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[PODCAST] EU Open Rundown 4th September 2020

  • APAC stocks took the downbeat lead from Wall Street, which saw the Nasdaq shed over 5% amid the stock rout
  • White House Chief of Staff Meadows said they are eyeing a number of other Chinese apps regarding threats
  • UK Chancellor Sunak was warned that rebels in the UK Conservative Party will vote against the Autumn budget if the government proceeds with tax increases
  • NATO Secretary General announced Greece and Turkey have agreed to enter talks to avoid accidents and incidents in the Eastern-Mediterranean
  • In FX, DXY remained sub-93.000, USD/JPY headed towards 106.00 to the downside
  • Looking ahead, highlights include US and Canadian Labour Market Reports, ECB's Lane, BoE's Saunders

CORONAVIRUS UPDATE

US COVID cases +39,711 (prev. +43,249) and deaths +1,009 (prev. +1,033), while a major newswire tally stated US cases rose by at least 43,248 to a total of 6.17mln and deaths rose by at least 1,013 to a total of 186.8k. (Newswires) Texas COVID cases +3,680 (prev. +4,334) and deaths +221 (prev. +189), while a major newswire tally stated California cases increased by at least 4,521 on Thursday and deaths rose by at least 159. (Newswires)

Johnson & Johnson (JNJ) announced its COVID-19 investigational vaccine candidate prevents severe clinical disease in Syrian Golden Hamsters, according to data from a pre-clinical study. (Newswires)

Mesoblast (MSB AT) said DSMB recommended continuing REMETEMCEL-L Phase 3 trial in COVID-19 patients suffering with acute respiratory distress syndrome. (Newswires)

Australian PM Morrison said they will develop new plan to reopen local economy by December and there were separate comments from New Zealand PM Ardern that the coronavirus outbreak remains contained in Auckland, while she added they are to retain current alert levels with the settings to be reviewed on September 14th. (Newswires)

ASIA

APAC stocks declined across the board as the region reacted to the bloodbath on Wall St where markets slipped aggressively from record levels and the DJIA fell over 800 points and Nasdaq shed over 5% amid a tech rout, as well as the paring of risk heading into the NFP jobs data and US holiday weekend. ASX 200 (-3.0%) and Nikkei 225 (-1.3%) were heavily pressured in the face of the tech-related headwinds which resulted to hefty losses for the sector in Australia and dragged the index beneath the 6,000 level, while sentiment in Tokyo also deteriorated as exporters suffered the ill-effects of a firmer currency. Elsewhere, Hang Seng (-1.8%) and Shanghai Comp. (-1.4%) conformed to the broad losses in the region which followed a substantial net liquidity drain of CNY 470bln by the PBoC this week, and as tensions lingered with Chinese President Xi suggesting China will never accept foreign interference and with Global Times stating China will further cut holdings of US bonds due to concerns about a US crackdown and risks of ballooning US deficit although the reports cited economist and not government officials. Finally, 10yr JGBs traded flat as prices failed to benefit from the stock rout and the BoJ’s presence in the market, which was for a relatively reserved JPY 520bln of JGBs heavily focused on 5yr-10yr maturities.

PBoC injected CNY 100bln via 7-day reverse repos at a rate of 2.20%, for a net weekly drain of CNY 470bln vs. Prev. net injection of CNY 200bln last week. (Newswires) PBoC set USD/CNY mid-point at 6.8359 vs. Exp. 6.8339 (Prev. 6.8319)

White House Chief of Staff Meadows said they are eyeing a number of other Chinese apps regarding threats. There were also separate reports that China MOFCOM is to impose temporary anti-subsidy measures on NPA/N-Propanol imports from US beginning September 9th. (Newswires)

China will further cut its holdings of US bonds from the current level of above USD 1tln to about USD 800bln as it worries about US crackdown and risks of a ballooning US deficit, according to Global Times citing economists. (Global Times)

UK/EU

UK Chancellor Sunak was warned that rebels in the UK Conservative Party will vote against the Autumn budget if the government proceeds with tax increases in this. (Telegraph)

A no-deal Brexit reportedly looms as UK PM Johnson seeks to double the percentage of fish quotas reserved for UK fisherman in British waters to ~50%, which EU officials rejected as it would result to a loss of a third of EU fishing boats. (The Times)

Members of the logistics industry are warning of "significant gaps" in UK border plans for the end of the Brexit transition period on 31 December. Eight groups warned ministers that if issues were not addressed, the supply chain "will be severely disrupted". (BBC)

FX

The DXY consolidated overnight following yesterday’s mixed performance where initial upside that was spurred by weakness in stocks, was later retraced after hitting resistance around the 93.00 level, which coincided with a decline in yields. Elsewhere, price action in EUR/USD were mostly in reaction to the Greenback, with the single currency contained around the 1.1850 level and its nearby resistance at the 200-Hourly MA of 1.1866, while GBP/USD languished beneath 1.3300 amid reports of a looming no-deal after EU officials rejected UK demands to double the percentage of fish quotas reserved for UK fisherman in British waters to about 50%. Meanwhile, USD/JPY briefly tested 106.00 to the downside owing to the risk-averse tone, which alongside slightly weaker than expected Australian Retail Sales data, contributed to the humdrum performance in antipodeans.

Australian Retail Sales MM (Jul) 3.2% vs. Exp. 3.3% (Prev. 2.7%). (Newswires)

COMMODITIES

WTI crude futures were marginally pressured to test the USD 41.00/bbl level to the downside amid the global stock rout and weak demand outlook, while this week’s pressure also follows the resumption of operations by oil drillers and refineries from the recent hurricane. Elsewhere, spot gold prices kept to a tight range as the Greenback consolidated overnight, while copper nursed some of its recent losses and homed in on the USD 3.00/lb level despite the broad downbeat sentiment.

GEOPOLITICAL

NATO Secretary General announced Greece and Turkey have agreed to enter talks to avoid accidents and incidents in the Eastern-Mediterranean. (Newswires)

US

Treasuries bull-flattened; it is worth noting that, this week, market conditions have been thin, so there is a danger about overreading into a day’s action. However, listing the possible catalysts: weekly claims data appeared good for the headline, but the internals highlight the scope of the challenge ahead; risk assets had come under pressure, increasing the allure of Treasuries; Fedspeak continues to lean on the dovish side, with officials reiterating that the central bank will need to move further into accommodation. Additionally, the Treasury announced auction sizes for next week, and while the 10-year and 30-year offerings will be in keeping with market expectations (at USD 35bln and 23bln respectively), the 3-year note size was a little under expectations at USD 50bln (exp. 52bln). Ahead of the long weekend, Friday’s jobs report will be the major catalyst for the complex through the end of the week. In later trade, reports out of Chinese press suggested that China would need to further cut holdings of US bonds from current levels of above USD 1 trillion to about USD 800 billion as it worries about US crackdown and risks of ballooning US deficit; the report cited economists, not government officials. T-note futures (Z0) settle 7+ ticks higher at 139-25.

Fed's Mester (voter) said Fed guidance may need to be updated eventually but might not need specific guidance immediately, while she views that the Fed has taken important steps in regards to accommodative monetary policy which will be vital going forward in supporting a sustainable recovery. (WSJ)

Fed's Evans (non-voter) said outcome based forward guidance on rates and bond buying could be beneficial in the not too distant future, while he added that highly accommodative policy is appropriate for some time to come. Evans also stated the expiry of additional unemployment insurances leaves a big hole in aggregate demand and he sees a much slower recovery if further fiscal aid is not forthcoming. Furthermore, he later commented that the question of how to structure threshold-based guidance is complicated, that he would be comfortable with inflation at 2.5% under the new framework and that the Fed's new forecasts will likely show rates at zero for quite some time. (Newswires)

Fed's Bostic (non-voter) reiterated call for fiscal authorities to provide further support and said the Fed is going to be willing to be more stimulative than it has been. Bostic also stated that the rate of natural inflation is around 2% or a little above, while forward guidance will become more important as it becomes clear that the economy is moving out of emergency phase and into recovery. (Newswires)

US Treasury Secretary Mnuchin and House Speaker Pelosi reportedly plan to keep stimulus additions out of the funding bill to make the bill easier to pass, according to sources, while House Speaker Pelosi said that House Democrats back a clean spending bill and a White House spokeswoman noted the Trump Administration expects to get funding to avoid a government shutdown. (Newswires)

US Treasury Secretary Mnuchin and House Speaker Pelosi were reported to reach an agreement on a stopgap bill to keep the government funded and avoid a shutdown at the end of the month, according to ABC News. However, Fox News' Pergram later tweeted citing a colleague, that the admin said there is no pact to avert a shutdown but added that hope is for a deal to avert a shutdown until after the election. (ABC News/Twitter)

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