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[PODCAST] US Open Rundown 17th July 2020

  • European bourses are modestly firmer heading into US’ players arrival but trade for the morning has been tepid & without conviction
  • Initial comments heading into the EU Summit include Dutch PM Rutte ascribing less than 50% chance to a deal and Merkel noting negotiations are tough
  • Texas Governor Abbott later commented that there is no shutdown coming; following rumours this could be implemented today
  • Applied DNA & Takis report positive preclinical results from Lineadna vaccine candidates for COVID-19, demonstrate evidence of antibodies & T-cell response in mice
  • FX sees the USD subdued but still holding above 96.00 with the EUR firming above 1.14 as the EU summit commences
  • Looking ahead highlights include, US Building Permits & Housing Starts, University of Michigan Sentiment (Prelim), European Council Meeting Begins (17th-18th July)

EU COUNCIL SUMMIT

German Chancellor Merkel says that leaders will be heading into discussions with a lot of impetus but differences are still very big and negotiations will be very tough. (Newswires)

Dutch PM Rutte says Netherlands will stick to its position that recovery funds must be tied to reforms; less than a 50% chance a deal will be achieved at this summit for the EU recovery fund/budget. (Newswires)

Austrian Chancellor Kurz says he is optimistic on the EU summit, notes there are difference but they are not impossible to overcome, APA News; optimistic on a solution being achieved but unsure when - if not at this summit, then the next one. (Newswires)

Polish PM says at present hard to judge if there will be a deal, approval of the budget/recovery fund is dependent on the amount which will be made available to Poland. (Newswires)

Lithuania President says is not optimistic that EU leaders will come to agreement at this Council summit. (Newswires)

CORONAVIRUS UPDATE

US COVID-19 cases rose 67,404 (Prev. +60,971) and the death toll +947 (Prev. +773). AFP later tweeted that US cases rose by a record 68,428 in 24 hours citing the Johns Hopkins tracker, while a major newswire tally showed US cases rose by at least 70,727 on Thursday which is a record single-day increase and deaths rose by 969 to 138,284 which was the largest increase since June 10th. (Newswires/Twitter) California COVID-19 cases rose by 8,544 (Prev. +11,126) and death toll rose by 118 (Prev. +140), New York cases rose by 769 (Prev. +831) and the death toll rose by 14 (Prev. +9), while Governor Cuomo said NYC is still headed for Phase 4 of reopening on Monday with a decision by 16:00 ET on Friday. (Newswires) Texas coronavirus cases increased by 10,291 to a total of 292,656 which was the 4th largest increase on record and deaths rose by 129 to 3,561 which was the largest single-day increase, according to the State Health Department. However, a major newswires tally suggested that Texas coronavirus cases increased by a record 15,108 to a total of 311,530 and the death toll rose by a record 149 to 3,745. (Newswires)

There were initial rumours that Texas could be placed on a shutdown today, although Texas Governor Abbott later commented that there is no shutdown coming. Elsewhere, reports noted comments from the Miami Mayor that they are "very very very close" to enacting a stay at home order. (Twitter/Texas Tribune)

NIH's Fauci stated we need a time-out to get the virus better under control and that an antibody could be ready by fall, while added we will know whether we have safe and effective candidates by mid-to-late fall/early winter and that he hopes and anticipates there will be one or more. (Facebook)

US CDC announced extension of no sail order for cruise ships to September 30th. (Newswires)

UK government's chief scientific adviser Vallance stated that coronavirus outcome for the country has not been good and that the virus is likely to remain for a number of years. (ITV)

UK PM Johnson says from tomorrow local authorities will be given new powers in terms of responding to future outbreaks of the COVID-19; will be updating advice on going to work from August 1st & employers will have more discretion; by November at the earliest hopes it will be possible to drop social distancing rules.

According to a study by Oxford University the UK might have already achieved a sufficient level of herd immunity to prevent a second wave of coronavirus with the bar to herd immunity lowered by some people already being immune to the disease without ever catching it. (Telegraph)

Applied DNA & Takis report positive preclinical results from Lineadna vaccine candidates for COVID-19, demonstrate evidence of antibodies & T-cell response in mice. (Newswires)

ASIA

Asian equity markets were somewhat mixed as efforts to recoup some of the prior day’s losses heading into the weekend were fettered by the record increases in coronavirus numbers in US and abroad which continued to fuel second wave fears. ASX 200 (+0.3%) traded indecisively with notable weakness seen in tech names after similar underperformance of the sector stateside and after Victoria state suffered a record increase of coronavirus cases which surged by 428 vs. Prev. 317, while Rio Tinto shares failed to sustain the opening momentum that had been spurred by stronger quarterly production and shipment updates. Nonetheless, downside for the Australian benchmark is only marginal as the index just about kept afloat of the 6000 level and the Nikkei 225 (-0.3%) swung between gains and losses as sentiment navigated through a wavy currency. Hang Seng (+0.5%) and Shanghai Comp. (+0.1%) both initially outperformed after nursing the pain from recent heavy selling that resulted to losses in the mainland of about 5% yesterday, which China downplayed as a normal market adjustment, while a firm liquidity effort by the PBoC also contributed to the early improved tone in which it provided a total weekly net injection of CNY 330bln. However, the optimism in for Chinese bourses gradually faded amid the lingering doubts regarding the economic recovery. Finally, 10yr JGBs were higher alongside the indecision in the region and with the BoJ also present in the market for over JPY 1.2tln of JGBs heavily concentrated in 1yr-10yr maturities.

PBoC injected CNY 200bln via 7-day reverse repos for a CNY 330bln weekly net injection vs. last week's net drain of CNY 290bln and it maintained the rate of the reverse repos at 2.20%. (Newswires) PBoC set USD/CNY mid-point at 7.0043 vs. Exp. 6.9957 (Prev. 6.9913)

China NDRC said some domestic industries have not recovered to normal and some firms continue to struggle, while it added that employment pressure is huge. (Newswires)

China called the sharp decline in A-shares yesterday as a normal market adjustment. Furthermore, press reports noted that China should take steps to boost demand including distributing consumption coupons and subsidising the appliance and auto purchases, while the government should also increase infrastructure investment to boost demand. (China Securities Journal)

US

China's Commerce Ministry says they will take anti-dumping measures on the US chemical N-Propanol as of July 18th. (Newswires)

UK/EU

US Secretary of State Pompeo stated he enjoyed speaking with UK Foreign Secretary Raab and that the UK made the right decision not to allow untrusted vendors in its 5G network, while he looks forward to working with the UK to promote the development of trusted solutions for 5G. (Twitter)

Policymakers at the ECB did not agree on whether the bank will exercise the full amount of its EUR 1.35trl PEPP at its latest meeting despite President Lagarde’s comments yesterday that such a move would be likely, according to sources. (Newswires)

ECB's de Guindos says that the ECB's strategic review will begin in September and last for around a year. (Newswires)

GEOPOLITICAL

US House Minority Leader McCarthy accused Russia of malicious actions to weaken the US pandemic response and said he is producing a bill in the next few days to hold Russian hackers accountable. (Newswires)

EQUITIES

European equites (Eurostoxx 50 -0.2%) have staged a relatively mixed performance thus far with price action broadly contained as participants await updates from the EU Council summit in Brussels. On which, the bar for expectations has been tempered somewhat by comments on arrival from the likes of Dutch PM Rutte who assigns a less than 50% chance of a breakthrough by Sunday, whilst German Chancellor Merkel has cautioned that large differences remains and negotiations will be very tough. The DAX (+0.1%) is faring slightly better than its peers amid support for the auto sector after Daimler’s (+4.8%) prelim Q2 release revealed a smaller decline in EBIT than feared with the Co. also looking to make circa EUR 2bln in cost savings. Furthermore for the index, reports note that Deutsche Boerse could propose new rules that would enable a quick expulsion of companies from the DAX if firms file for insolvency. If adopted, Wirecard (-7.2%) could leave the index in August. Elsewhere, the bulk of the corporate updates this morning have come from Scandinavia with earnings from the likes of Ericsson (+10.4%), Saab (+2.8%), Volvo (+1.1%), Danske Bank (+1.1%), Assa Abloy (-2.8%) and Electrolux (-5.8%) to name but a few. From a broader sectoral standpoint, asides from autos, the tech sector is faring better than peers amid upside in chip names such as Infineon (+2.7%) and STMicroelectronics (+3.1%). To the downside, losers include banks, travel & leisure and insurance names.

Prosus said to have submitted highest bid for eBay's (EBAY) classified unit. (Newswires)

BlackRock (BLK) Q2 2020 (USD): Diluted EPS 7.85 (exp. 6.99/6.81 reported); revenue 3.65bln (exp. 3.5bln). (Newswires)

FX

EUR - The single currency is attempting extend gains above 1.1400 vs the Dollar again having posted a lower high from Wednesday’s circa 1.1450 peak amidst post-ECB reports about divergence among GC members on the PEPP that President Lagarde assumes will be used in full. However, the latest retreat seems more to do with apprehension ahead of the EU leaders meeting to try and resolve differences over the Recovery Fund and Budget, as participants continue to play down prospects of reaching an agreement by the end of the 2-day Summit.

USD – The Greenback is mixed against G10 counterparts beyond the Euro, and the restraint is highlighted by the confined 96.331-083 DXY range compared to yesterday’s 96.404-95.890 extremes on the back of fluctuating risk sentiment and largely upbeat US data dampened by the ongoing increase in COVID-19 infections and fatalities across Sun Belt states in particular. Ahead, housing data and preliminary Michigan sentiment, but the Buck remains driven by the overall tone and equity performance alongside moves in rival currencies.

AUD/NZD/CHF - All benefiting from the aforementioned US Dollar retrenchment, with the Aussie back within striking distance of 0.7000, Kiwi revisiting 0.6550 and Franc holding off sub-0.9450 lows, even though Victoria suffered another record high tally of coronavirus cases and the PBoC bucked the recent trend with a 7.0000+ midpoint Usd/CNY fix overnight (albeit with the onshore Yuan closing back above the psychological level and CNH currently around 6.9970). Conversely, the Nzd will have taken note of a strong rebound in the manufacturing PMI from contraction to expansion following re-opening from lockdown and the Chf has pared some underperformance vs the Eur after sliding to multi-week lows near 1.0800 on Thursday.

GBP/JPY/CAD - Sterling is still grappling with a bearish combination of technical and fundamental factors as Cable loses grip of 1.2600 and returns to the midst of a cluster of hourly MAs ahead of Fib support (at 1.2520), while Eur/Gbp remains elevated close to 0.9100. Elsewhere, the Yen is meandering between 107.36-11 and Loonie even more contained either side of 1.3575 against the backdrop of idling crude prices and subdued risk appetite in the run up to Canadian wholesale trade.

FIXED

Bunds got to within 5 ticks of closing the opening Eurex gap, but have subsequently faded again and hit a minor new intraday low at 176.36 (-26 ticks on the day) in rather listless and very lacklustre trade (only just over 100k lots turnover says it all). However, the retracement in Gilts has been a bit more pronounced after setting a fresh contract best yesterday and waning just above 138.00, as the 10 year debt future hovers above 137.82 (-27 ticks vs -3 ticks at one stage), and short term technical impulses rather than external could have prompted the downturn given resistance on some charts at 138.07 and 176.62 respectively. Note also, some caution ahead of BoE Governor Bailey perhaps as Short Sterling contracts pare NIRP pricing. Meanwhile, US Treasuries are even more aimless as the week draws to a close with futures flat and the curve pancaking in advance of housing data and preliminary Michigan sentiment.

COMMODITIES

WTI & Brent remain subdued this morning with Brent Sep’20 future having given up the USD 43/bbl handle to a low of USD 42.88/bbl as we stand while WTI Aug’20 has tested touted support at USD 40.35/bbl at worst. Overall, performance for the complex is somewhat tentative with European bourses currently trading with little conviction as we await the press statement from the first of the weekends European Council Summit meeting (time TBC); for crude explicitly, the only scheduled event is the weekly Baker Hughes rig count. In terms of spot gold, the precious metal is modestly firmer and has recaptured the USD 1800/oz mark, but only just, as the USD continues to drift lower in this period of tentative trade. Elsewhere, Rio Tinto posted a 1.5% increase in iron ore shipments in their Q2 update as well as commenting that demand out of China for iron ore is rising; although, as most updates have, cautioned that the possibility of second COVID-19 wave could be a headwind.

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Kodak $KODK chairman when asked about his share purchases before the government contract announcement https://t.co/1FDc77zS0n