[PODCAST] EU Open Rundown 3rd February 2020
- Shanghai Comp. played catch up to the global market rout despite supportive measures by Chinese authorities
- Shanghai copper, crude oil and Dalian iron ore futures all hit limit down on pent up selling from the Lunar New Year holiday
- China’s daily briefing confirmed 17205 coronavirus cases and the death toll at 361 as of February 2nd
- UK PM Johnson will set out a hardline stance on post-Brexit trade talks during a major speech today
- OPEC+ joint committee is reportedly to meet on Feb 4th-5th in Vienna to review the impact of the coronavirus on oil demand
- Looking ahead, highlights include EZ, UK and US Manufacturing PMIs, US ISM Manufacturing, Construction Spending, ECB’s Lagarde, de Guindos, Fed’s Bostic, earnings include Alphabet and Allergan
China’s daily briefing confirmed 17205 coronavirus cases and death toll at 361 as of February 2nd vs. a total of 11791 coronavirus cases and deaths at 259 as of January 31st. (Newswires)
US Health Secretary Azar declared the coronavirus as a public health emergency in the US and noted those who return from the Hubei province to the US will be held in quarantine for 14 days, while the US will deny entry to the country for any foreign nationals who pose a risk of transmitting the virus, unless they are immediate family of US citizens and permanent residents. (Newswires)
CDC Director emphasised the risk of coronavirus to the US public is low, while it was reported over the weekend that the 8th US case of coronavirus was confirmed in Massachusetts. In related news, Philippines reported the first coronavirus death outside of China who was a Chinese national that travelled from Wuhan. (Newswires)
Asian equity markets mostly traded with heavy losses as markets braced themselves for China’s return from the Lunar New Year holiday in which mainland bourses opened with losses of nearly 9% and several Shanghai commodity prices hit limit down, despite efforts by China to cushion the blow. ASX 200 (-1.3%) was lower in which energy and mining sectors underperformed the broad weakness across Australia sectors aside from the gold miners due to recent safe-haven plays, while Nikkei 225 (-1.1%) traded subdued but off its lows after finding mild relief from currency flows. Elsewhere, a blood bath was seen at the reopen in mainland China as the Shanghai Comp. (-8.0%) played catch up to the global market rout brought on by the coronavirus and with sentiment not helped by a contraction in Industrial Profits, although mainland bourses were slightly off their worst levels and the Hang Seng (+0.1%) recovered into positive territory after several supportive measures including efforts to restrict short selling and the PBoC’s CNY 1.2tln reverse repo operation in which the central bank also lowered repo rates by 10bps. Finally, 10yr JGBs consolidated overnight and although prices eventually retreated back below the 153.00 level, they still held on to the majority of last week’s advances amid the rout in stocks and after the BoJ kept February purchase intentions mostly in line with the previous month.
PBoC injected CNY 900bln via 7-day and CNY 300bln via 14-day reverse repos for a net daily injection of CNY 150bln, while it lowered rates on 7-day and 14-day reverse repos by 10bps to 2.40% and 2.55% respectively. PBoC set USD/CNY mid-point at 6.9249 vs. Exp. 6.9195 (Prev. 6.8876)
PBoC said it will closely monitor liquidity amid coronavirus outbreak and will ensure ample supply of liquidity, while there were separate comments from PBoC adviser Ma Jun that the possibility of a Loan Prime Rate cut on February 20th has significantly increased and that the reverse repo rate cut should alleviate the shock to the real economy from virus outbreak especially to small and micro firms. (Newswires)
China reportedly took steps to limit short-selling activities in which the CSRC issued a verbal directive to brokerages to bar their clients from short-selling today, while it urged mutual fund managers not to sell shares unless they face investor redemption according to sources. Furthermore, the PBoC announced to conduct CNY 1.2tln reverse repo operations and banks were instructed to increase lending and not call in loans to companies in regions affected by the coronavirus, while MOFCOM will help pay 50% of interest for PBoC’s relending scheme to key enterprises for up to 1 year. (Newswires)
China NDRC said there is increasing downward economic impact due to virus outbreak especially for consumption but added the economic impact will be short-term and they are confident of minimising the economic impact. NDRC added that it will launch hedging policies to offset economic impact and assist the most vulnerable companies, while the China Commerce Ministry said they are guiding medium and small business to reopen ASAP to increase basic services such as food and shopping. (Newswires)
Chinese Caixin Manufacturing PMI (Jan) 51.1 (Prev. 51.5). (Newswires) Chinese Industrial Profits (Dec) Y/Y -6.3% (Prev. 5.4%)
UK PM Johnson will set out a hardline stance on post-Brexit trade talks during a major speech today in which he will say there is "no need" to accept various EU rules in a trade deal and is said to be prepared to walk away if he is unhappy with the deal. In related news, UK will begin free trade negotiations immediately after Brexit and is reportedly aiming to have 80% of trade covered by FTA's within 3 years, while there were separate comments from DUP’s Foster that it is difficult to see how there will not be new checks between Britain and Northern Ireland. (AFP/Newswires)
ECB’s Lane says that inflation in the Eurozone will eventually pick up amid rising labour costs and help the ECB hit its target. (FT)
DXY nursed some of Friday’s data-driven losses and re-approached 97.50 as it benefitted from the lacklustre tone across its major counterparts including EUR/USD which marginally pulled back from resistance just shy of 1.1100 and with GBP/USD back below the 1.3200 handle post-Brexit. USD/JPY and JPY-crosses attempted to nurse Friday’s losses with the former testing 108.50 albeit with the rebound capped by the broad risk aversion and antipodeans were choppy ahead of tomorrow’s RBA decision and amid a weaker CNY which depreciated past 7.0000 against the greenback to print its largest daily decline since early-August.
Commodities were mixed overnight despite the panic selling seen at the resumption of Chinese commodities trading which saw Shanghai copper, crude oil and Dalian iron ore futures all hit limit down on pent up selling from the Lunar New Year holiday. However, global benchmarks were unaffected and WTI crude futures edged mild gains after reports that the OPEC+ meeting has been brought forward to February 4th-5th to discuss the impact of the coronavirus outbreak, which is said to have plunged Chinese oil demand by 20%. Gold prices pulled back overnight amid a mild recovery in the greenback, while copper was also unfazed by the rout in China and instead tracked the overnight rebound across US equity futures.
Baker Hughes oil rigs -1 at 675 and Natgas -3 at 112, while total -4 at 790. (Newswires)
China oil demand is seen to have plunged 20% due to the coronavirus lockdown and China's Sinopec was said to reduce oil refinery throughput by 600k bpd as the coronavirus impacts demand, according to sources. (Newswires)
OPEC+ joint committee is reportedly to meet on Feb 4th-5th in Vienna to review the impact of the coronavirus on oil demand. (Newswires)
OPEC survey stated that OPEC compliance is seen at 133% in January vs. Prev. 158% in December and output seen falling 640k BPD M/M to 28.35mln BPD on Libya unrest, Ecuador exit and supply curb deal. (Newswires)
Turkey Defence Ministry said Turkish forces retaliated against an attack and destroyed target in Syria's Idlib region, while reports also noted that 4 Turkish soldiers were killed by strikes conducted by the Assad regime. (Newswires/Twitter)
Treasuries rallied last week, with yields on 2s, 5s, 10s plunging by around 17bps, and 30s falling by around 13bps - crucially slipping sub-2.00% briefly on Friday, as fears over the impact of the Coronavirus persist. The shape of the curve is mixed on a weekly view, with 2s5s and 2s10s narrowing, the former inverting this week. 2s30s widened by around 4bps, as has 10s30s, while 5s30s is around 5bps wider. At settlement, 30s had managed to keep their head above 2.00%, but there is now fresh attention on the 10-year yield, which is within a whisker of the 1.50% handle. Meanwhile, the EFFR on Thursday rose to 1.60% following the Fed's hike to the IOER rate, helping to guide it towards the midpoint of the FFR's target range. Next week, bond traders will be focussing on the Treasuries quarterly refunding announcement, and in particular, details around the announced 20-year issuance. US T-note futures settled 11 ticks higher at 131-21.
US President Trump will reportedly urge congress at the State of the Union Address to lower the cost of health care including prescription drugs. (Newswires)
US Senate Leaders McConnell and Schumer agreed on President Trump's impeachment vote to take place on Wednesday, while the Senate voted against calling new witnesses in the Trump impeachment trial through 49-51 vote. (Newswires)
Final Iowa DataProgress Poll showed Sanders at 22%, Warren at 19%, Buttigieg at 18% and Biden at 18%, while New Hampshire EmersonPolling/7News Poll showed Sanders at 29%, Biden at 14%, Buttigieg at 13% and Warren at 12%. (Newswires)