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[PODCAST] EU Open Rundown 16th July 2020

  • Asian stocks traded mostly negative as recent vaccine optimism that underpinned global stocks took a back seat to the slew of tier-1 releases in the region
  • Chinese GDP and Industrial Production topped estimates whilst Retail Sales disappointed and showed a surprise contraction
  • NIH's Fauci said the US will have an effective COVID-19 vaccine by year-end and that Moderna's vaccine trial results were especially promising
  • The DXY edged marginal gains above 96.00 after rebounding from the prior day’s trough, EUR/USD remains supported at 1.14
  • Looking ahead highlights include, UK Labour Report, US Initial/Continued Jobless Claims, Retail Sales & Philadelphia Fed, ECB Rate Decision & Press Conference, BoE's Bailey & Haldane, Fed's Williams & Evans, ECB's Panetta, supply from Spain & France
  • Earnings from Morgan Stanley, Bank of America, Johnson & Johnson, Abbott, Netflix

CORONAVIRUS UPDATE

US COVID-19 cases rose by 60,971 (Prev. +58,858) and the death toll rose by 773 (Prev. +351). Furthermore, AFP later tweeted that US cases rose by a record 67,632 citing tracker data, while a major newswire tally suggested US coronavirus cases rose by at least 67,889 to 3.52mln which was the 2nd largest daily increase on record. California COVID-19 cases rose by 11,126 (Prev. +7,346), while Texas coronavirus cases increased by a new daily record of 10,791 and deaths rose by a record 110, according to the State Health Department. (Newswires)

NIH's Fauci said there is no need for a national lockdown but need to pull back and get states on the same page, while he added that his input to President Trump on COVID is indirect and goes through VP Pence. Fauci also commented the US will have an effective COVID-19 vaccine by year-end and that Moderna's (MRNA) vaccine trial results were especially promising, while he does not think China will be first with a vaccine, at least not by much. (Newswires)

Oxford scientists believe that they have made a breakthrough regarding a COVID-19 vaccine as they found their jab triggered a response that could provide a "double defence". (Telegraph) Note, this appears to be similar to the report yesterday from ITV’s Peston.

Irish PM Martin commented the R number increased to above 1 in Ireland and that they will delay the start of Phase 4 measures by 3 weeks to August 10th. (Newswires)

Tokyo Governor Koike said she is hearing Tokyo's coronavirus infections could surpass 280 (Prev. +143). (Newswires)

ASIA

Asian stocks traded mostly negative as the recent vaccine optimism that underpinned global stocks took a back seat to the slew of tier-1 releases in the region including Australian Employment numbers, as well as Chinese GDP, Industrial Production and Retail Sales data. ASX 200 (-0.8%) was subdued with underperformance seen in commodity names and amid rumours of a potential Stage 4 lockdown surrounding Victoria state where its capital Melbourne is currently under stage 3 restrictions. Nikkei 225 (-0.7%) was pressured by recent detrimental currency flows and after falling short of the 23K status, while KOSPI (-0.6%) also declined after the BoK kept rates unchanged at 0.5% as expected and provided a grim tone on the economy. Elsewhere, Hang Seng (-1.1%) and Shanghai Comp. (-1.4%) failed to benefit from the mostly better than expected Chinese data in which GDP and Industrial Production topped estimates but Retail Sales disappointed and showed a surprise contraction which led to concerns related to consumer demand and an uneven recovery. Finally, 10yr JGBs were higher amid the negative mood across stocks and improved demand at the enhanced liquidity auction for 2yr-20yr JGBs.

PBoC injected CNY 50bln via 7-day reverse repos with the rate kept unchanged at 2.20%. (Newswires) PBoC set USD/CNY mid-point at 6.9913 vs. Exp. 6.9919 (Prev. 6.9982)

Chinese GDP (Q2) Q/Q 11.5% vs. Exp. 9.6% (Prev. -9.8%) Chinese GDP (Q2) Y/Y 3.2% vs. Exp. 2.5% (Prev. -6.8%) Chinese Industrial Production (Jun) Y/Y 4.8% vs. Exp. 4.7% (Prev. 4.4%) Chinese Retail Sales (Jun) Y/Y -1.8% vs. Exp. 0.3% (Prev. -2.8%) Chinese House Prices (Jun) Y/Y 4.9% (Prev. 4.9%)

China stats bureau said it will maintain flexibility in economic policy and stated that retail sales data shows consumption recovery still needs to be bolstered. (Newswires)

US is reportedly considering a travel ban on members of the Chinese Communist Party, although reports added that President Trump may ultimately reject a possible travel ban. (Newswires) US President Trump had reportedly leaned against additional US sanctions on top Chinese officials for now as he does not want to escalate China tensions, although reports noted that this decision was made prior to him signing the legislation related to China’s Hong Kong actions. (Newswires)

White House Chief of Staff said the Trump administration is examining national security risks of TikTok, WeChat and other apps that risk allowing a foreign adversary to gather information on Americans, while action on this will likely be in weeks not months. (Newswires)

BoK kept its 7-Day Repo Rate at 0.50%, as expected and through unanimous decision. BoK stated that growth will be weaker than May forecast and recovery will also be slower than estimated for consumption and exports, while inflation is to remain weak. Furthermore, BoK Governor Lee said uncertainties to the growth path are very high and they are ready to increase purchases of government bonds if required. (Newswires)

UK/EU

Several large listed UK companies said they are increasing stockpiling and reviewing contingency plans in case of border disruption ahead of Brexit deadlines. (FT)

BoE Governor Bailey reportedly told Conservative lawmakers yesterday that interest rates in the UK are likely to stay low for a long time and the central bank "will do everything it can to support the economy". (Newswires) 

German Europe Minister Roth is optimistic that a deal on the budget and stimulus package can be reached at the EU Summit but added the size of the EU recovery fund is a core area of conflict. (Newswires)

French Finance Minister Le Maire said tax on firms’ production capacities will be cut by EUR 10bln in 2020 and again in 2021. (Newswires)

FX                

The DXY edged marginal gains above 96.00 after having rebounded from the prior day’s trough, while a soured tone in Asia also contributed to the USD tailwinds. EUR/USD was weaker but with losses stemmed by support at 1.1400 and after a more encouraging tone from officials with Germany’s Europe Minister Roth optimistic that a deal on the budget and stimulus package can be reached at the EU Summit and France also believes an agreement is possible by the end of the week. However, prior to the budget summit which begins on Friday, focus for the single currency turns to the ECB policy meeting due later, while GBP/USD was also softer after declining below its 50-, 100- and 200- Hour MA levels as the greenback made marginal headway overnight. USD/JPY and JPY crosses were constrained by the downbeat risk tone which also pressured antipodeans, with the latest Australian Employment Change failing to provide a sustained lift to the domestic currency despite significantly beating expectations, as this was solely fuelled by Part-Time jobs.

Australian Employment Change (Jun) 210.8k vs. Exp. 112.5k (Prev. -227.7k) Australian Full Time Employment (Jun) -38.1k (Prev. -89.1k) Australian Unemployment Rate (Jun) 7.4% vs. Exp. 7.4% (Prev. 7.1%) Australian Participation Rate (Jun) 64.0% vs. Exp. 63.6% (Prev. 62.9%)

New Zealand CPI (Q2) Q/Q -0.5% vs. Exp. -0.5% (Prev. 0.8%). (Newswires) New Zealand CPI (Q2) Y/Y 1.5% vs. Exp. 1.5% (Prev. 2.5%) New Zealand RBNZ Sectoral Factor Model Inflation (Q2) 1.8% (Prev. 1.7%)

COMMODITIES

WTI crude futures retreated back below USD 41/bbl and retraced some of yesterday’s advances after the OPEC+ JMMC where producers agreed to effectively reduce output cuts to between 8.1mln-8.2mln bpd vs. the touted 7.7mln as it contained compensation cuts for those that failed to adhere to quotas. Elsewhere, gold prices were steady as the effects of a slightly firmer greenback were counterbalanced by the negative risk tone, while copper declined amid weakness in Chinese commodity prices as the mostly better than expected Chinese data failed to inspire risk sentiment.

Saudi Energy Minister said the effective oil cuts in August will be around 8.1-8.2mln BPD and reportedly commented that it is too late to change August quotas at this JMMC since term lifters' nominations are already set for the month. Furthermore, he stated current oil prices are not positive for the industry and warned that bankruptcies will continue, while they will review how long oil cuts shall last in December 2020. (Newswires)

Russian Energy Minister Novak said global oil demand was down by 10mln BPD on average in July but stated that the global oil market is balanced and stable, while he added we are in line with agreed schedule on oil output cuts by OPEC+ and that the easing of oil output cuts will not lead to increase in oil exports. (Newswires)

OPEC+ analysis reviewed by ministers stated that full conformity with new quotas and compensation cuts for May/June excess production and Iran/Venezuela/Libya stay around same levels, OECD oil inventories will fall to ~100mln bbls below 5-yr avg. (Platts)

GEOPOLITICAL

US Treasury imposes sanctions on individuals and entities tied to Russian President Putin ally Prigozhin. (Newswires)

US

Duration came under modest pressure on Wednesday as the MRNA/AZN vaccine updates saw a global wave of cyclical risk appetite. By settlement, 2s unch. at 16bps, 10s +2bps at 63bps, and 30s +3bps at 133bps. The losses in USTs gained traction in European trade as the AstraZeneca news hit the tape, as well as following the blowout Goldman Sachs earnings report, seeing the benchmark 10-year rise above 65bps. There were some jitters heading into US trade, however, where some paring in the equity complex saw participants gobble up the cheapened yields, although yields trundled off their lows in the back-half of trade. Note that futures volumes were very low today, sitting beneath recent averages, which is unsurprising given its summer trade with no tier 1 data releases on today’s slate. However, volumes could pick up on Thursday with the latest Initial Jobless Claims due, Chinese activity data and the ECB meeting, although the latter is widely expected to be a non-event this time around. US T-note futures (U0) settled 2+ ticks lower at 139-11.

Fed Beige Book stated that economic activity rose in almost all districts but remained well below where it was pre-COVID and that consumer spending picked up as many nonessential businesses were allowed to reopen. Furthermore, loan demand was flat outside of some PPP activity and increased residential mortgages, while the outlook remained highly uncertain as contracts grappled with how long the pandemic would continue and the magnitude of its implications. (Newswires)

Fed's Harker (voter) said the uncertainty over difficult economic outlook is rising and the Fed should not consider hike until 2% inflation is overshoot, while he expects unemployment to remain above 10%. (Newswires)

Fed's Rosengren (non-voter) said Yield Curve Control & Forward Guidance are options for more accommodation. (Newswires)

US President Trump is to put new environmental review rules into force, which would include mandated deadlines of within two years. (WSJ)

US Senate Majority Leader McConnell said he spoke to Treasury Secretary Mnuchin yesterday on the next stimulus bill. (Newswires)

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