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[PODCAST] US Open Rundown 3rd February 2020

  • European bourses are largely little changed after China’s profoundly negative return, US futures indicate a firmer open
  • EU unveiled a relatively unsurprising draft mandate for EU-UK negotiations which, as expected, emphasised the importance of a level-playing-field
  • PM Johnson’s comments have been largely in-line with leaked remarks, taking a modestly hardline stance
  • Conflicting source reports around potential Saudi Arabia/OPEC cuts to production in response to the coronavirus, a range of 0.5-1.0mln BPD
  • China is to reportedly review its 2020 economic growth target amid the coronavirus outbreak


China’s daily briefing confirmed 17,205 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)

Philippines reported the first coronavirus death outside of China, 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 (-1.0%) 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. (-7.7%) 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 (+0.2%) 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)

China is to reportedly review its 2020 economic growth target amid the coronavirus outbreak. (Newswires)

Chinese Caixin Manufacturing PMI (Jan) 51.1 (Prev. 51.5). (Newswires) Chinese Industrial Profits (Dec) Y/Y -6.3% (Prev. 5.4%)


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)


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)


Remarks from UK PM Johnson on post-Brexit talks have been largely in-line with reports via UK press over the weekend; with Johnson saying there is no need to accept various EU rules in a trade 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)

EU Chief Brexit Negotiator Barnier unveiled the Draft Mandate for EU-UK negotiations. Consensus appears to be that the mandate does not contain anything too surprising; emphasises the level playing field, agreement must include fisheries and reciprocal access to waters. Additionally, the document notes that the entirety of any deal doe not need to be signed and completed this year, as the EU are willing to continue negotiations on any remaining issues after the transmission periods conclusion.

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)

EU Markit Manufacturing Final PMI (Jan) 47.9 vs. Exp. 47.8 (Prev. 47.8)

-        German Markit/BME Manufacturing PMI (Jan) 45.3 vs. Exp. 45.2 (Prev. 45.2)

-        IHS Markit note: "The eurozone economy could see growth strengthen in the coming months, meaning the ECB will hold off with any policy changes and instead focus on its strategic review"

UK Markit/CIPS Manufacturing PMI Final (Jan) 50.0 vs. Exp. 49.8 (Prev. 49.8)


A relatively tame session for European equities thus far [Eurostoxx 50 +0.2%], following on from the frantic Chinese sell-off in which its markets wiped some USD 420bln in its catch-up play, with Shanghai Comp closing with losses of almost 8%. Sectors are mixed with no clear reflection of the current risk tone as defensives and cyclicals remain varied, albeit energy is underperforming amid losses in the complex. In terms of individual stocks Ingenico (+11.4%) shares spiked higher to the top of the Stoxx 600 at the open amid M&A induced moves with Wordline set to acquire the company in a deal value at EUR 7.8bln. Ryanair (+4.6%) shares follow closely behind amid earnings in which the group announced an extension to its share buyback programme. On the flip side, Siemens Heathineers (-4.6%) shares fell to the foot of the pan-European index following double-digit YY declines in adj. EBIT and net income.


Yuan, DXY - The Yuan suffered from revived angst/catch-up play upon Mainland’s return following its extended Lunar New Year holiday and having had its first opportunity to react to the escalating threats from the outbreak. Moreover, China took a barrage of measures, including lowering rates on its 7- and 14-day reverse repos by 10bps each, in an attempt to cushion losses in the markets amid expectations for a tumultuous session. USD/CNY was propelled at the onshore open as the pair breached 7.00 to the upside (vs. 6.9364 close on Jan 23rd) and eclipsed its 100 DMA at 7.0223 before closing around 7.0250 – the weakest close since December 12th, USD/CNH remains comfortably above 7.00. Subsequently, DXY gained and resides above 97.500 (vs. 97.429 open and low) with the index supported amid weakness in some peers. DXY sees its 200 DMA around 97.720 and 100 DMA at 97.832 ahead of the psychological 98.000 – with traders eyeing the ISM Manufacturing release for influence, whilst the Iowa caucus will also be followed to give a lens into the Democratic presidential candidate.

GBP - The marked G10 underperformer heading into PM Johnson's speech, the content of this was predominantly flagged by UK press over the weekend; taking a hard stance regarding post-Brexit trade negotiations with the EU – with one of the pledges being to not align the UK with the EU alongside a willingness to leave on WTO terms if necessary. Meanwhile, EU’s Chief Brexit Negotiator was expected to warn that a FTA is unlikely should the UK misalign itself with EU standards. Barnier noted that the EU is not seeking UK regulatory alignment, but “we do want consistency”, which is similar in essence. GBP/USD saw some support around 1.3100, having retreated from Friday’s 1.3200 close and with limited reaction seen by the UK manufacturing PMI being revised higher to neutral from a mild contraction. Thereafter, GBP/USD breached 1.3100 to the downside, breaching Friday’s low (1.3080) and its 50 DMA (1.3075) to a low of 1.3055 ahead of the psychological 1.3050.

AUD, NZD, JPY, EUR - All softer vs. the Buck as DXY gains traction. Antipodeans were supported in overnight trade but have since trimmed gains and reside around flat territory – AUD/USD briefly topped 0.6700 before reversing and finding mild support around 0.6680, whilst its Kiwi counterpart fell back below its 100 DMA (0.6466) having reached an overnight high of 0.6476 and with 0.6450 seen as psychological support. Similarly, the safe-haven currencies succumb to the firmer Dollar, with USD/JPY meandering around 108.50 ahead of its 100 DMA at 108.75. EUR/USD was largely unreactive to a modest revision higher in the EZ manufacturing PMI, which also came with an optimistic accompanying statement from the IHS, noting that economy could see growth strengthen in the period ahead. EUR/USD trades just above the 1.1050 mark (vs. high 1.1095) with the pair eyeing EUR 927mln of options expiring around 1.1075 at today’s NY cut.

EM - Mild reprieve across the EM-sphere, but potentially more-so consolidation following last-week’s hefty losses. TRY saw little reaction as the country’s real rates were dragged further into negative territory amid the uptick in January YY inflation – with participants noting that this may prompt a pause in the CBRT’s easing cycle, although not a cessation given the Turkish President’s pledge to bring rates back to single digits this year. USD/TRY remains flat intraday around 5.9850. Meanwhile, USD/ZAR has retreated back below 15.000 with some noting a correction from last week’s losses alongside profit taking.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1075 (927M), 1.1100 (512M)

-        AUD/USD: 0.6750 (800M), 0.6800 (1.9BLN)


A lacklustre start to the month for the debt complex in Europe as weekend intervention by China has stemmed the substantial sell-off on China’s return but with little in the way of new fundamental negatives around Coronavirus to substantially sour sentiment in Europe. Bunds are around the 175.00 handle but have reverted somewhat from the session low of 174.71; technically, very little support features before the 174.00 handle itself with only a recent low at 174.16 to stem any potential sell-off. From a data perspective this morning’s final PMIs out of the EZ were revised marginally higher for January, but such revision was not sufficient to generate any reaction. Focus for UK bonds has been on today’s keynote Brexit speeches firstly from EU’s Brexit Negotiator Barnier, in which he has unveiled the mandate for negotiations and does not appear to contain anything too surprising but does stress the ‘level playing field’ as being central to discussion. UK PM Johnson’s mandate, thus far, is relatively in-line with leaked remarks to UK press over the weekend in which he is taking a slightly firmer stance; for instance, that there is no need for a free trade agreement to involve acceptance of EU rules. Gilts themselves have been relatively unreactive to these comments and if anything, have (unlike Johnson’s leaked remarks) moved slightly more in-line with European action. Away from the core, where Italian debt is slightly more subdued but not by a significant measure. Finally moving state-side, the broad debt-dip has caused US 10-year yield to revert from recent lows of exactly 1.50%, to a high of 1.551 at present. As a reminder November’s PCE was 1.5%.


Overall mixed with WTI front month futures firmer but Brent subdued on the demand implications of the cornonavirus outbreak. Furthermore, reports noted that Chinese oil demand is seen falling some 20% on the coronavirus lockdown, which does not bode well for its largest suppliers Saudi and Russia. On the OPEC front, sources noted that OPEC and allies are mulling further output reductions of ~500k BPD, with a meeting reportedly scheduled for February 14th/15th. Note: some desks highlight that a bulk of the “new cuts” could factor in the disruptions in Libya, which net-net may end up in a lower aggregate output reduction. The Joint Technical Committee will be convening on February 4th/5th to assess impacts of the virus and are likely to make a recommendation around any further action to support the market, according to sources. Further sources via journalist Summer Said noted that Saudi Arabia are reportedly considering a drastic temporary cut of up to 1mln BPD in response to the coronavirus. WTI and Brent futures reside under USD 52/bbl and just north of USD 56/bbl with fleeting support seen from the OPEC sources. Elsewhere, spot gold saw early losses amid a firming USD in which prices briefly dipped below 1575/oz. Meanwhile, panic selling seen at the resumption of Chinese commodities trading saw Shanghai copper, crude oil and Dalian iron ore futures all hit limit down in catch-up action from the Lunar New Year holiday.

OPEC + is considering further oil output cuts of 500k BPD due to coronavirus impact on oil prices, Most OPEC members agree on the need to cut oil output further, OPEC+ now considers meeting on Feb 14th-15th. (Newswires)

-        Iranian Oil Minister says the Iran will not cut output amid sanctions, adds that efforts should be made to stabilise oil prices

-        Subsequently, Saudi Arabia are reportedly considering a drastic temporary cut of up to 1mln BPD in response to the coronavirus., journalist Summer Said citing sources. (Twitter)

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)

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