[PODCAST] US Open Rundown 7th October 2020
- European bourses are modestly softer while US futures recuperate after Trump’s stimulus update yesterday
- Trump says he is ready to immediately sign a standalone stimulus check bill
- US House Democrats stated that Facebook (FB), Amazon (AMZN), Alphabet (GOOG), Apple (AAPL) enjoy ‘monopoly power’ and recommended big changes
- FX features a downbeat DXY to the modest benefit of peers (ex-safe havens)
- Treasuries have reverted back to the week’s steepening narrative ahead of 10-year issuance and further Fed updates
- NHC says Hurricane Delta could become a Category 4 hurricane again by late Thursday
- Looking ahead, highlights include DoEs, FOMC Minutes, ECB's Lagarde, Fed's Williams, Kashkari, Evans
US President Trump tweeted overnight that new FDA rules make it more difficult to speed up vaccines for approval before Election Day and he suggested it was "just another political hit job!". (WSJ/Twitter)
UK PM Johnson was said to be grappling last night regarding imposing tougher lockdown restrictions for millions of people in the north, while other reports noted the UK Cabinet is divided regarding tougher lockdown restrictions and the proposed traffic light system could be postponed. Additionally, there is reportedly serious concern among senior UK officials/Gov't scientists that COVID-19 is spreading among older people again with a source stating the situation has become grave and restrictions are imminent, Politico. (Sun/Telegraph/Politoico)
The UK decision on introducing COVID-19 testing for international arrivals which is designed to reduce quarantine times will not take place until November at the earliest; instead, Gov’t will be creating a taskforce to encourage oversees travel. (Guardian)
Asian equities traded mixed as the region partially shrugged off the negative mood which initially rolled over from Wall St, where stock markets slumped in late trade after US President Trump announced that he is to walk away from COVID relief talks until after the election amid disparities regarding the value of the stimulus package. This resulted to losses of more than 1% for all major US indices and the large tech names were also pressured in extended trade after the House democrats antitrust committee report noted several tech giants enjoyed ‘monopoly power’ and recommended changes including structural separations and prohibiting dominant platforms from entering adjacent lines of business. Nonetheless, the tone in Asia gradually improved with ASX 200 (+1.3%) first to buck the trend as it reclaimed the 6000 level, led by strength in consumer stocks after the announcement of an expansionary budget which brought forward tax cuts and with sentiment also helped by increased calls for the RBA to loosen policy next month. Nikkei 225 (-0.1%) was weaker as exporters suffered from the ill effects of recent flows into the local currency but with the index off worst levels amid the slightly brightening picture, while the Hang Seng (+1.1%) reclaimed the 24000 level after shrugging off early indecision following tepid Hong Kong PMI data which showed an improvement although remained in contraction territory for a 31st consecutive month. Finally, 10yr JGBs eked minimal gains amid the lacklustre risk tone in Tokyo and following the tepid Rinban operation by the BoJ which were in the market for a reserved JPY 400bln of JGBs mostly concentrated in 3-5yr maturities.
Fed's Mester (voter) said the timing of fiscal stimulus is less important than a package and she is disappointed that fiscal talks have halted, while she added the recovery will continue but it will be slower and that they are always looking to see if there is more they can do. (Newswires)
US President Trump tweeted that Congress should immediately approve USD 25bln for airline support and USD 135bln for paycheck protection program for small business, while he added both of these would be fully paid with unused funds from Cares Act. President Trump also tweeted that if he sent a standalone bill for stimulus checks (USD 1200), they would go out to the people immediately and that he is ready to sign that right now. (Twitter)
Senate Majority Leader McConnell later stated it is time to stop discussing the process regarding judge Amy Coney Barrett's nomination to Supreme Court and that they won't delay it due to coronavirus. (Newswires)
US Democratic Presidential Candidate Biden said he and President Trump should not debate on October 15th if President Trump still has COVID-19. (Newswires)
US House Democrats stated that Facebook (FB), Amazon (AMZN), Alphabet (GOOG), Apple (AAPL) enjoy ‘monopoly power’ and recommended big changes. The recommendations included imposing structural separations and prohibiting dominant platforms from entering adjacent lines of business, instructing antitrust agencies to presume mergers by dominant platforms to be anticompetitive, shifting the burden onto the merging parties to prove their deal would not harm competition, rather than making enforcers prove it would, while also preventing dominant platforms from preferencing their own services, instead making them offer “equal terms for equal products and services. Furthermore, it noted that Apple uses its dominant position to exploit and exclude rivals and preference its own apps and services. (Newswires)
Irish Foreign Minister, asked about fishing, said Brexit Negotiator Barnier's mandate is a very tight one; a landing zone on fish is hard to envisage, it is a big obstacle; says UK should not underestimate how strong feelings in EU on fishing are. (Newswires)
UK Chancellor Sunak is seeking to block suspicious companies from listing on the London Stock Exchange under a security plan. (FT/The Times)
UK Health Minister Hancock is having a active conversation with the travel industry re. use of testing to alter quarantine policy. (Newswires)
European equities (Eurostoxx 50 -0.2%) trade with mild losses as US equity futures trimmed losses seen in the wake of President Trump’s decision to pull the plug on COVID stimulus talks until after the election. Note, after the initial announcement, Trump suggested he would be willing to back certain aspects of a broader stimulus package such as USD 25bln for airline payroll support and USD 135bln for the Paycheck Protection Program. This helped provide some reprieve for US futures, whilst markets also continue to assess the post-November election landscape with increased focus on the prospects of a Democratic “Blue Sweep” as recent polling data moves further in favour of former VP Biden. In recent months, the main inference from such an outcome has been centred around the likelihood of a less favourable tax environment for US corporates, however, given the inertia in Congress over the past few weeks, markets could take some solace in the likelihood of a more functional legislature that could pass a sizeable support package and help soothe the concerns raised by Fed Chair Powell yesterday. In Europe, the session hasn’t seen much in the way of out or underperformance across regional bourses as markets await the US entrance to market. From a sectoral standpoint, food & beverage names lead the way higher after Diageo (+1.4%) and Pernod Ricard (+2.6%) were both upgraded at Jefferies. To the downside, travel names such as Tui (-3.6%), easyJet (-4.8%) and IAG (-0.3%) have been hampered by reports in the Guardian noting that the UK decision on introducing COVID-19 testing for international arrivals - which is designed to reduce quarantine times - will not take place until November at the earliest. Individual movers include Tesco (+2.0%) after the Co.’s HY profits rose 28.7% relative to 2019, whilst Dialog Semiconductor (+0.6%) shares are firmer after raising Q3 revenue guidance and noting that improving trends are expected to continue into Q4.
EU's Veteger said EU has reportedly ended its chip probe of Broadcom (AVGO), accepting commitments from the chipmaker. (Twitter)
DXY - The broader Dollar and Index trade modestly softer in early European hours after US President Trump called off coronavirus stimulus talks until after the elections but is ready to sign a standalone bill for stimulus checks if he is sent one. Thus, DXY has waned off its best levels (93.900) as it drifts lower to test its 21 DMA (93.622) ahead of the 93.500 psychological mark, with the 55 DMA touted at 93.321. Looking ahead, FOMC Minutes could garner attention with regards to QE maturities after Fed’s Mester suggested that the Fed should have the scope to lengthen QE maturities, alongside any meat on the bones on AIT (full primer available on the newsquawk headline feed), albeit fiscal updates are likely to steal the limelight throughout the session. The calendar from a data-standpoint is light, but speakers on the docket include voters Williams (x2), Kashkari and 2021 voter Evans.
AUD, NZD, CAD - The non-US Dollars are posting varying degrees of gains, with the Aussie outperforming as it retraces some of yesterday’s post-RBA/budget losses, but remains sub-0.7150 against the Dollar, currently at the top of today’s 0.7097-7146 range. The Kiwi meanwhile benefits from the broader Dollar weakness as it re-eyes 0.6600 to the upside (vs. 0.6576 at worst) with the 50 and 21 DMAs seen at 0.6632 and 0.6640 respectively. The Loonie’s gains are hampered by the overnight crude decline, but nonetheless ekes mild gains against the Buck as USD/CAD decline from a high of 1.3340 and dipped below 1.300 to open the door to its 21 DMA at 1.3271 ahead of the 1.3250 psychological mark.
GBP, EUR, CHF - Modest gains seen across the European currencies as Sterling leads the gains with pertinent newsflow including reports that Chancellor Sunak is mulling new support for businesses impacted by COVID-19, whilst from a Brexit standpoint, EU member states are said to be taking an increasingly hard stance over concessions - with President Macron standing firm on the issue of fisheries. Cable has yielded the 1.2900 handle (vs. low 1.2864). EUR/USD retraces some of yesterday’s losses and resides north of 1.1750 at the time of writing (vs. low 1.1726) as it eyes its 55 DMA (1.1791) ahead of the 1.1800 figure. Levels to the downside include Monday’s low (1.1705) and Friday’s low (1.1694), with today’s OpEx comprising of EUR 750mln rolling off between 1.1740-50. CHF also stands as a beneficiary of the Dollar softness, with USD/CHF remaining below in a tight range 0.9200 (0.9161-84 range), with the 55 DMA seen around 0.9136.
JPY - The Yen bucks the trend and fails to benefit from the softer Dollar, with some pointing to technical play and after touted stops were triggered around 105.80, with more reported at 106.00+. USD/JPY resides at the top if the current 105.61-106.00 band, and with a notable USD 2.1bln in options scattered between 105.45-106.10 to keep in mind for today’s NY cut.
EM - EM FX see broad-based Dollar induced gains, with the exception of the Turkish Lira which succumbed to renewed pressure in early EU hours, potentially on heightened geopolitical risk after the Iranian President warned that the Azeri-Armenian conflict could lead to a regional war, whilst Turkey continues to support its ally Azerbaijan. USD/TRY notched a fresh record high ~7.8680 from a low of 7.7800.
Overall, the debt space is relatively unchanged for the session though core components retain a modest downward bias as they continue to pullback from the Trump driven rally late-doors yesterday. Albeit, as things stand, benchmarks do remain just above pre-tweet levels. The fiscal update briefly halted the pronounced steepening action that has been in play for the week thus far and did spark some modest flattening of the curve; however, the steepening theme is very much back in play this morning and again seems to be driven by the Democratic clean-sweep narrative and Fed policy – on this, the FOMC minutes for September are due today but given the plethora of recent commentary this is likely somewhat outdated. Note, yesterday’s 3-year outing stateside was unremarkable ahead of the 10-year reopening later today. Moving to Europe, where in a similar fashion to the first half of the week fundamental updates have been sparse throughout the session and as such focus is more on US hours for fiscal updates and central bank commentary. Performance wise, EU debt is subdued exhibiting a similar pullback to UST’s which has brought Bund’s once again down to a test of the 174.14-18 region which encapsulates lows across multiple sessions; a significant breach sees nothing of note before 174.00 itself. Elsewhere in the continent, BTPs are returning to focus as the continued upside seen since ~May has pushed the yield into proximity to the all-time-low at 0.758% from September last year. Such BTP upside has taken place amidst, amongst other factors, the narrative of EZ fiscal stimulus, albeit this is yet to be finalised, alongside a comparatively better experience of the COVID-19 second wave than some other areas – particularly given how severely Italy was impacted earlier in the year. Finally, gilts are following their peers in terms of performance having once again passed by relatively in-line issuance with no reaction; note, given the downside is modest thus far the UK 10-year does still remain above yesterday’s low of 135.16.
WTI and Brent front month futures remain under pressure with both benchmarks at/near session lows as markets balance supply and demand side developments. On the demand side, woes of the implications of the resurging cases persist, in turn prompting the EIA to downgrade its 2020 world oil demand growth forecast by 300k BPD to a decline of 8.62mln BPD Y/Y and cut 2021 world oil demand growth forecast by 280k BPD to an increase of 6.25mln BPD Y/Y, with the OPEC and IEA releases due next week. From a supply standpoint, Private Inventory data printed a larger than expected build (+1.0mln bbls vs. Exp. +0.3mln bbls) and markets await confirmation from the EIA which showed similar expectations for the headline figure. (+0.294mln bbls). Sticking with supply, Norway sees some 330k BPD of total production shuttered amid oil and gas strikes, with plans for an escalation on the 10th of October, albeit production at the 470k BPS Johan Sverdrup field is said to be unaffected despite some workers on strike. Over to the Gulf of Mexico, NHC noted that Hurricane Delta could become a Category 4 hurricane again by later Thursday, with weakening expected as it approaches the Gulf Coast. Note, the BSEE yesterday estimated that approximately 29.22% of the current oil production and approximately 8.59% of the natural gas production in the Gulf of Mexico has been shut-in, with the next update expected around 19:00BST/14:00ET. WTI resides sub-40/bbl with the current base at USD 39.63/bbl (vs. high 40.35/bbl), while its Brent counterpart yields the USD 42/bbl mark (vs. high 42.40/bbl), with the current low at USD 41.69/bbl. Elsewhere, spot gold remains below USD 1900/oz and has largely moved at the whim of the Buck in European trade, whilst spot silver outperforms but remains shy of the USD 24/oz mark. LME copper prices meanwhile have ease off best levels but remains in the green, whilst from a fundamental standpoint, some tout the increasing possibility of potential strikes at the Candelaria mine in Chile after the latest wage offer was rejected, whilst ING also cite the petering out of LME copper inventory builds.
US Private Inventory Crude Stocks (w/e 2nd October) +1.0mln (exp. +0.3mln). (Newswires)
NHC says Hurricane Delta could become a Category 4 hurricane again by late Thursday, weakening is expected as it approaches the Gulf Coast. (Newswires)