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[PODCAST] US Open Rundown 3rd September 2020

  • European stocks remain in firm positive territory, but US equity futures diverge from counterparts across the pond
  • 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
  • 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
  • White House is reportedly to clarify the extent of the WeChat and TikTok ban within weeks; China is said to be mulling broader chip-sector support to battle US President Trump
  • Looking ahead, highlights include 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

CORONAVIRUS UPDATE

US 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. (AFP)

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)

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 ultimately closed mixed after a predominantly positive session 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 (+0.9%) 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 (-0.5%) and Shanghai Comp. (-0.6%) 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) Separately, China's Commerce Ministry says China's new tech export rules are not targeting any specific company; adds, on India banning Chinese apps says China is seriously concerned and resolutely opposes this. (Newswires)

White House is reportedly to clarify the extent of the WeChat and TikTok ban within weeks. 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)

US

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)

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)

UK-US trade talk round to commence from September 8th, according to UK Junior Trade Minister. (Newswires)

UK/EU

Reports noted that Chancellor Suank 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)

EU Markit Services Final PMI (Aug) 50.5 vs. Exp. 50.1 (Prev. 50.1); Comp Final PMI (Aug) 51.9 vs. Exp. 51.6 (Prev. 51.6)

-        German Markit Services PMI (Aug) 52.5 vs. Exp. 50.8 (Prev. 50.8); Comp Final PMI (Aug) 54.4 vs. Exp. 53.7 (Prev. 53.7)

UK Markit/CIPS Services PMI Final (Aug) 58.8 vs. Exp. 60.1 (Prev. 60.1)

-        Composite PMI Final (Aug) 59.1 vs. Exp. 60.3 (Prev. 60.3)

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)

EQUITIES

European equity markets continue on their upwards trajectory (Euro Stoxx 50 +1.2%) in a continuation of yesterday’s price action and following a firm handover from Wall Street, although a divergence is seen between European and US equity futures, with the latter potentially weighed on by the stalemate on Capitol Hill, whilst NQ underperforms in what seems to be an unwind of the recent tech rally. Note: some have attributed the upside in Europe to a piece via the FT noting that ECB members are likely to cut their inflation projections at next week’s meeting amid the recent EUR strength. However, it is worth keeping in mind that price action does not correlate with the timing of the piece, with futures stable until the European cash open, almost three hours after markets picked up on the FT report. Nonetheless, the region experiences a sea of green with some underperformance seen in UK’s FTSE (+0.6) – weighed on by some large-cap miners as metals succumb to the Dollar. Sectors also reside in positive territory across the board with no clear risk bias to be extracted. Basic resources are the laggards whilst Travel & Leisure top the charts, possibly underpinned by vaccine hopes after NIH’s Fauci said there could be a vaccine ready by November or December. The IT sector meanwhile failed to garner much traction from reports that China is said to be mulling broader chip-sector support to battle US President Trump. In terms of individual movers, Sanofi (+0.7%) and GSK (+0.5%) have not deviated much since the cash open despite initiating its Phase 1/2 trial for its protein-based COVID-19 vaccine candidate, with pre-clinical studies showing promising safety and immunogenicity. Iliad (-3.1%) shares have tumbled after reporting a mixed bag of earnings. Finally, Siemens Healthineers (-3.6%) stand as one of the laggards after the group commenced a cash capital increase.

FX

USD - The great Greenback revival seems to have stalled around 93.000 in DXY terms, albeit with the Euro rebounding on the back of a German boost to the pan Eurozone services and composite PMIs after disappointing prints from the periphery and France. Indeed, the Dollar may yet regain the initiative and upward momentum if the services ISM emulates the feats of Tuesday’s manufacturing survey and/or initial claims return to a declining trend. For now, the index is maintaining an underlying bid within a 93.074-92.688 band and taking cues from major counterparts in the main, while US Treasury yields and the curve continue to tick higher and steepen against the backdrop of positive risk sentiment in global stocks vs softer crude and commodity prices.

GBP - Sterling has slipped towards the bottom of the G10 ranks, with Cable struggling to keep sight of 1.3300 and Eur/Gbp eyeing 0.8900 after downward revisions to UK services and composite PMIs, but also amidst some re-pricing for zero or negative rates along the Short Sterling strip. However, BoE Governor Bailey may reiterate that NIRP is unlikely to happen anytime soon and MPC member Saunders rounds off this week’s heavy speaker’s schedule tomorrow.

AUD/NZD/CAD - Also weaker vs their US rival as the Aussie teeters just above 0.7300 in wake of weak trade data hot on the heels of the record Q2 GDP contraction, the Kiwi pivots 0.6750 and Loonie meanders between 1.3100-1.3040 parameters awaiting Canadian trade and Friday’s labour report.

EUR/CHF/JPY - As noted above, the Euro has gleaned some traction from upgrades to final German PMIs that more than offset misses elsewhere, with Eur/Usd back over 1.1800 and within striking distance of the 21 DMA (1.1835), while the Franc has pared declines from circa 0.9142 even though Swiss CPI came in slightly softer than expected and will likely harden the resolve of the SNB to keep rates negative and actively intervening. Similarly, the Yen is trying to contain losses below 106.00 despite more dovish BoJ commentary overnight and Japanese services and composite PMIs staying sub-50.

SCANDI/EM - The aforementioned downturn in oil has pushed the Norwegian Crown back under 10.5000 against the Euro and the Yuan is finally succumbing to the Buck’s persistent efforts to recover, but the Lira is underperforming again and sliding to new all time lows following weaker than forecast Turkish inflation and more intense investor anxiety about the nation’s increasingly strained international relations.

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%)

FIXED INCOME

Germany’s outstanding services PMI and single-handed contribution to the final pan Eurozone reckoning cannot be discounted, but the pull-back in Bunds appears partly technical as resistance into 177.00 held and the corresponding 10 year yield faded ahead of -50 bp. Moreover, the Euro’s extended reversal from recent highs will have appeased those at the ECB said to be alarmed about its appreciation, and the core debt future is now hovering around parity within a 176.93-49 range vs its 176.67 midweek session close. Meanwhile, Gilts failed to sustain 136.00+ status even though UK PMIs were tweaked down from lofty prelim estimates and retreated to 135.71 (-19 ticks on the day compared to +21 ticks at best, as 25 bp proved sticky in cash terms and US Treasuries remain relatively depressed with the curve suppressed awaiting IJC, the non-manufacturing ISM, 3, 10 and 30 year supply details (amount of issuance above all else) and Fed’s Evans.

COMMODITIES

WTI and Brent front month futures continue to drift lower in early European hours, partly weighed on by the firmer USD, although participants must keep an eye on the supply side of the equation as Gulf of Mexico production comes back online (BSEE estimate 19.9% production shuttered in vs. Prev. 28.4%), whilst comments from Russian Energy Minister Novak yesterday, regarding oil demand at ~90% of pre-pandemic levels and calling on OPEC to take this into account, hinted at a potential proposal of early tapering of the OPEC+ output curbs. Meanwhile, the demand side of the equations continues to eye COVID-19 developments, with the European Centre for Disease Prevention and Control suggesting COVID-19 infections in Europe are "almost back" to March levels. Of course, airline fuel demand will be in focus on this front given the implementation of quarantine rules in the continent, whilst lockdowns are likely to be targeted to specific regions of cluster outbreaks. WTI Oct just below USD 41/bbl (vs. high 41.79/bbl) and Brent Nov under USD 44/bbl (vs. high 44.65/bbl), with the latter approaching USD 43.50/bbl to the downside. Elsewhere, precious metals remain subdued as a function of the Dollar – spot gold found overnight resistance at 1950/oz before trundling lower to ~1925/oz. Spot silver saw losses accelerate after a downwards breach of 27/oz, albeit the metal has since reclaimed the level. In terms of base metals, copper prices eased as disruptions ease in Chile, alongside an overall downbeat performance in China.

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)

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