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[PODCAST] US Open Rundown 30th June 2020

  • Price action has been choppy on month, quarter and half-year end; European bourses are subdued with US futures posting similar performance
  • China's legislature passed the Hong Kong security law as expected; further details expected later today
  • 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
  • As such, China's Foreign Ministry reiterates that they will take retaliatory measures
  • Lockdown measures are to be reimposed in Leicester, UK and Victoria, Australia
  • FX sees the DXY firmer in-spite of some models pointing towards month-end weakness for the USD
  • Looking ahead, highlights include Canadian GDP, US Chicago PMI, Consumer Confidence, BoE's Cunliffe, ECB's Schnabel, de Guindos, Fed's Powell, Brainard, Williams

CORONAVIRUS UPDATE

Texas COVID-19 cases +2.9% (Prev. 7-day avg. +4.2%), 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)

Nevada Governor said they will reimpose restrictions if state-wide 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 (Newswires)

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)

Australian state of Victoria is to reimpose a four week lockdown on virus hotspots from 11:59pm local time tomorrow, according to local media. (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 (+1.4%) 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 (+1.3%) 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 (+0.5%) and Shanghai Comp. (+0.8%) 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)

PBoC is to lower its relending and rediscount rates by 25bps on July 1st, according to the Securities Times of China. (Newswires)

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. Subsequently, Demosisto has been disbanded according to their Facebook page. (Newswires) EU Council President Michel says the Hong Kong security law poses risks to undermining the rule of law and the EU deplores the decision. (Newswires) More recently, Hong Kong Chief executive Lam says the National Security Law will be applied in Hong Kong by promulgation in accordance with, law and crimes will be clearly defined – law will not undermine Hong Kong’s autonomy. (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)

China's Foreign Ministry reiterates that they will take retaliatory measures, in the context of the US removing preferential treatment for Hong Kong. (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)

US

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) Note, this is the pre-release text relating to the House Testimony with US Treasury Secretary Mnuchin at 17:30BST/12:30ET.

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) Note, this is the pre-release text relating to the House Testimony with Fed Chair Powell at 17:30BST/12:30ET.

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)

UK/EU

EU HICP Flash YY (Jun) 0.3% vs. Exp. 0.1% (Prev. 0.1%)

EU HICP-X F&E Flash YY (Jun) 1.1% vs. Exp. 1.1% (Prev. 1.2%)

EU HICP-X F,E,A&T Flash YY (Jun) 0.80% vs. Exp. 0.80% (Prev. 0.90%)

UK GDP QQ (Q1) -2.2% vs. Exp. -2.0% (Prev. -2.0%); YY (Q1) -1.7% vs. Exp. -1.6% (Prev. -1.6%)

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

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)

Russian President Putin, Turkish President Erdogan and Iranian President Rouhani will discuss the issue of Syria during a video call tomorrow, according to the Kremlin

EQUITIES

Another day of volatile price action across the equity-sphere but European bourses are ultimately negative [Euro Stoxx -0.1%] as the risk appetite seen during APAC hours petered out on month/quarter and HY-end, where Citi’s month-end model shows a relatively strong signal for a rotation out of European and Japanese stocks into bonds, specifically US, Asian and Canadian. Furthermore, markets could also be bracing for a rise in COVID case-counts as the weekend effect dissipates. Add to that the passage of the Hong Kong security law which is likely to face international pushback, namely from the US, UK and the EU, albeit the latter two have previously signalled a more balanced approach to the situation given their preferability for a Chinese partnership. It’s also worth bearing in mind that Germany will take the EU presidency from tomorrow and have previously hinted at the tougher stance against China. For refence, Eurex suffered an outage overnight for several hours. Nonetheless, European stocks saw a bout of buying immediately after the cash open – somewhat mimicking yesterday’s actions – before gains again subsided. Sectors are now mixed after earlier flow rotated into defensives from cyclicals shortly after the open. The detailed breakdown sees Tech holding its position in the green on the back of Micron’s (+4% pre-mkt) after-market earnings in which guidance was upgraded – thus propping up European peers STMicroelectronics (+1.8%), Dialog Semiconductor (+1.9%), Micro Focus (+0.8%) and Infineon (+0.3%). Banks are on the other end of the spectrum amid lower yields and after Wells Fargo (-1.8%), the fourth largest bank State-side, opted to cut its Q3 dividend when it reports earnings on July 14th. In terms of individual movers, Wirecard (+96%) shares feel some reprieve after UK FCA lifted restrictions on the Co’s UK arm. Meanwhile, Novartis (-1.0%), the likely culprit for losses in the Healthcare sector, remains pressured after the Canadian federal court dismissed a plea by drug makers, including Co., challenging the government’s new regulation aimed at lowering prices of patented drugs.

BANKS: Most of the largest US banks said that they performed well enough on the Fed's most-recent stress test to maintain current quarterly dividends; Goldman Sachs (GS), Bank of America (BAC), Morgan Stanley (MS), JPMorgan Chase (JPM) and Citigroup (C) will all maintain their current dividends, although Wells Fargo (WFC) said the Fed’s assessment of its business will warrant a reduction to its quarterly payout. While the nation’s largest banks were quick to drop stock buybacks at the onset of the coronavirus pandemic, the group is often loathe to cut its dividend payments, which are viewed as a steady source of income for investors (CNBC). Meanwhile, WFC said there remains great uncertainty in the path of the economic recovery and its economic assumptions have changed significantly since last quarter; accordingly, it expects our Q2 results will include an increase in the allowance for credit losses substantially higher than the increase in Q1 (FT)

FX

USD - The Dollar may yet succumb to bearish rebalancing flows around daily fixes, but more pronounced weakness in major currency rivals is keeping the index afloat around 97.500 and close to a new 97.774 peak amidst waning risk appetite on the final day of June, Q2 and the first half of 2020. Moreover, the Greenback has maintained momentum following Monday’s positive US data (pending home sales) and a slightly more upbeat economic assessment via the text of a speech to be delivered by Fed chair Powell to the House later today.

NOK/NZD/AUD - Another downturn in crude prices has undermined the Norwegian Krona’s revival, while the Kiwi and Aussie have pulled back from overnight highs after the latter failed to sustain post-Chinese PMI gains on reports that 10 sectors of Melbourne are returning to lockdown and some suburbs may be on the verge of being ordered to stay at home. Eur/Nok has rebounded from sub-10.9000 towards 10.9500, Nzd/Usd has lost grip of the 0.6400 handle and Aud/Usd is back below 0.6850 after fading ahead of 0.6900 where a hefty 1.4 bn option expiry resides.

GBP/EUR/CAD - Also weaker vs the Buck, as Cable languishes below 1.2300 in wake of weaker than expected UK Q1 GDP awaiting further BoE commentary via Haldane and Cunliffe, while the Euro is only just holding up above 1.1200 and the 100 DMA (1.1205) in the midst of big expiries either side of the round number, and with Eur/Usd one of the only exceptions to the modest sell Dollar for portfolio mantra over month/quarter/half year end. Elsewhere, the Loonie is trying to keep its head above 1.3700 in advance of Canadian GDP for April and the first full month of COVID-19 contagion.

CHF/JPY - Relative G10 ‘outperformers’ or at least showing more resilience than others due to underlying safe-haven demand and for the Yen in particular reports of RHS Usd/Jpy interest that is seen gathering pace, if not peaking in the run up to 4 pm London time. However, a weaker than forecast Swiss KOF survey has offset a rebound in retail sales, while Japanese ip missed consensus and the jobless rate hit a 3 year high.

EM - Some respite for the Rand via SA Q1 GDP contracting considerably less than anticipated, as Usd/Zar pares back from nearly 17.4000, albeit still higher in line with peers against the backdrop of fragile risk sentiment and broad Dollar strength. Conversely, the Rouble is still underperforming and jittery on the last day of voting for/against the new Russian convention before Wednesday’s national holiday, with Usd/Rub hovering just shy of 70.9000, and Eur/Pln is firmer following a surprise rebound in Polish CPI.

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)

FIXED

With the last slugs of Eurozone issuance for June now out of the way, Bunds and especially BTPs look somewhat relieved, albeit just off best levels as debt futures trade with an underlying bid almost across the board. The 10 year German benchmark extended its rebound from lows to 176.75 (+9 ticks vs -19 ticks at one stage), while its Italian counterpart reached 143.84 vs 143.10 around yesterday’s 143.33 close and Gilts are regrouping in wake of remarks from BoE’s Haldane underlining his dissent against more QE earlier this month and now monitoring UK PM Johnson delivering more fiscal support to counteract the adverse economic effects of COVID-19. Elsewhere, US Treasuries remain largely side-lined within overnight session ranges and the curve a tad flatter on balance awaiting Chicago PMI, consumer confidence and a trio of Fed speakers culminating in Chair Powell before the House Financial Service Committee.

BoJ is planning to purchase JPY 50-200bln of 10-25 year JGBs 2 times in July (JPY 50-200bln 2 times in June)

-          JPY 0-50bln of 25-40 year JGBs 2 times in July (JPY 0-50bln 2 times in June)  

-          JPY 250-600bln of 5-10 year JGBs 5 times in July (JPY 250-550bln 5 times in June)  

-          JPY 200-500bln of 3-5 year JGBs 6 times in July (JPY 200-450bln 6 times in June)  

-          JPY 250-600bln of 1-3 year JGBs 6 times in July (JPY 200-500bln 6 times in June) 

COMMODITIES

A downbeat session thus far for the oil complex as stocks hold onto losses as with global economies re-imposing some targeted lockdowns amid local flare-ups in COVID-19 cases, with Australia’s Victoria state the latest to re-introduce stay-at-home orders across 10 postcodes. Negativity also arises from the passage of the Hong Kong Security Bill, poised to be implemented tomorrow. WTI Aug resides near session lows, just north of the USD 39/bbl mark (vs. high 39.80/bbl), whilst Brent Sep trades on either side of USD 41.50/bbl, off its USD 41.80/bbl high. Looking ahead, price action will likely be dictated by COVID-related headlines in the absence of anti-China flare-ups over the National Security Bill ahead of the weekly Private Inventory numbers . Elsewhere, spot gold remains within recent ranges between USD 1768-1774/oz as markets eye portfolio rebalancing. Copper prices meanwhile gained overnight amid broader upside in APAC stocks and with supply concerns still on trader’s minds.

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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