[PODCAST] US Open Rundown 28th September 2020
- European bourses are substantially stronger this morning with Banks the best performing sector; stateside, futures see gains in excess of 1.0%
- A US judge granted a preliminary injunction which blocks US President Trump's ban on new TikTok downloads from US app stores
- US President Trump picked Amy Coney Barrett for nomination to the Supreme Court and suggested that confirmation hearings on her nomination will begin October 12th
- House Speaker Pelosi thinks a coronavirus stimulus deal is still possible and suggested that Democrats will make a new ‘proffer’ to Treasury Secretary Mnuchin
- UK Ministers are reportedly preparing to impose total social lockdown across much of Northern Britain and possibly London
- FX features a subdued USD with GBP afflicting the index amidst a substantial amount of Brexit & BoE newsflow alongside possible month-end factors
- Looking ahead, highlights include ECB's Schnabel, Lagarde & Fed's Mester
US CDC reported total coronavirus cases rose to a total of 7.06mln from the prior of 7.01mln and that total deaths rose to 204.0k from a prior of 203.2k. (Newswires)
Italian PM Conte said there will not be a new national lockdown as the country is “in a completely different situation” compared with the beginning of the year, while he added the government has strengthened the health system & there may be more stringent measures in specific areas. (Newswires)
France reported 11,123 new coronavirus cases in the past 24 hours to increase total cases to 538,569 and total deaths rose to 31,727 from 31,700 the prior day. (Newswires) France’s National Council of the Order of Doctors head Bouet warned that the second wave is arriving faster than anticipated and that the country faces a months-long COVID-19 epidemic that will overwhelm its health system if something does not change. (AFP)
UK coronavirus cases rose by 5,693 on Sunday (prev. +6,042 on Saturday). (Newswires) UK Ministers are reportedly preparing to impose total social lockdown across much of Northern Britain and possibly London. The plan would initially see all pubs, restaurants and bars shut for a two-week period, whilst households would be banned indefinitely from meeting each other in any indoor location. (The Times)
Australia’s Victoria state is to accelerate relaxing the COVID-19 restrictions after new infections slowed to less than 20 a day. (Newswires)
China’s Global Times noted that China's Ministry of Industry and Information Technology established special teams of experts to prepare for and speed up mass production of vaccines against the coronavirus. (Global Times)
German Chancellor Merkel says that the government needs to act fast to contain COVID-19 infections, however, priorities must be set and the economy must be kept running with schools open, according to Bild. (Bild)
Russia expects COVID-19 infections to plateau in October, according to Ria citing the Russian Health Official. (Newswires)
Asian stocks began the week mostly higher, but ultimately finished mixed, as the region initially picked up the baton from last Friday’s tech-driven momentum on Wall Street. ASX 200 (-0.2%) and Nikkei 225 (+1.3%) were initially positive with Australia led by tech as the sector followed suit from US peers and with sentiment mildly underpinned by news Victoria state is to speed up its easing of COVID-19 restrictions. However, gains were capped and price action weighed on due to weakness in consumer staples and financials, while Tokyo stocks largely shrugged off a choppy currency. Hang Seng (+1.0%) and Shanghai Comp. (U/C) finished mixed mixed with underperformance in the mainland following a net liquidity drain by the PBoC and as participants digested the latest developments between the world’s 2 largest economies. This includes the US federal judge decision to grant a preliminary injunction against President Trump's ban on TikTok downloads from US app stores which had been set to take effect from midnight, while SMIC shares slumped after the US Commerce Department announced tighter restrictions on China’s largest chipmaker on allegations that exports to the Co. posed an unacceptable risk of being diverted to military end-use. Nonetheless, the mood in Hong Kong was more constructive with HSBC registering its biggest intraday gain in over a decade after Ping An Insurance acquired 10.8mln H-shares to boost its stake to 8%. Finally, 10yr JGBs were rangebound with price action sideways as demand is sapped by the mildly positive risk tone but with downside stemmed amid the BoJ’s presence in the market for a total of JPY 900bln of JGBs.
PBoC injected CNY 40bln via 14-day reverse repos at a rate of 2.35% for a net daily drain of CNY 60bln and announced to conduct CNY 5bln of central bank swaps. (Newswires) PBoC set USD/CNY mid-point at 6.8252 vs. Exp. 6.8236 (Prev. 6.8121)
Chinese Industrial Profits (Aug) Y/Y 19.1% (Prev. 19.6%). (Newswires) Chinese Industrial Profits YTD (Aug) Y/Y -4.4% (Prev. -8.1%)
A US judge granted a preliminary injunction which blocks US President Trump's ban on new TikTok downloads from US app stores, while the US Commerce Department stated it will comply to the TikTok injunction and will take efforts to defend the executive order on TikTok. There were also separate reports that a Pennsylvania judge on Saturday rejected a request from 3 TikTok content creators to temporarily block the ban on the app which they earned a livelihood from. (Newswires/The Verge)
China’s Global Times stated the Trump administration’s move to split TikTok's global operations from its China business and its aspiration to take over TikTok global operations at a later stage, looks shrewd, but in essence is outright pillage of a non-US company. (Global Times)
US Department of Commerce tightened restrictions in which it required companies to apply for licenses to export to SMIC (981 HK) and alleged that it posed an “unacceptable risk” of being diverted to “military end use”. However, SMIC said it was not aware of such a notification and that it has no ties to the Chinese military, nor does it manufacture for any military end-uses. (FT/Global Times) US lawmakers are considering subsidies of about USD 25bln to encourage companies to move chip production facilities back to US amid rising competition with China in the high-tech sector. (Nikkei)
China’s Global Times Editor tweeted that US is clearly preparing for new provocative actions, while he warned that if the US expels Chinese diplomats, the same number of US diplomats will be expelled from China and if the US closes the Chinese Consulate in New York, the US consulate in Shanghai or Hong Kong must be closed. (Twitter)
US diplomats must obtain approval from Beijing’s foreign ministry before they can meet with Hong Kong government officials or personnel from the city’s educational institutions and societies, according to SCMP citing sources. (SCMP) This comes after US Secretary of State Pompeo announced that Chinese diplomats in the US would need to seek permission before they could meet with local government officials or visit university campuses.
US President Trump picked Amy Coney Barrett for nomination to the Supreme Court and suggested that confirmation hearings on her nomination will begin October 12th. Furthermore, President Trump said we will have a tremendous victory in the election but also stated we will be counting ballots forever after the November 3rd election and that he did not discuss the election with his US Supreme Court nominee Barrett. (Newswires)
US President Trump tweeted that he will be strongly demanding a drug test of former VP Biden prior to, or after, their debate on Tuesday night and that he will agree to take a test also. (Twitter)
US President Trump reportedly paid USD 750 in federal income taxes for 2016 and 2017, while he paid no income taxes in 10 of the last 15 years, according to New York Times citing tax return data. However, US President Trump later dismissed the reports on his tax payments as fake news. (New York Times/Newswires)
Washington Post/ABC poll has former VP Biden ahead of President Trump at 53% vs. 43% among registered voters and NYT/SIENA poll has former VP Biden ahead of President Trump at 49% vs. 41%. NBC News/MARIST poll has former VP Biden ahead of President Trump at 52% vs. 44% in Michigan and at 54% vs. 44% in Wisconsin, while CBS poll has President Trump ahead at 47% vs. 46% in Georgia but former VP Biden ahead at 48% vs. 46% in North Carolina. (Politico)
US House Speaker Pelosi thinks a coronavirus stimulus deal is still possible and suggested that Democrats will make a new ‘proffer’ to US Treasury Secretary Mnuchin. (Newswires)
BoE’s Tenreyro said we have been testing our toolkit and the evidence on negative rates has been encouraging, while she also noted there has been almost full pass through of negative rates to lending rates in most countries. Furthermore, Tenreyro sees a very weak global outlook, adding that local COVID outbreaks will interrupt any V-shaped recovery. Tenreyro added (Newswires)
BoE's Ramsden says he sees the effective lower bound still at 0.1%; BoE remains ready to act further if needed, not about to use negative rates imminently – if such rates are in the toolbox you are duty-bound to explore them. Adds, the ECB implemented negative rates during a recovery phase, UK will see more loan losses coming through. Risks to the growth putlook are to the downside; more likely unemployment will peak >7.5%. (Newswires)
UK Chief Brexit Negotiator Frost hinted at progress in the trade discussion on Friday night, but insisted the Brussels needs to be more "realistic" regarding the rules that would be acceptable for the UK. Furthermore, Brussels sources also suggested that the tide may be turning after UK signalled a commitment to reaching a free trade deal with the EU. (Telegraph)
Brussels reportedly sought to quell increased optimism regarding an imminent Brexit deal amid concerns UK PM Johnson has not secured support from key advisers and his party for compromises required in the final stages of negotiations. (Guardian)
Irish PM Martin stated that he was pessimistic about the chances of a UK-EU trade deal but insisted he can still build a strong relationship with UK PM Johnson. (inews.co.uk)
ECB’s de Cos stated that significant monetary stimulus should remain in place and further measures shouldn’t be discounted if they become necessary, while he added there is no room for complacency on the EUR exchange rate (Newswires/La Razon)
ECB’s Visco said the recent appreciation of EUR is worrying us because it causes downward pressure on prices amid already low inflation, while he added that monetary policy implications are obvious and that we’ll have to intervene if downward pressures jeopardise price stability objective. (Newswires)
Fitch affirmed UK at AA-; Outlook Negative, affirmed Poland at A-; Outlook Negative and affirmed Estonia at AA-; Outlook Stable. (Newswires)
US sources in Iraq notes information of plan to storm the US Embassy in Baghdad and take hostages, while the Iraqi government is said to evacuate the Green Zone in Baghdad, according to Twitter reports. (Twitter)
Armenia said it shot down two Azerbaijani helicopters and destroyed three tanks in clashes around the disputed Nagorno-Karabakh region where reports noted civilians casualties, while Russian President Putin called for an end to the fighting and held discussions with Armenian PM Pashinyan through a call on Sunday. (Sky News)
Turkish President Erdogan spokesperson says the date to resume their exploratory discussions with Greece is yet to be decided, believes progress will be good; sees this week's EU summit as an opportunity to reset relations. (Newswires)
Stocks in Europe kicked the week off higher across the board (Euro Stoxx 50 +2.1%) following a relatively mixed APAC session, with gains in Europe more pronounced than performance in State-side equity futures at present. Broad-based gains were seen across European bourses at the cash open, but since then Germany’s DAX (+2.6%) emerged as the front runner, whilst the UK’s FTSE 100 (+1.4%) waned on a currency dynamics and Switzerland’s SMI (-0.6%) remains the laggard due to a losses in large-cap stocks including Roche (-0.7%) and Nestle (-0.3%). Sectors are higher across the board with a cyclical/value tilt – with Banks outpacing on the back of HSBC (+8.8%) and Commerzbank (+5.1%) with the former bolstered by Ping An Insurance upping its stake in the Co. to 8% via a purchase of 10.8M, whilst the latter cheers the appointing of a new CEO effective Jan 2021. On the other side of the sector spectrum resides the defensive sectors such as healthcare, telecoms and consumer staples. In terms of individual movers, ArcelorMittal (+10%) extends on gains after M&A, with Cleveland-Cliffs (CLF) to acquire ArcelorMittal’s US operations for ~USD 1.4bln, meanwhile the Co. has also announced a share buyback programme. Diageo (+6.6%) is higher after highlighting that business is performing strongly and ahead of expectations. William Hill (-11.1%) unwinds some of Friday’s speculation-fuelled gains after Caesars offered to take over the group at GBP 2.72/shr (vs. Friday’s GBP 3.12/shr close). Rolls-Royce (-4.5%) also sees losses and resides towards the foot of the Stoxx 600 as the engine maker said there has been no final decision in regards any sovereign wealth fund taking a stake in the group. Despite the broader gains across the Travel & Leisure sector, Air France-KLM (-0.7%) bucks the trend as the Co. expects their November-December program to be at 50% of initial plan.
American Airlines (AAL) agreed to a USD 5.5bln loan with the US Treasury Department and has immediately drawn USD 550mln. (Newswires)
Uber (UBER) has won its legal fight to continue operating in London after being deemed "fit and proper" by magistrates, according to the Evening Standard. (Twitter) Co. is ~6.0% higher in the pre-market
USD - The Dollar has drifted down from Friday’s highs following a Wall Street recovery rally that has filtered through to APAC and EU equities to varying degrees. However, the DXY remains anchored around the 94.500 level and for once may derive some underlying support into month/quarter end given at least one bank model signalling a buy vs the Eur based on a relatively strong rotation into stocks from bonds to balance asset positions. Meanwhile, on an especially quiet Monday in terms of data, option expiries may have more influence on direction alongside another heavy slate of Central Bank speakers. The index is currently holding within a 94.344-640 range after reaching 97.745 at the tail end of last week, but the Buck is still maintaining strength vs EM currencies and extending gains against some.
GBP - Sterling is firmer across the board, with Cable back on the 1.2800 handle again and Eur/Gbp down below 0.9100 amidst hope if not conviction of progress on a Brexit trade deal going into the latest formal negotiations between the UK and EU in Brussels this week. Moreover, the cross looks technically bearish (bullish from the Pound’s perspective) after breaching the 10 DMA and a key pivot point at 0.9153 and 0.9118 respectively, while Cable is nudging beyond 1.2850 having cleared its 10 DMA circa 1.2828 amidst latest NIRP nuances from the BoE (Tenreyro noting encouraging evidence from tests of sub-zero rates, but Ramsden more circumspect as he still sees the effective lower bound at 0.1%).
AUD - Decent option expiry interest at the 0.7000 strike in Aud/Usd (1.3 bn) appears safe as the Aussie hovers near 0.7050 on a sudden change in RBA rate outlook from Westpac to -15 bp in November instead of the looming policy meeting next week, while COVID-19 restrictions are to be relaxed further in Victoria after the daily rate of infections in the state slowed to sub-20.
JPY/CHF/EUR/NZD - All clawing back some losses vs the Buck, with the Yen rebounding above 105.50 where 1.8 bn expiries reside, but perhaps capped by another 1 bn sitting from 105.00 to 104.90, while the Franc has bounced just ahead of 0.9300 and is pivoting 1.0800 against the Euro following mixed weekly Swiss bank sight deposit balances. Elsewhere, Eur/Usd is just under 1.1650 and also eyeing option expiries as 1.1 bn roll off between the half round number and 1.1640, but ECB commentary could be more influential after a ramp up in verbal intervention from de Cos and Visco before 2 scheduled speeches by Schnabel and one from President Lagarde. Back down under, the Kiwi is straddling 0.6650 and 1.0750 against the Aussie awaiting official NZ election results that PM Adern’s Labour Party seems on course to win without requiring any assistance in the form of a coalition.
SCANDI/EM - Contrasting starts to the new week as the Swedish and Norwegian Crowns recoup declines vs the Euro and unwind recent underperformance regardless of data that is weak on paper via retail sales and trade in the case of the former. Conversely, the Turkish Lira has lost all and more of its post-CBRT rate hike recovery momentum to trade at fresh record lows close to 7.7900 even though the country’s banking watchdog will lower the asset ratio for deposit banks to 90% from 95% effective this Thursday and President Erdogan reckons the resumption of talks with Greece will be constructive and views this week’s EU Summit as a chance to ‘reset’ relations.
Notable FX Expiries, NY Cut:
- EUR/USD: 1.1580-90 (400M), 1.1600 (850M), 1.1640-50 (1.1BLN), 1.1700 (805M), 1.1750 (1BLN)
- AUD/USD: 0.7000 (1.3BLN), 0.7160 (576M), 0.7175-80 (1.1BLN)
- USD/JPY: 104.70-80 (750M), 104.90-105.00 (1BLN), 105.50 (1.8BLN)
New Zealand PM Ardern is projected to retain power according to the Newshub-Reid Research poll which showed support for her Labour Party at 50.1%, while support for the opposition National Party was at 29.6% which suggests the Labour Party may not need to rely on any coalition partners. (Newswires)
The firm bid in EU equities has kept a lid on Bunds, Gilts and US Treasuries more so than Eurozone periphery bonds that seem to be propped up by dovish ECB language in context of ensuring that Euro appreciation does not jeopardise efforts to get inflation back up to target. However, Gilts look hampered by BoE’s Ramsden pulling the plug on NIRP in the near term after expectations were rekindled by Tenreyro over the weekend. Hence, the 10 year debt future is just off a 136.21 low (-32 ticks vs +3 ticks at one stage), while the Short Sterling strip has reversed through parity to stand -0.5/-2 ticks vs +1.5 ticks at best. Ahead, more EU Central Bankers on the agenda before weekly ECB QE updates, the Dallas Fed manufacturing survey and Mester as Bunds hover above their 174.40 base and the 10 year T-note just a tick off 139-16+.
WTI and Brent front month futures are modestly firmer and are beginning to derive benefit from the improving risk-sentiment more broadly. For the majority of the morning, the benchmarks have been drifting lower in-spite of the aforementioned gains seen across the equity complex, with attention remaining on the demand outlook for crude given the resurgence of COVID-19 triggering talks of tighter lockdowns in certain economies. Russian Energy Minister Novak emerged on the wires today and noted that global oil markets have been stable with restored balance; albeit, cited a second wave of COVID-19 as a downside risk. Subsequently, reports highlight that Russia’s Rosneft is intending to cut output by 10% in October from September levels potentially due to weaker refining margins and an expected drop in demand for oil products in Russia and Europe, the sources stated. Elsewhere, conflict has erupted between Armenia and OPEC member Azerbaijan, although reports thus far point to the military actions being contained within border regions and not close to any Azeri fields, refineries or ports. Something to keep on the radar – Norwegian offshore workers are planning strike action if annual pay negotiations fail, which could lead to the shuttering of around 22% of Norway’s oil and gas output, according to The Norwegian Oil and Gas Association. WTI Nov currently resides around the USD 40.40/bbl level and towards highs of 40.46/bbl, whilst Brent Nov sees itself just north of USD 42.00/bbl (vs. high 42.12/bbl). Elsewhere, precious metals are marginally softer with spot gold just above USD 1850/oz (vs. high 1865.96/oz) and spot silver above USD 22.50/oz (vs. high 23.08/oz) having tested the level in late APAC trade. In terms of base metals, LME copper remains firmer given the strength in stock markets, contained Dollar and expectations for firmer demand from China. Similarly, Dalian iron ore futures were buoyed overnight with participants also keeping an eye on lower volumes ahead of the Chinese October 1st – 8th National Day Holiday.
Russian Energy Minister Novak said global oil demand is seen to decline by as much as 10% this year and urged global energy market players for combined efforts in the face of the crisis caused by the pandemic, during a G20 energy ministries online conference. (Newswires)
Rosneft is reportedly intending to process 650k/T of crude in October vs. 700k/T planned for September according to sources; noting that this could be due to weaker refining margins & expected drop in demand for oil products in Russia & Europe. (Newswires)