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[PODCAST] US Open Rundown 23rd July 2020

  • Sentiment remains supported after strong EU earnings & as US-China tensions haven’t escalated further
  • US President Trump said it is possible for more Chinese consulates in the US to be closed while China is reportedly moving to close the US consulate Chengdu
  • MSFT beat on EPS & revenue but trade lower in the pre-market while TSLA also beat and are now eligible for S&P 500 inclusion, +5% in pre-market
  • Brexit negotiations have reportedly not broken down, according to government sources, but there has been neither ‘breakdown nor breakthrough’ on major sticking points
  • DXY is downbeat below 95.00 as XAU prints fresh multi-year highs with USD 1900/oz now looming while EUR/USD is still capped at 1.1600
  • Looking ahead highlights include US Initial/Continued Jobless Claims, New Zealand Trade Balance, CBRT & SARB Rate Decisions, BoE's Haskel
  • Earnings from AT&T, Intel, American Airlines, Southwest

CORONAVIRUS UPDATE

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. 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 opposes a 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)

Roche (ROG SW) - Diagnostic Chief says they are to launch a new COVID-19 test to detect antibodies against spike proteins, close to launching the rapid antibody test. (Newswires)

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).

ASIA

APAC stocks traded mostly lower, but finished mixed, 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 (+0.3%) 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 (--0.6%) 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 (-0.2%) opened lower by almost 1% before initially 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 (+0.8%) 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%

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)

South Korea is weighing up an extension to its short-selling ban despite fears of a bubble in the local market, according to FT reports. (FT)

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)

GEOPOLITICAL

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

EQUITIES

European have kicked the session off on the front foot (Eurostoxx 50 +0.6%) in a retracement of some of yesterday’s losses in what has been a busy/upbeat morning of earnings for the region thus far. Furthermore, some positivity could also be gleaned from a lack of additional retaliatory measures between the US and China, albeit rhetoric from either side remains particularly hostile. From an earnings perspective, Unilever (+7.8%) have propelled the Personal & Household Goods sector towards the top of the leaderboard after the Co. reported a beat on expectations for sales amid increased demand for hygiene products amid COVID-19. Autos are also a key gainer in Europe following earnings from Daimler (+4.8%) with the Co. targeting making a profit in 2020; BMW (+3.5%), Continental (+2.4%) and Volkswagen (+2.0%) are all firmer in sympathy. Elsewhere, Publicis (+12.7%) is the clear outperformer in the Stoxx 600 today after its latest earnings report saw the Co.’s sales decline at a slower rate than forecast by analysts. Of note for the tech sector, STMicroelectronics (+2.1%) are another post-earnings gainer in the region after posting a beat on EPS and revenues and raising FY20 revenue guidance. To the downside, Swiss heavyweight Roche (-2.2%) is acting as a drag on the healthcare sector after reporting a 10% decline in sales with the Co. citing a firmer CHF and the fallout from some patients opting to stay away from hospitals for non-COVID treatments amid fears of catching the virus.

Air Products and Chemicals Inc (APD) Q3 20 (USD): EPS 2.01 (exp. 1.99), Revenue 2.1bln (exp. 2.07bln).

Amazon (AMZN) are in discussions with Reliance Industries regarding a potential deal in Reliance Retail, via ET Now. (Newswires)

Danaher Corp (DHR) Q2 20 (USD): EPS 1.44 (exp. 1.09), Revenue 5.3bln (exp. 4.95bln)

Dow Inc (DOW) Q2 20 (USD): Operating loss per share -0.26 (exp. -0.28), Revenue 8.35 (exp. 8.01bln); to cut global workforce by 6%

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) Fell 2.3% in after-market trade; -1.9% in the pre-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. Notes the next Gigafactory site has been selected and preparations are underway. (Newswires) Initially rose 5.5% before paring back to ~+2% in the after-market; +5.5% in the pre-market

FX

USD - Faint respite for the Greenback and consolidation, but the overriding bearish theme/trend remains intact as the DXY teeters off another low closer to the 94.650 ytd base within a 94.781-95.015 range. Indeed, only the Brexit plagued Pound is actually softer vs the Buck in major circles as others hold close to recent highs and broad risk sentiment is propped by stimulus alongside COVID-19 vaccine progression over concerns about the virus itself and simmering geopolitical, trade and diplomatic tensions. Ahead, the latest look at weekly initial claims could or should provide a distraction, especially as the jobless tally feeds into July NFP and the FOMC looms next week.

NZD/CAD/AUD/NOK/SEK - The best G10 performers, with the Kiwi hovering just below 0.6700 ahead of NZ trade and clawing back some losses relative to the Aussie amidst the ongoing rise of virus cases in Victoria. Aud/Nzd has slipped back to pivot 1.0700 as Aud/Usd straddles 0.7150 in wake of the Treasury’s fiscal and economic update pegging the budget deficit at Aud 184.5 bn, with S&P noting that the projections are in line with Australia’s triple A rating and negative outlook given that risks remain skewed to a downgrade. Meanwhile, the Loonie has extended post-Canadian inflation data gains through 1.3400 and the Scandinavian Crowns have recovered from midweek retreats with a degree of traction from oil and an improvement in Norwegian Industrial Sentiment rather than higher than expected jobless rates.

EUR/CHF/JPY/GBP - 1.1600 is proving elusive for the Euro, and perhaps due to apprehension awaiting the EP judgement on the EU’s MFF, but the Franc continues to grind higher after breaching 0.9300 and Yen has recoiled into an even tighter band just under 107.00 amidst holiday-thinned volumes on Japanese Marine Day. Conversely, Sterling has lost momentum on the 1.2700 handle again in advance of an update from chief EU Brexit negotiator Barnier as the post-transition trade deal stalemate rumbles on and the UK is said to be open to holding emerency talks next week. More immediately, CBI trends and business confidence are due before a speech by BoE’s Haskel.

EM - The Cnh is poised around the 7.0000 mark awaiting further repercussions between the US and China on the consulate spat, while the Try has shrugged off a decline in Turkish consumer sentiment in the run up to the CBRT and Zar is braced for another SARB rate cut, but unsure about the likely size.

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)

FIXED

Gold, or rather Silver and other precious metals continue to set the standards in the commodity complex, but Italian bonds are the benchmark for fixed as the 10 year future edges closer to another big figure milestone at 147.00. However, Gilts are edging it in the mainstream just a few ticks shy of their contract high and Bunds are holding up well all things considered (including the Dax consolidating above 13k) alongside US Treasuries within 176.89-69  and 139-19+ to 139-16+ ranges ahead of the next US weekly jobless claims report that will be the ones used for BLS report purposes. Prior to that, CBI trends and business optimism, BoE’s Haskel, EU’s Barnier on the state of play (or divide to be more precise) on the Brexit front and CBRT rate verdict. Note also, SARB, US LEI, flash EZ consumer confidence and KC Fed surveys either side of the Wall Street open

COMMODITIES

WTI and Brent are firmer this morning and once again tracking the generally positive sentiment as we are yet to see a firm retaliation from China regarding the US’ Houston consulate announcement yesterday, alongside a predominantly positive morning for European earnings. As has been the playbook for the week fundamentally new crude newsflow has been sparse and there is nothing scheduled for either today or tomorrow. Most recently, reports note that Russia’s Putin has ordered a study into hedging oil prices, but no decision has been taken on the matter yet. Next week, aside from the usual weekly reports, the schedule for oil is again light but performance/commentary via the earnings releases from a number of European heavyweight oil names will draw attention and provide an insight into the broader complex’s outlook; Co’s scheduled to report include Shell and Total while BP is on the docket for the week after. Turning to metals, where spot gold remains elevated this morning and has printed yet another multi-year high at USD 1888.65/oz eclipsing levels at the USD 1885/oz mark and leaving, aside from the evident psychological figure, just the all time high of USD 1921.75/oz left. Focus has also been on silver which in contrast is modestly subdued today in an easing of the recent rally. On the precious metals, Citi highlight that the gold/silver price ratio is approaching a test of the 80x level which has, for the most part, held since 2018; a level they suggest is likely to be breached imminently.

Russian President Putin has ordered authorities to study the idea of hedging oil prices, no decision made yet, according to the Kremlin. (Newswires)

NHC said tropical depression has formed in the Gulf of Mexico, tropical storm watch has been issued for much of Texas coast. Subsequently, NHC says the Gonzalo continues to strengthen and is still heading due west; expected to become a hurricane later today. (NHC)

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