[PODCAST] European Open Rundown 2nd August 2021
- APAC equities traded higher across the board; Japan outperformed whilst China rebounded
- US equity futures extended on gains throughout the night, with the ES and NQ back above 4,400 and 15,000 respectively
- FX markets were uneventful, DXY traded within a tight range just above the 92.00, EUR, GBP and JPY traded sideways
- A vote on the USD 1tln infrastructure bill could be held “in a matter of days,” Senate Democratic leader Schumer said
- Fed's Brainard (voter) said she would like to have the September jobs data at hand to assess improvements in the labour market.
- China has called for more communication with the US regarding overseas IPOs
- US Secretary of State Blinken said the US is confident that Iran conducted the attack on the ship off the coast of Oman
- Looking ahead, highlights include EU, UK, US Manufacturing PMI (Final), US ISM Manufacturing PMI
UK Chancellor Sunak has called on UK PM Johnson to ease travel restrictions, warning that the rules were damaging the economy and the tourism sector in particular. (Times) This comes ahead of the August travel rules review on Thursday
The UK is said to be preparing to lift its travel ban on airport hubs to individuals and businesses from the Far East, Middle East, and Australia. (Telegraph)
COVID 19 booster vaccines are to be offered to 32mln people in the UK early next month, with up to 2,000 set to deliver the programme. (Telegraph) Young people in the UK will be offered discounted takeaways and car travel to get their COVID jabs in a bid to boost vaccine uptake. (BBC)
Australia's Brisbane has joined Sydney in lockdown after the discovery of six new cases of the Delta variant. (Newswires) Australia's Southeast Queensland lockdown extended by eight days until Sunday 8th August. (Twitter)
China said 14 provinces reported new local COVID cases in July. (Newswires)
Pfizer (PFE) and Moderna (MRNA) have upped the prices for their COVID 19 vaccines in the latest supply contracts with the EU. Pfizer's shot now costs EUR 19.50 vs prev. EUR 15.50, and Moderna's USD 25.50 vs prev. USD 22.60, according to sources. (FT)
NIH's Dr. Fauci said the US is unlikely to return to lockdowns. (ABC)
Asia-Pac equities shrugged off the lacklustre performance on Wall Street on Friday, in which the majors posted mild losses ranging from 0.4-0.7%, whilst Amazon shares held onto post-earning declines to close lower by around 7.5%. Overnight, US equity futures kicked off the first trading day of August with mild gains, which then extended throughout the APAC session as US senators worked over the weekend to pave the way for a vote on the USD 1trln infrastructure bill this week - in turn guiding the ES and NQ back above 4,400 and 15,000 respectively. Back to APAC, the ASX 200 (+1.4%) gained traction and hit a record high ahead of tomorrow’s RBA announcement, which is expected to walk back on the July taper decision amid the worsening domestic COVID situation. The index was also supported by Afterpay surging over 30% at the open after NYSE-listed Square offered to acquire the Aussie payment company in a USD 29bln deal. The Nikkei 225 (+1.9%) was bolstered with gains seen in every sector, with materials and tech leading the charge. South Korea’s KOSPI (+0.4%) lagged as North Korean leader Kim Jung Un’s influential sister warned that the annual military drills between South Korea and the US this month will undermine prospects for better ties between the Koreas. Hang Seng (+1.1%) and Shanghai Comp (+1.5%) were initially subdued amid the ongoing US-Sino tensions and after sub-par PMI metrics. The bourses then rebounded despite a lack of news flow, with some pointing to continued loose policy as an analyst piece on China Daily (seen as the CCP's mouthpiece) suggested that Chinese leaders are expected to intensify policy support in H2 amid a deceleration in growth. There were also reports that the China Securities Regulatory Commission is ramping up talks with the US SEC to find a suitable resolution after the US SEC halted IPOs of Chinese firms. The Hang Seng was also supported by Evergrande shares as the indebted property developer offloaded its stake in its internet unit to raise funds. Finally, 10yr JGBs track the recent leg higher in the US T-note future as US Senators unveiled the bipartisan infrastructure bill expected to pass this week.
US SEC has halted IPOs of Chinese companies until they boost disclosures of risks posed to shareholders. China has called for more communication with the US regarding overseas IPOs. The China Securities Regulatory Commission is ramping up talks with the US SEC to find a suitable resolution, according to a statement. (Newswires)
Chinese leaders are expected to intensify policy support in the second half of the year to bolster the country's economic growth, which has shown signs of decelerating, analysts said on Sunday. (China Daily)
- PBoC set USD/CNY mid-point at 6.4660 vs exp. 6.4663 (prev. 6.4602). (Newswires)
- PBoC injected CNY 10bln via 7-day reverse repos at a maintained rate of 2.20% for a net neutral daily position
PBoC reiterated that it will not resort to flood-like stimulus and called on virtual platforms to satisfy regulations. Beijing Market Regulators have fined three private tutoring firms, via state media. (Newswires)
A high level Chinese official has predicted US-China relations will not improve significantly, but believes bilateral relations will be better in H2 vs H1. (SGH Macro Advisors)
South Korean Import Growth Prelim (Jul) 38.2% vs. Exp. 42.0% (Prev. 40.7%)
South Korean Export Growth Prelim (Jul) 29.6% vs. Exp. 30.2% (Prev. 39.8%)
South Korean Trade Balance Prelim (Jul) 1.76B (Prev. 4.45B) (Newswires)
Chinese Caixin Manufacturing PMI (Jul) 50.3 vs Exp. 51.0 (Prev. 51.3) The release noted "A key factor weighing on the headline reading was a renewed fall in total new business during July. Though only marginal, it marked the first decline in sales for 14 months. Some companies noted that higher factory gate prices had dampened customer demand. At the same time, new export orders rose only slightly as the pandemic continued to hinder sales overseas."
Chinese NBS Composite PMI* (Jul) 52.4 (Prev. 52.9)
Chinese NBS Non-Manufacturing PMI (Jul) 53.3 vs Exp. 53.3 (Prev. 53.5)
Chinese NBS Manufacturing PMI (Jul) 50.4 vs. Exp. 50.8 (Prev. 50.9)
One in five firms plan on letting staff go in response to Sunday's furlough policy change, which will see employers contribute more, according to a survey by the British Chamber of Commerce including 250 businesses. From Sunday, government payments reduce to 60% towards salaries, with employers paying 20%. (BBC)
A YouGov survey suggests that the Conservative party could lose 17 seats at the next election as support for UK PM Johnson declines in the southeast and east of England. (Times)
UK Chancellor Sunak is contemplating a suspension of the Conservative's "triple lock" election manifesto pledge in an attempt to save billions. (Telegraph)
EU banks CET1 ratio fell to 10.2% from 15% in the EBA stress tests adverse scenario. The EU banking watchdog said the top 50 EU banks take a combined EUR 265bln capital hit in stress test scenario that prolonged fallout from COVID-19. (EBA) ECB said the stress test showed that the Euro Area banking system is resilient under a challenging macroeconomic scenario. The average final CET1 ratio for 89 supervised banks under three-year adverse scenario falls to 9.9% from 15.1%. (Newswires)
UK Trade Secretary Truss said the UK is close to a Free Trade Agreement (FTA) with New Zealand. (Sky News)
UK Lloyds Business Barometer (Jul) 30 (Prev. 33). (Newswires)
In FX, DXY traded within a tight range just above the 92.00 mark as focus shifts to the July US jobs report on Friday and the Fed's Jackson Hole Symposium later this month for a taper signal. That being said, Fed Governor Brainard over the weekend said she’ll be more confident in judging the US labour market’s progress once she has September data in hand, adding that the economy has not yet reached the goals for reducing QE. State-side, the week is also expected to consist of a vote on the USD 1trln bipartisan infrastructure bill after senators powered through the weekend to finish writing the legislation. EUR/USD was uneventful and remained stuck in a narrow range above 1.1850. GBP/USD probed 1.3900 to the upside throughout most of the session, with a sustained break opening the door to the 100 and 50 DMAs at 1.3921 and 1.3940 respectively. USD/JPY traded sideways after finding a base at its 100 DMA around 109.60. Technicians are also cognizant of the 50 and 21 DMAs overlapping at 110.10. Antipodeans erred lower after the sub-par Chinese Caixin Manufacturing PMI, which also followed the lacklustre official PMI figures over the weekend. The AUD retreated further below 0.7350 after a failed test of the level to the upside, with the currency also eyeing the worsening COVID situation at home in the run-up to tomorrow’s RBA confab. NZD/USD saw slightly more pronounced losses after the pair fell below the 21 DMA (0.6979), whilst the AUD/NZD cross edged back towards 1.0550.
Brazil's Government is preparing the Constitutional Amendment Project to change the rule for the payment of precatory, which would impede the government spending cap, according to sources at Agência Estado. Brazilian Economy Minister Guedes hinted at the potential need to adjust spending plans higher. (Newswires)
WTI and Brent futures were pressured overnight despite the constructive risk tone and stable Dollar, with the complex eyeing COVID developments and any threats to the demand recovery path. The downside in prices became more pronounced heading into the Chinese equity cash open, although complex-specific newsflow was sparse and the losses were isolated to crude. WTI Sept' briefly dipped below USD 73.00/bbl (vs high USD 73.95/bbl) whilst Brent Oct' fell under USD 74.50/bbl from a USD 75.40/bbl intraday peak. Elsewhere, spot gold and silver came under some modest Dollar-induced pressure, which prompted the yellow metal to test and rebound off its 21 DMA around USD 1,808.50/oz. LME copper posted mild gains and pushed above the USD 9,750/t mark as the largest copper mine, Escondida could see worker strike action if BHP fails to iron out a deal within a 5-10 day period. Finally, Chinese steel rebar and hot-rolled coil futures fell, with the former diving 6% amid worries regarding output adjustments after China updated its stance on its carbon reduction scheme.
Workers at BHP's (BHP LN) Escondida mine overwhelmingly rejected (99.5%) the Co's final wage offer. Mining will continue during a period of obligatory government mediation. If no deal is reached in the 5-10 day period then strike action will begin. BHP has requested mediation in an attempt to reach a deal. (Newswires) Escondida is the world's largest copper mine and accounts for almost 5% of global copper supply. BHP holds around a 58% stake in the mine.
UAE's ADNOC set September Murban crude OSP at USD 73.50/bbl (vs USD 72.34/bbl in August). (Newswires)
US State Department said the US is concerned by the reports of the attack on the Israeli ship off the coast of Oman, and Washington is monitoring the situation closely. (Newswires) US Secretary of State Blinken said the US is confident that Iran conducted the attack on the "Mercer Street" which killed two people using one-way explosive UAVs. (Newswires)
Israel is considering various options to retaliate against Iran over its strike on an oil tanker. (Times of Israel) Iran said the attack on the Israel-linked ship was retaliation to the attack on the Al-Dabaa Airbase, according to Al Alam TV. (Newswires)
North Korean Leader Kim's sister has warned military drills between South Korean and U.S. troops will undermine prospects for better ties between the Koreas. (Newswires) South Korea will deal with the issue of joint military drills with the US in a "wise and "flexible" manner so as to not heighten tensions on the Korean Peninsula, the unification ministry said. (Yonhap)
US DoJ said the US seizes an oil tanker used to violate sanctions against North Korea. (Newswires)
Saudi-led coalition intercepted a drone attack on a Saudi commercial vessel, state media reports. (Newswires)
It was initially reported that Saudi Aramco is said to be planning to start Bitcoin mining, according to Brazilian Bitcoin miner Ray Nasser during an interview. Flared gas will reportedly be used to power the network. These reports were later denied by Saudi Aramco (Investing.com)
PBoC said it will continue to exert heavy regulatory pressure on crypto trading. (Newswires)
T-Notes traded sideways around 134-14, cash 10yr yield between 1.24/25%, through into the US session. Treasuries failed to sustain a further rally as core PCE missed estimates, with overtly hawkish comments from Fed's Bullard capping the bid. But a rocky open for stocks and a cooling of the University of Michigan inflation forecasts saw yields move to session lows as Europe began to close up for the week, bringing the 10yr cash yield just beneath 1.23% and the T-Note to a session high of 134-19. The Treasury market then chopped sideways for the rest of the session only to see a volume surge into the futures settlement as gains were pared, with month-end index duration extension approaching and other related flow. Participants now look to next week's NFP report and Treasury Quarterly Refunding, where the Treasury could provide more details around its "late this year/early next" auction size cuts. T-Note (U1) Futures settled 7+ ticks higher at 134-14+.
Fed's Brainard (voter) said the economy has not yet reached the goals for reducing QE, noting that joblessness remains quite high. Brainard backs more aggressive financial stability tools, whilst inflation risks have increased to the upside - Fed will react if inflation is persistently and materially over 2%. Brainard said employment has some way to go to meet the taper test and she would like to have the September jobs data at hand to assess improvements in the labour market. Brainard noted that the existing composition of asset purchases is having the effect the Fed wants. (Newswires)
US Senators worked over the weekend to finalise legislation on the USD 1tln bipartisan infrastructure bill. A vote on the infrastructure bill could be held “in a matter of days,” Senate Democratic leader Schumer said Sunday. (Newswires) US Republican Senator Collins believes a minimum of 10 Republicans will support the measure, enabling the bill to clear a 60-vote procedural hurdle. (CNN) The bipartisan group of US senators have finalised the text of the infrastructure bill. (Twitter) The bill includes USD 550bln in new spending (in line with prior reports), new spending will occur over five years, and includes USD 65bln in funding for expanded broadband access. (Newswires)
US GOP Senator said he is backing off the plan to make demands in exchange for a debt ceiling vote; and added that Dems should do it on their own in budget reconciliation, according to Bloomberg's Wasson. (Newswires)
US House Speaker Pelosi has asked President Biden to extend the eviction moratorium to October 18th. (Newswires)
Square (SQ) is to acquire Afterpay (APT AT) in a USD 29bln deal; transaction expected to close in Q1 2022; Square has agreed to a secondary listing on the Australian Securities Exchange. (businesswire)