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[PODCAST] EU Open Rundown 23rd July 2020

  • Asia-Pac stocks traded mostly lower with Mainland China weighed on by the escalating tensions with US
  • US President Trump said it is possible for more Chinese consulates in the US are to be closed
  • China is reportedly moving to close the US consulate in Chengdu in retaliation for the closure of the Chinese diplomatic facility in Houston, sources stated
  • US prosecutors said the Chinese consulate in San Francisco is harbouring a Chinese military researcher wanted by FBI
  • Brexit negotiations have reportedly not broken down, but there has been neither ‘breakdown nor breakthrough’ on major sticking points according to government sources
  • In FX, DXY remained sub-95.000 overnight, EUR/USD failed to breach 1.1600, USD/CNY gapped above 7.000
  • Looking ahead, German GfK, US Initial/Continued Jobless Claims, New Zealand Trade Balance, CBRT & SARB Rate Decisions, BoE's Haskel & ECB's de Guindos
  • Earnings include Daimler, STMicroelectronics, AT&T, Intel, American Airlines, Southwest

CORONAVIRUS UPDATE

US CDC said COVID-19 cases +63,028 (prev. +57,777); deaths +1047 (prev. +473). A newswires tally said US COVID-19 cases rose by at least 69,659 (Prev. +64,734), whilst deaths rose by at least 1,101 (Prev. +1,123). California COVID-19 cases +3.2%/+12,807 (prev. +2.4%/+9,231), deaths +115 (prev. +61). New York COVID-19 cases +0.2%/+705 (prev. +855, 7-day avg 0.2%), hospitalisations 714 (prev. 724), positivity rate 1.04% (prev. 1.29%), deaths +9 (prev. +2). LA County coronavirus cases increased by 3,266 (Prev. +2,741), deaths rise by 64 (Prev. +50), hospitalisation fell by 11 (Prev. -14), according to the County Health Department. Texas coronavirus cases increased by 9,879 (Prev. +9,305); deaths +197 (Prev. +131); Hospitalization +45 (Prev. +279); deaths printed the highest single-day increase since the pandemic began. California coronavirus cases increased by at least 12,112 (Prev. 10,458), deaths rise by at least 159 (Prev. 115), according to a major newswires tally. (Newswires)

White House officials and some Senate Republicans discussed a short-term extension of unemployment insurance while they negotiate a broader stimulus package, according to sources. US Republicans are considering extending the enhanced unemployment insurance benefit at a reduced level of USD 400/month (currently USD 2,400/month) through the rest of the year, according to CNBC sources. (Twitter) US Republicans could be open to extended unemployment insurance at 70% of workers' salaries, according to FBN citing Stephen Moore. (FBN) However, later reports stated the White House opposes short-term unemployment patch. (Politico)

Senate Appropriations Committee Chair Richard Shelby said there is a “fundamental agreement” on the appropriations piece of the Senate GOP plan, according to CNN's Mattingly. (Twitter)

US President Trump thinks Pfizer (PFE) is a "winner" after the vaccine deal; Trump would like to see schools open "100%"; reiterated Q3 will be a very good quarter. President Trump added that something will come out of stimulus talks. In relations to social unrest, Trump said they are ready to go into cities with great force. (Newswires)

White House is conducting contact tracing after a cafeteria worker tested positive for coronavirus, three Trump administration officials told NBC News. (NBC)

China reported 22 new COVID-19 cases in Mainland (Prev. 14); 3 new imported cases (Prev. 5) and 31 new asymptomatic cases (Prev. 22). South Korea reports 59 new COVID-19 cases (Prev. 63); according to KCDC cited by Yonhap

SinoPharm said its COVID-19 vaccine could be on the market by the end of 2020, after the company was approved in late June to begin int'l phase III clinical trials. Results of phase I and II trials were very positive and without serious side effects, Global Times (Twitter)

Australia Victoria State Premier confirmed 403 COVID-19 cases (Prev. 484). (Newswires)

Tokyo COVID-19 cases will be in excess of 300 today, via NHK (Prev. 238)

Germany COVID-19 cases rose by 569 (Prev. +454), whilst deaths rose by 6 (Prev. +5), according to RKI.

US – CHINA UPDATE

US President Trump said it is possible for more Chinese consulates in the US to be closed. (Newswires) US prosecutors said the Chinese consulate in San Francisco is harbouring a Chinese military researcher wanted by FBI. (Axios)

China is moving to close the US consulate in the southwestern city of Chengdu in retaliation for the forced closure of the Chinese diplomatic facility in Houston on Tuesday, according to a source briefed on the decision (SCMP). China Global Times Editor Huxijin tweeted that US must hope China will retaliate by closing the Wuhan consulate, but he thinks China's target will be more likely unexpected, causing the US to feel real pain. (Twitter)

Chinese Foreign Ministry said it has received bomb and death threats in the past at the Chinese embassy in Washington and blames the US government, spokesman said. (Newswires)

ASIA

APAC stocks traded mostly lower as the region failed to derive support from Wall Street’s firm performance, in which the SPX reached five-month highs and the Dow Jones posted its third straight session of gains. After-market earnings State-side saw Tesla soar some 7% after reporting a surprise EPS, whilst Microsoft retreated 3% as quarterly revenue guidance disappointed, and as investors took chips off the table following the stock’s recent rally. ASX 200 (+0.1%) opened softer as traders remained cautious over the outbreak in Australia’s Victoria State, but the index later nursed losses as the Australian Treasurer unveiled the biggest budget deficit since World Word II, providing a barrage of support to firms and citizens. Japanese participants were away as the country observes Marine Day Holiday. KOSPI (-1.0%) underperformed for a bulk of the session as South Korea entered a technical recession, prominent chip-maker SK Hynix traded in the green throughout most of session after a stellar earnings report, whilst the group expects chip prices to bottom out H2 and sees smartphone shipments growing by a double-digit percentage in 2021 – however Co. shares succumbed to downside in South Korea in the latter part of trade. Elsewhere, Shanghai Comp (-1.2%) opened lower by almost 1% before extending on losses amid Beijing’s rising tensions with the US, and as participants await Beijing’s response to the Chinese consulate shutting in Houston with possibly more on the way. Hang Seng (+0.4%) is propped up by its largest weighted financial and energy stocks ahead of the launch of its tech index on Monday.

PBoC sets USD/CNY mid-point at 6.9921 vs. Exp. 6.9837 (Prev. 6.9718). (Newswires) PBoC injected CNY 50bln via 7-day reverse repos for a net neutral daily position at a maintained rate of 2.20%

US Investors are reportedly trying to buy TikTok from ByteDance, the group is led by General Atlantic and Sequoia, according to FT. (FT)

South Korean GDP Growth QQ Advance (Q2) -3.3% vs. Exp. -2.3% (Prev. -1.3%); South Korean Finance Minister sees an economic growth rebounding in Q3. (Newswires)

Australian Treasurer Frydenberg said Australia forecasts 2020-21 budget deficit of AUD 184.5bln; jobless rate of 8.75% in the period; net debt expected 35.7% of GDP as of June 2021; FY20 real GDP forecast to fall 3.75%. 2021 real GDP forecast to grow 2.5%. Unemployment forecast to peak around 9.25% in Q4. (Newswires) S&P said Australian Treasurer's budget is consistent with the "AAA" rating and negative outlook; risks to rating remain tilted to the downside. (Newswires)

UK/EU

Brexit negotiations have reportedly not broken down, according to government sources, but there has been neither ‘breakdown nor breakthrough’ on major sticking points, and talks are at an admitted impasse. (Guardian) EU expected to warn that there are only a few weeks left to hammer out a Brexit deal that is legally operational by year end, after the latest round of talks failed to yield progress, according to FT. Source notes that the EU had pencilled in a summit of EU leaders for October 15th to approve any agreement, with the possibility to move it to later in the month if needed; but warned of any further delays as it would jeopardize the ratification process ahead of a vote in European Parliament in December. (FT)

Chinese Embassy in the UK reiterated that UK's policy allowing Hong Kong residents to claim British citizenship violates international law, repeats that Beijing will retaliate if UK does not "correct its mistakes". (Newswires)

FX DXY traded on either side of 95.000 but remained below the figure for most of the session as it held onto the prior day’s losses, the broader Dollar saw little action during President Trump’s presser where he hinted at the possibility of further Chinese consulate closures in the US. EUR/USD remained uneventful having failed to breach key psychological resistance at 1.1600 ahead of the European Parliament’s verdict on the Council’s MFF deal, although the Parliament’s budget negotiators raised deep concern with the proposal, thus providing tail-risk of a veto by MEPs who need to rubber stamp the deal for it to take effect. Cable was flat above 1.2700 having found mild overnight support at 1.2720. Antipodeans were stable with AUD/USD unfazed by the Australian budget unveiling, although the pair tested support at 0.7130 on multiple occasions. USD/JPY retained a 107.00+ status as it bides its time for an escalation in US-Sino tensions, with eyes on China’s response. Finally, the USD/CNY gapped above 7.000 after the PBoC weakened the Yuan reference rate by the most in percentage terms since the end of June.

Mexican Finance Ministry's Pension System Chief said there will be a 2yr grace period after pension reforms before employers are required to make additional contributions, expects reform to become law by early next year. (Newswires)

COMMODITIES 

WTI and Brent front-month futures remained within tight USD 0.2-0.3/bbl overnight ranges amid a lack of fresh catalysts for the complex, with eyes now on Beijing as it vowed retaliation for the shutting of its consulate in Houston. Energy traders will also be eyeing developments in the Gulf of Mexico as the National Hurricane Center issued tropical storm warnings for much of the Texas coast due to the forming of a tropical depression in the vicinity. Spot gold saw a fleeting move above 1875/oz but immediately encountered sellers as it eclipsed the psychological figure. Spot silver took a breather from its recent rally as the precious metal traded on either side of USD 23/oz. Elsewhere copper prices fell as the red metal tracked Mainland stocks and the rising tensions between US and China.

NHC said tropical depression has formed in the Gulf of Mexico, tropical storm watch has been issued for much of Texas coast. (NHC)

GEOPOLITICAL

US Secretary of State Pompeo said we all have been naive to watch Russian and Chinese interests become more and more aggressive in the Arctic; "the US came a little late to the party". (Newswires)

Chinese state TV has stopped broadcasting British football due to tensions with the UK, according to reports. (Newswires)

US

Yields moved slightly lower again on Wednesday with little changes to the macro narrative. By settlement, 2s unch. at 15bps, 10s -1 bps at 60bps and 30s -2bps at 129bps. The (modest) bid for duration saw the 10-year hold beneath 60bps for most of the session, although failing to break beneath its July low and key resistance at 57bps. Furthermore, volumes are incredibly low, so it’s hard to gauge too much from moves in the TPLEX. It is also worth remembering that many analysts consider curve steepeners as the consensus/crowded trade, therefore leaving them vulnerable to a squeeze; lack of progress on stimulus alongside the COVID resurgence in the US could be causing some to close their positions as they reassess the economic recovery. Meanwhile, the US sold USD 17bln in its third 20-year Bond auction today in what was a mixed auction: tailed by 0.9bps, while dealers and directs each took their smallest shares yet as indirects took their largest - analysts have continuously highlighted the strong allure of USTs to foreign participants in the last few months as the FX-hedged yield has become more favourable. Looking ahead, the risk tone could get nudged by MSFT/TSLA earnings later on Tuesday, followed by T and INTC on Thursday, while the data slate is light until Friday’s Flash PMIs, although US stimulus discussions could alter the dial. T-NOTE FUTURES (U0) SETTLED 1+ TICKS HIGHER AT 139-18.

POLL: Quinnipiac poll has Biden at 45% and US President Trump at 44% in Texas. 880 self-identified registered voters in Texas were surveyed from July 16 - 20 with a margin of error of +/- 3.3 percentage points. (Quinnipiac)

Microsoft (MSFT) Q4 2020 (USD): EPS 1.46 (exp. 1.34); Revenue 38bln (exp. 36.5bln). Intelligent cloud: 13.37bln (exp. 13.09bln). More personal computing: 12.91bln (exp. 11.46bln). Productivity and business processes (which includes Team): 11.75bln (exp. 11.89bln). Search was negatively impacted by reduction in advertising spend in Quarter. (Newswires) Co. shares fell 3% after-market

Tesla (TSLA) Q2 2020 (USD): EPS 0.50 (exp. -0.11/-1.09 reported); Revenue 6.04bln (exp. 5.37bln). Q2 production: 82,272 (in line with prior guidance). Q2 deliveries: 90,891 (prev. guided at 90,650). Continues to see over 500k deliveries in FY20. Shanghai deliveries first expected in 2021. (Newswires) Co. shares rose as much 7.4% after-market

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