[PODCAST] European Open Rundown 10th November 2020
- Asian equity markets were mostly higher as the region took its cue from the predominantly strong performance stateside where the S&P 500 and DJIA rallied to fresh record highs
- Note, the broader US market retraced some of the gains heading into the close amid several bearish factors
- NIH's Fauci said that the Pfizer vaccine is a big deal but there are still questions about its durability
- In FX markets, the USD has pulled back from yesterday’s highs, providing support to major counterparts
- UK House of Lords voted against UK government on Internal Market Bill to remove clauses that would allow ministers to scrap parts of the Withdrawal Agreement
- Looking ahead, highlights include the UK labour market report, German ZEW, Fed's Rosengren, Quarles, Kaplan, ECB's Knot and US 10yr supply
US ELECTION UPDATE
US President Trump is seeking to block Pennsylvania from certifying results and the Trump campaign filed a lawsuit alleging Pennsylvania mail-in voting lacks hallmarks of transparency and verifiability which were present for in-person voting. There were separate source reports in Axios that President Trump told advisers he was contemplating running again for President in 2024. (Newswires/Axios)
US Attorney General Barr authorized the Department of Justice to probe "substantial allegations" regarding vote counting irregularities, although it was also reported DoJ Election Crimes Branch Director Pilger resigned in response to Attorney General Barr's memo authorizing an election fraud investigation. (Newswires/NYT)
US Senate Majority Leader McConnell said President Trump is 100% within his rights to look into possible election irregularities, while McConnell added that he does not acknowledge Biden as President-elect or Senator Harris as Vice President-elect. (Newswires)
A Biden transition official said the General Services Administration must recognize Biden's election win so the transition can begin and warned that legal action is possible if the General Services Administration does not recognize the election victory. (Newswires)
US COVID-19 cases +105,142 (prev. +93,811) and deaths +490 (prev. +1,072), while US COVID-19 hospitalizations rose to a record of almost 59k patients, according to a major newswire. California COVID-19 positivity rate at 3.7% (vs 2.5% three weeks ago); Governor Newsom expects some areas to become more restricted. (Newswires)
US Health Secretary Azar said it will take several weeks for the FDA to receive and review the Pfizer data on its vaccine. There were also separate comments from NIH's Fauci that the Pfizer vaccine is a big deal and there are still questions about its durability, while he added Moderna's vaccine is similar to Pfizer's and he expects the results soon. (Newswires)
Eli Lilly (LLY) BAMLANIVIMAB drug for COVID-19 received emergency use authorization from the FDA, while the Co. stated that the US government will allocate 300k doses to high-risk patients and it will begin shipping immediately to AmerisourceBergen which will distribute it directly as directed by the government program. (Newswires)
China COVID-19 vaccine trial was halted in Brazil following a serious adverse event which occurred in October 29th, while the Butantan Institute head later noted that the Sinovac Biotech's trial of Coronavac in Brazil was halted due to a death but added it was unrelated to the vaccine. (Newswires)
UK COVID-19 cases +21,350 (prev. 20,572) and deaths +194 (prev. +156). (Newswires)
Asian equity markets were mostly higher as the region took its cue from the predominantly strong performance stateside where the S&P 500 and DJIA rallied to fresh record highs, although the Nasdaq bucked the trend as tech and stay-at-home stocks were heavily pressured following an encouraging update regarding the Pfizer and BioNTech vaccine which was reported to be more than 90% effective in combatting COVID-19. This triggered a rotation out of growth and into value stocks although the broader market retraced some of the gains heading into the close on several bearish factors including a large sell-side imbalance, expectations of further restrictions in California and comments from Senate Majority Leader McConnell that he does not acknowledge Biden or Harris as President-elect or VP-elect. Additionally, despite the positivity surrounding the update from Pfizer and BioNTech yesterday, some desks have highlighted that questions on the drug’s durability and efficacy for various subsets of the population and the severity of cases it will be effective for, still remain. ASX 200 (+0.7%) was boosted at the open with gains led by energy after a rally in oil prices and with the largest-weighted financials also cheering the vaccine news, while Nikkei 225 (+0.5%) briefly surged above the 25k level with notable strength seen in the travel sector including rail and airline stocks but with the index finishing well off its best levels amid weakness in tech which saw Tokyo Stock Exchange’s Mothers Index Futures, which consists of start-ups, trigger a circuit breaker after hitting limit down. Hang Seng (+0.8%) and Shanghai Comp. (-0.2%) were varied as the mainland lagged after a neutral PBoC liquidity operation and ongoing tensions with the US which are to sanction four more people in response to China's crackdown on dissent in Hong Kong, while there were also recent reports that China’s COVID-19 vaccine trial was halted in Brazil following a serious adverse event. Finally, 10yr JGBs were pressured and slipped below the 152.00 level amid spillover selling from T-notes and gains across stocks, with demand also subdued by mixed results at the 30yr JGB auction.
PBoC injected CNY 120bln via 7-day reverse repos at rate of 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.5897 vs. Exp. 6.5885 (Prev. 6.6123); which was the strongest fix since June 2018.
Chinese CPI (Oct) Y/Y 0.5% vs. Exp. 0.8% (Prev. 1.7%); slowest pace of increase since October 2009
Chinese PPI (Oct) Y/Y -2.1% vs. Exp. -2.0% (Prev. -2.1%)
Sources reportedly indicated that the Oracle (ORCL) deal to buy TikTok will likely face deep scrutiny under a Biden administration, unless the companied involved can get approval before the transition. (Fox Business News)
UK House of Lords voted against UK government on Internal Market Bill to remove clauses that would allow ministers to scrap parts of the Withdrawal Agreement; as expected. The defeat prompted a statement from UK PM Johnson’s office that the clauses are a legal safety net to protect the integrity of the UK’s internal market and will be reinstated when the draft law returns to the House of Commons. (Newswires)
UK Chancellor Sunak commented that we have made significant progress in Brexit talks and that a deal can be done. (Newswires)
UK BRC Retail Sales YY (Oct) 5.2% (Prev. 6.1%). In related news, Barclaycard stated UK consumer spending fell 0.1% Y/Y in October and its survey found a third of Britons reported stockpiling for lockdowns in October. (Newswires)
The DXY pared back some of the gains seen during the prior session which had been spurred despite the rally in stocks from the Pfizer vaccine update, given that the US is likely to be among the first to receive the vaccine which would help the economic recovery. Nonetheless, the USD has pulled back from yesterday’s highs as uncertainty regarding the election persists with Attorney General Barr authorizing a DoJ probe of "substantial allegations" concerning vote counting irregularities and a Biden transition official called for the General Services Administration to recognize Biden’s election victory so the transition can begin and threatened legal action. The slight retracement in the greenback has provided some reprieve for EUR/USD which had briefly slipped to below the 1.1800 level due to the USD-strength and with the single currency not helped by the bloc’s decision to proceed with retaliatory tariffs on USD 4bln of US goods related to Boeing subsidies, while GBP/USD eyes a reclaim of the 1.3200 handle after the House of Lords voted to defeat the government on the controversial Internal Market Bill. Elsewhere, USD/JPY continued to pullback from yesterday’s risk-fuelled advances and battled to hold on to the 105.00 status while antipodeans were mixed with AUD/USD subdued despite an improvement in Business survey data and firmer PBoC reference rate, while NZD/USD slightly outperformed its trans-Tasman peer on cross-related flows in which AUD/NZD recently slipped below the 1.0700 handle.
Australian NAB Business Confidence (Oct) 5 (Prev. -4.0). (Newswires) Australian NAB Business Conditions (Oct) 1 (Prev. 0)
WTI crude futures moved back below USD 40/bbl after gradually paring some of the prior day’s surge from the encouraging Pfizer vaccine update which boosted oil prices on hopes of a recovery in the travel industry and oil demand. In addition, there was also some supportive rhetoric from officials at the ADIPEC conference including the Saudi Energy Minister who suggested they can tweak the OPEC+ agreement and extend the output deal for the rest of 2022. Gold nursed some of the prior day’s losses but remained beneath the psychological USD 1900/oz level after yesterday’s steep drop as prices took a double whammy from a firmer greenback and haven outflows, while copper was subdued as the risk appetite began to moderate overnight and with underperformance in its largest purchaser China.
Iraq set December Basra light crude OSP to Asia at Oman/Dubai + USD 0.45/bbl which is higher by USD 0.15/bbl from the prior month. (Newswires)
Shanghai Exchange stated it will launch an international copper contract on November 19th and will temporarily waive the delivery fee on the contract for the first 7 weeks of trading. (Newswires)
Armenia PM said he has signed an agreement with leaders of Russia and Azerbaijan to end the war today, while the Russian Defense Ministry later announced it began deploying nearly 2000 troops to Nagorno-Karabakh. (Newswires)
Treasuries bear-steepened with great magnitude on Monday as the positive vaccine news catalysed the economic recovery narrative. By settlement, 2s +2.8bps at 18.3bps, 3s +4.3bps at 24.6bps, 5s +8.7bps at 45.0bps, 10s +13.8bps at 95.8bps, 30s +14.9bps at 174.7bps; Treasury futures volumes were solid, accompanied a slew of block sales/steepeners reported throughout the session. The selling pressure saw 10s and 30s print high yields of 97.5bps and 176.7bps, respectively, eking out new post-March highs. The majority of the rates move occurred immediately after the Pfizer/BioNTech positive announcement, coming amid US participants returning to their screens after the weekend. The “90% effective” vaccine data gave participants more confidence in their economic recovery outlooks, providing - in theory - a pathway out of the pandemic. That reassurance saw reflation trades excel, with inflation breakevens widening and duration getting hit hard. The vaccine update took a lot of attention away from this week’s Treasury refunding too, with the USD 54bln 3-year auction today – which saw a slight stop through although some of the internals were less robust, likely partly due to the record size of the auction – ahead of the 10-year auction on Tuesday and 30-year on Thursday (note, Veteran’s Day on Wednesday will see the US bond cash market closed). Meanwhile, the positive risk tone today saw a flurry of corporates rush to the dollar market, including USD 7bln from Bristol-Myers in its MyoKardia M&A bond; amid the rising rate environment, an initially planned floating tranche of that offering was axed, somewhat unsurprisingly. T-note (Z0) futures settled 31 ticks lower at 137-18+.
Fed released Financial Stability Report in which it stated that business debt has increased sharply and reduced economic activity has weakened ability to service debt, while it noted that household loan defaults may increase and banks remain well capitalized but challenging conditions persist. Fed also stated that most banks CET1 ratio recovered to pre-pandemic levels in Q2 and money markets have stabilized but would be vulnerable in the absence of emergency facilities. Furthermore, it added that some accounts in loss mitigation could increase bank delinquency later this year and early-2021 followed by increase charge-off rates and losses, as programs expire. (Newswires)
Fed's Kaplan (voter) stated the US economy is in the midst of a rebound from deep contraction but added that trends are in the wrong direction on COVID-19, while he added the base case is for a 2.5% contraction in 2020 with downside risks from virus and that the base case is for 3.5% growth in 2021. Kaplan also suggested the Fed may well need to keep rates at zero for another couple of years although he does not want to make a commitment on what the Fed will do after the pandemic. (Newswires)
Fed's Mester (voter) said there is more the Fed can do in terms of asset purchases and other programs to provide accommodation, while she added that she doesn't think the Fed is out of ammo and she would extend all of the Fed's emergency lending facilities if it were up to her as they are still needed. Furthermore, Mester also commented the recovery has been stronger than expected but there are a lot of variation across sectors and that the recovery is likely to be slower from here on out. (Newswires)
Fed’s Quarles (voter) said the Fed remains committed to using full range of tools to support the economy as long as needed and is confident they will support the hardest impacted, as well as ensure economic wounds will not become scars. Fed’s Quarles also suggested that banks are well-positioned as a bulwark against financial and economic pressure. (Newswires)
US Senate Majority Leader McConnell said Congress should pass a limited stimulus bill before year-end, following encouraging vaccine data according to a reporter. (Twitter)
US President Trump fired Defense Secretary Esper, while Washington Post reported that Defense Department officials privately expressed concerns that the removal of Esper could be a sign that President Trump may initiate operations against Iran or others in last days of office. (Newswires/Washington Post)