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[PODCAST] US Open Rundown 15th July 2020

  • Sentiment remains strong following on from multiple COVID-19 vaccine updates ahead of US’ entrance
  • Moderna (MRNA) COVID-19 vaccine produced antibodies in all patients tested in the initial study, according to reports
  • US President Trump said he signed legislation and an executive order to hold China accountable for actions in Hong Kong
  • BoJ kept monetary policy settings unchanged as expected with rates kept at -0.1% and 10yr JGB yield target at around 0% through an 8-1 vote
  • Court rejects EU Commission decision on Apple (AAPL) EUR 13bln back-taxes tax case
  • DXY is subdued to the benefit of major peers with cable eclipsing 1.2600 while the US yield curve is modestly steeper
  • Looking ahead, highlights include US Import/Export Prices, Industrial Production, Manufacturing Output & NY Fed Manufacturing, BoC Rate Decision, Fed's Beige Book, BoE's Bailey, Fed's Harker, BoC's Macklem & Wilkins
  • Earnings: Goldman Sachs

CORONAVIRUS UPDATE

Moderna (MRNA) COVID-19 vaccine produced antibodies in all patients tested in initial study, according to reports. The vaccine trial produced robust immune response for all 45 patients in early stage human trial and the findings are said to provide more promising data that the vaccine could give some protection against the coronavirus. (Newswires)

Positive news reportedly coming on the Oxford COVID-19 vaccine, ITV's Peston; the vaccine being produced by AstraZeneca (AZN LN); news could be announced as soon as tomorrow. Vaccine is reportedly generating the kind of antibody and T-cell (killer cell) response researchers hoped for. One source "As I understand, not all of the many vaccines under development across the world increase both antibodies and T-cells. But the Oxford vaccine looks as though it has this twin effect.". (Twitter/ITV)

US coronavirus cases rose by 65,682 to 3.45mln on Tuesday which was the 2nd largest increase on record and the death toll rose by at least 919 to 136,367, via a newswire tally. (Newswires) California coronavirus cases increased by at least 10,707 which is a record daily increase and the death toll rose by at least 137, while Texas coronavirus cases increased by at least 10,677 and deaths rose by a record 133. (Newswires)

NIH Dr. Fauci said he expects US COVID-19 deaths to rise again but it will not likely rise to levels seen at the previous peak and stated there is some degree of aerosol transmission with COVID, while he also commented that he hopes any vaccine will last a full season. (Newswires/Twitter)

Tokyo Governor Koike said the coronavirus expert panel will meet today one day ahead of normal and that she is aware the situation in Tokyo is very severe, while it was also reported that Tokyo raised its COVID-19 alert to its highest level. (Newswires)

ASIA

Asian equity markets were mostly positive as the regional bourses tracked the cyclical-led gains in US peers and on vaccine hopes after Moderna’s COVID-19 vaccine produced antibodies in all 45 patients tested in an initial study. ASX 200 (+1.9%) and Nikkei 225 (+1.6%) were lifted from the open with Australia’s tech sector and gold miners front-running the broad advances in the index which surpassed the 6000 milestone, while the Japanese benchmark printed its highest level in over a month and withstood the ongoing virus concerns in Tokyo which prompted the city to switch to its highest COVID-19 alert status. Chinese markets underperformed with the Hang Seng (U/C) and Shanghai Comp. (-1.6%) both negative after US President Trump signed legislation and an executive order to hold China accountable for actions in Hong Kong, with the executive order to remove preferential treatment for Hong Kong and which will now be treated the same as China. Furthermore, China later responded that it strongly opposes US signing the sanctions bill and that it will implement its own sanctions on US officials and entities. Reports of China state funds continuing to sell shares also did not help in which a pension fund was said to have offloaded 42.3mln BoCom A-shares on Tuesday. Indian markets were also notable gainers with the NIFTY up 0.2% and the NIFTY IT index gaining around 3% in early trade alongside Wipro shares which hit 10% upper circuit following a beat on earnings. Finally, 10yr JGBs were lacklustre amid the gains in stocks and unsurprising BoJ policy hold, while there was notable corporate supply with Nissan pricing a JPY 70bln 3-tranche in its first JPY-denominated bond offering since 2016. 

PBoC skipped reverse repos but conducted CNY 400bln 1yr MLF operation with the rate kept at 2.95% PBoC set USD/CNY mid-point at 6.9982 vs. Exp. 6.9977 (Prev. 6.9996)

US President Trump said he signed legislation and an executive order to hold China accountable for actions in Hong Kong and that the executive order is to remove preferential treatment for Hong Kong which will now be treated the same as China. Furthermore, President Trump stated he holds China fully responsible for concealing the coronavirus and unleashing it on the world, while he added that we will be seeing more in terms of actions on China and can impose massive tariffs on China if we desire. US President Trump's Executive Order regarding Hong Kong eliminates preference for Hong Kong passport holders as compared to China, while it also revokes license exceptions for exports to Hong Kong and blocks US property of persons who undermine democratic processes or institutions in Hong Kong. (Newswires) China said it strongly opposes US signing sanctions bill regarding Hong Kong and that it will implement sanctions on US officials and entities. (Newswires)

China's Global Times tweeted that the Hong Kong democratic party vice-chairman Lo was arrested this morning for alleged involvement in illegal assembly outside the Polytechnic University last year, while a key Hong Kong democratic party organizer stepped down on accusation from Beijing that recent primary vote was illegal. (Newswires/Twitter)

US tech firms Google (GOOG), Amazon (AMZN) and Microsoft (MSFT) refuse proposal to share access to customer banking records with Hong Kong regulators which places them at loggerheads with the city's authorities. (FT)

BoJ kept monetary policy settings unchanged as expected with rates kept at -0.1% and 10yr JGB yield target at around 0% through an 8-1 vote with Kataoka the dissenter on YCC, while it maintained forward guidance that it expects short- and long-term policy rates to remain at current or lower levels. Furthermore, the BoJ reiterated that it will take additional easing steps as needed with an eye on the pandemic impact to the economy and noted that risks to Japan's economy and price outlook are skewed to the downside but also stated that Japan's economy is likely to improve in the latter part of the year and will continue improving as the pandemic subsides globally. (Newswires)

US

Fed’s Harker (voter) said we are in an exceptionally painful and stubbornly lasting downturn with the pandemic impact not a brief setback, while he added more fiscal policy is needed to soften the blow for states and local government, as well as the unemployed. Harker also suggested another wave of stimulus is required to avoid the cliff effect with drop off in unemployment insurance and that a hit to income could hurt spending. (Newswires)

Fed's Kaplan (voter) said he is seeing pronounced slowing in the economy again but 2021 may see above trend economic growth, while he added that there is a lot of overcapacity in the economy and that the overwhelming trend will be disinflationary. Furthermore, Kaplan stated he would prefer the Fed to do less, not more and is hopeful Fed will let some programs ease. (Newswires/CNBC)

Fed's Bullard (non-voter) said there is no need for forward guidance or other monetary policy measures at this point due to low interest rate expectations, while he added that stock markets have been rightly optimistic given better than expected jobs performance and the boon to tech from shift to mobile technology. Furthermore, he stated that programs are not causing financial stability problems and expects another fiscal package. (Newswires)

UK/EU

EU Economic Commissioner Gentolini proposes the automatic exchange of information between EU tax administrations on revenue from sellers on digital platforms. To help ensure digital Co's are paying the correct share of tax. (FT)

Italian PM Conte says will give approval to national rebates in the next EU budget on the basis that the recovery package is swiftly approved. (Newswires)

BoE's Tenreyro says as with the rest of the committee, I remain ready to vote for further action as necessary to support the economy and ensure inflation returns to target. Her central case forecast is for GDP to follow an interrupted or incomplete ‘V-shaped’ trajectory, with the first quarterly step-up in Q3. Negative rates is a live issue at the bank and the BoE is conducting a review into this; at present, not concerned over the possibility of having overdone QE.

UK Chancellor Sunak has ordered a review of capital gains tax, a move that could be used as an option to claw back billions of GBP from investors and homeowners and help pay for COVID-19-related stimulus measures. Additionally, Chancellor will appear before the Treasury Select Committee (14:30BST) to state that he will "do what it takes" to get public finances back under control (Times)

China has issued a threat over potential retaliation against British companies following the recent decision by Britain to block Huawei from 5G networks. (Times) 

UK CPI YY (Jun) 0.6% vs. Exp. 0.4% (Prev. 0.5%); MM (Jun) 0.1% vs. Exp. 0.0% (Prev. 0.0%)

-        Core CPI YY (Jun) 1.4% vs. Exp. 1.2% (Prev. 1.2%); MM (Jun) 0.2% vs. Exp. -0.1%

GEOPOLITICAL

US Navy destroyer conducted a freedom of navigation operation in which it sailed through the South China Sea following the recent US rejection of China’s claims in the disputed territory. (Newswires)

China's Global Times reports that Chinese and Indian border troops held the 4th commander-level talks on Tue, which achieved progress in pushing forward disengagement of frontline border troops from both countries and easing border situation. (Twitter)

EQUITIES

European equities trade higher across the board (Eurostoxx 50 +1.1%) following the recovery in the latter half of yesterday’s session for US equities. As has been the case throughout the week, there wasn’t a great deal of narrative-altering newsflow for the majority of the session with many of the same macro factors that are in focus having been present for some time now. Some of the positivity late doors emanated from a COVID-19 drug update from Moderna, however, the latest update doesn’t necessarily mark a breakthrough from the data already published in May with the latest findings instead from a larger sample group than prior. More recently, global bourses took another leg higher and moved back into proximity to session highs on reports via ITV’s Peston that positive news is on the way, perhaps as soon as tomorrow, for AstraZeneca’s (+2.9%) COVID-19 vaccine – which is seeing a rare ‘twin effect’ in terms of the response for both antibodies and T-cells. In terms of sectoral performance for Europe, travel & leisure names are the clear outperformer with the sector noted as one of the purest reopening plays. Carnival (+5.3%), Ryanair (+5.1%), Tui (+3.2%) and easyJet (+2.9%) all trade with notable gains, however,  there has been little in the way of sector-specific newsflow in the past 24 hours for European airline names. Elsewhere, Auto names are also trading firmer today with Renault the outperformer in the sector after reports that Nissan is to start selling an EV. To the downside, Telecom names lag peers in a potential pullback from some of the upside seen yesterday in the wake of the UK’s decision to bar Huawei from the UK’s 5G network by 2027. In terms of individual movers, Atlantia (+24.2%) sit at the top of the Stoxx 600 as the company appears to be making progress in striking a deal with the Italian government, whilst Burberry (-6.9%) are a notable underperformer after its latest trading update in which it expects a potential 50% decline in H1 sales.

Court rejects EU Commission decision on Apple (AAPL) EUR 13bln back-taxes tax case. (Newswires)

UnitedHealth (UNH) Q2 2020 (USD): Adj EPS 7.12 (exp. 5.28/5.09 reported); Revenue 62.1bln (exp. 63.5bln) EPS guidance: FY20 16.25-16.55 (guidance maintained) (exp. 16.29 reported). Note, the EPS upside is acknowledge by the Co. as being largely a function of deferred healthcare consumption which they expect to reverse over the year.

FX

USD - A woeful start to Wednesday’s EU session for the Greenback as losses accumulate across the board on various fundamental and technical factors, including a rebound in broad risk sentiment due to more positive COVID-19 vaccine reports and somewhat contradictory persistent/latent concerns about the resurgence of the virus in US states. The index has fallen below 96.000 and close to June lows (95.716) at 95.866 as several Dollar/major pairs extend beyond or breach round number levels that have been providing some support for the Buck and resistance in terms of G10 counterparts. Ahead, a busy midweek US data docket and more Fed speak from Harker before the latest Beige Book.

GBP - Sterling has benefited most from the Greenback’s ongoing travails, with Cable back above 1.2600, but the Pound also reclaiming losses vs the Euro from sub-0.9100 lows yesterday on a technical retracement rather than anything specifically Gbp supportive. On that note, UK CPI data was a tad firmer than expected, but still benign and BoE’s Tenreyro subsequently countered with a disinflationary outlook, while adding that NIRP is a live issue for the MPC currently under review.

AUD/NZD/EUR/JPY/CAD/CHF - All firmer against the US Dollar as noted above, with the Aussie hitting fresh 1+ month highs with the aid of momentum buying when 0.7005 was breached, but meeting offers into 0.7020 ahead of jobs data on Thursday. Meanwhile, the Kiwi continues to lag around 0.6550 and 1.0680 in Aud/Nzd cross terms awaiting Q2 CPI tonight in contrast to the Euro that has extended gains on the 1.1400 handle to circa 1.1445 and surpassing June 10’s 1.1422 best along the way pre-ECB tomorrow. Elsewhere, the Yen has rebounded from 107.30 to 106.90 and the Loonie is pivoting 1.3600 in the run up to the BoC with options pricing in a 57 pip break-even on the event, while the Franc remains mixed either side of 0.9400 vs the Buck and down to 1 month lows against the single currency near 1.0740.

SCANDI/EM - The Norwegian and Swedish Crowns are both nudging key markers vs the Euro at 10.6500 and 10.3500 respectively, with the former buoyed by firm crude prices and latter maintaining post-inflation data impetus even though June’s trade deficit widened significantly and almost all CPI/CPIF projections from Prospera were unchanged. Similarly, the Rand has taken weaker than forecast SA inflation in stride on overall Dollar weakness and despite potential implications for the SARB policy meeting next week given a relatively reserved -25 bp consensus vs -1/2 point last time.

FIXED

The 10 year German benchmark and equivalent French OAT have both extended recovery gains from worst levels to 176.47 and 167.96 respectively (+27 and +22 ticks on the day compared to -23/-19 ticks at the lows), detached from ongoing strength in EU equities and the Euro as the clock ticks down to the ECB and EU Summit. A decent if not quite strong auction has not really hindered Bunds relative to Gilts or US Treasuries that remain more reticent amidst the renewed appetite for riskier assets, as the former faded at parity and the latter a fraction below. Ahead, several US data points could prompt additional price action/direction ahead of the BoC, post-meeting presser, Fed’s Harker and Beige Book, while UK debt will be keeping an eye out for BoE Governor Bailey and perhaps more intently on Chancellor Sunak for any clues about how he plans on paying for the extensive pandemic stimulus aimed at resuscitating the economy.

COMMODITIES

WTI and Brent remain bolstered ahead of the JMMC meeting, with sentiment generally positive this morning and after last nights larger than expected draw in private inventories. Firstly, the JMMC, which energy correspondents note is expected to commence from around 13:00BST/08:00ET but as with any OPEC related event the timing should be taken as guidance only. Indications heading into the JMMC meeting point towards the committee recommending that the level of production cuts is reduced, which would be in-line with the original plan. As a reminder, the JTC committee met yesterday to discuss the planned easing of cuts to 7.7mln BPD; note, Saudi is said to be looking to keep export figures steady for the month of August. JMMC aside, much of the upside price action follows on from yesterday’s private inventories where crude stocks printed a larger than expected draw of 8.3mln vs. Exp. draw of 2.1mln; focus turns to today’s EIA stocks for confirmation of this reading with expectations pointing to a draw of 2.09mln. Turning to metals, spot gold has been choppy this morning with the upside just after the European cash open derived from further USD downside as well as resistance levels lying in proximity to the current high. Elsewhere, Antofagasta is calling for further negotiations to resolve the strike action in Chile; but, the strike action has not been sufficient to bolster copper prices thus far.

US Private Inventory Crude Stocks (w/e 10th July) -8.3mln vs. Exp. -2.1mln (Prev. +5.654mln)

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