[PODCAST] US Open Rundown 28th May 2021
- Equities are mildly positive this morning in a contained/apprehensive move ahead of data and into month-end
- FX has for the most part been contained with the DXY holding 90.00 and JPY sub-110.00 with OpEx in focus but attention on the Yuan after a strong PBoC fix
- ECB's Schnabel says a premature removal of ECB support would be a great mistake though financing conditions remain favourable; welcomed the recent yield increase
- Salesforce beat on top and bottom lines and are bolstered pre-market while BA is hindered on WSJ sources re. 787 Dreamliner delays
- Washington is said to be close to providing the necessary commitments to the UK with regards to digital taxation; G7 deal possible next week
- Looking ahead, highlights include the US PCE, Chicago PMI, the US Budget Proposal
US has unexamined intelligence to pore over regarding the origins of the virus. (NYT)
Johnson & Johnson (JNJ) is said to be near agreement with US FDA for production in Baltimore, Maryland plant which could allow production of 60mln doses of COVID-19 vaccine. (WSJ)
California Governor Newsom announced a USD 116.5mln vaccine incentive program which aims to get more Californians vaccinated by June 15th whereby all Californians that are aged 12+ who are at least partially vaccinated will be eligible for cash prize draws, while prizes include 10 prizes of USD 1.5mln, 30 winners of USD 50k and 2mln will receive a USD 50 prepaid or grocery card. (Newswires)
Japanese PM has official extended its State of Emergency in regions including Tokyo to June 20th. (Newswires) As expected
Ireland's government is reportedly set to consider relaxing international travel restrictions from July 19th. (RTE)
Asian equity markets traded mostly higher as the region improved upon the slight positive tilt seen on Wall St. and US equity futures also marginally extended on the prior day’s late ramp-up on what was otherwise a choppy session following mixed data releases and heading into month-end. ASX 200 (+1.2%) was underpinned by continued outperformance in the mining-related sectors amid strength in underlying commodity prices and with risk appetite also spurred by potential M&A reports including BetMakers Technology's proposal to acquire Tabcorp’s wagering and media business for AUD 4.0bln, while KKR and Domain Holdings partnered on a surprise AUD 3bln bid for PEXA that boosted shares in Link Administration which the largest shareholder in PEXA with a 44% stake. Nikkei 225 (+2.1%) outperformed as exporters cheered the recent currency weakness and with the BoJ said to consider a 6-month extension to the September deadline for the pandemic-relief program as soon as the next policy meeting on June 17th/18th. Hang Seng (+0.1%) and Shanghai Comp. (-0.2%) were mixed with focus in Hong Kong on JD Logistics which jumped over 10% on its debut and which was the 2nd largest IPO for the city so far this year, although the mainland lagged following the recent strengthening of the CNY to a 5-year high against a basket of currencies and amid lingering tensions with the US after the bipartisan bill to counter China received enough support to advance in the US Senate. Finally, 10yr JGBs tracked the recent declines in T-notes with demand hampered by the outperformance of Japanese stocks which pressured prices in the 10yr benchmark beneath 151.50, while the central bank’s presence in the market for over JPY 1.1tln of JGBs heavily concentrated in 3yr-10yr maturities did little to spur a rebound.
PBoC injected CNY10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.3858 vs exp. 6.3790 (prev. 6.4030)
BoJ is reportedly to consider a 6-month extension to the September deadline for the pandemic-relief program as soon as the next rate review in June. (Nikkei)
- Tokyo CPI (May) Y/Y -0.4% vs. Exp. -0.5% (Prev. -0.6%)
- Tokyo CPI Ex. Fresh Food (May) Y/Y -0.2% vs. Exp. -0.2% (Prev. -0.2%)
- Tokyo CPI Ex. Fresh Food & Energy (May) Y/Y -0.1% vs. Exp. -0.1% (Prev. 0.0%)
Nissan Motor (7201 JT) will tie up with a Chinese-owned battery maker, investing over JPY 200bln to build new battery plants for electric vehicles in Japan and UK as early as 2024 - aiming for total capacity of 700k EVs per annum. (Nikkei)
Washington is said to be close to providing the necessary commitments to the UK with regards to digital taxation. G7 sources suggested a deal is potentially doable next week. (Times)
ECB's Schnabel says a premature removal of ECB support would be a great mistake though financing conditions remain favourable; the economy has reached a turning point and the short-term outlook has improved. Recent yield increase is a factor of the improved outlook "precisely what we would expect and want to see". PEPP will end when its goal of offsetting the negative pandemic impact on inflation has been achieved. We are not seeing this yet; envelope is quite large, does not impose restrictions on decisions and it is not an appropriate time to discuss an increase. (ECB) Link to full remarks
EU Consumer Confidence Final (May) -5.1 vs. Exp. -5.1 (Prev. -5.1, Rev. -8.1)
- Economic Sentiment (May) 114.5 vs. Exp. 112.1 (Prev. 110.3, Rev. 110.5)
- Services Sentiment (May) 11.3 vs. Exp. 7.5 (Prev. 2.1, Rev. 2.2)
BoE's Haldane says the BoE should be prepared to reduce stimulus. (Newswires) Haldane is leaving the MPC after the June meeting and he dissented the Gilt remit vote in May, calling for it to be reduced by GBP 50bln
UK PM Johnson is mulling plans to impose carbon tax on imports from polluting industries in a move that could protect British farmers from foreign competitors. (Telegraph).
- UK Lloyds Business Barometer (May) 33 (Prev. 29)
US State Department said it is concerned by recent developments along the Armenia, Azerbaijan border, including the detention of several Armenian soldiers by Azerbaijani forces. (Newswires)
EU's Foreign Policy Commissioner Borrell says Russia block EU flights was a big disturbance and there is a risk of an escalation. (Newswires)
Equities in Europe hold onto the modest gains seen at the cash open and some more (Euro Stoxx 50 +0.5%), following on from mixed trade seen across APAC and on Wall Street, with the tone somewhat tentative ahead of US PCE and looming month-end. As a reminder, US and UK markets will be closed on Monday due to public holidays. US equity futures meanwhile have been grinding higher since the start of European trade despite a distinct lack of news flow as markets approach the summer period, whilst global central bank officials continue to stress the need for current levels of support and hold the view that inflationary pressures are transitory and not secular. Back to Europe, sectors are mostly positive with the earlier cyclical bias fading to a more broad-based/themeless picture with some idiosyncratic outliers. Banks top the chart amid the favourable yield environment, whilst Autos and Basic resources lag, with the latter seeing renewed pressure as China continues to jawbone commodity prices. Individual movers are relatively scarce, but SAP (+0.3%) has ultimately failed to glean much tailwind from its US peer Salesforce rising +4% post-earnings. Airbus (+2.4%) meanwhile remains firm following yesterday’s production upgrade alongside a positive broker move by JPM today.
Boeing (BA) 787 Dreamliner deliveries could be further delayed as the FAA requests additional information on their plans to address existing production issues, according to sources. (WSJ) -1.0% in the pre-market
Dell Technologies Inc (DELL) Q1 22 (USD): Adj. EPS 2.13 (exp. 1.61), Revenue 24.5bln (exp. 23.4bln) -0.2% in the pre-market
Salesforce.com Inc (CRM) Q1 2022 (USD): Adj. EPS 1.21 (exp. 0.88/0.57 GAAP), Revenue 5.96bln (exp. 5.89bln) +4.7% in the pre-market
ECB's Villeroy says there is no need to maintain, after next year, pandemic regulatory easing measures for banks including on capital buffers; dividend restrictions should be lifted from September 2022. (Newswires)
NZD/AUD/USD - Far from all change or hero to zero, as the Kiwi remains firmly on track to record healthy gains vs the Greenback and Aussie on diverging Central Bank policy outlooks following the hawkish RBNZ shift to signal a September 2022 OCR lift-off on Wednesday. However, Nzd/Usd has retreated through 0.7250 from around 0.7317 at best and Aud/Nzd has bounced just over 50 pips from a whisker above 1.0600 amidst what appears to be profit taking and a technical correction more than anything fundamental given that Aud/Usd remains heavy after failing to retain hold of the 0.7800 handle and subsequently not sustaining momentum beyond the half round number below. Meanwhile, the Buck is also struggling to build on recovery gains even though month end factors are mildly supportive/constructive, especially against the Yen and US Treasury yields are off recent lows ahead of potentially key data and surveys, like PCE inflation, advanced trade and Chicago PMI, on top of President Biden’s Budget presentation. Indeed, the DXY has not extended much further having regained 90.000+ status before waning again within a 90.163-89.987 band and falling fractionally short of the w-t-d high posted yesterday.
EUR/GBP/JPY- The Euro got a somewhat unexpected boost from ECB’s Schnabel delivering a more upbeat assessment of the Eurozone economic recovery, and crucially no concern whatsoever about the recent leg-up in yields as in her view this reflects the improving outlook and is desirable. She also believes that financing conditions remain favourable, in contrast with distinctly dovish midweek commentary from Panetta and others of late. Hence, Eur/Usd is still keeping 1.2200 in sight and averting attempts to test/trigger stops that are anticipated to be sitting circa 1.2160 (double bottom from last week), though may find it hard to revisit 1.2250+ peaks as heavy option expiry interest resides between 1.2200-10 (1.6 bn), 1.2215-25 (1 bn) and 1.2265-75 (1 bn). Similarly, Sterling has continued its revival from worst levels in wake of hawkish BoE vibes from Vlieghe on Thursday, albeit with less impetus via Haldane who is also due to leave the MPC shortly and already dissented this month in favour of a Gbp 50 bn APF Gilt reduction – see 10.00BST and 9.27BST posts on the Headline Feed for more. Nevertheless, Cable has peered over 1.4200 again and Eur/Gbp remains sub-0.8600. Elsewhere, the Yen may actually rescued from a worse fate by option expiries at the 110.00 strike (2 bn) as its strives to contain losses and arrest a slide into month end, and with some market observers also flagging the prospect that Japanese exporters could be buyers at the level for hedge purposes to offset the tide of rebalancing flows.
CHF/CAD - Both on the backfoot against their US counterpart, with the Franc not drawing much encouragement from a significantly stronger than expected Swiss KOF indicator as it hovers near 0.9000, while the Loonie seems equally unimpressed with a firm revival in crude prices, but may be cushioned by unusually large option expiries running off at the 1.2100 strike later (1.5 bn for the NY cut).
SCANDI/EM - Changes afoot at the Riksbank and Norges Bank as the Swedish Government proposes a wider economic remit to include production and employment along with inflation, but one less rate setter, while its Norwegian peer has appointed a new Deputy Governor. However, the Sek and Nok have hardly noticed amidst mixed macro releases, like a fall in Swedish retail sales and Q1 GDP downgrade vs uptick in Norwegian consumption and lower than forecast nsa jobless rate. Conversely, the Cnh and Cny have hit even higher multi-year pinnacles off a stronger and 6.4000+ midpoint fix for the onshore Yuan relative to the Dollar overnight, and despite all the strains between China and the US. At the other end of the spectrum, the Try continues to tumble and only stopped sliding ahead of 8.5950 following a decline in Turkish economic sentiment and the CBRT Governor conceding that credit growth is likely to slow further.
Major FX Expiries, NY Cut:
- EUR/USD: 1.2185 (461M), 1.2200-10 (1.6BLN), 1.2215-25 (1BLN), 1.2250-60 (913M), 1.2265-75 (1BLN)
- USD/CAD: 1.2000 (640M), 1.2050 (420M), 1.2100 (1.5BLN), 1.2150 (612M)
- USD/JPY: 108.50-60 (915M), 110.00 (2BLN), 110.50 (1BLN)
There could be some technical grounds and pre-weekend/May 31 positioning behind the bounce in bonds from deeper intraday troughs rather than anything new or apparent in terms of fundamentals, as Bunds, Gilts and US Treasuries have not sustained momentum beyond 169.90 vs 169.53, 127.09 vs 126.82 and 131-25 vs 131-20 respectively. Hence, the recovery has been somewhat half-hearted, if not dead cat awaiting the pm agenda that could be more market-moving given the first post-US CPI release of PCE price metrics that the Fed prefers to monitor as an inflation gauge, plus advance trade and Chicago PMI that represents a proxy for ISM next week, albeit not always reliable. Also to come, President Biden’s Budget presentation, and all before US markets close early for Memorial Day and are shut alongside their UK peers for the 2nd of this month’s Bank holidays.
WTI Jul and Brent Aug trade relatively flat with an upside bias, in line with the cautiously positive risk tone, with the former on either side of USD 67/bbl (vs 66.74-67.45 range) and the latter just north of USD 69/bbl (vs 69.01-64 range). News flow for the complex has remained light after the gains seen yesterday as Biden’s USD 6tln 2022 budget proposal energised the bulls, with eyes still on the Iranian nuclear deal discussions – with the noise surrounding this much quieter this week vs the last. “However, if and when there is a breakthrough, we would expect it to lead to some immediate downward pressure on the market. We expect any weakness to be short-lived, however, given that the medium-term fundamentals are still supportive.” ING suggests, whilst also citing the upcoming summer driving season. Elsewhere, spot gold and silver have been uneventful and mildly pressured by the firmer Buck and yields. Spot gold has dipped back below USD 1,900/oz with the level acting as overnight resistance. Turning to base metals, Dalian iron ore continued to recover overnight from its recent losses, but the focus remains on Beijing’s commodities crackdown with China’s Securities Journal re-running similar reports to last week regarding the crackdown of speculatively driven price fluctuations. Further, sources note that several Chinese commodity firms pared back their bullish futures bets at the request of the government. LME copper has been subdued but holds onto its USD 10,000/t.
Goldman Sachs said the fundamental path for key commodities including oil, copper and soybeans remains oriented towards incremental tightness in H2 with scant evidence that supply response is enough to derail the bull market, while it added that the bullish thesis in commodities is not about Chinese speculators nor is it growth in Chinese demand, but is about scarcity and a DM-led recovery. (Newswires)
China's NDRC will not be adjusting fuel prices for the current period; "Relevant departments in various regions should increase market supervision and inspection, severely investigate and punish non-implementation of national price policies". Separately, China's Securities Journal says they are paying great attention to fluctuations in commodity prices recently; China notes of further cubs over speculation and firmly cracks down on irregularities in the futures market. (Newswires)
Supply of five North Sea crude oil grade to average 755k BPD in July vs 600k in June. (Newswires)