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[PODCAST] EU Open Rundown 5th February 2020

  • Asian equity markets were positive across the board as the global rebound filtered through to the region
  • China reported total coronavirus cases in the mainland are now at 24324 and total number of deaths was now at 490
  • US President Trump’s administration is planning to meet later this month to discuss efforts to further limit exports to China and Huawei, according to WSJ
  • RBA Governor Lowe says the board continues to discuss merits of further stimulus but also noted the economy is still passing through a gentle turning point
  • OPEC+ JTC reportedly did not discuss production cuts yesterday but will revisit the topic today
  • Looking ahead, highlights include EZ, UK and US Services & Composite PMI (Final), US ISM Non-Manufacturing PMI, BCB Rate Decision, ECB’s Lagarde, Lane & de Guindos, Fed’s Brainard
  • Earnings: BNP Paribas, Danske Bank, Infineon, ABB, Siemens, General Motors, Qualcomm, T-Mobile, GlaxoSmithKline

CORONAVIRUS UPDATE

China reported total coronavirus cases in the mainland are now at 24324 and total number of deaths was now at 490 as of Feb. 4th vs. Prev. 20438 cases and death toll at 425 the prior day. (Newswires)

Japan Health Ministry confirmed about 10 cases of coronavirus from a cruise ship, while South Korea also reported 2 more cases of coronavirus to take the total to 18 and Canada confirmed a 5th coronavirus case. (Newswires/Yonhap)

World Health Organization Chief Tedros reiterated advice not to impose trade and travel restrictions on China and stated that such measures can cause "fear and stigma", while there were also comments from Chinese Envoy Chen Xu that some restrictions are not in compliance with WHO advice and urged countries not to over-react to the coronavirus. (Newswires)

ASIA-PAC

Asian equity markets were positive across the board as the global rebound filtered through to the region after having underpinned the major indices on Wall St and pushed the Nasdaq to a fresh record high. ASX 200 (+0.4%) and Nikkei 225 (+1.5%) were both higher after taking impetus from stateside peers with tech and commodity-related sectors the outperformers in Australia but with gains limited by resistance at the 7000 level and with gold miners suffering as investors shunned safe-havens, while gains in Tokyo were exacerbated by a weaker currency. Elsewhere, Hang Seng (+0.9%) and Shanghai Comp. (+1.0%) notched respectable gains as the bargain hunting resumed in the mainland, unfazed by softer Caixin Services and Composite PMIs, continued increases in the number of coronavirus cases and the PBoC skipping open market operations in which it noted that current liquidity is ample and can fully meet market demand. Finally, 10yr JGBs extended on this week’s pullback from the 153.00 level and following the bear-steepening in USTs in which T-notes retreated below 131.00 as the gains across stocks sapped safe-haven demand.

PBoC skipped open market operations for a net daily drain of CNY 30bln. (Newswires) PBoC set USD/CNY mid-point at 6.9823 vs. Exp. 6.9832 (Prev. 6.9779)

Chinese Caixin Services PMI (Jan) 51.8 vs. Exp. 52.6 (Prev. 52.5) Chinese Caixin Composite PMI (Jan) 51.9 (Prev. 52.6)

US President Trump’s administration is reportedly planning to meet later this month to discuss efforts to further limit exports to China and Huawei. (WSJ)

UK/EU

N/A

 

FX

The DXY traded steady around 98.00 and was unmoved by the long-delayed and incomplete (72% of precincts) Iowa Caucus results which showed Pete Buttigieg and Bernie Sanders pulling ahead at 26.8% and 25.2% respectively, followed by Warren at 18.4% and Biden in 4th place at 15.5%. The State of the Union Address also failed to spur price action with President Trump championing the US economy and employment in an opportunity to make his case for re-election. EUR/USD and GBP/USD were lacklustre with the latter giving back some of the spoils as it retreated closer towards 1.3000. USD/JPY and JPY-crosses remained elevated due to the risk appetite, while antipodeans were relatively indecisive with AUD/USD choppy after comments from RBA Governor Lowe that the board continues to discuss merits of further monetary stimulus but also noted that the economy is still passing through a gentle turning point and that the board is balancing risks of further cuts vs. costs of very low rates. Elsewhere, SGD lost about a point against the greenback following an update from the MAS which stated that policy stance remains unchanged although there is sufficient room within the policy band for SGD Nominal Effective Exchange Rate easing.

RBA Governor Lowe said the board continues to discuss merits of further monetary stimulus but noted the economy is still passing through a gentle turning point and that the board is balancing risks of further cuts vs. costs of very low rates. Lowe also stated that recent inflation and jobs data show things are gradually moving in right direction and that he can see the case for further easing but added there are risks and the benefits currently do not outweigh risks which could change. Furthermore, Lowe commented that rates could come down but is hoping it will not happen and suggested they are getting closer to the crossing point where low rates become a risk. (Newswires)

SNB'S Jordan said coronavirus has been a factor in recent CHF appreciation, while he added that overall risks have not reduced and therefore current policy is correct. Jordan also stated they are keeping to negative interest rates and currency interventions if needed although the bank would pose no concerns about removing negative rates if the situation called for it. Furthermore, he added that CHF is highly valued and that the Bank has the room to move rates lower. (Newswires)

MAS said its policy stance remains unchanged and that there is sufficient room within the policy band for SGD NEER easing. (Newswires) New Zealand HLFS Job Growth QQ* (Q4) 0.0% vs. Exp. 0.3% (Prev. 0.2%) New Zealand HLFS Unemployment Rate* (Q4) 4.0% vs. Exp. 4.2% (Prev. 4.2%, Rev. 4.1%)

COMMODITIES

Commodities mostly rebounded which provided some reprieve for oil prices from the prior day’s selling in which WTI crude futures briefly slumped to below USD 50/bbl amid ongoing demand concerns from the coronavirus outbreak and after comments from Russia Energy Minister Novak. Furthermore, the OPEC+ JTC reportedly did not discuss production cuts yesterday but will revisit the topic today and a larger than expected build in headline private inventories added to the bearish factors. Nonetheless, the energy complex has nursed losses overnight and WTI reclaimed the USD 50.00/bbl level amid the broad appetite for risk which was also the driver for outperformance in copper, while gold prices benefitted from short-covering and a bounce off support at USD 1550/oz.

US Private Inventory Crude Stocks (w/e 31st Jan) +4.18mln (exp. +2.8mln, prev. -4.3mln). (Newswires)

OPEC+ JTC reportedly did not discuss production cuts yesterday but will revisit the topic today, according to delegates who noted it studied between 200-400k BPD impact on oil demand from the coronavirus. (Newswires)

Canadian court dismissed the aboriginal groups challenge to block the Transmountain pipeline construction, allowing the project to go forward although the aboriginal group have 60 days to appeal the decision. (Newswires)

China aviation fuel sales declined 25% Y/Y during the last week of January amid coronavirus. (Newswires)

Libya's NOC said output has fallen to 187k BPD (prev. 204k BPD). (Newswires)

GEOPOLITICS

US President Trump said a war with Iran is closer than you thought during a lunch with TV anchors. (WSJ)

US 

The TPLEX saw bear-steepening on Tuesday as markets ramped up their risk appetites. The selling of the T-Note was clear sailing throughout the session as participants cited several factors: coronavirus fears abating with China pledging economic stimulus, preliminary polls for the more moderate Buttigieg surprised higher in the Iowa caucus, fallout from Monday’s strong ISM Manufacturing print in the US and the above consensus Factory Orders print, and position unwinding ahead of the Treasury refunding announcement on Wednesday (exp. USD 38bln 3-years, USD 27bln 10-years and USD 19bln 30-years). This proverbial cocktail of factors saw the most pronounced steepening in the front-to-belly (2s5s +2bps, 2s10s +2bps, 2s30s +1.5bps), helping the 10-year yield rise back above 1.60%, after concerns of it breaking though 1.50%. US T-note (H0) settled 22 ticks lower at 130-28+.

US President Trump said America's future is bright and the economy is the best it has ever been in the State of the Union Address. President Trump added that there has been more than 7mln jobs created in the US and Unemployment has reached the lowest in 50 years since he has been President, while he added that companies are returning to the US and tariff strategy on China worked. (Newswires)

Iowa caucus results showed Buttigieg at 26.8%, Sanders 25.2%, Warren 18.4%, Biden 15.5%, Klobuchar 12.6% and Yang 1.1% with 71% of precincts reporting. (Newswires/Twitter)

Source: Newsquawk

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