[PODCAST] European Open Rundown 17th November 2020
- Asian equity markets were somewhat indecisive and only mildly benefitted from the performance on Wall St where both the S&P 500 and DJIA posted record levels
- UK Chief Brexit Negotiator Frost told UK PM Johnson to expect a Brussels trade agreement early next week, according to The Sun
- An EU diplomat also suggested the EU is ready to find a creative solution to avoid an accidental no-deal Brexit, according to the Telegraph
- In FX markets, the DXY trades modestly firmer above 92.50, EUR/USD hovers around 1.1850 and GBP/USD holds 1.32+ status
- Tesla (TSLA) is to join S&P 500 prior to the open on December 21st. The Co. that it will replace will be named at a separate press release prior to the rejig
- Looking ahead, highlights include US retail sales, industrial production, OPEC JMMC, ECB’s de Guindos, Lagarde, BoE’s Bailey, Ramsden, Fed’s Daly, Williams, Rosengren, supply from the UK and Germany
US ELECTION UPDATE
US President-elect Biden said his transition team needs access to President Trump's plan to distribute the vaccine and that Congress should come together to pass a relief package. Furthermore, he stated we are going to have a fairer tax structure with corporations paying their fair share and that no government contract will be given to companies that do not make products in the US, while he added we will have a USD 15 minimum wage nationwide and that forgiving student loan debt is part of the economic plan. (Newswires)
US President Trump tweeted that there was a big victory in Nevada with the all Democrat County Commissioner race, on the same ballot as President, was thrown out because of large scale voter discrepancy, while he added that the Clark County officials do not have confidence in their own election security. (Twitter) Three attorneys representing the Trump campaign in the federal lawsuit in Pennsylvania withdrew from the campaign, according to a motion which added that attorney Marc Scaringi in Harrisburg will represent the campaign. (Newswires)
Georgia Secretary of State Raffensperger said fellow Republicans have been increasing pressure for him to question the validity and exclude legal absentee votes. (Washington Post)
US COVID-19 cases +138,025 (prev. +155,708) and deaths +660 (prev. +1,252), New York cases +3,490 (prev. +3,649) and deaths +25 (prev. +30). California Governor Newsom ordered most of the state into the most restrictive lockdown tier effective Tuesday and Philadelphia is to ban all indoor gatherings as cases surge throughout the US according to the city health commissioner. (Newswires/NBC)
Pfizer (PFE) announced a US immunization pilot program in Rhode Island, Texas, New Mexico and Tennessee, while it added that the program is to better support the states' planning, deployment and administration of the vaccine but added the states included in the pilot will not receive vaccine doses earlier than other states. (Newswires)
United Airlines (UAL) said passengers on Flight 14 from Newark to London were the first to experience its transatlantic COVID-19 testing pilot programme in which rapid tests were provided to all over the age of two and all crew members free of charge. (Newswires)
UK COVID-19 cases +21,363 (prev. +24,962) and deaths +213 (prev. +168), while France cases +9,406 (prev. +27,228) and deaths +506 (prev. +302). (Newswires)
Scottish First Minister Sturgeon is reportedly to meet with the cabinet in the morning before addressing parliament this afternoon and is expected to decide on imposing the highest level of COVID-19 restrictions to parts of Scotland. (Twitter)
German Chancellor Merkel said restrictions already agreed upon have not yet changed the trend in infections and more social distancing is required, while she could have imagined imposing further contact restrictions today but there was no majority for that and stated that personal contacts between friends should be limited to one regular household. Furthermore, she stated next week's decisions will go further and apply for a longer period, while she added that we have at least stopped exponential case growth. (Newswires)
Asian equity markets were somewhat indecisive and only mildly benefitted from the performance on Wall St where both the S&P 500 and DJIA posted record levels and cyclicals outperformed on vaccine optimism following the encouraging update regarding Moderna's Phase 3 vaccine trial. ASX 200 (+0.2%) and Nikkei 225 (+0.4%) were both lifted at the open as energy and financials resumed the cyclical-led surge in Australia, while the Japanese benchmark rallied to above the 26k level to print its highest since May 1991 but then reversed course and briefly gave back all its gains as risk appetite waned. Elsewhere, the Hang Seng (+0.1%) and Shanghai Comp. (-0.3%) were mixed with underperformance in the mainland following a liquidity drain by the PBoC and as US-China tensions lingered with China’s Global Times Editor recently warning that China will ignore some of the Trump administration's political stunts but will resolutely hit back for attacks that might cause real harm, while it was also reported that Huawei is to sell its Honor brand to ensure its survival amid the US crackdown. Finally, 10yr JGBs were flat amid the tentative gains in stocks but with downside stemmed after recently finding support at the 152.00 level, while the BoJ’s presence in the market for over JPY 1.3tln of JGBs with 1yr-10yr maturities did little to spur prices.
PBoC injected CNY 50bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 70bln. (Newswires) PBoC set USD/CNY mid-point at 6.5762 vs. Exp. 6.5803 (Prev. 6.6048); strongest fix since June 27th, 2018.
China is reportedly prepared for US President Trump's final madness and hysteria regarding China policy, according to state media. (Xinhua)
Huawei is to sell its Honor brand to a consortium of more than 30 agents and dealers, while it will not hold any shares in the new Honor company after the sale and the value of the deal was not disclosed. Huawei commented that its consumer business is under tremendous pressure due to unavailability of technical elements for mobile phone unit, while it added the Honor sale is to ensure its survival and that the brand ships more than 70mln smartphone units per year. (Newswires)
UK Chief Brexit Negotiator Frost told UK PM Johnson to expect a Brussels trade agreement early next week. (The Sun)
A Senior EU diplomat said the EU is ready to find creative solution to avoid an accidental no-deal Brexit, while European Parliament sources said the latest MEPs can get a finalised deal for scrutiny is December 10th if the agreement is to be ratified this year. Furthermore, EU sources recognise that MEPs will bridle at being forced to approve the deal at short notice but expect them to fall into line because the alternative is an economically damaging no deal. (Telegraph) Separate reports suggested that under emergency plans an EU Parliament vote on a Brexit trade deal could be delayed until December 28th, rather than the currently scheduled December 16th. (Guardian) Additionally, the EU is said to be looking into a way to fast-track any Brexit deal with senior sources stating it is now very likely to be an "EU-only" rather than a "mixed" deal and therefore would not need ratification by all the member states. (Sky/Twitter)
UK PM Johnson is mulling a temporary reduction to foreign aid spending to help repair the nation's public finances that have been ravaged by the pandemic, while reports added that ministers have drawn up plans to lower the proportion of gross national income to 0.5% from 0.7%. (Times)
ECB's Lane pledged that credit credit will remain cheap for as long as the pandemic lasts. (Newswires)
Basel Committee Secretary General Carolyn Rogers said it is too early for banks to take a victory lap regarding their pandemic responses and called for dividends to remain on hold. (FT)
The DXY softened and briefly fell beneath 92.50 after being shunned during US hours on further vaccine hopes after Moderna’s impressive phase 3 trial results. The softer greenback helped a rebound in EUR/USD which had recently weakened amid reports Hungary and Poland vetoed the EU budget and recovery fund, with the single currency not helped by central bank rhetoric in which ECB’s De Cos noted concern related to FX moves between USD and EUR, while policy makers also called for additional support to the Eurozone from the ECB and governments. GBP/USD remained at the whim of Brexit-related updates and reclaimed the 1.3200 handle after reports that UK Chief Brexit Negotiator Frost told PM Johnson to expect a Brussels trade agreement early next week and an EU diplomat also suggested the EU is ready to find a creative solution to avoid an accidental no-deal Brexit. USD/JPY was stuck around the 104.50 level with the pair contained by the fleeting risk appetite in Japan and antipodeans traded steady as the subdued USD and firmer PBoC fix provide a floor for price action, while the RBA minutes from the November meeting saw a muted reaction as it reiterated that the board is prepared to do more if required but also continued to push back regarding the prospects of negative rates.
RBA minutes from November 3rd meeting stated the board is prepared to do more if required and policy is focused on bond buying, while it added it is not sensible to lower rates further and that negative rates are extraordinarily unlikely. The minutes also noted the outlook depends on successful containment of the virus and the board does not expect to increase rates for at least 3 years and until inflation is sustainably within the 2%-3% target band. Furthermore, it stated that they need wage growth to be materially higher, as well as significant gains in jobs and that both monetary and fiscal support are required for some time. (Newswires)
SNB's Zurbruegg said SNB spent CHF 90bln in H1 20 to relieve pressure on the currency and is conscious of a big balance sheet, while he added that we have to accept the risks in order to implement our monetary policy. (Newswires)
Commodities were mixed with crude prices marginally extending on the prior day’s gains above the USD 41/bbl level with prices fuelled by the recent vaccine optimism following the Moderna vaccine phase 3 trial results, although the upside was limited as risk appetite moderated overnight, while focus for the complex turns to the looming inventory data begin with private sector report later and with the OPEC JMMC meeting also scheduled today with delegates reportedly stating that an extension of current cuts for 3-6 months will be recommended, according to energyintel's Amena Bakr. Elsewhere, gold traded sideways beneath the psychological USD 1900/oz level as tailwinds from a weaker greenback was offset by the lack of haven demand and copper also flatlined amid the tentative gains in stocks.
OPEC JMMC delegates reportedly said that extension of current cuts for 3-6 months will be recommended, according to energyintel's Amena Bakr. (Newswires)
Russia's Surgut is selling ESPO crude loading in late December/early January at about USD 2.70/bbl above Dubai quotes which is the highest premium in 5 months. (Newswires)
China’s NDRC stated the nation’s coal and natural gas prices are not expected to increase significantly this winter although prices have gained a bit ahead of the peak season, while it noted that China October power consumption rose 6.6% Y/Y and October YTD power consumption rose 1.8% Y/Y. (Newswires)
US President Trump reportedly sought options last week regarding striking Iran to stop its increasing nuclear program but was dissuaded by advisers that warned it could escalate into a wider conflict in his last weeks in office (NYT)
US military anticipates President Trump will issue order for further troop withdrawals from Afghanistan and Iraq. (CNN)
US Secretary of State Pompeo said US and Europe need to work together in addressing recent actions by Turkey, while he added that there is still work to do to ensure that Iran does not torment the Middle East. (Newswires/Le Figaro)
Treasuries traded in line with the broader risk tone, legging lower on the Moderna update, to then gradually fade a good amount of the move throughout the session. By settlement, 2s unch. At 17.9bps, 10s +1.3bps at 90.6bps, 30s +1.3bps at 166.2bps; futures volumes were average. TIPS yields were mixed, with 2s little changed, 10s -4bps and 30s +1bps. Rates/duration was offered hard as Moderna became the latest vaccine candidate to provide more light at the end of the tunnel. The yield spike saw 10s and 30s touch intra-highs of 93.1bps and 169bps, respectively. However, stocks and yields spent most of the remainder of the session fading. A disappointing NY Empire survey accentuated the fade. The bid off the lows in USTs was suppressed somewhat by impending supply, with over ten IG issuers in the dollar market today, coming ahead of the USD 27bln 20-year bond auction on Wednesday and USD 12bln 10-year TIPS offering on Thursday. Those supply pressures managed to keep Treasuries modestly cheaper on the session. T-note (Z0) futures settled 2+ ticks lower at 138-01; t-bond (z0) 9 ticks lower at 171-29.
Fed's Vice Chair Clarida (voter) said large scale asset purchases are providing substantial support to US economic recovery and the Fed is committed to using all available tools not just funds rate and forward guidance, but also large scale asset purchases to achieve its goal. Clarida said we like the way policy is calibrated both asset purchases and guidance but will adjust policy as needed and that he was not concerned by the rise in the 10-year yield which remains in an accommodative range. Clarida also stated 13(3) emergency facilities have been successful and the Fed is just turning to discussion on their expiration with no more guidance to offer on 13(3) extension beyond year-end, while he believes yield curve control is still in the tool kit but is not something Fed is actively considering at the moment and stated the yield curve control is best seen as a complement to calendar-based forward guidance. (Newswires)
US Senate will hold a procedural vote today for Judy Shelton's nomination to the Fed. There were earlier comments from a White House spokesperson that the nomination of Judy Shelton to the Fed has the full backing of the White House and her confirmation is expected, while it was also reported that GOP Senator Alexander joined GOP Senators Romney and Collins in opposing Shelton’s nomination but he won't be in Washington DC to vote no and the nomination is on track to pass 50 to 49 at this point. (Newswires)
US Chamber of Commerce said it welcomes trade-liberalizing benefits of the RCEP agreement and worries the US is being left behind, but it would not recommend the US to join RCEP given the agreement’s shortcomings. (Newswires)
Tesla (TSLA) is to join S&P 500 prior to the open on December 21st. The Co. that it will replace will be named at a separate press release prior to the rejig. (Newswires)