[PODCAST] US Open Rundown 22nd February 2021
- European indices and US futures are seeing downside as the NQ -1.2% underperforms in-fitting with the tech sector lagging; while crude remains supported
- US yields continue to extend, 10yr overnight peak 1.3940%, the debt itself is off-lows given the broader tone though still subdued
- Pfizer/BioNTech COVID-19 vaccine is said to be 98.9% effective at preventing COVID-19 deaths and was 89.4% effective at preventing laboratory-confirmed infections
- UK PM Johnson plans to outline the plan for exiting lockdown today with reports suggesting families reunited and schools reopening within weeks
- US Senate Parliamentarians are to determine whether USD 15 minimum wage can happen under reconciliation as early as Tuesday
- Looking ahead, highlights include US National activity index, Fed’s Kaplan, Bowman, ECB’s Lagarde & BoE’s Vlieghe
US CDC reported total COVID-19 cases rose to 27.88mln from 27.81mln and total deaths rose to 496.1k from 494.0k the day before. (Newswires)
It was reported that the Pfizer/BioNTech COVID-19 vaccine is said to be 98.9% effective at preventing COVID-19 deaths and was 89.4% effective at preventing laboratory-confirmed infections according to reports citing a draft publication of the study conducted by the companies and Israel’s Health Ministry. (Newswires)
UK COVID-19 cases +9,834 (prev. +10,406) and deaths +215 (prev. +445), France cases +22,046 (prev. +16,546) and deaths +160 (prev. +183), while Italy cases +13,452 (prev. +14,931) and deaths +232 (prev. +251). (Newswires)
UK PM Johnson’s plans to ease COVID-19 restrictions, which will be unveiled on Monday, will see families reunited and all schools to reopen within weeks. Schools are set to reopen on March 8th, the rule of six for two households to meet up will return on March 29th. Non-essential retail will likely reopen in April, whilst May could see the reopening of pubs, restaurants and hairdressers. (Newswires/Guardian/Telegraph) Johnson will address parliament at 1530GMT and hold a press conference at 1900GMT
UK Health Secretary Hancock said early data shows vaccines lead to a reduction in transmissions and there are signs hospitalizations are declining much more sharply than during the first wave. Hancock also stated that we do not have confidence yet whether the vaccine is as effective against Brazil and South African variants although they think cases of the South African variants in Britain are shrinking, while Hancock earlier noted that clinical trials are underway to determine if children should get COVID-19 vaccinations (Newswires)
UK is to significantly increase the pace of its COVID-19 vaccination program in which it targets offering shots to everyone aged 50+ by mid-April and to all adults by the end-July. (Newswires)
Italy's regional governors are to request the national government increase efforts to find more COVID-19 vaccine doses and they also seek new parameters for the tightening of restrictions in parts of the country. (Newswires/Ansa)
New Zealand PM Ardern announced that Auckland alert level will be lowered to level 1 from midnight today. (Newswires)
Sanofi (SAN FP)/GlaxoSmithKline (GSK LN) - Cos have initiated a new Phase 2 study and are to work on a new COVID-19 vaccine for variants; if results are positive, then Phase 3 will be underway in Q2 2021 and vaccines expected in Q4 2021. (Newswires)
Asian equity markets began the week indecisively heading closer to month-end as participants digested a continued increase in yields and with weekend newsflow not providing much to spur sentiment in either direction. ASX 200 (-0.2%) traded lacklustre with strength in mining stocks offset by a subdued picture across the broader market and as attention remained dominated by a slew of earnings results. Nikkei 225 (+0.5%) outperformed after bouncing off the 30k level with Tokyo exporters cheering the recent currency weakness and KOSPI (-0.9%) initially benefitted from strong trade data which showed exports and imports during the first 20-days of February surged by 16.7% and 24.1% Y/Y, respectively, before gradually giving up its gains. Hang Seng (-1.1%) and Shanghai Comp. (-1.45%) were choppy with a bout of early pressure seen in the mainland after the PBoC opted to drain liquidity once again and maintained its Loan Prime Rates as expected. There were also reports last week which underscored the ongoing friction between US and China and potential for this to spillover to the rare earths trade, although mainland markets briefly pared their losses as participants reflected on comments from Chinese Foreign Minister Wang Yi who stated that China always advocates win-win cooperation and seeks dialogue not confrontation with the US. Furthermore, Wang added that both sides must respect each other and hopes the US will adjust policies, remove unreasonable tariffs on Chinese goods and abandon suppression of Chinese tech progress, while he also called on the US to stop smearing China's Communist Party and stop conniving with separatist forces. Finally, 10yr JGBs were lower and briefly broke beneath the 151.00 level as they tracked the declines in T-notes and with yields resuming their recent ascent, while the BoJ were in the market today although this was only for a total of JPY 250bln of bonds spread across 10yr+ maturities, floating rate and inflation-indexed bonds.
PBoC injected CNY 10bln through 7-day reverse repos at rate of 2.20% for a net daily drain of CNY 40bln. (Newswires) PBoC set USD/CNY reference rate at 6.4563 vs exp. 6.4600 (prev. 6.4624)
- PBoC 1-Year Loan Prime Rate 3.85% vs exp. 3.85% (prev. 3.85%)
- PBoC 5-Year Loan Prime Rate 4.65% vs exp. 4.65% (prev. 4.65%)
China Foreign Minister Wang Yi said US and China should handle their own affairs while working together for humanity and stated that the root cause of bilateral difficulties was the prior US administration taking measures to suppress and contain China, while he suggested China and the US must respect each other and not interfere in each other's internal affairs. Wang also stated China is always committed to protecting human rights with Xinjiang and Tibet shining examples of China's progress on human rights given the regions' socio-economic development and noted that China always advocates win-win cooperation, as well as seeks dialogue not confrontation. Furthermore, he urged the US to stop smearing China's Communist Party and stop conniving with separatist forces, while he hopes the US will adjust policies and remove unreasonable tariffs on Chinese goods, as well as abandon the suppression of Chinese tech progress. (Newswires)
China is to enhance its capability to secure supplies of grains and agricultural products, in which it will diversify imports of agricultural products and support companies’ integration into the global supply chain of agricultural products. (Xinhua)
Chinese leaders are set to curb the influence of Hong Kong opposition groups in selecting the leader of HK. (WSJ)
House Budget Committee begins prepping the coronavirus bill today under reconciliation rules; intends to vote later in the week, FBN's Pergram. (Twitter)
US Senate Parliamentarians are to decide as early as Tuesday on whether the USD 15 minimum wage is allowed to occur under reconciliation. (Politico)
Trump intends to deliver the message this weekend that he is the presumptive 2024 nominee for the Republican party. (Axios)
UK Chancellor Sunak is reportedly set to hike UK corporation tax in the Budget announcement on March 3rd in an effort to raise an additional GBP 12bln of government revenue, while other reports noted that Sunak is preparing to even out the North-South divide by providing tax relief for heavy industry which would favour towns and cities in Midlands and the North of England where more heavy industries are located. Furthermore, experts also warned that Sunak could target pensions tax relief as early as the next Budget to shore up the nation's finances. (CITY A.M./Telegraph/Express)
UK is to widen its support for the fishing industry in which financial assistance will be made available to more businesses in the industry after being impacted by post-Brexit issues and weaker demand from the pandemic. In other news, UK and France agreed to ease COVID-19 requirements for truck drivers in which they will no longer be required to take a COVID-19 test if they spent less than 48 hours in the country. (Newswires)
UK could reportedly declare 'water wars' with the EU by restricting imports of mineral water and several food products from the bloc in retaliation to Brussels' blockade on shellfish from Britain. (Telegraph)
German Finance Minister Scholz warned the federal budget for next year will be a “challenge” and vowed not to reduce investment or welfare spending. (Newswires)
ECB is reportedly to adopt a less aggressive approach to climate change, opting to lean on improved financial modelling and other measures instead of green asset purchases. (FT)
German Ifo Expectations New (Feb) 94.2 vs. Exp. 91.8 (Prev. 91.1; Rev. 91.5)
- Current Conditions New (Feb) 90.6 vs. Exp. 89.0 (Prev. 89.2)
- Business Climate New (Feb) 92.4 vs. Exp. 90.5 (Prev. 90.1; Rev. 90.3)
German Chancellor Merkel is said to be seeking a four-stage pan to ease lockdown-related measures, according to the Bild; a working group should work out concrete steps from Tuesday. (Newswires)
Italy has extended the ban on regional travel to March 27. (Ansa)
IAEA Chief Grossi said there was a good and reasonable result from talks with Iran and that it was agreed that the IAEA will continue necessary verification and monitoring activities up to 3 months, although there will be less access and there will no longer be snap inspections. (Newswires)
Iran Foreign Minister Zarif said Iran’s decision to end snap inspections by the IAEA does not violate the 2015 nuclear deal and stated that Iran has nothing to hide nor is it seeking nuclear weapons. Zarif also stated that talks with US will begin when all sides fulfil their obligations under the nuclear deal and that US is addicted to sanctions but Iran will not yield to the pressure, while he added that President Biden has not changed the previous administration’s maximum pressure policy on Iran. (Newswires)
There were also comments from national security adviser Sullivan that the US started communicating with Iran over detained US citizens, although an Iranian news agency noted that there has been no direct communication and that messages instead have been exchanged through the Swiss Embassy in Tehran. (Newswires)
US President Biden’s administration singled out a Russian ship for violating US prohibitions on constructing the Nord Stream 2 pipeline, which paves the way for a fresh round of sanctions, while national security adviser Sullivan stated that the US will respond to the Russian-suspected SolarWinds hack in “weeks, not months”. (Newswires)
UK Foreign Secretary Raab is today to call on UN Investigators to access Uighur camps in Xinjiang, China due to alleged human rights abuses, and to investigate violations in Myanmar, Belarus & Russia. (FT)
Iranian Foreign Ministry says they are considering the proposal from the EU regarding the US' participation in the nuclear deal, calling on the US to lift all sanctions and pressure. (AJA Breaking)
Military columns from the Libyan city of Mistrate are being directed towards the Libyan capital of Tripoli. (Sky News Arabia)
European equities kicked the week off on the back foot (Euro Stoxx 50 -0.6%) as the losses seen during APAC trade reverberated into the region and accelerated upon the cash open. The downbeat sentiment comes against the backdrop of the surge in yields, whilst the growing confidence in the global recovery - namely in the US - is prompting increased chatter of when the Fed may begin to think about tapering its QE programme. That being said, bourses clambered off worst levels following the constructive German Ifo Survey which topped forecasts across all metrics. Nonetheless indices failed to sustain this momentum and remain in negative territory at the time of writing, while US equity futures trade subdued with the tech-led NQ (-1.2%) underperforming vs its peers. Sectors are all in firm negative territory with no clear risk bias. Tech underperforms in tandem with the NQ futures – whilst it’s worth highlighting that the UK competition watchdog warned Big Tech names of incoming antitrust probes, whereby the Chief Executive of the CMA said they plan to start a number of probes into internet giants in the coming months, including Amazon (-1.2% pre-mkt) and Google (-1.3% pre-mkt), according to the FT. Energy is the outperformer as prices in the complex remain elevated amid recovery hopes coupled with OPEC+ support. Similarly, losses in the Materials sector remain limited amid the surge in base metal prices, with LME copper topping USD 9,000/t. Financials also fare better than some of its peers amid the high yield environment. Delving into the breakdown, Travel & Leisure tops the charts amid further positive vaccine updates – with the Pfizer/BioNTech COVID-19 jabs said to be 98.9% effective at preventing COVID-19 deaths and was 89.4% effective at preventing laboratory-confirmed infections according to reports citing a draft publication of the study conducted by the companies and Israel’s Health Ministry. Separately, potential bullish impetus for the sector could also emanate from UK PM Johnson’s plans to ease COVID-19 restrictions, which will be unveiled later today and will see families reunited and all schools to reopen within weeks. Furthermore, IAG (+1.2%) could also be supporting the sector as the Co's British Airways reached two financing agreements that will increase total liquidity by GBP 2.45bln, although dividend will be paid by British Airways before end-2023. In terms of other movers and shakers, Airbus (-0.5%) is faring slightly better than the CAC (-0.8%) after a Boeing (-3.4% pre-mkt) 777-200 jet scattered debris over a residential area near Denver after one of its engines failed on take-off. The plane had an engine manufactured by Pratt & Whitney who are owned by Raytheon Technologies (-3% pre-mkt). Safran (-1.1%) and Rolls-Royce (-1.3%) trade lower in sympathy. Elsewhere, Volkswagen (-0.3%) and Porsche (-0.7%) succumb to the broader sentiment amid comments by Porsche’s CEO suggesting that the unit is targeting cost cuts of around EUR 10bln by 2025 vs prior view of EUR 6bln and that talks are ongoing about which route is best to take with its Bugatti brand, with a decision expected in H1. Finally, Continental (-0.3%) opened lower after it said it will not propose a 2020 dividend as it has pencilled in a net loss for the year.
A Boeing (BA) 777-200 jet has scattered debris over a residential area near Denver after one of its engines failed on take-off. (BBC) Japan requests airlines avoid flying Boeing 777 planes with Pratt and Whitney 4000 engines in and over its territory until further notice, while the US FAA issued emergency directive for immediate or stepped up inspections of Boeing 777 planes. (Newswires) Note, Raytheon (RTX) owns Pratt and Whitney. Boeing are -3.5% in the pre-market
UK competition watchdog warns Big Tech of coming antitrust probes. Chief Executive of the CMA said they plan to start a number of probes into internet giants in the coming months, including Amazon (AMZN) and Google (GOOG). (FT)
Disney (DIS) is increasing local language productions in some European countries, looking to broaden the appeal beyond families for Disney+. (FT)
DXY/CHF - Although US Treasury yields have slipped from overnight highs near 1.40% in 10 year notes and 2.20% for the long bond, the Dollar has started the new (EU) week in better shape than it ended last Friday, and it appears to be regaining safe-haven appeal as stock markets get more anxious about the sharp/ongoing rise in long term rates. Indeed, the index rebounded firmly from worst levels between 90.211-578 parameters having held just above prior session and week lows (90.172 and 90.117 respectively), and could garner more momentum from a technical perspective if it can breach the pre-weekend high and/or 21 DMA that are in close proximity (at 90.655 and 90.662). Conversely, the Franc is floundering across the board irrespective of latest weekly Swiss bank sight deposit balances indicating no intervention. Instead, Usd/Chf and Eur/Chf have rebounded through 0.9000 and 1.0900 amidst a marked reduction in IMM speculative longs, while the cross is also elevated due to relative Euro resilience on specific factors.
JPY - The Yen is also underperforming and feeling the brunt of the global debt rout that has seen UST-JGB spreads diverge again, with Usd/Jpy back above 105.50 and upcoming month end flows relatively neutral per one large US bank that highlights the strong Nikkei performance that could prompt upside in Eur/Jpy and Gby/Jpy into Friday.
GBP/AUD/NZD/EUR/CAD - All unwinding gains vs the Greenback, but the Pound recovering from a pull-back through 1.4000 ahead of UK PM Johnson’s blueprint for lifting lockdown and a speech from BoE’s Vlieghe, the Aussie holding firmly above 0.7850 following another ramp in the 10 year yield and Kiwi keeping sight of 0.7300 in wake of S&P’s NZ ratings upgrade (to AA+) and PM Ardern lowering Auckland’s alert level to 1, awaiting retail sales data. Elsewhere, the Euro has benefited to an extent from an upbeat German Ifo survey as all key metrics beat expectations and the institute noted that travel companies have turned a tad more optimistic for the first time in more than 12 months. However, the Loonie is lagging due to the downturn in broad risk sentiment rather than anything else, albeit still gleaning some support from firm crude prices within a 1.2580-1.2654 range.
SCANDI/EM/ETC - The aforementioned risk-off mood is adversely affecting the Nok more than the Sek in advance of comments from Riksbank’s Floden, with the former nearer the top of a 10.3300-10.2170 band and latter pivoting 10.0300 inside 10.0530-10.0135, while the Try is straddling 7.0000 vs the Usd after an improvement in Turkish manufacturing sentiment and BofA lifted its 2021 GDP estimate to 4.6% from 4.1%. Nevertheless, the Cnh and Cny have held up better than EM peers after the PBoC maintained 1 and 5 year LPRs, as expected, and set a firmer midpoint for the onshore Yuan overnight, while the apparent insatiable hunger for crypto currencies rages on as Bitcoin reached a new ATH just shy of Usd 58.5k before waning.
S&P raised New Zealand sovereign rating to AA+; Outlook Stable from AA; Outlook Positive, while Fitch affirmed Australia at AAA; Outlook Negative and affirmed Turkey at 'BB-'; Outlook Revised to Stable from Negative. (Newswires)
The core Eurozone debt future has extended its recovery from worst levels to trade up at 174.38 (+20 ticks vs -60 ticks at the Eurex trough) and the top of a key resistance area that covered a Fib level (50% retracement of last Friday’s retreat from 174.70 to 173.98 at 174.34)) and declining trend-line (174.37), but not cleanly through to entice more buyers or trip stops that could have propelled it towards 174.50 and another upside technical target (174.60) ahead of the pre-weekend session peak. However, the fact that it is back above par is a feat in itself given the encouraging German Ifo survey and bounce in the Dax towards 14k from sub-13.8k at one stage. Indeed, its semi and peripheral peers are lagging, while Gilts petered out at 130.12 (+4 ticks on the day) and the 10 year T-note remains midway between 135-14+/135-01 parameters ahead of the US open, national activity index, Fed speakers either side of ECB President Lagarde and the Dallas Fed manufacturing business index.
German Foreign Minister Maas will speak with the EU Foreign Affairs council regarding new Russian sanctions due to Navalny, stating he is in favor of beginning the preparation of sanctions. (Twitter)
WTI and Brent front-month futures are firmer but off best levels, in-fitting with the deterioration seen in broader sentiment. The complex remains elevated by underlying fundamentals still being present such as OPEC+ support and vaccination progress. Moreover, Goldman Sachs brought forward its forecast and sees Brent crude reaching USD 70/bbl in Q2 and USD 75/bbl in Q3. The analysts updated expectations for global oil demand and look for 100mln bpd by late-July vs August, while its base case for the March OPEC+ meeting is for a 500k bpd increase in quotas in April and for Saudi Arabia to reverse its 1mln bpd voluntary cut starting April. Such an upgrade perhaps provided some underlying support to prices in APAC and early European trade. WTI resides just under USD 60/bbl (vs high USD 60.12/bbl) and Brent mid-USD 63/bbl (vs high USD 64.00/bbl). Other risk events on the table today include UK PM Johnson addressing Parliament and laying out the UK’s lockdown roadmap ahead. Elsewhere, precious metals are seeing notable upside during early European hours with spot gold USD 1,795/oz, showing gains of ~1%, testing the USD 1,800/oz range the Dollar influence prevails, and spot silver supports this narrative at 27.50/oz gains of 0.7%. Turning to base metals, LME copper follows the broader market sentiment and has moved off best levels, but remains with gains of around 0.9%. LME copper topped USD 9,000/t for the first time since September 2011 in part due to the weaker Dollar. Copper is regarded as a recovery gauge, with the reflationary backdrop keeping the commodity propped up. Furthermore, demand for the red metal is expected to ramp up as tech and EVs see a boom, with the base metal a key contributor to wiring. Finally, Japan's crude steel output fell 3.9% Y/Y, dropping for the eleventh consecutive month as the COVID-19 pandemic continues to dent demand.
Exxon is restarting its Beaumont, Texas refinery (366k bpd) and Valero was said to restart the Corpus, Christi Texas refinery East Plant (115k bpd). (Newswires)
Iraq’s Oil Minister announce the country halted its prepayment deal for oil with a Chinese company due to oil price increases, while it was separately reported that Algeria named Mohamed Arkab as the new Oil Minister following a government reshuffle. (Newswires)
Goldman Sachs forecasts Brent crude to reach USD 70/bbl in Q2 and USD 75/bbl in Q3. Furthermore, Goldman Sachs brought forward its expectations for global oil demand to reach 100mln bpd to late-July from August, while its base case for the March OPEC+ meeting is for a 500k bpd increase in quotas in April and for Saudi Arabia to reverse its 1mln bpd voluntary cut. (Newswires)
Equinor (EQNR NO) says its 400k BOEPD Veslefrikk oil field in the northern Norwegian North Sea is planning for shutdown in the Spring of 2022. (Newswires)
Platts is to add WTI crude to dated Brent basket for cargoes loading in July 2022, sources state. (Newswires)