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[PODCAST] EU Open Rundown 26th June 2020

  • Asia-Pac equity markets traded mostly higher as the region took impetus from Wall St's financial-led gains after US regulators approved the relaxing of Volcker rules
  • However, some advances in banking names retraced after-market following the Fed stress tests
  • Fed stress tests results stated that the Fed is to cap dividend payments and ban share repurchases in Q3 for 34 of the largest banks
  • Texas and Florida have halted the next phase of reopening’s for their economies, New Jersey continues with moving to stage 2 of its reopening
  • In FX, the DXY has consolidated below 97.50, EUR/USD and GBP/USD remain on 1.12 and 1.24 handles respectively
  • Looking ahead, highlights include EZ M3 money supply, US personal income, PCE & core PCE price index, Uni. of Michigan (F), ECB's Schnabel

CORONAVIRUS UPDATE

US CDC reported coronavirus cases rose 37,667 to 2,374,282 and death toll rose by 692 to 121,809, while a major newswire tally suggested that US coronavirus cases increased by a record of at least 39,818. (Newswires) Texas coronavirus cases rose 4.8% (Prev. 7-day avg. +3.9%), Texas Governor Abbott announced a halting of the next phase of reopening for the state's economy and signed an executive order relating to the need for increased hospital capacity during the COVID-19 disaster, while it was also reported that Houston, Texas area ICU's have reached maximum capacity. (Newswires) New Jersey Governor Murphy said they feel comfortable continuing with the stage 2 reopening citing the state's key metrics, while Florida Governor Desantis said there are no plans to go to the next phase of reopening now. (Newswires)

US President Trump said the US had the best employment numbers and best economy it ever had before the pandemic which he referred to as the China virus, while he suggested there will be a vaccine ready for COVID-19 by year-end. Furthermore, President Trump tweeted that the increase of coronavirus was due of great testing and suggested the mortality rate has gone down. (Fox/Twitter)

ASIA

Asia-Pac markets traded mostly higher as the region took impetus from Wall St's financial-led gains after US regulators approved to relax Volcker rules, but with some advances in banking names retraced after-market following the Fed stress tests in which it capped dividend payments and banned share repurchases in Q3 for 34 of the largest banks. ASX 200 (+1.4%) was underpinned as the top-weighted financials mirrored the outperformance of the sector stateside and amid positive reports for some of the ‘Big 4’ including Nippon Life considering an additional investment NAB’s wealth management business and Westpac winning a Federal Court decision against ASIC’s appeal regarding the responsible lending suit. Conversely, Qantas was at the other end of the spectrum in which its shares fell on a resumption of trade following its recent announcement for an equity raising, mass job cuts, 100-planes grounding and revoke of its interim dividend. Nikkei 225 (+1.2%) was lifted by the positive momentum and with gains spearheaded by financials which saw the index climb back above the 22500 level, while the Hang Seng (-0.3%) lagged on return from its holiday closure and played catch up to yesterday’s losses. Furthermore, the absence of participants in mainland China and mixed US-China headlines also clouded sentiment after the US Senate passed the bill punishing China for Hong Kong actions, although it was also reported the US was to consider an extension of China goods tariff exclusions. Finally, 10yr JGBs were indecisive as initial pressure from the mostly constructive risk tone, was counterbalanced by this week’s support near the 152.00 level and with the BoJ present in the market for JPY 660bln of JGBs with 1yr-5yr maturities.

US Senate passed the China sanctions bill over its actions regarding Hong Kong by unanimous consent. (Newswires) The bill will now make its way to the House of Representatives.

US President Trump's Administration is reportedly mulling broad Federal intervention to secure its 5G future and has discussed a range of strategies to build competition against China's Huawei, with the ideas discussed said to include prodding large US tech companies like Cisco (CSCO) to acquire EU companies such as Ericsson (ERIC) or Nokia (NOK), according to sources. In relevant news, US issued a fresh warning to the UK about the security risks of Huawei following the approval for a new GBP 1bln facility. (Newswires/FT)

Tokyo CPI (Jun) Y/Y 0.3% vs. Exp. 0.3% (Prev. 0.4%). (Newswires) Tokyo CPI Ex. Fresh Food (Jun) Y/Y 0.2% vs. Exp. 0.2% (Prev. 0.2%) Tokyo CPI Ex. Fresh Food & Energy (Jun) Y/Y 0.4% vs. Exp. 0.4% (Prev. 0.5%)

UK/EU

France and UK reportedly offered to limit digital tax scope after the US tariff threat, while it was also reported that Germany is mulling measures against the US in response to sanctions on the Nord Stream gas pipeline. (Newswires)

Three candidates have made pitches for the Eurogroup head position; Spain's economy minister Calvino, Ireland's finance minister Donohoe and Luxembourg's finance minister Gramegna. (FT)

FX

The DXY consolidated after yesterday’s mild gains with price action contained overnight below the 97.50 level amid the mostly positive risk tone and following recent mixed data releases. Other major currencies were quiet heading into the end of the week with EUR/USD rangebound at the weaker end of the 1.1200 handle, while GBP/USD eked mild gains above support at 1.2400 with participants eyeing the next round of Brexit talks with the EU beginning on Monday and the first face-to-face discussions since March. Elsewhere, USD/JPY held on to the 107.00 status with the pair largely ignoring the positive risk tone, as well as inline Tokyo CPI data, and antipodeans conformed to the overall uneventful picture across the currency space but with mild upside seen in late trade owing to their high beta statuses.

Mexico Central Bank lowered its interest rate by 50 bps to 5.00% as expected, through unanimous decision. The central bank noted that balance of risks to growth remain significantly tilted downwards and inflation balance of risks remain uncertain. Furthermore, it stated that expectations for headline inflation for end-2020 are still at levels close to its target, while expectations for the medium and long-term have remained relativity stable although at levels above the 3% target. (Newswires)

New Zealand Treasury and RBNZ reach funding agreement to ensure central bank has adequate resources to meet increasing responsibilities, with the agreement to provide the RBNZ with an average of NZD 115mln annually for operations during the next 5 years. (Newswires)

COMMODITIES

Commodities traded mixed albeit in a rangebound fashion with mild gains seen in WTI crude futures as oil prices took their cue from the mostly positive tone seen in equity markets, which pushed prices above the USD 39.00/bbl but with gains capped amid the lack of pertinent newsflow for the complex. Elsewhere, gold prices were flat with the effects of a lacklustre greenback counterbalanced by the positive risk tone, while copper plateaued after the prior day’s risk fuelled advances. 

US

The TPLEX modestly bull flattened amid choppy risk appetite, although yields are off their lows. The T-Note found its peak heading into the US session, with the September contract hitting 139-02, not too far off its June peak of 139-07+. Jobless Claims were disappointing, although Durable Goods surprised to the upside, with rates little reactive on their release. However, due to quarter-end rebalancing, Treasuries are being supported amid duration extension; reports noted that a heavy 50k sales of E-mini S&Ps at the NYSE open was pared against a chunky bond buy from a large firm. However, as equities clawed back their losses, yields came off their lows too, albeit modestly. Note that volumes were relatively light in USTs today. Looking ahead to Friday, participants will be keeping track on PCE for the period of May. Furthermore, with Q2 earnings season looming, corporates are now entering the blackout window, where corporate issuance is drying up, providing fixed income participants with less supply to digest. US T-note futures (U0) settled 1 tick higher at 138-29.

Federal Reserve stress tests results stated that the Fed is to cap dividend payments and ban share repurchases in Q3 for 34 of the largest banks although is allowing dividends according to a formula based on recent income. Furthermore, it found that banks suffered USD 700bln in aggregate loan losses under the most severe COVID scenario and several firms would approach minimum capital requirements, while all large banks will be required to resubmit and update their capital plans later this year to reflect current stresses and the Board will conduct additional analysis each quarter to determine if adjustments to this response are appropriate. (Newswires)

Fed's Bostic (non-voter, dove) said he expects US economic recovery in H2 20 and that the Fed should stay accommodative until the economy has restored. (Newswires)

Fed’s George (non-voter, hawk) said a full recovery is still far off despite strong job gains in May and that Fed’s actions helped ease financial conditions, as well as improved market functioning, while she added that determining the correct monetary policy path is likely to be difficult given volatile data. (Newswires)

US VP Pence and major US airline CEOs will discuss coronavirus-related travel issues at the White House this Friday, while it was also reported that US aviation unions warned that hundreds of thousands of workers will lose their jobs and health insurance if payroll aid is not extended. (Newswires)

Fox poll showed former VP Biden leads US President Trump in Florida (49% vs. 40%), Georgia (47% vs. 45%), North Carolina (47% vs. 45%) and Texas (45% vs. 44%)

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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