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[PODCAST] US Open Rundown 31st January 2020

  • European bourses are subdued as sentiment slips on further coronavirus contagion
  • England's Chief Medical Officer has confirmed two cases of coronavirus in the UK
  • High-beta currencies suffer vs. a little changed USD on risk-sentiment while debt has seen a marked recovery
  • Looking ahead, highlights include US Core PCE, Employment Costs & Chicago PMI, Canadian GDP
  • Earnings: Exxon Mobil, Chevron, Honeywell, Caterpillar, Colgate-Palmolive

CORONAVIRUS UPDATE – Analysis piece regarding China’s return is available on the Newsquawk feed

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)

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)

England's Chief Medical Officer has confirmed two cases of coronavirus in the UK. (Newswires)

World Health Organisation spokesperson notes that there is a 'huge reason' to keep official border crossings open in the ongoing coronavirus situation., according to a spokesperson. (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 (+1.0%) 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 (-0.5%) 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)

US 

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 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)

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)

OECD says that 137 Governments have agreed to progress negotiations on digital tax, with the aim of achieving an agreement by the end of 2020. (Newswires)

EU GDP Flash Prelim QQ (Q4) 0.1% vs. Exp. 0.2% (Prev. 0.2%); YY (Q4) 1.0% vs. Exp. 1.1% (Prev. 1.2%)

-        HICP Flash YY (Jan) 1.4% vs. Exp. 1.4% (Prev. 1.3%)

-        HICP-X F&E Flash YY (Jan) 1.3% vs. Exp. 1.4% (Prev. 1.4%)

-        HICP-X F,E,A&T Flash YY (Jan) 1.1% vs. Exp. 1.2% (Prev. 1.3%)

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

EQUITIES

European stocks have given up gains seen at the open [Eurostoxx 50 -0.6%] as the region failed to piggyback on the modest recovery seen in APAC sentiment, amid further reports the coronavirus spread – with the UK also confirming its first two cases. Major bourses are in the red with underperformance seen in the FTSE MIB (-1.5%), following a Q4 QQ contraction in the Italian economy. Thus, the Italian financial names lead the losses in the index. Elsewhere, UK’s FTSE 100 (-0.8%) saw early pressure due to a firmer Sterling in early trade, with renewed downside seen after the aforementioned virus contagion in the UK. Sectors opened in positive territory with a reflection of the risk appetite at the time, thereafter sentiment shifted to the other end of the scale with sectors now all in the red and reflecting risk-aversion – energy, once again, lags on renewed pressured in the oil complex. In terms of individual movers, Signify (+5.4%) leads the gains in the pan-European (despite slight revenue and net misses) as the group sees further improvement in adj. EBITDA margin. On the other end, Banco de Sabadell (-11.0%) rests at the foot of the Stoxx 600 in light of dismal earnings. Elsewhere, Thyssenkrupp (-5.0%) share slumped after noting that they are in a tight financial situation and confirmed the value of its elevator unit at EUR 15bln, vs. top-end estimates of EUR 20bln.

Amazon.com Inc (AMZN) Q4 19: EPS USD 6.47 vs. Exp. USD 4.04, Revenue USD 87.4bln vs. Exp. USD 86.02bln. Q1 revenue view between USD 69-73bln vs. Exp. USD 71.65bln; Subscription services sales USD 5.235bln vs. Exp. USD 5.16bln. 150mln prime members around the world, biggest quarterly gain in history. (Newswires) Co. trade 8.5% higher in the pre-market

Visa Inc (V) Q4 19 (USD): Adj. EPS USD 1.46 vs. Exp. USD 1.46, Revenue USD 6.1bln vs. Exp. USD 6.08bln. Announced a USD 9.5bln share repurchase programme, FY20 revenue growth affirmed at low double digits. (Newswires) Co. trade lower by 2.5% in the pre-market

Electronic Arts Inc (EA) Q3 20 (USD): EPS USD 1.18 vs. Exp. USD 2.51, Revenue USD 1.59bln vs. Exp. USD 1.97bln. Raised FY20 EPS view USD 4.65 vs. Exp. USD 4.72 vs. Prev. USD 4.55, raised FY revenue view to USD 5.48bln vs. Exp. USD 5.21bln (Prev. USD 5.41bln). (Newswires) Co. trade lower by 3% in the pre-market

FX

GBP - The Pound remains relatively firm, but off best levels forged in the aftermath of super Thursday amidst positive month end vibes via a German bank flagging stock-hedge demand vs the Dollar and Franc in particular, albeit with the bulk of the buying anticipated from 3 to 4 pm London time. Cable reached 1.3140 or so before topping out and Eur/Gbp crossed 0.8400 to circa 0.8387 at one stage before Sterling lost some momentum in tandem with, if not specifically on reports of 2 confirmed cases of China’s coronavirus in the UK.

AUD/NZD/NOK/SEK - The clear G10 underperformers and extending losses against the Greenback and Euro respectively, as Aud/Usd recoils further from fairly restrained recovery highs through the 0.6700 level to expose the 2019 low (0.6671). The Aussie gleaned scant impetus from mixed Chinese PMIs overnight, supposedly large expiry related hedging at the big figure or the so called ‘soft’ WHO classification of the deadly Chinese disease as a health emergency of international concern in recognition of the strenuous efforts to contain the outbreak and cure the growing number of those contaminated. Similarly, Nzd/Usd has plumbed deeper below 0.6500 towards 0.6450, ignoring more theoretically supportive Kiwi impulses via Westpac upgrading its RBNZ policy views to a possible shift from easing to neutral at the February meeting. Meanwhile, the Scandi Kronas continue to weaken on bearish fundamentals, techs and broad risk sentiment that has also scuppered a pretty tame rebound in crude prices.

CAD - The Loonie derived enough leverage from hawkish sounding BoC rhetoric to regain 1.3200+ status vs its US counterpart, but the Beaudry reservations about looser policy have already lost impact with Usd/Cad breaching the 200 DMA that had been capping rallies and now eyeing 1.3250 ahead of 1.3270 that represents December 6’s peak. However, impending Canadian GDP and perhaps even PPI could provide some independent direction.

CHF/JPY/EUR - In keeping with recent trends, underlying safe haven buying has helped the Franc, Yen and Euro to an extent (not to mention Gold) limit declines vs the Buck during periods of improved risk appetite, as Usd/Chf and Usd/Jpy stay tethered to 0.9700 and 109.00 anchors, while Eur/Usd repels attempts to break decisively below 1.1000 despite weak Eurozone data. Note, also mild to strong Dollar selling signals for month end may also be a factor as the DXY struggles to keep sight of 98.000 and threatens to close under a key chart level at 98.011 (50% Fib retracement of pull-back from 99.967 to 96.355 in Q4 last year).

EM - No real or lasting respite for regional currencies even though the Yuan is keeping afloat above 7.0000, as SA’s Eskom warns about more power outages and wants to discuss a strategy with the Government to meet financial obligations. Usd/Zar now nudging up close to 14.9000 as a result.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.0990-1.1000 (1.9BLN), 1.1040-50 (1BLN)

-        GBP/USD: 1.3050-60 (1.1BLN)

-        EUR/GBP: 0.8435 (330M), 0.8450 (700M)

-        USD/JPY: 108.50 (1.1BLN), 109.00-10 (700M), 109.20-25 (700M), 109.40-50 (700M), 109.55 (1.2BLN)

FIXED

Although Gilts are firmer on a relative closing basis, Bunds are outperforming in terms of recovering more lost ground and marginally eclipsing Thursday Eurex high at 174.67 (+10 ticks on the day vs -41 ticks at one stage). Meanwhile, the 10 year UK debt future faded just ahead of 135.00 and is still some way off the 135.90 pre-BoE contract high, albeit ½ point+ above worst levels in contrast to the Italian benchmark that has been undermined by much weaker than forecast Q4 GDP, irrespective of adverse weather and other external factors. Similarly, US Treasuries are nestling below par, though well above overnight session troughs ahead of a raft of US data and survey releases to round of January and the first month of 2020.

COMMODITIES

WTI and Brent front-month futures have given up most of its overnight gains which were spurred by the World Health Organisation’s verdict which did not recommend limiting trade and movements due to the outbreak – thus digested as a “softer” announcement. The declaration revived some demand relief against the backdrop of mass flight cancellations to and from China. However, WTI and Brent futures have waned off highs, with prices now weighed on by the coronavirus’ spread to the UK. WTI hovers just under 52.50/bbl at time of writing, whilst its Brent counterpart breached 57.50/bbl to the downside. Elsewhere, spot gold retains an underlying bid amid the pathogen outbreak and as DXY remains below 98.000. Copper prices resume its downwards trajectory and trade ongoing demand/global growth concerns arising from the spread of virus.

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