Original insights into market moving news

[PODCAST] European Open Rundown 20th July 2021

  • Asian equity markets traded lower after the region inherited a negative mood from global peers
  • US CDC raised UK to the highest risk level and warned Americans not to travel to Britain
  • The DXY heads into the European open firmer, but sub-93.00, EUR/USD and GBP/USD trade on 1.17 and 1.36 handles respectively
  • US Senate Majority Leader Schumer confirmed he will set a vote on the motion to proceed to debate on the bipartisan USD 1.2tln infrastructure bill on Wednesday
  • Looking ahead, highlights include US Building Permits and Housing Starts, supply from the UK & Germany. Earnings from Phillip Morris, Netflix & United Airlines


NIH’s Dr Fauci said the Delta variant is becoming more dominant in the US and that vaccinated people are generally protected but not completely, while he suggested there is a 93-94% chance of protection if vaccinated. (Newswires)

US CDC raised UK to the highest risk level and warned Americans not to travel to Britain because of prevalence of the Delta variant, while US State Department raised its travel warning for the UK and said 'do not' visit. (Newswires/BBC)

Canada is to allow fully vaccinated US citizens and permanent residents into Canada for non-essential travel from August 9th and will allow fully vaccinated visitors from outside the US from September 7th, according to an official. Furthermore, the relaxation of measures will only occur if Canada's COVID-19 epidemiology remains favourable and Canada will extend a ban on arriving passengers from India. In relevant news, Canada said it has been told but the US government that their current border restrictions are likely to be extended on July 22nd. (Newswires)

UK PM Johnson said deaths and hospitalisations are well within the margins of what our scientists predicted at the start of the roadmap. There were also comments from the UK Chief Scientific Adviser who stated 60% of people being admitted to hospital with COVID have had two vaccine doses and that the timing of the peak is uncertain, although he later corrected the statistic and stated that about 60% of hospitalisations from COVID are not from double vaccinated people but rather 60% of hospitalisations from COVID are currently from unvaccinated people. (Newswires/Twitter)

UK Vaccine Minister Zahawi said the UK is drawing up plans for a vaccine booster programme (PFE, MRNA) and he has accepted advice to begin vaccinating a larger group of vulnerable people aged under 18 at greatest risk of COVID. Zahawi added that they will use the Pfizer (PFE) vaccine on younger people but will not begin vaccinating under-18s without underlying health conditions at this time. (Newswires)

Europe became the first region in the world to surpass 50mln COVID-19 cases, according to a major newswire tally. In relevant news, a French government spokesman said that they have entered into the fourth wave of the COVID-19 epidemic. (Newswires)

South Australia will go into a seven-day lockdown from 18:00 local time today. (Newswires)


Asian equity markets traded lower after the region inherited a negative mood from global peers in which risk appetite was pummelled by ongoing Delta variant fears that forced fresh restrictions for several regions around the world and prompted the US to raise the UK to the highest risk level, as well as issue a "do not travel" warning. However, the declines in Asia were milder and US equity futures also attempted to recoup some of their recent losses. ASX 200 (-0.6%) was led lower by underperformance in energy after oil prices tumbled by over 7% due to COVID-19 concerns and the recent OPEC+ agreement to lift output, although Oil Search bucked the trend following a merger approach from Santos that it rejected although remains open for a revised proposal. Mining names were pressured after BHP announced its quarterly iron ore production figures which declined from a year ago and with another state lockdown announcement, this time for South Australia, adding to the downbeat tone. Nikkei 225 (-0.9%) declined to its lowest levels in six months shortly after the open as it suffered the ill-effects of the haven flows into its currency and amid ongoing virus woes with Hokkaido to seek quasi-emergency measures. Hang Seng (-1.1%) and Shanghai Comp. (-0.6%) were subdued as several countries took aim at China for cyber hacking which China dismissed as groundless, while the PBoC refrained from any adjustments to the Loan Prime Rate for a 15th consecutive month to the disappointment of the outside calls for a 5bps cut. Attention also remained on Evergrande shares which extended on the prior day’s 16% slump with another double-digit decline after a Chinese city halted sales of the Co.’s projects which added to its ongoing debt concerns. Finally, 10yr JGBs were supported by the recent downbeat picture in risk assets and bull flattening in USTs that saw a drop of around 10bps for the US 10yr yield, although upside for 10yr JGBs was capped as the 152.50 level provided a magnet for price action and amid softer demand in the Japanese enhanced liquidity auction for longer-dated bonds.

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 6.4855 vs exp. 6.4817 (prev. 6.4700)

  • PBoC 1-Year Loan Prime Rate (Jul) 3.85% vs. Exp. 3.85% (Prev. 3.85%)
  • PBoC 5-Year Loan Prime Rate (Jul) 4.65% vs. Exp. 4.65% (Prev. 4.65%)
  • Japanese National CPI YY (Jun) 0.2% vs. Exp. 0.2% (Prev. -0.1%)
  • Japanese National CPI Ex. Fresh Food YY (Jun) 0.2% vs. Exp. 0.2% (Prev. 0.1%)
  • Japanese National CPI Ex. Fresh Food & Energy YY (Jun) -0.2% vs. Exp. -0.2% (Prev. -0.2%)

US President Biden announced that the investigation into Chinese hacking has not finished yet and they will get a detailed report on Tuesday, while his understanding is not that China is carrying out the hacking itself but could be accommodating other actors. In relevant news, White House is reportedly not holding back on responses to China hacking and the US reserves the right to take further action on China hacking issue, while US is not ruling out taking action unilaterally on China hacking but believes working together is the better approach and the State Department stated the US is not ruling out any actions to hold China accountable, including on malicious cyber activity. (Newswires)


Incoming BoE MPC Member Mann said price momentum has come off the top and we see a tapering of energy prices too, while she added that many inflation forecasts for 2023 and 2024 show a dramatic fall in the rate of inflation and that most forecasts do not foresee labour market tightness matching GDP growth. Furthermore, she stated that they must not be premature with tightening monetary policy and that US monetary policy normalisation could make it less urgent for the BoE to tighten policy too. (Newswires)

UK PM Johnson agreed with senior ministers to hike national insurance to fund reforms to social care with national insurance payments to increase by one percentage point which will raise over GBP 10bln annually. (The Times)

UK PM Johnson's former senior aide Cummings claimed that PM Johnson had dismissed a lockdown for last Autumn as the people that were dying were over 80 years old. (Sky News)

The European Commission will, later today, publish a report criticising Hungary over multiple issues including insufficient anticorruption and the state of media freedom, according to a draft. Additionally, to publish plans for a more robust anti money-laundering system. (Politico)  



In FX markets, the DXY held on to its recent gains sub-93.00 after having been underpinned by haven demand as risk assets took a hit from the COVID-19 concerns. Attention was also on negotiations in Washington where the bipartisan group made some progress during the past weekend on the infrastructure package but were seen as unlikely to meet the Wednesday deadline, which has not fazed US Senate Majority Leader Schumer who confirmed he will set a vote on motion to proceed to debate on bipartisan USD 1.2tln infrastructure bill on Wednesday despite large doubts whether they can get the backing of 10 GOP Senators needed to push forward on the bill. EUR/USD languished below 1.1800 after its recent whipsawing and with a lack of pertinent drivers keeping the single currency tentative ahead of this week’s ECB meeting. GBP/USD was also lacklustre after slipping beneath the 1.3700 handle following recent dovish BoE rhetoric including from BoE’s Haskel who said the risk of a pre-emptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation and that for the foreseeable future, it is his view that tight policy isn’t the right policy, while incoming MPC member Mann suggested they must not be premature with tightening monetary policy and that Fed policy normalisation could make it less urgent for the BoE to tighten policy too. In addition, there were also reports that UK PM Johnson is set to announce a one percentage point increase to national insurance payments to fund social care reforms and cut NHS waiting lists. USD/JPY and JPY-crosses were constrained by the uninspired mood, which also kept antipodeans subdued alongside the recent slump in oil and after the RBA Minutes reiterated a dovish tone in which its central scenario is that conditions for a rate hike will not be met before 2024, while there were also comments from Westpac that it sees Australian GDP to contract in Q3 and suggested that the RBA may need to up QE to AUD 6bln/week.

RBA Minutes from the July meeting stated that the board remains committed to maintaining highly supportive monetary conditions and will not raise the cash rate until inflation is sustainably within the 2%-3% target, while the Bank's central scenario is that conditions for a rate hike will not be met before 2024 and meeting rate hike conditions will require the labour market to be tight enough to spur materially higher growth in wages. RBA stated that a recovery in the labour market continued to be faster than anticipated but added that outcome for nominal side of the economy have not been as positive and stated that members agreed that there should be flexibility to raise or lower weekly bond purchases in the future due to high uncertainty about the outlook. (Newswires)


Commodities found some mild respite from the recent pressure with WTI crude futures treading water around the USD 66.50/bbl after having slumped over 7% on Monday following the OPEC+ agreement to raise output and amid the ongoing COVID-19 Delta variant concerns which has prompted to US to issue a do not travel advisory for the UK, while focus for the energy complex turns to the latest inventory data beginning with the private sector report later today. Gold prices remained afloat but with upside capped by a steady greenback and copper managed to nurse some of the prior day's losses despite the continued overnight risk aversion.


US State Department senior official stated the US is expected to announce initial steps following the Cuba review, as well as in response to protests and the government crackdown, while the US is seeking workarounds to restore flow of remittances to Cuba and ensure the government cannot seize funds. (Newswires)

US and Germany will reportedly announce a deal on the Nord Stream 2 gas pipeline in coming days, while it was stated that the two sides were nearing an agreement that would avert resumption of currently waived US sanctions against Nord Stream 2 AG and its chief executive, according to sources. (Newswires)


The Treasury curve bull-flattened significantly on Monday, with yields falling across the curve; 10yr yield fell from highs of 1.29% to lows south of 1.18% while major curve spreads were narrowing with the 2s10s spread at the lowest level since January. There was not a single headline catalyst for today's rally. Instead, a combination of: growth concerns amid a wave of COVID negative newsflow, highlighting that the delta variant threatens the growth outlook; the OPEC+ deal, where members will ease output curbs, which will bring more supply to the market, and even though the demand-side appears constructive going forward, the COVID situation threatens this, and putting that together adds a deflationary impulse. Additionally, haven demand picked-up as risk markets (equities/oil) tumbled lower. The Fed is in blackout ahead of next week's FOMC, so there weren't any officials on hand to jawbone; additionally, there is little on the economic data slate this week. BMO's analysts think technicals may provide more trading influence in this window. More broadly, BMO says two key debates within the TPLEX are of note: the Fed's upcoming taper of asset purchases, and the progress within the labour market that will allow the Fed to normalise policy. A few desks have been arguing that the taper is priced in, so long as Fed sticks to consensus timeline - an announcement at the November or December meeting, with implementation in the New Year; "even if this were brought forward by a month, or two, I don't think we'll see a massive re-pricing as a result," BMO strategist Ian Lyngen said, adding that "if anything, as we have seen with the market bringing forward rate hike expectations, it wouldn't necessarily be a bearish impulse for the long-end of the curve, and in fact, we might simply see the curve flattening extend further and weigh on outright yield levels." One of the more nuanced issues to monitor is whether the Fed tapers asset purchases of MBS and Treasuries in sync; Fed officials (Powell, Williams), have suggested that both of these have had an equal impact on the economy, implying that both would be tapered simultaneously; however, the upside in house prices is leading to concerns among some commentators, who have called for the central bank to reign-in MBS purchases sooner. Technically, BMO said, this all argues for consolidation in the near-term, with the bull-flattening likely exerting itself. T-note (U1) futures settled 29 ticks higher at 134-22.

US President Biden said data shows that most of the price increases were expected and are expected to be temporary, while he added that supply chain disruptions are temporary and that the Fed should take whatever steps it deems necessary for an economic recovery. (Newswires)

US Senate Majority Leader Schumer confirmed he will set a vote on the motion to proceed to debate on the bipartisan USD 1.2tln infrastructure bill on Wednesday and stated that the Senate aims to make more progress this week. There were also comments from Republican Senator Cornyn that he is a no regarding Wednesday's procedural vote and he doesn't think there will be 10 Republicans to open debate if there isn't a bipartisan agreement on infrastructure made by then, while Republican Senator Collins said they cannot meet Wednesday's infrastructure deadline. (Newswires)

Apple (AAPL) is to delay bring employees back to offices until at least October. (MacRumours)