Futures Flat After Trump Returns To White House, Ahead Of Powell Address

S&P futures drifted following yesterday’s surge to 3,400 following news that Trump was returning to the White House ahead of a 1040am ET speech by Fed Chair Powell in which expected to repeat that the Fed has done as much as it can and the recovery is now in the hands of lawmakers. Oil and treasurys climbed while the dollar was little changed as investors focused on President Trump’s health and awaited progress on an American virus relief package, where Politico reported that Nancy Pelosi said that stimulus negotiations with Steven Mnuchin were going “very slowly” during a Monday night conference call with Democratic leaders.

Tech stocks underperformed and FAAMGs stocks fell in light premarket trading after a late Monday report that  a Democrat-led House panel is set to call for an overhaul of competition law to block them from both owning marketplaces and selling their products on them. As if keen to prove its monopoly power, just hours earlier Apple unveiled plans to launch its own audio products and stop selling rival headphones, sending Logitech shares lower. U.S.-listed shares of BioNTech jumped 9.7% after the European health regulator said it had started a real-time review of the COVID-19 vaccine being developed by the German biotech firm and Pfizer, whose shares rose 1.7%.

Europe Stoxx 600 Index fluctuated, and was last just barely in the green with tech and health-care stocks posting declines. Earlier in the session, the MSCI Asia Pacific Index climbed for a second day. The Topix gained 0.5%, with Danto and Narumiya Intl rising the most. Shares in China remained closed for holiday.

The biggest news on Monday was Trump’s return to the White House from the Walter Reed Medical Center military hospital, when he released a video message stating to not let the virus dominate you and that he feels great, while he added that he could have left hospital 2 days ago and that vaccines are coming momentarily. However, the president faced immediate media backlash for removing his mask upon his return and urging Americans not to fear the disease. Some complained that Trump’s return from three days of hospital treatment for Covid-19 left unanswered questions about his condition and doubts about his willingness to abide by constraints needed to keep a virus outbreak at the White House from worsening. Meanwhile, there continue to be lingering concerns about the trajectory of the pandemic: in Germany, new coronavirus cases jumped the most since mid-April and Italy is set to tighten restrictions to curb the spread of the virus.

“The momentum of the recovery is clearly fading now and the positive surprises have ended,” according to strategists at Dutch asset manager Robeco. “With winter approaching in the northern hemisphere, we are already seeing more infections across much of Europe and local lockdowns that will hurt the economic recovery.”

On the fiscal stimulus front comments from officials that a deal was still possible had lifted Wall Street’s main indexes in the previous session, helping them recoup losses from last week that were sparked by news that President Donald Trump had contracted COVID-19. However, Politico poured cold water on optimism when it reported that Speaker Nancy Pelosi told House Democratic leaders on a conference call Monday night that stimulus negotiations with Treasury Sec. Steven Mnuchin were going “very slowly.”

At 1040am all eyes will be on an address by Fed Chair Jerome Powell at a virtual meeting of the National Association for Business Economics, where global central bankers are likely to present their plans about how much more they can do to prevent an economic depression. Powell is expected to reiterate that the bank has done as much as it can and the recovery is in the hands of lawmakers. ECB Chief Economist Philip Lane will also deliver a keynote address at the NABE conference alongside Powell.

ECB President Christine Lagarde warned earlier that while virus containment measures pose a clear risk to the recovery, her biggest fear is a sudden end to fiscal support. The ECB head warned virus containment measures pose a clear risk to the recovery, and told the WSJ that the V-shaped rebound “might have a second arm,” but the risk of a “cliff effect” from any sudden end to government support is what worries her most.

In rates, treasuries recovered some of Monday’s losses; with the curve bull-flattening on above-average futures volumes during Asia session where demand emerged to buy the dip, and the European morning. Yields were lower by ~1bp across the curve, off session lows reached during European morning; 10-year TSYs were lower by 1.2bp at ~0.77%, outperforming bunds and gilts, after falling as much as 2.7bp; the 8.1bp increase Monday was biggest since Sept. 4. The weekly auction cycle begins with a 3-year note sale with a record $52b 3-year note sale at 1pm ($2b larger than last month’s) and $35b 10-year and $23b 30- year reopenings Wednesday and Thursday

In FX, the pound weakened after a report that the European Union has no plans to offer concessions to Boris Johnson before next week’s Brexit deadline. Bloomberg reports that the bloc is ready to let U.K. talks drag on into November or December, and even take a chance on Johnson pulling the plug on the deliberations rather than compromise on its red lines, according to a senior EU diplomat.

In commodities, oil futures remained elevated amid developments near the Gulf of Mexico, with Hurricane Delta strengthening to a Category 2 hurricane ahead of expected landfall on Friday, whilst BP and Chevron have already started evacuating personnel in anticipation. Additional oil companies are expected to announce evacuations over the coming days as the hurricane nears, albeit it is not yet known in which form it will make landfall. Traders also kept an eye on the escalating tensions between Armenia and Azerbaijan in the event pipelines/refineries/ports of the OPEC+ producer are targeted. Both WTI and Brent see gains of some USD 0.5/bbl apiece, with the former briefly topping USD 39.75/bbl and the latter eyeing USD 42/bbl to the upside. Elsewhere, spot gold sees a choppy session within a tight USD 8/oz range as it largely moves on USD-dynamics, with a similar story for spot silver.

Looking at the day ahead now, the highlight will be remarks from Fed Chair Powell. Other central bank speakers include the Fed’s Harker, Bostic and Kaplan, and the ECB’s Lane and Hernandez de Cos. The US will release the trade balance and JOLTS job openings for August.

Market Snapshot

• S&P 500 futures down 0.2% to 3,385.50
• STOXX Europe 600 down 0.3% to 364.58
• MXAP up 0.7% to 172.91
• MXAPJ up 0.7% to 567.84
• Nikkei up 0.5% to 23,433.73
• Topix up 0.5% to 1,645.75
• Hang Seng Index up 0.9% to 23,980.65
• Shanghai Composite down 0.2% to 3,218.05
• Sensex up 1% to 39,378.22
• Australia S&P/ASX 200 up 0.3% to 5,962.07
• Kospi up 0.3% to 2,365.90
• Brent futures up 1.4% to $41.85/bbl
• Gold spot little changed at $1,912.00
• U.S. Dollar Index little changed at 93.44
• German 10Y yield fell 0.4 bps to -0.514%
• Euro down 0.09% to $1.1772
• Italian 10Y yield rose 2.3 bps to 0.604%
• Spanish 10Y yield rose 0.2 bps to 0.263%

Top Overnight News from Bloomberg

• President Donald Trump’s return from three days of hospital treatment for Covid-19 left unanswered questions about his condition and doubts about his willingness to abide by constraints needed to keep a virus outbreak at the White House from worsening
• Oystein Olsen, the governor of Norges Bank, said he’d be willing to contemplate negative interest rates if financial markets are hit by a renewed wave of turmoil
• Riksbank and the ECB will explore the feasibility of augmenting the TIPS platform to accommodate instant settlement of payments across European currencies, such as the Swedish krona and the euro, according to a statement

A quick look at global markets courtesy of NewsSquawk

Asian equity markets traded positively following the firm handover from global peers amid optimism regarding President Trump’s treatment and stimulus hopes, although the momentum has moderated in the region and Australia initially lagged on tentativeness heading into the RBA and budget announcement. The key risk events clouded trade in the ASX 200 (+0.4%) from the open although this was eventually shrugged off by outperformance in commodity-related stocks after the prior day’s rebound in oil prices and due to M&A news following a merger agreement between Northern Star Resources and Saracen Mineral Holdings. Nikkei 225 (+0.5%) was kept afloat by the recent currency weakness but with price action rangebound amid a lack of fresh catalysts and some resistance ahead of the 23,500 level, while the Hang Seng (+0.9%) was underpinned and rose to within 100 points of the 24,000 milestone but lacked the extra push needed amid the continued absence of mainland Chinese participants and with Hong Kong Chief Executive Carrie Lam stating that social distancing rules will be kept for a while. Finally, 10yr JGBs were lower amid the modest gains in stocks and following a breakdown of support at the psychological 152.00 level, with mixed results at the 30yr JGB auction also contributing to the uninspired picture.

Top Asian News

• RBA Keeps Key Rate, Yield Unchanged, as Seen by Most Economists
• Nomura, Daiwa CEOs See Equity Sales Picking Up After Virus Lull
• Temasek Establishes New Asset Management Group Called Seviora
• Tencent Stock Options Cost a Fortune and Traders Love Them

European equities began the session relatively directionless before ebbing into negative territory and thereafter trimming some losses (Eurostoxx 50 -0.1%) as attention continues to remain on the health of President Trump and hopes of a US fiscal package. With regards to the President, Trump left the Walter Reed Medical Center and returned to the White House last night with the US leader remaining adamant that he “feels great”. In terms of the ramifications for the upcoming election, polling over the weekend showed a widening of the lead for former VP Biden, however, the survey period centred more on the immediate aftermath of last week’s debate rather than the public’s response to the President’s virus diagnosis. Therefore, polling over the coming days which is able to encapsulate both events could provide markets with greater impetus in assessing the outcome of the November vote. On the fiscal front, US negotiators remain at loggerheads despite upbeat commentary from various officials with White House Chief of Staff Meadows noting there is potential for a stimulus package; doubts over Senate approval remain. In terms of the performance in Europe, indices are now mixed with the IBEX (+0.8%) remaining an outlier to the upside, as was the case for a bulk of yesterday’s session. Sectoral performance is also relatively mixed with banks firmer thus far, potentially following on from yesterday’s more favourable yield environment, interestingly, Barclays in a recent note recommended that investors start selectively adding exposure to the European banking sector. Telecom names have been supported by gains in Telia (+5.1%) after divesting a unit and announcing an additional divided. Elsewhere to the upside, travel & leisure names such as Ryanair (+4.8%), easyJet (+4.2%) and IAG (+2.8%) are trading firmer alongside reports noting that the UK is expected to implement a COVID-19 testing system for arrivals this month, a move designed to halve the current 14-day quarantine for those arriving from high-risk countries. To the downside, lagging sectors include tech, healthcare and chemicals. In terms of individual stories, equity news-flow has been on the lighter side this morning with the main headline being that Engie has agreed to the sale of the majority of its stake in Suez to Veolia. Suez took note of the Veolia purchase in a hostile manner and says it will use all the means at its disposal to protect the interest of its employees, clients and stakeholders, and will avoid a creeping takeover.

Top European News

• Green Hydrogen Gets $10.5 Billion Roadmap From Spain
• Putin’s Oil Ally Takes Fight for Frozen Funds to Top Swiss Court
• Sunak Refutes Suggestion His ‘Eat Out’ Plan Spread the Virus
• Spies Can Snoop on Phone Data in a Crisis, EU Top Court Says

In FX, the Dollar index posts modest gains in tandem with mild losses across the equity-space,  but remains within a tight range around 93.500 after seeing little follow-through from US President Trump’s discharge to the White House, whilst US stimulus remains far from a done deal with talks to continue today. DXY has widened its overnight range in recent trade with the upper band now at 93.527, having had printed a base at 93.333 at the cash open, with upside levels including the 21 DMA (93.602) ahead of yesterday’s high of 93.832. Looking ahead, the data-slate remains light but speakers abundant, with Fed Chair Powell, voters Harker and Kaplan alongside 2021 voter Bostic on the docket.

• AUD, NZD, CAD – The non-US Dollars are softer to varying degrees with clear underperformance seen in the AUD post-RBA and Aussie Budget. AUD/USD eclipsed 0.7200 to match the 50 DMA (0.7208) after the Central Bank opted to stand pat on rates (vs. outside calls for a 15bps cut), albeit this upside thereafter petered out as participants digested the release which noted “Both fiscal and monetary support will be required for some time given the outlook for the economy and the prospect of high unemployment… The Board continues to consider how additional monetary easing could support jobs as the economy opens up further.” Meanwhile, little action was seen upon the unveiling of the Aussie Budget which largely fell in-line with expectations flagged by major banks. AUD/USD now re-eyes 0.7150 to the downside after briefly dipping below the level in early European hours. The Kiwi and Loonie meanwhile move in tandem to the Buck, with NZD/USD retaining its 0.6600+ status but within a 30-pip intraday band. USD/CAD meanwhile stays below 1.3300 after finding a base at its 50 DMA (1.3238) whilst attempting to top its 21 DMA (1.3266), with the Loonie also influence from choppy crude prices.
• EUR, GBP – Mixed trade after both currencies initially moved at the whim of the Buck. GBP/USD remains choppy with recent price action seeing the pair rebound off session lows after (1.2960) earlier eclipsing the 1.3000 to match the 16th Sept high (1.3006) on reported stops triggered around the round figure, with the most recent upside coinciding with BBC reports that EU’s s Brexit Negotiation Barnier is to arrive in London for further talks at the end of the week amid the recent pledge from both sides to intensify talks. Elsewhere, the release from the Eurogroup yesterday was in-line with expectations in which finance ministers acknowledged the recent EUR price action but stopped short of intervening, whilst ECB’s President Lagarde reiterated that the Central Bank is prepared to use tools and is ready to address the situation as it develops. ECB’s Makhlouf meanwhile suggested average inflation targeting is something the ECB should examine, albeit with no-follow through to the Single Currency. EUR/USD meanders around 1.1775 following an earlier test of 1.1800, with the current base at 1.1766.
• JPY – The Yen outperforms in the G10 FX space on traditional safe-haven inflows which sees USD/JPY trickle lower from its session high of 105.78 to a current low of 105.53 with notable opex today on either side of current levels including USD 1.2bln at 106.00 and USD 1.1bln at 105.00.
• RBA maintained the Cash Rate Target and 3yr yield target at 0.25%, as expected and reiterated its guidance that it will not increase the cash rate until progress is being made towards full employment and inflation is at the 2%-3% target band. RBA noted that the board continues to consider how additional monetary easing could support jobs as the economy opens up further but noted the contraction in Q2 output was smaller than in other countries and that labour market conditions have improved with the unemployment rate likely to peak at a lower level than previously anticipated. (Newswires) Subsequently, RBA watcher McCrann suggests it is now very likely that it will deliver a ‘rate cut plus’ on Cup Day (November 3rd).

In commodities, WTI and Brent front month futures remain elevated amid developments near the Gulf of Mexico, with Hurricane Delta strengthening to a Category 2 hurricane ahead of expected landfall on Friday, whilst BP and Chevron have already started evacuating personnel in anticipation. Additional oil companies are expected to announce evacuations over the coming days as the hurricane nears, albeit it is not yet known in which form it will make landfall. Elsewhere participants are also keeping an eye on the escalating tensions between Armenia and Azerbaijan in the event pipelines/refineries/ports of the OPEC+ producer are targeted. Both WTI and Brent see gains of some USD 0.5/bbl apiece, with the former briefly topping USD 39.75/bbl and the latter eyeing USD 42/bbl to the upside. Elsewhere, spot gold sees a choppy session within a tight USD 8/oz range as it largely moves on USD-dynamics, with a similar story for spot silver. Finally, LME copper ekes mild gain with some citing optimism regarding US President Trump returning to the White House, albeit more so a follow through from the APAC optimism.

US Event Calendar

• 8:30am: Trade Balance, est. $66.2b deficit, prior $63.6b deficit
• 10am: JOLTS Job Openings, est. 6,500, prior 6,618

Central Bank Speakers

• 10:40am: Fed Chair Powell Addresses NABE Conference in Chicago
• 11:45am: Fed’s Harker Discusses Machine Learning
• 2pm: Fed’s Bostic to Speak to Leadership Florida
• 6pm: Fed’s Kaplan Takes Part in Talk with Bank of Mexico’s Diaz

DB’s Jim Reid concludes the overnight wrap

As we’ve been discussing over the last few days, it’s quite clear that the market is now focusing on two things. Election certainty and the chances of further US fiscal stimulus. Two weeks ago we were in limbo with the former low and the chances of the latter stagnating. However Biden’s lead started to edge higher again early to mid last week and that helped both of these factors. It increased the likelihood of certainty on November 3rd and also increased the chance of a Democratic clean sweep which would make Q1 fiscal stimulus a strong likelihood. Clearly two spanners to this trade are the impact of Mr Trump’s covid diagnosis and the question as to whether the economy can wait until Q1 for fresh stimulus. On the former the early polls are suggesting that Biden’s momentum has not been impacted by Trump’s illness and on the latter, while it could mean a tough Q4 for consumers and the economy, the market is looking beyond that.

So President Trump leaving hospital last night was a bit of a side show and markets rallied strongly on the above themes rather than the anticipation of this. The latest polling shows Biden leading by just over +8pts in both fivethirtyeight.com and RealClearPolitics polling averages. The former Vice President also continues to lead by over +5pts in major swing states like Pennsylvania, Michigan, and Wisconsin. Indeed, FiveThirtyEight’s model now gives President Trump just an 18% chance of victory, which is the lowest of the campaign to date, while the odds of the Republicans retaining control of the Senate in their model has fallen to 35%, which is also the lowest since their Senate model started back in August. The highest the model’s chances have given Republicans for maintaining control is 43% on 11 September. However it is important to note that the most likely scenario in the model is still a slim 51-49 Democratic majority.

At the end of the session the S&P 500 moved up +1.80% to reverse Friday’s loss following President Trump’s positive test result. It was a broad-based rally with over 90% of the index rising on the day and all 24 industries moving higher. The index was led by tech sectors like Semiconductors (+3.30%) and Tech Hardware (+2.78%) as the NASDAQ moved +2.32% higher. Though on a day when risk assets generally rose, cyclicals like Energy (+2.90%) and Autos (+2.50%) were just as strong. The VIX volatility index rose +0.3pts to 28.0 for the first time in over a week even as equities rose. With the VIX representing market expectations for 30-day forward-looking volatility, the US elections are now being priced into the spot level.

Equities were further supported by positive news on the prospect of more immediate fiscal stimulus as Speaker Pelosi and Treasury Secretary Mnuchin reportedly spoke for an hour yesterday on the “justifications for various numbers” in the potential stimulus deals and have agreed to continue talks today. This lends credence to the idea that the two sides continue to work to bridge the gap between the offers from the White House and the Democrats. While Senate Majority Leader McConnell agreed that talks have “speeded up in the last few days” it is uncertain there are enough Republicans on board to see additional stimulus in excess of $1 trillion pass the Senate. Not to mention, the Senate Republican caucus will be short a few potential votes for the next 2 weeks, as three Senators are quarantining after testing positive for Covid-19. So resolution pre-election still feels like a stretch but as we said at the top it’s not worrying markets while Biden is pulling away in the polls.

European equities weren’t as strong as the US, although it’s worth noting they didn’t suffer the same level of declines on Friday. The STOXX 600 (+0.81%), the DAX (+1.10%) and the CAC 40 (+0.97%) all had decent sessions though. The rally in Europe was nearly as broad as in the US with 18 of 20 STOXX 600 sectors gaining on the day, led by Telecoms (+2.22%) and Travel and Leisure (+2.01%) stocks.

Overnight news that a US House panel may propose sweeping reforms of the technology sector is slightly weighing on Nasdaq futures which are down -0.16%. Bloomberg is reporting that under the reforms, technology giants like Amazon and Apple will not be allowed to both own marketplaces and sell their own products on them. The panel is also likely to recommend legislation that would require the tech companies to allow users to easily move their data from one website to another. The panel’s report is still in the draft stage and its content could change. But perhaps a marker for the future.

Overall though, Asian markets are following Wall Street’s lead with the Nikkei (+0.44%), Hang Seng (+0.75%), Kospi (+0.50%) and Asx (+0.25%) all up. Futures on the S&P 500 are also up +0.09%. In FX, the US dollar is down -0.13% this morning. Meanwhile, at its monetary policy meeting the RBA decided to leave rates unchanged at 0.25%.

In terms of the coronavirus, there was some confusion around new NYC restrictions. Governor Cuomo superseded Mayor de Blasio’s plan to shut schools, bars, restaurants, and other non-essential businesses in 9 ZIP codes. In the end, school in those regions will indeed be closed, while businesses will be allowed to operate for the time being. The governor said schools and religious gatherings were a larger concern currently than businesses and will be meeting with religious leaders in the affected areas to try and come to an agreement without closing those institutions. The US overall is starting to see the beginnings of an Autumnal wave, with 34 of 50 states seeing 7-day averages of new cases higher than one month back. The numbers in summer hot spots in the “Sun Belt” like California, Arizona and Florida have waned, but the Midwest and the parts of the Northeast are seeing rising caseloads as the weather cools. On the other side of world, after having successfully brought the pandemic under control, China’s Ministry of Culture and Tourism said that in the first four days of the Golden Week holiday, domestic travellers were back to 80% of last year’s level.

Over in Europe as increasing restrictions come into force there were also a number of negative coronavirus developments. Most notably, the European Commission President Von der Leyen had to self-isolate after she was at a meeting on Tuesday with someone who tested positive. Thus far she’s tested negative but will remain in isolation until this evening in line with the regulations. Here in the UK, the number of cases remained above 10k yesterday, as a further 12,594 were reported. That follows the IT error that meant almost 16k cases were left out of the figures over the previous week, which means that the current extent of the virus’ spread is worse than had previously been thought.

Meanwhile in Ireland, media reports including the Irish Times said that the government was against following the recommendation from public health officials to move the country to Level 5 status, which would prevent household visits and see pubs and restaurants move to takeaway only. It’ll be interesting to see if other countries’ governments also resist the advice of their health officials, as they seek to balance the trade-offs between public health, safeguarding the nascent economic recovery, and the other side effects of moves to stricter lockdowns. Elsewhere, Mexico recorded significantly higher cases (28,115) and fatalities (2,789) over the past 24 hours with the government attributing the jump to a change in methodology. The jump far outstrips the prior daily high of 9556 cases and 1092 deaths. Please note that the fatalities table continues to remain part of the PDF report and can be viewed by clicking on “view report”. On the vaccine front, the New York Times has reported overnight that top Trump administration officials are blocking new federal guidelines that would make it more difficult to authorize a Covid-19 vaccine before the election. So this could still be a politicised event as we approach polling day.

Back to yesterday, and the rally in risk assets was evident across multiple asset classes as Brent crude (+5.14%) and WTI (+5.86%) saw their strongest one-day performance in months. Safe havens suffered for the most part, with the dollar index falling -0.35% to a 2-week low, as US Treasury yields rose +8.1bps to 0.782% (down -1bps this morning), their highest closing level in nearly 4 months. It was a similar story over in Europe, where yields on bunds (+2.6bps), gilts (+4.2bps) and BTPs (+2.3bps) all moved higher as well. That said, the relative outperformance of Italian debt continued, with the spread of the country’s 10-year yields over bunds falling by -0.3bps to a 7-month low of 1.32%.

Finally on the data front, the main story yesterday came from the release of the services and composite PMIs from around the world. In the Euro Area with the exception of Spain, there were signs that activity had at the very least stabilised, with the Euro Area composite PMI at 50.4 (vs. flash 50.1), and the German reading also being revised up to 54.7 (vs. flash 53.7). In Spain however, the composite PMI came in at 44.3 (vs. expected 47.7). Over in the US, the ISM services index came in at 57.8 (vs. 56.2 expected), and the employment index also rose to 51.8 (from 47.9 previously).

To the day ahead now, and the highlight will likely come with remarks from Fed Chair Powell and ECB President Lagarde. Other central bank speakers include the Fed’s Harker, Bostic and Kaplan, and the ECB’s Lane and Hernandez de Cos. Today’s data releases include Germany’s factory orders for August, as well as the September construction PMI from Germany and the UK. The US will also be releasing the trade balance and JOLTS job openings for August.