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[PODCAST] US Open Rundown 9th September 2020

  • Sentiment has stabilised and mounted a recovery as APAC/AstraZeneca pressure abated; Nasdaq future outperforms +2.0%
  • AstraZeneca (AZN LN) vaccine trials with the University of Oxford have reportedly been placed on hold due to an adverse reaction in a UK participant
  • NIH Fauci said Moderna and Pfizer/BioNTech COVID vaccine trials are expected to be enrolled by the end of September
  • FX sees the USD firmer and GBP lagging once again ahead of the Internal Market Bill publication while CAD has pared losses ahead of BoC
  • LVMH state as things stand, they cannot carry out the Tiffany acquisition; Tiffany are to sue LVMH alleging they stalled the process to reduce the price
  • Looking ahead, highlights include US JOLTS, BoC Interest Rate Decision, EIA STEO & supply from the US

CORONAVIRUS UPDATE

Major newswire tally stated US cases increased by at least 26,452 to a total of 6.34mln and deaths rose by at least 454 to a total of 189.7k. Texas cases +1,421 (prev. +2,060) and deaths +61 (prev. +20), while a major newswire tally stated California cases increased by at least 3,988 on Tuesday and deaths rose by at least 78. (Newswires)

UK PM Johnson is to announce a ban on social gatherings of more than 6 people as coronavirus cases increase which will apply to whole of England from September 14th, while Ministers are reportedly considering a national curfew to combat virus spread. (Telegraph) Subsequently, UK Health Minister Hancock says we need to toughen COVID-19 rules in England, noting when there is a spike we take action & on the AstraZeneca update: says this does not necessarily set us back and we will do everything to ensure a vaccine is safe; adding this is not the first time this has happened

AstraZeneca (AZN LN) vaccine trials with the University of Oxford have reportedly been placed on hold due to an adverse reaction in a UK participant. Furthermore, the Co. later confirmed it voluntarily paused vaccinations to allow a safety review by an independent committee which is a routine action when there is a potentially unexplained illness in one of the trials, while it added it is working to expedite review. (Newswires)

NIH Fauci said Moderna and Pfizer/BioNTech COVID vaccine trials are expected to be enrolled by the end of September and allow another 1-1.5 months for a second dose, while he added It’s unlikely we’ll have a definitive answer by November 3rd and that it is more likely to be the end of the year. (Newswires)

European Commission say they have finished exploratory discussions with Pfizer (PFE) & BioNTech (BNTX) to purchase a potential COVID-19 vaccine; to supply the EU with 200mln doses. (Newswires)

Fujifilm Holdings (4901 JT) will triple output capacity of key COVID-19 19 vaccine substance at Texas facility from as soon as beginning of 2021. (Newswires)

ASIA

Asian equity markets were lower across the board amid strong headwinds from Wall St where the tech rout intensified on return from the long weekend and the Nasdaq slipped into correction territory with Tesla shares crashing over 21% following the S&P 500 snub, while recent hefty losses in the energy complex and AstraZeneca's vaccine trial halt due to an adverse reaction, added to the dejected mood and resulted in around a 10% drop in shares of its Indian listed subsidiary. ASX 200 (-2.1%) underperformed on a retreat from the 6,000 level with all sectors in negative territory and the substantial declines led by energy, tech and financials. Nikkei 225 (-1.0%) fell below 23,000 as exporters suffered the brunt of a firmer currency and as SoftBank continued its slump following the recent publicity regarding its large tech bets and amid news its Chief Compliance Officer has exited the Co. Hang Seng (-0.6%) and Shanghai Comp. (-1.9%) conformed to the widespread negative mood due to the tech rout and as tensions persisted with the US penalising Chinese companies accused of using forced labour in which it withheld orders for 3 companies, as well as threatened action on several others, while it was also reported that China is to sanction senior US officials that visit Taiwan and the American companies they have ties with. Finally, 10yr JGBs were higher following the bull flattening in US and with prices supported by the broad risk aversion, but with upside limited by resistance at the 152.00 level and amid the lack of BoJ buying in the market today. 

PBoC injected CNY 120bln via 7-day reverse repos at rate of 2.20% for a net daily injection of CNY 100bln. (Newswires) PBoC set USD/CNY mid-point at 6.8423 vs. Exp. 6.8411 (Prev. 6.8364)

Chinese CPI (Aug) Y/Y 2.4% vs. Exp. 2.4% (Prev. 2.7%) Chinese PPI (Aug) Y/Y -2% vs. Exp. -2.0% (Prev. -2.4%)

US is expected to increase its surveillance as China bolsters its naval exercises in the South China Sea, according to Chinese press reports. Later reports noted that a series of US spy planes have been detected around China’s coast. Another surveillance aircraft was seen near a no-entry zone in the East China Sea, where the latest drill began on Tuesday. (SCMP) In related news, China's Global Times tweeted comments from former vice chairman of the Straits Exchange Foundation that there are chances the Taiwan Straits will become tipping point of US-China military conflict, especially if President Trump stages an "October surprise" such as some type of armed conflict to arouse US patriotism. (Twitter)

China's Foreign Ministry says, regarding searches conducted by Australia into Chinese journalists homes, says Australia is yet to provide reason or return seized items. (Newswires)

US

Senate Republicans proposed cutting USD 200bln in government funding for future emergency lending by the Fed. If approved, this would shrink money available for the Federal Reserve to provide credit in specific parts of the economy. (FT)

Democrat Presidential Candidate Biden proposes a 10% tax penalty on companies that would offshore jobs; seeks to close offshoring loopholes, and curb tax haven moves; plans 10% credit for companies that invest in the USA. (Newswires)

[POLL] Biden now leads Trump by 6 points nationally, 50% to 44% (Prev. 51% to 43% conducted 27th-29th Aug), MorningConsult poll conducted between Sep 5-7. (MorningConsult)

UK/EU

Note, UK Internal Market Bill regarding Brexit is expected to be published at ~12:30BST/07:30ET; link to newsquawk primer.

Senior Democrats have warned an attempt by the UK to backtrack on the Brexit agreement could threaten a future UK/US FTA and relations if Biden wins the 2020 US election. (Guardian)

GEOPOLITICAL

US President Trump will announce further troop withdrawals from Iraq today and a further drawdown from Afghanistan in approaching days. (Newswires)

US Secretary of State Pompeo said he is deeply troubled by reports of abduction and forced expulsion of opposition leaders in Belarus and that the US is considering additional sanctions. (Twitter)

Multiple Chinese fighter jets entered Taiwan's airspace on Wednesday, according to the Defense Ministry. (Newswires)

Belarusian Leader Lukashenko is to visit Russia on the 14th September, according to RIA citing source. (Newswires)

EQUITIES

Sentiment has seen somewhat of a recovery (Euro Stoxx 50 +0.9%) since the downbeat APAC handover, albeit price action could just mark consolidation from yesterday’s move amidst quiet newsflow. US equity futures meanwhile eke mild gains as contracts drifted higher since the reopen of electronic trade – with the initial gap lower attributed to reports that AstraZeneca (-1.2%) pausing its COVID-19 vaccine trials with the University of Oxford due to an adverse reaction in a UK participant. Sources stated that the nature of the adverse reaction and when it happened were not immediately known, though the participant is expected to recover. It is worth keeping in mind that it is procedural to pause the trials when a patient gets ill from unknown causes, whilst one adverse effect does not deem the vaccine a “failure”. That being said, the safety of vaccines will garner more attention in the coming months as most candidates undergo Phase III trials. Nonetheless, the update has provided support for AstraZeneca’s competitors; with GSK (+2.3%), Sanofi (+2.1%), Diasorin (+3.5%), Merck (+1.7%), Moderna (+4.9% pre-mkt) and BioNTech (+3.5 pre-mkt) all firmer. Back to Europe, bourses see broad-based gains, whilst sectors are mostly higher, with telecoms and Oil & Gas leading the gains, whilst Banks, Autos and Travel & Leisure reside in the red, with the latter also weighed on by Ryanair (-2.5%) after cutting their FY passenger numbers – a move which mimic’s that of easyJet (-5.0%) for the Q4 announced yesterday. In terms of other individual movers, Airbus (-2.6%) is lower alongside the aviation sector, but with EU Trade Commissioner Dombrovskis said the EU will implement tariffs on US goods in response to illegal aid for Boeing (+0.8% pre-mkt) unless the US removes the trade duties imposed in response to Airbus subsidies. Meanwhile, Pandora (+4.2%) was bolstered by a broker upgrade at Citi

LVMH (MC FP) - May not be able to carry out the Tiffany (TIF) deal. LVMH says they have been asked to delay the closure of the acquisition from Nov 24th to Dec 31st, but they have decided to stick to terms of the original merger agreement. From LVMH: as things stand, given the current situation, not in a position to carry out the acquisition. Subsequently, Tiffany (TIF) is to take legal action against LVMH (MC FP) alleging they stalled the process of securing antitrust approval for the takeover and threatened to abandon the deal unless the price tag was reduced. (Newswires/FT)

FX

GBP - Another day, but no real let up in the pressure on the Pound as a confirmed break of 1.3000 in Cable culminated in a breach of the 200 WMA (circa 1.2931) and a test of interim support ahead of 1.2900 in the form of a late July low (1.2912 from the 29th of that month). Meanwhile, Eur/Gbp extended its advance through 0.9100, but held below the next upside chart target (July 28’s 0.9135 peak) awaiting the next chapter in the Brexit saga as the UK prepares to present its Internal Market Bill with annulments to the Withdrawal Agreement (for a primer of the publication expected around 12.30BST check out the headline feed at 8.25BST).

AUD/NZD - In contrast to Sterling’s ongoing demise, the Aussie and Kiwi have regained some composure alongside broad risk sentiment and a technical bounce off round number levels at 0.7200 and 0.6600 respectively. Improvements in Westpac consumer optimism, ANZ business confidence and the outlook for activity are also assisting the Antipodean Dollars as Aud/Nzd pivots 1.0900 despite more diplomatic strains between Australia and China.

USD - The Buck is off best levels after the DXY extended gains just beyond Tuesday’s peak to 93.617 largely at the expense of the aforementioned ailing Pound, with the index acknowledging a partial recovery in risk appetite ahead of weekly MBA mortgage applications, Redbook sales and JOLTS.

CAD/CHF/JPY/EUR - All narrowly mixed vs the Greenback, as the Loonie pares some declines in line with oil before the BoC policy meeting between 1.3259-16 parameters, the Franc holds just above 0.9200 following Swiss jobless rates matching consensus and the Yen ranging from 106.05 to 105.80 and also losing a little safe-haven premium. Similarly, the Euro is restrained in the run up to Thursday’s ECB within a 1.1787-58 range and wary of stops sitting around 1.1750 that would be exposed if the base from August 21 at 1.1754 gave way.

SCANDI/EM - No major reaction to a rise in 12 month Swedish CPIF expectations as Eur/Sek continues to straddle 10.4000, but Eur/Nok has retreated from 10.8000 to sub-10.7500 on the back of the rebound in crude prices. Elsewhere, the Rub is also benefiting from Brent regaining a foothold above Usd 40/brl, albeit tentatively, but the Try remains on course if not destined to set a fresh record low at 7.5000.

Australian Westpac Consumer Sentiment Index (Sep) 93.8 (Prev. 79.5); M/M 18% (Prev. -9.5%). (Newswires)

New Zealand ANZ Business Confidence (Sep) -26.0 (Prev. -41.8). (Newswires) New Zealand ANZ Activity Outlook (Sep) -9.9 (Prev. -17.5)

Russia's Kremlin, when asked about the weakening RUB, says Russia has hedged against risks of volatility in global market. (Newswires)

FIXED INCOME

Bunds have retreated further from Eurex highs in wake of a somewhat mixed 10 year German offering as a lower yield crimped demand for the tap and overshadowed the smaller retention, while the recovery in stocks is also diminishing the safe-haven appeal of core bonds. 174.00 is holding for now and Gilts may revive support around their new Liffe low (136.35) as it roughly aligns with a 20 bp yield having respected resistance chiming with 15 bp. However, US Treasuries still have supply to make room for as the T-note reverses from 139-20 to 139-11+ and the prospect or rather probability that Wall Street’s tech sector will draw encouragement from the rebound in EU peers ahead of 2nd tier data.

COMMODITIES

WTI and Brent front month futures eke mild gains, albeit more so a function of stock market action coupled with a waning of the Dollar. Fundamental news-flow for the complex has once again been light, with crude markets consolidating following yesterday’s slide. WTI Oct resides around USD 37.50/bbl (vs. low 36.16/bbl), whilst Brent Nov tested resistance at USD 40.50/bbl (vs. low 39.37/bbl). Note, the JMMC will be holding their next meeting on September 17th with delegates reportedly expressing concern over the lower oil prices. This comes after Russia Energy Minister Novak called on OPEC members to take into account the “demand recovery” just a week ago. ING suggests “If this downward pressure on the market continues, OPEC+ will become increasingly concerned, and there is always the potential that the group look to re-implement the deeper cuts that we saw between May and July” – but again, this will need the backing of Russia whom have historically been more resistant. Looking ahead, participants will be eyeing the EIA STEO later today ahead of the Private Inventory reports – a delayed release on account of US Labor Day. Elsewhere, spot gold and silver remain contained within relatively tight ranges as the precious metals trade in tandem with the Buck around USD 1930/oz and just below USD 26.75/oz. Meanwhile, base metals overnight saw a session of losses, with Shanghai copper closing some 1.3% lower and Dalian iron ore sliding over 3% amid the losses in stock markets coupled with the firmer USD.

There were also reports that President Trump is to reject retroactive small refinery waivers regarding US biofuel blending regulations and the administration could announce the denial of the waivers as early as this week, according to sources. (Newswires)

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