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[PODCAST] US Open Rundown 8th September 2020

  • Sentiment has slipped as US participants return following a positive APAC handover; Nasdaq 100 future 2.5% lower and once again the laggard
  • USD benefits from the deterioration in sentiment to the detriment of all major peers with GBP feeling the brunt after yesterday’s slide following further downbeat Brexit reports
  • Indian and Chinese troops are in a stand-off at a location near North of Rezangla heights in Eastern Ladakh, 30-40 soldiers reportedly involved from the Chinese side
  • Core debt has been lifted on sentiment with the US yield curve now firmly bull-flattening
  • Looking ahead, highlights include US 3-year supply

Labor Day Newsflow

Brexit – 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; additionally, on Wednesday sections of the internal markets bull will be published and reports state Johnson is planning new legislation to override the withdrawal agreement. Furthermore, UK Brexit Negotiator Frost said the Gov’t is not scared to walk away from negotiations.  Commentary which weighed on GBP throughout the day

COVID-19 – Several pharmaceutical companies developing COVID-19 vaccines including Pfizer (PFE), Johnson & Johnson (JNJ) and Moderna (MRNA) 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. Separately, Australia’s Victoria state extended stage four restrictions for another 2 weeks beyond the original end date of September 13th. (WSJ/Newswires)

Fiscal – 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 week. Elsewhere, German Finance Minister Scholz says he sees progress in economic recovery from the pandemic shock; Germany will suspend debt rules again in 2021 to allow more net borrowing "on a large scale"; will be followed from 2022.

S&P 500 – Etsy (ETSY), Catalent (CTLT) and Teradyne (TER) are to be included from September 21st to replace H&R Block (HRB), Coty (COTY) and Kohl’s (KSS), while Tesla (TSLA) was not mentioned in the adjustments.

CORONAVIRUS UPDATE

US CDC reported total coronavirus cases rose to 6.26mln from 6.23mln and total deaths rose to 188.5k from 188.1k, while a major newswire tally stated that US cases increased by at least 25,898 to a total of 6.32mln on and deaths rose by at least 263 to a total of 189.2k. (Newswires)

US President Trump commented that a vaccine could be ready as early as next month. (Newswires)

The UK government is to significantly reduce the threshold for lawful gatherings of people in homes from the current 30, perhaps to as low as six, according to ITV's Peston. (Twitter) Note, UK Health Secretary Hancock to give a House of Commons briefing at 13:15BST/08:15ET on COVID-19

Russia has completed early-stage trials of its second potential COVID-19 vaccine, according to Ifax citing consumer watchdog. (Newswires)

ASIA

Asian equity markets traded mostly positive, following the upbeat performance in EU counterparts given the lack of handover from US due to Labor Day, but with gains in the region moderated by inconclusive data and after US President Trump suggested the idea of decoupling the US economy from China. ASX 200 (+1.1%) attempted to reclaim the 6,000 level with Healthcare and real estate frontrunning the advances despite mixed data which showed Business Confidence slightly improved but remained in negative territory. Nikkei 225 (+0.8%) was kept afloat as participants digested the better than feared revisions to Q2 GDP which still showed large contractions, while KOSPI (+0.7%) was boosted as index heavyweight Samsung Electronics gains on reports it is to produce Qualcomm chips for 5G phones. Conversely, Hang Seng (+0.1%) and Shanghai Comp. (+0.7%) underperformed after US President Trump upped the anti-China rhetoric in which he said he is thinking about the possibility of decoupling the US economy from China and that it would not lead to monetary losses, while he suggested that China either faces decoupling or massive tariffs. Furthermore, the US is considering a ban on cotton from China's Xinjiang region over human rights concerns, and China unveiled an initiative to set global data security regulations in an effort to counter US attempts of banning Chinese technology from other countries. Finally, 10yr JGBs were higher in a continuation of Monday’s rebound with prices unfazed by the mostly positive risk tone and with today’s 5yr JGB auction results somewhat inconsequential as it printed relatively inline with the prior. 

PBoC injected CNY 170bln via 7-day reverse repos at a rate of 2.20% for a net injection of CNY 100bln. (Newswires) PBoC set USD/CNY mid-point at 6.8364 vs. Exp. 6.8338 (Prev. 6.8386)

US President Trump said he is thinking about the possibility of decoupling the US economy from China and that it would not lead to monetary losses, while he added that China faces decoupling or massive tariffs from US and that the US will prohibit federal contracts to companies that outsource to China. (Newswires)

US is mulling a ban on cotton from China's Xinjiang region over human rights concerns, which could occur as early as this Tuesday. Reports noted the potential ban could impact apparel and other products, although it added that the scope remains unclear such as whether it would cover all cotton products shipped from Xinjiang or China and if it will include items from other countries that contain Xinjiang cotton. (New York Times)

Chinese President Xi commented that China is to deepen reform and opening up, as well as expand domestic demand, while he added China will keep promoting economic globalization and multilateralism. (Newswires)

China Foreign Minister Wang Yi said China seeks to launch a global data security initiative which opposes undermining infrastructure or stealing data of other nations by using IT. The initiative will require firms to respect local laws and to not force companies to store data generated and obtained overseas in their home country, while it stated that firms should not create backdoor in services or products to illegally obtain data. (Newswires/WSJ)

China's State Council agreed on a guideline on deepening and widening trials on the opening of services sector in Beijing, with most opening-up measures reported to be unprecedented and will enable foreign financial institutions to enjoy pre-establishment national treatment in pilot programs. (Global Times)

Japanese Chief Cabinet Secretary Suga says if next PM chooses to call a snap election, then that should be the case, while he suggested to not have a pre-determined timeframe for revising the constitution. Furthermore, Suga said it is important to protect jobs, as well as continue business, and said they will conduct economic steps appropriate for the situation. (Newswires)

Japanese Revised GDP (Q2) Q/Q -7.9% vs. Exp. -8.1% (Prev. -7.8%). (Newswires) Japanese Revised GDP (Q2) Y/Y -28.1% vs. Exp. -28.6% (Prev. -27.8%)

US

US President Trump said House Speaker Pelosi and Senate Minority Leader Schumer do not want to make a stimulus deal, while he added that he does not need to meet with them. (Newswires)

US House Oversight Committee is to investigate Postmaster General Dejoy following allegations he pressured staff to make campaign donations. (Newswires)

PG&E noted potential public safety power shutoff for Monday which may impact about 158k customers in parts of 21 counties in Sierra Foothills and North Bay area, California. (Newswires)

UK/EU

UK PM Johnson is to tell the EU that the Withdrawal Agreement never made sense and is contradictory on Northern Ireland, while he is to state that it must be rewritten and believes the WA is legally ambiguous which would leave Northern Ireland isolated from the rest of the UK. (Telegraph) Separate reports note that senior Tories reportedly warned PM Johnson that diluting Britain's obligations under the Withdrawal Agreement is a dangerous move that raises the likelihood of a no-deal Brexit. (Times)

BoE's Haldane said extending the UK job retention scheme would prevent a necessary process of labour market adjustment and that the UK economic recovery isn't being given enough credit, while he added that UK consumers and businesses have been incredibly resilient and adaptive. (CityAM)

Japan wants to attain a broad agreement on trade with Britain this week before we see any changes to Japanese Gov't, according to an official. (Newswires)

European Commissioner Von der Leyen says VP Dombrovskis is to formally stay as European Trade Commissioner; MEP McGuiness is to be the Irish Commissioner in charge of Financial Services. (Newswires)

EU GDP Revised QQ (Q2) -11.8% vs. Exp. -12.1% (Prev. -12.1%); YY (Q2) -14.7% vs. Exp. -15.0% (Prev. -15.0%)

-        Employment Final QQ (Q2) -2.9% vs. Exp. -2.8% (Prev. -2.8%)

-        Employment Final YY (Q2) -3.1% vs. Exp. -2.9% (Prev. -2.9%)

Barclaycard UK August consumer spending rose 0.2% Y/Y which was the first increase since February. (Newswires)

UK BRC Retail Sales (Aug) Y/Y 4.7% (Prev. 4.3%). (Newswires)

GEOPOLITICAL

Indian and Chinese troops are in a stand off at a location near North of Rezangla heights in Eastern Ladakh. About 30-40 soldiers involved from the Chinese side, according to Print India. Follows on from the Indian Army allegedly crossing the Line of Actual Control in Shenpao mountain on Monday, according to the PLA Western Theatre Command, while China’s military is demanding India censure its soldiers that illegally crossed the line and fired warning shots on China’s border patrol guards. (Global Times/CGTN) Link to newsquawk analysis piece

Russian & Serbian military to arrive in Belarus' capital Minsk to conduct joint military drills from September 10th - 15th, according to Ria. (Newswires)

Saudi-led coalition have destroyed a drone which was launched by Yemen's Houthis towards Saudi, according to the State News Agency. (Newswires)

EQUITIES

Stocks in European have given up the mild gains seen at the cash open and some more (Euro Stoxx 50 -0.8%), as the region failed to sustain the positive APAC lead. US equity futures have also been sliding, with losses more pronounced in NQ as the tech unwind continues – with Apple down almost 3%, Amazon -1.7%, Netflix -2.5% and Tesla -10%. Back to Europe, sectors have somewhat solidified a defensive bias as the US tech downturn has reverberated into the region, with IT the standout underperforming sector; whilst the cushioned healthcare sector sees Switzerland’s SMI (-0.3%) the winner in Europe, but subdued nonetheless. Travel & Leisure also experiences steep losses as easyJet (-6.2%) shares plumb the depths as it now expects to fly less than 40% of planned capacity in Q4 in a sign of reduced demand for travel. Thus, the likes of Ryanair (-2.3%), Lufthansa (-1.9%) and Air-France KLM (-1.6%) are lower in sympathy. In terms of other movers and shakers, Royal Mail (+17.8%) shares top the charts after a trading update in which it reported bolstered business from its parcel deliver service. Swiss Re (+1.7%) is propped up by an update in which it sees a positive outlook for renewals and further market hardening. Volkswagen (-1.2%) is softer as the CEO said they are not seeking a deal with Tesla after a meeting with Elon Musk.

Apple (AAPL) are to begin initial production of 5G iPhones in mid-September, reducing the production delay to weeks instead of months, according to Nikkei sources. (Nikkei)

FX

USD - The Dollar is holding a firm line in wake of Friday’s mostly encouraging labour report and yesterday’s Labour Day market holiday, with the DXY anchored around 93.000 awaiting the NFIB optimism index, employment trends and consumer credit alongside the return of Wall Street to see whether the tech sector correction continues to weigh on broader stock sentiment and keeps Treasuries elevated in futures terms.

GBP – Yet more downside pressure and Sterling underperformance as no deal Brexit jitters intensify before the latest round of UK-EU trade negotiations amidst reports that PM Johnson is now questioning the Withdrawal Agreement and wants the deal to be rewritten. In response, Cable has given up the 1.3100 handle and has rebounded firmly beyond 0.9000.

AUD – Somewhat mixed impulses via NAB’s August business survey, as confidence improved vs conditions deteriorating, but the Aussie may be deriving some traction or comfort from the latest jobs update given only a 0.4% decline in payrolls over the month to August 22, with a 2% drop in the state of Victoria and 0.1% increase elsewhere. However, Aud/Usd is drifting back from just over 0.7300, while Aud/Nzd is closer to 1.0900 than unusually hefty option expiry interest in the cross residing down at 1.0860 (1.87 bn).

CAD/NOK/NZD/CHF – The other major laggards, as the Loonie and Norwegian Krona trade softer with oil sub-1.3100 vs the Greenback and circa 10.6100 against the Euro respectively, with the latter also taking on board softer than forecast monthly mainland GDP. Meanwhile, the Kiwi retreats from 0.6700+ and Franc pivots 0.9170/1.0830 ahead of NZ manufacturing sales later tonight and Swiss jobs tomorrow.

EUR/JPY/SEK – The Euro is straddling 1.1800 vs the Buck and largely treading water in advance of Thursday’s ECB policy meeting, while the Yen is even more constrained below 106.00 following minor Japanese GDP revisions and the Swedish Crown seems to be gleaning a degree of underlying support from ip as Eur/Sek meanders either side of 10.3700.

EM – The Try’s slide will grab headlines as it slumps to fresh record depths nearer the psychological 7.5000 mark, but other regional currencies are also depreciating, like the Rub on the back of Brent weakness and the Zar after a bigger than expected Q2 GDP contraction (SA economy shrank 50%+ in q/q annualised terms).

Australian NAB Business Confidence (Aug) -8 (Prev. -14) Australian NAB Business Conditions (Aug) -6 (Prev. 0)

Australian Bureau of Statistics said payroll jobs fell by 0.4% during the month to August 22nd and that payroll jobs fell 2% in Victoria but rose by 0.1% for rest of the country, while it added that payroll jobs fell in Victoria for a 3rd week but at a slower pace. (Newswires)

FIXED INCOME

It’s been steady and measured rather than rapid, but 10-year benchmarks are rebounding further from recent lows as stock markets continue to stutter and debt investors display avid appetite for syndicated issuance, currently from the UK and Italy. Bunds and BTPs have now topped big figures at 174.05 and 145.10 respectively, while Gilts have done even better at 136.19 and T-notes cross 139-10 with the curve flatter ahead of 3-year supply. From a technical standpoint, debt futures are now near enough to pre-US jobs data highs to challenge those levels if not mtd pinnacles.

COMMODITIES

WTI and Brent front month futures are on a downwards trajectory in what seems to be a sentiment driven move as it coincided with losses in stocks markets and the fixed income bid. UAE’s ADNOC moved in lockstep with Saudi Aramco in lowering their flagship crude grade in a sign that demand is faltering. On this front, easyJet has cut its flights amid the UK government announcing more quarantine measures – a sign of reduced demand for travel and fears that have been flagged by the IEA MOMR last month. Furthermore, crude imports from China have continued to ebb lower from June’s record levels (11.23mln BPD in August vs. 12.13mln BPD in July vs. 12.99mln BPD in June). Meanwhile, Russian Energy Minister Novak also remarked that it is important Russian production, alongside other oil producers, returns quickly or even undertakes an increase in market share upon the oil demand recovery – comments that come ahead of this month’s JMMC meeting. WTI sees more pronounced losses than its Brent counterpart on account of no settlement for the former yesterday given the Labor Day holiday. WTI October resides just under USD 38.50/bbl whilst Brent November lost its USD 41.50+/bbl status (vs. high USD 42.23/bbl). Elsewhere, spot gold and silver move in tandem with the Dollar as the index sees somewhat of a revival from early EU hours. The yellow metal trades closer to session lows around USD 1923/oz whilst spot silver gave up its USD 27/oz handle. Finally, LME copper prices have eased due to the downbeat sentiment coupled with a firmer Buck.

UAE's ADNOC set October Murban crude USD -0.5/bbl to Platts Dubai, USD -1.35/bbl M/M. (Newswires)

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