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[PODCAST] US Open Rundown 15th September 2020

  • European stocks saw an uninspiring open but have since seen upside despite a lack of fresh catalysts
  • ByteDance plans to restructure TikTok with its new investors which would see Oracle (ORCL) and Sequoia Capital taking stakes
  • IEA cut its 2020 crude oil demand forecast by 200k BPD and expects the recovery in oil demand to decelerate markedly in H2
  • The DXY lost further ground after slipping below 93.00; EUR/USD trades just beneath 1.1900, GBP/USD above 1.2900; PBoC set the firmest fix since May 2019
  • Looking ahead, highlights include, US NY Fed and Industrial Production, weekly Private Inventory Crude Stocks, supply from the US

CORONAVIRUS UPDATE

US issued a Level 3 “Reconsider Travel" advisory against China and Hong Kong due to COVID-19 vs. Prev. Level 4 'Do Not Travel' warning. (Newswires)

Australia's Victoria state Premier Andrews announced to ease restrictions for regional Victoria and stated there could be a further relaxation due to encouraging statistics. (Newswires)

ASIA

Asian equity markets were somewhat mixed as the region only partially sustained the momentum from the firm handover from the US where the tech sector resumed its outperformance and sentiment was underpinned by vaccine and M&A developments. ASX 200 (-0.1%) was indecisive and only briefly benefitted from the announcement to ease regional Victoria coronavirus restrictions, with strength in tech and mining stocks offset by losses in energy and financials, while Nikkei 225 (-0.4%) underperformed as exporters suffered from the ill-effects of a firmer currency and with Sony shares pressured by reports it is to reduce its PS5 sales forecast by 4mln units due to chip supply issues. Hang Seng (+0.4%) and Shanghai Comp. (+0.5%) eventually gained following a CNY 600bln MLF announcement by the PBoC and better than expected Chinese data where Industrial Production and Retail Sales both topped forecasts. In addition, China announced to extend tariff exemptions for 1 year on imports of some US products which were due to expire tomorrow, although the support for stocks was limited as uncertainty regarding TikTok remained given the no-algorithm inclusion aspect of the deal and with the US to block imports of cotton, linen, hair products and computer parts made by specific entities in Xinjiang. Finally, 10yr JGBs were flat following similar rangebound trade in T-notes, while firmer demand at today’s enhanced liquidity auction for long-end JGBs only mildly supported as price action was once again hampered by resistance at the 152.00 level.

PBoC refrained from reverse repo operations but announced a CNY 600bln Medium-term Lending Facility. (Newswires) PBoC sets USD/CNY mid-point at 6.8222 (Prev. 6.8361); strongest since May 13th 2019. (Newswires) PBoC says it will push forward Loan Prime Rate (LPR) reform; will improve monetary policy adjustments and the transmission mechanism. (Newswires)

Chinese Industrial Production (Aug) Y/Y 5.6% vs. Exp. 5.1% (Prev. 4.8%). Chinese Retail Sales (Aug) Y/Y 0.5% vs. Exp. 0.0% (Prev. -1.1%)

China announced a 1-year extension to tariff exemptions for imports of 16 US products such as lubricants, whey and fish meal for 1 year that were due to expire on September 16th. (Newswires)

ByteDance plans to restructure TikTok with its new investors which would see Oracle (ORCL) and Sequoia Capital taking stakes. (Newswires)

UK/EU

UK government won the vote on the Internal Market Bill by 340-263 which moves the bill to the Committee Stage of the legislation process. Note, lawmakers also voted 349-213 against the Labour amendment which aimed to reject the bill entirely. (BBC)

UK Claimant Count Unem Chng* (Aug) 73.7k vs. Exp. 100.0k (Prev. 94.4k, Rev. 69.9k) (Newswires) UK ILO Unemployment Rate* (Jul) 4.1% vs. Exp. 4.1% (Prev. 3.9%) UK August Flash Employment Estimate -2.2% YY; according to ONS/HMRC.

ECB's Panetta says the Governing Council stands ready to adjust all policy instruments, depending on incoming data, in order to bring inflation in line with the medium-term aim. Overall, the balance of risks is on the downside. Results achieved by monetary policy are not satisfactory yet. In light of the current outlook for inflation, the ECB need to remain vigilant and carefully assess incoming information including exchange rate developments. (ECB)

German ZEW Economic Sentiment (Sep) 77.4 vs. Exp. 69.8 (Prev. 71.5) (Newswires) German ZEW Current Conditions (Sep) -66.2 vs. Exp. -72.0 (Prev. -81.3)

EQUITIES

Europe saw an uninspiring cash open following a mixed APAC handover, but thereafter upside momentum seeped into the markets (Euro Stoxx 50 +0.6%) – with little by way of fresh catalysts to shift the dials ahead of the FOMC policy decision tomorrow. Nonetheless, performance across bourses remain mixed but tilted to the upside, with the DAX (+0.2%) the laggard in the region whilst IBEX (+1.6%) leads the gains, propped up by solid gains in index heavyweight Inditex amid broader consumer discretionary outperformance, with the sector underpinned by H&M (+13%) after a well-received trading update. Sticking with sectors, material names are supported by the USD-induced gains in copper coupled with strong Chinese data and a slew of broker upgrades for the UK mining sectors; for the likes of Anglo American (+2.4%), Glenore (+2.8%), BHP (+2.5%), Rio Tinto (+2.82%), Fresnillo (+0.6%) and Polymetal (+0.8%). To the downside, Financials are weighed by the European banking sector consolidation, with Spanish banks pressured after Caixabank (+0.9%) is said to be mulling a EUR 4bln bid for Bankia (-0.9%) vs. current market cap EUR 4.2bln, whilst UBS (-1.5%) threatened to move its HQ to Frankfurt if officials were to forbid a merger with Credit Suisse (-2.0%). In terms of other individual movers, Fiat Chrysler (+7.1%) has benefitting from a revision of its planned merger with PSA (-0.9%) which includes dividend cut in order to keep cash inside the merged entity. This has also weighed on the likes of Faurecia (-6.5%) as PSA is the majority shareholder in the group, will in turn delay the planned spinoff of Faurecia until after the mergers’ closing. Finally, Carrefour (-2.5%) shares remain on the backfoot after Credit Agricole corporate and investment bank launched the disposal of around 3.1% of Carrefour share capital.

FX

AUD/NZD - In contrast to yesterday, news that COVID-19 restrictions have been eased in the state of Victoria allied to a relatively upbeat economic assessment in the RBA minutes have boosted Aud/Usd and Aud/Nzd from sub-0.7300 and circa 1.0860 respectively, while the ongoing appreciation of the Yuan (CNY and CNH both through key resistance at 6.8000 vs the US Dollar) following stronger than expected Chinese data (ip and retail sales) has also propelled the Aussie a bit further than the Kiwi as Nzd/Usd pivots 0.6700 before Q2 current account data.

GBP - Encouraging UK labour market metrics and some LHS interest in the Eur/Gbp cross appear to be propping up the Pound rather than safe enough passage of the IMB through parliament last night, as Cable bounces from the low 1.2800 zone to retest 1.2900 and Sterling takes another look at bids/support protecting 0.9200 vs against the Euro. However, the 200 WMA at 1.2933 still poses a technical hurdle if 1.2900 is breached again and market contacts suggest a breach of 0.9200 may be shallow given ongoing no deal Brexit risk.

CHF/EUR - Also firmer vs the Greenback, with the Franc holding near the top of a 0.9090-55 range and undeterred by more deflationary Swiss import and produce prices, while the Euro trades closer to 1.1900 than 1.1850 amidst decent option expiry interest (1 bn between 1.1900-10, 1 bn at 1.1885 and 2.4 bn at 1.1850) and underpinned by ZEW readings beating consensus comfortably.

CAD/JPY/USD - The Loonie and Yen are narrowly mixed against the Buck, as Usd/Cad straddles 1.3150 in advance of Canadian manufacturing sales and Usd/Jpy hovers below 106.00 before several US data points and Japanese trade ahead of the Fed. Meanwhile, the DXY is tethered to 93.000 awaiting impetus in the run up to the FOMC or via fresh guidance and SEP forecasts in the newly adopted flexible AIT era.

SCANDI/EM - Moderately firmer oil prices and risk sentiment overall appear to have nudged the Norwegian and Swedish Crowns off Monday’s lows instead of data in the form of a wider trade deficit and fractionally softer than anticipated SA unemployment rate respectively. Moreover, improvements in the latest Norges Bank regional survey and the Riksbank rolling out Usd swap agreements until the end of Q1 next year may be keeping Eur/Nok and Eur/Sek capped at 10.7000 and 10.4000. Conversely, Turkey’s Lira is struggling to rebound after slipping briefly and marginally beneath 7.5000 as EU’s Borell warns that the country’s future relationship with the bloc is on the line. Elsewhere, the Rand will be eyeing SA business confidence for more pre-SARB pointers.

FIXED INCOME

2 down and 2 to go in terms of today’s sovereign debt sales, but no real respite for bonds as stocks nudge higher and Tuesday’s EU economic data/surveys surpass expectations. Hence, Bunds are at new Eurex intraday lows of 173.79 and eyeing 173.69 next before last Friday’s 173.54 session base and Gilts are inching closer to 136.00 having already breached their September 11 trough (136.10) at 136.07, albeit briefly. Meanwhile, US Treasuries are below par and the curve back in bear-steepening mode into 20 year issuance on the eve of the FOMC and with some potential market-movers in the interim, including NY Fed manufacturing, import/export prices and ip (then retail sales on Wednesday).

COMMODITIES

WTI and Brent front month futures have been on an upward trajectory in the latter part of the European morning as traders balance the supply and demand implication arising from developments in the Gulf of Mexico alongside a resurgence of the pandemic ahead of the JMMC meeting on Thursday. In terms of the breakdown, the supply side sees disruptions from the myriad of hurricanes and tropical storms developing in the Atlantic, with Hurricane Sally the most pertinent as it is poised for landfall in the Gulf later today – with BSEE yesterday estimating that that approximately 21.39% of the current oil production and ~25.28% of the natural gas production in the Gulf of Mexico has been shut-in, with today’s update due at 1900BST. Sticking with supply side, sources yesterday suggested the OPEC+ meeting is unlikely to advocate deeper oil output cuts, with Saudi to reportedly not looking to lift oil prices, in-fitting with recent source reports via the FT. Moving to demand, the IEA cut its 2020 global oil demand growth forecast by 200k BPD, citing resurgence of COVID-19 cases, local lockdown measures, remote working and weak aviation for the downgrade. The agency also expects the recovery in oil demand to decelerate markedly in H2 this year. The report aligned itself with both the OPEC and EIA STEO, with OPEC and IEA also highlighting the renewed weakness in the Indian markets dragging on demand. Nonetheless, WTI resides around USD 38/bbl (vs. low 37.06/bbl) while its Brent counterpart regains a footing above 40.00 (vs. low 39.39/bbl). Elsewhere, spot gold and silver derive support from the softer USD to eke mild gains around USD 1960/oz and above USD 27/oz respectively. In terms of base metals, LME copper is supported and Shanghai copper was underpinned by the strong Chinese industrial production data and the recent gains in the stock markets, whilst Dalian iron ore futures came under pressure from lower Chinese steel margins.

NHC says Hurricane Sally has weakened slightly, life threatening storm surge, hurricane-force winds, and flash flooding likely along portions of the northern Gulf Coast later. (Newswires)

IEA Monthly Oil Market Report: Cuts 2020 crude oil demand forecast by 200k BPD to 91.7mln BPD, maintains 2021 crude oil demand forecast at 91.7mln BPD. Expects the recovery in oil demand to decelerate markedly in H2 2020; cites resurgence of COVID-19 cases, local lockdown measures, remote working and weak aviation for the downgrade. (Newswires)

GEOPOLITICAL

US President Trump commented on recent reports Iran may be planning an assassination against US in retaliation for killing of General Soleimani, in which he warned that any attack by Iran in any form will be met with an attack of Iran that will be 1,000 times greater. (Twitter)

Chinese Foreign Ministry denies reports that its troops have been laying fibre optic cables at the China-India border flashpoint. (Newswires)

Russia's Kremlin said it has ordered the withdrawal of reserve troops from near the Belarusian border. (TASS)

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