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[PODCAST] US Open Rundown 4th December 2020

  • Major European bourses trade with modest gains across the board, FTSE 100 outperforms on Brexit optimism
  • EU official said a Brexit trade deal is "imminent" and expected by the end of the weekend barring a last-minute breakdown in discussion
  • US President Trump's administration said it added four Chinese companies to the Department of Defense blacklist for ties with the Chinese military
  • In FX markets, the DXY remained lacklustre just above 90.50, EUR/USD extends gains above1.2150 and GBP/USD sways on Brexit
  • Looking ahead, highlights include US and Canadian Labour Market reports, US Durable Goods (R), Baker Hughes Rig Count, BoE's Tenreyro, Fed's Evans, Bowman and Kashkari

CORONAVIRUS UPDATE

Moderna (MRNA) said it expects to have 100mln-125mln of vaccine doses available globally in Q1 next year and reaffirmed the view it will have 20mln doses in the US by end-2020, while it also stated that vaccine candidate trial results were consistent across all age groups and that vaccine participants retained high levels of antibodies after 119 days. (Newswires)

ASIA

Asia-Pac bourses traded mixed following a similar performance stateside where stock markets stalled after notching fresh record levels, amid tentativeness heading into today’s NFP data and with a bout of pressure before the Wall St closing bell after Pfizer cut its vaccine rollout targets for this year by half due to supply chain issues, although it still expects over 1bln doses rolled out in 2021. ASX 200 (+0.3%) was positive as financials lead the mild gains across cyclicals but with upside capped after weaker than expected retail sales data and as the mining sectors reversed yesterday’s outperformance. Nikkei 225 (-0.2%) was pressured as exporters suffered from recent currency inflows and with participants awaiting PM Suga’s press conference in which he is expected to discuss measures against the coronavirus, while KOSPI (+1.3%) resumed its outperformance with the index and its largest-weighted constituent Samsung Electronics extend on record levels as the tech giant continued to benefit from the firm outlook for the chip industry. Hang Seng (+0.4%) and Shanghai Comp. (+0.1%) were lacklustre after another consecutive liquidity drain by the PBoC and after the US added four Chinese companies to the Department of Defense blacklist for alleged ties with the Chinese military which include SMIC, CNOOC, China Construction Technology Co. and China International Engineering Consulting. Conversely, the latest reports surrounding Huawei were of a more constructive nature with the US reportedly in talks with Huawei's CFO on resolving criminal charges which would allow her to return home from Canada for admitting wrongdoing and after Japanese chipmaker Kioxia received permission from the US to export some products to Huawei, while Chinese stocks then pared losses in late trade. India's NIFTY (+0.8%) also gained overnight after the RBI rate decision in which the central bank kept rates unchanged as unanimously expected but also maintained its accommodative stance and announced quasi-measures to support stressed sectors. Finally, 10yr JGBs eked minimal gains with initial support after recent upside in T-notes, weakness in Japanese stocks and the BoJ's presence in the market for JPY 540bln of 5yr-25yr JGBs, but with advances limited by a gravitational pull towards the key 152.00 level.

PBoC injected CNY 10bln via 7-day reverse repos at a arate of 2.20% for a net daily drain of CNY 110bln. (Newswires)PBoC set USD/CNY mid-point at 6.5507 vs. Exp. 6.5501 (Prev. 6.5592)

US President Trump's administration said it added four Chinese companies to the Department of Defense blacklist for ties with the Chinese military which were SMIC (981 HK), CNOOC (883 HK), China Construction Technology Co. and China International Engineering Consulting Corp. There were also separate reports that the US Commerce Department is considering blocking cloud companies from countries like China, Russia and Iran. (Axios) Chinese Securities Regulator, on the House bill that could block Chinese firms from US markets, says China is open to address concerns via dialogue and cooperation. (Newswires)

US is reportedly in talks with Huawei's CFO regarding resolving criminal charges which would allow her to return home from Canada for admitting wrongdoing. There were also separate reports that Japanese chipmaker Kioxia received permissions from US to export some products to Huawei. (WSJ/Nikkei)

Japan is to set up subsidies for regional banks that shore up business through mergers and will adopt a powerful economic package to avert a return to deflation, while Japan will also extend no-interest, no-collateral loans for firms and extend the Go To Travel campaign according to the draft stimulus package. (Newswires)

US

US President-elect Biden said the USD 900bln bipartisan coronavirus relief package should be passed and that he will ask for more once in office. Biden separately commented that he asked Dr. Fauci to stay on in his administration and will issues an order that masks be worn in federal buildings and transportation facilities, while he will call for mask-wearing for the first 100 days of his administration. (Newswires/CNN)

CENTRAL BANKS

BoE's Saunders says positive news on vaccines has reduced some downside risks facing the economy. But we are not out of the woods yet. There are some headwinds that could leave the economy stuck with persistently high unemployment and below-target inflation. If those downside risks develop, risk management considerations argue for a relatively prompt monetary policy response in my view. If more stimulus is needed then, rather than lean ever more heavily on a single policy tool, in my view the most effective means may be to use a range of policy tools. Negative rates would be expected to pass through substantially to wholesale funding costs and partly to corporate deposit rates. (BoE)

Norges Bank Deputy Governor Nicolaisen is stepping down because he has not received a renewed security clearance from the Norwegian Civil Security Clearance Authority. (Norges Bank)

Some Chinese policy makers are comfortable with the current CNY strength vs the USD, some advisors believe USD/CNY hit 6.4000 in 2021, but the central bank might take action if further rises in the closely managed currency, sources state. (Newswires)

RBI kept the Repurchase Rate and Reverse Repo Rate unchanged at 4.00% and 3.35% respectively, as expected through unanimous vote and maintained its accommodative monetary policy stance which it will continue at least into next FY. RBI Governor Das stated that high inflation constrains monetary policy and they need more efforts to mitigate supply-side inflation pressures, while he added that signs of recovery are far from broad-based but near-term financial stability risks have been contained and economic contractions have begun to ease. Furthermore, the RBI remains committed to preserving financial liquidity and will do whatever necessary to maintain stability in the financial sector. Das also noted they will also use various instruments at suitable time while ensuring ample liquidity available and will continue to use OMOs and on tap TLTRO will be expanded to cover other stressed sectors. (Newswires)

UK/EU

EU official says Brexit trade deal is "imminent" and expected by the end of the weekend barring last-minute breakdown in discussions, adding that the EU stands firm on state-aid demands. The official also stated leaders may have another gather after the Dec 10-11 summit. (Newswires) EU's Chief Brexit Negotiator Barnier has been expected to return to Brussels today to brief EU ambassadors on talks but he is now not returning to Brussels but will remain in London. If he briefs ambassadors later will be done of video link. (Newswires)

Hungarian PM Orban says we can accept EU budget and recovery fund and lets put rule of law criteria aside for now, explanatory declaration on rule of law cannot be acceptable. (Newswires)

EQUITIES

Major European bourses trade with modest gains across the board (Euro Stoxx 50 +0.2%) following a lukewarm cash open, and with positive Brexit newsflow briefly feeding impetus to risk appetite as an EU official stated that a Brexit trade deal is "imminent" and expected by the end of the weekend barring a last-minute breakdown in discussions. That being said, markets now await the UK's take on the state of talks to see if this optimism is reciprocated or downplayed, whilst reports overnight suggested negotiations took a step back, and France reaffirmed that it will veto an unsatisfactory proposal. Nonetheless the region was provided with a lift on the headlines, although EZ indices have since pared back the move, whilst the FTSE 100 outpaces peers with added tailwinds from the post-OPEC crude rally (see Commodities section), which sees Oil & Gas clearly outperforming. Delving deeper into sectors, the overall picture is mostly positive as with some cyclical sectors towards to the top of the board, albeit sectors do not provide a clear risk profile as Retail, Financials and Chemicals reside at the bottom of the pile. The Travel & Leisure sector meanwhile remains a gainer, underpinned by vaccine euphoria whilst a positive Fraport (+3.6%) broker move lends a hand. Elsewhere, Cineworld (-10%) plumbed the depths at the open as Warner Bros plans to debut movies online and in cinemas simultaneously next year, thus providing less incentive for consumers to step into cinemas. Finally, AstraZeneca (+1.2%) is firmer with some pointing to the Pfzier vaccine rollout target cut as a positive for the UK pharma giant's candidate.

FX

USD - It would be far too premature to draw any conclusions or contend that the tide has turned for the Greenback, but it has pared declines and the DXY is holding above a fractionally higher 90.538 low compared to yesterday’s 90.504 base amidst tentative recovery gains. However, the Buck’s mini revival owes much to weakness or a loss of momentum elsewhere and it remains on the back foot against certain major and EM currencies, such as the Pound, Euro and Yuan. Ahead, NFP may provide the Dollar with more lasting or sustained respite, but only if the BLS report is bad and sparks a pronounced risk-off market reaction, perversely – for a full preview of the jobs release see the Newsquawk Research Suite. Back to the index, and a subsequent fade from 90.729 leaves the DXY meandering around 90.600.

GBP/EUR/CNH - As noted above, all bucking the broad trend as Cable rebounds firmly from a stop-fuelled drop towards 1.3300 and Eur/Gbp recoils from a fix-related pop above 0.9065 on the back of reports via an EU official intimating that a trade deal with the UK is ‘imminent’, barring a last minute breakdown in discussions. Cable retested offers into 1.3500 in response, albeit somewhat belatedly awaiting any rebuttal from the UK side, while the cross is back under 0.9050 and perhaps wary about the prospect of France pouring cold water on the seemingly very positive update. However, the Euro is eyeing Thursday’s apex vs the Dollar circa 1.2175 and the offshore Renminbi has tested 6.5150 compared to the PBoC’s 6.5507 midpoint fix for the Cny to set fresh multi-year peaks.

NZD/AUD - The Kiwi has lost its admittedly loose grip on the 0.7100 handle against its US counterpart and a bit more traction vs the Aussie as Aud/Nzd consolidates above 1.0500 and Aud/Usd retains 0.7400+ status even though retail sales rose slightly less than forecast in October.

CAD/CHF/JPY - Relatively strong and perhaps psychologically significant retracements in crude prices (WTI and Brent beyond Usd 46/brl and Usd 49/brl respectively) could be keeping the Loonie propped on the 1.2850 axis before the Canadian-US jobs data showdown, while the Franc is still hovering close to 0.8900 and Yen sticking in close proximity to 104.00, albeit off best levels.

SCANDI/EM/PM - Somewhat mixed and cautious trade befitting pre-NFP market conditions, while RBI sticks to the unchanged script and maintains accommodative stance and Gold fades into Usd 1850/oz again.

FIXED INCOME

The 10 year UK benchmark has slipped to a fresh, albeit marginal 133.87 Liffe low vs 134.18 at best awaiting more updates from Brexit trade talks following earlier reports claiming that a deal may be imminent or struck before the weekend. Interestingly, there have been no denials or confirmation from the UK or other EU officials and Barnier is on the way to resume negotiations with determination. Meanwhile, Bunds are midway between 174.93-175.20 Eurex parameters and the T-note closer to 137-18 than 137-25 amidst marginal curve re-steepening as the clock ticks down to monthly US jobs data that might have ramifications beyond the market reaction for fiscal and monetary policy.

COMMODITIES

WTI and Brent futures are firmer after OPEC+ ministers agreed to increase production by 500k BPD beginning in January. The ministers will meet each month to assess market conditions and decide on further production adjustments for the following month with further adjustments not to exceed 500k bpd, while they agreed to extend compensation cuts to the end of March. Although the decision at face value seems to be sub-par vs. expectations heading into the meeting, the consensus reached among producers for policy flexibility in the upcoming months has provided the crude markets with impetus, with oil ministers stating that upcoming meetings will not necessarily only take decisions on production increases, but could also decide on output decreases, if the market requires it. WTI Jan and Brent Feb have waned off best levels in recent trade, with no crude-specific headlines or developments to prompt the modest pullback, but more-so a pullback in risk. Nonetheless, the former holds onto its USD 46/bbl handle (vs. low USD 46.61/bbl) and the latter north of USD 49/bbl (vs. low 48.84/bbl). Elsewhere, precious metals are uneventful with spot gold and silver contained under 1850/oz and above USD 24/oz respectively. In terms of base metals, Dalian iron ore prices hit a record high to notch its fifth week of gains, bolstered by China's demand, Vale's guidance cut and the softer Dollar, whilst LME copper meanwhile hit eight-year highs.

GEOPOLITICAL

US House and Senate armed services committees have agreed on a defence legislation that will force the Trump administration to sanction Turkey over the Russian S-400 missile defence systems and scrutinise companies linked to Russia's Nord Stream 2 pipeline. The USD 740bln defence bill is seen passing Congress later this month. (FT)

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