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[PODCAST] EU Open Rundown 24th January 2020

  • Asian equity markets traded cautiously but eventually posted mild gains; Mainland China was shut due to Lunar New Year holiday  
  • Total number of confirmed coronavirus cases in China was at 830 with the death toll at 25 according to state media  
  • World Health Organization did not declare the coronavirus as a Public Health Emergency of International Concern, but the panel was split 50/50 on the decision  
  • In FX, DXY traded relatively flat, EUR/USD was eventually pressured; NZD was underpinned firmer by CPI data 
  • Looking ahead, highlights include EZ, UK & US PMIs (Flash), BoE’s Haskel, ECB’s Lagarde, de Galhau & Knot, US Treasury Secretary Mnuchin  

ASIA-PAC

Asian equity markets traded cautiously but eventually edged mild gains following the slight reprieve on Wall St where most major indices rebounded after the World Health Organization refrained from declaring the coronavirus as a Public Health Emergency of International Concern, while Nasdaq futures were also boosted after-hours due to Intel earnings which beat on top and bottom lines. Nonetheless, price action for Asia was restricted amid widespread closures for Lunar New Year’s Eve and with the number of infected and deaths from the coronavirus continuing to rise. ASX 200 (Unch.) remained afloat with outperformance in Healthcare spurred by outbreak fears after further virus cases were reported in both mainland China and abroad, while the largest weighted financials sector benefitted amid the recent pushback in rate cut forecasts and with Macquarie underpinned by reports it is nearing a deal with Bell Financial to outsource the back office of its private wealth management business. Elsewhere, Nikkei 225 (+0.1%) largely reflected the indecision of its currency and the Hang Seng (+0.2%) was contained in today’s shortened trading session as stocks remained dampened by the coronavirus fears including gambling names after Macau Chief Executive Ho said they may close all casinos and have cancelled the Lunar New Year parade after a second case of the virus was recently confirmed in the special administrative region. Finally, 10yr JGBs were subdued following yesterday’s pullback and after the BoJ minutes from the December meeting provided very little to spur demand, while the knee-jerk reaction to stronger demand at the enhanced liquidity auction was only brief.

BoJ Minutes from December 18th-19th Meeting stated Japan's economy had been on a moderate expanding trend although exports, production and business sentiment had shown some weakness, mainly affected by the overseas slowdown and natural disasters. One member suggested BoJ may need to boost stimulus like it did 6 months after the 2014 sales tax increase. (Newswires)

Japanese National CPI (Dec) Y/Y 0.8% vs. Exp. 0.7% (Prev. 0.5%). (Newswires) Japanese National CPI Ex. Fresh Food (Dec) Y/Y 0.7% vs. Exp. 0.7% (Prev. 0.5%) Japanese National CPI Ex. Fresh Food & Energy (Dec) Y/Y 0.9% vs. Exp. 0.9% (Prev. 0.8%)

CORONAVIRUS UPDATE

Total number of confirmed coronavirus cases in China was at 830 as of January 23rd with the death toll at 25 according to state media and China also reported its first death from coronavirus outside the virus epicentre. However, other reports later suggested that there was another death confirmed outside the epicentre which would take the total number of deaths to 26. (Newswires) Further, China Global Times editor notes that almost half of the deaths were of people aged over 80, whilst younger patients are recovering. (Twitter)

World Health Organization did not declare the coronavirus as a Public Health Emergency of International Concern (PHEIC) and stated it is too early to consider it as such, although the panel was split 50/50 on the decision and may revisit this at a later time, while it stated that there is currently no evidence of human-to-human transmission outside of China. The panel is to reconvene in 10 days. Furthermore, it noted that this is an emergency in China but has not yet become one globally and it did not recommend further travel or trade restrictions other than what is already in place. (Newswires)

South Korea and Japan both confirmed a 2nd case of coronavirus in their countries, while there were separate reports that a person was quarantined in Sydney and that a patient is being assessed in a hospital in New Jersey for possible coronavirus. (AFP/7 News/Yonhap/Twitter)

Wuhan medical staff are reportedly being infected at a much faster pace than reported according to reports citing sources, which also noted that 15 cases of coronavirus were officially reported among medical staff in Wuhan although doctors say the true number is far higher. (SCMP)

Hong Kong cancelled Cathay Pacific’s New Year Carnival and the Lunar New Year Football Cup, while many Hong Kong residents are cancelling travel plans to the mainland. There were also comments from Macau Chief Executive Ho that they may close all casinos and have cancelled Lunar New Year parade due to outbreak concerns. (Newswires)

UK/EU

UK PM Johnson reportedly wants to agree the UK’s first post-Brexit trade agreement with Japan before year-end to get the bandwagon rolling, while Cabinet ministers are said to have agreed to speedily pursue a UK-Japan trade deal. (The Sun).

Incoming BoE Governor Bailey suggested he has concern over how badly prepared the UK for a crash in stocks or property market. (Times)

Germany is to reportedly increase its 2020 GDP growth outlook to 1.1% or 1.2% from a prior estimate of 1.0% according to press reports. (Handelsblatt) 

FX

In FX markets, the DXY traded relatively flat and held on to most the gains seen in the prior session after recent encouraging jobless claims figures and weakness in its transatlantic counterparts including EUR/USD which was eventually pressured despite an unsurprising ECB policy announcement, while GBP/USD was rangebound after having rebounded off support at 1.3100 with the pair biding its time ahead of today’s PMI data. USD/JPY was indecisive amid the cautious risk tone, outdated BoJ minutes and mostly inline inflation data which showed headline CPI was firmer than expected but remained below the halfway point to the 2% target. Antipodeans were varied with NZD/USD underpinned by firmer than expected New Zealand inflation data and with AUD/USD flat despite Westpac joining in on the recent pushback of RBA rate cut forecasts in which it now sees the next reduction in April instead of February. New Zealand CPI (Q4) Q/Q 0.5% vs. Exp. 0.4% (Prev. 0.7%). (Newswires) New Zealand CPI (Q4) Y/Y 1.9% vs. Exp. 1.8% (Prev. 1.5%) RBNZ Q4 Sectoral Factor Model Inflation Index 1.8% (Prev. 1.7%) 

COMMODITIES

Commodities lacked firm direction overnight with WTI crude futures marginally higher following the whipsaw during yesterday’s session in which prices were initially pressure by demand concerns from the ongoing coronavirus epidemic which saw a test of the USD 55.00/bbl level to the downside. However, support eventually held and a rebound was helped by the draw in EIA crude inventories which despite printing narrower than expected, was still at contrast from the prior day’s API build. Gold was flat overnight amid rangebound trade in the greenback, while copper prices were also sideways amid the indecisive tone in the region and absence of its largest buyer China. 

GEOPOLITICS

US President Trump said he plans to release the Middle East Peace Plan before Israel PM Netanyahu's visit on January 28th, while he suggested Palestinians may react negatively at first to the plan but there is a lot of incentive for them to do it and noted that it is a great plan. (Newswires)

US has sanctioned four companies related to Iranian petroleum and petrochemical trading in an attempt to further tighten Iranian revenue sources. (Newswires) 

US 

The TPLEX ultimately flattened, albeit off lows, as risk appetite proved volatile. The curve saw pronounced bull-flattening as US participants came to their desks and digested the wider risk aversion globally amid the coronavirus outbreaks, although the bidding eased heading into the later session, assisted by the WHO announcing it would not be declaring an international health emergency. By settlement, the 2-year yield was little changed whilst the 30-year yield fell by around 3.5bps – note it had fallen by 10bps earlier in the session. Attention now moves to Friday’s Flash PMIs to provide an updated view of economic activity, with manufacturing in Europe expected to rise slightly, albeit still in contractionary, whilst the US is expected to remain resilient in expansionary territory for both components. US T-note futures (H0) settled 7+ ticks higher at 129-25.

US President Trump will sign the USMCA trade deal at the White House on January 29th, according to an official. (Newswires)

US President Trump said further action is required to prevent foreign producers from circumventing tariff rate quotas on large residential washers, according to a Presidential Proclamation. (Newswires)

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