[PODCAST] US Open Rundown 11th November 2020
- Equities have seen a modest pause of the rotation exhibited since the PFE/BNTX update, evidenced via European sectors and NQ/RTY dynamics; US futures all broadly firmer
- Goldman Sachs has raised its 2020 S&P 500 target to 3700 from 3600, sees it reaching 4200 by the end of 2021 and 4600 by the end of 2022
- EU and UK negotiators are said to be likely to miss the mid-November (15th November) deadline to reach an accord on a new trade deal, sources state
- RBNZ maintained the OCR at 0.25% and Large-Scale Asset Purchases at NZD 100bln as expected, but announced to launch a Funding for Lending Programme
- FX features a firmer DXY but still capped by 93.00 in-spite of GBP retreating posit-Brexit updates with NZD outperforming significantly
- Looking ahead highlights include OPEC Monthly Oil Report(08:00EST/13:00GMT), ECB’s Lagarde, de Guindos, & Lane
US ELECTION UPDATE
US President Trump tweeted that people will not accept this rigged election and it was also reported that the Trump campaign is filing a lawsuit in Michigan to request that election results not be certified until it can be verified that ballots were cast legally. (Twitter/Newswires)
US postal worker reportedly admitted to fabricating claims of ballot tampering in Pennsylvania according to Washington Post, while it was separately reported that New York Times contacted election officials in every state to ask regarding evidence of illegal voting and that officials in 45 states directly responded that there was no evidence of fraud or voting irregularities. (Washington Post/New York Times)
AFP tweeted the US COVID-19 cases increased by a new record of more than 200k in 24 hours. (Newswires)
Elsewhere, Nevada Governor Sisolak warned of tougher action if Nevada doesn't take next 14 days seriously regarding virus mandates. (Newswires)
NIH’s Fauci also stated that he expects those that want to get vaccinated for COVID-19 will be able to get it and that low risk people may get access to the vaccine by April. (Newswires/CNN)
Russian Deputy PM says the second COVID-19 vaccine (produced by Vector Institute) is expected to start post-registration trials on 15th November, TASS reports; will produce 500k doses of its COVID-19 vaccine in November. (Tass)
Asian equity markets traded mostly higher as the region continued to benefit from the recent vaccine hopes which helped bourses shrug off the mixed performance on Wall Street where there was a negative bias as tech stocks suffered again from the rotation out of growth and into value and cyclicals. ASX 200 (+1.7%) extended on recent gains with the energy sector spearheading the broad advances and financials were also boosted with shares in Australia’s largest lender CBA unfazed despite a 16% Y/Y decline in Q1 cash profit, as there were also reports that the RBNZ further delayed the start of bank capital increases until 2022 which eases the burden on the Big 4’s New Zealand operations. Nikkei 225 (+1.8%) was also lifted amid a slew of earnings and with financials underpinned after the BoJ’s introduction of a Special Deposit Facility to support regional banks and bolster the resilience of the sector. Hang Seng (-0.2%) and Shanghai Comp. (-0.5%) were indecisive amid lingering US-China tensions and a tepid liquidity injection by the PBoC, while the tech names continued to suffer after China recently drafted new antitrust regulations to rein in tech giants which pressured Tencent and Alibaba, despite the latter posting strong early numbers for Singles Day sales which reached CNY 6bln in the first minute and CNY 372bln of sales in the first 30 minutes. Finally, 10yr JGBs were softer amid similar weakness in T-notes following a soft US 10yr auction and with prices also pressured by the gains in Japanese stocks, although losses in JGBs were cushioned by the BoJ’s presence in the market for nearly JPY 1.4tln of JGBs in mostly 1yr-10yr maturities.
PBoC injected CNY 150bln via 7-day reverse repos at a rate of 2.2% for a net daily injection of CNY 30bln. (Newswires)
PBoC set USD/CNY mid-point at 6.6070 vs. Exp. 6.6070 (Prev. 6.5897)
China’s top legislative body passed a resolution to make patriotism a legal requirement for Hong Kong lawmakers which could permit the Hong Kong government to disqualify lawmakers without going through the courts. China’s top legislative body also passed a resolution that allows immediate disqualification of Hong Kong lawmakers that endanger national security, while reports later noted that 4 Hong Kong opposition lawmakers have been disqualified. (Newswires)
Chinese M2 Money Supply YY* (Oct) 10.5% vs. Exp. 10.9% (Prev. 10.9%); New Yuan Loans* (Oct) 689.8B vs. Exp. 800.0B (Prev. 1900.0B)
- Outstanding Loan Growth* (Oct) 12.9% vs. Exp. 13.0% (Prev. 13.0%)
Japan Party Official says they want to map out the 3rd extra budget on November 27th which may need to be more than JPY 10-15trl. (Newswires)
TikTok filed a legal petition challenging the Trump administration's executive order requiring ByteDance to divest the app, while ByteDance submitted new proposal to create an entity owned by Oracle (ORCL), Walmart (WMT) and US investors which would handle TikTok user data and content moderation. (Newswires)
US President-elect Biden reportedly tapped proponents of tougher Wall Street regulations for his agency review teams during transition. (Washington Post)
EU has agreed to water down its demands for 'cross retaliation' clauses as part of the governance talks, Express' Barnes; British negotiators have accepted the dispute settlement for goods and services, but not the level-playing field and fisheries, according to EU sources. However, progress is being made. There is a joint text being drawn up. But it's still described as a 'serious problem' by EU sources close to the talks. (Twitter)
EU and UK negotiators are said to be likely to miss the mid-November (15th November) deadline to reach an accord on a new trade deal, sources state; EU envoys in Brussels do not expect an update this week with Brexit tentatively on the agenda for the Ambassadors' meeting on November 18th. EU diplomats now expect negotiators to present a deal in the middle next week unless talks yield a breakthrough or collapse earlier, the sources added. (Newswires)
UK PM Johnson has pushed back the House of Commons vote on the Internal Market Bill until the end of the month at the earliest amid concerns that controversial elements of the bill could hamper Brexit talks and relations with US President-elect Biden. (Telegraph)
UK Department of Trade is attempting to meet today's deadline to table GBP 80bln of trade agreements before Parliament in order to have the required 21-sitting days for them to be ratified this year. (Guardian)
ECB's Knot says the ECB wouldn't want to exclude any measures going into December; ECB not looking at exchange rate in isolation. (CNBC)
Turkish President Erdogan says they will work with Russia at the joint centre to monitor the Karabakh ceasefire. (Newswires)
European cash equities kicked-off the mid-week session with modest gains (Euro Stoxx 50 +0.4%) following on from a mixed APAC session, however the growth to value rotation theme that has dominated the market this week is showing signs of a pause. In Europe, the sectoral performance at the open has recalibrated from the value/cyclical outperformance to a more growth/momentum led session. Meanwhile, this shift is also reflected in US equity futures, as the NQ (+0.9%) erased all earlier losses and now stands as the outperformer. Delving deeper into European sectors, the session kicked off with Oil & Gas and Travel names as the top gainers whilst Healthcare and Tech stood as laggards, but since then the environment has somewhat flipped with Healthcare and Travel topping the charts. That being said, Oil & Gas has now staged a recovery on the back of rising crude prices, however value/cyclical peers remain on the other end of the spectrum with Auto & Parts alongside Banks not faring well - with the latter also pressured by ABN AMRO (-3.8%) post-earnings despite reporting better-than-expected numbers, as the Dutch bank remains wary of the pandemic’s impact. Elsewhere, following Monday’s PFE/BNTX vaccine update, Goldman Sachs has raised its 2020 S&P 500 target to 3,700 from 3,600, and sees it reaching 4,200 end-2021 and 4,600 by end-2022. The bank has also raised their 12-month Stoxx 600 target to 430 from 395 and FTSE 100 target to 7,200 from 6,300. It is also worth noting that Chinese stocks were pressured overnight amid developments in Hong Kong, whereby under a new NPCSC resolution, lawmakers immediately lose their seats if they are ruled to have promoted or supported the notion of Hong Kong independence, which has also resulted in reports that all Hong Kong pro-Democracy lawmakers are to resign in protest against the ousting of four legislators. Thus, giants Alibaba and JD.com closed HK trade lower by almost 10% apiece, whilst US listed Chinese ADRs are also pressured in the pre-market.
China Jan-Oct vehicle sales -4.7% YY vs. Prev. -9.7%; October sales +12.5% YY vs. Prev. +12.8%, according to the Industry Association. (Newswires)
Goldman Sachs has raised its 2020 S&P 500 target to 3700 from 3600, sees it reaching 4200 by the end of 2021 and 4600 by the end of 2022; 12-month Stoxx 600 target to 430 from 395 and FTSE 100 to 7200 from 6300
- Goldman Sachs noted that a vaccine is a more important development for the economy and markets than prospective policies of a Biden administration
NZD/AUD – It remains to be seen whether the Kiwi can extend gains convincingly beyond 0.6900 and 1.0600 vs its US and Aussie counterparts, but for now the former is proving a bit more resistant than the latter in wake of the RBNZ maintaining rates and QE in contrast to the RBA last week. Moreover, the RBNZ rolled back on negative rates by retaining guidance for an unchanged OCR until the end of Q1 next year having confirmed the provision of additional policy stimulus via the FLP in December. Meanwhile, Aud/Usd has revisited 0.7300+ territory, but not quite the heady heights reached on Monday when risk appetite was more pronounced on the Pfizer vaccine and Biden bandwagon.
GBP – More whip-saw moves in Sterling with Cable breaching a Fib level at 1.3291 after a few attempts, but not tripping as many stops through 1.3300 as one might imagine amidst mixed Brexit reports, while Eur/Gbp has seen more LHS interest, but the cross is holding just above early September lows (0.8866) having made a more decisive break below the 200 DMA (circa 0.8922) yesterday. In short, some concessions are said to have been made on both sides, but yet again not on the really crucial issues and the UK-EU teams are likely to miss the mid-month ‘deadline’ – see 9.32GMT and 8.45GMT updates on the headline feed for more. Cable has subsequently pulled back to test bids/support around 1.3250 and Eur/Gbp offers ahead of 0.8900, with little reaction to latest pro-NIRP remarks from BoE’s Tenreyro.
USD – Aside from all the above, rangebound trade on US Veteran’s Day is keeping the Dollar in check vs most majors as the DXY hovers below 93.000 within a 92.969-607 band eyeing broad risk sentiment and further post-US Presidential election developments.
CHF/EUR/JPY/CAD – The Franc is marginally underperforming towards the bottom end of 0.9183-40 parameters and the Euro has lost grip of the 1.1800 handle after fading around decent option expiry interest between 1.1830-35 (1.1 bn) and the post-weekend peak circa 1.1920 awaiting comments from the annual ECB Sintra gathering in the hope of something more specific about what might be in store for December in terms of the policy ‘recalibration’. Elsewhere, the Yen has retreated from 105.00, but keeping its head above this week’s 105.65 lows and the Loonie deriving some traction from buoyant oil prices around the middle of 1.3008-57 extremes.
SCANDI/EM – Crude’s ongoing revival to almost Usd 43/brl and a few cents above Usd 45 in WTI and Brent respectively, is also helping to underpin the Nok, Rub and Mxn, but the Try is back on the recovery path following recent CBRT and Turkish Finance Minister revelations on the prospect of more aggressive action to arrest the Lira’s sharp depreciation rather than a fractionally narrower than expected current account deficit.
RBNZ maintained the OCR at 0.25% and Large Scale Asset Purchases at NZD 100bln as expected, but announced to launch a Funding for Lending Programme in December with the size around NZD 28bln and it maintained it forecast for the OCR to remain at 0.25% in March 2021. RBNZ stated it agreed to provide additional monetary stimulus to the economy in order to reach inflation and employment remit, while it agreed that monetary policy will need to remain stimulatory for a long time and must remain prepared to provide additional support if needed. (Newswires)
RBNZ Governor Orr commented at the press conference that it is still important for credit to be widely available and that spending and employment is promoted. Governor Orr also stated it is too early to tell if the possibility of negative rates decreased following the funding for lending programme and loan-to-value ratio review, while he affirmed the OCR will remain at 0.25% until next year and that the commitment to keep OCR unchanged until March remains. (Newswires)
RBNZ had earlier announced further regulatory steps to promote cashflow confidence and stability in which it delayed the start date for increases in bank capital until 2022 to allow banks continued headroom to respond to the effects of the COVID-19 pandemic and to support the economic recovery. Furthermore, it will consult on loan-to-value ratio (LVR) restrictions and stated that bank dividend restrictions will remain in place. (Newswires)
Turkish Banking watchdog eases limits on bank's TRY swaps, forward, options and other derivatives. (Newswires)
Notable FX Expiries, NY Cut:
- EUR/USD: 1.1770-80 (830M), 1.1810 (778M), 1.1830-35 (1.1BLN)
More evidence of the marked change in sentiment and diminished demand for core debt via the latest 2050 German offering that was less than twice oversubscribed despite a bigger retention and 10 bp back up in yield from the last sale of the same tenor. However, Bunds have pared some losses and Gilts are off worst levels between 174.08-173.66 and 13393-60 respective ranges, while the 10 year US T-note is holding of overnight lows within a 137-17+/137-08 band ahead of the US open that will not include cash participants today due to Veteran’s Day. Hence, no US data and perhaps even more focus comments from the ECB’s forum in Sintra where previous President Draghi made his landmark save the Euro speech.
HSBC lowers its 2021 and 2022 10yr US yield forecasts to 75bps. (Newswires)
WTI and Brent front month futures continue on their upward trajectory with WTI Dec eyeing USD 43/bbl to the upside (vs low 41.45/bbl) and Brent Jan extending gains above USD 45/bbl (vs low 43.60). The complex remains underpinned on hopes that effective vaccines will provide a rosier demand outlook, whilst on the supply side, the latest Private Inventory report printed a significantly larger than expected draw of 5.1mln bbls vs Exp. -0.9mln bbls, with the DoE due to release their weekly report tomorrow on account of today’s Veterans’ Day holiday. Sticking with the supply-side, sources note that Libya’s oil production has reportedly exceeded 1.1mln BPD as it continues to pose a headache for OPEC and allies, whilst NOC’s head earlier in the week stated that Libya will not join OPEC quotas until its production reaches 1.7mln BPD. Looking ahead, the OPEC MOMR is to be release later today following the EIA’s STEO yesterday which raised its 2020 global demand growth forecast by 10k BPD, however the release may prove to be stale given the vaccine developments earlier in the week. Elsewhere, spot gold and silver have largely moved in lockstep with the Dollar, with the precious metals flat intraday but experiencing a choppy session. Spot gold remains sub-USD 1900/oz around 1880/oz having had found an interim base at 1874/oz, whilst spot silver staddles just above the USD 24/oz mark. Finally, LME copper ekes mild gains amid the performance in stock markets, but with gains capped by a firmer Dollar.
US Private Energy Inventory (w/e Nov 6th): Crude -5.1mln (exp. -0.9mln). (Newswires)
Libya's oil production has reportedly exceeded 1.1mln BPD, according to sources. (Newswires)
Saudi Arabia and Iraq agreed on coordinating positions in the oil sector within the scope of OPEC and OPEC+ and to fully commit to all decisions that have been agreed upon. (Newswires)
Kuwait set December crude OSP for Asia at Oman/Dubai +USD 0.40/bbl which up USD 0.10/bbl from prior month. (Newswires)