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[PODCAST] European Open Rundown 12th October 2020

  • APAC equity markets kicked the week off mixed; Chinese markets outperformed, Nikkei lagged
  • PBoC lowered its RRR on FX forwards for financial institutions to 0% from 20% starting today
  • US House Speaker Pelosi said we remain at an impasse in COVID-19 aid talks; Trump admin has called on Congress to pass a stripped-down version of the relief bill
  • EU leaders are said to be drawing up a “hit list” of up to 20 large-cap tech companies; EU has asked US to withdraw punitive tariffs or prepare for additional tariffs on exports to Europe
  • EU leaders are to insist on tough enforcement for any UK trade deal; UK PM Johnson said Britain is committed to exploring every avenue to reach an agreement
  • In FX, DXY was contained above 93.00, G10s were uneventful, Yuan was in focus following the PBoC move
  • Looking ahead, highlights include ECB’s Lagarde, de Guindos, Schnabel, Panetta, BoE’s Bailey, Haskel and US Columbus Day Holiday (cash Treasuries closed)


US CDC reported 53,363 new COVID-19 cases on Sunday (Prev. +58,302) and 577 additional deaths (Prev. +926).

Pfizer Canada (PFE) & BioNTech (BNTX) initiated rolling submission to Health Canada for their COVID-19 vaccine candidate. (Newswires)

US President Trump stated he longer has COVID-19 and has stopped taking medication. (Fox) President Trump also tweeted that he has received a complete sign off from the White House Doctor, adding that he is immune and not infectious. (Twitter) White House physician said President Trump is no longer considered as a transmission risk to others. (Newswires)

UK reported 12,872 new COVID-19 cases on Sunday (Prev. +15,166) and 65 additional deaths (Prev. +81). UK PM Johnson will chair a COBRA meeting today to finalise local lockdown plans. PM will announce them to Parliament and then hold a Downing Street press conference late with Chancellor Sunak and Chief Medical Officer Whitty, according to ITV. (Twitter) PM Johnson is expected to unveil a “three tier” system which will classify regions as being at a "medium," "high" or "very high" level of alert. (BBC)

France reported 16,101 new COVI-19 cases (Prev. +26,896) and 46 additional deaths (Prev. +54). Germany reported 2,467 (Prev. +3,483) new COVID-19 cases and 6 additional deaths (Prev. +11), according to RKI. (Newswires) 


APAC equity markets kicked the week off mixed as the region initially failed to fully capitalise on Friday’s Wall Street gains, which were further fuelled by NEC Director Kudlow emphasising US President Trump’s desire for a stimulus package, albeit the weekend brought nothing to fruition on a broader deal and talks are set to continue today. However, sentiment somewhat picked up after the Chinese cash open, ASX 200 (+0.5%) was supported by mining names as executives attend the pandemic-delayed “Diggers and Dealers Mining Forum” where the resources sector presents and showcases projects in arguably the most important event for the sectors, whilst the index was also supported by Link Administration whose shares rose some 25% after a consortium presented a bid for the Co. with a sizeable premium. Nikkei 225 (-0.3%) was hampered by the JPY strength seen on Friday, whilst PPI and Core Machinery data was overall mixed. South Korea’s KOSPI (+0.3%) shrugged off North Korea’s new ICBM unveiling and focused on easing COVID-19 restrictions in the country, while chipmakers in Seoul saw a boost after month-to-date data showed semiconductor exports +11.2% YY. Hang Seng (+2.2%) and Shanghai Comp (+2.3%) were bolstered by the PBoC announcement that it will essentially eliminate the 20% RRR on FX forwards for financial institutions, with China A50 rising 4% at one point. Finally, 10yr JGB futures trade relatively flat as it tracks the broader price action across the fixed income futures complex.

PBoC set USD/CNY mid-point at 6.7126 vs. Exp. 6.7052 (Prev. 6.7796) (Newswires) PBoC to skipped open market operations today for a net daily drain of CNY 60bln.

PBoC lowered its RRR on FX forwards for financial institutions to 0% from 20% starting today. (Newswires) PBoC Governor Yi Gang said China will maintain the normal monetary policy as long as possible. (Newswires)

China is poised to advance a new export control law that would ban Chinese suppliers from dealing with specific foreign companies on national security grounds, the new law could be enacted as early as 2021. (Nikkei) PBoC Vice Governor Fan said the deteriorating US-Sino relations present a huge risk to tech supply chain security for China's financial network. (Newswires)

Hong Kong Chief Executive Lam is travel to Beijing later this month to discuss China's support for Hong Kong's economy recovery; Lam will deliver her annual policy address by end-November after postponing it from the original Oct 14th date. (Newswires)


UK PM Johnson told German Chancellor Merkel that progress with the EU must be made in the coming days and the UK is prepared to end the transition period with an Australia-style terms if a deal is not possible. Meanwhile, PM Johnson told French President Macron that the UK is committed to exploring every avenue to reach an agreement and that a deal was better for both sides. (Newswires) EU leaders are to insist on tough enforcement for any UK trade deal as UK PM Johnson's move to override the Brexit treaty has sparked mistrust. EU diplomats are to call on EU's Chief Brexit Negotiator Barnier to ensure that level playing field guarantees for EU companies competing with UK firms are backed by the right for Brussels to take quick retaliatory action should UK void commitments. (FT) This comes ahead of the summit on Oct 15-16.

ECB’s Chief Economist Lane said it is important to put exchange rate at the centre of policymaking, but it is just one issue affecting inflation. Lane added that the ECB may allow inflation to overshoot and ECB are to pursue the inflation target as aggressively as the Fed, although the inflation outlook is unsatisfactory. Lane sees uncertainty diminishing in autumn but noted that the next phase of the recovery is going to be tougher. (WSJ)

ECB’s Schnabel said the ECB gears its monetary policy to its price stability mandate, not to the indebtedness of Member States. Schabel, with regards to the ECB taking on less public debt to protect independence, remarked that the opposite is true as the interaction between monetary and fiscal policy has changed in the low interest rate environment. (ECB)

ECB’s Visco said the ECB’s inflation target must be symmetrical and that flexibility is needed to face the crisis. (Il Corriere della Sera)

ECB’s Kazimir said inflation in the Euro Zone is not likely to significantly improve this year and added that the ECB will do all it can to get inflation to target. Kazimir said the ECB has a long list of tools, including negative rates or refinancing operations, which the ECB is ready to adjust according to the situation, via Czech press. (Hospodářské noviny)

EU leaders are said to be drawing up a “hit list” of up to 20 large-cap tech companies, which will likely include Facebook (FB) and Apple (AAPL). The Co.’s on the list will reportedly have to comply with more stringent regulations compared to smaller competitors, sources stated. Some rules included will force them to share data with rivals, alongside an obligation to be more transparent on data gathering. (FT). Separately, EU Trade Commissioner Dombrovskis has told the US to withdraw punitive tariffs on over USD 7bln worth of EU products or otherwise prepare for additional tariffs on exports to Europe. Brussels is awaiting the final WTO decision set to come on Oct 15th over its right to hit US products, with officials expecting the EU to be granted retaliatory rights. (FT)


In FX, DXY traded within a tight band and held onto its 93.000+ status while US stimulus talks remain at an impasse, and after early fleeting strength saw the index at an overnight session high of 93.240, short of its 50 DMA  at 93.253. As such, major G10 pairs were uneventful with EUR/USD holding onto 1.1800 after testing the level to the downside, which also coincides with its 50 DMA with little apparent follow-through from a number of ECB speakers over the weekend, including Chief Economist Lane and Governing Council members Schnabel, Visco and Kazimir. GBP/USD flat-lined as the Sterling awaits Brexit-related headlines ahead of the key summit later this week, whilst on the domestic COVID-19 front, UK PM Johnson is to chair a COBRA meeting today ahead of the nationwide address of new pandemic measures and a three-tiered system that has been touted in the past. Elsewhere, the most notable mover overnight was the CNH after the PBoC said it will lower the reserve requirement ratio for financial institutions when conducting some FX forwards trading from 20% to zero. This saw USD/CNH gap higher at the open above 6.7000 vs. Friday’s 6.6881 close. Thereafter the Yuan saw some strength as the PBoC opted for a firmer CNY fixing vs. Friday, but weaker than expected following the RRR announcement. USD/JPY remained sub-106.00 after opening modestly above its 50 DMA (105.78) before drifting lower on Dollar dynamics, with the pair seeing some USD 1.4bln in OpEx at strike 106.00. Antipodeans were also relatively uneventful and moved in tandem with the Buck, but the AUD and NZD found some solace from the PBoC fix, with AUD/USD seeing AUD 1bln in options expiring at 0.7200 at the NY cut. 


WTI and Brent front month futures drifted lower with both contracts losing ground below USD 40.50/bbl and USD 42.50/bbl respectively in the wake of several supply-side developments. Firstly, offshore production in the Gulf of Mexico is being restored following the passing of Hurricane Delta, which petered out over the weekend – with Shell and Chevron redeploying personnel for the restoration of output. Secondly, Norwegian oil firms struck a deal with labour unions which brought an end to the 10-day strike. Third, sources suggest Libya’s largest oil field El-Sharara has restarted production, albeit at a lower rate and with no timeline given with regards to full capacity. Meanwhile, Friday’s Baker Hughes Rig Count also showed active oil rigs increasing by 4 W/W. Elsewhere, spot gold was contained within a narrow overnight parameter around Friday’s closing levels with the 50 DMA seen at USD 1938.50/oz whilst downside levels include the 21 DMA at USD 1907/oz. Spot silver saw similar caged trade but the precious metal held onto its USD 25/oz handle.

Hurricane Delta petered out into a non-tropical low but heavy rain threat continues. (Newswires) BSEE said 91.01% (Prev. 91.72%) of offshore Gulf of Mexico crude oil and 62.15% (Prev. 62.43%) of natural production has been shut in. (BSEE) Shell is redeploying offshore crews and drill ships in the Gulf of Mexico. Chevron has also begun returning workers and restoring offshore oil and gas output. (Newswires)

Norwegian oil strikes are set to end after Norwegian oil firms struck a wage deal with labour union officials on Friday. (CNBC)

Sources stated Libya’s largest oil field El Sharara has reportedly resumed production and is to initially pump 40k BPD (vs. 300k BPD capacity). Total Libyan output on Monday is to reach 355k BPD (vs. 290k BPD last week) (Newswires)

Baker Hughes US Rig Count (w/e Oct. 9th): Oil +4 at 193, Nat Gas -1 at 73, Total +3 at 269. (Newswires)

Iraq sees the oil price at USD 42/bbl in Q4 2020 and USD 45/bbl in Q1 2020, according to Al-Sabah citing the energy ministry. Iraq has set USD 42/bbl as the proposed oil price in the 2021 draft budget. Kuwait set November OSP at Oman/Dubai USD -0.5/bbl, unchanged MM, according to a pricing document. Iran sets November OSP for light crude to Asia at Oman/Dubai USD -0.35/bbl, + USD 0.10/bbl MM, according to sources. (Newswires)


Armenia and Azerbaijan agreed to a temporary ceasefire over the weekend in the disputed Nagorno-Karabakh region. However, there have been reports of fresh fighting between Armenia and Azerbaijan, just hours after a ceasefire came into force. (BBC)

North Korea unveiled new intercontinental ballistic missiles at a military parade on Saturday. Analysts said if operational, the missile would be one of the largest road mobile ICMB. A senior US admin official called the display “disappointing” and called on the government to negotiate towards complete denuclearisation. (Newswires)

Iraqi-backed militia says the faction agreed to a “conditional ceasefire” to halt attacks on US forces. (Newswires)

Saudi-led coalition said they have intercepted an explosive-laden drone launched by Yemeni Houthis towards the Kingdom. (Newswires)

Turkey plans to send its controversial ship back to the eastern Mediterranean, according to Al Arabiya. (Twitter)


Treasuries were choppy, but ultimately little changed, as the White House stepped up its push for new stimulus and lawmakers pushed back on the proposals. By settlement, 2s +0.6bps at 15.3bps, 10s +0.7bps at 77.4bps and 30s +0.6bps at 157bps; futures volumes were more subdued than recent sessions, although there continued to be noteworthy level of downside bets in the options space. Duration had been modestly bid earlier in the US session, where one desk noted that with key support levels having held for a few sessions, new algo buy programmes had emerged, accentuated by McConnell’s earlier comments where he played down stimulus deal hopes. However, that bid didn’t hold for long, seeing a sharp reversal to a curve steepener as Kudlow jawboned that Trump wants to do a deal and has approved a stimulus package, as well as WSJ reports Mnuchin was preparing to present House Speaker Pelosi a USD 1.8trln counter-offer. The pro-stimulus tone saw the 30-year breach above the 160bps figure, as well as the 10-year come within a whisper of the 80bps figure, a level it hasn’t been above since early June. The difference this time is that the selling is being driven by expectations of big fiscal stimulus that are upgrading the growth/inflation outlook more meaningfully, although some are beginning to highlight the danger of the Treasury selling becoming tactically overdone as near-term positioning becomes seemingly stretched. However, late session updates from Pelosi that the White House’s latest offer was not adequate saw rates move back lower into futures settlement. T-Note futures (Z0) settled 3 ticks lower at 138-26+

NEC Director Kudlow said on Friday President Trump wants to do a deal on stimulus and approved the revised stimulus deal. However over the weekend, US House Speaker Pelosi said we remain at an impasse in COVID-19 aid talks and remarked that the White House proposal is “wholly insufficient on testing and tracing”, but Pelosi remains hopeful progress can be made. (Newswires) Treasury Secretary Mnuchin and WH Chief of Staff Meadows said they would continue to work toward 'comprehensive' coronavirus relief package even if smaller bill approved and have called for immediate passage of coronavirus relief bill using leftover funds from paycheck protection program. The Trump admin has called on Congress to pass a stripped-down version of the relief bill using leftover funds from the expired small business loan programme. (Newswire) US President Trump said Republicans want to a COVID-19 relief bill, we want to help airlines, restaurants, hotels, and businesses, according to Fox's Pergram. (Twitter)

On Friday, White House spokesperson said they want to keep the COVID-19 relief bill under USD 2trln. Senate Majority Leader McConnell said he does not know now if there will be a deal or not; and reiterated that any deal needs a liability measure. (Newswires)

Fed’s Kashkari (Voter) said the US economic recovery has “flattened out” and is in vital need additional support from fiscal policy. (Newswires)

POLL: ABC News/Washington Post poll shows Democratic Candidate Biden with a 12ppt lead over Trump at 53% vs. 41% among registered voters and 54% vs. 42% among likely voters; survey conducted between Oct. 6-9 (vs. Prev. 10ppt Biden lead among likely voters in prior survey conducted between Sep. 21-24). Survey entailed a random national sample of 879 registered voters, including 725 likely voters. (WaPo/ABC/Langer Research)

POLL: Baldwin Wallace University Great Lakes Poll shows Democratic Candidate Biden leading in swing states Michigan, Wisconsin, and Pennsylvania; Michigan sees Biden at 50% vs. Trump at 43%, Wisconsin sees Biden at 49% vs. Trump at 43% and Pennsylvania sees Biden at 50% vs. Trump at 45%. Survey was conducted between Sep. 30-Oct. 8. (Baldwin Wallace University)

Commission on Presidential Debates has cancelled the Oct. 15 Presidential debate. (WSJ) US President Trump’s suit over Pennsylvania mail-in voting has been dismissed. (Newswires) US President Trump's re-election campaign and the White House are pushing for an in-person presidential debate to be rescheduled. (CNN)

US President Trump has asked his campaign to put him on the road every single day from now until Nov. 3. His team is in the process of scheduling events to make that happen, according to Axios’ Treene. (Twitter)

Apple’s (AAPL) new 5G iPhone could have coverage issues in the UK as telecoms industry insiders have warned that it may not connect to the 700MHz 5G band, which could leave customers searching for 5G coverage. (Telegraph)