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[PODCAST] US Open Rundown 25th June 2020

  • Choppy trade throughout the European session amid a lack of fresh fundamental catalysts ahead of key events
  • US experienced its largest single day increase in new COVID-19 cases of more than 36,000
  • US President Trump is losing "significant" ground in six battleground states that secured his 2016 electoral College victory, NYT reports
  • In FX, DXY retains a 97.000+ status, Kiwi consolidates yesterday’s losses, Cable grinds higher; US yields are modestly expanding upon yesterday’s flattening
  • Looking ahead, highlights include CBRT & Banxico rate decisions, ECB minutes, US durable goods, GDP (F), IJC, US bank stress tests, ECB's Schnabel, Mersch, BoE's Haldane, US 7yr note auction

CORONAVIRUS UPDATE

US experienced its largest single day increase in new COVID-19 cases of more than 36,000 vs. Prev. high of 34,203 new cases on April 25th. (Washington Post) University of Washington IHME study forecasts US coronavirus cases to pick up in August and September with the death toll to reach 180K by October 1st. (Newswires). Texas Governor Abbott stated that a massive virus outbreak is sweeping the state, while Houston, Texas, is reportedly on pace to exceed intensive care capacity by today. Separately, Disney (DIS) will delay the Disneyland California reopening that had been set for July 17th. (Newswires)

World Health Organisation European Director says Europe had its first increase in weekly cases in a long time; adding 11 European countries are facing a resurgence in cases. (Newswires)

Australia's Victoria state reported 33 additional coronavirus cases vs. Prev. 20, while it was also reported that Australia is to deploy 1000 troops to the Victoria state capital of Melbourne to help contain the coronavirus outbreak. (Newswires)

ASIA

Asian stocks suffered from spillover selling after the weakness seen in global counterparts as risk appetite took a hit from several fronts including the record COVID-19 infection rates in US, half-year end rebalancing and a US-EU tariff threat after reports of US targeting USD 3.1bln of exports from France, Germany, Spain and UK for new tariffs. ASX 200 (-2.5%) was led lower by underperformance in the energy sector due to lower oil prices and with hefty losses seen in travel stocks after Qantas announced several cost-cutting measures. Nikkei 225 (-1.2%) was pressured by the ill-effects of the predominantly firmer domestic currency and KOSPI (-2.3%) traded downbeat following South Korea’s announcement of a capital gains tax on stock trading from 2023, while trade for the region was also hindered by key holiday closures with mainland China, Hong Kong and Taiwan all closed for the Dragon Boat Festival. Finally, 10yr JGBs were flat as prices failed to take advantage of the risk averse tone, advances in T-notes and with the latest update showing the BoJ’s share of the JGB market increased to 44.2% as of end-March vs 43.7% Q/Q, with participants kept sidelined amid the 20yr auction in which nearly all metrics pointed to a weaker result.

White House Trade Adviser Navarro said US President Trump signed a proclamation to protect the lobster industry and directed the USTR to observe if China is purchasing US lobsters under the Phase 1 agreement or he may place reciprocal tariffs. (Newswires)

White House National Security Adviser O'Brien warned of China's efforts to hurt our economies and alleged the CPC is a threat to the sovereignty and economies of US and allies. (WSJ)

China is reportedly adding to its trade negotiation team by appointing its chief representative at the World Bank Yang Yingming as head of MoF's international cooperation department, according to sources. (Newswires)

US

POLL: US President Trump is losing "significant" ground in six battleground states that secured his 2016 electoral College victory, according to New York Times/Siena College surveys. Note, a separate Times/Siena survey released on Wednesday found Mr. Biden leading by 14 points nationwide, 50 percent to 36 percent. (NYT)

·        Michigan: Biden +11 points

·        Wisconsin: Biden +11 points

·        Pennsylvania: Biden +10 points

·        Florida: Biden +6 points

·        Arizona: Biden +7 points

·        North Carolina: +9 points

UK/EU

Germany's top court has rejected a separate case regarding the ECB's QE programme. (Newswires)

ECB announce a new Eurosystem repo facility to provide euro liquidity to non-euro area central banks. (Newswires)

UK government is to ease planning and licensing rules to permit more outdoor drinking and dining in an effort to help the hospitality sector rebound from the lockdown. (Sky News)

German GfK Consumer Sentiment (Jul) -9.6 vs. Exp. -12.0 (Prev. -18.9, Rev. -18.6). (Newswires)

GEOPOLITICS

US President Trump said US is doing very well on work towards an arms control agreement with Russia. (Newswires)

US State Department said North Korea has failed to take actions for its past support of international terrorism, according to reports citing the annual Country Reports on Terrorism. (Newswires)

Iran's Foreign Ministry that Iran and Venezuela remain steadfast in countering US sanctions. In other news, Venezuelan President Maduro said it is possible to hold a referendum regarding his resignation as long as enough signatures are collected to support this from 2022. (Newswires/RIA/Twitter)

EQUITIES

Price action for European stocks has been relatively choppy thus far with downside initially emanating from the soft leads presented by the US and APAC sessions as the COVID-19 case count in certain areas of the US continues to deteriorate. Stocks in Europe were presented some reprieve as the session progressed with not much in the way of standout fundamentals behind the move. Some have attributed part of the move to the ECB announcing a new Eurosystem repo facility to provide euro liquidity to non-euro area central banks, however, stocks were already gaining ahead of this announcement. Note, it is plausible that equities could struggle for direction in the first half of the session until COVID-19 case count data from the US is released mid-afternoon; something which has been a key source of price action over the past few days. From a sectoral standpoint, it is a relatively mixed picture thus far with some cyclical areas such as Autos and banks faring slightly better than peers, whilst the travel & leisure sector is a noteworthy underperformer. Despite stellar gains for Deutsche Lufthansa (+16.5%) following reports that shareholder Thiele (15.5% stake holder) said he will vote for the rescue package in today’s EGM, travel names have taken greater direction from easyJet (-5.6%) after the Co.’s latest earnings update in which the Co. also announced it is to launch a GBP 450mln rights issue. Wirecard (-79%) remain in focus with shares opening lower in the wake of the recent scandal   with the latest chapter in the saga seeing the Co. announce it has applied for insolvency proceedings – shares were halted at EUR 10.74 ahead of the announcement before slumping to EUR 2.50 upon resumption. On a more positive footing, albeit of best levels, Bayer (+1.4%) shares have been supported since the get-go after news the Co. will pay up to USD 10.9bln to settle a string of cancer claims linked to the Roundup weedkiller case. Finally, Royal Mail (-8.2%) shares are also seen lower this morning after post a decline in profits to GBP 180mln in the year to March 2020 which has subsequently forced the Co. to lower its headcount by 2,000.

FX

DXY - The Index holds onto yesterday’s gains above 97.000 but trades in a relatively tight 97.160-404 intraday band thus far as safe-haven demand keeps the broader Dollar propped up amid rising COVID cases across the US and other economies such as Germany, Japan, Australia and China heading into the half-year, quarter and month-end, while participants remain on the lookout for a follow-up to US tariff threat on the EU and UK. Looking ahead, the data-docket sees an abundance in Tier 1 data in the form of Durable Goods, Q1 GDP (F) and Initial Jobless Claims, albeit focus will likely remain on COVID-19 case counts State-side and abroad.

EUR, GBP - The Single-currency has trimmed losses against the Buck, but more so on USD-dynamics with little reaction seen to the improvement in Gfk consumer sentiment. Meanwhile, reports early-doors noted that the German Constitutional Court has rejected a separate case in regard to the ECB’s asset purchase programme, but details remain vague at the time of writing. This followed reports overnight that the ECB has agreed to provide the Bundesbank with documents on proportionality, as expected. Next up, the ECB’s accounts from the June meeting could provide some meat on the bone over the decision-making process on the PEPP ramp up to 1.35tln from 750bln. EUR/USD meanders around 1.1250 having had printed a current band at 1.225-60 with option expiries seeing a sizeable EUR 1.6bln at strike 1.1200, EUR 805mln at 1.1260 and almost EUR 1bln at 1.1300. Meanwhile, Cable continues to grind higher above its 50 DMA (1.2417), and resides around 1.2450 (ahead of its 10 and 21 DMAs both at 1.2488-89) with little by way of fresh fundamentals ahead of remarks from BoE’s Haldane – who voted against the BoE’s QE ramp up last week. Thus, EUR/GBP trickles lower towards the 0.9000 mark, with short-term support seen around the 0.9014-18 ahead (lows over the last three trading sessions).

AUD, NZD, CAD - All firmer against the USD, albeit to different degrees with the Kiwi the marked outperformer as it consolidates from its post-RBNZ losses despite a relatively lacklustre May trade balance release overnight. NZD/USD however, remains sub-0.6450 with its 10 DMA at around the psychological level. AUD/USD moves in tandem with the Dollar as price action remains contained within a 30-pip range (0.6848-84), whilst upside technicals see the 100 WMA situated at 0.6909. The Loonie fails to reap the same benefits as its high-beta peers as gains remain somewhat hampered from a sovereign downgrade at Fitch (AA+ from AAA-; outlook Stable). USD/CAD holds onto a 1.3600 handle but resides around session lows (1.3620) amid an attempted recovery in the energy markets.

JPY - Safe havens trade choppy within tight ranges as the pairs track sentiment and price action in stocks. USD/JPY keeps its 107.00 handle having had dipped below the figure overnight, with its 50 DMA at 107.39.

New Zealand Trade Balance (NZD)(May) M/M 1253M vs. Exp. 1290M (Prev. 1267M). (Newswires) New Zealand Exports (NZD)(May) 5.4B vs. Exp. 5.4B (Prev. 5.3B) New Zealand Imports (NZD)(May) 4.1B vs. Exp. 4.1B (Prev. 4.0B)

FIXED

Core bonds initially began the European session somewhat softer, after a comparatively uneventful overnight session where they were subject to a grinding bid as sentiment remained subdued following yesterday’s stock pullback. Interestingly, even given the strong risk-off trade seen yesterday the UST yield curve only saw modest bull-flattening, with similar price action being seen currently and as such expanding on yesterday’s action; for instance, today’s UST 10yr yield low stands at 0.6630% just below yesterday’s 0.6760% floor. On this, desks have highlighted that US steepeners are, given additional pressures from supply and inflation, seen to be outperforming their European peers ahead; with some option premium measures having surpassed pre-COVID levels – potentially explaining some of the recent magnitude discrepancies. European hours have seen pronounced choppiness across the debt complex, as well as markets more broadly, with initial bond upside derived around the EU equity cash open and just before, but seemingly unrelated to, reports the GCC have rejected a separate case regarding ECB QE; note, details on this headline are still very vague and on the subject attention is on today’s ECB minutes. Nonetheless, at the time Bunds sharply retreated and BTPs saw a firm bid; albeit, both moves were within session ranges failing to test the sessions low/high of 176.09 and 143.80 respectively and ultimately pared back. Since then, while debt has been subject to periods of choppiness as sentiment in general struggles to find direction, we are overall marginally firmer on the day for core counterparts but seemingly capped by the session’s ranges. In terms of focus for the session ahead, we do have the aforementioned ECB minutes alongside a number of central bank speakers and US data – but focus will likely remain on the COVID-19 count and particularly updates from the key US states of Florida, NY and Texas.

COMMODITIES

Choppy trade in the crude complex as price action is predominently dicatated by market sentiment in which the downbeat APAC session saw WTI and Brent August contracts relinquish the USD 38/bbl and USD 40/bbl level respectively. However, amid an improvement in broader sentiment as European trade is underway, the benchmarks have rebounded off lows of USD 37.13/bbl and USD 39.50/bbl respectively, with the latter reclaiming USD 40/bbl to the upside. News-flow has been light for the complex but price action is likely to be influenced by COVID-19 developments ahead of Tier 1 US data. Elsewhere, spot gold remains relatively steady around USD 1765/oz within today’s range despite the whipsaws seen cross-market, with initiall impetus derived as European players entered the markets to a softer APAC session. Copper trades with modest gains as the red metal retraced earlier downside amid a recovery in stocks, but price action remains contained within recent ranges.

Goldman Sachs lowered Oct. 2020 NYMEX gas price forecasts to USD 1.40/mmbtu from USD 1.75/mmbtu, but maintains Dec. 2020-Mar. 2021 forecast at USD 3.50/mmbtu and Apr. 2021-Oct. 2021 forecast at USD 3.25/mmbtu. (Newswires)

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