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[PODCAST] EU Open Rundown 3rd September 2020

  • APAC stock markets traded mostly higher after a firm lead from Wall Street; but gains in China faded
  • Top ECB officials are said to be concerned of a strengthening EUR; a council member said the EUR rise will likely require the ECB to further cut inflation projections next week
  • European Centre for Disease Prevention and Control said COVID-19 infections in Europe are "almost back" to March levels
  • NIH’s Dr Fauci said based on COVID-19 vaccine trial enrolment rates, there could be a vaccine ready by November or December
  • In FX, DXY was propped up by EUR weakness; AUD saw mild underperformance on soft data
  • Looking ahead, highlights include Swiss CPI, EZ, UK and US Final Services and Composite PMIs; US Initial and Continued Jobless Claims, and ISM Non-Manufacturing PMI,  Riksbank’s Ingves, BoE’s Bailey, ECB's Schnabel, Fed's Evans, supply from Spain, France, UK

CORONAVIRUS UPDATE

US CDC asked states to prepare for a possible COVID vaccine by early November, while it was also reported that the CDC provided states with documents giving details of a vaccine rollout plan in which the vaccines would either be approved as licensed vaccines or under emergency use authorization. (NY Times/AFP) NIH’s Dr Fauci said based on COVID-19 vaccine trial enrolment rates, there could be a vaccine ready by November or December. (MSNBC)

US COVID-19 cases +43,249 (prev. +32,087) and deaths +1,033 (prev. +428), while a major newswire tally stated US cases increase by at least 39,774 to a total of 6.12mln and deaths rose by at least 1,033 to a total of 185.8k. (Newswires) California COVID cases +4,255 (prev. +3,712) and deaths +145 (prev. +85) and Texas cases +4,334 (prev. +4,364) and deaths +189 (prev. +145). (Newswires)

COVID-19 infections in Europe are "almost back" to March levels, according to the director of the European Centre for Disease Prevention and Control. (CNN)

Novavax (NVAX) announced publication of phase 1 data for COVID-19 vaccine says NVX-CoV2373 appeared to be safe and elicited immune responses that surpassed levels in convalescent serum. (Newswires)

UK ordered trials of mass rapid testing for COVID-19 and is to commit GBP 500mln for trials using the latest technology. (FT)

ASIA

Asian equity markets traded mostly higher following the firm handover from US peers in which the S&P 500 and Nasdaq extended on record highs and DJIA climbed back above 29,000 amid dovish central bank rhetoric and vaccine optimism. ASX 200 (+0.8%) gained from the open with the index led by its top-weighted financials sector and sentiment underpinned by tax cut hopes after Treasurer Frydenberg announced that the government plans to bring forward tax reductions. Nikkei 225 (+1.1%) found support from a favourable currency and after Japan's Chief Cabinet Secretary Suga confirmed he will run in the party leadership race and will continue with Abenomics policies, while index heavyweight Fast Retailing was also buoyed after its domestic same-store sales surged 29.8% last month. Hang Seng (-0.4%) and Shanghai Comp. (-0.1%) were initially positive after stronger than expected data in which Caixin Services PMI topped estimates and Caixin Composite PMI improved, although upside was later reversed following a relatively tepid liquidity effort by the PBoC which resulted to a daily net injection of CNY 20bln and due to US-China tensions after the US imposed fresh restrictions on Chinese diplomats in the US. Finally, 10yr JGBs were higher as they tracked recent gains in T-notes despite the strength seen in equity markets, with prices kept afloat amid declining yields and following marginal improvement in the 30yr JGB auction results.

PBoC injected CNY 120bln via 7-day reverse repos at a rate of 2.20% for a net injection of CNY 20bln. (Newswires) PBoC set USD/CNY mid-point at 6.8319 vs. Exp. 6.8293 (Prev. 6.8376); strongest fix since May 13th, 2019.

Chinese Caixin Services PMI (Aug) 54.0 vs. Exp. 53.9 (Prev. 54.1). (Newswires) Chinese Caixin Composite PMI (Aug) 55.1 (Prev. 54.5)

Chinese Embassy spokesperson said the US requirement for Chinese diplomats to register is another unjustified restriction and urged the US to correct its mistake. (Newswires)

White House is reportedly to clarify the extent of the WeChat and TikTok ban within weeks. There were also separate reports that Bytedance and TikTok suitors are discussing four options to advance stalled deal talks, according to sources. These include selling TikTok assets without its algorithm, a transition period to use TikTok algorithm for up to a year while a new one is developed, seeking China’s permission to pass on the TikTok algorithm to a US buyer and licensing the TikTok algorithm from ByteDance. (Newswires)

China is said to be mulling broader chip-sector support to battle US President Trump; China to support 3rd Gen chips in the next 5yr plan and will spur research investments into the next Gen semiconductors. (Newswires)

BoJ's Kataoka (Dissenter) said must try to curb downward pressure on prices as much as possible and should clarify intention of cutting interest rates, as well as buy JGBs aggressively. Kataoka added they must modify BoJ's commitment to something more powerful and that BoJ must promise to act under specific conditions, as well as stress it will not tolerate deflation. (Newswires)

UK/EU

UK Chancellor Sunak said reports regarding tax rises are speculation. However, these reports also noted that the Chancellor is mulling an array of tax rises; would include cuts to pension tax relief for higher earners alongside capital gains tax and fuel duties. Reportedly resulted in backlash from Tory MPs and ministers. (Newswires/Times)

Top ECB officials are said to be concerned of a strengthening EUR and warn if it keeps appreciating, it will drag down exports, lower prices and increase pressure for further stimulus. A council member said it is a growing concern but not a huge one yet, adding that the rise in the EUR will likely require the Central Bank to further cut its inflation forecast next week. (FT)

ECB's Weidmann (Hawk) said EU extraordinary fiscal and monetary support must be temporary and it needs to be scaled back after COVID-19, while he added that an extension of the German government’s short-time work scheme to 24 months may be justified and regulation of the scheme is needed so viable activities benefit. (Newswires)

German Chancellor Merkel's Party (CDU) backs extra German deficit spending in 2021. (Newswires)

FX

In FX markets, the DXY was rangebound overnight, although held on to most the prior day’s gains in which it approached closer towards the 93.00 level as it benefitted from the recent weakness in the Single Currency. EUR/USD remained pressured and retreated below its 21DMA of 1.1835 in a continuation of the pullback from this week’s failed incursion into the 1.2000 territory and with reports noting concerns in the ECB of the recent appreciation of the single currency, which if persisted could weigh on exports and prices, as well as increase pressure for the Central Bank to act. GBP/USD was also lacklustre beneath 1.3350 following the abundance of rhetoric from the BoE including Governor Bailey and Deputy Governor Ramsden in the prior session. Elsewhere, USD/JPY traded at the 106.00 handle with the pair kept afloat by recent USD-strength and the positive risk tone, while antipodeans were mixed with mild underperformance in AUD/USD following softer trade data.

Australian Trade Balance (AUD)(Jul) 4.6B vs. Exp. 5.4B (Prev. 8.2B). (Newswires) Australian Exports (Jul) M/M -4% (Prev. 3.0%) Australian Imports (Jul) M/M 7% (Prev. 1.0%)

COMMODITIES

Crude prices languished near the prior day’s lows, with WTI around the USD 41.50/bbl level after its recent slump from above USD 43.00/bbl despite the much positive risk tone, with the pressure attributed to USD headwinds and weak demand outlook. Elsewhere, spot gold prices were constrained by resistance at the USD 1950/oz level and as the greenback held on to recent strength, while copper was indecisive amid underperformance in China and mixed production updates from the world’s largest producer Chile.

Iraqi oil ministry spokesperson denied a statement attributed to the Oil Minister which said Iraq would be seeking an exemption on production limits under the OPEC+ deal. The spokesman affirmed commitment to OPEC+ oil cut pact agreed in April and the compensation mechanism agreed to in June, while it was stated that if compensation cannot be achieved by September, Iraq would then ask for an extension. (Newswires)

Chile's Cochilco said BHP’s Escondida copper mine production in July rose 3.8% to 100.9k tons (+4.9% YTD) and Codelco production fell 4.4% Y/Y to 133.0k tons (+2.3% YTD), while Collahuasi mine copper production rose 22.8% to 58.1k tons (+26.2% YTD). (Newswires)

GEOPOLITICAL

US Attorney General Barr said there is some preliminary activity which suggests Russia is attempting to influence US election but added that China is more aggressive than Russia in attempts to influence the US election. (Newswires)

Canada, US, EU and UK are reportedly discussing possible sanctions against Belarus which would come in the not too distant future if they were imposed, according to sources. (Newswires)

German Chancellor Merkel said the Navalny case is an attempted murder with a nerve agent, while she expects Russia to explain its position on the case and Germany will consult with NATO partners and decide a reaction. (Newswires)

US

By settlement, the curve was mixed (flatter bias, however), with yields through 5-years flat/slightly higher, while yields on 7s through the long end narrowed, with most of the action seen along the long-end of the curve, where 30s yields fell by 5bps. Some desks had attributed continued remarks from Fed officials that YCT policies were still in the toolbox, though were unlikely to be deployed soon (Clarida intimated on Monday, Brainard said it on Tuesday, while Mester joined those two today; there was not a lot from the Fed's Williams on the subject today, however). Others were more circumspect, stating it was merely a function of buying into the post-Jackson Hole steepener. Some, perhaps overreading into Williams remarks, suggested that his remarks were consistent with further Fed QE, after he argued that the new framework directly addressed the problems caused by a low neutral rate and persistently low inflation - that seems to rule out any pre-emptive tightening. The buying may have been given a jolt by the ADP labour market data, which missed expectations and had a downbeat commentary attached to it. US T-note futures (z0) settle 3+ ticks higher at 139-17+.

Fed's Beige Book stated economic activity increased among most Districts, but gains were generally modest, and activity remained well below levels prior to the COVID-19 pandemic. The Beige Book also stated that manufacturing rose in most Districts and consumer spending continued to pick up, sparked by strong vehicle sales and some improvements in tourism and retail sectors. (Newswires)

Fed's Daly (non-voter) said she does not see a need to give further guidance on rate path, while she added that the new framework goes a long way to signal accommodative policy until inflation average 2% and employment shortfalls are offset. Furthermore, Daly stated that long rates are currently aligned with Fed policy expectations but would use more forward guidance if there were misaligned and expects the labour market to improve only in fits and starts. (Newswires)

US President Trump signed a memo which stated the administration will not permit federal tax dollars to fund cities that allow themselves to deteriorate into lawless zones and orders a review of funds going to jurisdictions that allow anarchy, violence and destruction of US cities, while the cities targeted for review are New York, Portland, Seattle and Washington D.C. There were later comments from US Senate Minority Leader Schumer that President Trump's funding review for cities is a foolish stunt. (Newswires)

US Senate Majority Leader McConnell suggested doubts on whether Congress can get an agreement of a COVID-19 relief bill when Congress returns to Washington from the recess and stated he doesn’t know if there will be another package in the next few weeks or not. (Newswires)

CBO cut projected FY20 US budget deficit view to USD 3.3trln (prev. 3.7trln in April). (Newswires)

The Hill-HarrisX survey showed former VP Biden lead over President Trump at narrowed to 6-points at 46% vs. 40% (Prev. 47% vs. 38%) conducted on August 29th-31st. Elsewhere, CNN National Poll of Polls showed former VP Biden support at 51% vs. President Trump at 43%, conducted August 28th-September 1st, while Fox News state-wide polls showed former VP Biden ahead of US President Trump among likely voters in 3 key states of Arizona at 49% vs. 40%, North Carolina at 50% vs. 46% and Wisconsin at 50% vs. 42%. (The Hill/CNN/Fox News)

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