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[PODCAST] EU Open Rundown 30th June 2020

  • Asian equity markets traded higher as the region took its cue from the firm performance on Wall St
  • Chinese Manufacturing PMI and Non-Manufacturing PMI topped estimates
  • China's legislature passed the Hong Kong security law as expected. US Commerce Secretary announced that HK’s special status is revoked
  • WHO Chief Tedros said that although many countries have made some progress, the pandemic is actually speeding up globally
  • DXY hovers around 97.50 heading into EU trade with price actions in FX relatively contained during Asia-Pac hours
  • Fed Chair Powell said the US economy has entered an important new phase sooner than expected and that recent economic data offers some positive signs
  • Looking ahead, highlights include UK GDP (Q1), EZ CPI, Canadian GDP, US Chicago PMI, Consumer Confidence, BoE's Haldane, Cunliffe, ECB's Schnabel, de Guindos, Fed's Powell, Brainard, Williams, supply from Italy & Germany

CORONAVIRUS UPDATE

US COVID-19 cases +41,075 (Prev. +44,703) and death toll +885 (Prev. +508). California cases +2.5% or by 5,307 (Prev. +4,890 yesterday, 7-day avg. +2.8%) and Texas COVID-19 cases +2.9% (Prev. 7-day avg. +4.2%), while Houston area ICU beds are 95% full vs. Prev. 93% at last update. However, a major newswire later noted that California coronavirus cases rose by at least 7,418 on Monday which was the largest increase since the pandemic began with not all counties yet reporting and Texas coronavirus cases are said to have increased by 6,545 on Monday which was the largest increase since the pandemic began. (Newswires)

NEC Director Kudlow said states slowing down the reopening are doing the right thing and he is not concerned about an economic reopen being derailed, while he still looks for a v-shaped recovery and added that the main goal is re-employment which may get a boost. (Newswires)

NY Governor Cuomo said they will not rush the reopening and will decide by Wednesday on any action regarding indoor dining, while New Jersey Governor Murphy announced indoor dining will no longer resume on Thursday after the COVID-19 spikes in nearby states and has decided to postpone indoor dining indefinitely. Nevada Governor said they will reimpose restrictions if statewide trends don't improve and Georgia Governor Kemp extended COVID-19 public health emergency until August 11th, while the LA Mayor announced a hard pause on cinema reopenings for the largest US market and Florida Keys will close beaches for the upcoming 4th of July weekend. (Newswires/CNN)

UK Health Secretary announced new local lockdown measures in Leicester, UK in which non-essential shops in the city will close from Tuesday and schools will shut to most pupils on Thursday. Furthermore, there were separate comments from the city Mayor that pubs and restaurants in Leicester may stay closed for two more weeks due to a surge in coronavirus cases. (Newswires)

WHO Chief Tedros said the hard reality is that this is not even close to being over and that although many countries have made some progress, the pandemic is actually speeding up globally. (Newswires)

ASIA

Asian equity markets traded higher as the region took its cue from the firm performance on Wall St which was attributed to several factors including technical buying in the S&P 500 around the 3000 level and encouraging comments by Fed Chair Powell who suggested the US economy entered an important new phase sooner than expected and that recent economic data offers some positive signs, while better than expected Chinese PMI figures also contributed to the overnight optimism. ASX 200 (+1.5%) was lifted from the open with upside in Australia led by firm gains in energy and strength in the top weighted financials sector, with industrials also inspired by the outperformance of their counterparts stateside after Boeing shares soared by double digits as it began 737 MAX test flights. Nikkei 225 (+1.8%) was underpinned as recent favourable currency moves helped participants overlook the soft data which showed the weakest Industrial Production since March 2009 and highest Unemployment Rate in 3 years. Hang Seng (+1.0%) and Shanghai Comp. (+0.6%) were also positive after Chinese Manufacturing PMI and Non-Manufacturing PMI both topped estimates, but with gains capped following another PBoC liquidity drain and after China’s legislature reportedly passed the Hong Kong security bill as expected. Finally, 10yr JGBs traded lower to test support at the 152.00 level as the gains in riskier assets sapped haven demand which also resulted in the 40yr yield rising to its highest since March last year, while weaker results at the 2yr JGB auction further weighed on prices.      

PBoC skipped reverse repo operations for a net daily drain of CNY 90bln PBoC set USD/CNY mid-point at 7.0795 (Prev. 7.0808)

Chinese Manufacturing PMI (Jun) 50.9 vs. Exp. 50.4 (Prev. 50.6) Chinese Non-Manufacturing PMI (Jun) 54.4 vs. Exp. 53.5 (Prev. 53.6) Chinese Composite PMI (Jun) 54.2 (Prev. 53.4)

China's legislature passed the Hong Kong security law as expected. Hong Kong is to publish the new security law in the government gazette today and China will also be holding a press briefing later. (Newswires) China's Global Times Editor tweeted the maximum penalty is life imprisonment and that the law will take effect from tomorrow. Furthermore, Global Times tweeted the US began eliminating HK's special status and that China will conduct more countermeasures, while it noted that the National Security Law was a countermove aimed at previous “unscrupulous espionage” by US and collusion in the city's unrest, citing an expert. (Twitter) Hong Kong activist Joshua Wong announced he is resigning as leader of democracy group Demosisto and is quitting the group altogether. (Newswires)

US Commerce Secretary Ross said regulations providing preferential treatment to Hong Kong are suspended and further steps to remove differential treatment for Hong Kong are being assessed, while there were separate comments from US Secretary of State Pompeo that the US is to take steps towards imposing the same restrictions on US defense technologies to Hong Kong as it has on China. (Newswires)

Japanese Industrial Production (May P) M/M -8.4% vs. Exp. -5.6% (Prev. -9.8%). (Newswires) Japanese Industrial Production (May P) Y/Y -25.9% vs. Exp. -11.3% (Prev. -15.0%)

Japan METI official said a sharp rebound in output cannot be expected in June and that they cannot also say for sure if factory output hit a bottom last month. (Newswires)

UK/EU

UK Lloyds Business Barometer (May) -30 (Prev. -33). (Newswires)

German Chancellor Merkel said that differences remain between EU member states on the budget and recovery fund. (Newswires)

UK Trade Secretary Truss has reportedly complained to the EU Commission that France, Germany & Spain are receiving preferential treatment from the EU in relation to the Boeing (BA) & Airbus (AIR FP) trade dispute with the US, according to sources. (City AM)

FX

The DXY was steady below the 97.50 level with price action rangebound as recent firm data and optimism by Fed Chair Powell was offset as the reopening agenda hit a stumbling block due to the rising cases. EUR/USD was little changed around its 200-Hour MA and in close proximity to a EUR 1.5bln option expiry at 1.1250 for today’s New York cut, while GBP/USD struggled to hold on to the 1.2300 handle as increases in local cases prompted the government to announce new lockdown restrictions in Leicester. USD/JPY was underpinned by the positive risk tone and antipodeans were uneventful with only marginal gains seen in AUD/USD despite the better than expected Chinese data, while the central bank rhetoric was largely ignored as RBA Deputy Governor Debelle reiterated the view that the economy had performed better than feared and that they stand prepared to act further including boosting bond purchases if required.

RBA Deputy Governor Debelle said liquidity operations are working as intended and the economy performed somewhat better than anticipated during the June quarter. Debelle stated that substantial policy support will be required for some time and the RBA stands prepared to do more as circumstances warrant. Furthermore, he stated that the RBA is ready to boost bond purchases if required to reach targets and that any rate increase is likely to be years away but also noted that there is no need for negative rates now. (Newswires)

COMMODITIES

A mild pullback was seen in oil prices following the prior day’s risk driven gains in which the advance in WTI crude futures was stopped by resistance just shy of USD 40/bbl. The recent oil related headlines were mixed as although there were reports that OPEC oil supply declined by 1.25mln bpd from May levels and that UAE's ADNOC is planning to close its 370k bpd Bab onshore oilfield for around 4 months due to planned maintenance, there were also somewhat pessimistic comments from OPEC Secretary General Barkindo who noted we are not out of the woods yet in regards to market rebalancing. Gold prices traded sideways amid a lacklustre greenback and as the gains in stocks dampened haven appetite, while copper mildly benefitted from the upbeat tone and better than expected Chinese PMI data.

GEOPOLITICAL

White House is to brief Democrat lawmakers on Tuesday regarding reports Russia offered bounties for the killing of US soldiers in Afghanistan. (Newswires)

Venezuelan President Maduro says EU envoy to Caracas must leave the country in 72 hours. (Newswires)

US

Treasuries were mixed to start the week, although the bias has been towards modest steepening. Overnight, the complex was bid as news flow concentrated on the rising number of COVID in the US, although once the liquidity of US players entered, yields began ticking up along the curve, though the moves were not massive. Some analysts had suggested that leveraged players were not starting to re-favour curve steepeners (buying the belly vs short the long-end) given that spreads have moved to the tighter end of the recent range, and ahead of next week’s duration heavy refunding auctions. Month/quarter-end flows are also in focus (Barclays estimates +0.09 years month-end duration extension). Elsewhere, BlackRock Investment Institute downgraded its view of US equities to neutral due to risks of fading fiscal stimulus, extended pandemic, and renewed US/China tensions; however, its analysts said it favours US Treasuries and expects long-term bond yields to fall further than other developed market peers. US T-note futures (U0) settled 3+ ticks higher at 139-10+.

Fed Chair Powell said the US economy has entered an important new phase sooner than expected and that recent economic data offers some positive signs, but output and employment is far below pre-pandemic levels. Furthermore, Powell stated that the economic outlook is extraordinarily uncertain and reiterated pledge to use full range of tools to support the economy, while he added the outlook also depends on relief provided by the government to support a recovery for as long as needed. (Newswires)

Fed's Daly (non-voter) said it is too early to tell if a rise in cases will lead to a rise in new shelter-in-place orders, while she added that the outlook is very uncertain. (Newswires)

US Treasury Secretary Mnuchin testimony before US House panel was released which stated they are seeing additional signs conditions will improve significantly in Q3 and Q4, while the Blue Chip Report forecasts GDP will grow by an annualized 17% in Q3 and 9% in Q4. Furthermore, Mnuchin stated they will work with Congress regarding possible virus aid in July and that certain industries such as construction are recovering quickly although others including retail and travel face long-term impacts and may need further relief. (Newswires)

US Treasury permitted taxpayers to request a further extension of the tax filing to Oct 15th from July 15th. (Newswires)

The White House threatened to veto House Democrat’s infrastructure bill. In other news, the Trump Administration is reportedly facing the prospect of losing six economic officials, including Treasury Secretary Mnuchin's top aide Bimal Patel. (Newswires/Washington Post)

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