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[PODCAST] US Open Rundown 6th February 2020

  • European equity markets have faded off highs [Eurostoxx 50 +0.4%] seen since the cash open as sentiment turned more cautious
  • 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, US Challenger Layoffs and Initial Jobless Claims, Fed’s Kaplan, RBA’s Lowe
  • Earnings include Fiat Chrysler, 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)

China Global Times noted that two people were reported to have become infected with novel coronavirus after just 50-second and 15-second contact with confirmed patients, which Chinese experts consider atypical cases with a low occurrence rate. (Global Times)

TRADE

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)

OPEC+

OPEC+ JTC reportedly recommend an output cut of 600k BPD, according to OPEC delegates. The meeting broke without resolution. (Newswires) This follows earlier source reports that the JTC could today agree on the need for a deeper oil reduction of at least 500k bpd, according to sources

Russian Energy Minister Novak said Russia is not yet ready to announce its position on the OPEC+ action related to the coronavirus outbreak, notes that time is needed to assess the impact, added that it is premature to talk about decisions. (Newswires)

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 (+2.4%) received an additional boost from favourable currency flows, as well as a deluge of earnings including Toyota. Elsewhere, Hang Seng (+2.6%) and Shanghai Comp. (+1.7%) 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)

Indian Repo Rate 5.15% vs. Exp. 5.15% (Prev. 5.15%) - Decision was unanimous, retains “accommodative” stance. MPC will remain vigilant about potential generalisation of inflationary pressures. (Newswires)

US 

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)

UK/EU

ECB President Lagarde said that this low interest rate and low inflation environment has significantly reduced the scope for the ECB and other central banks worldwide to ease monetary policy in the face of an economic downturn. However, Lagarde noted that the euro area economy continues to require support from our monetary policy, which provides a shield from global headwinds. (ECB)

UK are to develop a most favoured nation tariff schedule which will be implemented on 1st January 2021, according to the UK Trade Department. (Newswires)

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)

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)

EQUITIES

European equity markets have waned off highs [Eurostoxx 50 +0.4%] seen since the cash open as sentiment turned more cautious in early EU trade. This follows on from a solid APAC lead where investors cheered China’s surprise rollback in USD 75bln worth of US goods in the hope of a reciprocal move by the US to help ease some of the burden arising from the coronavirus outbreak. Nonetheless, major bouses are still in positive territory although the FTSE 100 (+0.1%) modestly lags its peers amid losses in some of its large-cap stocks including some miners amid a decline in base metal prices. Sectors are largely mixed with no clear reflection of the current risk sentiment – financial names modestly outperform amid a higher-yield environment. In terms of individual movers, triple-listed ArcelorMittal (+9.3%) rose post-earnings topping EBITDA expectations whilst also reporting a decent YY increase in iron-ore shipments and noting that the supportive inventory environment leads to expectations of growth in steel consumptions. Total (+1.6%) shares rose in light of its Q4 adj. net income topping estimates, an increase in FY dividend, a USD 2bln share buyback programme and a target of over USD 5bln in cumulative savings this year – albeit shares could be underpinned by price action in the energy complex. On the flip side, Royal Mail (-8.3%) shares slumped to the foot of the Stoxx 600 post-earnings amid the assessment of a challenging outlook.  Other earnings-related movers include Unicredit (+5.8%), Publicis (+4.5%), Nordea Bank (+4.8%), Sanofi (+2.4%), Dassault Systemes (-3.1%), ICA Gruppen (-7.1%), and Assa Abloy (-3.1%). Elsewhere, NMC Health (+5.6%) sees a day of reprieve after sources noted that the Co’s founder would be returning with an “active position” and separate source reports that Private Equity firms, including Apollo, circled the Co. in the past. Finally, Deutsche Bank (+6.0%) shares extended on its gains after Capital Group Companies disclosed a 3.1% stake in the Co.

FX

DXY - The Buck remains bolstered by firm US Treasury yields, albeit off best levels in relatively rangebound trade, as the index consolidates above 98.000, but fails to derive enough momentum independently or indirectly to extend gains beyond the next upside chart objective ahead of 98.500 (98.402 Fib). However, the Dollar may glean more bullish impetus if today’s domestic data in the form of Challenger lay-offs, initial claims and Q4 labour costs or productivity is upbeat awaiting Friday’s NFP release.

NZD/GBP/AUD - In contrast to other G10 currencies that are largely meandering vs the Greenback, Cable has drifted back below 1.3000 again and the Kiwi has retreated further below the 0.6500 handle amidst Waitangi holiday-thinned volumes and more underperformance against the Aussie. Indeed, Aud/Nzd is holding ‘comfortably’ above 1.0400 even though Aud/Usd has slipped back under 0.6750 where hefty option expiry interest resides (1.3 bn) in wake of sub-forecast trade and retail sales overnight. Back to Sterling, Wednesday’s EU MiFID revelations are still reverberating, while the UK Trade Department announces to implement a most favoured country tariff system post-Brexit transition on January 1 next year.

EUR/JPY/CAD/CHF/NOK/SEK - All on a more even keel vs their US counterpart, as the Euro pivots 1.1100 amidst conflicting vibes via significantly worse than expected German factory and VDMA engineering orders in contrast to an upbeat ECB President Lagarde and monthly bulletin echoing signs of economic stabilisation. Meanwhile, broadly, but less pronounced risk-on sentiment continues to hamper the Yen and Franc just shy of 110.00 and 0.9750 respectively, though the Loonie is not really benefiting within tight 1.3275-88 confines in the run up to tomorrow’s Canadian jobs data. Elsewhere, the Scandi Kronas have both waned after yesterday’s decent recovery gains, with Eur/Nok back up near 10.1500 and Eur/Sek close to 10.5600 against the backdrop of sagging crude and a drop in Swedish house prices.

EM - Although many regional currencies are down vs the Dollar, reports about China cutting US import tariffs by up to 50% on February 14 have kept the Yuan afloat, while the Real could get a boost from the BCB signalling that last night’s 25 bp rate cut may be the last in the current cycle. Conversely, the Rand has been undermined by a deterioration in SA business sentiment on top of the aforementioned general Greenback bid.

FIXED INCOME

Bunds and Gilts are both just shy of fresh intraday highs at 173.92 and 133.92 (flat and just 5 ticks adrift compared to -1/2 point and -39 ticks at one stage) and it’s arguable whether the catalyst for the firmer bounce off worst levels was a rebound in US Treasuries amidst a broad paring back of risk appetite evidenced via cash bourses, equity futures and oil, or closer to home for the core Eurozone debt future given a reversal in Italian paper from session peaks. Regardless, some element of technical retracement has occurred ahead of the US open and pm agenda including more pre-NFP data and a speech from Fed’s Kaplan.

COMMODITIES

WTI and Brent front-month futures have given up a bulk of their overnight gains as risk aversion crept into the markets in early EU trade. Furthermore, OPEC’s JTC has extended its meeting to three days from the originally scheduled two. Sources noted that the technical committee could agree on a total reduction of at least 500k BPD - in fitting with some of the prior sources which noted the JTC would be assessing several scenarios that have cut options between 500-900k BPD. Later, a delegate noted of an agreement of 600k BPD cut but disagreement on whether to hold an emergency meeting. Russian Energy Minister Novak played down the reports and noted that Russia is not yet ready to announce its position on the OPEC+ action and that it is premature to talk about decisions. Russia has been historically adamant to commit to deeper cuts as Russia's economy is more resilient to lower oil prices. WTI and Brent reside just above USD 51/bbl and USD USD 55/bbl respectively, having retreated from current intraday highs of USD 52.15/bbl and ~USD 56.50/bbl. Elsewhere, spot gold has been supported by the aforementioned shift in sentiment, with the yellow metal decoupling itself from a rising USD and residing just above its 21 DMA at ~USD 1563/oz (vs. low ~USD 1552/oz). Elsewhere, copper prices conformed to the abated risk appetite, with prices now back below USD 2.6/lb vs. an overnight high of USD 2.6144/lb. Finally, Dalian iron ore closed the session higher by almost 1% following three consecutive sessions of losses as China’s surprise tariff rollback announcement underpinned prices.

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