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[PODCAST] US Open Rundown 4th February 2020

  • Risk-on dominates this morning as little has occurred to changed yesterday’s positive narrative
  • Iowa results have been delayed, expected to be released later tonight
  • US Trump administration it to proceed with new rules that would enable the nation to impose punitive tariffs on goods from countries believed to have undervalued currencies
  • China says they have suspended all activities for their Canton fair due to the coronavirus
  • Looking ahead, highlights include US Factory Orders, New Zealand Unemployment and US President Trump's State of the Union Address


China National Health Commission said total confirmed cases of coronavirus now at 20438 and death toll at 425 vs. Prev. 17205 coronavirus cases and deaths at 361. There were also separate reports of the first coronavirus death for Hong Kong and that a South Korean woman tested positive for coronavirus after visiting Thailand. (Newswires)

China says they have suspended all activities for their Canton fair due to the coronavirus; note, the fair was scheduled to take place April 15th to May 5th. (Newswires)

Currently we are not in a pandemic, are at a phase where we have a epidemic of coronavirus with multiple focus points which we are trying to extinguish., WHO Senior Offical. (Newswires)

China Foreign Ministry said it hopes US provides aid it promised on the coronavirus outbreak soon, while it added the US should refrain from overreacting to the outbreak and work with China to deal with the epidemic. (Newswires)

Macau is considering suspending casino operations for at least half a month, although would need to discuss with sector and city to be able to afford the costs of such a move. (Newswires)


Asia-Pac equity markets traded higher after following suit to Wall St peers which were encouraged by China’s support measures and strong US data. The rebound extended into the region in which the Shanghai Comp. (+1.3%) recovered initial losses of more than 2.0% on aggressive bargain buying after having opened at its weakest in almost a year and following the 7.7% sell-off yesterday. The PBoC also continued to supply liquidity through CNY 500bln of reverse repos, while the Hang Seng (+1.2%) was lifted on the improved risk sentiment and after Q4 GDP showed a narrower than expected contraction which effectively overshadowed Hong Kong’s first coronavirus related death. ASX 200 (+0.4%) and Nikkei 225 (+0.5%) were kept afloat albeit with less conviction amid the RBA rate decision where the central bank kept rates unchanged and disappointed those anticipating a more dovish tone, while Tokyo sentiment contained by recent currency strength although firm gains were seen in Panasonic shares after it reported an increase in 9-month net and that its battery JV with Tesla turned profitable. Finally, 10yr JGBs and T-notes were subdued as the recovery in stocks sapped demand for safe havens which saw the former gap below the 153.00 level, with mixed 10yr JGB auction results also adding to the humdrum price action for JGBs.      

PBoC injected CNY 380bln via 7-day and CNY 120bln via 14-day reverse repos for a net daily injection of CNY 400bln. Furthermore, PBoC said liquidity injections show resolution to boost confidence and was to steer interbank rates lower, while it added the larger than expected injection is to lower loan rate. (Newswires) PBoC set USD/CNY mid-point at 6.9779 vs. Exp. 6.9758 (Prev. 6.9249)

China Business Times citing analysts note "China is unlikely to urge the US to delay the execution of phase one trade deal. Though the outbreak of coronavirus will postpone China’s planned purchase of US goods in Q1" "China can scale up the purchase during the rest of the year to make up for the void". (Global Times)


Democratic Iowa caucuses results were delayed due to quality checks amid inconsistencies and Iowa Democrats were said to be undecided if they will release caucus results on Monday night; results are expected to be released tonight. (Newswires)

According to US Senator Sanders’ press release, Sanders is on track to win the Iowa Caucus with 29.66% of the votes, Buttigieg 24.59%, Warren 21.24%, Biden 12.37%, Klobuchar 11.00% [This is incomplete data and represents 40% of precincts in Iowa]

Fed's Bostic (Non-Voter, Dove) said we are doing pretty good in meeting employment target although inflation remains weak and not where we would like it to be. Bostic added the Fed will taper pace of repo activity and balance sheet will still grow but slowly, while he added the Fed still views the balance sheet as a possible policy tool although the rate is the main tool. Furthermore, he stated that a material change to him would mean large numbers of businesses changing plans on investment or hiring and that he will start to adjust his outlook if there's a change in mindset for businesses. (Newswires)

Alphabet Inc (GOOGL) Q4 EPS USD 15.35 vs. Exp. USD 12.55, Rev. USD 46.08bln vs. Exp. USD 46.93bln, Google Advertising Revenue USD 37.93bln vs. Exp. USD 38.09bln. Additionally, Google (GOOG) is facing a privacy probe in Europe in regard to location tracking. (Newswires)


Libyan rivals have struck an agreement to turn the current truce into a lasting ceasefire, according to the UN via AFP. (Twitter)


UK Markit/CIPS Construction PMI (Jan) 48.4 vs. Exp. 46.6 (Prev. 44.4)


A solid day of gains for the European equity-space thus far [Eurostoxx 50 +1.3%] following on from Mainland China’s rebound from the prior sessions near 8% losses. Sectors are mostly in the green and reflect risk appetite as cyclicals outperform defensives. The energy sector is the main gainer amid the rebound in the complex – with materials also bolstered by a rebound in copper prices; Glencore (+4.5%), Antofagasta (+3.6%) and BHP (+2.8%) are among the top FTSE 100 winners. In terms of individual movers, BP (+4.6%) extended on gains seen at the open amid favourable earnings. On the flip side, Pandora (-4.4%) and Micro Focus (-16%) plumbed the depths and remain the Stoxx 600 laggards post earnings. Elsewhere, SGS (-4.7%) shares suffer after Von Finck family sold some CHF 2.3bln worth of shares in the Co.


DXY - A firmer start to the session for the broad Dollar and Index in a continuation of yesterday’s momentum, although with some support derived from Sterling’s slip below 1.3000 vs. the Buck. State-side, Democratic Iowa caucuses results were delayed to later today due to discrepancies, although an incomplete poll released by Sanders party (representing only 40% of Iowa precincts) show Sanders (29.66%) and Buttigieg (24.59%) leading whilst Klobuchar (11.00%) tails, followed by Biden (12.37%) . DXY remains north of its 100 DMA ~97.84 with the index eyeing 98.000 to the upside for potential resistance. In terms of the docket, Factory Orders and Durable Goods revisions are due just after the US cash open and US President Trump’s State of Union address will be closely watched overnight (0200GMT).

Yuan - A complete reversal from yesterday’s price action and a total wipe-out of the prior session’s losses despite a firmer USD/CNY fixing by the PBoC overnight amid what seems to be a U-turn in sentiment. The CNY finished its domestic session sub-7.00 and with the session’s price action contained within its 100 and 200 DMAs at 7.0210 and 6.9889, similar trade is seen in the offshore. Some have pointed to China’s proactive measures to tackle the outbreak as a potential factor leading the turnaround.

AUD, NZD - The Aussie leads the gains among the G10 in the aftermath of the RBA’s rate decision which proved to be less dovish than some had expected. Rates were left unchanged and the statement largely a copy-and-paste job from the prior meeting, albeit the commentary surrounding the bushfires and coronavirus seemed appeasing – with the Bank stating that effects will “temporarily weigh on growth” and its “too early” to assess the long-lasting impact. AUD/USD was bolstered above 0.6700 on the decision and thereafter hovered just off intraday highs, with the current risk-tone also underpinning the currency. Note: today sees some AUD 1.2bln in options expiring at strike 0.6765 at the NY cut. Meanwhile, Kiwi gleans some support from the risk sentiment, but gains remain capped as the AUD/NZD cross eyes 1.0400 to the upside, having tested the level in earlier trade (vs. low 1.0350)

GBP, EUR - Sterling has seen a mild recovering following its earlier slide below the 1.3000 mark vs. the USD in a continuation of yesterday’s price action. Earlier in the session, Cable took out its overnight low (~1.2980) and the Jan low (1.2955) before printing a fresh 2020 low at 1.2942, with eyes on the Dec low (~1.2895) should the pair breach 1.2900. Cable recouped some losses and is testing 1.3000 to the upside at time of writing. Subsequently, EUR/GBP saw fleeting gains in which in the cross reached a high of 0.8537 (vs. low of 0.8495) ahead of the Jan 20th high of 0.8553. EUR/USD meanwhile remains flat in a tight intraday band of 1.1050-1.1065, with some ~EUR 1bln expiring around strike 1.1030-40.

JPY, CHF - Safe-haven FX conformed to the overall risk appetite with the JPY and CHF the G10 underperformers. USD/JPY just about reclaimed 109.00 to the upside in early trade (vs. low of ~108.60) ahead of its potential resistance at 109.30 (Jan 29th high). The Swiss Franc meanwhile eyes 0.9700 to the upside vs. the USD having printed a low of ~0.9660.

RBA kept the Cash Rate unchanged at 0.75% as expected. RBA reiterated it will ease policy if needed to support sustainable growth and rates are to remain low for an extended period, while it added that low rates are boosting asset prices which should lead to increased spending and that it will monitor developments in labour market. RBA added that wage growth is expected to remain at current levels for some time and the central scenario remains for the Australia economy to grow 2.75% this year, 3.00% in 2021 and underlying inflation is to be close to 2% this year and next. Furthermore, RBA noted that bushfires and coronavirus will temporarily weigh on growth although it is too early to determine how long-lasting impact from coronavirus will be.

The US Trump administration it to proceed with new rules that would enable the nation to impose punitive tariffs on goods from countries believed to have undervalued currencies, according to the Commerce Department. (Newswires)


Widespread risk-on is also evident via a downbeat day for debt, with the sessions main event in the form of results from the Iowa Caucus delayed. Price action is consistent across core EZ bonds and their US peer, while peripherals have been somewhat directionless/rangebound. The change in sentiment was cemented with yesterday’s strong ISM print (note, this does not fully account for the coronavirus) after which due to the Iowa delay there has been no catalyst to divert the markets attention. Bunds are down to as low as 174.36 thus far, and look set to approach recent lows at 174.10; note, if downside exacerbates then we have clean-air through 174.0, 173.50 after which strong support resides at 173.41 in the form of a multisession low. Elsewhere, Gilts are similarly subdued and appear to have been the driver of the next bout of pressure post PMI, as January’s Construction component printed above exp. at 48.4 vs. 46.6 (Prev. 44.4) within this IHS commented ‘positivity reached its highest level since April 2018’. From a European standpoint there is nothing too notable scheduled for the remainder of the session. Moving stateside, where the broad down-tick in debt has lifted the 10-year yield to a high of 1.58, and well off of recent 1.50 lows. Looking ahead, participants remain on standby for Iowa, with no indicative release time as of yet; for reference, Sanders’ press release has him on track to win with circa 29.7% of votes, but this is derived from less than half of all precincts. Finally, as a reminder US President Trump is due to give his State of the Union Address today (21:00EST/02:00GM) which could well set the tone for Wednesday’s session.


WTI and Brent front month futures feel some reprieve from the current overall turnaround in risk sentiment and with China’s proactive measures to stem the spread of the virus digested as a market positive. Furthermore, Russia’s Kremlin noted that Moscow is ready to cooperate with OPEC but declined to comment if Russia supports further cuts – which comes after Russian President Putin and Saudi Crown Prince MBS confirmed their readiness to continue cooperation. Regarding yesterday’s sources, which noted that Saudi might be on board for a temporary 1mln BPD cut, analysts at SGH Macro are sceptical as this may mean that the major oil producer could lose market share to the likes of Russia and the US. Moreover, analysts at ING noted that anything beyond a coordinated 500k BPD cut would be hard to achieve as “it becomes questionable who would be able to make significant cuts beyond Saudi Arabia and Russia,” while highlighting that Saudi is over-complying with their current quotas; thus further scope for the Kingdom to cut remains limited. WTI resides just below the USD 51/bbl mark having tested the level to the upside while its Brent counterpart looks at USD 55/bbl, having eclipsed the level in earlier trade. Traders will be monitoring the overall risk sentiment and OPEC jawboning (JTC will convene 4th/5th Feb ahead OPEC on 14th/15th) for any influence on prices ahead of the weekly API release later today. Elsewhere, spot gold is on the back foot due to the aforementioned risk appetite, with prices trading in close proximity to its 21 DMA around USD 1564.50/oz. Copper meanwhile staged an aggressive rebound amid the improvement in the risk tone and as Chinese markets nursed some losses, with prices catapulting to highs above USD 2.56/lb vs. a sub-2.50/lb low. That said, Dalian iron ore futures fell some 2.5% overnight amid delays of construction activities after the Chinese Lunar New Year break.

Russia's Kremlin says Russia is ready cooperate with OPEC but declines to comment if Russia supports further cuts. (Newswires)

Libya's crude production reportedly fell to 204k BPD due to the continued blockade of its oil infrastructure, according to Argus Media citing sources. (Twitter)

Goldman Sachs said oil prices are now at levels where supply response from both OPEC and US shale producers point to only modest further downside potential, while it suggested recent sell-off, the oil market is pricing at least -0.44% impact to global GDP from the coronavirus. (Newswires)

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