Original insights into market moving news

[PODCAST] European Open Rundown 17th May 2021

  • Asian equities traded somewhat mixed and only partially benefitted from last Friday’s rebound on Wall St.
  • Chinese industrial production printed inline with estimates and retail sales disappointed but still showed respectable growth
  • In FX markets, the DXY heads into the European open firmer, EUR/USD pulled back from 1.2150 and GBP/USD sits on a 1.40 handle
  • WTI crude futures were uneventful overnight, whilst gold prices remained firm above USD 1,850/oz
  • Looking ahead, highlights include US NY Fed Manufacturing, BoE's Haldane, Vlieghe, Tenreyro, Fed's Bostic, Clarida, Kaplan


UK PM Johnson said on Friday that we do not need to delay the reopening and announced the acceleration of second doses to over 50s which will be eight weeks after the first dose. PM Johnson also commented we have seen further clusters of the Indian variant and that there are some important unknowns but noted that this variant is more transmissible. Furthermore, he added we will face hard choices if the variant is significantly more transmissible although the good news is we have no evidence that vaccines are less effective, while he suggested the government would impose measures if there is a threat to overwhelm the NHS and that we cannot say for certain regarding the final easing of the lockdown in June. (Newswires)

UK Health Secretary Hancock said the government will decide on June 14th regarding whether to go ahead with the final lifting of COVID-19 restrictions as the spread of the Indian variant threatens to delay the end of lockdown measures set for June 21st. Furthermore, Hancock also stated that people should "certainly not" go on holiday to countries such as Spain, Italy, France & Greece amid the risk posed by mutant strains of COVID-19. (Newswires/FT/Telegraph)

Portugal’s Tourism Minister said they expect the EU to support the reopening of borders to tourists from the UK following Portugal’s recommendation to reopen borders to British tourists. In other news, French Junior Minister for European Affairs Clement Beaune stated that a health travel pass in the EU will be available from around June 20th. (Newswires/FT)

Turkey will relax its virus restrictions from Monday as new cases decline following a 3-week lockdown, offering a glimmer of hope for the summer tourist season. (Newswires)

Taiwan reported a new record of 206 daily domestic cases and tightened COVID-19 measures including closing down movie theatres and entertainment venues. It was also reported that the Ministry of Finance urged investors to remain calm following a spike in domestic COVID-19 cases and stated that Taiwan’s economic fundamentals remained sound. Furthermore, the Taiwan Premier said demand for export orders are still strong and production activities remain normal, while the Premier said they have asked relevant departments to make preparations to stabilize stock and FX markets. (Newswires)


Asian equities traded somewhat mixed and only partially benefitted from last Friday’s rebound on Wall St. where the major indices gained as weaker than expected US Industrial Production and Retail Sales data supported the narrative for prolonged Fed accommodation, although further pandemic-related concerns and fresh restrictions have left some regional markets in the lurch. ASX 200 (+0.3%) was kept afloat by outperformance in gold miners after the recent advances in the precious metal and with energy also underpinned following the government announcement of a AUD 2.3bln support package to keep Australia's two remaining refineries open which are being run separately by Ampol and Viva Energy. Nikkei 225 (-1.4%) failed to hold on to opening gains with sentiment subdued by the recent widening of the state of emergency to three additional prefectures lasting through to month-end and with some of the biggest movers driven by earnings releases, while the TAIEX (-3.7%) slumped 3% at the open due to a record increase of domestic cases and tightened COVID-19 measures. Hang Seng (+0.5%) and Shanghai Comp. (+1.0%) were positive after the PBoC injected funds through a CNY 100bln MLF operation but with gains capped as participants digested mixed Chinese activity data in which Industrial Production printed inline with estimates and Retail Sales disappointed but still showed respectable growth. Finally, 10yr JGBs were supported by the weakness in Japanese stocks and following similar upside in T-notes, while the results of the 10yr inflation-indexed auction from Japan were inconclusive with a higher b/c than previous but lower accepted prices.

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% and CNY 100bln via 1-year MLF with rate at 2.95%, while it will also sell CNY 10bln in 3-month and CNY 15bln in 1-year bills in Hong Kong this Friday. (Newswires) PBoC set USD/CNY mid-point at 6.4307 vs exp. 6.4318 (prev. 6.4525)

  • Chinese Industrial Production (Apr) Y/Y 9.8% vs. Exp. 9.8% (Prev. 14.1%)
  • Chinese Retail Sales (Apr) Y/Y 17.7% vs. Exp. 24.9% (Prev. 34.2%)
  • Chinese Urban Investment YTD (Apr) Y/Y 19.9% vs. Exp. 19.0% (Prev. 25.6%)
  • Chinese China House Prices (Apr) Y/Y 4.8% (Prev. 4.6%)

China's securities regulator launched a probe into alleged stock manipulation and vowed to crack down on illegal acts to protect investors' interests. (Global Times)

Senior Chinese sources told SGH Macro that they hope the talks between USTR Tai and her Chinese counterpart may be held by the end of this month. (SGH Macro Advisers)


UK reportedly faces a labour shortage due to the pandemic and Brexit which has fuelled an exodus of foreign workers, while experts suggested that this puts the recovery at risk. (The Guardian)

UK PM Johnson’s EU adviser Frost said that Brussels should stop “point-scoring” and work with the UK to implement the Brexit trade deal, while it was also reported that Frost stated the Northern Ireland Protocol was “dead in the water” and is said to have privately set a deadline of July 12th to make the system work. Furthermore, Lord Frost warned that the EU needs to rethink Northern Ireland rules as the new leader of the DUP has vowed to not rest until the rules are torn up. (Newswires/Telegraph/FT)

New DUP leader Poots said they will try to “strip away” parts of the Brexit trade agreement covering Northern Ireland amid the increasing tensions in the region. (Newswires)

  • UK Rightmove House Price Index (Apr) M/M 1.8% (Prev. 2.1%)


In FX markets, the DXY attempted to recoup some of the losses that were triggered by last Friday's positive risk tone. There were also comments from Fed officials including Mester who expects volatility in data month-to-month but sees the recovery continuing, while Kaplan noted it is going to take a while to resolve supply-demand imbalances in the labour market and reiterated that as it becomes clearer that we are emerging from the pandemic and making substantial progress, the Fed should begin to discuss tapering QE. EUR/USD held on to most its recent gains although is off better levels after pulling back from resistance at 1.2150 and GBP/USD also marginally retreated after stalling near the 1.4100 handle despite the UK moving into the 3rd stage of the lockdown exit roadmap which will allow the resumption of indoor hospitality services and reopening of theatres from today. USD/JPY and JPY-crosses were choppy alongside the somewhat mixed risk appetite, while antipodeans softened as the greenback gradually clawed back some recent losses and following the mixed activity data releases from China.


Commodities were kept afloat although the price action in WTI crude futures was uneventful around the USD 65.50/bbl level amid a lack of bullish drivers for the energy complex and mixed risk appetite, while an increase in the US oil rig count and ongoing COVID-19 concerns in Asia, added to the overnight constraints for oil. Gold prices remained firm and extended on its advances to above the USD 1850/oz level with the precious metal unfazed by the marginal recovery in the greenback and copper benefitted after Chinese Industrial Production printed inline with forecasts and news that union workers at BHP's Spence and Escondida mines in Chile rejected a contract offer which increases the prospects of a strike. (Newswires)

Baker Hughes US rig count (w/e 14th May): Oil +8 at 352, Nat Gas -3 at 100, Total +5 at 453. (Newswires)

China April natural gas output rose 7% Y/Y to 16.9bcm, aluminium output rose 12.4% Y/Y to a new monthly record of 3.35mln tonnes and April steel crude output rose 13.4% Y/Y to a record 97.85mln tonnes. (Newswires)

BHP (BHP LN) union workers at the Spence and Escondida copper mines in Chile rejected the labour contract offer, raising the risk of a strike. (Newswires)

Vale CEO said iron ore is not on the cusp of a new supercycle and expects demand to flatten out after a couple of years of tightness. (FT)


Israel PM Netanyahu said the Gaza campaign is continuing with all force and will take time, while he added that Israel wants to exact price from the “aggressor” and restore deterrence. PM Netanyahu also commented that Israel will do whatever it takes to restore order and hopes it doesn’t take long. Furthermore, he stated that the building housing AP and Al Jazeera offices was a perfectly legitimate target and that civilian casualties from Israeli strikes are because Hamas is attacking Israel from civilian neighbourhoods. There were also comments from the Israeli military that civilian deaths from air strikes in Gaza on Sunday were unintentional and noted that it had targeted a military tunnel system that collapsed, causing homes to collapse as well. (Newswires)

US President Biden said the US will continue to engage Israelis and Palestinians to work towards a sustained calm, while it was also reported that China said the US blocked a joint statement regarding the Middle East after a US Security Council emergency session on Sunday where members condemned the current violence but failed to reach a unified position. (Newswires/WSJ)

UN Secretary-General Guterres told the Security Council that hostilities in Israel and Gaza are utterly appalling and that fighting must stop immediately, while the UN is actively engaging all sides towards a ceasefire and calls for them to allow mediation efforts to intensify and succeed. There were also comments from UN Middle East Envoy Wennesland that the international community must take action now to enable parties to step back from the brink. (Newswires)

Saudi Foreign Minister condemned Israel for flagrant violations of Palestinian rights and forcible evictions of Palestinians from homes in east Jerusalem, while he also called US Secretary of State Blinken to discuss the developments in Palestine and the region. Furthermore, there were separate reports that Jordan’s King stated that diplomatic contacts are underway to halt Israel’s military campaign. (Newswires)

Iranian talks were said to have very little progress on all core issues and a senior source noted "nothing is really happening" although the constructive atmosphere remains, while others noted there has been some progress but very much on the details not the core issues and that it is hard to see any agreement before the IAEA-Iran deadline on May 21st, according to WSJ citing sources. (WSJ)


Treasuries richen as traders put refunding auctions in the rear-view, but close off best levels amid surge in consumer inflation expectations. By settlement, 2s -0.8bps at 0.151%, 5s -1.6bps at 0.821%, 7s -2.3bps at 1.288%, 10s -2.8bps at 1.640%, 20s -2.0bps at 2.251%, 30s -3.1bps at 2.356%; TYM1 volumes were average and below recent sessions. 5yr TIPS -0.3bps at -1.884%. 10yr TIPS -3.4bps at -0.902%. 30yr TIPS -5.8bps at -0.014%. EFFR and SOFR unch. at 6bps and 1bp. USTs were rangebound for most of the APAC session before catching a bid as European players arrived for the day, extending into the US session. No particular updates had been driving the bid out of Europe, with traders citing this week's supply now in the rear window and no disaster auctions seen, keeping participants somewhat relaxed heading into next week's 20-year bond auction. There was little reaction seen in wake of the disappointing April Retail Sales print. But, the disappointing University of Michigan prelim. survey for May was offset by another chunky rise in the consumer inflation expectations survey, with the 1-year ahead forecast at its highest in a decade, seeing the belly of the curve lead the pull-back higher in yields amid yet another inflation data point to keep woes present. Yields then hovered sideways into the futures settlement, failing to find direction unlike the ramp in stocks, oil, and commodities. Rates markets are now looking to next week's 20-year bond auction, otherwise, inflation will continue to be a hot topic and Fed speak around it; a further pull-back in commodities amid the China clampdown would serve as a headwind for bears. Tier 1 US data releases are on the light side, with Markit Flash PMIs the highlight, while April housing starts, building permits, and existing home sales will also print. T-note (M1) futures settled 7 ticks higher at 132-13.

Fed's Kaplan (2023 voter; hawk) said it is going to take a while to resolve supply-demand imbalances in the labour market, while he suggested they are watching carefully if the imbalances feed into higher inflation and is committed to anchoring inflation expectations at 2%. Kaplan reiterated that as it becomes clearer that we are emerging from the pandemic and making substantial progress, the Fed should begin to discuss tapering QE and reiterated worries about excesses, as well as imbalances in the economy and housing market. (Newswires)

White House reiterated on Friday that President Biden is open to ways to pay for infrastructure, beyond what he has proposed. White House also said that it expects the GOP counterproposal on infrastructure by Tuesday and that user fees for an infrastructure plan would violate Biden's pledge not to raise taxes on those making under USD 400k per year. (Newswires)