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[PODCAST] European Open Rundown 11th September 2020

  • Asian equity markets trade mixed as the region partially shrugged-off the weak performance stateside where all major indices declined amid selling in tech and energy
  • UK PM Johnson is facing a revolt by as many as 30 Tory MPs over the Internal Markets bill
  • ECB policymakers agreed to look through euro strength at the September meeting and judged the currency broadly in line with economic fundamentals, according to sources
  • DXY is mildly softer following yesterday’s gains, EUR/USD stabilised on a 1.18 handle post-ECB meeting/sources, GBP/USD briefly lost 1.28 status amid Brexit concerns
  • India and China issued a joint statement in which they agreed to honour existing agreements and ease tensions
  • Looking ahead, highlights include UK GDP, US CPI, ECB's Schnabel, Lane

CORONAVIRUS UPDATE

US COVID cases +32,899 (prev. +23,301) and deaths +1,115 (prev. +459), while a major newswire survey stated US cases rose by at least 38,131 to a total of 6.41mln and deaths rose by at least 1,025 to a total of 191.9k. New York COVID cases +757 (prev. +576) and deaths +7 (prev. +3), California cases +3,338 (prev. +1,616) and deaths +137 (prev. +83), while Texas cases +4,018 (prev. +4,000); deaths +161 (prev. +139). (Newswires)

FDA is to require a higher standard of efficacy than normal from drugmakers seeking an emergency authorization for COVID-19 vaccines, according to the head of its vaccine department. (Newswires)

NIH Activ Initiative launched 2 of 3 adaptive P3 clinical trials of blood clotting treatments for COVID-19. (Newswires)

ASIA

Asian equity markets trade mixed as the region partially shrugged-off the weak performance stateside where all major indices declined amid resumed heavy selling in tech and energy, while higher US jobless claims data and the failure to pass the skinny stimulus bill at the Senate added to the downbeat mood. ASX 200 (-0.6%) underperformed with tech and miners leading the broad descent across its sectors, while Rio Tinto shares whipsawed following the announcement of top-level changes with CEO Jacques to exit the Co. when a successor is appointed or by end-March 2021 and iron ore chief Salisbury to step down with immediate effect as a fallout from the destruction of the Aboriginal heritage sites. Nikkei 225 (+0.5%) recovered initial losses with the index helped by mildly favourable currency flows and amid reports Japan is to allocate JPY 1.6tln for coronavirus measures from the reserve fund. Hang Seng (+0.4%) and Shanghai Comp. (-0.2%) were indecisive after this week’s PBoC liquidity efforts resulted to a net weekly injection of CNY 230bln, but with upside restricted after President Trump adamantly dismissed extending the deadline for TikTok and with weakness seen in defense stocks after China and India border tensions eased following a meeting of their foreign ministers in which the sides issued a joint statement that they agreed to honour existing agreements and to not escalate the border situation. Finally, 10yr JGBs were marginally higher as they took their cue from USTs and with the BoJ also present in the market for nearly JPY 1.2tln of JGBs with up to 10yr maturities, although gains were limited by the improvement in risk appetite overnight and with stubborn resistance at the 152.00 level.

PBoC injected CNY 90bln via 7-day reverse repos at rate of 2.20% for a net weekly injection of CNY 230bln vs. Prev.  net drain of CNY 470bln last week. (Newswires) PBoC set USD/CNY mid-point at 6.8389 vs. Exp. 6.8427 (Prev. 6.8331)

There were initial reports the US was preparing to give TikTok more time to line up a sale, although US President later refuted this in which he stated that there will be no extension to the TikTok deadline. In other news, ByteDance plans to invest several billions of dollars in Singapore to hire hundreds of workers and build a data centre. (Newswires)

Japanese Chief Cabinet Secretary Suga said he agrees with PM Abe about not needing to raise the sales tax hike for 10 years and noted that his recent comments about raising consumption tax was about the future. In other news, Japan’s government is to allocate JPY 1.6tln for coronavirus measures from the reserve fund. (Newswires/Mainichi)

Japanese Foreign Minister Motegi said he is to conduct talks with UK Trade Minister Truss this afternoon and aims to reach a broad agreement regarding a trade deal. (Newswires)

UK/EU

A Tory grandee rebellion is reportedly underway to give Parliament a veto on the Government’s plan to override the Withdrawal Agreement, while reports later noted that PM Johnson is facing a revolt by as many as 30 Tory MPs over the Internal Markets bill. (The Times)

EU Chief Brexit Negotiator Barnier said EU is intensifying preparations on all scenarios and that significant differences remain in areas of essential interest for the EU. (Newswires)

ECB's Villeroy said ECB monetary policy must continue to support economic activity for the sake of its own mandate of price stability. (Newswires)

ECB policymakers agreed to look through euro strength at the September meeting and judged the currency broadly in line with economic fundamentals, while they were fearing any hint of a "currency war" with the US and see EUR/USD of 1.20 as near equilibrium, according to sources. A source added that they were not indifferent to the exchange rate but were not prepared to start a currency war over it and policymakers considered adopting the language used to stop the euro's prior rally in 2018 where former ECB President Draghi said that "volatility in the exchange rate" was "a source of uncertainty", but ultimately decided to use softer language of "carefully assess incoming information, including developments in the exchange rate". Furthermore, governors differed on the economic outlook, with those from Southern Europe striking a more pessimistic than their Northern peers and ECB's Lane seen as holding the middle ground. (Newswires)

FX

The DXY consolidated overnight following yesterday’s fluctuations around the 93.00 level whereby initial pressure was seen as EUR strengthened post-ECB, before reversing course as the soured risk appetite on Wall St spurred a comeback for USD. EUR/USD has stabilized from its recent price swings in which the single currency was initially boosted after the ECB meeting where President Lagarde noted the Governing Council discussed the appreciation of the currency but does not target an FX level. Furthermore, source reports stated that policymakers agreed to look through EUR strength at the meeting and view EUR/USD at 1.20 as near equilibrium, although the momentum in the single currency eventually stalled by resistance at 1.1900 and slipped back as the USD recovered. GBP/USD nursed some losses after it briefly fell below the 1.2800 handle on no-deal Brexit fears after the Joint Committee meeting failed to address EU concerns regarding the Internal Market Bill. USD/JPY traded steady at the 106.00 handle and antipodeans attempted to recoup lost ground amid the slight improvement seen in Asia-Pac bourses and with AUD/USD rebounding of a floor at 0.7250.

BoC Governor Macklem said COVID-19 pandemic may accelerate some global forces that could make growth less inclusive, while he added the pandemic has put us in a very deep hole and we still have a long climb ahead. Macklem also stated that inflation is to run below 2% target in near-term and lower global demand for oil means investment in hiring sector likely to remain weak and some projects may never come back on stream. Furthermore, he commented that CAD has appreciated less against the dollar in the past month than other currencies with the level to be taken into account when assessing how much stimulus is needed and that QE will be calibrated or adjusted to deliver stimulus needed to support recovery and get inflation back to target, while they will assess what and how much to buy in QE program which could be more or could be less going forward. (Newswires)

COMMODITIES

WTI crude futures have found a floor above USD 37.00/bbl following the recent selling, triggered by the weak demand outlook and following bearish inventory data, while Brent crude prices were contained by resistance at the USD 40/bbl. Furthermore, news flow for the energy complex failed to spur price action despite news Libya cancelled the export of a crude cargo from Es Sider due to security concerns, while there was also reports Saudi raised domestic fuel prices although this was largely ignored given that they had raised domestic fuel prices the prior months and considering their recent announcement to lower prices of October shipments. Elsewhere, gold prices were contained as the greenback consolidated overnight and copper was also kept rangebound by the mixed risk tone and resistance at USD 3.00/lb.

US DoE said damage assessment at emergency oil reserve site in Louisiana shows pumps, tanks and caverns are intact after Hurricane Laura. Furthermore, it was separately reported that Motiva’s Port Arthur, Texas refinery restart following the hurricanes have been slowed due to a malfunction of the FCC, according to sources. (Newswires)

Libya's NOC cancelled the export of a crude cargo from Es Sider with the security situation still too tenuous to allow a Hess-chartered tanker to dock at the port, according to sources. (S&P Global Platts)

GEOPOLITICAL

US President Trump said countries that want to join the Israel-UAE peace deal are lining up, while he separately commented that US will reduce troop numbers in Afghanistan to 4,000. (Newswires/TASS)

US Treasury has imposed sanctions on four Russia-linked individuals for attempting to influence the US electoral process, with three of the Russian nationals sanctioned by the US employed by an internet research agency. In related news Microsoft detected new cyberattacks targeting US elections, targeting people and organisations associated with both US President Trump and Democratic Presidential Candidate Biden, while Microsoft stated that China and Iran were also attempting to hack the US Presidential Election. (FT/Politico)

India and China agreed that their troops should disengage and ease tensions, while the sides issued a joint statement in which they agreed to honour existing agreements and to not escalate the border situation following a meeting of their foreign ministers. (Newswires)

US

The Treasury curve ultimately bull-flattened after a decent 30-year auction and late-session risk aversion pushed yields into the green. By settlement, 2s unch. at 14bps, 10s -2bps at 68bps, and 30s -3bps at 143bps; volumes were again slightly lacklustre in futures. Sovereigns had been on the defensive from the European open, with the slightly less-dovish-than-expected ECB meeting maintaining the upward bias on yields, also coinciding with equity futures being modestly firmer. As the US folk entered the fray, there was an extension of defensive action in Treasury’s ahead of the 30-year Treasury bond auction, as well as preparation for another busy day of corporate supply, with around 10 IG issuers; a tick higher in both Initial and Continued Jobless Claims didn’t alter the dial either. Participants were likely hesitant to buy the weakness ahead of the Treasury auction, with last month’s rejection still fresh on minds. However, the auction turned out decent, despite the disappointing 3- and 10-year auctions earlier this week. The USD 23bln in 30-year auction stopped through the 1.476% WI by 0.3bps, covered 2.31x (vs avg. 2.33x), while Dealers took slightly less than average as Directs turned out strong, although Indirects (foreign demand) had another disappointing turnout. Meanwhile, after the decent 30-year auction the market sighed relief as bidders entered into duration, turning the curve flatter on the day. The move also gained traction into settlement as equities saw a rout of acute selling, seemingly on no newsflow. T-note (Z0) futures settled 4+ ticks higher at 139-14.

EKOS Research national poll showed former VP Biden ahead of President Trump at 43% vs. 42% conducted August 7th-16th; Emerson Poll for Wisconsin showed former VP Biden ahead of President Trump at 51% vs. 45% conducted September 6th-8th; TargetSmart Pennsylvania poll showed former VP Biden leads President Trump at 51% vs. 44% conducted September 3rd-6th; AARP/Hart Research/FabrizioWard poll for Maine showed former VP Biden leads President Trump at 54% vs. 40% conducted August 30th-September 5th. (Twitter)

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