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[PODCAST] US Open Rundown 11th September 2020

  • European equities are modestly subdued unable to follow the largely positive APAC handover, while US futures are firmer but off highs
  • UK PM Johnson is facing a revolt by as many as 30 Tory MPs over the Internal Markets bill; to address Party at 17:30BST/12:30ET
  • President Trump refuted reports he is to extend the TikTok deadline
  • FX sees the USD softer weighed on by antipodeans & EUR with the latter bolstered via EUR/GBP action
  • Looking ahead, highlights include UK GDP, US CPI, ECB's Schnabel, Lane

CORONAVIRUS UPDATE

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. 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)

ASIA

Asian equity markets trade mixed, but finished mostly positive, 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 (-0.8%) 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 (+0.7%) 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 (+0.8%) and Shanghai Comp. (+0.8%) 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 subsequently, announced they have come to a broad agreement. (Newswires)

US

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)

UK/EU

UK PM Johnson is facing a revolt by as many as 30 Tory MPs over the Internal Markets bill. (The Times)

UK PM Johnson is to address the Parliamentary Party this afternoon at 17:30BST, MPs have not been given details of this meeting, Spectator's Balls. (Twitter)

UK GDP Estimate MM (Jul) 6.6% vs. Exp. 6.70% (Prev. 8.70%); YY (Jul) -11.7% vs. Exp. -11.30% (Prev. -16.80%)

-        3M/3M (Jul) -7.6% vs. Exp. -7.50% (Prev. -20.40%)

ECB's Lane says incoming data indicates a strong rebound in Euro area economic activity during Q3; reiterates Governing Council stands ready to adjust all instruments, reiterates recent appreciation of the euro exchange rate dampens the inflation outlook; upward revision in core inflation in part reflects the positive impact of our monetary policy measures. (Newswires)

ECB's Schnabel says COVID-19 has not undermined monetary dominance in the EU. (Newswires)

ECB's Vasiliauskas says EUR gains are not historically exceptional; ECB is in a wait and see phase. (Newswires)

ECB's Villeroy says we keep all options open, ready to do more as appropriate; do not target the exchange rate, but obviously does matter for inflation & monetary policy. (Newswires)

Dutch Finance Minister wishes to nominate Frank Elderson as their candidate to replace ECB's Mersch. (Newswires)

GEOPOLITICAL

Microsoft stated that China and Iran were 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)

EQUITIES

Directionless trade thus far and relatively contained in early European hours (Euro Stoxx 50 -0.4%) as the region took the lead from a mixed APAC performance and fluctuates between negative and positive territory amidst a lack of fresh catalysts heading into US CPI. Meanwhile, US index futures see more pronounced gains following yesterday’s tech-led slide. European sectors also see a mixed performance with little to be derived in terms of a risk profile. Healthcare leads the gains – propped up by Pharma behemoths Novartis and Roche, with the latter noting that new data further reinforces Co’s Ocrevus as a highly effective treatment for MS. To the downside, banks feel the ill-effects of a slightly lower European yield environment, whilst Oil & Gas and Travel & Leisure react to dwindling demand prospects. In terms of individual movers, Altice (+24%) tops the charts amid news that it is to be acquired by Next Private in an all cash offer of EUR 4.11/shr; expected to completed in Q1-2021. Meanwhile, Banco de Sabadell (-3%) failed to capitalise on further Spanish banking sector consolidation rumors as merger talks reportedly have not been initiated. Sticking with M&A, LSE (+1.8%) shares are supported by reports that Board of directors of Italy’s CDP and CDP equity have resolved to proceed jointly with Euronext (+1.8) to submit non-binding bid for Borsa Italiana.

Tesla (TSLA) - Co. plans to start shipping China-built cars in Europe and Asia

Goldman Sachs: upgrade equities to overweight from neutral for the next 3-months, following recent setbacks; remain modestly pro-risk for the next 12-months; strong earnings growth recovery and lower equity cost should drive the return. (Newswires)

FX

GBP - Sterling remains vulnerable heading into Friday’s round of Brexit trade talks, and with UK PM Johnson facing a Conservative Party revolt against the Internal Market Bill on top of the EU backlash following no reassurances about commitment to comply with the WA from yesterday’s extraordinary joint committee meeting. However, Cable briefly clambered back over 1.2800 after positive reports from Japan about agreement on a trade deal with Britain and Eur/Gbp retreated through 0.9250 before rebounding again after the cross catapulted 2 big figures to 0.9270 on Thursday, albeit with the Euro off its post-ECB highs across the board. For the record, no discernible reaction to a raft of UK data that was mixed on balance, but pretty much as expected in terms of GDP, and from a chart perspective the Pound may find underlying bids around 1.2750 vs the Dollar as the 200 DMA sits not far below at 1.2737, while 0.9300 could offer some sentimental support relative to the Euro.

AUD/NZD - Broad risk sentiment is still fragile after a resumption of the tech-inspired equity market bull correction on Thursday, but the Aussie and Kiwi have taken comfort from more resilient performances across APAC bourses overnight. Moreover, Aud/Usd and Nzd/Usd will draw encouragement from the fact that their latest pullbacks were shallower, down to around 0.7250 and 0.6650 respectively compared to 0.7200 and 0.6600 on Wednesday, while retesting 0.7300 and 0.6700. Note, however, Aud/Nzd is holding above 1.0900 in wake of softer NZ food prices and the manufacturing PMI only just retaining 50+ status.

EUR/CHF/CAD - Also rebounding vs the Greenback, as the DXY meanders between 93.356-129 parameters ahead of US CPI, with the single currency near the top of a 1.1869-14 range and keeping tabs on a host of ECB speakers for anything fresh/pertinent to supplement pretty routine and unchanged guidance from September’s policy meeting. Meanwhile, the Franc has reclaimed 0.9100+ status and the Loonie is pivoting 1.3170 without additional impetus from BoC Governor Macklem who basically repeated Wednesday’s post-meeting statement and merely acknowledged that Usd/Cad has not fallen as much as other pairs in the past month.

JPY - Very little deviation in the Yen just under 106.00 against the Buck awaiting next week’s LDP leadership developments and BoJ policy outcome that is now widely touted to culminate in an upgrade to the economic assessment for Japan.

SCANDI/EM - A rather consolidatory feel the final session of the week, so far, as the overall market tone is cautious/choppy, but the Rand and Real may receive some independent direction from SA business sentiment Brazilian services sector growth later.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1750-60 (700M), 1.1770-80 (400M), 1.1800-05 (1BLN), 1.1850 (1.1BLN), 1.1900 (901M)

-        USD/CAD: 1.3100-15 (640M), 1.3220 (1BLN)

-        AUD/JPY: 75.80 (1.4BLN), 79.45 (1.4BLN)

FIXED INCOME

Little in the way of new fundamental catalysts, so the fade in debt futures maybe more technical and/or simply a case of momentum waning at the end of a hectic week watching stocks, oil and other commodities before the main scheduled events and the return of Brexit from the side-lines to share some of the spotlight if not a centre stage role. Bunds have drifted back down from 173.84 amidst a barrage of ECB rhetoric that has not really changed the official narrative delivered by President Lagarde yesterday, while Gilts reversed from 136.52 to post a fresh Liffe low at 136.21 (still 33 ticks above Thursday’s close) and the 10 year T-note remains leggy/restrained within 139-11+/139-15 confines in advance of US CPI that could in theory carry more weight given the Fed’s switch to AIT, but in practice probably won’t given that headline inflation is some distance below the old remit.

COMMODITIES

WTI and Brent front month futures are flat within tight ranges in the aftermath of yesterday’s decline, as the complex awaits fresh news flow ahead of US CPI metrics. WTI has been contained within USD 0.5/bbl parameters between 37.00-50/bbl and 39.65-15/bbl respectively, with the only scheduled crude-specific data the weekly Baker Hughes rig count which will be released as usual. Next week is poised to be a relatively busy week for crude markets, with the OPEC and IEA MOMRs alongside the JMMC, which collectively should provide some meat on the bone around what is still an uncertain supply/demand outlook. Elsewhere, spot gold and spot silver are uneventful in caged-trade sub-USD 1950/oz and below USD 27/oz, Meanwhile, Shanghai copper closed lower on the day, weighed on by the losses seen across US stock markets, whilst Dalian iron ore rebounded on demand recovery hopes.

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)

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