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[PODCAST] European Open Rundown 16th September 2020

  • Asian equity markets traded mixed and only partially benefitted from the tech-led gains in US
  • DXY trades mildly softer, whilst remaining on a 93.00 handle, EUR/USD hovers around 1.1850 and GBP/USD trades sub 1.2900
  • A 50-member House bipartisan group proposed a USD 1.5tln stimulus package in an effort to break the deadlock; rejected by Democrats and the administration
  • BSEE estimated Hurricane Sally has cut 26.9% of US gulf offshore oil production (prev. 21.4%)
  • Apple (AAPL) unveiled its new iPad, Apple Watch series 6 and Apple One
  • Looking ahead, highlights include UK Inflation, US Retail Sales, Canadian CPI, New Zealand GDP, FOMC Policy Decision, OECD Economic Update, EC President von der Leyen, Fed Chair Powell and supply from UK and Germany

CORONAVIRUS UPDATE

US COVID cases +34,597 (prev. +35,549) and deaths +387 (prev. +510), while a major newswire tally stated that US cases increased by at least 37,017 to a total of 6.61mln and deaths rose by at least 1,105 to a total of 195.7k. New York COVID cases +766 (prev. +583) and deaths +11 (prev. +4), California cases +2,235 (prev. +2,855) and deaths +66 (prev. +56), while Texas cases +4,816 (prev. +2,595) and deaths +132 (prev. +21). (Newswires)

US President Trump said that a coronavirus vaccine could be 3 or 4 weeks away, during a town hall event. (ABC News)

Pfizer (PFE) said it expects early clinical data from experimental antiviral COVID treatment in Q4 and that over 12,000 participants have received their second dose of the COVID vaccine in its P3 trial. Co. has begun dosing Phase 1 patients with the experimental drug and sees opportunity for next gen lower dose COVID vaccine in 2021. (Newswires)

ASIA

Asian equity markets traded mixed and only partially benefitted from the tech-led gains in US, with the region tentative heading into the upcoming flurry of central bank announcements beginning with the FOMC later today. ASX 200 (+1.0%) and Nikkei 225 (+0.2%) were positive with Australia buoyed as the tech and telecoms sectors found inspiration from the outperformance of their counterparts stateside, while the advances in Japan have been tempered by a firmer currency and mixed data which showed a surprise Trade Surplus and narrower than expected contraction to Exports, although Exports were still at a substantial decline and Imports missed to suggest a weak consumer profile. In addition, participants await incoming PM Suga’s inauguration and the conclusion of the BoJ’s 2-day policy meeting which kicks off today. Conversely, Hang Seng (-0.3%) and Shanghai Comp. (-0.2%) lagged after a neutral PBoC liquidity operation and ongoing US-China tensions following the WTO ruling that US tariffs on China violated trade rules, as the US have spoken against the WTO announcement and President Trump suggested he may do something about the WTO following the ruling, while it was also reported the US is to announce charges related to Chinese hacking and blacklisted a Chinese developer in Cambodia, amid allegations they built facilities on land seized from locals which could be used to host military assets. Finally, 10yr JGBs were flat with price action stuck near the 152.00 resistance level and amid the indecisive risk tone, while participants were also tentative as the BoJ begins its 2-day policy meeting.

PBoC injected CNY 120bln via 7-day reverse repos at a rate of 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.7825 vs. Exp. 6.7808 (Prev. 6.8222)

US DoJ is to announce charges and arrests today for computer intrusion campaigns concerning China. (Newswires)

US President Trump said he was not aware of today's WTO ruling but he will look at it, while he reiterated he is not a fan of the WTO and he may do something about the WTO following the ruling. President Trump also confirmed he will look at the TikTok deal with Oracle (ORCL). (Newswires)

ByteDance proposed to the CFIUS to carve out TikTok's global business and retain a majority stake and called for CFIUS supervision of TikTok's global business to ensure safety of its US user data, according to a source. Reports noted that TikTok is to become a standalone US company to satisfy the White House and Oracle (ORCL) is to be a minority holder in its global business, with ByteDance remaining a majority shareholder. Furthermore, sources suggested other US investors, potentially Walmart (WMT) and Microsoft (MSFT) would own a minority stake, while TikTok's data across the globe would be processed independently by Oracle and Beijing has reportedly shown support for the plan. (FT)

Global Times Op-Ed called Nvidia (NVDA) purchase of Arm Holdings from SoftBank (9984 JT) disturbing and calls for regulatory caution from China regulators. (Newswires)

Japanese Trade Balance (JPY)(Aug) 248.3B vs. Exp. -37.5B (Prev. 11.6B, Rev. 10.9B). (Newswires) Japanese Exports (Aug) Y/Y -14.8% vs. Exp. -16.1% (Prev. -19.2%) Japanese Imports (Aug) Y/Y -20.8% vs. Exp. -18.0% (Prev. -22.3%)

UK/EU

UK Chancellor Sunak is reportedly looking at plans for a limited extension of the business rates holiday which currently runs until the end of the year and applies to the retail, hospitality and leisure industry. The Chancellor is also facing calls by business to lower employers' National Insurance contributions. (Telegraph) 

The Times' Shadow MPC voted unanimously for policy settings to be left unchanged this month, suggesting that the Bank should instead focus on financial stability. (Times) 

Four senior US Congressmen reportedly wrote a letter to UK PM Johnson which repeated the warning there will not be a US-UK trade deal if the legislation to override the Withdrawal Agreement is not pulled, according to Sky News' Coates. (Twitter) UK Foreign Secretary Raab will meet US Secretary of State Pompeo and House Speaker Pelosi today to reassure them over the Internal Markets Bill. (BBC)

Brussels said it intends to pursue Big Tech with new rules, while EU officials said that a one-size-fits-all rule will harm smaller companies. (FT)

FX

The DXY was relatively flat and consolidated after the prior day’s fluctuations through the 93.00 level. In terms of the latest developments in Congress, a 50-member House bipartisan group proposed a USD 1.5tln stimulus package in an effort to break the deadlock, although Democrats have noted the proposal wasn’t sufficient and the administration also suggested it wasn’t inline with their priorities, while focus now turns to the looming FOMC announcement. EUR/USD remained dispirited after its recent failed attempt at the 1.1900 handle and retreat to beneath 1.1850, although has since rebounded off its lows, and GBP/USD was marginally higher on a reclaim of the 1.2900 status following reports which suggested UK PM Johnson could be willing to compromise after he met with Tory rebels prior to Monday’s Parliamentary vote. USD/JPY and JPY-crosses were lacklustre after recent pressure, while antipodeans found support after another firmer PBoC reference rate setting and with NZD also benefitting from upward revisions to forecasts in the New Zealand government’s pre-election fiscal update.

Australian Westpac Leading Index (Aug) M/M 0.5% (Prev. 0.1%). (Newswires)

New Zealand Current Account (Q2) Q/Q 1.8B vs. Exp. 0.6B (Prev. 1.6B). (Newswires) New Zealand Current Account/GDP (Q2) -1.9% vs. Exp. -2.5% (Prev. -2.7%)

New Zealand forecasts 20/21 bond issuance of NZD 50bln vs. Prev. forecast of NZD 60bln in budget and sees 21/22 issuance at NZD 35bln vs. Prev. forecast of NZD 40bln in budget. Furthermore, the government revised June quarter GDP forecast to -16% vs. Prev. forecast of -23.5% and 2020 GDP to -3.1% vs. Prev. forecast of -4.6%, while it expects unemployment to peak at 7.8% vs. Prev. forecast of 9.8% in the budget. (Newswires)

Central Bank of Mexico extended measures to strengthen credit channels and provide liquidity, while it is raising size of repo facility by MXN 50bln and reducing resources assigned to temporary swap guarantee facility by MXN 50bln. (Newswires)

COMMODITIES

WTI crude futures tested the USD 39.00/bbl level after a bullish private sector inventory report which showed headline crude inventories at a surprise draw of 9.5mln bbls, while BSEE’s latest estimates for oil production shut-ins in the Gulf of Mexico increased to 26.9% from 21.4% and further support was also seen as Chinese participants entered the fray with Shanghai crude prices gaining nearly 4% in early trade. Elsewhere, gold prices were positive but with gains capped by a steady greenback and tentativeness heading into today’s FOMC, while copper prices lagged alongside the underperformance in China.

US Private Inventory (w/e 11th Sept): Crude -9.5mln (exp. +1.3mln). (Newswires)

BSEE estimated Hurricane Sally cut 26.9% of US gulf offshore oil production (prev. 21.4%) and Nat Gas shut off in the region is seen at 28.0% (prev. 25.3%). (Newswires)

US Coast Guard reopened the Ports of New Orleans, Baton Rouge, Plaquemine, St. Bernard and South Louisiana with restrictions. (Newswires)

GEOPOLITICAL

US President Trump affirmed that Bahrain's approach towards peace will encourage all to engage in the peace process, while he later commented that 5 or 6 additional countries are on track to normalize relations with Israel. (Newswires)

India moved tons of winter supplies to the disputed China border area in efforts to mirror the Chinese side, according to officials. (Nikkei)

US

The TPLEX was a touch steeper on Tuesday as the long-end yields rose a couple of bps amid stronger stocks and Treasury supply. By settlement, 2s unch. at 14bps, 10s +1bps at 68bps, 20s +1.5bps at 121bps, 30s +2bps at 143bps; volumes were again very light ahead of Wednesday’s FOMC. The tape action continued to meander in tight ranges, with participants wary of making directional bets ahead of potential altercations to Fed purchases, as well as clarity around the central bank’s new flexible average inflation targeting framework. There was some slight selling into the USD 22bln 20-year bond auction, which went down ok (stopped through by 0.5bps). Aside from the FOMC, US retail sales will be the data highlight on Wednesday. T-note (Z0) futures settled 2+ ticks lower at 139-16.

US President Trump said he would call House Speaker Pelosi at the right time and said they have had some pretty good talks with Democrats on coronavirus relief. (Newswires)

White House Chief of Staff Meadows said the USD 1.5tln proposal from bipartisan lawmakers does not align with the Trump administration's priorities although could pave opening for further talks, while a group of Democratic US House Committee Chairs said the COVID-19 relief proposal unveiled by the bipartisan group of moderates 'falls short of what is needed'. (Newswires)

US Senate Majority Leader McConnell said he wants to reach agreement with the Democrats on aid. There were also separate that House Majority Leader that the 'Problem Solver' caucus proposal for USD 1.5trln COVID relief would not be enough. However, he welcomes their ideas and believes that Treasury Secretary Mnuchin and House Speaker Pelosi have continued talks over COVID relief, while he is to table a stopgap funding bill for vote in the House next week. (Newswires)

US determined trade with Canada in non-alloyed, unwrought aluminium is likely to normalise in Q4 2020 and lifts the 10% tariff, while the US is to review imports regularly to determine whether the re-imposition of tariffs is warranted. Canada’s Trade Minister later confirmed they will no longer impose retaliatory tariffs on the US after the US lifted the 10% tariff earlier but added that Canada is ready to impose any retaliatory tariffs should the US impose new measures. (Newswires)

Apple (AAPL) unveiled its new iPad and the Apple Watch series 6, as expected. It introduced a low cost Apple Watch SE priced at USD 279 and series 6 watch is priced at USD 399, while it launched Apple One which bundles all of its services for USD 14.95/month and announced iPad 8th generation starting with A12 Bionic. (Newswires)

HarrisX poll showed former VP Biden leads US President Trump at 45% (-2) vs. 39% (Unch.), conducted September 14th. (Newswires)

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