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[PODCAST] US Open Rundown 25th October 2021

  • European bourses have commenced the week fairly contained, after a mixed APAC handover, with newsflow light ahead of the packed weekly docket; ES +0.1%
  • In FX, DXY was initially subdued below 93.50 but has since picked up with peers now mostly lower; TRY lags after Erdogan labelled 10 ambassadors persona non grata
  • China's National Health Commission spokesperson expects the number of new COVID cases to keep rising
  • US President Biden had a productive discussion with Senators Schumer and Manchin regarding the Build Back Better Agenda
  • Looking ahead, highlights include BoE's Tenreyro
  • Earnings: Michelin, Facebook

CORONAVIRUS UPDATE

China's National Health Commission spokesperson said China's current COVID outbreak covers 11 provinces and expects the number of new cases to keep rising. The spokesperson said areas affected by the outbreak may expand. China said Gansu and Inner Mongolian cities are to halt bus and taxi services. (Newswires) China reported 35 new local mainland COVID cases vs 26 a day earlier. (Newswires)

The UK government is said to be paving the way to implement “plan B” measures in England. The UK Health Security Agency (UKHSA) reportedly contacted local authorities on Friday to gauge the level of support for the “immediate rollout of the winter plan – plan B”. (The Guardian)

Austria is reportedly gearing up for potential new COVID lockdown measures to apply only to unvaccinated people. (Newswires)

Australia’s Victoria State will open up further from October 29th, according to Victoria Premier Daniel Andrews. (Newswires)

US NIH's Dr Fauci said children from ages 5 to 11 could get vaccinated by early November. (Newswires)

ASIA

Asia-Pac equities kicked off the week with a downside bias as the region adopted a similar lead from Friday’s Wall Street session, although sentiment marginally improved with the region now mixed heading into the European open. US equity futures overnight opened trade with a mild negative tilt before drifting higher, with a broad-based performance experienced across the Stateside contracts, whilst European equity contracts are marginally firmer. Back to APAC, the ASX 200 (+0.3%) was kept afloat by its energy sector as oil prices drifted higher, whilst index heavyweight Telstra was boosted after partnering with the Australian government to acquire Digicel Pacific in USD 1.6bln deal - for which Telstra contributed only USD 270mln. The Nikkei 225 (-0.7%) opened lower by around 1% with Softbank and Fast Retailing the biggest losers, although the index initially trimmed losses as the JPY remained on the backfoot. The Hang Seng (+0.1%) and Shanghai Comp (+0.8%) were mixed at the open, with the latter supported by a net PBoC injection of CNY 190bln, whilst the Hang Seng Mainland Properties Index (-2.9%) was pressured by reports China's State Council is to expand the property-tax reform trials to more areas. On the flip side, China Evergrande and Evergrande New Energy Vehicle opened higher after the chairman said the group is to complete its transition to the NEV industry from real estate within 10 years. Finally, 10yr JGBs trade subdued and in contrast to its US and German counterparts.

  • PBoC set USD/CNY mid-point at 6.3924 vs exp. 6.3932 (prev. 6.4030)
  • PBoC injected a net CNY 190bln via 7-day reverse repos at a rate of 2.20%

China's National Development and Reform Commission (NDRC) has reportedly pegged Chinese Q3 growth at 5.4% vs the National Bureau of Statistics (NBS) 4.9% forecast, according to sources cited by SGH Macro Advisors. (SGH Macro Advisors)

China Evergrande (3333 HK) said it had resumed work on more than 10 projects in six cities including Shenzhen. Some China Evergrande (3333 HK) bondholders received interest payments for the tranche due on Sep 23rd after the 30-day grace period expired on Oct 23rd. (Newswires)

China's state planner NDRC to meet with property developers on Tuesday, including many with USD debt. (Newswires)

China's State Council is to expand the property-tax reform trials to more areas, according to Xinhua. (Newswires)

Goldman Sachs cuts China's 2022 GDP growth forecast to 5.2% from 5.6%; citing a longer-term push for property deleveraging and decarbonisation. (Newswires)

US

US President Biden had a productive discussion with Senators Schumer and Manchin regarding the Build Back Better Agenda, according to a statement. (Newswires) US Senator Manchin signalling he’s open to USD 1.75trl for social safety net bill, per sources, "but it’s unclear where the price tag will end up and what they’ll settle on after today’s meeting.", according to CNN's Raju. (Twitter)

US House Speaker Pelosi said she believes they are close to an agreement now and in the coming weeks, there will have a vote on both the infrastructure and the Build Back Better deals. (Newswires)

The goal among Democratic leaders is to have a vote Wednesday or Thursday on the infrastructure package and send it to President Biden’s desk, according to CNN's Raju. (Twitter)

US Treasury Secretary Yellen does not think inflation will be out of control. Inflation is expected to remain high until next year and improve in H2 2022. (Newswires)

UK/EU

UK officials said the first round of new talks on the Northern Ireland Protocol was "constructive", however, large gaps remain, particularly on the role of the European Court of Justice (ECJ). UK Brexit Negotiator Frost and European Commission VP Sefcovic, are expected to meet at the end of next week. (BBC)

UK Chancellor Sunak said there must not be a return to significant economic restrictions. Sunak added that bringing back the furlough scheme was not on the cards. The Chancellor warned against the impact of inflation on national debt servicing and said they can see the risk of inflation and interest rates. (Newswires) UK Chancellor Sunak is to raise the minimum wage and unfreeze public sector pay in the upcoming budget on Wednesday. (The Sun)

German Ifo Business Climate New (Oct) 97.7 vs. Exp. 97.9 (Prev. 98.8, Rev. 98.9)

  • Current Conditions New (Oct) 100.1 vs. Exp. 99.4 (Prev. 100.4)
  • Expectations New (Oct) 95.4 vs. Exp. 96.4 (Prev. 97.3, Rev. 97.4)
  • Ifo says Germany's economy faces an uncomfortable autumn; sees +0.5% GDP growth in Q4; every second German industrial company wants to raise prices.

S&P affirmed the UK at AA; outlook stable. (Newswires)

S&P affirmed Italy at BBB; raises outlook to positive. (Newswires)

Fitch affirmed Austria at AA+; outlook stable. (Newswires)

GEOPOLITICAL

Chinese legislators passed a decision to temporarily adjust the application of relevant statutory provisions during the reform of the national defense mobilization system, which expert said is important in the face of strained US-China ties, Global Times. (Global Times) Chinese President Xi opposes unilateralism, protectionism and zero-sum games.

US intelligence officials have launched a campaign to warn US firm over dealings with China in five sectors: artificial intelligence, quantum computing, biotechnology, semiconductors and autonomous systems. (FT)

Russia called Iran's demands to revise the JCPOA deal "logical and justifiable". (Newswires)

EQUITIES

A tentative start to the week for European equities (Stoxx 600 U/C) as stocks struggle to find direction. On the macro front, the latest IFO report from Germany was mixed, with commentary from IFO downbeat, noting that Germany's economy faces an uncomfortable autumn as supply chain problems were causing trouble for companies, and production capacities were falling. The overnight session was a mixed bag with the Shanghai Composite (+0.8%) supported by a liquidity injection from the PBoC whilst the Hang Seng Mainland Properties Index (-2.9%) was pressured by reports China's State Council is to expand the property-tax reform trials to more areas. Stateside, US futures are marginally firmer with newsflow in the US in part, focused on events on Capitol Hill with CNN reporting that the goal among Democratic leaders is to have a vote Wednesday or Thursday on the infrastructure package. Note, the Fed is currently observing its blackout period ahead of the November meeting. From an earnings perspective, large-cap tech earnings dominate the slate for the week with the likes of Facebook (FB), Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) all due to report. Back to Europe, sectors are somewhat mixed as Basic Resources is the marked outperformer amid upside in underlying commodity prices. It’s been a busy morning for the Banking sector as HSBC (+1%) reported a 74% increase in Q3 earnings, whilst Credit Suisse (+0.7%) is reportedly mulling the sale of its asset management unit. Less encouragingly for the sector, UniCredit (-0.5%) and BMPS (-3.2%) shares are lower after negations on a rescue plan for BMPS have ended without an agreement. Finally, Airbus (-1.2%) and Safran (-2.3%) sit at the foot of the CAC after reports suggesting that the CEO's of Avolon and AerCap have, in recent weeks, written to the Airbus CEO expressing their concerns that the market will not support Airbus' aggressive plans to increase the pace of production; subsequently, Airbus has rejected their proposal, according to sources.

Tesla (TSLA) CEO says the FSD beta is rolling out. (Twitter) Follows weekend reports that the full self drive beta was being pulled due to tester complaints on false crash warnings, among other issues

Twitter (TWTR) is working on bringing Bitcoin (BTC) Lightning Tip Jar support to Android, via tech blogger Wong. (Twitter)

Panasonic Battery Chief declines to comment on whether they are in discussions with Apple (AAPL) on batteries. New 4680 format will strengthen relations with Tesla (TSLA), no plan to make LPF batteries for EVs. (Newswires)

FX

DXY - The Dollar is somewhat mixed vs major counterparts and the index is jobbing around 93.500 as a result in rather aimless fashion at the start of a typically quiet start to the new week awaiting fresh impetus or clearer direction that is highly unlikely to come from September’s national activity index or October’s Dallas Fed business survey. Instead, the Greenback appears to be reliant on overall risk sentiment, US Treasury yields on an outright and relative basis along with moves elsewhere and technical impulses as the DXY roams within a 93.775-483 range.

TRY - Lira losses continue to stack up, and the latest swoon to circa 9.8545 against the Buck came on the back of Turkish President Erdogan’s decision to declare 10 ambassadors persona non grata status due to their countries’ support for a jailed activist, including diplomats from the US, France and Germany. However, Usd/Try has actually pared some gains irrespective of a deterioration in manufacturing confidence and this may be partly psychological given that 10.0000 is looming with little in the way of chart resistance ahead of the big round number.

AUD/NZD - Iron ore prices are helping the Aussie overcome rather mixed news on the COVID-19 front, as the state of Victoria is on course to open up further from Friday, but new cases in NSW rose by almost 300 for the second consecutive day on Sunday. Nevertheless, Aud/Usd has had another look at offers around 0.7500 and Aud/Nzd is approaching 1.0500 even though Westpac sees near term downside prospects for the cross while maintaining its 1.0600 year end projection, as Nzd/Usd continues to encounter resistance and supply into 0.7200.

GBP/CAD - Sterling has regrouped after losing some of its hawkish BoE momentum and perhaps the Pound is benefiting from the latest rebound in Brent prices towards Usd 86.50/br on top of reports that the first round of talks between the UK and EU on NI Protocol were constructive, while the Loonie is up alongside WTI that has been adobe Usd 84.50 and awaiting the BoC on Wednesday. Cable is around 1.3750 after fading into 1.3800, Eur/Gbp is hovering above 0.8450 and Usd/Cad is pivoting 1.2350.

EUR/JPY/CHF - The Euro has bounced from the lower half of 1.1600-1.1700 parameters and looks enshrined by a key Fib just beyond the current high (1.1670 represents a 38.2% retracement of the reversal from September peak to October trough) and decent option expiry interest under the low (1 bn between 1.1615-00), with little fundamental direction coming from a very inconclusive German Ifo survey - see 9.00BST post on the Headline Feed for the main metrics and accompanying comments from the institute. Elsewhere, the Yen is hedging bets prior to the BoJ within a 113.83-42 band against the Dollar and the Franc seems to have taken heed of another rise in weekly Swiss sight deposits at domestic banks as Usd/Chf climbs from circa 0.9150 towards 0.9200 and Eur/Chf trades nearer the top of a 1.0692-65 corridor.

SCANDI/EM/PM - Firm oil prices are also underpinning the Nok, Rub and Mxn to various extents, while the Zar looks content with Gold’s advance on Usd 1800/oz and the Cnh/Cny have derived traction via a firmer onshore PBoC midpoint fix, a net Yuan 190 bn 7 day liquidity injection and the fact that China’s Evergrande has restarted work on more than 10 projects having made more interest payments on bonds in time to meet 30 day grace period deadlines.

Turkey's President Erdogan has ordered 10 ambassadors, including those from the US, Germany and France, be declared persona non grata. (BBC)

Turkish state banks are said to cut borrowing costs in lockstep with the CBRT, sources state. (Newswires)

S&P affirmed Turkey's long-term foreign currency rating at "B+" and long-term local currency rating at "BB-," with a stable outlook. (Newswires)

Notable FX Expiries, NY Cut:

  • EUR/USD: 1.1600-15 (1BLN), 1.1660 (452M), 1.1720-25 (637M)
  • USD/JPY: 112.50 (780M), 113.00-15 (1.2BLN), 113.50-60 (440M), 114.00 (480M), 114.25 (421M), 114.35-40 (425M), 114.50-55 (650M)

FIXED

Bunds got a minor fillip from the German Ifo survey that was mixed against consensus in terms of expectations, current conditions and the business climate, but pretty downbeat in detail as supply constraints continue to adversely affect output and sentiment in manufacturing, services and trade sectors, prompting the institute to warn of an uncomfy Autumn (and perhaps Winter of discontent one might deduce barring bottlenecks clearing quickly). However, the core Eurozone debt future is lagging peers around parity between 168.07-59 parameters, as Gilts staged a more pronounced rebound from 123.85 to 124.13 in line with the UK STIR strip that might be looking toward Tenreyro for another dovish-leaning address to temper some of the BoE tightening fervour that has been building. Meanwhile, US Treasuries are meandering mid-range with fractional long end underperformance ahead of the national activity index and Dallas Fed business activity survey.

COMMODITIES

A modestly firmer start to the week for the crude complex though action has been contained and rangebound throughout the European session after a modest grinding bid was seen in APAC hours. Currently, the benchmarks post upside of circa USD 0.30/bbl amid relatively minimal newsflow. The most pertinent update to watch stems from China, where the National Health Commission spokesperson said China's current COVID outbreak covers 11 provinces and expects the number of new cases to keep rising; additionally, the number of affected provinces could increase. Separately, but on COVID, they are some reports that the UK Government is paving the wat for ‘plan B’ measures in England, while this are primarily ‘softer’ restrictions a return of work-from-home guidance could hamper the demand-side of the equation. Note, further reports indicate this is not on the cards for this week and there are some indications that we could see, if necessary, such an announcement after the COP26 summit in Scotland ends on November 12th. Elsewhere, and commentary to keep an eye on for alterations given the above factors, Goldman Sachs writes that the persistence of the global oil demand recovery being on course to hit pre-COVID levels would present an upside risk to its end-2021 USD 90/bbl Brent price target. Moving to metals, spot gold and silver are firmer but reside within tight ranges of just over USD 10/oz in gold, for instance. In a similar vein to crude, newsflow explicitly for metals has been minimal but it is of course attentive to the COVID-19 situation while coal futures were hampered overnight as China’s State Planner announced it is to increase credit supervision in the area.

"Chinese magnesium producers and traders in Yulin, N.China's Shaanxi, which produces over 50% of global supply, predict up to 10% cut in exports, which could affect many business overseas.", China's Global Times tweeted. (Global Times) Miners in Shanxi, Shaanxi, and Inner Mongolia have cut spot coal prices by CNY 100-360/t, according to the NDRC. (Newswires) China's State Planner says China is to strengthen credit supervision over medium/long-term thermal coal contracts; urges coal firms to strictly perform contractual obligations. (Newswires)

The Nigerian oil minister said OPEC+ needs to be very cautious and needs to wait before raising output faster. He added the country is producing 1.4mln BPD, with the aim of 3.0mln BPD in three years. (Newswires)

Goldman Sachs says that the persistence of the global oil demand recovery being on course to hit pre-COVID levels would present an upside risk to its end-2021 USD 90/bbl Brent price target, expect oil demand to remain near pre-COVID levels this winter, even if it features average winter temperatures. (Newswires)

Saudi Arabia is committed to net-zero emissions by 2060. (Newswires)

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