Original insights into market moving news

[PODCAST] European Open Rundown 17th August 2021

  • Asian equity markets were subdued following the mixed performance on Wall St; S&P 500 and DJIA posted a 5th consecutive session of record closes
  • China's market regulator issued draft regulations on banning unfair competition in the internet sector
  • Fed's Rosengren would be supportive of announcing a taper program in September if there is another strong jobs report
  • In FX, the DXY is firmer above 92.50, antipodeans lag with NZD hampered by COVID concerns ahead of RBNZ
  • US President Biden defended his decision to withdraw from Afghanistan
  • Looking ahead, highlights include UK labour market report, EZ GDP (2nd), US retail sales, industrial production, Fed's Powell, Kashkari, supply from Germany & the UK, earnings from Walmart


US is to advise booster shots for most Americans eight months following vaccination and could offer booster to non-immunocompromised individuals in mid-September. In other news, the US CDC lowered its COVID-19 advisory for India to level 2 but issued a level 4 advisory for Turkey and urged citizens to avoid travel. (Newswires/NYT)

Pfizer (PFE) and BioNTech (BNTX) announced the submission of initial data to the US FDA to support a booster dose of the COVID-19 vaccine and it was noted that given the high levels of immune responses noticed, a booster dose within 6-12 months after the primary vaccine schedule may help maintain a high level of protection against COVID. (Newswires)

Lancet study findings suggested that the overall increased risk of Bell's Palsy from Sinovac's (SVA) CoronaVac vaccine. (Newswires)

Japan's government confirmed it is to seek an extension of the coronavirus emergency in Tokyo through to September 12th and will extend it to seven additional prefectures, while the expert advisers panel approve government plans to extend and widen the state of emergency. There were also comments from Japanese Economic Minister Nishimura that COVID-19 infections are spreading at an unprecedented rate and they will ask shopping malls to restrict entry. (Newswires)

New Zealand officials are to investigate a COVID-19 case in Auckland and confirmed the first community case in New Zealand since February, while New Zealand PM Ardern will announce any measures in response to the COVID case later at 18:00 local time (07:00BST/02:00EDT). (Newswires)


Asian equity markets were subdued following the mixed performance on Wall Street, where the S&P 500 and DJIA recovered from the initial data-triggered pressure to post a 5th consecutive session of record closes and with the former having fully doubled from its pandemic lows, although the gains were only mild and led by defensives, while cyclicals lagged and both the Nasdaq and Russell 2000 finished in the red. ASX 200 (-0.9%) was dragged lower by continued underperformance in the top-weighted financial sector and as energy names suffered from the recent softer oil prices. In addition, a deluge of earnings updates and elevated local infections for New South Wales added to the headwinds for the Australian benchmark. Nikkei 225 (+0.1%) faded early advances with sentiment hampered by unfavourable currency conditions and with the government seeking to extend the state of emergency in Tokyo to September 12th which will be widened to seven additional prefectures, and the government is to also ask shopping malls to restrict entry. Hang Seng (-0.6%) and Shanghai Comp. (-0.5%) were cautious on what is a busy week for earnings releases and due to concerns of Beijing’s tighter scrutiny after the regulator issued draft regulations on banning unfair competition in the internet sector, while there were also reports that Tencent Music Entertainment's planned USD 5bln share sale alongside the Hong Kong listing could be delayed until next year amid China's crackdown on online platforms. Finally, 10yr JGBs were flat amid the non-committal tone seen in Japan and after the recent whipsawing in T-notes which had initially been propped up by weak US data, while the lack of purchases by the BoJ contributed to the uninspired picture with the central bank only in the market for treasury discount bills.

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 6.4765 vs exp. 6.4769 (prev. 6.4717)

China's market regulator issued draft regulations on banning unfair competition in the internet sector and said operators should not use data, algorithms or other technical means to hijack traffic or influence user choice, while it added that third-party institutions should be hired to audit data in certain cases involving violations. (Newswires)

China's military said it launched exercises in air and sea near Taiwan which are a solemn response to external interference and provocations by Taiwan's independence forces. (Newswires)

Chinese Foreign Minister Wang told US Secretary of State Blinken that the sudden withdrawal of US forces already caused a serious negative impact in Afghanistan and if the next step from US is to create new problems, it is not a responsible attitude. Furthermore, Blinken said to Wang that he agrees with peaceful co-existence and cooperation between the US and China, while he added it is important for US and China to seek constructive, practical methods to deal with regional security issues such as the situation in Afghanistan. (Global Times)

SGH Macro Advisers stated it is their understanding that Chinese President Xi sent a message to US President Biden recently via diplomatic channels and suggested a de-escalation in tensions would be in the best interest of both nations, while President Xi noted that finding ways to ease the confrontation between the two countries is of vital importance to the world and reiterated calls for solving problems through “dialogue and mutual understanding”. Furthermore, Xi dismissed the US policy of containment of China through alliances as not feasible and pointed to the clear areas of necessary cooperation such as climate change, COVID-19, nuclear proliferation, terrorism and development imbalances, while senior officials in Beijing have also taken note of reports that Treasury Secretary Yellen is mulling a trip to China in the coming months. (SGH Macro Advisers)


In FX markets, the DXY attempted to shake off yesterday’s monotonous trade with mild gains seen amid the weakness in activity currencies with focus shifting to the upcoming key releases including today’s Industrial Production and Retail Sales data, as well as Fed Chair Powell’s town hall event later and the FOMC Minutes on Wednesday. There were also recent comments from Fed's Rosengren who viewed that substantial further progress was made and would be supportive of announcing a taper program in September if there is another strong jobs report, with a preference to begin tapering in the fall. EUR/USD is flat after having recently found a floor at its 200-hour moving average of 1.1765 and GBP/USD is lacklustre with the pair dwindling amid the lack of pertinent newsflow. USD/JPY and JPY-crosses are subdued by the cautious risk tone and antipodeans underperformed with AUD/USD pressured after the RBA Minutes noted that board members considered case for a delay to the taper despite reaffirming the previously announced change in bond purchases at the meeting, while NZD/USD declined beneath the 0.7000 handle and OIS pricing of an RBNZ rate hike tomorrow fell from 100% to around 85% after officials announced a COVID-19 case in Auckland which was the first community-transferred case in New Zealand since February.

RBA Minutes from the August Meeting stated that recent outbreaks of the Delta variant of COVID-19 had interrupted the recovery and the board reaffirmed the previously announced change in bond purchases although board members considered the case for a taper delay. Minutes noted that the near-term outlook was highly uncertain and dependent on health outcomes, while the board should be ready to respond to further bad news on the health front if it should lead to a more significant setback for the economic recovery. RBA reiterated that it will not increase the Cash Rate until inflation is sustainably within the 2%-3% target and the central scenario is for this condition to not be met before 2024. Furthermore, it stated that fiscal policy is more appropriate than monetary policy in providing support and that it remains committed to maintaining highly accommodative monetary conditions. (Newswires)


Commodities were flat overnight and WTI crude futures languished below USD 67.50/bbl after the prior day's fluctuations whereby oil prices rebounded off the lows as sentiment on Wall St gradually improved and amid reports that OPEC currently sees no need to release further supply into the market despite recent calls by Washington for increased output to avert a slowdown in the economy from higher prices. Meanwhile, frictions surrounding Iran continued to fester after the latest IAEA report noted the most recent step in the nation's uranium enrichment agenda which prompted calls by the US State Department for Iran to halt nuclear escalations and return to negotiations. Gold traded sideways amid mild headway in the greenback but with the precious metal holding onto Monday's haven and data-induced gains, while copper prices were contained amid the cautious tone and with China's state planner reaffirming its agenda to contain commodity prices.

US total shale regions oil production for September seen up roughly 49,000 BPD at 8.1mln BPD, according to the EIA. (Newswires)

US Justice Department appealed a court ruling against the oil leasing pause and the Interior Department said it will proceed with oil and gas leasing during appeal. In relevant news, the American Petroleum Institute and 11 other groups filed a lawsuit against the Biden administration to compel the Department of Interior to reinstate oil and gas lease sales, after drilling auctions on federal lands and waters were banned. (Newswires)

China's NDRC said it will continue to monitor commodity prices, while it added it will use more reserves and imports to stabilize commodity prices. (Newswires)


IAEA stated in a report that Iran has produced 200 grams of uranium metal enriched up to 20% purity, which is the most recent step in its work on uranium metal that western powers have warned against. There were later comments from the US State Department that Iran should cease its nuclear escalations and return to negotiations towards full implementation of the nuclear agreement, while it added that the US is not imposing a deadline on talks but the window is not indefinite. (Newswires)

US President Biden defended his decision to withdraw from Afghanistan in which he stated that the US mission in Afghanistan was never supposed to be nation building and that the terrorist threat has grown well past Afghanistan to other countries, while he added that it is wrong to order American troops to step up when Afghan forces would not. (Newswires)

US Secretary of State Blinken spoke with China's Foreign Minister Wang Yi regarding Afghanistan developments and spoke with Russian Foreign Minister Lavrov regarding Afghanistan, while he also discussed with UK Foreign Minister Raab the need for international coordination to prevent Afghanistan becoming a base for terrorist groups. (Newswires)


The belly led the Treasury rally Monday as downbeat China data was accentuated by poor US survey data, casting recovery woes while geopolitical tensions simmer; inflation breakevens lower. At settlement, 2s -0.8bps at 0.207%, 3s -2.4bps at 0.414%, 5s -3.9bps at 0.749%, 7s -4.7bps at 1.030%, 10s -4.5bps at 1.252%, 20s -3.0bps at 1.814%, 30s -2.8bps at 1.920%. TYU1 volumes at 1.2mln in line with recent averages. 5yr TIPS -1.3bps at -1.829%, 10yr TIPS -2.7bps at -1.109%, 30yr TIPS -1.0bps at -0.306%. Eurodollars rallied as the greens and blue packs (3rd and 4th yr) fell by 6/7bps. SOFR and EFFR both unchanged at 5bps and 10bps, respectively. There was a gradual pullback in govvies led by EGBs in the European morning, with desks citing profit-taking on profitable short-term longs and real money making the most of lower yields for recent refunding paper. T-Notes proceeded to hit local lows of the NY morning around 134-03, with cash 10yr yield at 1.28%, before another sloppy August regional Fed survey (NY Mfg. after Friday's drop in UoM) reignited the bid. Peaks for the session were then made around the NY cash equity open at 134-18 in T-Notes and 1.22% in cash 10s, but as stocks gradually came off lows, so did yields. Regardless, Treasuries still sit richer by futures settlement with the belly strongest as the downbeat data has cast shadows on the global recovery outlook, with Fed tightening path questioned, and also hitting inflation breakevens too. Attention now moves to Tuesday's US retail sales print before Wednesday's 20yr bond auction and FOMC Minutes. T-note (U1) futures settled 12 ticks higher at 134-10+.

Fed's Rosengren (2022 voter) said his view is that substantial further progress was made and he has no concern about meeting the inflation part of the Fed’s mandate. Rosengren added that he would be supportive of announcing the taper program in September if there is another strong jobs report and that his preference would be to start tapering in the fall, potentially October or November and no later than December. Furthermore, he suggested bond purchases are not as effective at the moment because there are shortages of supply and labour in the economy and stated that if wages increase more rapidly than expected, it might be a reason to start thinking about increasing rates more quickly, although he doesn't expect that. (Newswires)