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[PODCAST] European Open Rundown 18th January 2021

  • Asian equity markets began the week cautiously after Friday’s losses on Wall St. Mixed Chinese GDP added to the tentative mood for stocks
  • Chinese GDP Q/Q disappointed, Y/Y growth beat, while Industrial Production also exceeded expectations but was offset by softer Retail Sales
  • In FX, the DXY saw choppy price action overnight, EUR/USD trades sub-1.21, GBP/USD sits below 1.36
  • UK Chancellor Sunak is reportedly planning to start increasing taxes in the March budget
  • German Chancellor Merkel’s CDU party voted to choose North Rhine-Westphalia premier Armin Laschet
  • Today's calendar sees a lack of tier 1 releases. US markets are closed for MLK Day
  • The desk will shut at 18:00GMT/13:00ET and re-open the same day for the beginning of Asia-Pac coverage at 22:00GMT/17:00ET

CORONAVIRUS UPDATE

US CDC reported total COVID-19 cases rose to 23.65mln from 23.44mln and total deaths rose to 394.5k from 390.9k the day before, while a major newswire tally stated that US cases increased by at least 162,166 to 23.74mln and deaths rose by at least 1,775 to 397.3k. (Newswires)

US President-elect Biden unveiled his COVID-19 vaccine plan which includes increasing vaccine availability at pharmacies and would use the Defense Production Act to boost supplies, as well as launch mobile clinics. (Newswires)

Pfizer (PFE) said it shipped more than 15mln doses of COVID-19 vaccine across the US as of Friday and expects no interruptions in shipments from its Michigan plant and looking to produce 2bln doses worldwide by end of 2021. In other news, an Italian official said Pfizer decided to cut deliveries of vaccine shots to Italy by 29% starting from Monday, while BioNTech (BNTX) said its facility in Puurs, Belgium will experience a temporary reduction in the number of vaccine doses delivered in the upcoming week but will be back to the original schedule of EU deliveries from 25th January. (Newswires)

UK COVID-19 cases +38,598 (prev. +41,346) and deaths +671 (prev. +1,295), while Italy cases +12,545 (prev. +16,310) and deaths +377 (prev. +475). (Newswires)

UK PM Johnson said on Friday that they are seeing some tentative early signs that the pressure may be slightly easing in London hospitals, while Chief Medical Officer Whitty said he hopes peak infections has passed in London but noted death peak is in future and peaks are approaching in next week or 10 days regarding new hospital admissions. (Newswires)

UK Foreign Secretary Raab said he hoped some lockdown restrictions can begin to be lifted by early spring so the country can eventually "get back to normal" and hopefully those decisions will be able to be made by March, while he thinks the government will end up phasing through a tiered approach in exiting the national lockdown. (Sky News)

UK government is to offer COVID-19 vaccines to people over 70 and those who are clinically extremely vulnerable from Monday. In relevant news, UK ministers ordered to devise plans for a new crackdown at Britain’s borders aimed at tackling new variants of the coronavirus, in which officials have been told to prepare for setting up quarantine hotels for those arriving in Britain and to use GPS and facial-recognition technology to check that people are staying in isolation. (The Times)

Austria extended COVID-19 lockdown restrictions with a target to begin easing measures starting February 8th, while it noted that the catering and tourism sector will not reopen in February and will decide by mid-Feb if they can reopen in March. (Newswires)

Japanese PM Suga said they are determined to lead the fight against COVID-19 to overcome difficulties, while he added they are preparing to start vaccinations by late next month and will exhaust all measures to protect the medical system. (Newswires)

South Korea’s health ministry extended social distancing restrictions for an additional 2 weeks and designated a special quarantine period from February 2nd. (Newswires)

A majority of the board at Brazil’s health regulator ANVISA voted to approve emergency use of AstraZeneca (AZN LN) and Sinovac (AVA) COVID-19 vaccines. (Newswires)

ASIA

Asian equity markets began the week cautiously after Friday’s losses on Wall St where participants sold the news following President-elect Biden’s stimulus announcement. Mostly weaker than expected data from US where there is an extended weekend due to Martin Luther King, Jr. Day and mixed Chinese GDP added to the tentative mood for stocks. ASX 200 (-0.8%) finished lower with the declines in the index led by weakness in mining names and financials after recent similar underperformance in those sectors stateside, while Nikkei 225 (-1.0%) was subdued as exporters suffered the ill-effects of a stronger currency and with reports suggesting the spike in COVID-19 infections has taken a toll on PM Suga’s public support and increases the risk of him being replaced by the party for this year’s election. KOSPI (-2.3%) was the worst hit amid a slump in its largest weighted stock Samsung Electronics amid the sentencing of Samsung heir and de facto chief Jay Y. Lee who was handed a jail term of 2 years and 6 months for bribery. Conversely, Hang Seng (+0.6%) and Shanghai Comp (+1.0%) are positive but with upside initially limited as participants digested mixed economic growth data from China whereby GDP Q/Q disappointed at 2.6% (exp. 3.2%) but Y/Y growth topped forecasts at 6.5% (exp. 6.1%), while Industrial Production also beat expectations but was offset by softer Retail Sales. US-China tensions continued to linger after the Trump administration notified some Huawei suppliers that it is revoking their licences to sell to the Chinese tech firm and the US also announced fresh sanctions against six individuals on Friday linked to the mass Hong Kong arrests. Finally, 10yr JGBs were lower with prices pressured at the open on reports the BoJ is to consider a proposal to allow wider fluctuations to the 10yr JGB yield target in which it may allow fluctuations of more than 0.2% on either side according to Japanese press, although the report didn’t reference the timing for when it will consider such a move and analysts don’t expect this to be for the upcoming meeting later in the week.

PBoC injected CNY 2bln via 7-day reverse repos at a rate of 2.20% for a net daily drain of CNY 3bln. (Newswires) PBoC set USD/CNY mid-point at 6.4845 vs exp. 6.4873 (prev. 6.4633)

US President Trump’s administration notified some Huawei suppliers that it is revoking their licences to sell to the Chinese tech firm and issued notices to reject other applications seeking licences to supply to Huawei. (Newswires)

US announced fresh sanctions against six individuals on Friday linked to the mass Hong Kong arrest. (Newswires)

  • Chinese GDP (Q4) Q/Q 2.6% vs. Exp. 3.2% (Prev. 2.7%)
  • Chinese GDP (Q4) Y/Y 6.5% vs. Exp. 6.1% (Prev. 4.9%); 2020 GDP rose 2.6% Y/Y
  • Chinese Industrial Production (Dec) Y/Y 7.3% vs. Exp. 6.9% (Prev. 7.0%)
  • Chinese Retail Sales (Dec) Y/Y 4.6% vs. Exp. 5.5% (Prev. 5.0%)

UK/EU

UK Chancellor Sunak has drawn up plans to provide almost 6mln people with a one-off GBP 500 benefit payment in an attempt to avert a Tory revolt over universal credit. It was also reported that Sunak is planning to start increasing taxes in the March budget to plug the black hole in the national finances as officials model a long-term plan to replace both council tax and stamp duty with a national property tax, while he is expected to announce an extension of government support, including the furlough and business loan schemes, as well as an extension to stamp duty cuts and an increase in benefits. (The Times)

A handful of ruling Tory party lawmakers are to vote against UK PM Johnson's plan to end the emergency increase to benefits for around 6mln people that was put in place due to COVID-19 and which the PM plans to end in March. (FT)

Industry sources warned that EU's refusal to grant UK financial services access to the single market could force Britain to diverge from EU rules. (The Telegraph)

ECB is reportedly threatening additional capital requirements on banks that continue to ignore calls to curb leveraged loan risks. (FT)

EU is to announce plans to curb reliance on USD in a post-Trump era to reduce vulnerability to US sanctions and other financial risks, according to a draft European Commission policy paper. (FT)

German Chancellor Merkel’s CDU party voted to choose North Rhine-Westphalia premier Armin Laschet as its new leader which signals the centre-right party intends to maintain Chancellor Merkel’s moderate course after her expected departure in the fall, while the new CDU leader is either expected to run for Chancellor is September or a have great influence on who will.(Politico/Guardian)

Italian PM Conte's allies are optimistic he can survive the Italian senate vote and added that at least 12 more senators may back the premier. (Newswires)

Italy’s government sees debt increasing to 158.5% of GDP this year vs. 155.6% target set in September, as the new estimates includes the recently announced EUR 32bln stimulus plan. (Newswires)

Fitch affirmed UK at 'AA-'; Outlook Negative and affirmed Russia at BBB-; Outlook Stable. (Newswires)

  • UK Rightmove House Price Index (Dec) M/M -0.9% (Prev. -0.6%)
  • UK Rightmove House Price Index (Dec) Y/Y 3.3% (Prev. 6.6%)

FX

In FX markets, the USD gained in early Asia trade as its major counterparts suffered especially commodity-linked currencies amid a bout of volatility in the metals complex and with CAD underperforming on reports US President-elect Biden is planning to cancel the Keystone XL Pipeline permit through an executive action on his first day in office. However, the greenback then pared its gains with price action contained by the holiday closure in US and reports EU is planning to curb reliance on USD in the post-Trump era to reduce vulnerability to US sanctions. EUR/USD languished beneath 1.2100 amid recent political turbulence for the bloc after the Netherlands government resigned last week due to the child welfare fraud scandal and with Italy’s PM Conte facing a confidence vote later today, although Germany provided a more stable picture after the ruling CDU party voted to choose North Rhine-Westphalia premier and continuation candidate Laschet as its new leader which signals an intention to maintain Chancellor Merkel’s policies when her term ends later in the year. GBP/USD was also relatively unchanged beneath resistance at 1.3600 with the currency not helped by prospects of an extended lockdown after comments from Foreign Secretary Raab who hoped some lockdown restrictions can begin to be lifted by early spring. USD/JPY and JPY-crosses were pressured with EUR/JPY falling to a 7-week low which provided some early credence to Mitsubishi UFJ’s trade of the week recommendation to sell EUR/JPY with a target of 123.00, while antipodeans were indecisive alongside similar choppy price action in commodities and after the mixed Chinese growth data.

COMMODITIES

WTI crude futures traded subdued to test USD 52.00/bbl to the downside amid the cautious mood, absence of US buyers and continued lockdown concerns. Metal prices saw a bout of volatility in early trade with gold slumping over USD 20/oz in early trade despite a lack of news catalysts and which some analysts attributed to stops being triggered on a breach of support near the USD 1825/oz, although the downside was also evident in silver and copper prices before the complex fully pared all the losses and then proceeded sideways in the aftermath of the mixed Chinese GDP data and an indecisive greenback.

Baker Hughes US Rig Count (w/e Jan 15th): Oil +12 at 287, Nat Gas +1 at 85, Total +13 at 373. (Newswires)

US President-elect Biden is planning to cancel the Keystone XL Pipeline permit through executive action on first day in office, according to CBC News. It was later reported that the Keystone XL oil project is pledging zero carbon emissions in which it will be powered by renewables and is to be built by labor unions in an effort to avert cancellation by the incoming Biden administration. (CBC/WSJ)

GEOPOLITICAL

Iran’s Revolutionary Guards tested long-range missiles and drones against land and sea targets in a fourth large-scale military show of force in two weeks amid tensions with US. (Newswires)

Russian authorities detained Kremlin critic Navalny after he flew back to Russia from Germany for the first time following last year’s poisoning. It was later reported that President-elect Biden’s incoming National Security Adviser Sullivan called for Russia to immediately release him, while France and Italy also called for Navalny to be released. (Newswires)

US

Treasuries bull-flattened after a dismal set of economic data and position closing into the long weekend. By settlement, 2s -1bps at 13.7bps, 10s -3.4bps at 109.5bps, and 30s -2.5bps at 184.9bps; futures volumes were slightly softer than recent averages; real yields were lower, although mostly in short TIPS. The disappointing December retail sales print didn't provide much sway as investors continue to look past recent weak data. However, yields saw some spikey behaviour into the University of Michigan survey. But buyers soon re-emerged to bring yields back down to session lows in latter trade. On the week, yields were modestly lower from where they started (1.11% for 10s and 1.88% for 30s), where a combination of dovish Fed speak (core members walking back tapering sentiment) and successful Treasury auctions abated supply glut concerns, while growing awareness to the hurdles to more fiscal stimulus has also walked back some reflationary bets; a closing of some tactical steepener bets is to be expected after the recent outperformance. T-note (H1) futures settled 9+ ticks higher at 136-27+.

US President-elect Biden plans actions during his first 10-days including reverting to the Paris climate accord and directives focusing on measures to mitigate the COVID-19 pandemic and its economic impact such as an extension of student loan forbearance past January 31st and extending the moratorium on evictions and foreclosures, while he will also roll-out a 100-day masking challenge and impose mandates requiring masks in federal buildings and interstate transportation, according to his Chief of Staff Ron Klain. (Newswires)

US President-elect Biden’s Treasury Secretary nominee Yellen is expected to affirm at the Senate Confirmation Hearing on Tuesday that the US is committed to market-determined exchange rates and make it clear the US is not seeking a weaker dollar. (Newswires)

Wall Street Democrat sources said they believe President Elect Biden will be forced to scale back spending plans and increases in minimum wage because of a divided government and opposition from moderate Democrats, according to FBN's Gasparino. (Fox)

Fed's Kashkari (non-voter) said wage growth is an important measure in determining if the Fed is on track to reach its inflation goal, while he added it is absolutely fine if inflation exceeds 2% and that unemployment is a deeply flawed measure. (Newswires)

Fed's Rosengren (non-voter) said President-elect Biden's stimulus proposal is big but appropriate and we need to do more to support the economy, while he added we cannot continue spending trillions and expects fiscal policy to get tighter as the economy recovers, but suggested we are far from that. Furthermore, Rosengren stated he is not particularly focused on any one Treasury yield, rather the economic impact yields have and said the increase so far is not enough to change policy. (Newswires)

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