[PODCAST] US Open Rundown 14th October 2020
- European bourses are modestly softer this morning with downside emanating as we approach US hours; ES -0.2%, below 3500
- GBP took fleeting impetus from reports the UK will not immediately walk away from Brexit talks with the PM said to decide the path on Friday
- IEA monthly oil market report left 2020 & 2021 demand forecasts broadly unchanged; a release which seemingly sparked modest crude support, albeit short-lived
- Looking ahead, highlights include ECB's Lane & Mersch, Fed's Clarida & Kaplan, BoE's Haldane, Amazon Prime Day (2/2).
- Earnings: Wells Fargo, Goldman Sachs, Bank of America, United Airlines
UK PM Johnson will consider a “circuit-breaker” lockdown if the recently announced tiering system fails. One senior source said the chances of a circuit breaker were “at least 80 per cent”. Government sources said the PM could order a two-week closure of pubs, restaurants and some other businesses if recent measures do not reverse the spread of the virus. (Telegraph) Opposition leader Starmer has called on PM Johnson to impose a half-term “circuit breaker”. (Times) London Mayor Khan said it is "inevitable" that London will pass a "trigger point" to enter tougher coronavirus restrictions in the "next few days”. (Sky News)
Germany reported 5,132 (Prev. 4,122) new COVID-19 cases and 40 (Prev. 13) additional deaths. (Newswires)
Asia-Pac equities traded with no clear conviction following a downbeat handover from Wall Street whereby the major indices snapped a four-day winning streak as hopes for a near-term stimulus bill fade with Democrats and Republicans still at loggerheads, whilst Eli Lilly announced that it will pause its COVID-19 antibody treatment over safety concerns, less than a day after Johnson & Johnson announced the halt of its vaccine study. ASX 200 (-0.4%) was contained within a tight parameter amid the heightening tensions with China and ahead of Aussie jobs data and a speech by RBA Governor Lowe tomorrow. Nikkei 225 (+0.1%) and KOSPI (-0.9%) both opened narrowly lower but thereafter diverged, with the latter extending losses after the BoK stood pat on rates, whilst Apple suppliers saw mixed trade following the unveiling of the iPhone 12, with Taiyo Yuden and Murata Manufacturing posting losses, whilst South Korea’s LG Display jumped over 2.5% as Apple extended the range of iPhones to include a new “mini” model – Taiwanese chip makers were also mixed. Elsewhere, Shanghai Comp (-0.6%) held onto losses amid another net daily drain by the PBoC as Chinese markets awaited President Xi’s speech which provided little by way of fresh news or surprises, whilst Hang Seng (U/C) opened with modest gains as it played catchup from yesterday’s storm-cancelled trade but immediately erased upside as China’s Evergrande shares slumped over 15% after announcing a share placement as a discount to its last closing price, and HSBC fell around 3% after the Co. was left off the list of banks arranging China’s sovereign debt sale. 10yr JGBs saw modest gains amid the cautious risk tone in the APAC region.
Chinese President Xi says China will protect property rights and intellectual property rights of entrepreneurs. (Newswires)
China's Commerce Ministry is commencing a anti-subsidy investigation on PVC imports from the US, as of October 14th. (Newswires)
PBoC sets USD/CNY midpoint at 6.7473 vs. Exp. 6.7439 (Prev. 6.7296) (Newswires)
PBoC skipped open market operations for a net daily drain of CNY 50bln.
Chinese M2 Money Supply YY* (Sep) 10.9% vs. Exp. 10.4% (Prev. 10.4%); New Yuan Loans* (Sep) 1900B vs. Exp. 1700.0B (Prev. 1280.0B); Outstanding Loan Growth* (Sep) 13.0% vs. Exp. 12.9% (Prev. 13.0%).
BoK left its Base Rate unchanged at 0.50% as expected in a unanimous decision and reiterated its accommodative policy stance. BoK said South Korean inflation is likely to remain low this year, whilst economic outlook is in line with prior projections. Governor Lee stated that the BoK may ramp up treasury bond purchases if needed but they have no plans to expand T-bond purchases for now. Governor Lee also stated that the BoK will act to stabilise FX markets (Newswires)
Monetary Authority of Singapore (MAS) left its policy settings unchanged as expected with zero currency appreciation maintained; Singapore economy is forecast to contract 5-7% in 2020. (Newswires)
Fed Daly (non-voter) says US economy and Fed policy is in a good position and well positioned to weather the COVID-19 storm, it remains to be seen if more Fed action will be needed, will watch the data. (Newswires)
EU leaders are to say no breakthrough has been found in Brexit talks and are poised to vow to step up preparations for a no-deal Brexit, according to a draft document. The UK has signalled that it would not walk away from discussions with the EU immediately, according to reports. Subsequent reports highlighted that intensive work could still result in a EU/UK trade deal with nothing seen as impossible at this stage but there is some way to go, according to sources. Finally, UK Chief Brexit Negotiator Frost will advise PM Johnson to keep talking and the PM will be deciding on what steps to take next after the EU summit on Friday, Times Waterfield; additionally, advising him that a deal is still possible, Telegraph’s Crisp. (Newswires/Twitter)
Norway has blamed Russia for a cyber-attack on the email system in the Norwegian parliament in August. (BBC)
European equities (Eurostoxx 50 -0.1%) trade somewhat mixed in what has been a relatively uninspiring/choppy session thus far. From a macro standpoint, there’s been not much for participants to digest since yesterday’s close asides from US stimulus headlines that continue to highlight the differences between the Republican and Democratic camps with the former (led by Senate Majority Leader McConnell) set to table a USD 500bln stimulus proposal next week; a move that had already been rebuffed by House Speaker Pelosi. On the medical front, Eli Lilly have been the latest company to halt a trial for one of its products, this time amid safety concerns over its COVID antibody treatment. However, the market remains upbeat in its view that such occurrences are a regular feature of the process and have therefore taken the news in its stride. The FTSE 100 (U/C) has outperformed its peers throughout the session, however, this has been more a by-product of earlier GBP weakness, as opposed to any inherent strength within the index. Most recently, European bourses have come under pressure as sentiment deteriorates ahead of the US market entrance seemingly taking the lead from US futures which have reverted to the U/C mark. From a sectoral standpoint, banking names are seeing some reprieve from yesterday’s noteworthy declines with strength seen particularly in Spanish banks. To the downside, the COVID-sensitive travel & leisure sector is softer on the session with losses also observed in real estate names. In terms of stock specifics, Atlantia (+9.3%) sit at the top of the Stoxx 600 amid reports that CDP, the Italian State Lender, is collaborating with Blackstone & Macquarie on a bid for the Co’s stake in Autostrade. Elsewhere, financial updates from Ashmore (+7.1%), TomTom (+3.2%) and Just East Takeaway.com (+4.9%) have boosted their respective share prices. Maersk (+3.1%) are enjoying a session of gains thus far amid source reports noting that it could lower its headcount by around 2k.
ASML (ASML NA) – Q3 revenue EUR 4.0bln vs. Exp. EUR 3.69bln, net income EUR 1.1bln vs. Prev. EUR 0.627bln. FY20 guidance: revenue >EUR 13.3bln vs. Exp. EUR 13.17bln; 2020 interim dividend EUR 1.20/shr. Q4 guidance: revenue ~EUR 3.7bln vs. Exp. EUR 3.7bln. Will resume share buybacks this week, intends to purchase shares up to EUR 6bln as the 3-year share buyback program remains in place. Separately, a Samsung official is said to have spoken with the Co. regarding EUV, extreme ultraviolet, co-operation. (Newswires)
GBP - Although the writing was on the wall well before the latest headlines emphasising that the impasse between the UK and EU on key trade issues remains too big to formulate a deal in time for Thursday-Friday’s meeting and talks will have to intensify further, ‘confirmation’ of the fact via a draft document pushed the Pound down across the board. Cable met some opposition at 1.2900, but breached defences to probe below the 21 DMA (1.2892) before finding a base ahead of week ago lows circa 1.2945, while Eur/Gbp rebounded further from recent sub-0.9050 troughs to around 0.9120 and fading as the Euro suffered knock-on losses against the Dollar and Yen etc. Ahead, the 3-way conference call between PM Johnson, European Commission and Council Presidents von der Leyen and Michel, but in truth the bar is now even higher for any real positives in terms of progress towards an agreement. Nevertheless, Sterling has clambered off its knees as wires report that the UK will not abandon negotiations immediately and a person said to be familiar with the situation suggests that a deal remains possible even if remote at this stage.
USD - The Greenback is off best levels after yesterday’s relatively strong recovery rally extended overnight and amidst the early Pound sell-off noted above, with the DXY easing back from 63.670 and just above the 21 DMA (93.655), as several major counterparts pare losses. However, risk sentiment remains fragile following a turnaround Tuesday for many global stocks, no breakthrough on US fiscal stimulus, another pause in COVID-19 vaccine trials and ongoing geopolitical/diplomatic tensions, leaving the Buck with an underlying bid and the index holding close to 93.500.
NZD/AUD - Not quite all change, but some respite for the Kiwi and Aussie that appears to have regained poise on psychological if not technical grounds given its resilience into 0.7150 and 1.0750 vs Antipodean and US rivals. Similarly, Nzd/Usd has managed to stay afloat close to 0.6650 irrespective of dovish RBNZ rhetoric overnight as Assistant Governor Hawkesby stated that guidance alluding to the prospect of NIRP is no bluff and a reiterated that a weaker Kiwi would help boost the economic recovery alongside other stimulative policy. Ahead, RBA Governor Lowe is due to speak just a few hours before September labour data.
CAD/JPY/CHF/EUR - All narrowly mixed vs the Buck, as the Loonie meanders within a 1.3157-16 range and Yen hugs an even tighter 105.51-31 line inside decent option expiries from 105.20-15 to 106.00 (1.2 bn and 1.4 bn respectively). Elsewhere, the Franc has retreated further into 0.9133-56 parameters and Euro from 1.1800+ peaks sub-1.1750 where 1.2 bn expiry interest lies ahead of more ECB speakers.
SCANDI/EM - The Crowns are benefiting from the aforementioned single currency weakness rather than specifics of broad upturn in risk appetite, but EMs are largely softer vs the Dollar bar the Yuan that could be deriving traction from stronger than expected Chinese lending and money supply metrics in conjunction with a PBoC official seeing a further GDP revival in Q3.
RBNZ Assistant Governor Hawkesby said some economic data points are surprising to the upside, but the economy will require continued policy support. Lower exchange rate could provide further stimulus, lower bound on interest rate likely to change over time and will also depend on other policy tools being used. (Newswires)
Notable FX Expiries, NY Cut:
- EUR/USD: 1.1750 (1.2BLN), 1.1885-1.1900 (850M)
- USD/JPY: 105.00 (585M), 105.15-20 (1.2BLN), 105.50-55 (750M), 105.75 (500M), 106.00 (1.4BLN)
A strong benchmark DMO offering and solid enough 30 year German sale hardly hindered Gilts or Bunds as the respective 10 year debt futures extend gains to notch new m-t-d peaks irrespective of ongoing outperformance in the Eurozone periphery and the real prospect that recurring COVID transmission will likely translate to more fiscal spending and funding. Latest Liffe and Eurex highs are 136.26 and 175.48, while the equivalent T-note is nudging 139-09+ and closer to technical resistance around 139-14+ as risk sentiment in general wanes again on any number of bearish factors, like Brexit, 2nd waves of the pandemic, US election uncertainty despite very polarised polls, no additional aid from Washington and several geopolitical/diplomatic hots-spots.
WTI and Brent are subdued at present in a somewhat choppy session which did earlier feature the benchmarks experiencing a grinding bid post the IEA monthly oil market report which wrapped up this month’s 3-main releases and notably provided an alternative demand view. Specifically, the IEA report maintained 2020 & 2021 crude demand forecasts at largely unchanged levels from the previous report; however, they did highlight that demand growth is now beginning to slow given the resurgence in COVID-19. The roughly unchanged forecast contrasts yesterday’s OPEC release and the EIA one prior to that which both saw modest revisions lower to their 2020 and 2021 demand forecasts. At present, WTI and Brent are off session highs and have reverted back into negative territory lower by circa USD 0.20/bbl as things stand a move which is coinciding with a modest pullback in US equity futures (currently ~U/C) ahead of US participants’ entrance. Elsewhere, attention remain on various geopolitical tensions which have thus far seen the Azeri President comment that if Armenia attempt to take control of Azerbaijan gas pipelines than the outcome will be severe. Moving to metals, spot gold is modestly firmer this morning but remains capped by the USD 1900/oz mark which broadly coincides with the session high thus far. Separately and following reports that China ordered their domestic steel mills to stop purchasing Australian coal, on this, while Australia state they have not heard of any formal order from China, BHP announced they have received deferment requests from Chinese coal customers.
IEA Monthly Oil Market Report: 2020 and 2021 crude oil demand forecast largely unchanged at 91.7mln BPD and 97.2mln BPD respectively; demand growth is now slowing as a result of a second wave of COVID-19 cases. Global supply was lower by 600k BPD in September amid cuts from the UAE, maintenance in the North Sea and Brazilian flows. (Newswires)
Russian President Putin and Saudi Crown Prince Mohammed Bin Salman have urged OPEC+ producers to stick to the production cut agreement. (Newswires)