Archives of “June 10, 2020” day

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Weekly US oil inventories +5720K vs -1850K expected

  
Analysis, Crude

Weekly US energy inventory data from the EIA:

  • Gasoline vs -1000K expected
  • Distillates +1568K vs +3500K
  • Cushing -2279K vs +1739K prior
  • Refinery utilization +1.3% vs +0.61% expected
  • Production 11.1 mbpd
The API data released late yesterday:
  • +8420K
  • Cushing -2285K
  • Gasoline -2913K
  • Distillates +4271K

The oil market hasn’t done much on the news with WTI down 86-cents to $38.31 today.

Major European close lower for the 2nd consecutive day

  
Analysis, Global Indices

German DAX, -0.5%. France’s CAC, -0.6%

The major European indices are closing lower. The indices have been lower for 3 consecutive days now.
The provisional closes are showing:
  • German DAX, -0.5%
  • France’s CAC, -0.6%
  • UK’s FTSE 100, -0.1%
  • Spain’s Ibex, -0.8%
  • Italy’s FTSE MIB, -0.6%
In the 10 year note sector the benchmark 10 year yields are mixed with flows into the “safer” countries including Germany, France and the UK. Investors are shunning the risk year Spain, Italy, and Portugal
German DAX, -0.5%. France's CAC, -0.6%_

FOMC-day is usually a good one for risk assets

  
  Analysis
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The FOMC day effect on the stock maret

The Fed put is real.
US equity futures have turned slight higher now and that aligns them with a dovish trade that’s clear in the dollar, rates and gold.
Historically, that’s a good bet.
Study after study shows that Fed day is one of the best ones for stock markets of the year. Back in 2016, Bespoke Investment Group tallied that since 1995 the average return of the S&P 500 on FOMC day is +0.34% compared to +0.03% on the average day otherwise.
The FOMC day effect on the stock maret
Longer-term studies show the same effect (and here).
Could today be the day that Powell takes away the punchbowl? It’s certainly possible but all these studies show that the jitters are always high and the reality is generally positive.

Cable fights its way to 1.28 for the first time since March 11

  
Analysis, Forex

Cable continues the retracement

Cable continues the retracement
The US dollar is soft ahead of the Fed and gold is higher. That’s a signal the market is looking for something dovish from the FOMC even if the equity market is feeling the jitters.
Cable has been somewhat of a laggard in the dollar trade, owing to the regular Brexit tomfoolery. To start the week, the pound struggled to get above 1.2750 but has broken through today and continued up to 1.2800 and sits just below now.
The pound is a mid-performer and it’s all about the weak dollar today. Expect to chop around here while we wait for Powell & Co at 2 pm ET.

All eyes on the Fed now

  
  Analysis
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The dollar keeps weaker ahead of the Fed

The greenback isn’t getting much of a reprieve despite a slight pullback in equities during European morning trade, with the dollar still seen weaker across the board.

Fed
The franc is a notable gainer, and is posting decent gains of around 1.7% against the greenback so far this week after SNB sight deposits declined for the first time since January – in a sign that the SNB is relaxing a little after months of heavy intervention.
But in any case, all eyes are on the Fed later today with a couple of main points being any indication of yield curve control and how the Fed will assess the current economic situation and what will be their response to that i.e. will they keep the party going?
Barclays
  • Expects the Fed to clarify its intentions on asset purchases
  • Fed has scaled purchases back as overall functioning has improved
  • Expects the Fed to shift its commitment from daily purchases ($4.5 billion in both Treasuries and agency MBS) to a monthly purchase rate of $80 billion in Treasuries and $60 billion in agency MBS instead
  • Does not expect a change in forward guidance
  • Expects median assessment of monetary policy to include keeping Fed funds rate at zero lower-bound through the end of 2022
Danske Bank
  • Not expecting the Fed to make any significant changes to policy stance
  • Looking for two things i.e. whether or not the Fed will change its forward guidance and changes to asset purchases to a monthly figure
  • Thinks it is too early for Fed to change forward guidance at this stage
  • Fed will make clearer what conditions for tightening policy moving forward
  • Does not think the Fed will gain much by shifting to monthly asset purchase target
  • Does not expect the Fed to implement yield curve control (YCC)
Citibank
  • US jobs report should keep policymakers more upbeat going into the meeting
  • But it is unlikely to substantially change decisions/forecasts
  • Says that the forward guidance is likely to be paired with a weak form of YCC
  • Commitment mostly to front-end yields to reflect policy path implied by guidance
  • Economic projections should show a median for no rate hikes through 2021
Deutsche Bank
  • Expects the Fed to take its first step away from a crisis prevention back towards the goal of providing accommodative support for the recovery
  • Expects the Fed to announce open-ended QE consistent with monthly purchases of Treasuries of between $65 billion and $85 billion
  • Forward guidance should be enhanced to reaffirm commitment to keep rates low
From the expectations above, it shows that the market is expecting the Fed to dial back some of its earlier commitments i.e. daily asset purchases as they are no longer necessary, considering that market conditions are well maintained for now.
WCRS 10-06

OECD estimates a 6% slump in the global economy in latest forecast update

  
Analysis, Economy

Adding that a 7.6% fall in the global economy is possible if there is a secondary wave of the coronavirus outbreak

This compares to the early March forecast here, which is long outdated considering the coronavirus developments across the globe since then.

OECD warns that governments cannot prop up businesses and wages indefinitely, and instead must support the reallocation of capital and workers following initial stimulus efforts to counteract the fallout from the coronavirus outbreak.
They also warn that the pandemic has exacerbated inequality across workers and that some working sectors are facing long-term damage with more dire consequences yet to surface from the economic crisis that is taking place at the moment.

China says it has expressed grave concerns to Japan over Abe’s remarks on Hong Kong

  
Analysis, Politics

Tensions are still brewing surrounding the situation in Hong Kong

Japan is caught in a sensitive situation as prime minister Abe has reiterated ‘serious concern’ about China enacting the national security law in Hong Kong and also having said that they want to take the lead on issuing a G7 statement on the matter.

So, this is China responding on the matter and much like other geopolitical tensions involving China, the spillover to economic consequences is the real risk for markets.
Chinese president Xi Jinping’s proposed trip – originally in April – to Japan was initially postponed by the coronavirus crisis but amid this issue, it looks like it will be an indefinite situation until both sides can see eye to eye again.

FT reports on moves within the UK government to reduce reliance on China for key imported goods

  
  Analysis

Via the Financial Times, link here (may be gated)

  • Boris Johnson’s government is drawing up a strategy to reduce the UK’s reliance on China for key imported goods, as ministers acknowledge that a combination of the coronavirus pandemic and Brexit will force a big shake-up of the country’s supply chains.
  • Those working on the project, which is overseen by foreign secretary Dominic Raab, stressed it was primarily about strengthening the country’s trade links in the wake of coronavirus but would also lead to the production of some critical goods being brought back to the UK, after the pandemic exposed the UK’s reliance on imports. 
It’ll be difficult to disentangle this from UK-China tensions re 5G and Huawei.
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