[PODCAST] European Open Rundown 1st September 2021
- Asian stocks traded cautiously after further disappointing Chinese PMI data and a soft handover from the US
- That said, losses on Wall Street were marginal and all major indices registered a seventh consecutive monthly gain for August
- Chinese Caixin PMI slipped into contractionary territory for the first time since April last year
- In FX, the DXY has pared some of its recent losses, EUR/USD has lost 1.18 status, havens lag
- Looking ahead, highlights include German Retail Sales, EZ, UK & US Manufacturing PMIs (final), EZ Unemployment, US ISM Manufacturing, OPEC JMMC and OPEC+ meeting, Fed's Bostic, supply from the UK & Germany.
White House COVID Response Coordinator Zients said the US administered 14mln first vaccine shots in August which is 4mln more than in May. (Newswires)
World Health Organization said it is monitoring a new coronavirus variant known as "Mu" that was first discovered in Colombia at the start of the year and known as B.1.621, while it has been classified as a "variant of interest". (France 24)
Australia's New South Wales reported 1,116 locally transmitted COVID-19 cases and Victoria state reported 120 locally transmitted COVID-19 cases. Furthermore, Victoria state Premier Andrews said they cannot ease COVID-19 restrictions today and that they will experience an increase in cases, while they are unlikely to ease lockdown restrictions until September 23rd. (Newswires)
Asian stocks traded somewhat cautiously after further disappointing Chinese PMI data and following a soft handover from the US where sentiment was mired by disappointing Chicago PMI and US Consumer Confidence data, although the losses on Wall Street were only marginal and all major indices registered a seventh consecutive monthly gain for August. ASX 200 (-0.4%) was pressured as daily COVID-19 infections continued to ramp up in Australia’s most-populous states and with better-than-expected GDP doing little to brighten the mood, given that the strong economic growth for Q2 was made somewhat stale by the lockdowns throughout the entirety of Q3 so far. Nikkei 225 (+1.1%) outperformed amid reports PM Suga is to order the compiling of an economic package and additional budget within the week, while data also showed Japanese companies' recurring profits nearly doubled Y/Y during the prior quarter. Hang Seng (+0.4%) and Shanghai Comp. (+0.9%) eventually weathered the miss on Chinese Caixin PMI data which slipped into contraction territory for the first time since April last year and effectively supported the argument for PBoC easing. However, price action was choppy as crackdown concerns also lingered amid the continued tightening of Beijing’s regulatory grip with China to curb overly fast growth in medicine expenses and the PBoC is to implement new disclosure measures for Chinese non-bank payment apps when they make new products or conduct foreign stock market listings. Finally, 10yr JGBs declined amid spillover selling from global counterparts including the bear steepening stateside and pressure in European bonds following the firm Eurozone inflation data, while the outperformance in Japanese stocks and lack of BoJ purchases in the market today also contributed to the headwinds for JGBs.
PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net drain of CNY 40bln. (Newswires) PBoC set USD/CNY mid-point at 6.4680 vs exp. 6.4668 (prev. 6.4679)
China will reportedly curb overly fast growth in medicine expenses., while it was also reported that the PBoC is to implement new disclosure measures on Wednesday for Chinese non-bank payment apps such as Ant Group's Alipay when they make new products or conduct foreign stock market listings. (Nikkei)
Japanese PM Suga said the date of the election will be decided by the ruling LDP and that they cannot dissolve parliament in the current situation, while he added there is no change that COVID countermeasures take priority over the general election. (Newswires)
- Chinese Caixin Manufacturing PMI (Aug) 49.2 vs. Exp. 50.2 (Prev. 50.3)
ECB's de Guindos stated "In September we will also have to decide on the volume of purchases for the last quarter of this year. If inflation and the economy recover, then there will logically be a gradual normalisation of monetary policy, and of fiscal policy too". (On Delta) "What we are seeing is that it is not having as great an impact as we projected four months ago". (ECB)
Japanese Economic Minister Nishimura said CPTPP member nations agreed to hold the first meeting with UK regarding its inclusion to the pact in around a month, while Nishimura believes the CPTPP is a significant contributor for coming back better from the impact of the virus. (Newswires)
- UK BRC Shop Price Index YY (Aug) -0.8% (Prev. -1.2%)
In FX markets, the DXY was rangebound but has revisited this week’s best levels after having recovered from the prior day’s trough and multi-week lows. Pertinent newsflow for the greenback as participants await ISM Manufacturing PMI later today, Factory Orders tomorrow, and Friday’s NFP jobs data. EUR/USD was lacklustre and gave up 1.1800 status, whilst GBP/USD remains stuck on a 1.37 handle. USD/JPY extended above 110.00 amid the outperformance in Japan and prospects of a fresh economic package from the Japanese government, while antipodeans were tentative due to the somewhat indecisive risk tone and with the stronger-than-forecast Australian Q2 GDP offset by the ongoing regional COVID woes and miss on Chinese manufacturing data.
SNB's Zurbruegg said it is expected that global low interest rates will remain unchanged for some time to come, while he noted that vulnerabilities on the Swiss mortgage and real estate markets are currently at a high level. Furthermore, they are seeing clear signs of unsustainable mortgage lending on the one hand and heightened risks of a price correction on the other. (Newswires)
- Australian Real GDP QQ SA (Q2) 0.7% vs. Exp. 0.5% (Prev. 1.8%)
- Australian Real GDP YY SA (Q2) 9.6% vs. Exp. 9.2% (Prev. 1.1%, Rev. 1.3%)
Commodities traded mixed with WTI crude futures slightly higher after resuming oscillations around the USD 69/bbl level but with gains capped as Gulf of Mexico producers prepare to restore activity and return output post-Ida, while the Colonial Pipeline had also restarted its main gas and distillate lines. Focus also remains on OPEC+ which holds its meeting today and is expected to proceed with a planned 400k bpd output increase for this month, while the group reportedly forecasts stocks falling in 2021 even as it raises production, but sees a surplus next year if output is fully restored. Furthermore, the latest private sector inventory data was mixed and resulted in a muted reaction as the larger than expected draw in headline crude inventories was offset by the surprise build in gasoline stockpiles. Gold prices flatlined above USD 1800/oz, while copper declined alongside the hefty losses in Chinese commodities and disappointing Chinese Caixin Manufacturing PMI data.
US Private Energy Inventory Data (bbls): Crude -4.1mln (exp. -3.1mln), Cushing +2.1mln, Gasoline +2.7mln (exp. -1.6mln), Distillate -2.0mln (exp. -0.7mln). (Newswires)
OPEC+ JTC revised its figures and now sees OECD stocks below 2015-2019 average until May 2022 vs prev. forecast of OECD stocks to be below the 2015-2019 average until January 2022, according to an OPEC+ source. (Newswires)
BSEE Gulf of Mexico production shut-in 93.69% or 1.705mln BPD (prev. 94.60% or 1.722mln BPD on Monday). (Newswires)
Louisiana Governor Edwards offered no estimate on when power will return as the damage assessment to the power grid continues. In relevant news, the Louisiana Offshore Oil Port, which is the largest deep-water oil trading terminal on the US Gulf Coast, has found no major damages to its marine operations during an initial review although operations remain offline as assessments continue, according to sources. (Newswires)
Valero Energy (VLO) is assessing possible damage at St. Charles (340k BPD) and Meraux (135k BPD) refineries in Louisiana, while it is working with suppliers to restore utilities. Shell (RDSA LN) Norco, Louisiana refinery (250k BPD) was also preparing storm damage repairs and Murphy Oil (MUR) is in the early stages of resuming oil production in the Gulf of Mexico, while Exxon's (XOM) Baton Rouge, Louisiana refinery (503k bpd), chemical plant and other facilities began restarting procedures. It was also reported that Phillips 66 Alliance, Louisiana refinery (250k bpd) remains shut with timelines for an operational restart largely dependent on the impact assessment, as well as access to electricity and other utilities in the region. (Newswires)
US Interior Department initiated steps to hold oil and gas lease sales in several states including New Mexico, Montana, Alabama, Mississippi and Oklahoma for early 2022. (Newswires)
China was reported to begin auctions of 150k tonnes of state metal reserves in a third round of sales. (Newswires)
US and Israel are holding a large and unusual military exercise in the Red Sea, according to local press. (Twitter)
Treasuries bear-steepened (2s30s +2.5bps) despite month-end and poor US data amid spillover from hawkish ECB comments and EU inflation, while participants also position for employment data, ISMs, and supply. By settlement, 2s +0.4bps at 0.207%, 3s +0.0bps at 0.399%, 5s +0.0bps at 0.771%, 7s +1.0bps at 1.079%, 10s +1.8bps at 1.302%, 20s +2.7bps at 1.850%, 30s +2.7bps at 1.926%; TY volumes were average. 5yr TIPS -5.5bps at -1.785%, 10yr TIPS +3.8bps at -1.046%, 30yr TIPS +4.7bps at -0.305%. SOFR and EFFR both unchanged at 5bps and 8bps, respectively – 3m USD Libor sits at 11.9bps, a fraction above record lows as flood of liquidity in short rates continues. There was a knee-jerk move lower across sovereigns after a much firmer than expected EU flash inflation print for August, with EGBs leading the charge higher in yields. That weakness out of Europe in bonds strengthened on the back of hawkish commentary from ECB's Holzmann advocating for taper of PEPP in Q4. T-Notes found interim lows of 133-14 at the NY handover, with bidders emerging into the weaker than forecast Chicago PMI, which was accentuated by a weaker than forecast US Consumer Confidence survey too amid a bumpy open for US stocks. T-Notes just failed to take out the APAC highs before sellers resurfaced. One desk noted dealers sold into the strength in anticipation of employment data later this week and the Treasury mini-refunding in the holiday-shortened week ahead. T-Notes made session lows as Europe began closing up at 133-12+, then gyrating sideways into the futures settlement, before the typical month-end flurry of volume traded in the final few minutes pre-settlement. Attention now moves to Wednesday's ISM Mfg. report. T-note (Z1) futures settled 2+ ticks lower at 133-14+.
White House said US President Biden's administration will announce steps for building and selling 100k more affordable homes during the approaching three years, which will be through existing authorities and targets boosting home-buying by individuals and non-profits. (Newswires)