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[PODCAST] US Open Rundown 24th June 2020

  • Sentiment is downbeat with US futures faring better than EU peers, following a tentative APAC session before stocks deteriorated in EU hours amid USTR updates
  • US is reportedly targeting USD 3.1bln of exports from France, Germany, Spain and the UK with new tariffs; newsflow which sparked further risk-off and sent US 10yr yield briefly below 70bp
  • DOJ and State AG's are reportedly showing increasing interest in a possible antitrust probe into Apple regarding the App Store, via Politico
  • RBNZ maintained the OCR at 0.25% and LSAP at NZD 60bln as expected; also, discussed the pros/cons of expanding the LSAP programme
  • FX sees the USD firmer but capped by 97.00 for the DXY, to the major peers with NZD bearing the brunt
  • Looking ahead, highlights include, SNB Quarterly Bulletin, DoEs, Fed's Evans, Bullard, supply from the US

CORONAVIRUS UPDATE

Texas coronavirus cases increased by a record 5,489 (+4.8%) and hospitalizations increased by 10.3% to 4,092. (Newswires)

EU officials were reportedly racing to agree on who can visit the bloc from July 1st as it reopens its borders although US may not be included in the countries permitted amid failures on the coronavirus. (NYT)

China's Global Times reports that a research team led by Chen Wei, of the PLA Academy of Military Medical Sciences, has made a major breakthrough in the research of COVID-19 antibodies.

ASIA

Asian equity markets traded with a slight positive bias after momentum from global peers provided the initial constructive setting for the region. This followed the advances for all major indices on both sides of the Atlantic with sentiment helped by stronger than expected data and the UK further easing lockdown restrictions, while the Nasdaq notched a fresh all-time high, although some of the gains were later pared stateside amid ongoing concerns regarding the increasing pace of infection numbers in parts of the US. ASX 200 (+0.2%) and Nikkei 225 (Unch.) were rangebound with the Australian benchmark treading water for much of the session as strength in the commodity related sectors was offset by weakness in the top-weighted financials, and a non-committal tone was also observed in Tokyo as exporters contended with the recent currency strength, while the KOSPI (+1.4%) outperformed on positive geopolitical developments in which North Korea Leader Kim decided to suspend military action against South Korea. Elsewhere, Hang Seng (-0.5%) and Shanghai Comp. (+0.3%) ended mixed after another firm liquidity effort by the PBoC and with Tencent shares posting a record high in Hong Kong, but with upside contained due to ongoing US-China tensions. Finally, 10yr JGBs were lacklustre as the mild positive tone in stocks and lack of BoJ presence in the market kept prices subdued, which also saw the 30yr yield increase to its highest since April last year during early trade.

PBoC injected CNY 180bln via 7-day reverse repos for a net daily injection of CNY 180bln. (Newswires) PBoC set USD/CNY mid-point at 7.0555 vs. Exp. 7.0564 (Prev. 7.0671)

BoJ Summary of Opinions stated that the economy is in a severe situation and is under pressure from virus fallout but is showing some signs of bottoming out, while it added that a delay in the economic recovery could destabilize markets and that the BoJ must respond quickly if the need arises to take additional measures. BoJ noted that CPI Y/Y is likely to be negative for the time being and it is important to continue to support financing of firms and maintain stability in financial markets through the following three measures including the Special Program to support financing in response to the coronavirus, an ample provision of funds without upper limits and active purchases of assets such as ETFs. (Newswires)

US

US is reportedly targeting USD 3.1bln of exports from France, Germany, Spain and the UK with new tariffs; exports include olives, beer, gin, and trucks - increasing duties on aircrafts, cheese and yogurts. (Newswires)

UK/EU

BoE Governor Bailey reportedly warned the Secretary of State for Work and Pensions that pension superfunds could threaten financial stability. (Sky News)

ECB's Chief Economist Lane says we are seeing some signs of an initial recovery, will be unusually difficult for multiple reasons to extract signals about the medium-term outlook; evidence tilts towards asset purchases instead of rate cuts at present. (Newswires)

German Ifo Business Climate New (Jun) 86.2 vs. Exp. 85.0 (Prev. 79.5, Rev. 79.7)

German Ifo Expectations New (Jun) 91.4 vs. Exp. 87.0 (Prev. 80.1, Rev. 80.5)

German Ifo Curr Conditions New (Jun) 81.3 vs. Exp. 84.0 (Prev. 78.9)

GEOPOLITICS

North Korea Leader Kim reportedly suspended anti-South Korea military plans during the Central Military Commission meeting which he chaired. (Yonhap)

China’s Defence Ministry says the recent border clash with India was caused entirely by the Indian sides’ violation of consensus and unilateral provocation. (Newswires) All troops of China's military are now accelerating field training for war-preparedness, according to Global Times citing Chinese Defence Ministry. (Global Times)

EQUITIES

European equities kicked the session off on a softer footing before extending the move to the downside (Eurostoxx 50 -1.6%) as losses were exacerbated by reports that the US is targeting USD 3.1bln of exports from France, Germany, Spain and the UK with new tariffs whilst increasing the levy on aircraft, cheese and yogurts. Nonethless from a wider lens, the main source of focus remains on the rising COVID-19 case count in certain parts of the US. However, it is hard to place too much weight on this acting as a downside catalyst for Europe given that US equities finished firmer on Wall St. and futures are faring better stateside than they are across the Atlantic. From a sectoral standpoint, weakness in Europe is predominantly being driven by cyclical names with autos, travel and banking names lagging their peers. Price action within these sectors is subject to little in the of stock-specific newsflow and as such reflects broader pessimism within the market. IT names are faring slightly better than most (albeit lower on the day) with support emanating from Dialog Semiconductor (+8.0%) after the Co. raised Q2 revenue guidance. Other individual movers include Wirecard (again) with Co. shares lower by 8.5% as questions continue to mount over the impact of recent scandals on its business relationships, particularly with Mastercard (MA) and Visa (V) with whom they hold licenses with to issue credit cards. Atlantia (+2.3%) continue to remain in focus following government talks last night whereby it was agreed that negotiations should continue regarding the Co.’s motorway concession.

Google (GOOGL) is reportedly considering alternative destinations for a planned high-speed internet cable, following the US Gov't warning against the construction of a Hong Kong link on security reasons, FT citing Co's cloud computing head. (FT)

Apple (AAPL) - DOJ and State AG's are reportedly showing increasing interest in a possible antitrust probe into the Co. regarding the App Store, via Politico. (Politico)

FX

DXY - The broader Dollar and Index continue to strengthen early doors – potentially consolidating from recent losses but broader market performance points more towards safe-haven inflows, and with little by way of fresh fundamental factors driving the moves. Underlying influences linger in the form of heightened tensions between US and China and potential implications from a second outbreak as participants gear up for month/quarter end. DXY has extended gains from yesterday’s 96.379 low and now eyes 97.000 to the upside with its 10 DMA (97.028) also in range with the absence of Tier 1 data on the slate, whilst Fed non-voters Evans and Bullard are likely to sing from the same hymn sheet as from Powell’s most recent appearance.

NZD - Kiwi remains the G10 underperformer amid the broader risk aversion coupled with a dovish tilt by the RBNZ, which despite holding rates and large scale asset purchases steady, noted that a firmer Kiwi is weighing on exports and continued to tout future policy easing was on the cards - members discussed the pros and cons of expanding QE now, in which any expansion would need to be of a sufficient magnitude to make a meaningful difference. NZD/USD relinquished the 0.6500 handle (high 0.6514) and continues to move south of 0.6450 (10 DMA) as the pair eyes its 21 DMA at 0.6415 ahead of the round figure.

EUR, GBP, CAD, AUD, EM - All broadly lower vs. the USD but the high-beta FX see more pronounced pressure as the appetite for risk further deteriorates and aversion intensifies. The single currency caved in light of reports that the US is taking aim at EU and UK goods, after the EUR intiially shrugged off a mixed Ifo release with current conditions falling short of consensus and expectations exceeding; economists cautioned that in-spite of the economy now firmly being on an upward path, the situation in the industrial sector remains dire. Meanwhile, ECB’s chief economist Lane provided little by way of fresh updates but did put more credence on the outcome of the EU Recovery Fund on the future of the economy, alluding to potential impact on monetary policy. On that front, President Macron held talks with his Dutch counterpart, and known Frugal Four member, with reports pointing to progress (but no agreement) on the latter’s resistance to the Commission’s proposal ahead of the mid-July meeting. EUR/USD gave up its 1.13-handle (high 1.1325) and whipsawed lower to 1.1270 on the US tariff news ahead of its 10 DMA at 1.1261, followed by potential mild support at 1.1258 and 1.1243 (200 and 100 HMAs respectively). GBP/USD was relatively unreactive to the US levy headlines and fluctuates on either side of 1.2500, having printed a high at 1.2518 and a low near a Fib at 1.2463 (38.2% of 1.1237-2541 move), whilst some participants highlight potential bids at yesterday’s low of 1.2434. The Loonie and Aussie also bear the brunt of weakness in commodities – USD/CAD failed to sustain a break above its 10 DMA (1.3571) and hovers around its 21 DMA (1.3557), having found a base yesterday at its 200 DMA (1.3480). AUD/USD tested support at 0.6900 (high 0.6961) but currently meanders its 100 WMA (0.6909) ahead of its 10 and 21 DMAs at 0.6884 and 0.6869 respectively.

JPY, CHF - Both resilient against the rising Buck as safe-haven inflows counter the Dollar dominance. Overnight the BoJ Summary of Opinions added nothing to the Central Bank’s narrative, whilst the CHF awaits the findings of the SNB quarterly bulletin for Q2 later today. The safe havens failed to derive much traction from US ramping up tariffs against some EU countries alongisde the UK. USD/JPY now trades flat intraday and off its earlier peak at 107.21, now residing around 106.50 having earlier dipped to a whisker away from 106.00 ahead of the May 8th low just under the round figure. USD/CHF losses further ground below its earlier high at 0.9528 having tested 0.9420 to the downside.

RBNZ maintained the OCR at 0.25% and LSAP at NZD 60bln as expected. RBNZ said it will review the LSAP quantum at regular intervals and that monetary policy will continue to provide additional support. RBNZ also stated that it is prepared to provide additional stimulus as necessary and that the committee continues to prepare for additional tools, while it will outline the outlook for its LSAP program and readiness for further policy tools in August. Furthermore, the central bank stated that a strengthening NZD is placing further pressure on export earnings and that members discussed the pros and cons of expanding the LSAP program now, in which any expansion would need to be driven by the economic outlook and would also need to be of a sufficient magnitude to make a meaningful difference. (Newswires) 

FIXED

Debt has been largely rangebound for much of the morning, with a grinding bid higher occurring through European hours after a steady APAC session in which desks have noted volumes in USTs have been significantly lower this week compared with recent sessions. Even given the mild bid, core counterparts have resided just below the unchanged mark for much of the session; with the German June Ifo print uneventful and unable to spark any significant movement as the improvement in the survey didn’t add much from yesterday’s Flash PMIs. Currently, debt has moved marginally into positive territory, but is still essentially flat, following reports that the USTR are to target USD 3.1bln of exports from the EU & UK; newsflow which sparked immediate upside across core bonds sending the Bund to a 175.83 high and USTs to 138.25, which corresponded to a yield low 0.6990% - albeit, the dip below 70bp was shortlived. At present, the yield curve stateside is mixed but little changed shape wise. For the US session ahead, the schedule is comparatively quiet with just a smattering of Fed speak and 5yr supply ahead. From a technical perspective, and staying with USTs, there is little in the way of resistance until the psychological 139.0 handle and after that 139.03; as focus perhaps stays more on yield performance with some way to go until this week’s lows of 0.6790% (Tue) and 0.6740% (Mon).

COMMODITIES

WTI and Brent crude futures extend on earlier losses as sentiment took another hit from reports the US is targetting EU and UK goods in its latest move. Prices were already ebbing lower as the complex succumed to the broader risk aversion since the European cash open. Yesterday’s private inventories only added to the bearish narrative as headlines stocks showed a larger than expected build of 1.7mln barrels vs. Exp. 300k. Participants will now be on the lookout for confirmations at the weekly DoE release in the absecnce of fundamental catalysts. WTI Aug resides sub-USD 40/bbl (vs. 40.50/bbl high) whilst its Brent counterpart meanders around USD 42/bbl (vs. 42.89/bbl high). Meanwhile, spot gold continues to march on despite a firmer Buck as investors flock to the safe heaven. The yellow metal resides at fresh over-7yr highs around USD 1775/oz ahead of the psychological USD 1800/oz. Copper prices see a double whammy from the firmer USD and risk aversion as prices receed back below USD 2.65/lb despite weekly Shanghai inventories posting a decline in stocks.

US Private Inventory Crude Stocks +1.7mln vs. Exp. +0.3mln (Prev. +3.9mln). (Newswires)

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