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[PODCAST] EU Open Rundown 7th February 2020

  • Asian equity markets were mostly subdued after failing to benefit from the tailwinds on Wall St.
  • China National Health Commission reported coronavirus cases now at 31161 and death toll at 636
  • RBA Statement on Monetary Policy noted the Bank are discussing rate cuts but were wary of the risks associated with lower rates
  • OPEC+ proposed a 600k supply cut through to June but are still awaiting Russia to sign off on it
  • Looking ahead, highlights include German Industrial Output and Trade Balance, Norwegian GDP, US and Canadian Labour Market Reports, Fed Semi-Annual Report
  • Earnings include CNH Industrial, Norsk Hydro, AbbVie

CORONAVIRUS UPDATE

China National Health Commission reported coronavirus cases now at 31161 and death toll at 636 as of Feb. 6th vs. Prev. 28018 total cases and deaths at 563 as of Feb. 5th. (Newswires)

Japan confirmed 41 additional cases of coronavirus on the Yokohama cruise ship. (Newswires)

Chinese President Xi spoke to US President Trump via phone call in which Xi said that China has taken comprehensive measures and is fully confident as well as capable of defeating the coronavirus. Furthermore, they reaffirmed commitment to implement Phase One trade deal. (Newswires)

ASIA-PAC

Asian equity markets were mostly subdued as the momentum from Wall St, where all major indices posted record levels and tech outperformed, was clouded by coronavirus fears and cautiousness heading into the latest Chinese trade data and US Non-Farm Payrolls. ASX 200 (-0.4%) was dragged lower by weakness in energy and miners amid ongoing demand concerns triggered by the outbreak in China, while Nikkei 225 (-0.2%) was indecisive with focus in Tokyo on a deluge of earnings, weaker than expected Household Spending and reports of 41 additional coronavirus cases onboard the cruise ship off Yokohama, although it wasn’t all gloom and doom as SoftBank gapped higher by 8% after Elliot Management acquired a USD 2.5bln stake. Elsewhere, Hang Seng (-0.9%) and Shanghai Comp. (-0.3%) declined amid the ongoing coronavirus fears and tentativeness ahead of the trade figures which are expected to show exports and imports slipped into contraction territory, although officials have remained supportive including the PBoC’s Beijing branch which directed banks to cap interest rates offered to key enterprises at 100bps below the Loan Prime Rate. Finally, 10yr JGBs benefitted from the risk averse tone which lifted prices back above the 152.50 level, while the BoJ were also present in the market for over JPY 1.1tln of JGBs with 1yr-10yr maturities. 

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 6.9768 vs. Exp. 6.9761 (Prev. 6.9985)

PBoC Deputy Governor Pan said China has ample tools to cope with downward pressure on the economy and that they will maintain ample liquidity, deepen interest rate reform and will step up policy support for key sectors. (Newswires)

China Global Times tweeted China will guide financial institutions to enhance credit aid for regions and industries affected by the outbreak, which will involve lowering loan costs and increasing medium and long-term loans. (Twitter)

Japanese PM Abe said they will compile emergency measures to respond to coronavirus impact as early as next week, while Economic Minister Nishimura said coronavirus outbreak is starting to impact Japan's regional economies and that he received instructions from PM Abe to take necessary measures to mitigate impact of coronavirus with an eye on possibly utilizing reserve funds. (Newswires)

UK/EU

US Officials noted that US President Trump was “apoplectic” with UK PM Johnson regarding the UK's decision to allow limited access to Huawei, with a second official noting that a phone call between the two leaders was “very difficult”. An expert on US-EU relations stated that the decision will have implications on trade talks. (FT)

A prominent group of MEPs said any future British government should be required to upgrade key employment, environment and competition laws to maintain free trade with EU. (Guardian)

FX

DXY was uneventful but partially retraced the prior day’s gains after hitting resistance around 98.50 and as participants await the key risk NFP jobs data due later, while its major counterparts were subdued as EUR/USD and GBP/USD languished below 1.1000 and 1.2950 respectively, with little in the way of pertinent newsflow to spur price action. Elsewhere, USD/JPY marginally pulled back due to the risk aversion and after a failed attempt at the 110.00 handle, while antipodeans traded lacklustre due to their high beta characteristics and following the RBA Statement on Monetary Policy which noted they are discussing rate cuts but were wary of the risks associated with lower rates. In addition, the central bank lowered its GDP growth outlook, and its forecasts were also based on the technical assumption of a 25bps rate cut mid-year.

RBA Statement on Monetary Policy stated that policy is expected to remain accommodative for some time and balance of risks may shift if the unemployment rate were to materially increase, while it lowered GDP growth forecast for Q4 2019 to 2.0% from 2.3% and June 2020 to 1.9% from 2.6%, with its forecasts based on technical assumption of a 25bps cut in mid-2020. (Newswires)

RBA Governor Lowe said they discussed the case for lower rates extensively in the recent meeting and that the board will keep assessing the balance of judgement between a rate cut and keeping it on hold. Furthermore, Lowe added that lower interest rates could encourage more borrowing and increase risk of problems down the track, while he suggested that he doesn't think lower rates would enhance the medium-term benefits of the economy and that it is not practical at the moment to get inflation back to 2.5% by next year using monetary policy. (Newswires)

New Zealand RBNZ 2yr Inflation Expectations 1.9% (Prev. 1.8%). (Newswires)

COMMODITIES

Commodities were mostly rangebound with WTI crude futures pulling back towards the USD 51.00/bbl level with focus centred on the OPEC+ response to the coronavirus in which they proposed a 600k supply cut but are still awaiting Russia to sign off on it which won’t be until next week according to Russian Energy Minister Novak as they need a few days to analyse the situation, although Foreign Minister Lavrov was forthcoming in his support for a cut. Elsewhere, gold prices were flat amid similar uneventful tone in the greenback heading into today NFP jobs data, while copper was also restricted by the downbeat sentiment.

OPEC+ JTC reportedly proposed a 600k supply cut to start immediately which will continue through to June if agreed by all members and they expect Russia to respond in a matter of days according to sources, while there were twitter reports of unconfirmed chatter OPEC+ are proposing extending current cuts into year-end. (Newswires/Twitter)

Russian Energy Minister Novak said Russia needs a few days to analyse situation on oil market and will come up next week with its position for OPEC+ meeting due next month. There were separate comments from Russian Foreign Minister Lavrov that he supports OPEC panel proposal of cutting oil output and noted that President Putin recently spoke to Saudi Arabia about coronavirus which will have consequences for the oil market. (Newswires)

Australia Port Hedland January total iron ore exports 40.4mln tons vs. Prev. 47.4mln tons. In other news, Port Hedland moved to a cyclone alert stage 3, while Port Dampier moved to shutdown operations amid an approaching cyclone. (Newswires)

US 

US Treasury yields were little changed on Thursday, with the curve having a slightly steeper bias. Wires attributed Treasuries' performance to China's efforts to contain the coronavirus, and how it might be enough to prevent any deep economic fallout. And on that front, there were some interesting comments from Fed 2020 voter Kaplan, who has seemingly upgraded his view for US GDP growth this year, now seeing the economy expanding by 2.25%; in mid-January, Kaplan had seen growth around 2.0%, the median forecast on the FOMC. Attention now focuses on Friday's jobs data, with whisper numbers optimistic following this week's ADP beat; indeed, going into the data, US economic surprises are the highest since 2018, according to Citi's gauge. Desks have been suggesting that as virus fears ebb, traders may once again become more focussed on the fundamental backdrop, with data likely to be the swaying factor regarding the currently easy central bank policy (though the central bank will keep a cautious eye on global events, of course); on that note, the Fed will release its semi-annual report on Friday, ahead of Chair Powell's dual testimony to lawmakers next week. US T-note futures (H20) settle half-a-tick higher at 130-18.

Democratic presidential candidates Pete Buttigieg and Bernie Sanders are neck and neck in the Iowa caucuses with 100% of precincts reporting but no winner declared following technical issues. (AP)

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