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[PODCAST] US Open Rundown 23rd June 2020

  • Sentiment is firmer this morning after EZ PMIs and following overnight US-China volatility which prompted a swift clarification from Officials and President Trump
  • White House Trade Advisor Navarro said the US-China trade deal is over due to Beijing not alerting the US on COVID-19 sooner
  • However, Navarro later clarified these were out of context and Trump tweeted that the deal is fully intact
  • EZ & German Flash PMIs beat exp. but remain in contractionary territory while the French reading eclipsed the 50 handle moving into expansionary territory
  • DXY is now largely U/C with the JPY now softer after being bolstered overnight while EUR outperforms post-data
  • USTs are little changed after substantial overnight upside sending the 10yr yield to a low of 0.6790%; currently, the yield curve is modestly steeper
  • Looking ahead, highlights include US PMIs (Flash), RICs Finance Ministers meet, supply from US

CORONAVIRUS UPDATE

BBC's Nick Eardley tweeted that UK PM Johnson will announce moves to reopen arts and cultural events in which cinemas, museums and galleries will be able to open again on July 4th. (Newswires)

Sanofi (SAN FP) state they expect approval of the COVID-19 vaccine which is in development with GlaxoSmithKline (GSK LN) by H1-2021, Sanofi adds they have production capacity of up to 1bln doses per year. (Newswires)

German COVID-19 r-value stands at 2.76 (prev. 2.88 on Sunday), according to the RKI. RKI notes, that local outbreaks likely massively influenced the jump in the rate and a second wave is possible in Germany but is optimistic that it can be prevented; additionally, there is no scientific evidence that COVID-19 social distancing rules can be lifted in Germany. (Newswires)

Premier of Germany's North Rhine-Westphalia says it is imposing lockdown for the Guetersloh area following the COVID-19 outbreak at the Toennies meatpacking plants. (Newswires) This is the abattoir in question was has been largely attributed to causing the increase in the r-value over the weekend

GLOBAL

WTO says that 2020 good trade volume is unlikely to reach the worst-case scenario of a 32% contraction, adds that the 2021 expansion could fall short of earlier projections. (Newswires)

ASIA

Asian equity markets traded positive overall following the tech led gains stateside where Apple shares advanced amid its Worldwide Developers Conference and the Nasdaq notched a record closing high, although gains in the broader market were limited given the rising infection rates in some US states and as US-China tensions persisted. Furthermore, risk sentiment saw a bout of volatility overnight after comments from White House Trade Adviser Navarro circulated in which the known China hawk reportedly stated that the trade deal with China is over and cited the breakdown was due to Beijing not alerting the US about the coronavirus outbreak sooner. This triggered a risk averse tone across Asian bourses and dragged the Emini S&P and DJIA futures below the 3100 and 26000 levels respectively, although the moves were then reversed after Navarro noted that his comments were taken out of context and were concerning trust, not the Phase 1 trade deal which remains in place. As such, ASX 200 (+0.2%) and Nikkei 225 (+0.5%) swung between gains and losses before recovering back from the dip amid the turbulence from Navarro’s comments on the trade deal, which President Trump also clarified was still intact and that he hopes China will live up to the terms. Elsewhere, the Hang Seng (+1.6%) and Shanghai Comp. (+0.2%) were susceptible to the erroneous trade commentary and eventually kept afloat following another firm liquidity operation by the PBoC, although upside in the mainland was limited by lingering tensions after the US designated 4 Chinese media outlets as foreign missions and US Treasury Secretary Mnuchin suggested the possibility of a future decoupling from China. Finally, 10yr JGBs were choppy as stocks whipsawed but then returned flat after the dust settled, with demand hampered by the eventual broad upbeat tone in stocks and with the BoJ only present in the market today for Treasury Discount Bills.

PBoC injected CNY 90bln via 7-day reverse repos and CNY 110bln via 14-day reverse repos for a daily net injection of CNY 200bln while it maintained 7-day and 14-day reverse repo rates at 2.20% and 2.35% respectively. (Newswires) PBoC set USD/CNY mid-point at 7.0671 vs. Exp. 7.0642 (Prev. 7.0865)

White House Trade Adviser Navarro reportedly commented in an interview that the trade deal with China "is over" and the breakdown was cited on Beijing not alerting the US about the coronavirus outbreak sooner. However, Navarro later clarified his comments on China trade was not what it seemed and have been taken out of context, while he added that he was trying to make a point about trust and the comments were not about the Phase 1 deal which remains in place. US President Trump also tweeted the China trade deal is fully intact and hopefully they will continue to live up to the agreement. (Newswires/Fox/WSJ/Twitter)

US Treasury Secretary Mnuchin said there may come a time when we have China decoupling, which is something US President Trump could consider. (Newswires)

US

US President Trump has reportedly told aids that he supports a second round of stimulus checks, according to Washington Post citing sources, however, leading congressional Republicans and some senior WH officials remain sceptical of sending more checks. (Washington Post)

UK/EU

UK Flash Composite PMI (Jun) 47.6 vs. Exp. 41.0 (Prev. 30.0)

UK Flash Services PMI (Jun) 47.0 vs. Exp. 40.0 (Prev. 29.0)

UK Flash Manufacturing PMI (Jun) 50.1 vs. Exp. 45.0 (Prev. 40.7)

EU Markit Comp Flash PMI (Jun) 47.5 vs. Exp. 42.4 (Prev. 31.9)

EU Markit Services Flash PMI (Jun) 47.3 vs. Exp. 41.0 (Prev. 30.5)

EU Markit Manufacturing Flash PMI (Jun) 46.9 vs. Exp. 44.5 (Prev. 39.4)

German Markit Comp Flash PMI (Jun) 45.8 vs. Exp. 44.2 (Prev. 32.3)

German Markit Services Flash PMI (Jun) 45.8 vs. Exp. 42.0 (Prev. 32.6)

German Markit Manufacturing Flash PMI (Jun) 44.6 vs. Exp. 41.5 (Prev. 36.6)

French Markit Comp Flash PMI (Jun) 51.3 vs. Exp. 46.3 (Prev. 32.1)

French Markit Services Flash PMI (Jun) 50.3 vs. Exp. 44.2 (Prev. 31.1)

French Markit Manufacturing Flash PMI (Jun) 52.1 vs. Exp. 46.0 (Prev. 40.6)

Spain is said to be mulling significantly increasing the size of its current EUR 100bln loan guarantee fund amid huge demand from businesses, sources state. Sources added as officials are considering an as much as an additional EUR 50bln in guarantees, (Newswires)

SNB Vice Chairman Zurbruegg stated that monetary policy cannot cushion impact from coronavirus and that the SNB opposes increasing the payout to national and local governments, while he added there is no limit to how much the balance sheet can expand. (Newswires)

ECB's de Cos says the ECB remains committed to avoid fragmentation in the Eurozone and stands ready to adjust all of its tools. (Newswires)

EU Chamber of Commerce President doubts that the China-EU investment agreement will be completed this year; disappointed the most recent EU-China meetings did not result in a joint communique. (Newswires)

GEOPOLITICS

US has shared a draft resolution with the UN Security Council that would extend the Iranian arms embargo indefinitely, diplomats stated. (Newswires)

North Korea is ready to float some 12mln propaganda leaflets into South Korea. South Korea has called on Pyongyang to suspend plans, adding that it is “not helpful to relations at all”. (Sky News)

US Arms Control Envoy says that in discussions with Russia, it has been agreed to look into future trilateral or multilateral arms control agreements. (Newswires) Earlier reports noted of doubts over whether the arms control treaty between US and Russia can be replaced in time ahead of its expiry in February following the meeting between the two sides yesterday.

India plans tougher scrutiny on pharmaceutical imports from China, while officials sources also suggested increased duties on Chinese products could also be on the table. (Newswires)

Indian Army says that discussions between generals was positive and constructive. (Newswires) This was likely in reference to the discussions following the border conflict between China & India

Yemeni Houthi group says that they targeted the Saudi Arabian capital of Riyadh with several ballistic missiles, according to a spokesman. (Newswires) This comes after Saudi-led coalition says intercepted 3 ballistic missiles launched by Yemen's Houthis.

EQUITIES

European stocks remain on a firmer footing early-doors [Euro Stoxx 50 +2.0%], having had seen a bout of selling overnight amid comments from White House Trade Adviser Navarro who, in his initial remarks, deemed the China trade deal “over”, before the official, alongside US President Trump, walked back on the remarks prompting a recovery in sentiment. Stocks continue grinding higher following the raft of flash PMIs for Europe, which showed sentiment among respondents less dire than expected MM, and as such the region saw a leg higher in which DAX cash (+1.9%) briefly eclipsed 12500 to the upside whilst the CAC (+1.5%) reclaimed 5000 to the upside. Broader sectors are all in the green with a more cyclical bias as defensives underperform, whilst the breakdown paints a similar picture with healthcare towards the bottom of the pile whilst Auto, Banks, Insurance and IT lead the gains, with the latter possibly propped up on Apple’s performance following its WWDC conference – Travel and Leisure however remains relatively subdued vs. the broad performance in cyclicals. In terms of individual movers, Wirecard (+15%) shares consolidate following recent hefty back-to-back losses as the scandal deepens, whilst the latest reports note of the detention of former CEO Braun amid accusations of inflating the group’s balance sheet and revenue. Meanwhile, reports of a tie-up with Deutsche Bank (+1.9%), which was swiftly terminated last year, did little to influence price action. Elsewhere, Hikma Pharmaceuticals (-7.0%) holds onto losses as shareholder Ingelheim is to exit the entirety of his 16.45% stake in the group. Bayer (+6.2%) shares opened higher after the Co. won a court ruling which blocks the state mandate for glyphosate products to carry a warning in the state of California – further upside was spuured amid reports Co. are reportedly close to a settlement agreement with glyphosate plaintiffs, board are to discuss and vote on such a settlement in the coming days, a settlement could be worth USD 8-10bln.

FX

GBP/EUR - The Pound and Euro tested resistance against the Dollar around 1.2500 and 1.1300 respectively in wake of preliminary UK and Eurozone PMIs, as all sectors in France returned to growth alongside UK manufacturing, while the rest comfortably exceeded forecasts to underpin economic recovery expectations. Stops are said to have been tripped in Cable above 1.2507, but not to the extent that a Fib or the 21 DMA were seriously threatened and Eur/Usd extended gains after breaching the 200 HMA (1.1261) on the way through a Fib retracement (1.1295) before fading just above the big figure. Hence, Eur/Gbp is holding within a 0.9070-20 range amidst more COVID-19 cases in Germany and the RKI warning about a potential 2nd wave given that the R value remains elevated.

CHF/AUD/NZD - All firmer vs the Greenback, as the DXY pivots 97.000 ahead of US Markit PMIs and new home sales data, with the Franc probing 0.9450, Aussie back on the 0.6900 handle and Kiwi hovering just shy of 0.6500 following divergent moves overnight on the back of hastily retracted or clarifies remarks made by US Trade Advisor Navarro to the effect that the Phase 1 deal with China is over. Note also, Aud/Usd is also well off lows following much improved CBA PMIs and Moody’s reaffirming the sovereign’s AAA rating with a stable outlook, but Usd/Chf has not really been impacted by comments from SNB’s Zurbruegg reiterating that there is no upper limit for the balance sheet. However, Nzd/Usd will be prone to any tweaks in RBNZ policy guidance on Wednesday as the markets are not anticipating rates to be adjusted.

CAD/JPY - The Loonie and Yen are lagging after Usd/Cad failed penetrate bid/support at 1.3500 and Usd/Jpy only declined to 106.75 on the aforementioned negative US-China headlines before returning to pivot 107.00 again. For the record, mixed Japanese PMIs were largely overlooked, but the upcoming BoJ Summary of Opinions may provide some independent impetus beyond broader risk sentiment.

SCANDI/EM - The Nok and Sek are outperforming on a combination of improved risk appetite and firm crude prices, with the former towards the upper end of a 10.8890-7360 band vs the Eur and latter edging above 10.5000 in advance of Sweden’s latest Economic Tendency Survey due on Wednesday. Similarly, most EM currencies are trading higher and even the Zar awaiting tomorrow’s SA budget review, while the Brl will be looking for direction via BCB minutes and Huf from the NBH that is seen standing pat.

FIXED

Core bonds staged a decent recovery from worst levels, with Gilts actually forging a fresh Liffe high at 137.22 (-14 ticks on the day vs -36 ticks at one stage) as Sterling unwinds gains made on the UK PMI beats after further reflection and a deeper look at the details under headline prints revealed some less encouraging elements, like a further decline in new orders. However, momentum is fading as EU stocks add to gains and US Treasuries slip amidst more pronounced re-steepening amidst more reports that President Trump is in favour of delivering more direct fiscal stimulus. Ahead, US prelim Markit PMIs and new home sales data before Fed’s Bullard.

COMMODITIES

WTI and Brent crude futures wobbled overnight amid Navarro’s initial comments which prompted WTI and Brent futures below USD 40/bbl and USD 42.50/bbl respectively before the benchmarks recoiled on the rebuttal of the comments, albeit prices failed to completely reverse the move. Nonetheless, a broad improvement in EZ flash PMIs underpinned risk and sees the benchmarks approach USD 41.50/bbl and USD 44.00/bbl to the upside. On the OPEC front, some desks note that the fact OPEC+ is haggling under-complying countries for plans to make up for their poor performance does offer markets some confidence that compliance could improve, but tail risks remain given the absence of an enforcement mechanism. News flow specifically for the complex remains light early doors with eyes more so on broader macro narratives ahead of the weekly inventory data later today. On this, forecasts are looking for a headline build of 2mln BPD. Spot gold, meanwhile, has been trading in tandem with the USD post-Navarro, which saw the yellow metal print a high of USD 1760/oz ahead of its 18th May high at USD 1765/oz. Copper prices mimic the gains in stocks having had seen a blip lower on the initially Navarro headlines.

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