[PODCAST] EU Open Rundown 30th January 2020
- FOMC stood pat on rates as expected (raised IOER), whilst reiterating that the current policy stance is appropriate
- China reported there are now 7711 total coronavirus cases and death toll at 170, while suspected cases are said to have increased to 12126
- Asian sentiment was downbeat as the overhang from the coronavirus outbreak continued to take its toll across the region
- UK PM Johnson will inform the EU he is prepared to accept post-Brexit border checks instead of Britain being under EU rules
- Looking ahead, highlights include German Import Prices, Unemployment Rate & CPI (Prelim), EZ Consumer Confidence, US GDP (Advance), Japanese CPI, Unemployment Rate & Retail Sales, BoE Rate Decision, MRP & Press Conference and supply from Italy
- Earnings: Amazon, Visa, Verizon, Coca-Cola, UPS, Altria, Eli Lilly, Raytheon, Deutsche Bank, Roche
FOMC left rates unchanged at 1.50%-1.75% as expected via unanimous decision and raised IOER by 5bps to 1.60%.
FOMC stated that the current policy stance is appropriate and downgraded its view on household spending activity to moderate pace from a strong pace. FOMC added that inflation returning to its target (prev. "near its target") and that it will continue monitoring incoming data, global developments and muted inflation.
Fed Chair Powell said some of the uncertainties around trade have diminished recently and other uncertainties remain such as the coronavirus, but global growth has stabilized. Furthermore, Powell stated Fed is not satisfied with inflation running below 2% which is not a ceiling and that the Fed will know when adjustments to the balance sheet have run course when reserves are durably at a sustainable level, while he suggested that reserves will not fall below September levels with USD 1.5tln level serving as a floor and that asset prices were “somewhat elevated”.
The reaction was mixed as T-Notes firmed slightly (10y yields down around 2bps), the DXY eased back to 98.00 and XAU added around USD 5 to USD 1575/oz. However, ES futures eventually saw some modest downside as there were concerns from some policymakers about the growing balance sheet and Powell noted that asset prices were “somewhat elevated” which would suggest that the Fed might not be so inclined to boost the balance sheet whilst they are "elevated” and may explain the negative ticks in ES.
China reported there are now 7711 total coronavirus cases and death toll at 170, while suspected cases are said to have increased to 12126. (Newswires) Note, the virus is now in every region of mainland China.
World Health Organization said evidence of human-to-human transmission outside of China is deeply concerning and suggested the numbers outside of China hold the potential for much larger outbreak, while it is to hold an emergency meeting today to re-evaluate whether the outbreak constitutes a Public Health Emergency of International Concern. (Newswires)
Japanese medical expert said it has been confirmed in China that the coronavirus can be transmitted from people without symptoms, while there were separate reports that 3 Japanese nationals who returned from Wuhan yesterday have tested positive for the coronavirus. (Newswires)
White House created a task force on coronavirus in which its members have been meeting daily since Monday, while US President Trump has charged the task force with leading the US government response to the coronavirus. (Newswires) White House Economic Adviser Kudlow said airlines are placing voluntary restrictions on flights to China due to virus outbreak and further restrictions are being discussed. (Newswires)
Asian sentiment was downbeat as the overhang from the coronavirus outbreak continued to take its toll across the region and following an indecisive lead from the US, where markets reacted to the FOMC policy announcement. ASX 200 (-0.3%) and Nikkei 225 (-1.8%) were subdued with underperformance across Australian mining names as demand concerns overshadowed the higher quarterly production updates by Fortescue Metals and Newcrest Mining, but with downside for the broader market stemmed by resilience in financials, while losses in Tokyo were exacerbated by flows into the JPY. KOSPI (-1.9%) was pressured after index heavyweight Samsung Electronics posted a 38% drop in Q4 net and Hang Seng (-2.2%) slipped deeper into correction territory after the number of confirmed coronavirus cases in the mainland increased to 7711 and the death toll now at 170, while the TAIEX (-5.8%) slumped as Taiwan participants returned to the market for the 1st time in 10 days and took their turn to play catch up to the epidemic fears. Finally, 10yr JGBs were higher due to the broad weakness in risk appetite and following upside in T-notes which were supported post-FOMC and saw the US 10yr yield decline to a 3-month low, while the mostly improved results from the 2yr JGB auction added fuel to the upside momentum.
UK PM Johnson and Chancellor Javid wrote to cabinet ministers to demand savings ahead of the next Comprehensive Spending Review in the Autumn, while they are said to want hard commitments by March 2nd. (Sky News) The report suggests that cuts should be up to 5% of departmental budgets.
UK PM Johnson will inform the EU he is prepared to accept post-Brexit border checks instead of Britain being under EU rules which could mean additional paperwork and physical inspections of goods for businesses. (Telegraph)
UK Chancellor Javid will reportedly support the USD 88bln High Speed 2 rail scheme today in a decisive intervention which makes it almost certain the project will go ahead. (FT)
EU seeks to create a single European data market to challenge dominance of US tech giants, while large online platforms may face new rules to ensure open and fair competition according to an EU document. (Newswires)
UK Lloyds Business Barometer (Jan) 23 (Prev. 10). (Newswires)
DXY saw some mild pressure in reaction to the FOMC before steadying in Asia-Pac trade as it found a base around the 98.00 level and amid rangebound price action in its transatlantic counterparts. GBP/USD was unchanged ahead of today’s BoE coin-flip meeting and with EUR/USD stuck near 1.1000 where there are several hourly MA levels nearby and a EUR 1.2bln option expiry rolling off at today’s New York cut. USD/JPY trickled below 109.00 and JPY-crosses remained subdued on the broad risk-averse tone, which also resulted to declines in antipodeans despite further pushbacks to rate cut forecasts for both sides of the Tasman.
Commodities were mostly lower owing to the broad risk averse tone seen during Asia trade which dragged WTI crude futures below the USD 53.00/bbl to extend on yesterday’s inventory-driven pressure after yesterday’s EIA report showed a larger than expected build in headline crude stockpiles. Elsewhere, gold was supported post-FOMC, although prices have since stalled and WGC also noted annual gold demand fell 1% last year, while copper underperformed as rising coronavirus cases plagues its largest purchaser China.
Algeria Energy Minster said it is very possible that the OPEC+ March meeting is advanced to February and that anything is possible when asked about extending the OPEC+ deal, according to state press. (Newswires)
OPEC is preparing a report on the coronavirus' impact on the oil market for members to review. (Newswires)
World Gold Council noted annual gold demand fell 1% Y/Y in 2019 to 4355.7 tons, while it expects India 2020 gold demand to rebound this year from a 3yr low in which it sees India gold demand at 700-800 tons vs. Prev. 690.4 tons last year but will remain below the 10yr average of 843 tons. (Newswires)
Yields were lower across the curve by between 3.5 to 5.5bps, with the belly rallying. Major curve spreads, however, were mixed, with 2s5s, 2s10s, and 2s30s narrowing, while the 5s10s, 5s30sand 10s30s widened slightly. The Fed hiked the IOER but kept its main rate unchanged and extended its purchases through April (See Fed section for details). The complex saw upside as Powell noted that the Coronavirus had the capacity to weigh on China activity, while there were still uncertainties around trade policy. US T-notes (H0) settled 13 ticks higher at 131-00.
White House Economic Adviser Kudlow said the Fed has been moving in the right direction, but would like them to be bolder, while he also suggested that intensity of EU trade discussions will resume soon. (Fox Business News)