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[PODCAST] EU Open Rundown 31st January 2020

  • Asian equity markets traded mixed as early relief rolled over from the US following a "soft" declaration by the WHO on coronavirus
  • WHO declared the coronavirus a Public Health Emergency of International Concern, although did not recommend limiting trade and movement
  • China announced that confirmed coronavirus cases increased to 9692 and total deaths to 213
  • Chinese PMI data was inconclusive in which Manufacturing PMI printed in-line with estimates and Non-Manufacturing PMI topped expectations
  • Looking ahead, highlights include German Retail Sales, EZ CPI (Flash) & GDP (Prelim), US Core PCE, Employment Costs & Chicago PMI, Canadian GDP
  • Earnings: Exxon Mobil, Chevron, Honeywell, Caterpillar, Colgate-Palmolive

CORONAVIRUS UPDATE

China announced that confirmed coronavirus cases increased to 9692 and total deaths at 213 vs. Prev. confirmed cases of 7711 and death toll at 170 the prior day. (Newswires)

World Health Organization declared the coronavirus a Public Health Emergency of International Concern in which the decision was near unanimous although it did not recommend limiting trade and movement due to the China outbreak and noted the greatest concern is for the virus to spread to countries with weaker health systems. Furthermore, WHO said there has been progress made in developing a vaccine and believes measures taken by China "will reverse the tide". (Newswires)

CDC confirmed the first human to human transmission of coronavirus in the US to bring total number of cases in US to 6 (Prev. 5), in which the new patient is the spouse of the Chicago woman who brought the infection back from Wuhan. (Newswires)

US President Trump said the US is working very closely with China regarding coronavirus outbreak and we think we have it very well under control, while it was also reported that the US issued a Level 4 advisory stating not to travel to China. (Newswires)

China will bring back overseas Wuhan citizens back to the city. In related news, Italy confirmed they are suspending all China flights after coronavirus cases were confirmed in Italy, while a plane carrying UK citizens in Wuhan departed earlier and it was also reported that the UK Chief Medical Officer raised the national risk level to moderate from low due to the coronavirus. (Newswires)

ASIA-PAC

Asian equity markets traded mixed as early relief rolled over from US following a "soft" declaration by the WHO on coronavirus and with US equity futures also underpinned by after-market earnings including Amazon – whose shares rose almost 10% after-hours. The World Health Organization declared the coronavirus a Public Health Emergency of International Concern but also stated that there has been progress made in developing a vaccine and believes measures taken by China "will reverse the tide", while it opposed any measures or restrictions on travel or trade to China. ASX 200 (+0.1%) and Nikkei 225 (+1.1%) followed suit to the Wall St rebound with outperformance seen in Australia’s tech and healthcare sectors, while sentiment in Tokyo was underpinned by favourable currency flows and with the biggest stock gainers driven by earnings releases. Elsewhere, Hang Seng (-0.1%) initially conformed to the early stock market rebound but then steadily wiped out the gains as coronavirus infections and deaths continued to expand, while Chinese PMI data was inconclusive in which Manufacturing PMI printed in-line with estimates at the 50.0 benchmark level and Non-Manufacturing PMI topped expectations at 54.1 vs. Exp. 53.0, although the Stats Bureau noted this was taken based on data on January 20th and therefore doesn’t fully reflect the impact from the coronavirus outbreak. Finally, 10yr JGBs were relatively uneventful and held on to the prior day’s gains but with further upside limited amid the broad improvement in risk sentiment and overnight retreat in T-notes.

Chinese Manufacturing PMI (Jan) 50.0 vs. Exp. 50.0 (Prev. 50.2). (Newswires) Chinese Non-Manufacturing PMI (Jan) 54.1 vs. Exp. 53.0 (Prev. 53.5) Chinese Composite PMI (Jan) 53.0 (Prev. 53.4) China National Bureau of Statistics noted the January PMI data does not fully reflect impact of coronavirus and future trend needs to be observed, with the figures said to reflect data as of January 20th. (Newswires)

Japanese Tokyo CPI (Jan) Y/Y 0.6% vs. Exp. 0.7% (Prev. 0.9%). (Newswires) Japanese Tokyo CPI Ex Fresh Food (Jan) Y/Y 0.7% vs. Exp. 0.8% (Prev. 0.8%) Japanese Tokyo CPI Ex. Fresh Food & Energy (Jan) Y/Y 0.9% vs. Exp. 0.9% (Prev. 0.9%) Japanese Industrial Production (Dec) M/M 1.3% vs. Exp. 0.7% (Prev. -1.0%) Japanese Industrial Production (Dec P) Y/Y -3.0% vs. Exp. -3.6% (Prev. -8.2%) Japan government said Q4 Industrial Production fell at its fastest pace Q/Q since comparable data was available from 2013. (Newswires)

UK/EU

UK PM Johnson reportedly wants a Canada-style trade deal with Brussels; a model that would allow for near tariff-free trade in goods but would require border checks and does not include the UK’s services sector. (Times) This is in-fitting with PM Johnson spokesperson comments on Monday 20th who stated that once the UK leaves the EU, there will be no equivalence and the UK is seeking a Canada-style deal with no alignment.

NEC Director Kudlow said he is not concerned Congress could derail a trade deal between the UK and US over the Huawei decision, while he added that no decision has been made on whether to curtail intelligence sharing with the UK regarding the decision. (Newswires)

UK GfK Consumer Confidence (Jan) -9.0 vs. Exp. -9.0 (Prev. -11.0). (Newswires)

FX

DXY remained below 98.00 after recent losses which were predominantly caused by strength in its major counterparts and not helped by softer than expected US Core PCE prices which accompanied the inline Q4 Advance GDP data. EUR/USD and GBP/USD were steady and held on to the prior day’s gains with the latter testing the 1.3100 level to the upside following an unwinding of dovish bets post-BoE, while CAD also took a swipe at the Greenback following comments by BoC’s Beaudry who pushed back against the allure of a rate cut once growth risk was factored in. Elsewhere, USD/JPY and JPY-crosses were marginally supported by the improved risk tone but with price action limited amid tepid Tokyo CPI and Industrial Production data. Antipodeans traded indecisive after the ambiguous Chinese PMI data with AUD/USD choppy near 0.6700 and NZD/USD languished sub-0.6500 handle despite a recent note by Westpac which sees the RBNZ shifting to a neutral bias on the OCR at next month’s meeting.

BoC's Deputy Governor Beaudry said even if a rate cut seems desirable in the short-term, the cut may no longer be attractive once the Bank has factored in growth risk and that even if macroprudential policy is best suited to ensure the resilience of the financial system, it doesn't mean it is capable in eliminating all risks associated with financial vulnerability. (Newswires)

COMMODITIES

Commodities were driven by the risk appetite with oil prices underpinned following the softer-than-expected World Health Organization declaration regarding the coronavirus. This inspired a rebound in risk assets and pushed WTI crude futures higher by around 2% to above the USD 53.00/bbl level which then later acted as platform for prices. Elsewhere, gold languished after the improved sentiment spurred a near USD 16/oz reversal for the precious metal, while copper prices mirrored the overnight reprieve and made several attempts on resistance around USD 2.55/lb.

GEOPOLITICS

US State Department tweeted comments from Secretary of State Pompeo that the Islamic Republic of Iran remains the world’s largest state sponsor of terror and work US has done to put pressure on their economy has reduced their capability to harm people. (Newswires)

US 

The T-PLEX was firmer across the curve on Thursday, albeit off its highs into the settlement. Risk appetite was subdued throughout most of the session amid growing the growing coronavirus cases/deaths and mixed US Q4 GDP, although the WHO reversed sentiment after providing a "soft" emergency declaration, advising against trade and travel restrictions. By settlement, yields were approximately 3bps lower across the curve. US T-note (H0) settled 9+ ticks higher at 131-10.

US Senate Leader McConnell reportedly likely has votes to block witnesses in impeachment trial after Republican Senator Alexander said there was no need for more evidence in the Trump impeachment trial. There were also comments from US Republican Senator Collins who will vote for additional witnesses in the Trump impeachment trial and Republican Senator Murkowski who earlier suggested the dispute about material facts leans in favour of calling additional witnesses for Trump impeachment trial. (Newswires)

Mexican trade officials have threatened similar measures to target US farm products, as US explored protectionist actions against Mexican farm products. (Newswires)

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