do not pose a threat to UK’s ability to tackle a public health emergency. (Newswires)

BoE Governor Bailey said the current scale of Central Bank reserves must not become a permanent feature; as economies recover, it is likely that some of the exceptional stimulus will need to be withdrawn, could be better to consider adjusting level of reserves first without waiting to raise interest rates on sustained basis. Noting, balance sheet size should decrease before rates rise, elevated balance sheets could limit room for manoeuvre in future crises. (Newswires)

UK police declared a stabbing attack in a park in Reading, UK which killed 3 as a terrorism incident. Police named the attacker as 25-year old Libyan refugee Khairi Saadallah who was under the radar of security services last year although no action was taken as there was no genuine threat or immediate risk discovered. (Guardian)

ECB’s Weidmann commented that Germany’s economy had passed the worst of the pandemic crisis and is now anticipated to recover gradually. (Frankfurter Allgemeine Sonntagszeitung)

A German Constitutional court judge-designate is upbeat on the prospects that a solution can be found regarding the dispute over the ECB’s bond buying program. (Newswires)

Italy PM Conte said the government is concerned about consumer spending which remains weak and that a sales tax cut is an option government discussed although it costly and no decision has been made yet. PM Conte also stated that the approaching week will be important for a decision regarding a sales tax reduction and that a single ultra-broadband network, digital payments and energy transition are priorities for the government to boost the economy. Furthermore, he stated support measures will likely require higher than planned deficit spending and that the government will not wait until September for measures to avert job losses and support the tourism industry. (Newswires)

EU sources said there would be no joint communique between the EU and China this year. (SCMP)

GEOPOLITICS

North Korea reportedly continues to deploy troops to border sentry posts for bush clearance and road maintenance, while South Korea does not see this yet as a sign of imminent military action. There were also separate reports that North Korea made 12mln leaflets against South Korea which it plans to send through 3000 balloons, while US and South Korean top nuclear envoys are said to share the gravity of the situation regarding the increased tensions in the Korean Peninsula. (Newswires/Yonhap)

US President Trump suggested he's had second thoughts regarding the decision to recognize Juan Guaidó as Venezuela's leader and said he is open to meeting with Venezuela's Maduro but added at this point, he has turned them down. (Axios)

China's Foreign Ministry say, in relation to a Japanese Gov't bill on disputed territory, says that China retains the option to react to this government bill. Subsequently, Chinese Coast Guard vessels patrolled the territorial waters surrounding the Diaoyu Islands (Senkaku Islands) on Monday. (Global Times/Newswires)

EQUITIES

Europe kicked the week off on the back-foot but have since nursed a bulk of its losses [Euro Stoxx 50 -0.4%] as initial downside stemmed from second wave woes amid record daily increases recorded by the WHO, Germany’s R-number jumping amid cluster outbreaks and with the US cases rising above its key 7-day level. Nonetheless, stock markets continued on its upwards trajectory since the cash open despite light fundamental news-flow. Note, the EU-China summit is underway but with expectations low. Sources noted there will be no joint communique between the sides this year – but, the meeting with Germany could prove to be interesting as the country will be taking the baton of rotating EU presidency in H2 2020; note, Germany has previously signalled a tougher EU line towards China. Nonetheless, bourses regain earlier lost ground alongside sectors – now mixed following an all-negative open – but still fail to indicate a clear risk tone. The sectorial breakdown also provides little clarity on this front as Oil & Gas, Travel & Leisure and telecoms remain the laggards. In terms of individual movers, Wirecard (-36%) shares continue to suffer after the group announced the missing EUR 1.9bln likely never existed, whilst it withdrew its prelim FY19 and Q1-2020 results. Separately, former CEO Braun - who was the largest individual shareholder - is reportedly unloading a large amount of his 7% stake in the Co. Elsewhere, Lufthansa (-6%) shares are weighed on after its CEO stated that the EUR 9bln state-backed aid is at risk of not passing the upcoming shareholder vote as only around 40% of shareholders have registered to vote at the EGM thus far vs. required 2/3 majority for it to pass. On the flip side, BT (+1.9%) remains supported by reports that the Saudi Public Investment Fund is said to have been acquiring a stake in the Co. through open-market purchases over the last few weeks, according to sources.

FX

USD - The Greenback is weaker across the G10 board with only the Yen underperforming, and then only marginally vs the scale of recovery gains forged by other majors. Further increases in coronavirus infections and fatalities appear to be weighing on the Buck even though the US is far from alone in terms of suffering fresh outbreaks. Indeed, the KCDC is reportedly classifying the situation in South Korea as a 2nd wave as the global tally hit the highest level so far for a single day, according to the WHO and Germany’s R value rebounds to 2.88. However, the DXY has slipped back below 97.500 to a 97.287 low from last Friday’s 97.727 high ahead of May’s national activity index, existing home sales and a late speech from Fed’s Kashkari.

AUD/NZD/GBP/SEK/EUR - The Aussie is back within striking distance of 0.6900 vs its US counterpart and not too unsettled by comments from RBA Governor Lowe overnight reiterating that rates are likely to remain at current levels for years, as he also seemed unfazed by the Aud’s present valuation. Meanwhile, the Kiwi has reclaimed 0.6400+ status ahead of the RBNZ policy meeting with markets all but ruling out any chance of a change in rates, but Sterling’s comeback from the low 1.2300 area towards 1.2435 is somewhat less easy to reconcile and may have more to do with Eur/Gbp flows/direction as the cross pulls back from 0.9065 to test bids said to be sitting at 0.9025. Note also, 1.85 bn option expiries at 0.9060 may be capping the cross ahead of the NY cut after Sterling shrugged off an improvement in CBI trends. Elsewhere, the Swedish Crown is also perky against the single currency and perhaps drawing some traction from the latest Riksbank business survey revealing stabilisation in May and June, though the Euro has clawed back gains vs the Dollar from circa 1.1168 to hover between decent expiry interest at 1.1200-05 (1.9 bn) and 1.1245-50 (1.24 bn) ahead of flash Eurozone consumer confidence and ECB speeches via de Guindos and Lane.

CAD/CHF/NOK - Also on a firmer footing to at least start the new week, with the Loonie nearer the top of a 1.3560-1.3630 range vs its US peer awaiting comments from BoC Governor Macklem, the Franc back above 0.9500 in wake of latest weekly Swiss bank sight deposits showing a dip in both domestic and total balances and the Norwegian Krona consolidating post-Norges Bank advances either side of 10.8000 against the Euro.

JPY/XAU - As noted above, the Yen is bucking the broad trend, but still keeping its head over 107.00 and Gold has lost some steam after surging above Usd 1750/oz and stalling ahead of the next major bullish technical target around Usd 1765 from May 18.

EM - Rand underperformance within 17.4973-3056 parameters as investors eye Wednesday’s budget update from SA Finance Minister Mboweni and possibly react adversely to reports that the Government will oppose the court motion against SAA’s business rescue proposal.

FIXED

It may be premature and still to come as the week progresses and bonds benefit from month end buying, but the fact that Bunds, Gilts and US Treasuries have only suffered limited set-backs even though stocks have rebounded from worst levels suggests that the 2 asset classes have lost a lot of their recent inverse correlation. In fact, the 10 year EU benchmarks are both climbing steadily above big figures and the German debt future has eclipsed its prior mtd high (175.98) at 176.07, while its UK equivalent has recovered more post-BoE losses, at 137.21. Back to USTs, flat to mildly firmer with the curve fractionally flatter ahead of a relatively light slate.

COMMODITIES

WTI and Brent August contracts remain choppy and reside within a tight range, albeit the benchmarkes have nursed opening losses of around 1%, which originally emanated from COVID-19 second wave woes as the WHO reported a record daily increase of 183k cases, while new cases in the US topped the 7-day average and Germany’s R-rate spiked to 2.88 from 1.79. Meanwhile, Nigeria and Angola will be presenting their respective over-compliance plans today after failing to do so last week – with a presser expected following a review of the strategy – albeit, this has not been confirmed. Meanwhile, a new study shows that US shale companies could be forced into writing down at least USD 300bln of assets in Q2 as producers account for the oil price collapse earlier this year on balance sheets, which will be based on an oil price around USD 35/bbl according to the FT. WTI August fluctuates on either side of USD 40/bbl (vs. 39/bbl low) whilst its Brent counterpart tested resistance at USD 42.50 (vs. 41.58/bbl low) earlier in the session. Elsewhere, spot gold has given up some recent gains amid the recovery in stocks, but nonetheless currently remains underpinned by a weaker USD – with the yellow metal trading on either side of USD 1750/oz early-doors before printing a marginal new session low at USD 1741.90/oz. Copper prices are supported by the softer Buck and continues to trend higher amid support from draws in LME and China inventories. In terms of bank commentary, Citi sees gold prices at an average of USD 1702/oz this year and USD 1761/oz next year, whilst the bank forecasts copper at USD 5654/t in 2020 and 5850/t in 2021.

Russian deputy energy minister says Russia sees a balancing price for oil between USD 40-50. (Newswires) Energy Minister Novak recently remarked that USD 50/bbl was comfortable

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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