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[PODCAST] US Open Rundown 1st September 2020

  • Stocks have been modestly choppy but generally rangebound throughout the morning; currently, US futures are firmer with Nasdaq outperformance
  • China’s Caixin Manufacturing PMI beat & EZ CPI dropped into negative territory
  • US Treasury Secretary Mnuchin said House Speaker Pelosi and Senate Minority Leader Schumer do not want to negotiate in good faith regarding COVID-19 relief legislation
  • RBA left policy U/C overnight and reiterated forward guidance
  • DXY is downbeat dropping to fresh YTD lows to the benefit of major peers, particularly GBP which is aided by EUR/GBP
  • Looking ahead, highlights include US Manufacturing PMIs, ISM Manufacturing, ECB's Lane, Fed's Brainard & US Treasury Secretary Mnuchin testimony

CORONAVIRUS UPDATE

Texas cases +2,615 (prev. +3,824); deaths +26 (prev. +90). (Newswires)

A briefing paper for the EU ambassadors’ meeting tomorrow reportedly identifies several potential areas for improving cross-border pandemic coordination. This includes the development of common quarantine rules, improved mapping practices and use of agreed data sources. (FT)

Sanofi (SAN FP)/Regeneron (REGN) - Kevzara COVID-19 vaccine Phase III trials did not meet its primary endpoint and key secondary endpoint; do not anticipate conducting further clinical studies for Kevzara in COVID-19. Detailed results to be released in peer-review publication later this year. (Newswires)

ASIA

Asian equities traded cautiously as the region took its cue from the losses seen across most global counterparts despite Wall St. notching its biggest monthly gain since April and its best August performance in more than 3 decades, while participants also digested encouraging Chinese Caixin Manufacturing PMI data. ASX 200 (-1.8%) underperformed and briefly wiped out all of the prior month’s gains on a collapse below the 6,000 level with the downturn led by hefty losses in tech and energy, while the detention of a Chinese-Australian television anchor further highlighted the souring bilateral relations with China. Nikkei 225 (-0.1%) was indecisive but with downside stemmed by recent currency weakness and political continuity hopes with Chief Cabinet Secretary Suga said to be supported by the largest faction of the ruling LDP and is set to announce an intention to continue with Abenomics and the pandemic response when declaring his candidacy on Wednesday. Elsewhere, Hang Seng (U/C) and Shanghai Comp. (+0.4%) swung between gains and losses as mild support was seen following the strongest Caixin Manufacturing PMI reading since January 2011, but with upside also capped after the PBoC drained CNY 230bln from the interbank market and due to lingering US-China tensions after White House trade adviser Navarro stated the US will go after others not just TikTok and WeChat. Finally, 10yr JGBs were higher following the recent gains in T-notes and indecisive risk tone in the region, although some of the gains were reversed after all metrics pointed showed weaker results at the 10yr JGB auction.

PBoC injected CNY 20bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 230bln. (Newswires) PBoC set USD/CNY mid-point at 6.8498 vs. Exp. 6.8493(Prev. 6.8605)

Chinese Caixin Manufacturing PMI (Aug) 53.1 vs. Exp. 52.6 (Prev. 52.8); highest since January 2011. (Newswires)

The largest faction of Japan’s ruling LDP will back Chief Cabinet Secretary Suga in a bid for the LDP leadership and it was also reported that the LDP leadership race will be a slimmed down format. Furthermore, Japanese Chief Cabinet Secretary Suga is to announce an intention to continue with Abenomics and the pandemic response when announcing his candidacy on Wednesday (scheduled for 04:00ET/09:00BST), while Defence Minister Kono is still undecided whether to run for leadership. (Newswires)

-        LDP member Kishida has decided to run for the LDP leadership race. Kishida states bold monetary & fiscal measures must be pursued, recovery in demand is not yet in place.

US

US President Trump asked the Federal Appeals Court to delay the subpoena of his tax returns and plans to ask the Supreme Court to consider the request if it is rejected by the Appeals Court. (Newswires)

US Treasury Secretary Mnuchin said House Speaker Pelosi and Senate Minority Leader Schumer do not want to negotiate in good faith regarding COVID-19 relief legislation. Furthermore, Mnuchin continues to discuss aid with Senate Majority Leader McConnell and congressional GOP, while he hopes McConnell will introduce another relief bill next week. (Newswires)

The Hill-HarrisX poll showed former VP Biden kept a 9-point lead vs. US President Trump at 47% vs. 38% (prev. 47% vs. 38%) conducted on Aug. 25th-28th, while Emerson College national poll shows former VP Biden leads President Trump by 2 points at 49% vs. 47% (prev. 4-point lead at 50% vs. 46%) conducted Aug. 30th-31st. (The Hill/Twitter)

UK/EU

EU Chief Brexit Negotiator Barnier is unwilling to open discussions on the latest fisheries proposals until the UK budges on other issues, according to reports. This comes as part of Barnier's "parallelism" approach whereby multiple aspects of issues need to be agreed before proceeding. (Telegraph) 

UK Chancellor Sunak could increase fuel duty by 5p to help pay for the coronavirus in the Autumn budget. (The Sun)

UK Markit/CIPS Manufacturing PMI Final (Aug) 55.2 vs. Exp. 55.3 (Prev. 55.3)

EU Markit Manufacturing Final PMI (Aug) 51.7 vs. Exp. 51.7 (Prev. 51.7)

-        German Markit/BME Manufacturing PMI (Aug) 52.2 vs. Exp. 53.0 (Prev. 53.0)

-        French Markit Manufacturing PMI (Aug) 49.8 vs. Exp. 49.0 (Prev. 49.0)

-        Italian Markit/IHS Manufacturing PMI (Aug) 53.1 vs. Exp. 52.0 (Prev. 51.9)

EU HICP Flash YY (Aug) -0.2% vs. Exp. 0.2% (Prev. 0.4%)

-        Ex-Food & Energy Flash YY (Aug) 0.6% vs. Exp. 1.1% (Prev. 1.3%)

-        Ex-Food, Energy, Alcohol & Tobacco Flash YY (Aug) 0.4% vs. Exp. 0.8% (Prev. 1.2%)

German Economy Minister says the government currently sees a v-shaped recovery; raise its 2020 GDP forecast to -5.8% (prev. April forecast of -6.3%), lowers its 2021 GDP forecast to +4.4% (prev. April forecast of +5.2%). (Newswires)

GEOPOLITICAL

China will hold live-fire exercise drills in the south of the Yellow Sea from Wednesday to Friday, China's Maritime Safety Administration announced, cited by Global Times. (Newswires)

China customs is to suspend barley imports from Australian firm CBH grain from today. (Newswires)

Turkish Foreign Minister states that Turkey is prepared to solve issues with Greece via dialogue. (Newswires)

EQUITIES

Earlier gains across European equities have somewhat faded (Euro Stoxx 50 +0.4%) despite a lack of fresh macro catalysts, with the region now ultimately mixed, whilst losses in UK’s FTSE 100 (-1.3%) persist amid a catch-up play from its long weekend Bank holiday. Sectors performance is also varied with no clear risk profile to be derived: the IT sector outperforms as chip-makers cheer reports that Apple is aiming to launch four new iPhone models next month, with volumes in the 75mln region. Thus, the likes of STMicroelectronics (+1.1%), Dialog Semiconductor (+3.3%), Infineon (+1.2%) remain propped up. On the other side of the spectrum resides Travel & Leisure, alongside Banks and Oil & Gas. In terms of individual movers, Novartis (+3.0%) keeps the healthcare sector afloat on the back of a broker upgrade at Morgan Stanley coupled with an announcement that it has developed new ESG targets in order to ramp up access to medicines and achieve full carbon neutrality. Sticking with the healthcare sector, Sanofi (+0.6%) has largely brushed off its COVID-19 Kevzara vaccine failing to meet primary and key secondary endpoints in its Phase III trials. Meanwhile, AstraZeneca (-0.5%) succumbs to the weakness in the post-bank holiday UK markets but with downside somewhat cushioned by a positive update for its Farxiga, Imfinzi and COVID-19 vaccine deal with Canada. Elsewhere, Shell (-2.0%) and BP (-2.1%) are subdued despite higher oil prices, and with losses more pronounced that its cross-border counterparts amid catch-up play alongside reports UK Chancellor Sunak could increase fuel duty by 5p to help pay for the coronavirus in the Autumn budget.

FX

USD - The Dollar is suffering from a post-month end hangover as the DXY slips to a new 2020 low of 91.741 amidst broad losses vs G10 peers and most EM currencies. Confirmation of a firm US manufacturing PMI via the final release and ISM matching expectations for a pick-up in headline activity could conceivably provide the Greenback some respite, but the index remains toppy on rebounds over 92.000 as buoyant risk sentiment counters renewed bear-steepening along the Treasury curve.

NZD/CAD/GBP/EUR - The major beneficiaries of ongoing Buck weakness as the Kiwi pivots either side of 0.6750 awaiting NZ terms of trade for Q2 and the Loonie extends through the psychological 1.3000 level with some assistance from firm crude oil. Meanwhile, the Pound has scaled another big figure and briefly breached a mid-December 2019 peak (1.3422), as Eur/Gbp unwinds modest RHS demand for the August/September turn from circa 0.8950 towards 0.8900 irrespective of more negative sounding Brexit news (EU chief negotiator Barnier reportedly unwilling to discuss new UK fishing proposals unless Britain compromises on other contentious issues). Elsewhere, the Euro has tested round number resistance at 1.2000 vs the Dollar, but market contacts note heavy offers related to option expiries and on that note 1.1 bn rolling off between 1.1895-1.1900 at today’s NY cut may keep the headline pair supported given little net reaction to mixed Eurozone manufacturing PMIs and even weak, deflationary inflation.

JPY/AUD/CHF - Also firmer against the Greenback, albeit mildly as the Yen hovers midway within a 106.03-105.60 range, the Aussie fades after another 0.7400+ foray and Franc fails to breach 0.9000. For the record, the RBA stuck to the script overnight, though did extend and expand its Term Funding Facility, while July building approvals smashed estimates and the Q2 current account surplus was wider than forecast. However, relations with China are going from bad to worse as barley imports from Australia’s CBH Grain company are suspended.

SCANDI/EM - Not much response to rises in Swedish and Norwegian manufacturing PMIs, but China’s stronger than expected Caixin reading has helped the Yuan appreciate further vs the Dollar in contrast to a decline in the Turkish headline index that is weighing on the already lagging Try.

RBA left the Cash Rate Target unchanged at 0.25% and the 3yr yield target at 25bps as expected, RBA reiterated forward guidance that it will not increase rates until progress is being made towards full employment and it is confident inflation will be sustainably within the 2%-3% target band, while it decided to increase the size of the Term Funding Facility and make the facility available for longer. Furthermore, it stated that wage and prices pressures remain subdued which is likely to continue for some time and that inflation is expected to average between 1 and 1½ per cent over the next couple of years. (Newswires)

Riksbank are to begin the purchase of corporate bonds in September, for a 'nominal' amount of SEK 10bln until 30th June 2021. (Riksbank)

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1895-1.1900 (1.1B), 1.1910-20 (738M), 1.1925-30 (372M), 1.1950 (980M)

-        USD/JPY: 104.50 (1.2B), 105.00 (1.1B), 105.50 (600M), 106.00 (837M), 106.30 (340M), 106.40-45 (645M)

Australian Building Approvals (Jul) 12.0% vs. Exp. -2.0% (Prev. -4.9%). (Newswires) Australian Current Account Balance (AUD)(Q2) 17.7B vs. Exp. 13.0B (Prev. 8.4B) Australian Net Exports Contribution (Q2) 1.0% vs. Exp. 1.1% (Prev. 0.5%)

FIXED INCOME

Well that didn’t last long in terms of a retracement in outright or curve realignment terms, as month end factors and the yield target/cap considerations of Fed’s Clarida fade and asset positions are re-established for the first trading session of September along risk-on lines. Hence, bonds have succumbed to renewed selling pressure and spreads are re-widening with Bunds down to 175.17 at one stage (-39 ticks vs +16 ticks at best), Gilts reversing to 134.59 (-42 ticks compared to +10 ticks) and the 10 year T-note just above its 139-02 overnight low (-6/32 from -0.5 tick at the peak). Ahead, a raft of US releases headlined by the manufacturing ISM and employment sub-component as a guideline for Friday’s NFP data, but also including more Fed rhetoric and this time from Brainard.

COMMODITIES

WTI and Brent front month futures continue to ebb higher in early European trade, in what is a continuation of price action seen overnight as a function of the weakening Dollar, whilst the complex also remains underpinned by overall risk sentiment. Aside from that, pertinent news flow has been on the light side, although sources reported that UAE’s ADNOC  pumped some 2.693mln BPD of crude in August in order to meet domestic demand – above its quota under the OPEC+ pact. That being said, sources added that the country will compensate for the undercompliance in the months ahead, whilst Iraq submitted a plan to OPEC that proposes additional cuts of 400k BPD in August and September and Kazakhstan plans additional cuts of 95k BPD over the same two-month period, according to sources. Further, Goldman Sachs raised 2020 Brent crude price forecast to USD 43.63/bbl from USD 40.51/bbl and raised 2021 forecast to USD 59.38/bbl from USD 55.63/bbl. WTI October holds its head above USD 43.00/bbl having found an overnight base around USD 42.75/bbl, whilst its Brent counterpart inches higher towards 46/bbl from a low of 45.47/bbl. Elsewhere, the weaker Buck keeps precious metals afloat with spot gold inching higher towards the USD 2000/oz mark (vs. low 1965/oz) whilst spot silver extends gains above USD 28.75/oz (vs. low 28.04/oz). Meanwhile, LME copper prices climbed to levels last seen over two years ago – bolstered by the Chinese Caixin Manufacturing beat coupled with the softer Dollar, whilst Dalian iron ore saw mild gains due to the same factors.

Goldman Sachs raised 2020 Brent crude price forecast to USD 43.63/bbl from USD 40.51/bbl and raised 2021 forecast to USD 59.38/bbl from USD 55.63/bbl. (Newswires)

UAE's ADNOC reportedly pumps 2.693BPD of crude in August, above its OPEC+ output quota; to be compensated for in the month's ahead, according to sources. (Newswires)

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