[PODCAST] US Open Rundown 3rd June 2021
- European equities and US equity futures trade lower following a mixed APAC lead
- In FX, the DXY probes 90.00 after briefly topping the level, EUR/USD and GBP/USD trade on either side of 1.2200 and 1.4200 respectively
- Russian National Wealth Fund is to exit USD assets with the new structure expected to come into force within a month
- US Senate Republicans and the White House are said to remain hundreds of billions of dollars apart on the spending side in the infrastructure bill
- Fed announced plans to offload its corporate bond and ETF holdings that were purchased last year
- Looking ahead, highlights include US Services and Composite Final PMIs, US ADP, IJC, ISM Services PMI, DoEs, ECB’s Elderson, BoE’s Bailey, Fed’s Bostic, Kaplan, Harker, Quarles
US President Biden is to announce steps to boost COVID-19 vaccinations, according to a White House aide. (Newswires)
FDA asked Johnson & Johnson (JNJ) and AstraZeneca (AZN LN) to assess any potential health risks from minor cross-contamination of their COVID-19 vaccines, as it cannot rule out low-level of contamination of doses being manufactured by Emergent BioSolutions (EBS). (Newswires)
UK government has started negotiations with AstraZeneca (AZN LN) regarding a vaccine variant that can address the South African COVID-19 variant, according to reports citing Health Minister Hancock. (Sky News) Elsewhere, the government is set to maintain tight limits on international travel in the coming weeks, according to sources. (Newswires) UK is struggling to persuade the US to lift the travel ban between the countries, sources stated. UK PM Johnson will likely bring this up with US President Biden at next week's G7. (FT)
India's government ordered 300mln COVID-19 vaccine doses from local manufacturer Biological E, while it noted that the vaccines are likely to be available in the next few months and are currently undergoing Phase 3 clinical trials. (Newswires)
Australian PM Morrison announced the government will provide support for COVID-19 hotspots that are in lockdown for over 7 days and will produce a national framework for lockdowns, while he announced a temporary COVID disaster payment of up to AUD 500/week for each person that meets the criteria but must have less than AUD 10k in liquid assets and cannot be receiving another form of pandemic or income support. (Newswires)
EU governments reportedly reach a deal to allow leisure travel from Japan. (Newswires)
Asian equity markets traded mixed as the region gradually broke free from the mundane tone from Wall Street, where stocks finished relatively flat and participants remained tentative heading closer to Friday’s all-important jobs data. ASX 200 (+0.6%) notched a fresh record high with the advances spearheaded by the commodity-related sectors and in particular, energy names after oil prices extended on best levels since 2018. Nikkei 225 (+0.4%) recovered opening losses with the help of a slight rebound in USD/JPY, as well as reports that Japanese PM Suga is likely to call a snap election in Autumn and that the government is considering a new stimulus package beforehand. Hang Seng (-1.1%) and Shanghai Comp. (-0.4%) were choppy as participants digested the latest Caixin Services PMI data which missed expectations and Caixin Composite PMI also weakened from the prior despite both printing firmly in expansion territory, while continued tensions with the US remained a headwind for Chinese stocks after reports noted that President Biden is to amend former President Trump's China blacklist to target key industries and is likely to sign an order this week that will change the criteria for blacklisting entities to include those that operate in the defense and surveillance technology sectors which could be seen as an escalation from the current order that targets companies owned, controlled or affiliated with the Chinese military. Finally, 10yr JGBs edged mild gains after reclaiming the 151.50 level and following the gradual upside seen in T-notes, but with advances limited by the positive tone in Japanese stocks and with some brief pressure after weaker results across all metrics of the 10yr auction.
Chinese Commerce Ministry says China and the US will work together to resolve certain issues for producers and consumers in the next step, adding that China has restarted normal communication with US and talks with US have been professional, candid and constructive. (Newswires)
PBoC injected CNY 10bln 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 6.3811 vs exp. 6.3798 (prev. 6.3773)
PBoC is expected to increase liquidity injections this month to meet reasonable demand from institutions. (China Securities Journal)
- Chinese Caixin Services PMI (May) 55.1 vs. Exp. 56.2 (Prev. 56.3)
- Chinese Caixin Composite PMI (May) 53.8 (Prev. 54.7)
- Australian Retail Sales (Apr F) M/M 1.1% vs. Exp. 1.1% (Prev. 1.1%)
- Australian Trade Balance (AUD)(Apr) 8.0B vs. Exp. 7.9B (Prev. 5.6B)
- Australian Exports (Apr) M/M 3% (Prev. -2%)
- Australian Imports (Apr) M/M -3% (Prev. 4%)
Japanese PM Suga is likely to call a snap election in autumn following the Olympic and Paralympic games, while the government is mulling compiling a new stimulus package prior to the snap election. (Newswires)
Fed said it will begin to unwind corporate bond holdings purchased last year through an emergency lending facility that was rolled out to calm markets amid the pandemic, while it added the portfolio sales will be gradual and orderly. Furthermore, it stated that sales will aim to curb potential for adverse impact on market functioning and that it intends to offload the full portfolio from the now-closed Secondary Market Corporate Credit Facility by year-end, which is valued at USD 13.8bln. (Newswires)
US Senate Republicans and the White House are said to remain hundreds of billions of dollars apart on the spending side in the infrastructure bill. Biden is looking for roughly USD 1tln in new infrastructure spending, while Capito and Senate Republicans are currently in the USD 250bln range. (Punchbowl News) White House said US President Biden had a constructive and frank discussion with Republican Senator Capito and that they agreed to talk again on Friday, while US Senator Capito said she is encouraged that negotiations on infrastructure continue following her meeting with President Biden. (Newswires)
US Treasury official said G7 finance ministers are expected to endorse the US proposal for global minimum tax and that the meeting will spur momentum for tax negotiations heading into the G20 finance meeting in July. There were separate comments from UK Chancellor Sunak that US proposals on global tax reform appear to satisfy the UK's objectives and any deal must mean appropriate tax for large digital firms in countries where they conduct operations, while he added that G7 are making good progress on tax reform ahead of June 4th-5th meeting and Canada's Finance Minister Freeland also said she supports getting a global corporate minimum tax in place. (Newswires)
Russian National Wealth Fund is to exit USD assets; will invest in EUR (40% share), CNY (30%), XAU (20%), GBP (5%) and JPY (5%); expected to come into force within one month, according to the Russian Finance Minister. (Newswires)
UK Chancellor Sunak notes that the furlough data shows that the scheme is naturally winding down as people get back to work. (Newswires)
The reopening of indoor hospitality in England has failed to lift retail traffic in May with visitor numbers to retail destinations down 27% compared to May 2019 levels. (FT)
EU is reportedly considering a carbon levy on cement, steel and electricity imports. (Newswires)
- EU Markit Comp Final PMI (May) 57.1 vs. Exp. 56.9 (Prev. 56.9) (Newswires)
- UK Composite PMI Final (May) 62.9 vs. Exp. 62.0 (Prev. 62.0)
Europe sees another uninspiring session after picking up a mixed lead from the APAC region overnight, with a tentative tone felt across the market ahead of US ADP, IJC and ISM Services PMI and on the eve of NFP – with US equity futures also lacklustre in early European trade. Sectors are mixed with no overarching theme and with the breadth of the market also narrow. Basic resources narrowly underperform whilst Autos and Oil & Gas are among the better performers. Today's action is primarily seen across individual stocks: Saint Gobain (+3.5%) is firmer after announcing that sales in April and May continued to show good trends, and operating income in H1 2021 exceeded the previous record set in H2 2020. Nokia (+3.2%) is coat-tailing on the meme stock frenzy which sees AMC Entertainment +20% premarket after closing higher by 95% yesterday. BMW (+1.7%) provides the Auto sector with some support amid reports to build 360k EV charging sites in China. Meanwhile, Orange (-0.70%) is pressured following an outage yesterday that left emergency services in limbo. BT (-2.8%) saw a broker downgrade at Deutsche Bank. BASF (-0.2%) failed to garner much traction from source reports that the Co. and its private equity partner CD&R are said to be mulling a USD 5bln sale or an IPO of their water treatment venture.
USD/EUR/GBP - The more fundamentally based traders and analysts may put it down to pure coincidence, but those with heads in the charts will be aware that the DXY recently probed the 21 DMA (at 91.128 today) on return from another retreat through 90.000, while the Euro and Sterling also rebounded off the same support levels vs the Dollar on Wednesday when Eur/Usd and Cable hit lows of around 1.2164 and 1.4112 respectively. However, trade in the currency markets remains rather aimless and directionless overall, with a few notable exceptions, and others have also highlighted seasonal factors beyond the obvious tendency to keep positions relatively tight ahead of the monthly US jobs data tomorrow. One long standing client and well respected contact notes that a new moon arrives in the UK next Thursday and this has been known to align with a firm break outside of ranges that can be confined over mid-Summer in the Northern Hemisphere and Solstice on June 21. Only time will tell of course, but for now the techs, jobbers and short term proponents appear to be influencing price action as the index fades having failed to breach the aforementioned marker convincingly or yesterday’s intraday peak (90.247) within a 90.138-89.885 range, while Eur/Usd is straddling 1.2200 again and Cable is nudging up towards 1.4200 from just shy of 1.4150 at one stage. Ahead, a barrage of US releases and yet more Fed officials are slated to speak following in line or better than forecast Eurozone services and composite PMIs before decent upgrades to the final UK headline readings.
NZD/CAD/AUD - All on the back foot against their US counterpart, but keeping heads afloat of round and psychological numbers at 0.7200, 1.2100 and 0.7700 respectively, as the Kiwi extracts some underlying support from a considerably narrower than forecast 10 month rolling budget deficit, Loonie continues the be cushioned by firm crude prices and Aussie weighs up somewhat mixed trade internals, unrevised final retail sales and PM Morrison’s pledge to provide more COVID-19 fiscal aid.
CHF/JPY - The Franc and Yen are still tracking the Buck and fluctuations in bond yield differentials rather than the general tone of risk sentiment or Swiss and Japanese specifics, with the former anchored around 0.9000 and latter meandering between 109.85-52 having held above 110.00 and waning after multiple attempts to maintain 109.50+ momentum.
SCANDI/EM - Not much traction for the Sek via a marked acceleration in Sweden’s services PMI, but even less for the beleaguered Try in wake of softer than expected Turkish CPI that may alleviate some of the pressure on the CBRT to cut rates as ‘prompted’ by President Erdogan. Conversely, the Cny and Cnh do not look unduly perturbed by Caixin services and composite PMIs missing consensus, but the Mxn and Rub are flagging alongside a dip in oil from fresh cycle highs and with the latter also digesting a rise in Russia’s services PMI ahead of inconclusive comments from the CBR Governor on the prospect of maintaining or hiking the benchmark rate next Friday. In the interim, Russian National Wealth Fund said it is to exit USD assets and will invest in EUR (40% share), CNY (30%), XAU (20%), GBP (5%) and JPY (5%). The new structure is expected to come into force within one month, according to the Russian Finance Minister.
Israeli opposition leader Lapid informed the President that he has a coalition for a government after having completed coalition deals to unseat Netanyahu's government. Furthermore, reports noted that Yamina Party leader Bennett will be Israeli Prime Minister and Lapid will be the alternate PM, while after roughly two years, Lapid will then become PM and Bennett will become alternate PM. (Newswires)
It has been a gradual and steady retreat thus far, but after pulling up at or just short of their midweek session highs, the 10 year benchmarks have extended to the downside and tested underlying bids/support into Wednesday lows. Bunds and Gilts are now hovering a few ticks below 170.00 and 127.00 between 170.20-169.90 and 127.13-89 parameters in keeping with US Treasuries ahead of a busy pm line up and following mostly upbeat Eurozone and UK services/composite PMIs. Note, Challenger lay-offs and the delayed ADP will be watched along with employment components in the final Markit PMIs and services ISM for pointers before the official BLS report tomorrow.
WTI and Brent front month futures have given up the mild gains seen overnight to ultimately trade near the unchanged mark intraday, with the former under USD 69/bbl (vs high 69.40/bbl) and the latter dipping closer towards USD 71/bbl to the downside (vs high 71.99/bbl). News flow has been quiet throughout the European morning, albeit there were reports that the 220k BPD refinery in Tehran that caught on fire yesterday should resume operations later today, whilst other news vendors suggested that another tank exploded - with details still on the light side. Elsewhere, Russia's Lukoil CEO said the Co. is interested in returning to Iran – comments that addressed analysts' concerns about whether Iranian appetite remains among oil firms following the sanctions imposed by the former US President. On that note, US sources yesterday poured some cold water over the optimism expressed by the Iranian President – noting that "core differences still remain on important questions and that real gaps on all three main areas -- nuclear, sanctions and above all sequencing -- still need to be closed." (via WSJ), as opposed to Rouhani's remarks that critical issues with the US have been resolved. Nonetheless, talks resume on June 10th. Note, Russia's Deputy PM Novak also hit the wires, but provided no fresh commentary on OPEC+ policy or the near-term oil outlook. Looking ahead, the oil complex will be eyeing overall sentiment amid a raft of Tier 1 US data whilst the weekly DoEs will be released later at 16:00BST/11:00EST – with headline crude seen drawing down by 2.4mln bbls following yesterday's larger-than-expected Private inventory draw (-5.36mln vs exp -2.4mln). Elsewhere, precious metals remain pressured as the Dollar index briefly reclaims 90.00 and yields clamber off yesterday's lows, with spot gold back under USD 1,900/oz (vs high 1,909/oz) and spot silver sub-28/oz (vs high 28.23/oz). Although spot gold saw some upside on reports that Russia will be dropping USD assets, but the yellow metal failed to reclaim USD 1,900/oz status. Meanwhile, LME copper holding onto its modest gains despite the cautious risk tone and firmer Buck, with some citing the red metal's demand outlook as Automakers announce further entries into the EV and battery markets, whilst BHP's Escondida strikes also provide some underlying support. Overnight, Dalian coke futures notched a three-week high amid dwindling supply and robust demand from mills.
US Private Inventory Data (bbls): Crude -5.36mln (exp. -2.4mln), Gasoline 2.5mln (exp. -1.5mln), Distillate 1.6mln (exp. -1.5mln), Cushing 0.7mln
BHP's Chile Escondida copper production (Apr) -16.5% Y/Y to 85,700 and Chile's Collahuasi copper mine production (Apr) +5.4% Y/Y to 57k tonnes, according to Cochilco. (Newswires)
The 220k BPD refinery in Tehran that caught on fire should resume operations later today, according to Argus' Itayim. (Twitter)
Russia Deputy PM Novak says if the IEA recommendation to stop the funding of new energy projects is followed, oil prices could reach USD 200/bbl; energy companies will increase investments in 2021 and 2022. (Newswires)