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[PODCAST] European Open Rundown 14th September 2020

  • Asian equity markets were positive across the board and US equity futures also began the week on the front foot
  • AstraZeneca (AZN LN) and the University of Oxford have resumed their coronavirus vaccine trial
  • ByteDance reportedly picked Oracle as the winning bidder for its TikTok operations in US
  • UK senior Tories are refusing to back down on their revolt against PM Johnson regarding the Internal Market Bill
  • The DXY was marginally softer overnight, allowing EUR/USD to test 1.1850 to the upside and GBP/USD reclaim 1.28
  • US Senate Majority Leader McConnell said he wished he could say we were going to get another package but added that it doesn't look that good right now
  • Looking ahead, highlights include EZ industrial production, OPEC MOMR, ECB's Makhlouf, Lane

CORONAVIRUS UPDATE

World Health Organization reported the largest daily increase of worldwide COVID-19 cases in which global cases increased by 307,930 and deaths rose by 5,537 in 24 hours. (Newswires)

US CDC reported total coronavirus cases increased to 6.47mln from 6.43mln and deaths rose to 193.2k from 192.4k, while a major newswire tally stated that US cases increased by at least 33,171 to a total of 6.53mln and deaths rose by at least 392 to a total of 194.1k. Texas COVID-19 cases rose by 1,840 to a total of 659.4k and deaths rose by 47 to a total of 14,190, while a major newswire tally stated that California cases increased by at least 2,238 to 761.0k and deaths rose by at least 52 to 14.4k. (Newswires)

AstraZeneca (AZN LN) and the University of Oxford have resumed their coronavirus vaccine trial. (Newswires)

UK coronavirus cases +3,330 (prev. +3,497) and France cases +7,183 (Prev. record increase of +10,561). (Newswires)

UK Government adviser and professor of experimental medicine at Imperial College London, Peter Openshaw, warned the UK faces another national lockdown "in short order" unless people adhere to the new COVID-19 restrictions. In separate news, ministers reportedly believe that a national curfew would be the obvious next step for containing the coronavirus if the new lockdown restrictions fail to reverse the increase of infections. (Sky News/Telegraph) A leaked document revealed the extent of the UK testing shortfall in which there is said to be a backlog of 185,000 swabs and with the programme overstretched that it is shipping tests to labs in Italy and Germany. (Sunday Times)

New Zealand PM Ardern extended Level 2 virus restriction in Auckland for 1 week and the rest of the country will move to Level 1 restrictions on midnight September 21st, while they will review restrictions on September 21st. (Newswires)

A Chinese virologist claims to have evidence that COVID-19 was made in a controlled lab in Wuhan and is planning to release proof in the next few days. (New York Post)

ASIA

Asian equity markets were positive across the board and US equity futures also began the week on the front foot as sentiment was underpinned by vaccine hopes amid reports that AstraZeneca resumed its vaccine trials and with M&A news also contributing to the constructive risk tone, after SoftBank confirmed it will sell its Arm unit to Nvidia, and ByteDance reportedly picked Oracle as the winning bidder for its TikTok operations in US. ASX 200 (+0.5%) was led higher by strength in commodity names although gains were capped by resistance in the index near around the 5900 level and underperformance seen in tech and financials, with the latter dragged amid losses in Macquarie Group after it flagged a 35% Y/Y decline to H1 2021 results. Nikkei 225 (+0.7%) was also positive ahead of today’s LDP leadership vote in which Abe loyalist and current Chief Cabinet Secretary Suga is widely seen as the front runner to succeed PM Abe with around 70% of LDP’s Diet members expected to support his bid to become the party leader. Furthermore, SoftBank shares surged around 9% after confirmation to sell its Arm Holdings unit for USD 40bln which would be the largest ever semiconductor deal and reports also noted executives revived discussions regarding taking SoftBank private following its recent asset disposals, while KOSPI (+1.1%) was among the biggest gainers as index heavyweight Samsung Electronics benefitted on news it outbid TSMC to win a KRW 1tln order from Qualcomm. Hang Seng (+0.5%) and Shanghai Comp. (+0.6%) also conformed to the broad constructive risk tone amid the TikTok related developments and as participants digested the latest lending data in which both New Yuan Loans and Aggregate Financing topped forecasts. Finally, 10yr JGBs were marginally higher following a recent break above the 152.00 resistance level but with gains limited by the broad positive risk tone and a tepid BoJ Rinban announcement valued at a total JPY 150bln.

PBoC injected CNY 80bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 20bln. (Newswires) PBoC set USD/CNY mid-point at 6.8361 vs. Exp. 6.8384 (Prev. 6.8389)

Chinese House Prices (Aug) Y/Y 4.8% (Prev. 4.8%). (Newswires)

ByteDance picked Oracle (ORCL) as the winning bidder for TikTok's US assets after it had rejected the offer from Microsoft (MSFT), whilst Walmart (WMT) is reportedly continuing talks with the ByteDance leadership and Oracle regarding taking an investment in TikTok. In related news, ByteDance was previously reported to not include the transfer of its algorithm as part of any sale, while there were prior reports that China opposed a forced sale of TikTok's US business and would rather see it shut as Chinese officials believe a forced sale would make both ByteDance and China appear weak in the face of pressure from Washington, although it was also reported that TikTok was pushing forward with the deal to meet the upcoming deadline and it intends to bring the proposal to the White House by September 20th. (Newswires/Axios/SCMP)

China is imposing stricter rules and capital demands on large firms such as Ant Group and China Evergrande Group in an effort to curb risks in the financial industry, in which new regulations will require licenses for non-financial companies that conduct business in at least two financial sectors and which are designated as financial holding companies. (Newswires)

Japan’s Chief Cabinet Secretary Suga said there was no limit to the amount of bonds the government could issue to support the economy amid the fallout from the coronavirus pandemic. In other news, outgoing Japanese PM Abe was reported to have made another visit to hospital. (Newswires)

UK/EU

UK PM Johnson met with Conservative MPs as backbenchers threatened rebellion over the government’s plan to break international law in which he reportedly told MPs he wants them to understand his point of view, not the polemic view in the papers and is insisting to MPs that the clauses in the Internal Market Bill are necessary to stop a foreign power from breaking up our country. Furthermore, PM Johnson reportedly still believes there is a good chance of a Canada-style trade deal. (Newswires)

UK senior Tories are refusing to back down on their revolt against PM Johnson regarding the Internal Market Bill, despite the PM's warning that Brussels could "carve up our country" without it. (Sky News)

UK government aides and ministers are reportedly mulling options including opting out of human rights laws which sets up a new battle front with the EU. Furthermore, UK PM Johnson also accused the EU of threatening to impose a food blockade in the Irish Sea. (Telegraph)

UK Chief Brexit Negotiator Frost said the UK government needs powers in reserve to avert a disruption to the balance of peace in Northern Ireland and said that the EU made it clear there is no guarantee the UK will be listed as a third country for food imports and that if we are not listed, we will not be able to move food to Northern Ireland. (Newswires)

European Parliament leaders’ draft statement noted that MEPs will veto any future trade deal with UK unless the Internal Market Bill is pulled so the Withdrawal Agreement is implemented in full. (Telegraph/Newswires)

Irish PM Martin said a no-deal would be ruinous for Britain and that he wants a decent free trade deal with UK. There were also comments from Irish Foreign Minister Coveney that EU-UK trade talks are now in a very difficult place and that this week’s talks in Brussels will be an important window, while he suggested to not overreact but firmly call the UK out and suggested to not lose focus on the bigger prize of a trade deal by year-end. (Newswires)

UK Chancellor Sunak is reportedly mulling a tax break worth billions of pounds to spur large companies to spend and in which they will be able to deduct costs of technology, machinery and industrial premises from bills. There were also reports that Sunak is said to be contemplating a delay of the budget until the New Year amid uncertainty regarding a potential second wave of the virus, according to sources. (Telegraph)

ECB’s Lagarde said incoming data shows a strong recovery but is also uneven, uncertain and incomplete. Lagarde added that keeping job support schemes in place is vital to avoid a sharp increase in unemployment in the future and that underlying price pressures have weakened. (Newswires)

ECB's De Guindos said that they are closely observing the impact of FX rate on price stability and that the ECB does not target the exchange rate but added that it is an important variable. (Newswires)

ECB's Rehn said underlying price pressures in the euro area have stabilized at a low level which isn’t in line with the ECB’s target and added that the inflation outlook is a concern. (Newswires)

EU is mulling selling green bonds as part of its fund raising for the bloc’s EUR 750bln COVID-19 economic spending plan. (FT)

S&P affirmed Portugal at BBB; Outlook Stable, affirmed Norway at AAA; Outlook Stable, affirmed Austria at AA+; Outlook Stable, affirmed Luxembourg at AAA;Outlook Stable, affirmed Malta at A-;Outlook Stable and affirmed Ukraine at B; Outlook Stable. Moody's affirmed Poland at A2; Outlook Stable and cut Turkey to B2 from B1; Outlook remains Negative. (Newswires)

FX

The DXY was marginally softer overnight as the positive risk tone sapped haven appeal to give back some of Friday’s post-inflation data gains. As such, the greenback’s major counterparts marginally benefited in which EUR/USD tested 1.1850 to the upside but with gains capped by resistance at that level. Furthermore, there were some bullish comments from Goldman Sachs on the single currency which suggested it was still undervalued and targets 1.25 over a 12-month horizon with the longer-term fair value seen at around 1.30. GBP/USD also found some relief from recent selling to reclaim the 1.2800 status, although no-deal concerns persisted ahead of this week’s talks in Brussels and with UK government aides and ministers reportedly mulling options including opting out of human rights laws which sets up a new battlefront with the EU. USD/JPY consolidated at the 106.00 handle and AUD/USD was also uneventful amid a lack of data releases and relatively stable PBoC reference rate setting, while NZD/USD outperformed on cross related flows after AUD/NZD broke below 1.0900 and following the announcement to move to Level 1 restrictions from next week for the entire country aside from Auckland where the Level 2 restrictions have been extended for a week and will be reviewed next week.

COMMODITIES

WTI crude futures rose above the USD 37.50/bbl amid the constructive risk tone and reports of platform shutdowns in the Gulf of Mexico ahead of tropical storm Sally which is expected to strengthen to a hurricane today. Nonetheless, gains were limited overnight as participants await today’s OPEC Monthly Oil Market Report and the OPEC JMMC on Thursday, while there were also reports that BP warned of a peak to global oil demand in the approaching years. Elsewhere, gold prices benefitted from a subdued greenback but failed to sustain a breach of the USD 1950/oz level and copper also eked mild gains amid the similar picture across the complex and positive risk environment.

Baker Hughes rig count showed Oil rigs -1 at 180 and NatGas -1 at 71, Total -2 at 254. (Newswires)

NHC stated that Tropical Storm Sally's slow motion poses a significant risk of flash flooding over south eastern Louisiana, southern Mississippi, southern Alabama and the Florida Panhandle through Wednesday morning, while reports noted it is expected to make landfall by New Orleans as a hurricane. (Newswires)

BP evacuated non-essential workers from its Nakika and Thunderhorse platforms in the Gulf of Mexico and Chevron shut its Blind Faith and Petronius platforms due to tropical storm Sally. Furthermore, Murphy Oil shut its Delta House platform and Equinor shut its Titan platform in Gulf of Mexico due to the storm threat. (Newswires)

Motiva restarted the FCC at its Port Arthur, Texas refinery following hurricane shutdowns. (Newswires)

Iraq lowered October Basra light crude price to Asia to Oman/Dubai plus USD 0.30/bbl which was cut from a premium of USD 1.50/bbl, while Iraq also lowered prices for US to ASCI plus USD 0.40/bbl and cut OSP price for Europe to Brent minus USD 0.70/bbl. (Newswires)

BP warned of a peak to global oil demand within the next few years. (FT)

GEOPOLITICAL

US intelligence report stated that Iran is considering a plot to assassinate the US Ambassador to South Africa as it is still looking to avenge the death of General Soleimani, according to reports citing a US government official. (Politico)

China released 5 Indian men that were temporarily detained by the People’s Liberation Army (PLA) for crossing into its territory following from Chinese state media that the men were spies. (SCMP) China Global Times noted that PLA intensive aerial and naval exercises near Taiwan on Wednesday and Thursday, was a move that experts said was part of normal training missions aimed at honing the capabilities to win a war should one break out in the Taiwan Straits. (Global Times)

US

Yields across the curve were slightly lower heading into the weekend amid a subdued risk tone and right-tail inflation concerns were abated. By settlement 2s -1bps at 13bps (Opened on Tuesday, OoT, at 14bps), 10s -1.5bps at 67bps (OoT at 72bps), and 30s -1.5bps at 141.5bps (OoT at 148bps); volumes in futures were below averages today. Treasuries had been on the defensive in European trade, with equity futures indicating a green open and in anticipation of the CPI data. However, after an initial spike lower on the firmer than expected headline print in CPI (+0.4% vs exp. +0.3%), the move reversed and Treasuries found a bid as details under the hood showed that used car sales were a key component of the rise, which is perceived to be a transitory boost. Meanwhile, with this week’s supply out the way, yields were free to descend amid stocks tumbling into the red as Europe left for the weekend. The Treasury market now looks to next Tuesday’s 20-year Bond auction, followed by Wednesday’s FOMC meeting with participants looking for clarity around the Fed’s new (FAIT) framework. T-note (Z0) futures settled 5 ticks higher at 139-19.

US President Trump tweeted that he signed a new executive order to lower drug prices which will ensure the US receives the same low prices that big pharmaceuticals give to other countries. (Newswires)

US Senate Majority Leader McConnell said he wished he could say we were going to get another package but added that it doesn't look that good right now. (Newswires)

NEC Director Kudlow said Congress will shift its energy towards a stopgap measure to fund the government, according to an interview. (Fox Business News)

POLL: Morning Consult Wisconsin poll shows former VP Biden leads President Trump at 50% vs. 43% (prev. 50% vs. 43%), conducted September 12th

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