Market Commentary

10/06/20: ADMISI's Morning Call

  • FOMC meeting in focus; digesting misses on China inflation, Japan Orders, Australia Consumer Confidence rebound, awaiting US CPI & Treasury Budget; OECD economic forecast update, raft of ECB speakers; German 30-yr  syndication; UK I-L 2036 auction
  • US CPI: headline and core to remain very subdued; energy prices a drag, Food likely to exercise upward pressure; core CPI to see drag from household energy, medical related costs the wild card 
  • FOMC: seen standing pat, underline outlook uncertainty, willingness to do 'what is necessary', but may discuss YCC and when to change QE strategy




If yesterday's schedule was underwhelming, today's run has plenty of meat on the proverbial bone. The focus will naturally fall primarily on the FOMC meeting, but there are Japan's Orders, Chinese & Norwegian CPI & PPI, Australian Consumer Confidence and French Industrial Production to digest, while the US will look to CPI and Treasury Budget. Ahead of the FOMC, the OECD provides its semi-annual forecast update (typically this tends to strongly echo individual govt's economic forecasts) and there are numerous ECB speakers. The US takes a break from this week's refunding exercise due to the FOMC meeting, leaving the UK as the only major issue holding an auction via way of £900 Mln 2036 Index-Linked Gilts, following on from the rather more significant and typically heavily oversubscribed 2050 conventional syndicated sale yesterday (also witnessed in the Irish & Spanish, even Greek syndications); Germany sells 30-yr via syndication today. As a reminder, outsized demand at these syndications is due to a) the fact these are liquidity events, allowing larger transactions that are near impossible to complete in illiquid secondary market trading due to the hefty offer premiums / bid discounts that are applied for size, and b) forces fund managers and others to participate given the damage done to secondary "free float" via QE (applies to any central bank); it does not reflect anything do with any value or macro considerations (outside of QE of course). In regards to the overnight data, it had been expected that the run of better Japan Orders during Q1 would be sharply reversed, though the fall of 12.0% m/m -17.7% y/y was worse than expected, and will likely see a further fall in May, the question is whether that will mark the trough. As for China's inflation data, both CPI (2.4% vs. expected 2.7%), and PPI at -3.4% vs. expected -3.7%) missed forecasts; energy accounted for much of the fall in PPI, though most sub-groupings also fell even if to a lesser extent, while on CPI both food (very favourable base effects due to pork and fruit price surge in 2019) and energy prices continue to pressure headline, but at 1.1% y/y core CPI remains very subdued, as does Services CPI at 1.0% y/y - per se this continues to give the PBOC to continue to guide the key LPR rates lower.


** U.S.A. - May CPI **

- Forecasters look for a flat reading on headline and core CPI, which would put y/y rates at an unchanged 0.3% headline and 0.1 ppt lower at 1.3% for core. The key is likely to be how the energy (mixed) vs. food (higher) plays out in headline terms, and Shelter and Medical Care turn out for core. As much as retail gasoline prices rose on the month (1.6% m/m), that is lower than the typical rise the seasonal adjustment assumes at the start of the driving season (3.0-4.0%), but this may well be offset by Food prices, above all given the sharp increases anticipated by consumers (8.7% y/y) in Monday's NY Fed consumer survey ( The sharp rise in Unemployment, and weak household energy prices seem likely to keep the key heavily weighted OER / Shelter component under pressure, leaving Medical care and pharmaceutical as the wild card. It should also be reiterated that consumer price compilers are struggling around the world with data collection due to lockdown restrictions, suggesting plenty of scope for erratic and/or anomalous readings.


** U.S.A. - FOMC meeting **

- The FOMC is expected to hold rates (FF 0.0-0.25% and IOER at 0.1%), and the initial point of focus will be on how dismal the FOMC's central projections will be, bearing in mind that none were produced for the March meeting, due to the very high level of uncertainty (though staff forecasts have been produced). The FOMC has pushed back heavily on market speculation about negative rates (which has been buried in the short-term by Friday's deceptive labour data), but there is expected to be a discussion on (BoJ style) 'Yield Curve Control', though not as an immediate, but possible future policy option. There may also be some discussion on when and under what circumstances a shift from the current 'whatever is necessary' implementation approach to QE (in all its numerous current guises) purchases, to a the prior time/volume specific pace would be appropriate. That said, Powell and co. will very likely stress that the risks remain to the downside of forecasts (particularly with the upturn in new cases in 20 or more states), and that progress in containment of the pandemic remain critical, and as such they continue to stand ready to 'do more' and 'whatever is necessary'. It will also be interesting to note whether there are any questions about the recent spike higher in demand at Fed repo operations (see chart), which needs close monitoring. Hopefully, there will also be more testing questions directed at central bankers about the sharp credit crunch that was so evident in the UK and US Consumer Credit last week (even when taking account of the collapse in auto sales a key contributor to the slide), with plenty of anecdotal evidence that SMEs also continue to face a very sharp tightening of credit conditions.



========================== ** THE DAY AHEAD ** ===========================






Slovakia     09:00  ECB's Kazimir holds press conference

France       10:00  OECD Economic Outlook semi-annual update

Sweden       11:00  Riksbank's Ingves speaks on monetary policy

                    challenges in a low rate environment

Germany      12:00  ECB's Schnabel speaks at Florence School of Banking

                    and Finance seminar

Netherlands  12:00  ECB's Knot testifies to Dutch parliament on potential

                    risks from Covid19 outbreak to the financial sector

Spain        14:30  ECB's de Guindos speaks at Institute of International

                    and European Affairs (IIEA) event

U.S.A.       19:00  FOMC rate decision - No change Fed Funds (0.0-0.25%) or

                    IOER (0.10%)

             19:30  Powell press conference

Mexico       -----  Banco de Mexico Financial Stability report


- Govt Bond Auctions / Buybacks 

Australia    02:00  AUD 2.0 Bln 1.0% 2030 ACGB

China        03:35  CNY 48 Bln 2022 & CNY 54 Bln 2025 Govts

Vietnam      06:30  VND 2.0 Trln 2035 & VND 500 Bln 2050 Govts

Mauritius    07:00  Size t.b.c. 2022 Govt

Russia       09:00  Regular OFZ auction

China        09:00  CNY 1.7 Bln total 2030, 2035 & 2040 Tibet Special Munis

U.K.         10:00  GBP 900 Mln 0.125% 2036 Index-linked Gilt

Namibia      10:00  NAD 245 Mln total 2023, 2027, 2032, 2037 & 2043 Govts

Switzerland  10:15  Size t.b.c. 2029 & 2034 CONF

Czech Rep.   11:00  CZK 9.0 Bln total 0.25% 2027, 1.2% 2031 & 1.5% 2040 Govts

Uganda       11:00  UGX 285 Bln 11% 2022 & 14.25% 2029 Govts


- Corporate Earnings:

• GAIL India (Q4) • Zee Entertainment Enterprises (Q4)  // Codemasters (Yr 0.12) • Inditex (Q1 -0.08) • LondonMetric Property (Yr 0.09) • OPAP (Q1) • Paragon Banking (H1) • Shaftesbury (H1 0.08) • SOITEC (Yr 3.22) • VP (Yr 0.96)   // Petrobras Distribuidora (Q1)





** TODAY'S DATA **                                 

******************                                       MEDIAN


South Korea  00:00  May Unemployment Rate SA               4.0%

Japan        00:50  Apr Private Machinery Orders   -7.5% (m) -13.2% (y)

             00:50  May PPI                        -0.3% (m) -2.4% (y)

Australia    01:30  Jun Westpac Consumer Confidence

             02:30  Apr Housing Finance                 -10.0% (m)

Philippines  02:00  Apr Trade Balance                   $-2-35 Bln               

             02:00  Apr Exports                         -17.0% (y)

             02:00  Apr Imports                         -30.0% (y)

China        02:30  May CPI                               2.7% (y)

             02:30  May PPI                              -3.2% (y)

China        -----  May M0                                9.8% (y)

             -----  May M1                                5.7% (y)

             -----  May M2                               11.3% (y)

             -----  May New Yuan Loans                CNY 1.60 Trln

             -----  May Aggregate Social Financing    CNY 3.10 Trln          

             -----  May Foreign Direct Investment         

New Zealand  -----  May REINZ House Sales South Korea  04:00  May Bank Lending To Households

Finland      06:00  Apr Industrial Production

Denmark      07:00  May CPI                        -0.1% (m) -0.1% (y)

Norway       07:00  May CPI                         0.1% (m) 1.1% (y)

             07:00  May Underlying CPI              0.1% (m) 2.9% (y)

             07:00  May PPI                     

France       07:45  Apr Industrial Production     -20.0% (m) -33.1% (y)

             07:45  Apr Manufacturing Output      -20.0% (m) -35.3% (y)

Slovakia     08:00  Apr Industrial Production

             08:00  Apr Construction Output

Czech Rep.   08:00  May CPI                         0.1% (m) 2.6% (y)

Sweden       08:30  Apr Household Consumption

Slovenia     09:30  Apr Industrial Production

Greece       10:00  May HICP

Israel       11:00  May Consumer Confidence

South Africa 11:00  Q2 BER Business Confidence

Ukraine      -----  May PPI

Belarus      -----  May CPI

Estonia      -----  May Unemployment Rate

Egypt        -----  May Urban CPI

U.S.A.       12:00  MBA Mortgage Applications

             13:30  May CPI                        Flat (m) 0.3% (y)

             13:30  May CPI ex-Food & Energy       Flat (m) 1.3% (y)

             19:00  May Treasury Budget               $-585.0 Bln

Brazil       13:00  May IBGE Inflation IPCA      -0.47% (m) 1.78% (y)

Argentina    20:00  Apr Capacity Utilization

Mexico       -----  May ANTAD Same-Store Sales

New Zealand  23:45  May Retail Card Spending            65.0% (m)


******************  OVERNIGHT HEADLINES  *****************


China      - Factory gate deflation deepens on global demand slump

           - May PPI -3.7% y/y vs -3.3% Reuters poll

           - May CPI +2.4% y/y vs +2.7% Reuters poll

           - May Food CPI eases to 10.5% y/y from April 14.8%

           - May Non-food CPI unchanged at 0.4% y/y

           - COVID-19 pandemic continues to weigh on global demand

           - Falling inflation seen creating more room for policy easing  


China/EU   - COVID-19 magnifies challenges to business in China - European

             business group


Japan      - Private machinery orders, wholesale prices sink as pandemic hits

             business spending

           - April core Machinery Orders fall -12.0% m/m -17.7% y/y vs

             f'cast -7.0%/-13.2%

           - Pandemic seen hurting business spending in months ahead

           - May PPI -0.4% m/m -2.7% y/y vs f'cast -0.3%/-2.4%


Sth Korea  - May Unemployment Rate surges to 4.5% 10-year high, vs.

             expected 4.0%, April 3.8%


U.K.       - Vodafone says UK's desire to lead in 5G will suffer a blow if

             Huawei is ripped out


Eurozone   - ECB prepares 'bad bank' plan for wave of coronavirus toxic debt

             - sources

           - Task force prepares blueprint for bad loans scheme - sources

           - ECB fears wave of unpaid debt after coronavirus pandemic

           - Project could face political obstacles


France     - French govt looking to end emergency COVID-19 health measures on

             July 10 - Le Figaro/Le Monde


EU         - Applications for asylum in EU plummet 86% y/y during pandemic


Philippines: April Trade deficit hits lowest in more than 5-yrs at $-499 Mln

           - April Exports fall 50.8% y/y vs. expected -25.8%

           - April Imports fall 65.3% y/y vs. expected -31.4%


UK/Eurozone: U.K., Ireland and Spain Bonds Swamped With $230 Billion of Bids

           - U.K. 30-yr raises £9.0 Bln; Order books: >£70 Bln,

             Pricing: +0.5 bps over 2049

           - Spain 20-yr raises EUR 12.0 Bln; Orderbooks: >EUR 75.0 Bln

             Pricing: +29 bps over 2035

           - Ireland’s 10-yr raises EUR 6.0 Bln Orderbooks: >EUR 75.0 Bln

             Pricing: +32 bps above mid-swaps

           - Greece’s 10-yr raises EUR 3.0 Bln Orderbooks: >EUR 16.0 Bln

             Pricing: +160 bps above mid-swaps


U.S.A.      - High-yield default rates spike even as spreads rally 

            - Ten HY iSsuers default on $23.0 Bln of debt in May


USA/Energy - API: U.S. crude, distillate stocks surge in latest week

           - U.S. crude stocks rise 8.4 Mln bbls vs. forecast -1.7 Mln

           - U.S. gasoline stocks falls 2.9 Mln bbls vs. forecast +17K

           - U.S. distillate stocks up 4.3 Mln bbls vs. forecast +3.0 Mln


USA/Energy - U.S. crude output decline in 2020 to be steeper than previously

             expected - EIA


U.S.A.     - With crisis response in place, Fed looks to long term

           - Fed's last projections:

           - Fed's pandemic safety net:


           - U.S. Fed to publish annual bank 'stress test' results on June 25


U.S.A.     - Investors brace for market swings as Trump slips in election polls

           - Positioning for U.S. election volatility


           - As coronavirus risk recedes, election risk rises



U.S.A.     - Little evidence of antifa links in U.S. prosecutions of those

             charged in protest violence


Argentina  - Argentina debt talks, in tough final mile, spark hope and tension


------------- TOP FIXED INCOME / FX / COMMODITY HEADLINES ----------------


** FOREX **


> Dollar treads water as traders wait for Fed policy meeting            

> Yuan firms to 1-1/2-month high, shrugs off weaker-than-expected fixing

> Trade weighted CNH falls to 91.44 a new 2020 low Indonesia gov

> says stronger rupiah "good for economy"

> Australia, NZ dollars pause near highs, economies re-open

> Most Asian currencies gain; rupiah weakens  

> Sterling rises above $1.27; driven by dollar moves                    

> South Africa's rand flat, stocks slip as risk bulls pause for Fed meeting

> Loonie dips as investors take some profits ahead of Fed decision      

> Latam FX slip after risk rally; Fed in focus           





> JGBs give up early gains after BoJ ops JGBs extend yesterday's gains,

> then run out of steam before FOMC JGB 2s +0.5bp at -0.16%, 5s +1bp at

> -0.10%, 10s +0.5bp at 0.02% JGB 20s -0.5bp at 0.37%, 30s unch at

> 0.535%, 40s unch at 0.555% S&P cuts Japan's debt outlook as spending

> surges during pandemic China 2-yr treasury bond futures flat, 5-yr

> mixed, 10-yr higher India Bond Yields Tad Lower On Liquidity Surplus,

> OMO Bets Asia Credit: Risk rally stalls as Wall Street takes profits


> UST yields tumble ahead of Federal Reserve policy meeting Treasuries

> Bull Flatten; Steepener Fatigue Sets In Ahead of FOMC Canadian bond

> yields decline across flatter curve

> Euro$: Soft equities and pre-FOMC position squaring drive the trade

> USD Swaps widen in lag to Tsy rally, Libor blip, but deals soften bids

> US Credit: bankruptcies picking up in Energy, Retail US IG Credit:

> Seven issuers raise US$6.95bn in primary market US HY Credit: Five

> issuers raise US$2.5bn in primary Argentina debt talks, in tough final

> mile, spark hope and tension

> McLaren dares bondholders to debt game of chicken  

> Orange subsidiary to raise $174 mln on West African debt market  

> Turkey agrees Euroclear deal for wider access to local bond market

> Dubai Islamic Bank sells $1 bln in long 5-yr dollar sukuk - document





> Oil falls as U.S. inventory rise revives oversupply concerns        

> Gold gains as equity rally pauses ahead of Fed verdict              

> Shanghai copper jumps to 20-week high on China demand               

> Dalian iron ore ticks higher amid supply uncertainties, easing mills demand

> Soybeans gain on China demand, wheat falls for fourth day   

> Palm gains on stronger soyoil, bullish data to lend further support

> Raw sugar rally stalls, coffee futures close down      

> China buys Argentina sorghum amid U.S., Australia trade disputes -

> sources

> CBOT: Wheat futures at 2-wk low as US harvest comes in

> CBOT: Corn US biofuel sector warns of new oil fight, futures fall

> CBOT: Soybean futures fall amid strong planting progress

> CBOT: Soyoil futures bounce back as palm oil gains 2%


> China's coal mining hub Shanxi to shut small mines by end-2020       

> Italian government rejects ArcelorMittal's Ilva plan as workers strike

> Mexican president urges Canadian mining firms to pay taxes           

> Saudi Arabia aims to boost investment with new mining law           

> Chalco gets licence for bonded bauxite warehouse in southern China  

> Guinea signs Simandou iron deal with SMB-Winning consortium         

> Poland halts work at 12 coal mines to curb COVID-19, angering union 

> Oil tankers turn away from Venezuela as more sanctions loom         

> Refineries around Asia join Chinese peers in ramping up oil output  

> LNG recovery in Asia depends on China, India policies               

> Global gas demand on course for biggest annual fall on record -IEA  

> U.S. crude output decline in 2020 to be steeper than previously

> expected Libya's Sharara oilfield declares force majeure after brief shutdown

> China to cut teapot refining capacity as plans for mega complex     

> Shale companies look to bolster insurance for directors and officers

> India's HPCL delays $3 bln Vizag refinery expansion - source         

> Vitol veteran Taylor, who transformed oil trade, dies aged 64       

> Shell restarts operations in Vaca Muerta block after seismic activity

> Aker BP, Equinor approve investments after Norway tax incentive     

> Fuel from Russian Arctic spill reaches large lake, says governor 

> Argentina stirs up giant soy market with state takeover                

> Australia raises wheat output forecast by 25% after rain relieves drought

> Ivory Coast to reduce fees paid by domestic cocoa exporters             

> Republican lawmakers ask US Agri Dept to ease regs on meat production  

> JBS to reopen Brazil beef plant after 100s test positive for COVID-19

> Egypt's GASC seeks wheat for July 12-22 shipment                          

> Ontario testing migrant farm workers after coronavirus deaths, severe cases

> Thailand approves $300 mln aid for drought-stricken sugarcane farmers  



===================== ** CORPORATE / EQUITY HEADLINES ** =================


** TOP STORIES ** Asian Companies / Indices **



> Asian shares creep higher as markets wait for Fed      

> MSCI AxJ index up 0.3%, Nikkei rises +0.15% to 23,124.95

> Asian stock markets:

> China stocks fall after factory gate deflation deepens

> Indian shares rise as investors bet on swift economic revival


> Chinese companies put U.S. listing plans on ice as tensions mount  

> Cathay Pacific shares hit 3-1/2-mth high after rescue package, outlook unclear

> China's air passenger decline slows in May as economy reopens     

> Pompeo chides HSBC for 'corporate kowtow' to Beijing                  

> Emirates to lay off more pilots, cabin crew on Wednesday, sources say 

> China curbs high-yield structured deposits by companies - sources     

> SoftBank's Arm says China joint venture replaces CEO                  

> Fujifilm to spend $928 mln to double capacity of Danish drug facility 

> Harvey Norman pays special divi as Australia sales surge, shares jump

> Commonwealth Bank of Australia hit with insurance class action      

> Indian firm Panacea says aiming to make COVID-19 vaccine             

> India's HPCL delays $3 bln Vizag refinery expansion - source         

> TikTok's Mayer pledges fake news fight in call with EU's Breton      

> LG Chem in $1.1 bln deal with Shanshan to sell LCD polarizer business

> Fletcher Building's lenders allow more room for debt covenants   




** TOP STORIES ** Americas Companies / Indices **



> S&P 500, Dow ease as focus shifts to Fed; tech pushes Nasdaq to record

> Broad S&P 500 pullback led by cyclical stocks

> US indices:  Dow down 1.1%, S&P 500 down 0.8%, Nasdaq up 0.3%

> VIX volatility index rises 1.75 pts at 27.57%

> Canada's TSX falls 0.88% to 15,833.74

> Latam stocks, FX slip after risk rally; Fed in focus


> Savings surge forces Goldman to shut Marcus to new UK clients         

> Chinese companies put U.S. listing plans on ice as tensions mount     

> Citi uncomfortably straddles Hong Kong-China fence                  

> Gilead's remdesivir prevents lung damage in COVID-19 study on monkeys

> Boeing jet deliveries sink to just four in May                      

> AMC to reopen theaters globally in July, shares rise                

> Chesapeake shares tumble amid volatility, trading halts             

> Morgan Stanley's Gorman says worst behind, sees smaller reserve build in Q2

> Republican senators push FCC to act on Trump social media order     

> CME to reopen Chicago eurodollar options trading pit on Aug. 10     

> Online used car seller Vroom's shares go into overdrive in Nasdaq debut

> First major U.S. offshore wind farm reaches permitting milestone     

> CrossFit founder steps down as CEO after criticism over Floyd tweet  

> Business analytics firm Dun & Bradstreet launches U.S. IPO   

> Canada, U.S. set to extend border closure to end-July -sources      

> Mexican president urges Canadian mining firms to pay taxes          

> Former Bank of Canada governor Poloz joins CGI board                

> Loonie dips as investors take some profits ahead of Fed decision    

> Ontario testing migrant farm workers after coronavirus deaths, severe cases

> Toronto's first black police chief announces surprise retirement 

> Mexico's coronavirus peak still weeks off, 600 new deaths tallied

> Argentina stirs up giant soy market with state takeover          

> Arrest of Mexican labor activist raises concerns for worker rights

> Mexican economy likely shrank 17% in April, says finance minister

> Mexico's tax chief eyes criminal charges as path to tougher corporate

> Oil tankers turn away from Venezuela as more sanctions loom         

> Argentina debt talks, in tough final mile, spark hope and tension   

> Shell looks to Brazil solar power sales from farms due online in 2023   

> Santander Brasil denies media reported plans to lay off 20% of workforce

> Hundreds of Venezuelans camp in northern Bogota, await return home       

> Chile's women's minister, Pinochet's great niece, resigns a month into post




N.B. please contact via mobile until further notice

- Skype, Teams and Zoom all possible for media interviews -




Marc Ostwald, Chief Economist & Global Strategist

t +44 20 7716 8534 / m +44 7775 850465


The information within this publication has been compiled for general purposes only. Although every attempt has been made to ensure the accuracy of the information, ADM Investor Services International Limited (ADMISI) assumes no responsibility for any errors or omissions and will not update it. The views in this publication reflect solely those of the authors and not necessarily those of ADMISI or its affiliated institutions. This publication and information herein should not be considered investment advice nor an offer to sell or an invitation to invest in any products mentioned by ADMISI.  © 2019 ADM Investor Services International Limited.