[PODCAST] US Open Rundown 22nd September 2020
- European bourses are firmer in a turnaround from APAC action; US futures are mixed with the Nasdaq firmer but ES & Dow flat
- Fed Chair Powell reiterated in the pre-release of his testimony to Congress that the Fed will do what it can and for as long as it takes to support the recovery
- FX sees the USD off highs while GBP is firmer after being bolstered from BoE Bailey’s remark that last week’s statement did not imply the use of negative rates
- Riksbank left policy U/C as expected; RBA Deputy Governor says other policy options such as altering bond purchases/FX interventions are being assessed
- Looking ahead, highlights include Hungarian rate decision, US existing home sales, ECB's Panetta, Lane, Fed Chair Powell, Evans & Barkin
Major newswire tally stated US cases increased by at least 44,027 to a total of 6.87mln and deaths rose by at least 337 to a total of 199.9k. (Newswires)
Spain's government said it was ready to take further measures to fight the resurgence of COVID-19 in Madrid. (FT)
Asian equity markets were lower across the board with weakness stemming from the uninspiring performance in global peers after risk appetite in Europe was dragged by pandemic-related concerns and with spillover selling on Wall St where the DJIA briefly slumped below the 27,000 level and registered losses of over 500 points, although a late resurgence in tech helped the Nasdaq 100 finish in the green. ASX 200 (-0.7%) was pressured by underperformance in mining names and losses in the largest weighted financials sector as some of the Big 4 banks could reportedly face increased scrutiny in light of the recent FinCEN revelations, but with downside limited by resilience in tech and defensives. Japanese markets remained closed for Autumnal Equinox holiday and KOSPI (-2.4%) suffered amid the broad risk aversion, but with some bright specks seen including Samsung Biologics which was awarded a USD 331mln supply agreement with AstraZeneca. Hang Seng (-1.0%) and Shanghai Comp. (-1.3%) were negative with HSBC and Standard Chartered extending on the losses related to the recent money laundering allegations and with dark clouds looming over the TikTok deal after US President Trump warned the US will not approve the deal if Walmart and Oracle do not control the company and China’s Global Times editor Hu Xijin suggested that Beijing won't approve the current agreement as it would endanger China's national security, interests and dignity. Tensions regarding Taiwan also continues to polarize ties between the world 2 largest economies with China’s Foreign Ministry announcing to take countermeasures against high ranking US officials due to their visits to Taiwan, and China’s military released a video which showed a simulated attack on an island which resembled Guam. Nonetheless, the losses in Chinese markets were only moderate amid PBoC liquidity efforts in which it conducted a total net injection of CNY 350bln.
PBoC injected CNY 200bln via 7-day reverse repos and CNY 150bln in 14-day reverse repos for a net daily injection of CNY 350bln, with the 7-day and 14-day reverse repo rates maintained at 2.20% and 2.50% respectively. (Newswires) PBoC set USD/CNY mid-point at 6.7872 vs. Exp. 6.7767 (Prev. 6.7595)
China's Global Times tweeted that US President Trump's apparent reneging on a TikTok deal is just another negotiation trick and China’s government and firms are set to fight back, even if it means the situation will turn into a lose-lose one, citing experts. (Twitter)
US President Trump met with potential Supreme Court nominee Amy Coney Barrett at the White House on Monday and was said to be leaning towards Barrett for the nomination, according to source reports, although he earlier stated that he may meet other potential Supreme Court nomination candidate Barbara Lagoa on Friday in Miami. Furthermore, President Trump said he will probably announce a pick for SCOTUS on Saturday and he would rather have a senate vote before the election. (Newswires)
US Vice President Pence is set to play a key role in the Supreme Court nomination process and will interview each of the 5 candidates US President Trump is considering, while other reports noted that Senate Republicans do not have 4 holdouts to stop the confirmation of a Supreme Court nominee. (CBS/NYT)
Manhattan District Attorney’s office, which has been in a battle to obtain President Trump's tax returns, suggested in a filing that it had grounds to investigate President Trump and his businesses for tax fraud. (NY Times)
A group of senior UK state aid lawyers have offered UK PM Johnson help in designing a post-Brexit subsidy regime in order for the UK to break the current deadlock in negotiations. (FT)
Germany’s Ifo raises 2020 German GDP forecast to -5.2% (Prev. -6.7%), cuts 2021 forecast to +5.1% (Prev. +6.4%). (Newswires)
German HDE Retail Association raises 2020 nominal sales forecasts to +1.5% (Prev. -4%) - based on the assumption that second COVID-19 wave and lockdown are avoided; notes that German retailers are benefitting from gov't stimulus. (Newswires)
Overall a firmer picture in Europe (Euro Stoxx 50 +0.8%), but with the gains seen in early hours somewhat stalled, and waning for some bourses, whilst US equity futures also see a mixed performance, with the ES and YM flat, and NQ outperforming. Individual indices in Europe seem to be more influenced by sectoral performance, with Germany’s DAX (+1.0%) outperforming peers as the tech sector outpaces on tailwinds from the yesterday’s State-side tech rally into the close. This sees tech behemoth SAP (+2.0%) as a top performer in the German index, with the Co. also accounting for ~5.8% of the Euro Stoxx 50, whilst ASML (+2.9%) represents almost 6% of the European index. Meanwhile, Spain’s IBEX (-0.2%) resides in negative territory as Travel & Leisure underperforms on continuing woes over the implications of renewed lockdown measures for the sector. CAC 40 (+0.3%) is weighed on by Airbus (-3.5%) and Accor (-2.5%), with the former on the back of CEO comments who could not guarantee that there will not be any compulsory layoffs, whilst the latter is pressured by the aforementioned COVID-19 updates. In terms of individual movers, Austrian listed ASM (+4.3%) outperforms the tech sector amid source reports that its Hong Kong listed ASM Pacific Tech is in discussions with potential investors to help take the group private. Meanwhile, tobacco names Imperial Brands (+2.7%) and British American Tobacco (+3%) are underpinned by positive broker moves by RBC.
USD - Although broad risk sentiment has stabilised somewhat after Monday’s meltdown, the Dollar remains in firm recovery mode as major and EM currency rivals continue to flounder alongside precious metals. Indeed, following a short-lived and shallow bout of consolidation, the DXY rebounded to 93.893, and perhaps tellingly from a technical or momentum perspective, after the index found a base and underlying bids just ahead of the 93.500 level having spent so long anchored around 93.000.
GBP/SEK/AUD - Sterling looked all set and resigned to losing 1.2700+ status vs the Buck and extend declines through 0.9200 against the Euro after BoE Governor Bailey said the MPC has looked very hard at the scope of reducing the Bank rate further, and including lowering the benchmark below zero, but caveated that the BoE needs to know more about the technicalities and application of NIRP, as other countries that have adopted negative rates have seen mixed ramifications. However, the real kicker for Sterling bears and shorts came with his warning to markets about not reading too much into last Thursday’s statement when it was revealed that structured research about the operational aspects of implementing NIRP would begin with the PRA. Cable has now turned full circle and more having ‘breached’ a series of MA levels on the way down to around 1.2715 and tripped a few stops at 1.2825 before fading just ahead of 1.2840, while Eur/Gbp has retested yesterday’s sub-0.9150 low compared to a circa 0.9220 peak. Conversely, the Swedish Crown is sitting tight within a 10.4290-10.3845 range vs the single currency after another rock steady message from the Riksbank that the repo rate is projected to be held at the current 0% mark for the forecast horizon (out to the 3rd quarter of 2023), albeit with the option to cut if required. Elsewhere, the Aussie has been undermined and briefly under 0.7200/at 1.0800 against its US and NZ peers in wake of remarks from RBA Deputy Governor Debelle effectively covering all potential policy stimulus measures if needed, including longer-dated QE, easing the cash rate from 0.25% towards zero or through parity and direct FX intervention to weaken the Aud, though the latter may not be an effective instrument as it is aligned with fundamentals.
EUR/CHF - Both succumbing to the ongoing Greenback revival, with the Euro now propping up the major ranks following a deeper retreat through 1.1800 and Monday’s trough to circa 1.1720. Note, decent option expiry interest is also capping Eur/Usd as 1 bn rolls off between 1.1770-80 and another 1.4 bn sits from 1.1815-20. Similarly, the has pulled back further from recent highs within a 0.9142-73 band as the clock ticks down to Thursday’s SNB confab.
JPY/CAD/NZD - The Yen continues to ‘outperform’ or at least hold up better than other G10s without the normal depth of volume due to Japanese markets observing another holiday today. Nevertheless, Usd/Jpy has settled into a higher range either side of 104.60 after the severe test of 104.00 yesterday was defended staunchly. Meanwhile, the Loonie appears to have found underlying buying interest into 1.3350 vs its US counterpart alongside steadier crude prices and the Kiwi is straddling 0.6650 in advance of the RBNZ on Wednesday.
NOK/EM - In keeping with other oil fired or dependent currencies, the Nok has derived some traction alongside the commodity, but not before sliding towards 11.0000 vs the Eur, while the Try has fallen irrespective of a marked improvement in Turkish consumer confidence.
Fed Chair Powell reiterated in the pre-release of his testimony to Congress that the Fed will do what it can and for as long as it takes to support the recovery, while he added that many economic indicators show a marked improvement but despite improvement from depth of crisis, the path ahead for economy remains highly uncertain. (Newswires)
Fed's Kaplan (voter, dissented hawkishly against FOMC language) expects zero rates will be appropriate for the next 2.5-3 years and believes the costs of the new low rate commitment was now worth the benefits, while he is concerned about excess risk taking. (Newswires)
Fed's Bullard (non-voter) said he supported FOMC decision last week and that the Fed’s new approach to increase inflation will be successful, while he added the Fed will be much less pre-emptive regarding increasing rates and may have enough fiscal aid in the pipeline for a recovery. (Newswires)
Fed's Bostic (non-voter) said the Fed has acted fast and boldly, while he added the Fed will not step away until everyone gets to a better place. (Newswires)
BoE Governor Bailey says we have looked very hard at the scope to cut rates further, including negative rates; the statement last week did not imply that the BoE would use negative rates. BoE needs to know how to implement negative rates but should not read more into it – such policy has been a mixed bag in other nations. Adds, COVID-19 is not the only risk, need to look at global trade tensions as well. (Newswires)
Riksbank left its Repo Rate at 0.00% as expected; Repo rate seen averaging 0.00% in Q4 (Unch); Rates can be cut if assessed to be an effective measure, particularly if confidence in inflation target were to be threatened. Domestic economy seems to have left acute crisis situation of Spring & started to recover slightly faster than expected. Governor Ingves reiterated the balance sheet can be considerably bigger if required. (Newswires)
RBA's Deputy Governor Debelle said the board continues to assess other policy options such as buying bonds further out along the curve to lower rates at longer maturities and FX intervention is an option but added it is not clear if it would be effective as AUD is aligned with fundamentals, while he stated that a 3rd option is to lower cash rate without going into negative territory and the 4th option is negative rates. Debelle also commented that he still expects unemployment rate to increase from current 6.8% and estimates Victoria lockdown cut 2% from national GDP in September quarter but later added it is plausible the worst is behind us. (Newswires)
Bunds, Gilts and US Treasuries have all made concession for the partial return of risk appetite in wake of yesterday’s stock market mauling, but perhaps not enough for issuance given a tepid reception for the latest German Schatz auction that would have been even more thinly covered without a near 1/5th retention of the amount on offer. Meanwhile, UK debt and STIRs in particular have been rattled rather than just shaken by somewhat conflicting if not mixed messages on NIRP from BoE Governor Bailey as he seemed to underpin dovish expectations before downplaying the prospect again. Elsewhere, USTs have been more contained/side-lined after no change in guidance from Fed chair Powell, but have some data, Evans and 2 year note supply to contend with as the 10 year note hovers midway between 139-16+/139-20 overnight session ‘extremes’ vs 174.74-43 and 136.91-49 ranges in Bunds and Gilts respectively, while the Dec21 Short Sterling future has been up to 100.105 and down to 100.040.
WTI and Brent front month futures have nursed overnight losses and currently eke mild gains in price action that coincides with upside in the stock markets, despite the DXY holding onto yesterday’s gains. News flow for the complex has remained light in early European hours, although overnight newsflow from Libya’s NOC noted that total output is expected to reach 260k BPD next week from Thursday’s touted output of 220k BPD. In terms of ramifications for OPEC, sources yesterday noted that OPEC needs time to observe whether the output in Libya is sustained before assigning a quota to the exempt country under the OPEC+ deal. Furthermore, OPEC delegates via FT voice concern about the local lockdowns in Europe and rising cases in India, whilst also warning that crude and petroleum product stockpiles are not depleting as fast as initially thought. One delegate said, "we might have to [act] soon". Elsewhere over in the Gulf of Mexico, Beta remains a Tropical Storm – with no current hints of it evolving into a hurricane, but the NHC notes that there is the danger of life-threatening storm surge near time of high tides today along portions of the Texas and Louisiana coasts. WTI Nov resides around USD 40/bbl (vs. low USD 39.36/bbl), while its Brent counterpart meanders just under 42/bbl (vs. low 41.26/bbl). Elsewhere, spot gold and silver see modest losses as precious metals succumb to the Dollar, with the yellow metal oscillating on either side of USD 1900/oz whilst spot silver lost its USD 25/oz status and trades closer to USD 24/oz. In terms of base metals, LME copper recouped some of yesterday’s losses as the red metal tracks the gains in stocks, with some also attributing gains to firm demands from China. Finally, Dalian iron ore futures added to yesterday’s losses amid a continuation of the theme of lower than expected demand for the steel-making material.
OPEC delegates are concerned about the local lockdowns in Europe and rising cases in India, whilst also warning that crude and petroleum product stockpiles are not depleting as fast as initially thought. One delegate said "we might have to [act] soon". (FT)
NHC said Beta is slowing moving towards the Texas coast with tropical storm force wind gusts and heavy rains in the central Texas coastal areas. (Newswires)
Libya's NOC said total output is expected to reach 260k bpd next week, while it added that carriers will arrive from Wednesday to ship available crude in reservoirs and from rest of the safe ports within the next few days. (Newswires)
US Secretary of State Pompeo tweeted that they welcome UK, Germany, and France's rejection of China's unlawful maritime claims in the South China Sea at the UN. Pompeo added that China must abide by international norms and that the US joins allies in rejecting the idea of "might makes right". (Twitter)