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[PODCAST] EU Open Rundown 6th February 2020

  • Asia-Pac equity markets got a lift from the tailwinds from Wall St. where S&P 500 and Nasdaq posted record closes
  • China reported total coronavirus cases were now at 28018 and total death toll at 563 as of Feb. 5th
  • China is to cut tariffs by as much as 50% on USD 75bln of US goods effective February 14th
  • Russia is reportedly not supporting a deeper oil cut and prefers an extension of the current OPEC+ pact, according to sources
  • Looking ahead, highlights include German Industrial Orders, US Challenger Layoffs and Initial Jobless Claims, ECB’s Lagarde, de Guindos, Fed’s Kaplan, RBA’s Lowe, Supply from Spain and France
  • Earnings include UniCredit, Enel, Fiat Chrysler, ArcelorMittal, Osram Licht, Nokia, Sanofi, Total, SocGen, Activision Blizzard, Baidu, Bristol-Myers Squibb, Cigna, Estee Lauder, Kellogg, Motorola, Phillip Morris

CORONAVIRUS UPDATE

China reported total coronavirus cases were now at 28018 and total death toll at 563 as of Feb. 5th vs. Prev. 24324 total cases and number of deaths at 490 as of Feb. 4th. (Newswires)

US CDC stated there are no new confirmed cases of coronavirus infections since its previous update where it stood at 11, while it noted that 206 people have tested negative for coronavirus and 76 are still under evaluation. (Newswires)

China Global Times stated that Coronavirus epicentre faces severe test as actual number of infections are still unknown, while it added that a large number of patients have not received timely treatment and no turning point is in sight yet citing officials and experts. (Global Times)

ASIA-PAC

Asia-Pac equity markets got a lift on the tailwinds from Wall St. where S&P 500 and Nasdaq posted record closes with sentiment underpinned by US data and hopes of a coronavirus treatment in the works despite the World Health Organization denying any breakthrough. ASX 200 (+1.1%) was led higher by outperformance in energy amid a rebound in crude prices and strength in the largest weighted financials sector to reclaim the 7000 level, while Nikkei 225 (+2.6%) received an additional boost from favourable currency flows, as well as a deluge of earnings including Toyota. Elsewhere, Hang Seng (+2.7%) and Shanghai Comp. (+1.6%) conformed to the heightened global risk appetite after unverified reports that a Chinese university research team found an "effective" drug to treat people with Coronavirus and as several mainland pharmaceutical stocks hit limit up, with gains later exacerbated after China announced to cut tariffs by as much as 50% on USD 75bln of US goods effective February 14th. Finally, 10yr JGBs were subdued in which prices declined below 152.50 amid the lack of demand for safe havens and after reports of China’s move to reduce tariffs on US goods which nullified the slightly improved 30yr JGB auction results.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC sets USD/CNY mid-point at 6.9985 vs. Exp. 6.9966 (Prev. 6.9823)

China is to cut tariffs by as much as 50% on USD 75bln of US goods effective February 14th in which it will cut tariffs on some US goods to 5% from 10% and to cut tariffs on other goods to 2.5% from 5%. Furthermore, China commented that it hopes both sides can abide by trade deal and implement it well, while it also hopes the sides can work to boost market confidence, as well as push bilateral trade development and world economic growth. (Newswires)

China Global Times Editor tweeted that the US government should be flexible on China-US phase one trade deal as a way to show goodwill to Chinese people working hard to contain the epidemic. In addition, Global Times stated that China is likely considering a clause in the Phase One deal regarding natural disasters and other unforeseeable events to launch consultation with US regarding potential impact from coronavirus citing an expert, although China’s decision on the disaster clause is said to be unlikely until full assessment at end-Q1. (Global Times/Twitter)

UK/EU

UK Foreign Secretary Raab said hopes Australia will be part of first wave of Free Trade Agreements, while Australian Foreign Minister Payne said she is confident they can negotiate a positive FTA with UK. (Newswires)

FX

DXY remained at this week’s best levels after recent strong data with the greenback also benefitting from the lacklustre trade in its counterparts across the pond with EUR/USD subdued below 1.1000 and after GBP/USD gave back the 1.3000. Elsewhere, the positive risk appetite  provided a floor for USD/JPY and JPY-crosses although the 110.00 level continued to elude the former, while antipodeans were initially indecisive after mostly softer than expected Trade and Retail Sales from Australia and with New Zealand observing Waitangi Day but then saw mild upticks in tandem with a strengthening CNY after China announced to halve some of its tariffs on US goods.

 

Indian Repo Rate 5.15% vs. Exp. 5.15% (Prev. 5.15%) - Decision was unanimous, retains “accommodative” stance

Reverse Repo Rate 4.90% vs. Exp. 4.9% (Prev. 4.9%)

MPC will remain vigilant about potential generalisation of inflationary pressures

GDP projected at 6% for 2020/21, 5.5-6% in H1 and 6.2% in Q3

Headline Q4 inflation revised up to 6.5%, H1 2020/21 seen at 5.0-5.4% and 3.2% in Q3

 

Australian Trade Balance (AUD)(Dec) 5.22bln vs. Exp. 5.95bln (Prev. 5.80bln, Rev. 5.52bln). (Newswires)

Australian Retail Sales MM (Dec) -0.5% vs. Exp. -0.2% (Prev. 0.9%, Rev. 1.0%)

Australian Retail Trade (Q4) 0.5% vs. Exp. 0.3% (Prev. -0.1%)

COMMODITIES

Commodities were mostly higher overnight with WTI crude futures rallying around 2.5% to test the USD 52.00/bbl level with risk appetite the main driver across the commodities complex. Furthermore, the OPEC+ Joint Technical Committee meeting was extended to a 3rd day to continue the debate on the response to the potential weaker demand from the ongoing coronavirus outbreak although Russia was said to prefer an extension of the current deal instead of a deeper cut. Gold was subdued as the greenback held on to firmer gains and due to the lack of safe haven demand, while copper prices notched firm gains in reflection of the broad upbeat sentiment.

Russia is reportedly not supporting a deeper oil cut and prefers an extension of the current pact, according to sources. (Newswires)

Global Times stated that China oil demand could in Q1 see its first Y/Y decline since 2009 due to coronavirus which could reduce 200k BPD off demand citing an insider. (Newswires)

China Iron and Steel Association said outlook for Q1 is not optimistic due to coronavirus although Q3 outlook is more positive on potential stimulus. (Newswires)

 

GEOPOLITICS

 Twitter sources note huge explosions in Damascus, Syria due to Israeli airstrikes, while other reports citing state media stated that Syrian air defences have thwarted a hostile target above the capital. (Twitter)

US is reportedly mulling sanctions on oil companies dealing with Venezuela. (FT)

 

US 

With risk sentiment supported following reports of potential virus vaccines, the Treasury curve bear-steepened. Some desks noted that CFTC positioning data alluded to a large build-up of longs, in the latest week, and if the reports about vaccinations prove to be correct, the rates complex could see a sharp reversal following the recent rally. Another observation some analysts have noted is that, while US equities and USDJPY has reversed last week's virus-induced losses, Treasuries are yet to follow suit (as are Brent prices, which are more focussed on the demand loss from China as a result of the outbreak). With that said, some suggest that the moves seen on Tuesday, where US 10-year yields settled 7bps higher, may have been more of a function of China injecting liquidity, rather than any specific positive development on the virus front, after all, as Rabobank explains, the injection of liquidity does not address any of the fundamental concerns about the virus, and so it does not see the backup in yields as the beginning of a rotation out of bonds. US T-note (H0) settled 11 ticks lower at 130-17+.

 

Fed's Daly (non-voter) said economic impact of coronavirus has been limited and is likely temporary, while she does not expect it to have a material impact on the economy although noted it is another uncertainty. Daly also suggested policy is appropriate, while she sees 2% growth this year and stated the labour market appears as though it has more room to run. (Newswires)

US Senate voted to acquit US President Trump in the impeachment trial as expected with a 52-48 vote against the Abuse of Powers charge and voted 53-47 against the Obstruction of Congress charge. (Newswires)

Pete Buttigieg remained ahead in Democrat Iowa Caucus with 97% of precincts reporting in which the results showed Buttigieg at 26.2%, Sanders 26.1%, Warren 18.2%, Biden 15.8%, Klobuchar 12.2% and Yang 1.0%. (Newswires)

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EU Markit Comp Flash PMI (Feb) 51.6 vs. Exp. 51.0 (Prev. 51.3) "The flash PMI has climbed to a six-month high, con… https://t.co/vuyVe9Z0fq