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[PODCAST] EU Open Rundown 22nd July 2020

  • Asia-Pac stocks traded mixed amid a similar performance on Wall Street; Mainland China outperformed; Australia lagged
  • The Telegraph reports that the UK is close to abandoning hopes on a post-Brexit EU trade deal; whilst a UK-US trade deal is unlikely before the US election
  • US Treasury Secretary Mnuchin hopes to get a new COVID-19 bill passed by the end of July but reportedly did not talk about a payroll tax cut at the Senate Republican lunch
  • Gold and Silver were in focus overnight as prices printed fresh multi-year highs
  • In FX, DXY remained near 95.000, EUR/USD kept a 1.1500 handle, USD/CNY traded sub-6.9700
  • Looking ahead, highlights include Canadian CPI, ECB's de Guindos, supply from UK & Germany
  • Earnings include Iberdrola, Akzo Nobel, ABB, Microsoft, Tesla, Biogen

CORONAVIRUS UPDATE

US CDC reported COVID-19 cases +57,777 (Prev. +63,201); deaths +473 (prev. +498); Newswires tally reported US COVID-19 cases rose by at least 64,734 (Prev. +61,761), whilst deaths rose by at least 1,123 (Prev. +500). California cases +2.4%/+9231 (prev. +1.8%/+6,846); deaths +61 (prev. +9). New York cases +855 (prev. +0.1%/+519); hospitalisations 724 (prev. 716); deaths +2 (prev. +8); positivity rate 1.29% (prev. 1.05%). Texas cases increased by 9,305 (Prev. +7,404); deaths +131 (Prev. +62); Hospitalization +279 (Prev. -23). LA County cases increased by 2,741 (Prev. +3,160), deaths rise by 50 (Prev. +9), hospitalisation fell by 14 (Prev. +16), according to the County Health Department (Newswires)

US President Trump reiterated that COVID-19 vaccines are coming sooner than anyone thought possible; virus will probably get worse before it gets better; we are working on a strategy that is very powerful. President Trump also stated that citizens should wear a face mask if unable to socially distance. Trump again referred to COVID-19 as the "China virus” and stated that a permanent shutdown "really never an option". Trump also thinks the US will have a very strong Q3 and a very strong 2021. (Newswires)

US Treasury Secretary Mnuchin hopes to get a new COVID-19 bill passed by the end of July but reportedly did not talk about a payroll tax cut at the Senate Republican lunch and said we are going to spend what we need to spend and we are going to make sure that we do not spend more. (Twitter/Newswires) Senate Majority Leader McConnell said there are some differences of opinion on going ahead with a payroll tax cut as part of the next stimulus package, when asked if he expects a bill to pass by end of next week, he said "no". McConnel said he will introduce a bill in the next few days that will be a starting place with Democrats. He does envisage direct payments to US citizens as part of the next bill. McConnell’s plans to provide more state aid hit a snag in the GOP conference talks, Senator Rick Scott said he will do everything he can to stop it, he said Florida does not want to bail out New York. (Newswires) US Senator Rand Paul criticised the Senate GOP's and the White House for talking about adding another USD 1trln to the debt. (CNN)

US House Speaker Pelosi and Senate Minority Leader Schumer emerged from the meeting with Treasury Sec. Mnuchin and WH Chief of Staff Meadows and said, "Democrats want to see a Republican bill and then they’ll negotiate." (Twitter) US House Speaker Pelosi says we will bridge party differences on stimulus aid. (CNN)

When top vaccine candidate executives were asked whether two doses would be needed, Pfizer (PFE) said yes, J&J (JNJ) does not know yet, Merck (MRK) said "believe reasonable possibility of one dose", AstraZeneca (AZN) said it is two to be sure, but could be cut to one. (Twitter)

China reported 14 new COVID-19 cases in Mainland (Prev. 11); 5 new imported cases (Prev. 3) and 22 new asymptomatic cases (Prev. 6). (Newswires) Hong Kong confirmed 60 new COVID-19 cases (Prev. 73), according to Global Times. Reports in SCMP suggested that Hong Kong COVID-19 cases on Wednesday reportedly topped Sunday's record of 108, according to sources. Hong Kong is to extend the public mark-wearing requirement, according to HKET (Twitter/Newswires) South Korea reported 63 new COVID-19 cases (Prev. 45); according to KCDC. (Yonhap) Tokyo Governor said Tokyo is likely to see 230-240 COVID-19 cases on Wednesday and has asked people to refrain from going out as much as possible. (Newswires)

Australia's Victoria State Premier confirms 484 (Prev. 374) COVID-19 cases in the state, a new record. (Newswires)

Germany COVID-19 cases rose by 454 (Prev. +522), whilst deaths rose by 5 (Prev. +4), according to RKI. (Newswires)

ASIA

ASIA APAC stocks traded mixed following a similar handover from Wall Street, in which the three indices saw downside in the latter part of the session as the US stimulus bill hit a bump amid differences over the size of the package and whether payroll tax cuts should be included. ASX 200 (-1.6%) lagged as cases stayed on an upward trajectory in Australia’s second largest state of Victoria, although miners saw a boost from the rally in precious metals. Nikkei 225 (-0.5%) failed to nurse opening losses as several large-cap stocks remained in the red, whilst recent JPY strength further weighed on exporters in the index. Conversely, Shanghai Comp (+1.2%) outperformed following yesterday’s pause, whilst Hang Seng (Unch) took a breather but remained in positive territory as oil giants kept the index afloat. Finally, JGB futures ticked higher overnight after reports that that the Tokyo Governor is mulling stay-at-home orders, whilst the BoJ’s Rinban operations saw sizes for the 1-3yr, 3-5yr and 5-10yr buckets unchanged.

Senior US Senator Risch (R) is pushing to give US new tools to curb Chinese trade practices, including sanctions for IP violations, however, passage this year is unlikely due to elections but could serve as a template for after November. Risch also stated that US needed to tackle to "increasingly unfavourable" military balance by strengthening alliances with Japan, South Korea and Australia. (FT)

The general consensus among Chinese officials and analysts is that the US will not completely cut off China's access to the USD system as it would pose risks to the US and the global economy, but the risks remains real if relations deteriorates further. (SCMP)

PBoC skipped reverse repo operations for a net neutral daily position PBoC set the USD/CNY mid-point at 6.9718 vs. Exp. 6.9706 (Prev. 6.9862)

Japanese Jibun Bank Manufacturing PMI Flash (Jul) 42.6 (Prev. 40.1) Japanese Jibun Bank Services PMI Flash (Jul) 45.2 (Prev. 45.0) Japanese Jibun Bank Composite PMI Flash (Jul) 43.9 (Prev. 40.8)

UK/EU

UK is close to abandoning hopes on a post-Brexit EU trade deal, Telegraph reports; UK government's working assumption is that UK will trade with the EU on WTO terms. Senior sources state that the assumption is that there will not be a deal, but a "basic" agreement could be reached if EU gives ground in Autumn. (Telegraph)

UK senior government figures have abandoned hope of reaching a UK-US trade deal ahead of the US elections in November due to the pandemic. (FT)

French President Macron said he is in favour of an EU digital tax on large tech multinationals (AAPL, MSFT, GOOG, FB). (Newswires)

FX

FX DXY meandered around the low 95.000s, having traded a whisker away from the round figure as the Index held onto losses emanating from the post-recovery fund EUR strength. The Single Currency extended gains above the 1.1500 mark vs. the USD, but overnight price action was contained ahead of the European Parliament’s initial assessment on the recovery package on Thursday. Cable was also uneventful above 1.2700 but the pair saw fleeting downside on reports that UK is losing hope on a post-Brexit EU trade deal. The recent EUR strength also pushed the EUR/GBP cross back above its 200-Hourly MA (0.9040) before encountering and later eclipsing resistance at its 100HMA around 0.9070. Elsewhere, USD/JPY was quiet amid a lack of fresh fundamental news-flow as it remained within a 15-pip range. Antipodeans moved at the whim of the Buck but held onto the prior session’s gains, with AUD/USD and NZD/USD comfortably above 0.7100 and 0.6600 respectively. Finally, the CNY traded on a firmer footing with the USD/CNY sub-6.9700 following a stronger PBoC Yuan fixing, whilst commentary from SCMP noted that the general consensus among Chinese officials and analysts is that the US will not completely cut off China's access to the USD system as it would pose risks to the US itself and the global economy.

Australian Retail Sales Prelim (Jun) MM 2.4% (Prev. 16.9%); YY 8.2% (Prev. 5.3%) (Newswires) 

Brazilian Central Bank Director said the economy requires extraordinarily high monetary stimulus, but room for further rate cuts is small and uncertain; have room to continue FX interventions if needed. (Newswires)

COMMODITIES

WTI and Brent futures saw minor losses overnight as downside was exacerbated by the large surprise build in private inventories, and as investors remain cautious over another US stimulus bill. WTI and Brent front-month futures dipped below 41.50/bbl and 44/bbl respectively before trimming losses. Elsewhere, focus overnight were on the precious metals’ rally, with a number of factors cited including rising COVID-19 cases alongside Fed-nominee and gold-standard-advocate Judy Shelton’s advance at the Senate Banking Committee. Spot silver initially took the limelight as prices rose around 6% to levels last seen in 2013 – prompting participants to speculate a COMEX margin ramp-up, whilst spot gold later stole the spotlight as it continued to print fresh 9yr highs, breaching and extending on gains above 1850/oz.

US Private Inventory Crude Stocks (w/e 17th May) Crude +7.54mln (exp. -2.1mln). (Newswires)

GEOPOLITICAL

UK is said to be mulling tighter security laws following the release of the Russia report, with sources suggesting new law requiring foreign agents to register in the UK was being looked at by Downing Street, although no firm proposal  have been made. (BBC)

Iranian Supreme Leader said Iran will strike a reciprocal blow against Americans for killing IRGC General Soleimani. (Newswires) 

US Navy is holding parallel exercises in the Philippine Sea and the Indian Ocean, involving the US, Japan, India and Australia, in a move sure to catch the attention of Beijing. (Nikkei)

US President Trump spoke to Abu Dhabi crown prince on the importance of de-escalation in Libya via the removal of foreign forces, according to the White House. (Newswires)

US

Yields were slightly lower by between 1-2bps on Tuesday with the macro narrative little changed and no Tier 1 data. It was another thin summer session which saw the 10-year yield move back to the key 60bps level amid momentum stocks coming under some renewed pressure. However, it’s hard to read too much into a few bps moves in yields when liquidity is so low. Wednesday could be more interesting for Treasuries with the 20-year Bond auction (USD 17bln), in addition to US Existing Home sales data; large caps MSFT and TSLA will also report after the bell, which has the potential to drive the macro narrative if the results shake the boat enough. T-note futures (U0) settled +4 ticks at 139-16+

US Senate Panel has advanced Shelton's Fed nomination by a 13-12 vote, and Waller by a 18-7 vote. The nominees will now be considered before the full senate. (Newswires/Washington Post)

Boeing (BA) 737 Max is unlikely to resumed widespread passenger flights until early next year, almost two months beyond prior guidance, amid regulatory delays, according to US officials cited by WSJ. Officials said the timetable could speed up and MAX operations could resume earlier, but it is not the expectations of those closely monitoring the process. (WSJ) Co. has a 4.5% weighting in the DJIA

US House has approved a USD 740bln defence policy bill. (Newswires) Note: US President Trump has threatened to veto this bill.

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