[PODCAST] US Open Rundown 8th July 2021
- European bourses, US equity futures and the crude complex are pressured with safe-haven assets outperforming as the tone deteriorates pre ECB events & US data
- The DXY is pressured but holding just above yesterday's trough with peers mixed and safe-haven JPY & CHF the clear outperformers; USD/JPY convincingly sub-110.00
- USTs and EGBs are bid and the US yield curve is bull-flattening with focus on -0.35% for the Bund yield
- Japan has confirmed a state of emergency for Tokyo July 12th-August 22nd
- White House officials said the administration is working with Senate Democrats to have the bipartisan infrastructure bill ready for floor consideration as soon as in two weeks, Politico
- Looking ahead, highlights include ECB Minutes, Strategy Review Announcement & Lagarde Press Conference, US IJC, DoEs
CORONAVIRUS UPDATE
US President Biden's administration will not act to remove travel restrictions with any countries pending further discussions, according to a White House official. (Newswires)
UK Transport Secretary Shapps is set to announce that quarantine for double-jabbed Brits returning from amber nations will end as soon as July 19th but travellers will need to take a PCR test on day two of their return. Briefing will be from 11:30BST. (Telegraph/Twitter)
Japan has confirmed a state of emergency for Tokyo July 12th-August 22nd, while other reports noted that spectators will be banned from Olympic events in Tokyo to stem the spread of the virus. (Newswires/Asahi)
Sinovac’s (SVA) CoronaVac vaccine was found to be 66% effective in preventing COVID-19 vs 92.6% efficacy for the Pfizer vaccine, according to a study in Chile. (NEJM)
ASIA
Asian equity markets were mostly subdued as tailwinds from the modest gains in the US following the slightly dovish perceived FOMC Minutes, were offset by the virus concerns which threatens additional restrictions for the region and amid lingering China-related frictions. ASX 200 (+0.2%) was just about kept afloat by resilience in cyclicals but with upside capped after a fresh YTD high in COVID-19 infections for New South Wales and after Beijing warned that smearing China will backfire on trade partners. Nikkei 225 (-0.9%) was subdued by the recent currency strength and with Japanese Bank Lending at its slowest pace of growth in more than eight years. In addition, the latest securities flows data showed foreign investors more than doubled their net selling of Japanese stocks last week and virus concerns persisted with the government considering re-imposing a state of emergency in Tokyo. KOSPI (-1.0%) failed to maintain its initial gains after South Korea extended social distancing rules in greater Seoul for an additional week and warned of stricter measures if cases don’t decline, while the latest number of daily infections printed a new domestic record high. Hang Seng (-2.9%) and Shanghai Comp. (-0.8%) were pressured amid ongoing tensions as the US State Department called out China again for its atrocities in Xinjiang and with the House Foreign Affairs Committee said to be looking at legislation to respond to China's crackdown on Didi which was removed from WeChat and Alipay apps for new users. China was also reportedly considering closing the loophole used by tech giants for US IPOs and FTSE Russell announced it will remove more Chinese stocks from indices following user feedback regarding the updated US Executive Order. However, some losses in the mainland were stemmed on future easing speculation after China's Cabinet said it is to use RRR cuts in a timely manner to support the real economy but will not resort to flood-like stimulus and press reports also suggested China may reduce its RRR in September to support the economy. Finally, 10yr JGBs were higher as they took impetus from global peers and with the risk averse tone spurring haven demand although retraced some of the gains following a soft 5yr JGB auction, while bonds in China were lifted which dragged the Chinese 10yr yield to its lowest since August 2020 amid speculation of a RRR cut later this year.
PBoC injected CNY 10bln via 7-day reverse repos with rate at 2.20% for a net neutral daily position. (Newswires) PBoC set USD/CNY mid-point at 6.4705 vs exp. 6.4695 (prev. 6.4762)
PBoC's Fan said they are going to take further antitrust actions in the payment sector and that cryptocurrency has become a speculative financial tool with private cryptocurrencies threatening finance stability, while Fan added that they are concerned about stable coins threat to the global monetary and payment systems. (Newswires)
FTSE Russell said it will remove more Chinese stocks from indices following user feedback regarding updated US executive order. (Newswires)
US House Vice Chair of Foreign Affairs Committee Malinowski stated that they are looking at legislation to respond to China's crackdown on Didi (DIDI)
BoJ is likely to offer zero-interest and long-term funds to banks as part of a new scheme to promote green finance, according to sources; could forgo paying interest to banks that tap the climate scheme, on concerns around a lack of definition. Separately, the BoJ is set to lower its current fiscal year economic growth forecast in its quarterly projections due next week, according to sources and is expected to upgrade its inflation view, according to sources.
US
White House officials said the administration is working with Senate Democrats to have the bipartisan infrastructure bill ready for floor consideration as soon as in two weeks. (Politico)
UK/EU
newsquawk ECB primers:
UK is to probe the the takeover of the country's largest silicon wafer producer by a Chinese-backed firm due to national security. (FT)
UK and EU are working on plans which would enable closer antitrust enforcement through the sharing of information, additionally, working towards a formal early warning system around potential regulator intervention, according to sources. (FT)
China and the EU are carrying out a legal review, translation and other technical preparations relating to the China-Europe Comprehensive Investment Agreement, Global Times; indicating that the agreement is processing. (Twitter)
UK RICS Housing Survey (Jun) 83 vs. Exp. 77.0 (Prev. 83.0, Rev. 82). (Newswires)
German Trade Balance, EUR, SA* (May) 12.6B vs. Exp. 15.4B (Prev. 15.9B, Rev. 15.6B)
GEOPOLITICAL
Saudi Deputy Defense Minister said he had a fantastic discussion with US Secretary of State Blinken on a strategic US-Saudi partnership and reviewed the latest regional developments, as well as explored ways to bolster ties between the two countries. (Twitter)
Russian representative to Vienna says the resumption date for JCPOA talks on Iran has not been set as Iran needs more time post-elections; says this is normal, but, the sooner talks resume the better. (Twitter)
EQUITIES
Yesterday’s recovery in European equities has turned out to be somewhat fleeting at this stage of the session with stocks in the region firmly in the red (Stoxx 600 -1.7%). In terms of the macro narrative, not a great deal has changed since yesterday’s close as participants continue to digest several ongoing potential headwinds for the market such as the spread of the delta variant, ongoing tensions between US and China, a slowing down of certain macro datapoints, tensions within OPEC+, global labour shortages and China’s tech crackdown. That said, developments on the central bank front over the past 24 hours such as the FOMC minutes, touted ECB strategic review and potential China RRR cut have leant on the dovish side. On the ECB review, reports suggest that policymakers will tweak their current inflation goal to target a more symmetrical approach around 2%; albeit rate hikes are seen as some way off regardless of the adjustment. Stateside, stocks are also being sold this morning with the ES and RTY continuing to lag with losses of 1.5% and 1.8% respectively. In terms of performance within Europe, all sectors have fallen victim to the selling pressure with heavy losses observed in cyclicals such as Basic Resources, Autos and Banks. The latter has been dealt a blow by the increasingly unfavourable yield environment for the banking sector as the German 10yr yield has slipped below -30bps with some desks suggesting that a test of -35bps is likely on the cards. In terms of stocks specifics, Deliveroo (+4.4%) have avoided the broad selling pressure in the market after reporting an 88% Y/Y increase in Q2, which subsequently prompted the Co. to raise guidance for 2021. Knorr-Bremse (+6.3%) is another gainer in the region after stopping its pursuit for a 60% stake in Hella (-1.9%). Danske Bank (+2.4%) is an outlier in the financial sector after upgrading its FY21 net income guidance on account of a ‘faster than anticipated macroeconomic recovery’. To the downside, laggards are mainly comprised of those companies within the aforementioned underperforming sectors, however, of note, Swatch (-4.3%) sits at the foot of the SMI after news that Logitech will replace the Co. in the index as of September 20th.
China retail passenger vehicles sales (June) -5.3% YY, according to CPCA; Tesla (TSLA) sold 33,155 vehicles. (Newswires)
FX
JPY/CHF/DXY/CAD/AUD/NZD - There is little doubt that the Greenback failed to receive a further fillip from last night’s FOMC minutes that were more balanced than the policy meeting itself given price action since the release, but the Dollar is also losing momentum amidst renewed risk aversion that is boosting the Yen, Franc and Gold to a greater extent. Indeed, the index has retreated from its lofty midweek perch (92.844) and into a tighter 92.792-463 band, albeit retaining an underlying bid just above yesterday’s 92.421 low ahead of US jobless claims data that represents the first new snapshot of the labour market following a somewhat mixed BLS report. Meanwhile, the Yen is on a tear and triggered stops in double quick time through 110.00 after breaching 110.50 earlier to expose June highs at 109.72 and 109.60 (from the 21st and 14th respectively), the Franc has snapped back above 0.9200 and Gold has reclaimed Usd 1800/0z+ status. On the flip-side, the so called activity, high beta and commodity currencies are in a tailspin, with the Loonie towards the base of a 1.2574-1.2471 range alongside an even sharper relapse in crude prices, the Aussie nearer 0.7425 than 0.7489 following dovish-leaning rhetoric from RBA Governor Lowe overnight and the Kiwi hovering above 0.6950 after losing grip of the 0.7000 handle.
EUR/GBP - The Euro has taken advantage of the Buck’s decline and relative weakness in the Pound on various grounds (beyond Wembley where only Sterling took a tumble), as it bounces firmly from sub-1.1800 and under 0.8550 respectively, while Cable remains shy of 1.3800 in the absence of anything UK specific bar another hot house price survey from RICS. Conversely, Eur/Usd and other Euro crosses have a host of ECB events and potential market-movers to look forward to including the Strategy Review, minutes of the June convene and press conference from President Lagarde.
SCANDI/EM - Another big Brent-related blow for the Nok that is trying to stop the rot below 10.4000 vs the Eur, while the Rub is also ruing the latest oil spill beneath 75.0000 against the Usd and Mxn heads into Banxico minutes below 20.0000 yet again. Elsewhere, the Cnh and Cny are closer to 6.5000 than 6.4500 in wake of remarks from China’s Cabinet alluding to more RRR easing and the Brl looks primed for more depreciation through 5.2000 after Brazilian President Bolsonaro said he may not accept the 2022 election result if the current voting system is maintained.
RBA Governor Lowe reiterated that the step-down in bond buying does not represent a withdrawal of stimulus and the condition for a rate hike depends on inflation outcomes not the date, while he expects it will take until 2024 for inflation to be sustainably within 2%-3% target. Lowe also stated that QE will likely be needed in future cycles but added there are limits and that central banks cannot keep purchasing assets. Furthermore, he stated that they are not considering negative rates and that they will not hike rates to choke off housing price increases, while he also noted that modest scaling back on bond buying reflects economic progress. (Newswires)
FIXED
Debt futures appear to have finally run out of gas, or at least in need of a pit-stop following an extension to fresh highs at 174.77 for Bunds, 129.89 in Gilts and 134-00 for the 10 year T-note. However, it could be a case of cash yields approaching another set of psychological or sentimental levels and wariness about taking the next step without further fundamental and/or technical reasons. On that note, today’s potentially big events are looming from noon and buyers/longs may simply be taking some profit and lightening the load in advance of the ECB’s Strategy Review, policy meeting minutes, Lagarde presser alongside US jobless claims and then delayed crude inventory data from the EIA.
COMMODITIES
As mentioned above, while the overall narrative has not changed significantly there are plenty of focus points for participants to be concerned over; as such, WTI and Brent are pressured on the session dropping below yesterday’s trough and USD 71.00/bbl for WTI August’21 at worst (vs high USD 72.36/bbl). Updates explicitly for the complex since last nights private inventory report have been sparse; to recap, the headline crude printed a larger than expected draw of -8.0mln vs exp. -4.0mln while the broader products were somewhat mixed though the report had little effect on price action. In terms of OPEC+, the Saudi Oil Minister has reportedly given up on the prospect of a rescheduled OPEC+ meeting prior to August given their disagreement with the UAE. As a reminder, the current deal will expire at month-end at which point all producers would theoretically be able to set their quotas as they see fit, likely resulting in significant price pressure. Elsewhere, geopolitical updates saw the US State Department say they expect a seventh round of nuclear discussions with Iran; however, this is perhaps not imminent as the Russian representative to Vienna says the resumption date for JCPOA talks on Iran has not been set as Iran needs more time post-elections. Adding that this is normal but the sooner talks resume the better. Moving to metals, spot gold and silver are bid this morning as headlines centre on the reflation trade fizzling out and yields are pressured across the curve with pronounced bull-flattening occurring stateside and similar action in EGBs as well. Currently, the metals are holding above USD 1800/oz and USD 26/oz respectively, near session highs. Elsewhere, base metals have pulled back given the broader risk tone in a continuation of APAC performance, with copper for instance now below overnight support at USD 4.30/Ib.
US Private Energy Inventory Data (bbls): Crude -8.0mln (exp. -4.0mln), Cushing +0.2mln, Gasoline -2.7mln (exp. -2.2mln), Distillates +1.1mln (exp. +0.2mln). (Newswires)