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[PODCAST] EU Open Rundown 28th July 2020

  • Asia-Pac stocks traded mostly higher but initial optimism abated; Nikkei 225 lagged
  • Senate Republicans unveiled their stimulus plan which was met with Democratic resistance
  • New Zealand is suspending the extradition treaty with Hong Kong following the imposition of the National Security Law
  • UK PM Johnson has warned of the risk of a second wave of COVID-19 this autumn, but stressed the government will seek to avoid a national lockdown
  • In FX, DXY gained traction towards the end of the session at the cost of G10s
  • Spot gold and spot silver topped USD 1975/oz and USD 26/oz respectively before seeing a vigorous selloff; Dec’20 gold futures touched USD 2000
  • Looking ahead, highlights include US Consumer Confidence, supply from UK, Germany and US
  • Earnings include Pfizer, 3M, Starbucks, Altria, Amgen, McDonald's, Visa eBay

CORONAVIRUS UPDATE

US CDC reported COVID-19 cases +61,795 (prev. +64,582); deaths +564 (prev. +969). A newswires tally suggested that US COVID-19 cases rose by at least 61,277 (Prev. +53,667), whilst deaths rose by at least 491 (Prev. +427). California COVID-19 cases +1.5%/+6,891 (prev. +1.9%/+8,259, 7-day avg. 2.4%). A newswires tally suggested California coronavirus cases increased by at least 10,549 (Prev. +4,372), deaths rise by at least 91 (Prev. 21). New York COVID-19 cases +608 (prev. +536); hospitalisations 642 (prev. 637); positivity rate 1.06% (prev. 1.0%); deaths +11 (Prev.+3). Texas reported 4,267 new COVID-19 cases (Prev. +5,810) and deaths rose by 44 (Prev. +153); according to the State Health Department. NOTE: Texas also reported 673 deaths over the past 24hrs due to changes to how the State reports fatalities. LA County coronavirus cases increased by 2,039 (Prev. +1,730), deaths rise by 17 (Prev. +10), hospitalisation fall by 76; according to the County Health Department. (Newswires)

Senate Republicans unveiled their stimulus plan in which enhanced unemployment insurance will continue at a reduced amount of USD 200/week (Prev. USD 600/week) through September and thereafter workers will receive 70% of pre-pandemic wages up to a maximum of USD 500/week. Americans would also get a new round of direct stimulus checks of USD 1,200 and USD 2,400 for individuals and couples respectively and would set the same qualifications as the first round of checks. The bill also sets aside USD 190bln for Paycheck Protection Program loans and USD 105bln to allow schools to reopen in autumn. The bill also includes USD 16bln to help states bolster COVID-19 testing capacity. US Senate Majority Leader McConnell confirmed the Republican COVID-19 relief bill costs around USD 1tln. (Newswires/CNBC) US Senate Minority Leader Schumer said the GOP COVID-19 plan is totally inadequate and added that that they are "somewhat frustrated" following the meeting with WH Chief of Staff Meadows and Treasury Secretary Mnuchin, CNN's Raju reported. (Twitter) White House Chief of Staff Meadows said he and Treasury Secretary Mnuchin will be back on the Hill on Tuesday. (Newswires)

US President Trump said a second vaccine is likely to enter phase three within a matter of days after Moderna (MRNA) initiated its Phase 3 trial today and can expect good things to say on virus therapeutics soon. President Trump also noted states some should open that have not yet opened. (Newswires)

Pfizer (PFE) and BionTech (BNTX) have chosen their lead MRNA vaccine against COVID-19 and started pivotal Phase 2/3 study; on track to seek regulatory review as early as October 2020; plans to provide up to 100mln doses by end-2020 assuming authorisation. (Newswires)

China reported 68 new COVID-19 cases in Mainland (Prev. 61), 4 new imported cases (Prev. 4) and 34 new asymptomatic cases (Prev. 44). (Newswires) South Korea reported 28 new COVID-19 cases (Prev. 25); according to KCDC. (Yonhap) Tokyo confirmed around 270 new COVID-19 cases (Prev. 131). (Nikkei) Australia's Victoria State confirmed 384 new coronavirus cases (Prev. 532). (Newswire)

Vietnam is suspending all flights to and from Danang for 15 days due to a virus outbreak. (Newswires) Yesterday, it was reported Vietnam has evacuated 80k tourists from the central city of Danang following a COVID-19 outbreak there, according to a government statement

UK Foreign Office is now advising against all non-essential travel to the Balearic and Canary Islands, as well as mainland Spain, due to the risk of Covid-19, according to ITV. (Twitter)

Germany COVID-19 cases rose by 633 (Prev. +340), whilst deaths rose by 4 (Prev. 0), according to RKI. France COVID-19 cases +2,551 from Friday to 183,079 on Monday. Spain COVID-19 cases +6361 from Friday to 278,782 on Monday. (Newswires)

The EU could opt to keep its external borders close for at least a further two weeks amid mounting COVID-19 cases, according to sources. (Newswires)

US – CHINA UPDATE

US diplomats from the Chengdu consulate have been given 30 days to leave the country, according to WSJ sources. (WSJ)

China is a step closer to reducing its dependency on US imported helium it uses to make hi-tech products, according to scientists working at a new facility in the northwest of the country. (SCMP)

ASIA

APAC stocks traded mostly higher as the initial optimism abated despite a lack of fresh catalysts and a positive handover from Wall Street, which saw the NDX rise almost 2% as tech stocks surged, with Netflix, Amazon and Apple all closing higher by between 1.5-3%. ASX 200 (+0.1%) was driven by upside in the mining sectors at the open as precious metals continued on their upwards trajectory before paring gains. Nikkei 225 (Unch) had somewhat of a lacklustre start amid currency dynamics but later managed to notch some gains for the session. KOSPI (+1.2%) saw firm advances amid hopes of an economic rebound coupled by stable COVID-19 infection rates, whilst Samsung Electronics joined the broader tech rally with gains in excess of 6% as it further propped up the index. On that note, Taiwan’s chip-behemoth TSMC rose as much as 10% today after a similar rally yesterday, to obtain a spot in the top 10 largest stocks by market cap.  Elsewhere, Hang Seng (+0.6%) and Shanghai Comp (+0.6%) conformed to the broader gains across the region, with the former buoyed by IT stocks following the debut of its tech index, whilst Mainland China was supported by a PBoC liquidity injection.

PBoC injected CNY 80bln via 7-day reverse repos for a net daily injection of CNY 70bln at a maintained rate of 2.20%.

PBoC set USD/CNY mid-point at 6.9895 vs. Exp. 6.9874 (Prev. 7.0029)

Fitch affirms China at "A+"; outlook Stable. Fitch forecasts Chinese real GDP growth of 2.7% in 2020. (Newswires)

Global Times Business Source, citing Counterpoint research, said smartphone sales in China fell 17% YY in Q2, but Apple (AAPL) bucked the trend with a 32% rise, making it the only major smartphone brand other than Huawei to report growth. (Twitter) China State Planner said it will cut broadband fees for firms by an average of 15%. (Newswires)

Hong Kong Officials said senior government members are finding it difficult to bank with foreign institutions amid heightened US-Sino tensions. (FT)

New Zealand is suspending the extradition treaty with Hong Kong following the imposition of the National Security Law; New Zealand is to update travel advice to alert citizens of risk presented by the National Security Law. (Newswires/Twitter)

Japanese LDP group are looking for restrictions on Chinese apps. (NHK)

UK/EU

UK PM Johnson has warned British businesses of the risk of a second wave of COVID-19 this autumn, but reportedly stated that it will not be as bad as the first outbreak and stressed the government will seek to avoid a national lockdown. (FT)

UK Ministers are said to be drawing up plans to extend the "Help to Buy" property scheme past its December deadline to prevent buyers from losing out due to pandemic-related delays. (FT)

UK Lloyds Banking Barometer (Jul) -22 (Prev. -30). (Newswires)

FX

In FX, DXY remained contained within a relatively tight range on either side of 93.500 but gained traction towards the latter part of the session ahead of the FOMC policy decision later this week, whist the US Republican and Democrats haggle over the latest COVID-19 relief bill, with Senate Minority Leader Schumer calling the GOP proposal totally inadequate. EUR/USD managed to hold above 1.1750 for the bulk of the session before surrendering the level, with technicians focusing on key resistance at 1.1822 (61.8% Fib of the 1.2556/1.0636 move) should the pair surpass 1.1800. Cable traded sub-1.2900 having had tested the level to the upside on multiple occasions. USD/JPY was also caged under 105.50 as technicians note of a heavy support area between 105.00-20, albeit the pair dipped below the upper band of the touted support area in yesterday’s trade. Antipodeans traded in tandem with the USD, with AUD/USD fluctuating on either side of 0.7150 while its Kiwi counterpart initially held ground above 0.6675 and tested 0.6700 before trimming gains, although the latter is on watch for response from China after New Zealand announced it is suspending its extradition treaty with Hong Kong amid the implementation of the National Security Law in a move that mimics the UK and Australia.  Elsewhere, TRY saw a mini flash-crash after the EU market exit yesterday, in which  USD/TRY rose from around 6.8500 to levels above 6.9500 over minutes before reversing, with some noting the Turkish Government and CBRT briefly lost the wheel of capital controls. Finally, USD/CNY was stable under 7.000 following a firmer CNY midpoint setting by the PBoC, whilst news-flow on the US-China front was light overnight, but USD strength later took USD/CNY to close proximity of the round figure.

COMMODITIES

WTI and Brent front month futures were uneventful overnight with little by way of fresh fundamental news-flow, as participants continue to eye US-China developments and the resurgence of COVID-19 cases potentially prompting further quarantine rules and border closures. WTI meandered around 41.75/bbl and Brent just north of USD 43.50/bbl, both within USD 0.3/bbl overnight ranges. Elsewhere, spot gold and spot silver continued to grind higher overnight, with the former surpassing the psychological USD 1950/oz and then briefly topping 1975/oz, whilst the latter exceeded USD 25/oz before gaining some ground above USD 26/oz. However, the precious metals later surrendered all their overnight gains and selling accelerated despite a lack of pertinent news flow, potentially on profit taking coupled with a strengthening Dollar. Reports also noted that the US Mint has reduced gold and silver coin output to purchasers, with the pandemic likely to reduce output by 12 to 18 months, albeit little immediate action was seen in spot prices amid the headlines, but gold Dec’20 futures tested 2000/oz shortly after the reports. Finally, copper prices initially gained with the broader rally in metals before reversing as it succumbed to USD strength.

US Mint has reduced gold and silver coin supply to purchasers; pandemic could reduce Mint coin output by 12-18 months, according to a document. (Newswires)   

GEOPOLITICAL

The intelligence community (IC) recently returned the last volume of the Senate Intelligence Committee’s Russia interference report to the panel after conducting a declassification review, report could be publicly released in a matter of weeks. (The Hill) The release of the report will end the panel’s probe into Russian interference in the 2016 presidential election.

Missiles targeting Camp Taji hit Iraqi forces positions, according to Sky News Arabia, no casualties have been reported according to a statement. Two explosions were reported at Camp Speicher in Northern Iraq, but no US-coalition presence was reported at the Camp. (Twitter)

US

The Treasury curve was ultimately a bit steeper following some mild supply indigestion. By settlement, 2s +1bps at 16bps, 10s +2bps at 61bps and 30s +1bps at 125bps. Heading into the US session, Treasury yields were a bit lower, seemingly following on from the strength in EGBs and Gilts as some of the overnight equity strength had been fading. However, once the Europeans had departed, stocks slowly moved higher while earlier duration strength was pared. The rate back up intensified after the 2-year and 5-year auctions, where both tailed by 0.9bps and 0.7bps, respectively, covered less than average and saw larger than average primary dealer takedown. Furthermore, a couple of corporate new issues hit the market, including a five-part USD 11bln AT&T (T) offering post its earnings report last week; corporate supply is likely to tick higher now that corporates begin to emerge from the other side of earnings blackouts. The later sell-off saw the 10-year rise above 60bps for the first time in a few sessions after failing to break beneath the key 57bps figure it has been hovering above; note, volumes are still beneath averages amid thin summer trade. More broadly this week, the macro narrative is likely to be driven by the US earnings pipeline (37% of the S&P 500 reports this week), although stimulus negotiations will also be at the forefront, not to mention the COVID-19 resurgence and US/China relations. More immediately, the Treasury market will likely be looking for a decent 7-year auction on Tuesday to avoid further duration pressure. T-Note (U0) Futures Settled -3+ Ticks At 139-15.

A White House meeting with top pharmaceutical executives that President Donald Trump promised for Tuesday is off, according to Politico citing sources. (Politico)

Senate Republicans are poised to back USD 10bln in additional funds for US airports, according to a congressional aide. (Newswires)

Senator Susan Collins said Monday she would join Senator Mitt Romney in opposing the nomination of economist Judy Shelton to the Fed's board of governors, according to WSJ. (WSJ)

Texas is investigating Facebook (FB) for possibly running afoul of state laws on the collection of biometric data, according to June documents uncovered by a tech watchdog group. (Axios)

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