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[PODCAST] US Open Rundown 29th June 2020

  • Choppy price action seen across equities heading into month/quarter/HY-end
  • California Governor Newsom told Imperial County to shut back down amid the COVID-19 surge and ordered 7 counties including LA to close bars
  • US and China will place tit-for-tat visa restrictions on individuals over Hong Kong
  • In FX, DXY remains softer, EUR the outperformer and GBP weaker, whilst the UST curve is modestly steeper
  • Looking ahead, highlights include German national CPI, ECB purchases, US pending home sales, BoE's 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 May. (Telegraph)

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

Japan has added 18 more countries to its COVID-19 entry ban list. (Newswires)

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 (-1.5%) 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 (-1.0%) and Shanghai Comp. (-0.6%) 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) China's Foreign Ministry says it will put visa restrictions on US individuals with egregious conduct relating to HK in response to US sanctions on some Chinese officials.

China sees its dominance in strategic rare-earth minerals as leverage it can use against the west, according to a report by researcher Horizon cited by WSJ. (Newswires)

S&P affirms China's A+/A-1 rating, outlook stable. (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

US

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)

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 said we need an activist and interventionist approach to the economy. (Newswires)

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)

EU Business Climate* (Jun) -2.26 (Prev. -2.43, Rev. -2.41) (Newswires)

EU Cons Infl Expec (Jun) 21.6 (Prev. 28.6)

EU Economic Sentiment (Jun) 75.7 vs. Exp. 80.0 (Prev. 67.5)

EU Consumer Confid. Final (Jun) -14.7 vs. Exp. -14.7 (Prev. -14.7)

EU Services Sentiment (Jun) -35.6 vs. Exp. -25.4 (Prev. -43.6)

EQUITIES

An eventful start to the week for the equity-space in terms of price action (Euro Stoxx 50 +0.4%) after the region initially picked up the baton from the relatively downbeat APAC handover. Europe opened with broad losses to the tune of around 0.4-0.5% before immediately trimming downside to trade firmly in positive territory. Thereafter gains dissipated with no fresh fundamental factors immediately affecting the bourses, however, repots that the Chinese Foreign Ministry will be putting visa restrictions on US relations over Hong Kong added to the US-Sino woes ahead of the National Security Bill vote tomorrow – expected to swiftly pass through for implementation from July 1st. It’s also worth bearing in mind month/quarter/HY-end flows influencing price actions as firms rebalance portfolios. Nonetheless, a mixed performance is now seen across major European cash bouses, whilst State-side, the E-Mini S&P failed to breach resistance at its 200 DMA ~3019.00 and currently meanders just under the key level.  Sectoral performance is also mixed after the regions opened mostly lower, albeit the IT sector holds its position as the outperformer, potentially on the back of AMS (+4.0%) after EU antitrust regulators gave the green light for its takeover of Osram Licht (+0.3%). The Energy sector meanwhile lags amid price action in the oil complex. The detailed breakdown paints a similarly mixed picture with no clear risk tone to be derived; Travel and Leisure (-0.3%) remains closer to the bottom of the pile as investors fear the repercussions in the sector in light of a second resurgence of global COVID-19 cases. In terms of individual movers, Wirecard (+145%) shares traded higher by over 200% at one point – potentially on consolidation from its recent detrimental performance as its scandal deepens, however, sources  over the weekend noted that that several investors are considering purchasing parts of Wirecard. Elsewhere, BP’s (+2.6%) gains were exacerbated as its stated that its Petrochemical unit sale to INEOS will further strengthen finances and will deliver USD 15bln divestment targets a year early. Airbus (+2.3%) shares opened lower with losses deeper than 2% as the group said it will cut production by around 40% over two-years. Commerzbank (+2.4%) holds onto opening gains as sources stated the board is looking at an aggressive cost-cutting plan – potentially including around 7,000 layoffs alongside 400 branch closures.

FX

USD - The DXY is holding between 97.051-141 parameters amidst the ongoing resurgence of COVID-19 in several US states, but with technical support via the 21 DMA at 97.050 keeping the index underpinned above 97.000 as the clock ticks down to the end of June, Q2 and the first half of 2020. Moreover, several Greenback/G10 pairs are also observing chart levels against the backdrop of fragile/fluid risk sentiment on a variety of (mainly geopolitical) factors beyond the coronavirus and uncertainty about 2nd waves as more countries reopen. Back to the Buck, pending home sales and the Dallas Fed manufacturing index may provide some fundamental impetus ahead of Fed rhetoric from Daly and Williams.

EUR - A marginal outperformer and trying to extend gains above 1.1200 vs the Dollar, but finding resistance around 1.1250, the 200 HMA (1.1241) and 1.1240 pivot tough to convincingly breach before decent option expiry interest at 1.1270 (1 bn) in the run up to preliminary German CPI data. However, the single currency has cleared a psychological, if not really significant from a technical standpoint, marker against Sterling as Eur/Gbp crosses 0.9100 for the first time in some 3 months awaiting the start of intensive Brexit trade talks.

NZD/CHF/CAD/AUD - All marginally firmer vs the Usd, but rangy with the Kiwi hovering above 0.6400 and Franc over 0.9500, though the latter lagging Euro either side of 1.0650 following latest weekly Swiss sight bank deposits showing a rebound in both domestic and total balances. Elsewhere, the Loonie is holding within a 1.3697-46 band ahead of Canadian building permits and ppi even though crude prices remain soft and the Aussie is straddling 0.6865-70 despite a record rise in Victorian virus cases.

JPY/GBP/SEK/NOK - The Yen is sitting just under 107.00 and right in the middle of 10/50 DMAs at the round number and 107.37 respectively after sub-forecast Japanese retail sales overnight, while Cable is drifting back down from circa 1.2390 towards sub-1.2315 stops after weaker than expected UK consumer credit mortgage approvals, but perhaps more jittery about the aforementioned next phase of negotiations with the EU. Nevertheless, offers are said to be in place around 1.2410 and close to the 50 DMA (1.2412-15), while nearest upside targets in Eur/Gbp are at 0.9139 and 0.9144 (March 23 and 24 peaks respectively). Similarly, the Swedish Crown is underperforming in wake of a much narrower trade surplus. Indeed, Eur/Sek is back up near 10.5000, while Eur/Nok pivoting 10.9000 irrespective of the downturn in oil noted above.

EM - Broad declines vs the Dollar, and especially the crude/commodity bloc, such as the Rouble and Mexican Peso, but the Turkish Lira deriving some comfort from an improvement in economic confidence with Usd/Try rotating around 6.8500.

FIXED

Bunds and Gilts have both extended intraday ranges, but at opposite ends of the spectrum as the former probed closer to near term support flagged on some charts between 176.40-38 at 176.42 (-28 ticks from last Friday’s close vs +16 ticks at one stage), and the latter has bounced further from early Liffe lows to trade flat at best (compared to -26 ticks at worst). However, volumes remain relatively low and debt is still underperforming equities ahead of the final trading day of June, Q2 and H1 even though COVID hotspots are undermining attempts to lift lockdown and underpinning concerns about a 2nd wave. Meanwhile, US Treasuries are narrowly mixed with the curve fractionally steeper ahead of pending home sales, Dallas Fed manufacturing and Fed speakers in the form of Daly and Williams

COMMODITIES

WTI and Brent front-month futures trade choppy within a tight range, albeit remain in negative territory after the complex kicked off the trading week on the backfoot amid rising global COVID-19 infections hampering reopening efforts in key US states, whilst some eastern Asian countries extended their alerts level and China’s Hebei province put around half a million residents under a Wuhan-style lockdown. Aside from virus woes, news-flow has been quiet from a fundamental standpoint. Participants will want to keep an eye on how the Hong Kong National Security Bill pans out for wide US-China relations as the sides slap tit-for-tat visa restrictions over the city. WTI August hovers just above USD 38/bbl having found support at USD 37.50/bbl while its Brent counterpart sees itself north of USD 40.50/bbl after touted support touted last week around the USD 40.05/bbl region. Elsewhere, spot gold trades with modest losses sub-1770/oz; albeit more a function of month-end rebalancing as opposed to risk-tone or Dollar dynamics. Copper prices meanwhile climbed over a five-month peak in Shanghai amid a softer Buck and supply risks from its top producer Chile.

UAE's ADNOC is planning to close its 370k bpd Bab onshore oilfield for planned maintenance at the end of the month for around 4 months, according to a spokesman. (Newswires)

Libya's NOC confirms negotiations to resume oil production after six months of blockade; NOC says "hopefully" they will lift oil blockade. (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) 

Pakistani Stock Exchange in Karachi is reportedly under attack by armed men, according to local media

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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