[PODCAST] US Open Rundown 7th June 2021
- European bourses are contained in tentative and quiet trade during ECB & Fed blackout periods while US futures are faring marginally worse; ES -0.2%
- The DXY is essentially unchanged with peers somewhat mixed while core debt errs lower and yields are raised but still sub pre-NFP levels
- President Biden rejected the Republican infrastructure proposal although still plans to meet with Republican Senator Capito today
- Treasury Secretary Yellen suggested that a slightly higher interest rate environment would be positive
- G7 Finance Ministers reached an agreement to commit to a global minimum tax of 15%
- Looking ahead there is a lack of Tier 1 events
UK PM Johnson has reportedly been warned not to "move the goalposts" regarding the final phase of the lockdown exit on June 21st after MPs became concerned that the criteria for COVID-19 unlocking have changed. (Telegraph)
UK Health Secretary Hancock stated that it is too early to make a final decision on lifting the lockdown and that cases are rising slightly but hospitalizations are flat. Hancock added that they have seen a significant impact of the Delta COVID variant over the past month and the advice he has is that the Delta variant is 40% more transmissible, while he also stated that they are absolutely open to not reopening on June 21st if that is what is required. (Newswires)
In the UK, it was reported that second vaccinations were being stepped up in a bid to end COVID-19 restrictions and that over-25s will be offered first doses from next week as the Government looks to beat virus variants. (Sky News/Telegraph)
German Health Ministry spokesperson expects 80% of adults to be vaccinated by mid-July. (Newswires) Germany has previously outlined plans to offer one-dose to all adults by end-September
China approved the emergency use of Sinovac Biotech’s COVID-19 vaccine for children to become the first major country to grant approval for vaccinations of children as young as three. (Newswires)
Asian equity markets traded cautiously as the initial tailwinds from last week’s US jobs report eventually faded amid softer than expected Chinese trade data. ASX 200 (-0.2%) was choppy as the strength in tech and mining names was offset by underperformance in financials and with NAB among the worst performers as it faces an anti-money laundering investigation by AUSTRAC for potential serious and ongoing breaches. Nikkei 225 (+0.3%) rallied at the open and reclaimed the 29k level but then wiped out most of the gains amid the recent counterproductive moves in the local currency and broad cautious tone. Hang Seng (-0.5%) and Shanghai Comp. (+0.2%) were lacklustre as participants digested the latest Chinese trade data which mostly missed expectations and following punchy rhetoric from US officials on China including Secretary of State Blinken who said the Biden administration will get to the bottom regarding the origins of COVID-19 and that the US will hold China accountable, while US Trade Representative Tai commented that the US-China trade relationship has “significant imbalance” and that the Biden administration is committed to levelling it. The declines in Hong Kong were led by casino names after reports that Macau is to block non-residents entering from Guangdong beginning June 8th, although the world’s largest pork producer WH Group is at the other end of the spectrum with firm gains following the announcement of a USD 1.93bln share buyback. Finally, 10yr JGBs held on to Friday’s after-hour gains amid a surge in T-notes following the NFP miss but with further upside in Japanese bonds capped as Japanese stocks just about remained afloat and with the absence of the BoJ’s Rinban operations today, while the Aussie 10yr yield was lower by about 6bps after it tracked recent downside in global peers and with the RBA also conducting its regular QE operations.
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 6.3963 vs exp. 6.3943 (6.4072)
Chinese Trade Balance (CNY)(May) 296.0B vs. Exp. 276.0B (Prev. 276.5B)
- Chinese Exports (CNY)(May) Y/Y 18.1% vs. Exp. 19.5% (Prev. 22.2%)
- Chinese Imports (CNY)(May) Y/Y 39.5% vs. Exp. 44.2% (Prev. 32.3%)
Chinese Trade Balance (USD)(May) 45.53B vs. Exp. 50.5B (Prev. 42.86B)
- Chinese Exports (USD)(May) Y/Y 27.9% vs. Exp. 32.1% (Prev. 32.3%)
- Chinese Imports (USD)(May) Y/Y 51.1% vs. Exp. 51.5% (Prev. 43.1%)
Chinese FX Reserves (Monthly) (May) 3.222Trl vs. Exp. 3.208Trl (Prev. 3.198Trl)
- Gold reserves (end-May): 62.64mln/oz (prev. 62.64mln/oz)
US Trade Representative Tai commented that the trade relationship between US and China has “significant imbalance” and that the Biden administration is committed to levelling it. Separately, China's Foreign Ministry says they firmly oppose the US Senators visit to Taiwan and have lodged solemn representations. (Newswires)
US Secretary of State Blinken said President Biden's administration will get to the bottom regarding the origins of COVID-19 and stated that the US will hold China accountable. (Axios)
Japanese government draft economic blueprint stated they will strive for fiscal reform and take flexible policy action without hesitation, while the government will seek to return the economy to pre-COVID levels with a determination to avoid a return to deflation and aims to achieve a demand-driven economic recovery by prodding firms to boost productivity and raise wages. (Newswires)
G7 Finance Ministers reached an agreement to commit to a global minimum tax of 15%, according to the communique. There were also comments from US Treasury Secretary Yellen who urged G7 and others to provide more fiscal support for the recovery and investments to fight climate change, as well as inequality. Yellen also stated that after the G7 tax deal, the Biden administration continues to pursue a minimum 21% domestic corporate tax rate and timing remains to be worked out regarding taxing multinationals. (Newswires)
El Salvador President is planning to introduce legislation that will make it the world’s first sovereign nation to adopt bitcoin as legal tender. (CNBC)
According to forecasts, in Mexico, the National Electoral Institute projected the ruling coalition of President Lopez Obrador to win between 265 and 292 out of 500 seats, thus falling short of the two thirds majority required to make amendments to the constitution. (Newswires)
US President Biden rejected the Republican infrastructure proposal although still plans to meet with Republican Senator Capito on Monday. Newswires)
US Treasury Secretary Yellen suggested that a slightly higher interest rate environment would be positive for society and the Fed, while she added that monetary policy can handle inflation risks and that President Biden’s USD 4tln spending plan is beneficial for the US even if it spurs an increase in inflation. (Newswires)
US Energy Secretary Granholm said the House will begin the mark-up of an infrastructure bill on Wednesday, with or without Republican support. (CNN)
UK PM Johnson is reportedly set to face a rebellion today from over 30 Tory MPs which are seeking to force the PM to reverse the GBP 4bln annual reduction to the country's aid budget. (FT)
US President Biden is said to increase the pressure on UK PM Johnson regarding Northern Ireland and will warn him this week at the G7 summit not to renege on the Brexit agreement regarding Northern Ireland. (The Times)
UK Brexit Minister Frost commented that the UK takes no lectures on where it is implementing the Northern Ireland Protocol and suggested that the EU must revisit the Northern Ireland protocol. Frost also stated that the EU needs a new playbook for dealing with neighbours and that time is running out with progress needed soon in which he hopes it can come this week. (FT)
EU Ambassador to the UK Joao Vale de Almeida said there is no alternative to the Northern Ireland Protocol and that commitments should be respected, while he added that the UK needs to be constructive in negotiations regarding Northern Ireland and that there are limits to the EU’s capacity to accept behaviour that is not coherent with past commitments. Furthermore, he stated that levels of trust are low right now and that they urgently need to re-establish a minimum level of trust which he is confident they can achieve. (Newswires)
EU diplomats said they preferred working with Cabinet Minister Gove and blamed Lord Frost for politicising disagreements over the NI Protocol, which prevents a hard border on the island of Ireland, while it was separately reported that Brexit European leaders are drawing up plans to impose trade sanctions on Britain and accused UK PM Johnson of “taking them for fools” over the Northern Ireland protocol. (Telegraph/The Times)
Pubs in Britain continued to sell fewer pints in the first week that venues reopened indoor hospitality with a 20% slump in trade compared with pre-pandemic levels. (Guardian) Reports note that the UK is seeing Labour shortages in the retail sector amid a hiring crisis that has impacted the day-to-day running of pubs, bars and restaurants. (Telegraph)
German Chancellor Merkel’s CDU won 36% (prev. 29.8%) of votes in the Saxony-Anhalt state election, while far-right party AFD won 22.5% (prev. 24.3%) and Linke party won 11% (prev. 16.3%), according to an exit poll. (Newswires)
French Finance Minister Le Maire said France’s economy will return to pre-COVID level by Q1 2022 and reiterated 5% growth target for this year. (Newswires/JDD)
German Industrial Orders MM (Apr) -0.2% vs. Exp. 1.0% (Prev. 3.0%, Rev. 3.9%)
Yemen’s Houthis stated that they only struck a military camp in Marib City, Yemen on Saturday although the Yemen government stated that an explosion from a Houthi strike near a petrol station killed at least 17 people. (Newswires)
IAEA notes that technical consultations with Iran may not yield promising results; Concerned about uranium traces discovered at undeclared Iranian sites; via Al Arabiya. (Twitter) The next negotiating round commences June 10th
Hamas threatens new escalation if settlers hold Jerusalem rally; via AFP; Israel police cancelled the planned "flags march" in Jerusalem amid concerns of a new escalation via Walla News' Elster. (Twitter)
Russian President Putin has signed the legislation withdrawing from the Open Skies treaty. (Newswires)
European equities trade with no firm direction (Euro Stoxx 50 Unch.) having experienced a mild downside bias at the cash open, whilst APAC markets closed mixed after the broader NFP-induced optimism waned. US equity futures are also trundling lower with the YM (-0.1%) faring slightly better than its ES (-0.2%), NQ (-0.4%) and RTY (-0.4%) counterparts, whilst US Treasury Secretary Yellen over the weekend sounded more comfortable with the prospect of higher rates, stating that it would be a "positive" for the country. Nonetheless, the overall tone of the market is similar to tentativeness last week heading into the US open, with news flow also on the quiet side. Sectors in Europe are now mixed after opening largely in the red. Basic Resources are weighed on by the subdued base metal prices after Chinese trade data missed the mark. Autos and Banks are among the top performers whilst Tech resides among the laggards alongside Healthcare. Sectors overall do not portray a clear overarching theme. In terms of individual movers, Royal Mail (+2.6%) sits as one of the Stoxx 600 winners as the Co. takes steps to fend off competition by offering timed delivery slots from next year. Reckitt (-0.1%) failed to garner much traction despite reports that it entered an agreement to sell its infant formula and child nutrition businesses to Primavera Capital Group for an enterprise value of USD 2.2bln. IWG (-16%) meanwhile plumbs the depths after a downbeat trading update in which it now sees underlying EBITDA to be well below 2020 levels.
DXY - A choppy start to the week for the broader Dollar and index, with the latter managing to remain above its 21 DMA (90.108) vs the 90.023 post-NFP low print. The index notched a current intraday high at 90.302, but news flow and catalysts have remained light as traders set sights on this week’s ECB and US CPI. On that note, ECB and Fed speakers also remain scarce for the week as officials observe their respective pre-meeting blackout periods.
AUD, NZD, CAD - All vary vs the Greenbank but with the breadth narrow. The Aussie narrowly outperforms amid a rise in Chinese imports and S&P affirming its rating but upgrading the Aussie outlook. Some tailwinds could also be derived from technical factors as the pair topped its 50 and 100 DMAs (0.7723 and 0.7726 respectively) as it eyes the 0.7750 marks, coinciding with the 21DMA. NZD/USD meanwhile probes 0.7200 having had traded on either side of the mark, but with upside contained as the AUD/NZD cross eyes 1.0750 to the upside. The Loonie, meanwhile, lags as oil prices pull back after WTI briefly notched USD 70/bbl.
EUR, GBP - Sterling sees slightly more pressure vs the EUR – possibly technical as EUR/GBP tops 0.8600, but with some tailwinds emanating from more noise surrounding the Northern Irish protocol between Britain and the EU bloc, with weekend reports suggesting that Brexit European leaders are drawing up plans to impose trade sanctions on Britain and accused UK PM Johnson of “taking them for fools” over the Northern Ireland protocol. Cable has dipped back below its 21 DMA (1.4141) from a high of 1.4170 with no follow-through from a slight beat in May Halifax House Prices, whilst EUR/USD trades on either side of 1.2150 after testing but failing to breach its 21 DMA at 1.2173.
JPY - USD/JPY remains caged on both sides of 109.50 but still north of its 21 and 50DMA at 109.28 and 109.19 respectively, with the pair also eyeing several sizeable OpEx north of 109.50, with USD 1.25bln rolling off at the half-number.
S&P affirmed Australia at AAA; Outlook revised to Stable from Negative. S&P stated the outlook revision is due to a swift economic recovery, while it added that Australia's response to contain the pandemic and limit long-term economic scarring has seen the economy recover quicker and stronger than previously anticipated. (Newswires)
Indian PM Modi to address the nation today at 17:00 local time (12:30BST). (Newswires)
Notable FX Expiries, NY Cut:
- USD/JPY: 109.20 (670M), 109.50 (1.25BLN), 110.00 (781M), 110.50 (825M)
A contained and largely uneventful start to the week as core counterparts feature a mild negative bias following on from the post-NFP rally on Friday and with yields perhaps supported by commentary from US Treasury Secretary Yellen around rates. Although, the US 10yr yield remains around 1.58% and therefore some 5bp below pre-NFP levels. Fresh impetus throughout the morning has been lacking with the ECB and Fed in their respective blackout periods ahead of their rate decisions, with all eyes on any taper talk; as such, EGBs have been slowly drifting but with little conviction in the move and well off any pertinent support levels with nothing substantial in Bunds until 171.00, for instance. Outside of the EZ, Gilts are following suit to their continental peers with focus on any delays to the next planned easing of COVID-19 restrictions given the transmissibility of variants while BoE’s Bailey spoke but did not give an update on current monetary policy; as with Bunds, substantial support is someway off though the June 3rd low was at 126.70. Finally, USTs are similarly downward biased but again magnitudes are relatively slim as participants await inflation numbers due Thursday going into next week’s Fed gathering. Technically, support lies at 131-18 from Thursday and Friday last week while, if price action reverses, resistance lies just above the current session peak at 132-09.
WTI and Brent front month futures are subdued as sentiment remains indecisive after the post-NFP optimism seen on Wall Street on Friday waned. WTI Jul however printed USD 70/bbl for the first time since 2018 before giving up gains and some more as it trades around USD 69/bbl at the time of writing. Brent Aug meanwhile resides in the low-USD 71/bbl levels after hitting a session high of USD 72.27/bbl. Oil-specific news flow has been quiet, although this week sees the trio of monthly oil market reports – with focus likely to fall on the demand picture heading into summer and risks surrounding Iranian oil returning to the market. OPEC-related commentary (i.e. production figures) will likely be stale given the monthly meetings and set quotas through July. Elsewhere, precious metals are subdued but holding onto a lion’s share of its post-NFP gains, with spot gold in a USD 10/oz range around USD 1,880/oz and spot silver just north of USD 27.50/oz as yields and the Buck dictate price action, although the former sees its 21 DMA (1,873/oz) in the vicinity. Turning to base metals, LME copper remains sub-10,00/t as China's unwrought copper imports fell M/M in May on record-high prices, whilst BHP kicks off labour talks with workers from its largest Chilean mine, Escondida, with initial proposals for a new contract submitted on Friday – the Co. has 10 days from the receipt date to respond to the union.
Rosneft chief commented that the world was facing an acute shortage of oil due to underinvestment amid a drive for alternative energy. (Newswires)