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[PODCAST] EU Open Rundown 30th July 2020

  • Asian equity markets were mostly kept afloat as the region took advantage of the post-FOMC tailwinds from Wall Street and a busy earnings slate
  • The FOMC refrained from any policy adjustments as expected with Fed Chair Powell reiterating the Fed’s commitment to supporting the economy
  • The DXY heads into the EU open modestly firmer (sub 93.50), EUR/USD and GBP/USD pulled back from resistance around 1.1800 and 1.3000 respectively
  • White House Chief of Staff Meadows said we are nowhere close to a deal after leaving House Speaker Pelosi's office
  • Looking ahead highlights include German Unemployment, GDP (Flash) & CPI (Prelim), EZ Consumer Confidence, US GDP Advance, PCE Prices & Initial/Continued Jobless Claims, supply from Italy
  • Earnings from: AB InBev, Eni, HeidelBergCement, ArcelorMittal, Total, AstraZeneca, Lloyds, Shell, Amazon, Apple, Alphabet, Ford, Gilead, Mastercard

FOMC

FOMC kept FFR unchanged at 0-0.25% as expected through unanimous decision and maintained IOER at 0.10%. Fed will keep dollar swap lines and FIMA open through March 31st, while it will maintain asset purchases at least at the current pace and will continue its overnight, as well as term repo operations. FOMC added that economic activity and employment has picked up in recent months but remains well below its levels at the beginning of the year and noted that the path of economic recovery will depend significantly on the course of the virus. (Newswires)

Fed Chair Powell stated at the press conference that the Fed would be committed to using its tools "for as long as it takes" to ensure a strong economic recovery and that household spending looks to have recovered by about half, likely owing to fiscal stimulus, but business fixed investment is yet to improve. Powell added that the pandemic has left a significant imprint on inflation with food prices up but weaker demand has weighed on overall consumer inflation, while he also commented that the recent pick up in COVID cases is starting to weigh on economic activity and that a full recovery is unlikely until people feel safe to engage in a broad range of economic activities.

Fed Chair Powell believes there will be a need for additional support from the Fed and from government and stated that on balance, high frequency data has been showing a slowing of the pace of recovery such as credit card spending, hotel occupancy rates and mobility although it is too early to know how large or sustained it will be. Furthermore, he commented that no decision has been made on forward guidance although both calendar and outcome-based guidance have separate attractions.

CORONAVIRUS UPDATE

US COVID-19 cases rose by 56,862 (Prev. +54,448) and deaths increased 1,194 (Prev. +1,126), while a major newswire tally later reported that US coronavirus cases rose by at least 65,846 to 4.44mln and deaths rose by at least 1,468 to 151,241 which is the largest daily increase in deaths since May 27th. California COVID-19 cases rose by 8,755 (Prev. +6,000) and deaths increased by a record +197 (Prev. +73), Texas cases increased by 9042 (Prev. +8,432) and death toll rose by a record 313 (Prev. +164)), while New York COVID-19 cases +715 (Prev. +534) and deaths rose by 5 (Prev. +9). (Newswires)

New Jersey Governor Murphy said increasing cases are a reason to hit pause on the restart and that new cases have set the state back a month. Elsewhere, Florida is said to be shutting all state managed COVID testing sites from 1700 on Thursday due to a potential tropical storm in which the closure could last until next Wednesday, according to NYT's Mazzei. (Twitter)

Australia’s Victoria state Premier confirmed a record 723 additional coronavirus cases and announced that face masks are now mandatory across the state, while there were later comments from Australian PM Morrison that the coronavirus spike in Victoria state is very concerning. (Newswires)

Tokyo confirmed at least 365 new cases of coronavirus infections for Thursday, while the city will reportedly ask restaurants and karaoke bars to reduce hours between August 3rd-31st amid surge in virus cases. (Fuji TV, Nikkei)

Fears over a second wave of COVID-19 in the UK have been triggered by a warning from scientists at Cambridge University who have stated that the R-rate is now close to one in every part of the country. (Telegraph) UK Health Secretary Hancock is expected to increase the self-isolation time for those with COVID-19 symptoms to 10-days vs. current 7-days. Additionally, enhanced restrictions for Leicester are expected to be reviewed today. (BBC)  

ASIA

Asian equity markets were mostly kept afloat as the region took advantage of the post-FOMC tailwinds from Wall Street and as focus was centred on a deluge of earnings releases. ASX 200 (+0.7%) was led by outperformance in the tech sector and with mining names underpinned by Rio Tinto earnings. Nikkei 225 (-0.2%) also began positively although gains were later reversed amid recent currency strength and after Retail Sales Y/Y topped estimates but remained in contractionary territory. Furthermore, notable movers have been driven by corporate updates with Nomura Holdings the biggest gainer, while Isetan Mitsukoshi, TEPCO and Sumitomo Mitsui Financial Group are at the other side of the spectrum on dismal results. KOSPI (+0.3%) began the session on the front foot to print its best level since October 2018 after encouraging earnings from Samsung Electronics although some of the gains were later pared after shares of the tech and index behemoth stalled around the KRW 60,000 level. Elsewhere, Hang Seng (+1.1%) and Shanghai Comp. (+0.1%) were varied with indecision seen in the mainland following the prior day’s outperformance and after the PBoC opted for a neutral position in its latest liquidity operations. Finally, 10yr JGBs were subdued amid the flimsy sentiment in Tokyo and mostly weaker results at the 2yr JGB auction.

PBoC injected CNY 50bln via 7-day reverse repos for a net neutral daily position and maintained the reverse repo rate at 2.20%, while it also announced to conduct a CNY 5.0bln central bank bill swap. (Newswires) PBoC set USD/CNY mid-point at 6.9902 vs. Exp. 6.9939 (Prev. 6.9969)

Japanese Retail Sales (Jun) M/M 13.1% vs. Exp. 8.0% (Prev. 2.1%). (Newswires) Japanese Retail Sales (Jun) Y/Y -1.2% vs. Exp. -6.5% (Prev. -12.3%, Rev. -12.5%)

UK/EU

UK widened the small business loan scheme to allow more smaller companies to have access to the government loan scheme after the EU relaxed state aid regulations, according to the Minister for Small Business, Consumer and Labour Markets Paul Scully. (Newswires)

UK & Japan trade talks are expected to continue past the July 31st deadline as, while many sections of the treaty are complete, concerns remain over market access, investment protection & rules of origin, according to officials. (FT)

UK car manufacturing declined by 42% during H1 to its lowest level since 1954. (FT)

FX

The DXY resumed its weakness yesterday owing to gains in stocks which spurred outflows from the hard currency and with an unsurprising FOMC announcement doing no favours for the greenback. Nonetheless, the greenback has recouped some losses overnight after EUR/USD and GBP/USD pulled back from resistance around the 1.1800 and 1.3000 levels respectively. USD/JPY was rangebound as it continued to flirt with support at the 105.00 level and antipodeans traded lacklustre after New Zealand ANZ Business survey data improved although remained in negative territory and with Australia’s Victoria state suffering a record spike in new coronavirus cases which prompted a state-wide mandatory wearing of face masks.

New Zealand ANZ Business Confidence (Jul) -31.8% (Prev. -34.4%). (Newswires) New Zealand ANZ Activity Outlook (Jul) -8.9% (Prev. -25.9%)

COMMODITIES

WTI crude futures kept to within a tight range above the USD 41.00/bbl level as momentum from the bullish surprise draw in EIA crude inventories was offset by the rising COVID-19 narrative after California, Florida and Texas all reported record increases in deaths for a second consecutive day. On the supply front, OPEC supply was said to be up by 500k BPD this month, according to Petro-Logistics. Elsewhere. Gold prices were slightly weaker following a bout of indecision post-FOMC and as the greenback recouped some of its recent losses, while copper was kept afloat amid the mostly positive risk tone across stocks.

OPEC supply was up 500k BPD in July, according to Petro-Logistics. (Petro-Logistics)

US

Rates were little changed after the Fed stood its ground, neither leaning more dovish or indicating any intention to stand back from the market. By the conclusion of the FOMC Q&A, 2s -1bps at 13bps, 10s -1bps at 57bps and 30s +2bps at 124bps. Treasuries had caught a bid heading into the US session, taking the 10-year yield right up to the critical 57bps resistance level and seeing the T-Note future make new contract highs – reports suggested CTAs had been covering shorts with algo buy programmes triggered. The volumes remained below averages ahead of FOMC, however, making it hard to read into the pressure on yields which saw the 5-year reach an all-time low. Yields then saw little action upon the release of the FOMC decision and the attached presser/Q&A, in what was a relatively dull FOMC. T-Note (U0) Futures Settled +3 Ticks At 139-22+

US President Trump President Trump threatened to tackle Big Tech with executive orders if Congress fails to do so and he claimed drug companies are spending millions on anti-Trump advertising since he is lowering drug prices. (Newswires/Twitter)

US President Trump reportedly began pushing for a short-term patch on Wednesday to protect renters and extend unemployment insurance, but some Republicans immediately resisted the idea which resulted to no apparent progress. (NBC)

US Senate Majority Leader McConnell said he hopes Republicans and Democrats can reach an agreement on unemployment by Friday, while he added that politicians should be negotiating eviction relief and that issues unrelated to coronavirus should be removed from stimulus. (Newswires)

White House Chief of Staff Meadows said we are nowhere close to a deal after leaving House Speaker Pelosi's office, while he also commented that Democrats are unwilling to do a short term unemployment insurance extension and predicts USD 600/week benefit will now expire. (Politico/Bloomberg/Twitter)

White House Official said the administration is working on initiative to encourage US firms to shift production back to Americas from Asia which could bring back USD 30bln-50bln in US investment back to Americas from Asia. (Newswires)

Optimus Poll showed former VP Biden at 48% vs. President Trump at 40% (Prev. 45% vs. 41%) and Democrats at 45% vs. Republicans at 38% (Prev. 43% vs. 40%), conducted on July 28th. (Twitter)

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