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[PODCAST] US Open Rundown 26th June 2020

  • Sentiment remains somewhat choppy as European bourses post gains over 1% while US futures are flat/mixed but have been grinding higher recently
  • 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; US banks are subdued in the pre-market
  • Nike earnings missed on both EPS and revenue, as such trade lower by ~3% in pre-market
  • Fox poll showed former VP Biden leads US President Trump in Florida, Georgia, North Carolina & Texas
  • DXY remains relatively rangebound with FX peers not too different as bonds post a similar performance and the US yield curve is U/C
  • Looking ahead, highlights include, US personal income, PCE & core PCE price index, Uni. of Michigan (F), White House COVID-19 task force briefing

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%). (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. (Fox)

Tokyo confirms 54 new COVID-19 cases (Prev. 48). (Newswires)

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 (+1.5%) 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 (+1.1%) 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 (-0.9%) 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.

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%)

US

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)

Pre-market: WFC -2.7%; C -1.3%; JPM -1.4%

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%)

UK/EU

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)

ECB President Lagarde says we are probably through the low point of the crisis, but this is caveated by potential second wave concerns. Lagarde added that the ECB will have to use the instruments which provide the most proportional response. Lagarde also noted that the EU may not agree on a recovery plan at the July 17/18th summit. (Newswires) 

ECB's Holzmann says the positive effects of bond purchases outweigh the negative effects; does not plan to use the ECB's deposit rate as an instrument. (CNBC)

ECB's Rehn says that action taken by the bank is proportionate and necessary; danger of deflation has re-emerged. (Newswires)

German Chancellor Merkel and French President Macron will not be presenting a new EU proposal on Monday, according to a spokesperson. (Newswires)

EQUITIES

European equities trade firmer (Eurostoxx 50 +1.4%), after a somewhat choppy start to the day which has seen them trade in negative territory before receiving more of a grinding bid ahead of the US’ entrance; with US futures flat/mixed but moving similarly higher. Stocks have been relatively resilient despite the mounting COVID-19 concerns stateside which has seen Florida and Texas pause their reopening efforts, with ICU’s in the latter state having reached maximum capacity. Furthermore, weakness in the banking sector (US banks were seen lower in after-hours trade) stemming from the latest Fed stress test results has failed to provide any sway on the broader tape thus far with financials in Europe currently the only sector in the red. As a reminder, the Fed capped dividend payments and banned share repurchases in Q3 for 34 of the largest banks. From a sectoral standpoint, positivity at the open was largely seen in the travel & leisure sector with Air France (opened higher by around 9.6%) leading the charge after the French and Dutch governments struck a EUR 3.4bln agreement to bail the Co. out. Furthermore, IAG (+2.2%) shares have also seen support after the Co.’s British Airways unit offered pay rises for some cabin crew members. However, as gains in European indices were trimmed, other travel & leisure names succumbed to the pressure and as such, the sector is trading broadly inline with its peers. Elsewhere, sectors are relatively mixed with price action in some areas lead by stock-specific developments. Notably, it has been another session of heavy losses for Wirecard (-48%) amid reports that Visa & Mastercard are considering withdrawing Wirecard’s ability to process payments on their network. Elsewhere to the downside, shares in Intu Properties (-54%) have been crushed this morning after the Co. noted that insufficient alignment has been achieved with creditors, as such and in order to protect stakeholder interests, they are now likely to involve the appointment of administrators. Finally, in the retail space, H&M shares are lower this morning after posting a SEK 6.48bln pretax losses in the three months through May and as such are laying the groundwork to issue fresh debt to help shore the Co.’s finances up.

Amazon (AMZN) have agreed to acquire Zoox, a self-driving auto developer, for over USD 1bln, according to The Information citing sources. (The Information)

Nike Inc (NKE) reported Q4 20 (USD): EPS -0.51 (exp. 0.07), Revenue 6.3bln (exp. 7.32bln) - notes digital sales rose 75%. Roughly 85% of Nike-owned stores are open in North America, 100% in China; 90% in EMEA. China 1.65bln (exp. +3.63% at 1.76bln), EMEA 1.33bln (exp. -33.6% at 1.63bln), North America 2.23bln (exp. -34.4% at 2.73bln), APLA 801mln (exp. -33.6% at 1.63bln), Gross Margin: 37.3% (exp, 43.5%, prev. Y/Y 45.5%). CEO said the group will take several steps to improve retail sales including opening 150-200 stores in Europe and North America in 2020. CEO reportedly said the Co. is to initiate job cuts from next month but did not provide a number and specify which departments, according to sources. (Newswires/FT) Nike shares trade lower by 3% in the pre-market

UK Chancellor Sunak says the bar to company bailouts is exceptionally high. (Newswires)

FX

DXY - The broader Dollar and index remain within a tight range early-doors as the latter stays afloat above 97.000, albeit off best levels (97.482), having dipped from yesterday’s high 97.600 high and below the 97.500 mark. Looking ahead, today’s data docket sees US personal income, PCE & core PCE price index, Uni. of Michigan (F).

EUR - The European outperformer having had kicked off the final trading day of the week with a string of early-morning ECB speakers including Holzmann who downplayed the use of the deposit rate as an instrument, while president Lagarde remarked the economy is possibly past the COVID-19 trough, albeit this was accompanied with a second outbreak caveat. The president, alongside Governing Council member Rehn, also reaffirmed using instruments in a way which provides the most proportional response. However, Lagarde did express caution over a Recovery Fund deal reached at the mid-July summit – sentiment that has been expressed by some members of the Frugal Four. From a technical standpoint, EUR/USD’s 50 DMA has now risen above its 200 DMA, marking a golden cross which is typically perceived as a bullish signal. EUR/USD resides around 1.1225 having recovered from its earlier 1.1203 low, with a sizeable EUR 2.2bln of options expiring at the round figure at the NY cut.

NZD - Continued consolidation seen in the Kiwi from post-RBNZ lows of ~0.6400, with an added tailwind after the NZ treasury and central bank reached a funding agreement to ensure central bank has adequate resources to meet increasing responsibilities. NZD/USD sees itself just under 0.6450 having found an intraday base at 0.6415, albeit still a way off its 100 WMA and current weekly high at 0.6522 and 0.6532 respectively.

JPY, CHF - Currently the top gainers among G10s as the risk tone further sours despite an absence of fresh fundamental catalysts thus far heading into the weekend. USD/JPY dipped and remains below the psychological 107.00 (coincides with 10 DMA) and yesterday’s 106.97 low from a high of 107.24. USD/CHF lingers sub-0.9500 with a current base at 0.9471 ahead of yesterday’s 0.9469 low.

GBP - Sterling remains subdued in early-trade, potentially more-so on the back of the firmer EUR as EUR/GBP hovers around 0.9050 having found support at its 10 DMA at 0.9015. UK specific newsflow has remained light ahead of post-Brexit trade talks next week, with little by way of fireworks expected between the sides. Elsewhere, the UK alongside some European countries offered to limit the scope of proposed digital tax following the US threat which could offer some solace in bilateral post-Brexit relations with Washington. Cable dipped below 1.2400 having had earlier tested the level to the downside.

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)

FIXED

A comparatively quiet session to end the week from an EU perspective with sentiment more generally once again somewhat choppy, albeit ahead of key US data, as there hasn’t been much on the mornings schedule aside from ECB speak which added little new aside from stressing potential second-wave concerns. Currently, the core complex resides around the unchanged mark with ranges for the session relatively contained. From a technical perspective within Europe, if Gilts receive another bid then a double top lies just above the 138.0 mark, thus far the session peak is 137.82 while near-term resistance for the Bund is at 176.78 just above the high of 176.70. Stateside, performance has been very similar to EU peers with USTs also residing firmly within narrow ranges and comfortably below yesterday’s 139.02 peak before the June high of 139.07+. Focus for the US session is on the number of key data releases ahead with PCE, personal income & spending on the schedule; focus is on the evolution of consumer trends and whether the core PCE figure begins to stabilise just below the 1.0% handle as is expected (preview available within the US Pre-Market Themes headline). Yesterday saw the 10yr yield drop to a two-week low of 0.6560%, which has stabilised a touch today and, given broader bond price action, is relatively unchanged above the 67bp mark; for reference, the June low resides at 0.6380%.

COMMODITIES

Choppy trade in the crude complex once again amid quietened trade heading into the end of the week, with little by way of fresh fundamental newsflow to influence price action. WTI and Brent Aug futures have regained a firmer footing after the latter briefly dipped into negative terriroty in price action that coincided with that in stocks. WTI meanders around USD 39/bbl, having had found a current base at 38.63/bbl, while its Brent counterpart trades on either side of USD 40.50/bbl having touched a low print of USD 41.05/bbl. Looking ahead, traders will be, as usual, eyeing macro newflow in regard to the COVID-19 case count alongside potential US-China or geopolitical developments, whilst data docket sees the weekly Baker Hughes rig count. Spot gold remains within a contained USD 8/oz range around 1765/oz. Copper mimics price action across the equity-space.

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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