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[PODCAST] EU Open Rundown 29th June 2020

  • Focus remains on the COVID-19 case count with the number of infections in the US now surpassing 2.5mln
  • As such, Asian bourses began the week lower across the board with some areas in the US back-pedaling on reopening measures
  • The DXY heads into the EU open on the backfoot with GBP an outperformer in the G10 space ahead of upcoming Brexit talks
  • However, reports note that senior MPs in the Conservative Party are urging Brexit negotiators to reject any Brexit "compromises" offered by Brussels this week
  • Top German Court Judge Huber said the Bundesbank must decide regarding ECB bond purchases and that the court was no longer involved with the decision
  • Looking ahead, highlights include German regional & national CPI, EZ sentiment data, ECB purchases, US pending home sales, BoE's Bailey, Vleighe, Fed's Daly, Williams 

CORONAVIRUS UPDATE

US CDC reported 44,703 new coronavirus cases for total of 2,504,175 and deaths rose by 508 to 125,484. California coronavirus cases rose by 4,810 to 211,243 as of Saturday and the 14-day average positivity rate is trending modestly upwards, according to State Health Department. Texas coronavirus cases rose by 5357 to 148,728, which was a 7th consecutive day that cases increased by over 5,000 and the Texas positive-test rate surged to a record 14.3%. Florida coronavirus cases increased by 8,530 vs. Prev. record increase of 9,585 a day before and Georgia cases rose by 2,235 which is the largest increase since the outbreak began. (Newswires)

US VP Pence said the US Government is focused on the rising cases in the southern states and wants to continue to open economic activity in the US while dealing with rising cases, while he added that 34 states are showing measures of stabilisation and 16 states are rising. (Newswires)

California Governor Newsom told Imperial County to shut back down amid the COVID-19 surge and ordered 7 counties including LA to close bars, while San Francisco Mayor Breed announced the city will delay the reopening planned for Monday. (Newswires/ABC 7/LA Times)

EU drafted a list of 15 countries which could be permitted to resume travel to the EU from July 1st with the US not included in the list. (Newswires)

Researchers in Barcelona have detected the presence of COVID-19 in a waste sample collected in March 2019; nine months before the COVID-19 outbreak in Wuhan was first reported. (Telegraph) 

A SAGE adviser has warned that Britain is on a "knife edge" and could see an increase in COVID-19 cases by July following the easing of lockdown restrictions towards the end of Mat. (Telegraph)

China announced restrictions in Anxin county in the Hebei province near Beijing following an increase of cases. (BBC)

ASIA

Asian bourses began the week lower across the board with sentiment dampened as focus remained on rising virus infection rates which has forced some key states to back-pedal on their reopening efforts with California, Texas and Florida imposing new restrictions, while the global death toll from the pandemic has surpassed the half million mark. ASX 200 (-2.2%) was dragged lower with energy underperforming the broad weakness seen across Australia’s sectors aside from gold miners which stayed resilient on the safe-haven play, and Nikkei 225 (-2.3%) was pressured after weaker than expected Retail Sales data and with the number of new infections in Tokyo rising to the most since the removal of the state of emergency declaration. Hang Seng (-1.5%) and Shanghai Comp. (-0.8%) declined following a liquidity drain by the PBoC and amid concerns regarding the Hong Kong national security law in which the NPC Standing Committee reviewed a draft on the bill and are set for a vote tomorrow. This is likely to increase the ongoing US-China tensions, which was also not helped by comments from both sides as US Secretary of State Pompeo noted the US is imposing visa restrictions on Chinese Communist Party officials over the autonomy of Hong Kong as well as human rights issues, and Chinese officials warned the US of crossing red lines such as meddling in Hong Kong and Taiwan which could put the trade deal's purchases at risk. Finally, 10yr JGBs were rangebound with price action only marginally benefitting from the broad risk-averse tone and BoJ’s presence in the market for a total of JPY 600bln of JGBs heavily concentrated in 5yr-10yr maturities.

PBoC skipped reverse repos for a drain of CNY 40bln but conducted CNY 5bln of commercial bill swaps. (Newswires) PBoC set USD/CNY mid-point at 7.0808 vs. Exp. 7.0887 (Prev. 7.0555)

US Secretary of State Pompeo said the US is imposing visa restrictions on Chinese Communist Party officials over the autonomy of Hong Kong as well as human rights issues. (Newswires)

Chinese Industrial Profits (May) Y/Y 6.0% (Prev. -4.3%). (Newswires) Chinese Industrial Profits YTD (May) Y/Y -19.3% (Prev. -27.4%)

Japanese Retail Sales (May) M/M 2,.1% vs. Exp. 3.0% (Prev. -9.6%). (Newswires) Japanese Retail Sales (May) Y/Y -12.3% (Prev. -13.7%, Rev. -13.9%)

UK/EU

Senior MPs in the Conservative Party are urging Brexit negotiators to reject any Brexit "compromises" that are offered by Brussels this week as trade talks get under way. (Telegraph) The EU has urged the UK to unveil its post-Brexit policy regarding state aid and warned that its lack of a plan could hamper negotiations related to their future relationship. (FT)

UK PM Johnson is to announce large spending plans to support the UK's coronavirus hit economy including a GBP 1bln school-rebuilding plan today and is expected to outline fresh infrastructure spending on Tuesday, while he pledged new roads, schools and hospitals to boost the recovery. (Newswires//Daily Mail)

UK PM Johnson announced Chief Brexit Negotiator David Frost has been appointed as the Prime Minister’s National Security Adviser in which he will take up the role around end-August and continue as the Chief Brexit Negotiator until negotiations are concluded. (Newswires) This comes after top civil servant Sedwill stepped down from the position as well as that of Cabinet Secretary, for which, no appointment has been made yet. (Telegraph)

Top German Court Judge Huber said the Bundesbank must decide regarding ECB bond purchases and that the court was no longer involved with the decision on whether to quit purchases resting on Germany’s central bank. (FAZ)

ECB’s Schnabel said “the benefits of our measures clearly outweigh the costs”, while she suggested that it would go against the common currency idea if they were to stand idly by and watch the pandemic carve out a rift in the euro zone. (Newswires)

ECB's Villeroy has said that the debate surrounding purchasing junk bonds "is probably not urgent", whilst also suggesting that the ECB should examine whether it can reduce the dependence of its monetary policy on rating companies. (Newswires) 

EU warned it is readying new instruments to restrict Chinese investments into Europe unless China agrees to level the playing field on trade. (FT)

Fianna Fail’s Michael Martin has been selected as new PM by Ireland’s Parliament following an agreement in which he will step down half-way through the term and Fine Gael’s Leo Varadkar will become PM again. (Newswires)

Fitch affirmed Finland at AA+; Outlook Stable. (Newswires)

FX

The DXY was weaker as the surge of coronavirus cases in the largest populated US states forced a reversal of their reopening agenda, which the greenback’s major counterparts benefitted from with EUR/USD back around its 200-Hour MA level of 1.1241. This also followed recent comments from top German Court Judge Huber that the decision on whether to pull out of the ECB’s bond buying program is at the discretion of the Bundesbank and that the court was no longer involved. GBP/USD is underpinned ahead of today’s start to a month of intensive Brexit negotiations and return to face-to-face discussions, while PM Johnson is also set to announce spending plans today to support the economy and will further outline fresh infrastructure spending tomorrow. Elsewhere, USD/JPY was eventually pressured towards the 107.00 level and antipodeans were marginally higher despite the risk averse tone due to the softer greenback, as well the return of China from its holiday closures.

COMMODITIES

Oil prices were pressured amid the broad risk aversion as the continued surge of cases in the large US states prompted a roll-back of some of the reopening efforts, which saw WTI crude futures slip below the USD 38.00/bbl level but with losses stemmed amid light newsflow including although UAE’s ADNOC were said to be reducing August crude nominations by 5% and the latest Baker Hughes rig count showed a minimal reduction in rigs for the prior week. Elsewhere, gold prices remained afloat due to the weaker greenback and risk averse tone, while copper gained overnight as the recent rebound from support at the USD 2.65/lb level and the return of its largest purchaser China overshadowed the risk aversion.

Baker Hughes Rig Count: Oil rigs -1 at 188 and Natgas was unchanged at 75, while total -1 at 265. (Newswires)

UAE’s ADNOC is to reduce August crude nominations for its customers by 5%, according to a source. (Newswires) 

GEOPOLITICAL

There were initial reports that alleged Russia secretly offered Afghan militants bounties to kill US and UK troops, according to intelligence cited by New York Times. However, US President Trump later suggested that intelligence reported to him that they did not find info regarding Russia offering Afghan militants bounties to kill US troops as credible, while he suggested it is another fabricated Russia hoax maybe by NY Times. (NYT/Twitter) US lawmakers have called for a probe into claims that the US failed to act on this intelligence. (FT) British officials have confirmed that the reports are true and a senior Tory MP is seeking an urgent question in the Commons today to address this. (Sky News) 

US

The T-Curve was bid on Friday as risk appetite waned ahead of the weekend, with rising COVID cases and reopening plans being reversed continuing to take their toll on the market, in addition to quarter-end rebalancing, which is expected to see UST inflows amid US equity selling. By settlement, 2s -2bps at 17bps, 10s -3bps at 64bps and 30s -4bps at 138bps. While the long-end caught a bid, touching yields not seen since May, there was also a noticeable move lower in yields in the front end (2s), taking yields to levels from early June, where NIRP expectation bets had been unwinding, and since then the 2-year yield has been anchored around the 20bps region, while duration has been more volatile. Given the equity sell-off today, coinciding with further signs that key US states will have to revert reopening plans, it would appear the rates market is also pricing in further economic stress. In the short end, the FFR strip also saw a bid, with the June ’21 onwards now trading above par. The Fed has stressed that NIRP is not an option being considered, although jitters that more stimulus could be needed might be seeing markets price in a greater probability of the policy further down the line, even though it is not a base case for many participants - similar to the NIRP trades in May. US T-note futures (U0) settled 10 ticks higher at 139-07.

US Treasury Secretary Mnuchin said we will go back to Congress next month for more tools. (Newswires)

GOP operatives are for the first time raising the possibility that US President Trump could drop out of the race if his poll numbers don’t rebound, according to FBN’s Gasparino. (Twitter)

Source: Newsquawk

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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