[PODCAST] US Open Rundown 7th January 2021
- Indices are somewhat mixed, Euro Stoxx 50 U/C and ES +0.2%, as the modestly pro-cyclical start to the European session fizzled out
- DXY has seen a marked recovery from the session low, with the index in proximity to 90.00 at best; with the US 10yr yield at 1.03%, though USTs themselves are relatively unchanged
- The US Congress has certified the 270 electoral college votes required for President-elect Biden to secure the Presidency
- US President Trump says “Even though I totally disagree with the outcome of the election, and the facts bear me out, nevertheless, there will be an orderly transition on January 20th"
- Looking ahead, highlights include US IJC, international trade, ISM Services PMI, Fed's Harker & Evans
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; additionally, banning all residents and vehicles from leaving the city. (Newswires/China Xinhua News)
Japan reports COVID-19 cases in excess of 7,000 for the first time, according to reports. (Newswires)
Moderna (MRNA) COVID-19 vaccine is unlikely to achieve regulatory approval in Japan until May, according to the distributor Takeda. (Newswires)
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 (+1.6%) 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. (+0.7%) 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 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. Subsequently, China's Foreign Ministry says the US will pay a heavy price for its wrongdoings, and urges the US to immediately stop interfering in China's affairs. (Newswires)
The US Congress has certified the 270 electoral college votes required for President-elect Biden to secure the Presidency. Prior to this, 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. (Newswires)
US President Trump says “Even though I totally disagree with the outcome of the election, and the facts bear me out, nevertheless there will be an orderly transition on January 20th". (Twitter)
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)
EU CPI Flash YY (Dec) -0.3% vs. Exp. -0.2% (Prev. -0.3%); Food & Energy Flash YY (Dec) 0.4% vs. Exp. 0.4% (Prev. 0.4%)
- HICP-X Food, Energy, Alcohol & Tobacco Flash YY (Dec) 0.20% vs. Exp. 0.20% (Prev. 0.20%)
- EU Consumer Confid. Final (Dec) -13.9 vs. Exp. -13.9 (Prev. -13.9, Rev. -17.6)
- Economic Sentiment (Dec) 90.4 vs. Exp. 90.0 (Prev. 87.6, Rev. 87.7)
- Retail Sales MM (Nov) -6.1% vs. Exp. -3.4% (Prev. 1.5%, Rev. 1.4%)
- Retail Sales YY* (Nov) -2.9% vs. Exp. 0.8% (Prev. 4.3%, Rev. 4.2%)
ECB's Weidmann says "My fundamental skepticism towards such purchases (re. PEPP) of government bonds is well known. Above all, they carry the risk that the line between monetary and fiscal policy will become blurred"; "In my opinion, however, it is also crucial that the portion that the Eurosystem holds in the outstanding government bonds does not become too large. Otherwise, we run the risk of having a dominant market influence. That could ultimately undermine the market's discipline on public finances." adding "And something else has to be clear, namely that monetary policy as a whole will have to reduce its support if the price outlook dictates it.". (Newswires)
Explosions were heard in the Golan Heights and it was reported that Syria stated it was dealing with Israeli strikes near Damascus. (Newswires)
EU has implemented tariffs on Turkey regarding hot rolled coil-steel, tariffs of up to 7.6%. (Newswires)
European bourses see somewhat of a mixed session thus far (Euro Stoxx 50 Unch), as the Georgia-driven optimism in APAC hours fizzled out in early European trade amid a lack of fresh catalysts ahead of tomorrow's US jobs data, and today's IJC and Services PMI releases, while US equity futures post modest gains with the E-mini S&P matching its intraday record high of 3773.25 as European player entered the fray. Sectors in Europe also vary with no clear risk tone portrayed; though, around the cash open the sector breakdown did favour cyclicals, though the magnitudes were more contained than yesterday. Materials and Industrial names lead the gains whilst Healthcare, Travel and IT lag, and Energy alongside Banks take breathers after yesterday's sizeable gains. Delving deeper into the sectors, Materials track upside in the base metals complex while Travel & Leisure is dented by airliners amid firmer oil prices alongside Ryanair (-2.9%) cutting its FY traffic forecast and significantly dropping its flight schedules from January 21st. As such, sympathy play is seen among peers including easyJet (-3.2%), IAG (-2.9%), Deutsche Lufthansa (-1.5%) and Air France (-1.5%); albeit, for the latter, French press Le Parisie noted that Air France will be provided further state aid this year. In terms of individual movers, Saint Gobain (+7.5%) leads the gains in the CAC after upping its Q4 and H2 2020 forecasts while guiding operating margin at a "record level". German-heavyweight Bayer (+3.3%) lifts the DAX after CureVac (+12.7%) agreed to an alliance with Bayer to get global support in seeking approval for its experimental COVID-19 vaccine and for distribution. On the other end of the spectrum, Delivery Hero (-1.6%) is softer after it launched a cash capital increase via the issuance of around 9.4mln shares, equating to 4.7% of share capital.
USD - The Dollar remains in recovery mode, with the DXY rebounding from sub-89.500 lows, albeit in somewhat quieter and more measured fashion compared to Wednesday’s frantic price action awaiting confirmation of the Georgia run-off results and certification of Electoral College votes that was derailed by the siege on Capitol Hill before resuming to seal victory for President-in-waiting Biden. For the record, FOMC minutes were largely taken in stride, but upcoming IJC, trade and non-manufacturing ISM releases could be more market moving either side of comments from Fed’s Harker and Evans. Meanwhile, after extending losses on the Blue banner of fiscal and deficit excesses among other bearish factors, the Buck seems to have gleaned a degree of traction from the ongoing ramp up in US Treasury yields as 10 year cash inches further above 1% and the index hovers near the top of a 89.949-294 band.
JPY/CHF/AUD - Not much to chose between the Yen, Franc and Aussie in percentage terms at foot of the major leagues as they all continue to fall prey to the Greenback revival. However, the rebounds in Usd/Jpy and Usd/Chf through 103.65 and 0.8840 respectively alongside Aud/Usd relinquishing 0.7800+ status will be welcomed by the respective monetary authorities, especially as Aussie trade data disappointed overnight. Moreover, the BoJ and MoF have stressed the need for market stability and SNB remains fully committed to intervention as Japan and Switzerland battle against the latest spread of COVID-19.
EUR/NZD - The next weakest G10 links or least resilient to the Buck bounce, with the Euro topping out around 1.2350 again and not able to rely on underlying support from 1.2300 option expiries today, while the Kiwi has lost grip of the 0.7300 handle, albeit still holding up a bit better than its Antipodean counterpart as the Aud/Nzd cross stays mostly south of 1.0700.
CAD/GBP - Looming Canadian trade and Ivey PMIs may provide the Loonie with some independent inspiration, but for now Usd/Cad is hovering around 1.2700 and weighing firm crude prices vs relative US Dollar strength, and it’s a similar story for Sterling as Cable pivots 1.3600 assessing pandemic implications for the UK economy, Government finances and BoE policy in addition to external impulses.
SCANDI/EM - Oil’s exertions over Usd 51/brl in WTI terms and close to Usd 55 for Brent are keeping the Nok in the ascendency comfortably above 10.4000 vs the Eur, though the Sek is still struggling to mount a serious test of 10.0000 in wake of a slowdown in Sweden’s services PMI. Elsewhere, the Try continues its impressive comeback even though the EU has sanctioned Turkey, and in stark contrast to the Zar that has been hit even harder by reports about vaccinations not being effective against SA’s new virus strain
Notable FX Expiries, NY Cut:
No obvious catalyst, but after holding above 177.00 and bang on a pre-New Year low at 177.17, Bunds have subsequently breached near term resistance at 177.53 on some charts to probe offers into the next upside technical level at 177.71 and remain on the rebound near their new 177.69 Eurex high irrespective of more anti-PEPP talk from ECB’s Weidmann. Meanwhile, semi-core and periphery paper are also in recovery mode following Spanish and French auctions to leave Gilts lagging a fraction underwater (134.94 at best vs yesterday’s 134.96 Liffe close) and US Treasuries rather flat-footed before a busy pm docket of data and more Fed speakers post-FOMC minutes. However, the highlight for debt markets could well be the 3, 10 and 30 year supply amounts for next week’s auction schedule.
WTI and Brent front month futures consolidate and trade off best levels, as the former briefly topped USD 51/bbl and the latter meanders around USD 54.50/bbl with prices underpinned by the OPEC+ meeting earlier this week and positive risk tone amid expectations of greater stimulus following the blue sweep in the Georgia Senate Run-offs. News flow for the complex has been light in European hours, although from a demand standpoint, Ryanair has cut its FY traffic forecast to 26-30mln passengers vs prev. guided below 35mln and will be significantly cutting its flight schedules from 21st January, thus the jet fuel demand aspect is on watch. Elsewhere, spot gold prices declined yesterday and tested USD 1900/oz to the downside as prices tracked real yields in US trade, with the yellow nursing some of its wounds overnight to stabilise around USD 1920/oz in European trade. Similarly, spot silver briefly dipped below USD 27/oz yesterday but replaced the status in overnight trade. Base metal prices further advanced overnight in a continuation of the Georgia run-off hype and reflationary play. LME copper meanwhile continues to extend gains above USD 8,100/t hitting levels last seen in 2013. Finally, Shanghai stainless steel futures extended gains overnight amid higher nickel feedstock costs coupled with tighter supply woes.
UBS expects Brent to reach USD 60/bbl by H1 2021 and then USD 63/bbl in H2, WTI is expected to trade at a USD 3/bbl discount to Brent. (Newswires)
Australian Building Approvals (Nov) 2.6% vs. Exp. 2.5% (Prev. 3.8%)
Australian Imports (Nov) M/M 10% (Prev. 1%)
Australian Exports (Nov) M/M 3% (Prev. 5%)
Australian Trade Balance (AUD)(Nov) 5.0B vs. Exp. 6.0B (Prev. 7.5B). (Newswires)
USD/JPY: 102.60 (440M), 103.20 (569M), 103.70 (670M), 104.00 (1.2BLN)