[PODCAST] European Open Rundown 7th January 2020
- Asia-Pac bourses traded mostly higher as the region reacted to the gains on Wall St (ex-Nasdaq) post-Georgia election
- US Congress paused the election certification for several hours and Capitol Hill staff were told to evacuate amid chaos after pro-Trump protestors broke through barriers and sieged the Capitol
- FOMC minutes were uneventful and did not suggest any imminent changes in asset purchases
- In FX markets, the DXY heads into the EU open modestly firmer circa 89.50, EUR/USD retains 1.23 status, GBP/USD sits sub-1.36
- Looking ahead, highlights include EZ & UK construction PMI, EZ CPI, US IJC, international trade, ISM Services PMI, Fed's Harker, Evans, supply from Spain and France
FOMC Minutes stated a number of participants noted that once its economic goals have been achieved, a gradual tapering of purchases could begin and the process thereafter could generally follow a sequence similar to the one implemented during the large-scale purchase program in 2013 and 2014. Minutes also noted that participants judged it would be appropriate to continue purchases at least at the current pace and nearly all favoured maintaining the current composition of purchases, while some participants noted that the Committee could consider future adjustments to its asset purchases such as increasing the pace of securities purchases or weighting purchases of Treasury securities toward those that had longer remaining maturities if such adjustments were deemed appropriate to support the attainment of the Committee's objectives.
Furthermore, it noted participants highlighted uncertainty remained high and had pointed to several prominent risks to the economic outlook including the possibility that the vaccine rollout might not proceed as smoothly as anticipated, the potential for adverse developments in Brexit negotiations and the potential for deterioration in already strained sectors, such as those involving small businesses and certain segments of commercial real estate.
US COVID-19 cases +227,692 (prev. +173,915) and deaths +3,541 (prev. +1,800), while a major newswire tally stated US cases rose by at least 256,408 to a total of 21.22mln and deaths rose by at least 4,008 to a total of 361.1k. (Newswires)
California Governor Newsom proposed giving USD 600 cash support to low-income residents and an extension of the state's eviction moratorium past January 31st. (Newswires)
Curevac (CVAC) agreed to an alliance with Bayer (BAYN GY) for the global distribution of COVID-19 vaccines and support in obtaining regulatory approval. (Newswires)
A leaked NHS briefing stated that London will be overwhelmed by COVID-19 in a fortnight. (HSJ)
China's Hebei province capital of Shijiazhuang banned passengers from entering the railway station to stop outbound rail travellers due to COVID-19, while Hebei reported 51 locally-transmitted cases. (Newswires/China Xinhua News)
Asia-Pac bourses traded mostly higher as the region reacted to the Democrats winning control of the Senate which lifted most major indices on Wall St and buoyed cyclicals on anticipation of greater stimulus measures, with US equity futures also underpinned after the earlier siege on Capitol Hill was eventually resolved. Congress was evacuated earlier after pro-Trump protesters stormed buildings and halted the election certification procedure with reports of gunfire and suspected explosive devices in Washington D.C adding to the pandemonium, prompting the activation of the National Guard, although police have since taken back control and Senate has reconvened to certify the Presidential election results with many also blaming President Trump for inciting the insurrection. ASX 200 (+1.6%) and Nikkei 225 (+1.5%) surged with the sectors in Australia mirroring their stateside counterparts whereby cyclicals outperformed and tech suffered, while sentiment in Tokyo stocks also took its cue from global peers which overshadowed weaker wage data and a looming state of emergency decision. Hang Seng (-0.5%) and Shanghai Comp. (-0.3%) were indecisive and swung between gains and losses with heavy pressure in the telecom and tech giants after the NYSE and S&P Dow Jones announced to remove the major Chinese telecom firms and with US reportedly mulling prohibiting Americans from investing in Alibaba and Tencent Holdings. Finally, 10yr JGBs were lower with prices trickling further beneath the 152.00 level amid the gains in stocks, spillover selling from bear steepening in USTs and with the absence of BoJ purchases in the market today.
PBoC injected CNY 10bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 120bln. (Newswires) PBoC set USD/CNY mid-point at 6.4608 vs exp. 6.4604 (prev. 6.4604)
US officials are reportedly considering prohibiting Americans from investing in Alibaba (9988 HK) and Tencent Holdings (700 HK), according to WSJ citing sources. In relevant news, US Treasury updated on the sale, custody and transfer of certain China military stocks in which it affirmed the ban applies to China subsidiaries. (Newswires/WSJ)
NYSE confirmed it is to proceed with the delisting of three Chinese telecom companies in which it will delist China Telecom (728 HK) China Mobile (941 HK) and China Unicom (762 HK) after 09:30EST on January 11th. Furthermore, S&P Dow Jones announced it is to remove ADRs of Chinese telecom firms following similar move by NYSE. (Newswires)
US Secretary of State Pompeo said arrests of over 50 politicians and pre-democracy advocates in Hong Kong is an outrage and US will consider sanctions and other restrictions on those involved, while he added they will explore restrictions against the Hong Kong Economic Trade Office in US. (Newswires)
Price action in FX markets was choppy with the DXY continuing on from the fluctuations seen following the Georgia Senate Run-off results. FOMC minutes were uneventful and did not suggest any imminent changes in asset purchases, although there were some comments on tapering once the Fed’s goals were met which some regional Fed Presidents had already touched upon recently. Focus then turned to the siege on the Capitol by pro-Trump protesters which briefly pressured the greenback, although the moves were retraced again after the situation was later resolved and Congress reconvened to certify the Presidential election results. Elsewhere, EUR/USD oscillated around the 1.2300 level amid the fluctuations in USD, while GBP/USD staggered with pressure exacerbated on a brief retreat to beneath the 1.3600 handle. Elsewhere, USD/JPY bounced off support around 103.00 amid the positive risk tone and antipodeans were rangebound amid mixed Australian data in which trade balance fell short of estimates but building approvals beat forecasts and with CNH indecisive due to continued US-China tensions.
- Australian Trade Balance (AUD)(Nov) 5.0B vs. Exp. 6.0B (Prev. 7.5B). (Newswires)
- Australian Exports (Nov) M/M 3% (Prev. 5%)
- Australian Imports (Nov) M/M 10% (Prev. 1%)
- Australian Building Approvals (Nov) 2.6% vs. Exp. 2.5% (Prev. 3.8%)
Commodities were mixed with WTI crude futures boosted by the positive risk tone amid expectations of greater stimulus following the blue sweep in the Georgia Senate Run-off and following the much larger than expected drawdown in headline EIA crude inventories, to help lift prices above the USD 51.00/bbl level. Gold prices languished following yesterday's aggressive retreat amid rising yields but with the precious metal off worse levels after finding a floor at USD 1,900/oz level, while copper was rangebound amid indecision in its largest purchaser China due to ongoing tensions with the US.
Explosions were heard in the Golan Heights and it was reported that Syria stated it was dealing with Israeli strikes near Damascus. (Newswires)
Treasuries bear steepened after the GA Senate results, seeing the 10-year yield rise above 1% for the first time since last March. By settlement, 2s +0.2bps at 14.3bps, 10s +8.4bps at 104bps, 30s +10.8bps at 181.1bps; futures volumes were very strong; real yields rose, but inflation breakevens were wider due to the larger rise in nominals. The downside in USTs began overnight as results began pointing towards Democrat victories in Georgia, accelerating throughout the session up until later trade, where the 10s and 30s yields hit their peaks of 105.4bps and 183.7bps. The moves mirror the recommendation from analysts ex-ante that yields should rise in the event Dems win the Senate due to the greater expectations of ramped up Treasury issuance to fund a more ambitious fiscal deficit. There was little support from the disappointing December ADP report today either as participants are increasingly happy to look past poor recent data amid vaccines and stimulus seemingly on the horizon; Friday's NFP looms. Meanwhile, yields actually pared from their highs heading into the close, coinciding with a flare of uncertainty across markets as Trump protestors raided the Capitol, although the bid was minor compared to the losses seen throughout. Furthermore, the FOMC minutes have also just been released which showed no indication of imminent WAM extension or more asset purchases, and they also explicitly mentioned the conditions (employment and inflation goals) needed to begin tapering its purchases (something which several fringe Fed members have echoed recently). T-note (H1) futures settled 20+ ticks lower at 137-10+.
US President Trump said he will never give up and will never concede and hoped VP Pence will do the right thing. There were later comments by VP Pence that he has no authority to unilaterally determine votes and that it is not correct that he should be able to accept or reject electoral votes unilaterally, while Senate GOP Leader McConnell separately commented the election was not stolen as President Trump claims and there was no mass election fraud. (Newswires)
US Congress paused the election certification for several hours and Capitol Hill staff were told to evacuate amid chaos after pro-Trump protestors broke through barriers and sieged the Capitol, while shots were fired which was later reported to be from police resulting to the death a woman and police also announced that two pipe bombs were recovered. The chaos prompted the activation of the DC National Guard and police eventually cleared protestors from the Capitol which allowed Congress to reconvene. (Newswires)
US President Trump's GOP allies challenged the electoral college outcome in Arizona which triggered a 2-hour debate, although the Senate later rejected the objection to the Arizona Presidential Election results by vote of 93-6 and the House also voted down the attempt to overturn Biden's victory in Arizona as expected by 303-121 votes. Furthermore, the House Republican challenge to the Michigan and Nevada election results failed in the joint congressional session due to lack of support from a senator, although Republican lawmakers triggered a challenge of the electoral college outcome in Pennsylvania to begin a 2-hour debate although the Senate rejected the objection and Senate GOP Leader McConnell said he does not expect any more votes on Thursday challenging election results. (Newswires)
White House Social Secretary Niceta was among several officials that resigned after the Capitol siege and a source to President Trump said more resignations were expected in the next 24 hours, while other reports noted several top White House officials are considering resigning including National Security Adviser O'Brien and his deputy Pottinger, as well as Deputy Chief of Staff Liddell. (Twitter)
USTR said it determines digital services taxes adopted by Italy, India and Turkey discriminate against US companies and are inconsistent with international tax principles, while it added it is not taking actions regarding tax probes but will continue to examine options and it expects to announce progress on completion of similar probes on other countries. (Newswires)