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[PODCAST] EU Open Rundown 7th September 2020

  • Asian equity markets began the week indecisively as the region reflected on Friday’s US jobs release and continued tech-related losses on Wall St
  • Mixed Chinese trade data and ongoing tensions with the US added to the cautious approach
  • The DXY heads into the EU open relatively flat below 93.00; GBP pressured by the latest Brexit updates
  • UK PM Johnson has set a trade deal deadline for October 15th and is reportedly planning new legislation that would override key aspects of the withdrawal agreement
  • Oil prices were pressured at the reopen after Saudi Arabia lowered oil prices to Asia and US customers for October shipments
  • Looking ahead, highlights include German industrial production, EZ Sentix index, BoE's Haskel, US markets closed for Labor Day
  • Note: the desk will run until 1800BST/1200CDT on Monday 7th September, upon which the desk will close and then re-open at 2200BST/1600CDT the same day due to US market closures

CORONAVIRUS UPDATE

US coronavirus cases rose to 6.23mln from 6.18mln and deaths rose to 188.1k from 187.2k, while a major newswire later stated that US cases increased by at least 29,943 to a total of 6.29mln on Sunday and deaths rose by at least 398 to a total of 189.0k. Florida coronavirus cases rose 2,564 and deaths rose by 37, Texas COVID cases +2,995 and deaths +64. Furthermore, a major newswires tally stated that California cases increased by at least 2,474 on Sunday and deaths rose by at least 21, while analysis stated that cases were increasing in 22 of the 50 US states. (Newswires)

China is tightening its coronavirus testing requirements for all passengers arriving from the US from September 15th, in which all passengers will have to provide negative test results within three days (prev. 2 weeks) of the flight to be allowed to board, according to the Chinese Embassy in Washington. (Newswires)

UK reported 2988 new coronavirus cases which was the largest daily increase since May and the death toll increase by 2. Elsewhere, France coronavirus cases increased by 7071 (prev.+8550) and death toll rose by 3. (Newswires)

Australia’s Victoria state extended stage four restrictions for another 2 weeks beyond the original end date of September 13th, while state Premier Andrews outlined "safe and steady" steps to exit stage 4 restrictions, but warned moving too fast would trigger a third wave of the virus. (SMH)

Several pharmaceutical companies developing COVID-19 vaccines including Pfizer, Johnson and Johnson and Moderna plan to issue a public pledge not to seek government approval for their vaccines until proven to be safe and effective, amid concerns over a rush to mass vaccination. (WSJ)

ASIA

Asian equity markets began the week indecisively as the region reflected on Friday’s varied US jobs release and the continued tech-related losses on Wall St, with mixed Chinese trade data and ongoing tensions with the US adding to the cautious approach. ASX 200 (Unch.) traded choppy following the 2-week extension of level 4 lockdown restrictions in Victoria state although strength in the mining-related sectors and financials had initially propped up the index, whilst some economists also hopeful of a further loosening of RBA policy within the next 2 months according to a latest survey. Nikkei 225 (-0.4%) was restricted amid an uneventful currency and notable losses in SoftBank shares which slumped over 7% with investors disturbed by the Co.’s recent aggressive US tech derivatives bets, despite the Co. reportedly sitting on USD 4bln of profit from the options trades. Hang Seng (Unch.) and Shanghai Comp. (-0.2%) also swung between gains and losses amid mixed Chinese trade data which showed a surprise contraction in imports which underscored weakening internal demand. Furthermore, the US is said to mull whether to include China's top chipmaker SMIC to a trade blacklist, which subsequently saw shares in the Co. drop around 20%, while sentiment in Hong Kong was also mired after protests resumed on Sunday in which nearly 300 were arrested. Finally, 10yr JGBs were subdued following recent selling in T-notes whereby the US 10yr December futures contract slipped to test a floor at the 139.00 level, although losses in 10yr JGBs were stemmed amid the lacklustre risk tone in the region and BoJ’s presence in the market for a total of JPY 800bln of JGBs heavily concentrated in1yr-5yr maturities.  

PBoC injected CNY 100bln via 7-day reverse repos at a rate of 2.2% for a net injection of CNY 20bln PBoC set USD/CNY mid-point at 6.8386 vs. Exp. 6.8420 (Prev. 6.8359)

Chinese Trade Balance (CNY)(Aug) 416.6B vs. Exp. 386.0B (Prev. 442.2B) Chinese Exports (CNY)(Aug) Y/Y 11.6% vs. Exp. 12.4% (Prev. 10.4%) Chinese Imports (CNY)(Aug) Y/Y -0.5% vs. Exp. 6.1% (Prev. 1.6%)

Chinese Trade Balance (USD)(Aug) 58.93B vs. Exp. 50.5B (Prev. 62.33B) Chinese Exports (USD)(Aug) Y/Y 9.5% vs. Exp. 7.1% (Prev. 7.2%) Chinese Imports (USD)(Aug) Y/Y -2.1% vs. Exp. 0.1% (Prev. -1.4%)

US Defense Department official said the Trump administration is mulling whether to include China's top chipmaker SMIC to a trade blacklist, as the US widens its crackdown on Chinese companies. The company later responded in which it refuted any assumptions that it had military ties. (Newswires)

China is to expand its stock connect programme to permit foreign investors to trade more commodities futures products as part of efforts to speed up opening its financial markets. (SCMP)

Hong Kong police were reported to deploy 2,000 riot officers on Sunday with water cannons and armoured vehicles on standby, in response to online calls for a mass anti-government protest against the delay to city elections, while police reportedly arrested nearly 300 during the protests. (SCMP/CNN)

Japanese Chief Cabinet Secretary and LDP leadership candidate Suga said the immediate policy priority will be to extend the work protection subsidy program and that he will carefully evaluate the need for an additional stimulus package. Furthermore, Suga pledged to amend the Small and Medium Enterprise Law in which he will prioritize efforts to help smaller businesses, while he said he is considering a new policy framework to promote the consolidation of the SME sector. (Nikkei) Suga said he highly approves of BoJ Governor Kuroda and would like to see easing policies continuing. A leading figure in Japan's ruling LDP suggested that the lower house of parliament may be dissolved for a general election as soon as a replacement for PM Abe is picked later this month. (Newswires/Nikkei)

UK/EU

UK PM Johnson said a trade deal with the EU is needed by October 15th to be in force by year-end and if a deal is not made by then, both sides should accept it and move on, while he added there is still an agreement to be had if the EU rethinks its position and UK will be ready to trade with EU on Australian-type terms if there is no agreement. (Newswires) UK PM Johnson is reportedly planning new legislation which would override the Brexit withdrawal agreement, threatening negotiations; on Wednesday, the UK will publish sections of the internal markets bill which will present new trade barriers for Northern Ireland as part of no-deal planning, according to sources. (Guardian) There were later tweets by BBC's Katya Adler that news regarding potential UK legislation which undermines the Withdrawal Agreement had EU figures pondering who is the news aimed at and noted that if it is a negotiating strategy, it is a bad tactic which gets the EU backs up. (FT/BBC) Separately, UK government sources warned that Brexit negotiations will be over in days unless the EU realises Britain is serious about a no-deal with sources noting that work on an exit from the EU on Australian terms is being “ramped” up. (Newswires/Telegraph/Sunday Times) UK Brexit negotiator Frost said the government is not "scared" to walk away from discussions without a trade deal and that Britain will not become a client state of Brussels.

EU is reportedly seeking a potential veto on UK laws & regulations post-Brexit with EU chief negotiator Barnier said to be insisting the UK must agree not to implement any changes to UK legislation that could distort trade with the EU without consulting Brussels, which UK Brexit negotiator Frost has rejected. Furthermore, there were prior reports on Friday that Barnier is to be sidelined by EU leaders in an effort to break the deadlock in talks. (Times/Telegraph)

EU Parliament dashed hopes that Brexit negotiators could be given more time to avert a no-deal, by drawing a red line on an extension to talks, as the chair of the EU Parliament’s international trade committee and German MEP Bernd Lange warned that a deal has to be done before 31st October. (Independent)

UK PM Johnson and Chancellor Sunak agreed to reduce personal taxes before the next election after thrashing out a Downing Street deal last week for the government’s economic strategy. Furthermore, reports noted that the Chancellor will tell MPs and voters the government must raise money now to pay for the coronavirus bailouts but will outline an “arc” on taxation that will see the wealthy asked to shoulder a heavier burden in November’s budget, with tax cuts to follow in 2023 or 2024. (Telegraph)

CBI head Carolyn Fairbairn called for the UK government to create a successor to its furlough scheme to protect jobs and warned that a large number of redundancies were expected this month as companies prepare for wage support to end in October. (FT) Separately, remote working could hit the UK economy by GBP 15.3bln annually, according to estimates by PwC citing the impact on cleaners, coffee shops & security guards. (The Times)

Ireland is to name MEP McGuinness and EIB’s McDowell as candidates to replace Hogan as the EU commissioner. (RTE)

FX

The DXY was flat at a sub-93.00 level with the greenback’s major counterparts mixed with EUR/USD treading water around its 50-hour moving average of 1.1836 and GBP/USD was marginally pressured after a slew of pessimistic Brexit-related newsflow stoked no-deal concerns with UK PM Johnson setting a trade deal deadline for October 15th. It was also reported that the UK was planning new legislation that would override key aspects of the Brexit withdrawal agreement which threatens trade negotiations with the EU, and that senior government figures now forecast a less than 20% probability of reaching a trade deal with the EU, while the bloc was also reportedly seeking a potential veto on UK laws & regulations post-Brexit which UK’s Chief Brexit Negotiator Frost firmly rejected. Elsewhere, USD/JPY was rangebound at the 106.00 handle and antipodeans also traded sideways amid the uninspiring risk tone, mixed China data and mostly uneventful trade across the FX space.

COMMODITIES

Oil prices pressured at the reopen after reports that Saudi Arabia lowered oil prices to Asia and US customers for October shipments, which is a sign that the world’s biggest exporter may see fuel demand wavering amid flare-ups in the coronavirus. Furthermore, early selling was exacerbated alongside the risk averse tone and a breakdown of support levels at the July low for WTI, while Brent crude futures briefly slipped beneath the USD 42.00/bbl level before retracing some of losses as US equity futures also rebounded off worse levels. Elsewhere, gold was little changed with price action constrained by an uneventful greenback and with the absence of North American participants for Labor Day holiday, while copper traded choppy amid the indecisive risk tone and mixed Chinese trade data.

Baker Hughes Rig Count: Oil +1 at 181 (prev. -3), NatGas unchanged at 72 (prev. +3), Total +2 at 256 (prev. unch.). (Newswires)

Saudi Arabia lowered oil prices to Asia and US customers for October shipments, which is a sign that the world’s biggest exporter may see fuel demand wavering amid flare-ups in the coronavirus. (Newswires)

Libya's NOC said military personnel fired live rounds and heavy weapons in the Ras Lanuf port, while it added that the presence of mercenaries is a true threat to its workers and facilities all over Libya, according to a statement. (Newswires)

GEOPOLITICAL

Saudi King Salman and US President Trump spoke by telephone and discussed the G20 in which King Salman said the Kingdom is keen to reach a fair and permanent solution to the Palestinian cause. Furthermore, a  White House spokesperson said President Trump told King Salman that he welcomes Saudi opening airspace for flights between UAE and Israel, while they discussed ways to enhance security and prosperity in the region, and President Trump urged Saudi to negotiate with other Gulf countries to resolve the rift. (Newswires)

NATO Secretary-General Stoltenberg warned Russia's aggression towards neighbouring countries and the West risks a new Cold War, while he also suggested that Moscow's behaviour and attempt to establish a new sphere of influence requires a response from NATO. (Telegraph)

UK fighter jets based in Cyprus as part of a mission to counter Islamic State in Syria and Iraq have instead been flying in the Black Sea region and patrolled with US B52 bombers amid tensions with Russia. (Sky News)

India alerted China of allegations that 5 men were kidnapped by the People’s Liberation Army from an area near the disputed border. (SCMP)

A senior official in Brussels has stated that the EU will offer incentives to Turkey to make a deal with Greece and Cyprus over maritime claims. Should mediation fail, sanctions against Turkey will be an option. (Newswires)

US

The Treasury curve bear-steepened after the US jobs report, where the headlines were all encouraging (NFP in line, unemployment falls more than expected, U6 fell as well, while participation rose), with desks setting up for next week's refunding supply of 3s, 10s, 30s (analysts note similar trading was seen as the last two refundings). That left yields on 30s around 12bps higher at settle, while shorter-dated yields also sold-off by over 2bps. On the week, curve have come in, with 5s30s narrower by around 7bps, and 2s30s narrower by around 6bps. T-note futures (Z0) settled 23 ticks lower at 139-01.

Fed Chair Powell said Friday’s jobs report was good and that the economy will need low rates for years but also noted that the recovery will get harder from here. (Newswires)

US Treasury Secretary Mnuchin said he expects a government funding bill through the beginning of December and that details are to be firmed by the end of the this week. (Newswires)

US National Security Adviser O'Brien said the US is aware China has taken the most active role in trying to influence the US election and has also seen aggressive behaviour from Russia involving US forces. Furthermore, US made it clear to China, Russia, Iran and others who have not been disclosed that there will be consequences for interfering with the US election. (Newswires)

POLL: Dallas Morning News/University of Texas at Tyler poll showed President Trump leads Joe Biden among likely voters in Texas at 48% vs. 46% (Prev. 41% vs. 46% lead for Biden) conducted August 28th-September 2nd. (Newswires)

Etsy (ETSY), Catalent (CTLT) and Teradyne (TER) are to be included into the S&P 500 on September 21st to replace H&R Block (HRB), Coty (COTY) and Kohl’s (KSS), while Tesla (TSLA) was not included in the adjustments which disappointed expectations for the Co. to be added to the S&P 500. (Newswires)

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