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[PODCAST] US Open Rundown 7th February 2020

  • Risk-off returns as sentiment dips on Coronavirus concerns and China postponing trade data
  • European bourses/US futures suffer as safe havens rise after USD/CNH re-claimed 7.00 briefly
  • China Customs Office says that they are to combine the months of January and February for reporting of trade data
  • RBA Statement on Monetary Policy stated that policy is expected to remain accommodative for some time, cut GDP and forecasts assume a mid-2020 25bp cut
  • Russia are expected to respond to the reported OPEC+ production cut recommendations in a number of days
  • Looking ahead, highlights include US and Canadian Labour Market Reports, Fed Semi-Annual Report

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)

Subsequently, US President Trump tweets that he had a good conversation with Chinese President Xi and notes that the US is working closely with China to help with the coronavirus outbreak. (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 (-0.3%) 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. 

China Customs Office says that they are to combine the months of January and February for reporting of trade data amid today's lack of prelim trade data. (Newswires)

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)

PBoC is set to substantially cut the interest rate on medium-term lending facilities and bring down the loan prime rate when announcing its next quotations for the two key loan rates, according to PBoC Deptuty Governor cited by Global Times. (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)

US 

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)

US Chamber of Commerce Survey: majority of US firms in China expect impact on revenue due to coronavirus, with just under 1/4 of such firms seeing 2020 revenue decreasing in excess of 16%. (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)

GEOPOLITICS

Iran is to soon disclose new information regarding the missile attack on the US bases in Iraq, according to the IRGC Commander. (Newswires)

EQUITIES

A relatively subdued session thus far for European equities [Eurostoxx 50 -0.3%], with participants on guard amid virus jitters ahead of the release of the key US labour market report later today. APAC bouses ended the week on a mixed footing following a mostly subdued session – Mainland China eked mild gains after reports of supportive steps by the PBoC to cope with downward pressures arising from the coronavirus outbreak. Back to Europe, bourses are mostly subdued with no clear standouts. Sectors are largely in negative territory with defensives faring modestly better than cyclicals. In terms of individual movers, Credit Suisse (-2.5%) slipped to the foot of the SMI (~3% weighting) following the departure of CEO Thiam following the spying scandal. Thiam will be leaving his post on February 14th and is to be replaced by Thomas Gottstein, the current head of the bank’s Swiss business. Note: Credit Suisse will be reporting its results on February 13th.  Elsewhere, Burberry’s (-1.3%) withdrawal of guidance and bleak demand outlook for the luxury market (amid the virus outbreak) has prompted sympathy play from European peers including Richemont (-1.3%), Swatch (-0.9%), LVMH (-1.0%) and Kering (-1.5%). Fiat Chrysler (-2.2%) slid to the foot of the FTSE MIB after warning that its European plants may see closures within weeks if China closures are extended as a result of the outbreak as factories will find it difficult to source key parts. In terms of earnings, L’Oreal (+1.2%) leads the gains in the CAC amid an all-round solid report and a 10% annual increase to its dividend, although the Co. did highlight a temporary slowdown from its Chinese beauty market, a key driver of its growth. Finally, Ericsson (+4.8%) and Nokia (+6.7%) see renewed tailwinds from US AG Barr’s endorsement in Cos for 5G technology as opposed to Huawei.

FX

USD - It remains gradual and measured, but relatively resolute as the Greenback maintains positive momentum and on track to extend its winning streak amidst widespread if not universal gains vs currency rivals. Indeed, DXY pull-backs are becoming increasingly shallow and short-lived with the index now building a platform around 98.500 and just posting a fresh peak at 98.639 ahead of the next bullish chart resistance level at 98.885 (higher Fib retracement from 2019 peak to December trough). US jobs data may present a fundamental hurdle, but in the current constructive climate the bar appears high in terms of an upset to stall the Buck’s rally or halt the bull run altogether.

AUD/NZD - The clear G10 underperformers, as the Aussie recoils further from Tuesday’s post-RBA peaks and the Kiwi retreats partly in sympathy towards 0.6680 and 0.6400 respectively vs their US counterpart. Aud/Usd gleaned little if any traction via the SOMP or latest rhetoric from Governor Lowe as the former revealed lower GDP forecasts based on the assumption that rates will be reduced by another 25 bp. Moreover, news of a delay to Chinese trade data and the ongoing spread of the coronavirus are weighing on risk sentiment in general, as the YUAN slips back to 7.0000 against the US Dollar.

EUR/CAD/CHF - Also unable to resist the Greenback’s advances, with the Euro also blighted by more dire German/Eurozone data and increasingly bearish technical impulses having fallen through a sub-1.1000 Fib (1.0964) and now testing the resolve of bids around 1.0950 ahead of last October’s pre-2019 full year low (1.0941).  Similarly, the Loonie has lost grip of the 1.3300 handle, but could yet be saved from a worse fate and stops said to be poised on a break of 1.3320 by decent option expiry interest between 1.3290-1.3300, if not impending Canadian payrolls. Meanwhile, the Franc is still somewhat mixed given weakness vs the Buck below 0.97500 in contrast to strength through 1.0700 against the Euro.

JPY/GBP - The Yen is paring losses amidst a partial reversal in risk-on flows and renewed safe-haven positioning, with Usd/Jpy back down to circa 109.70 from just above 110.00 even though media reports suggest official GPIF sponsored selling of the Japanese unit alongside PBoC OMOs. However, the Pound is also holding up fairly well in the circumstances, as Cable hovers above 1.2900 and the post-UK GE trough, and Eur/Gbp remains capped around 0.8500.

NOK - Disappointing Norwegian data and another downturn in oil prices have combined to propel Eur/Nok above 10.1600 even though the single currency has its own negative factors to contend with, as noted above.

EM - Broad depreciation on the aforementioned deterioration in risk appetite, or erosion, but the Rouble also ruing Brent’s retracement and the CBR’s dovish guidance following the latest 25 bp rate cut

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)

Russian Federation Central Bank Key Rate (Feb) 6.00% vs. Exp. 6.0% (Prev. 6.25%)

-        If the situation develops in-line with baseline forecasts, will keep the prospect of further rate cuts open

-        Disinflationary risks still exceed pro-inflationary risks over the short term; easing which has already taken place may have a stronger upward impact on inflation than they expect

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

Notable FX Expiries, NY Cut:

-        USD/CAD: 1.3250 (450M), 1.3270 (330M), 1.3290-1.3300 (1BLN)

-        USD/JPY: 109.50 (630M), 110.00 (1.3BLN)

FIXED INCOME

Far from a fully-fledged FTQ or even a strong safety flight, but debt futures have returned towards intraday highs as EU cash bourses hold just above worst levels and the mood remains rather fragile overall ahead of NFP. Bunds have eased back from 174.31, Gilts from 134.39 and 10 year T-notes from 130-31 awaiting the return of US participants and further impetus in the run up to US jobs data and the Fed’s semi-annual report that round off the week.

COMMODITIES

WTI and Brent front-month futures remain choppy as focus remains on OPEC’s move following a three-day meeting by the group’s JTC. In terms of the fallout, the committee 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. That said, Russian Energy Minister Novak continued to push back against these cuts stating that 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, although Russian Foreign Minister Lavrov that he supports the panel’s proposal of cutting oil output – but did not specify a preferred magnitude of reductions. WTI and Brent futures have largely traded on either side of USD 51/bbl and USD 55/bbl respectively before prices moved lower in tandem with sentiment. Elsewhere, spot gold treads water just under USD 1570/oz with the yellow metal’s 21 DMA seen around 1564/oz. Meanwhile, copper prices saw brutal losses after hitting resistance at USD 2.6/lb (low USD 2.55/lb) with reports noting that Chinese copper traders, the metal’s largest market, asked miners to cancel or halt shipments of the red metal as the virus outbreak takes its toll on demand.

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; with reference to the OPEC+ panel reportedly recommending a 600k BPD cut. (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)

Russian Energy Minister Novak says that global oil demand may drop by 150-200k BPD in 2020 vs. 2019’s production. (Newswires)

Chinese refiners are reportedly processing 15% less crude than prior to the coronavirus outbreak. (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)

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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