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[PODCAST] US Open Rundown 10th February 2020

  • European bourses are subdued but have been bolstered, alongside sentiment in general, by comments out of China regarding coronavirus medicine provisions
  • Chinese President Xi says China will adopt more decisive measures to contain the spread of the virus in the Hubei province, and will be speeding up development of clinically effective drugs
  • Chinese Commerce Ministry says there is no reason to adopt intervention polices on international trade amid the coronavirus outbreak
  • Russian Energy Minister Novak stated that Russia is not yet prepared to announce its position on OPEC+ actions
  • Azerbaijani oil Minister downplayed the prospect of an early OPEC+ meeting
  • Looking ahead, highlights include Fed’s Daly and Harker

CORONAVIRUS UPDATE

China confirmed 3062 new coronavirus cases and 97 deaths on February 9th vs. 2656 new cases and 89 deaths on February 8th, with the total confirmed cases now at 40171 and total deaths at 908 as of February 9th. (Newswires)

Chinese Commerce Ministry says there is no reason to adopt intervention polices on international trade amid the coronavirus outbreak. (Newswires)

China will speed up the provision of medicines which display clinical effects within the coronavirus outbreak, according to State Media. (Newswires) Note, this comment did coincide with remarks via other sources that China is aiming 'breakthrough in drugs for coronavirus' and are to prioritise coronavirus control in the Hubei region, according to Radio reports

Chinese President Xi says China will adopt more decisive measures to contain the spread of the virus in the Hubei province, and will be speeding up development of clinically effective drugs, according to state TV; Beijing city Gov't should take targeted measures to curb the increasing risk of the spread of the virus after the return from holiday.

-        Are to prevent large-scale layoffs, and the long-term improving momentum of the Chinese economy has not changed

Japan cruise ship has about 60 more coronavirus infections to bring the total to 130. (Newswires)

China is spending at least USD 10bln to control the coronavirus outbreak and is reaching out for medical supplies from other nations, while it was also reported that the World Health Organization is sending an advanced team to China to investigate the coronavirus. (Newswires)

ASIA-PAC

Asia-Pac stocks began the week with a sombre tone due to concerns regarding the ongoing coronavirus epidemic which has surpassed the death toll from the SARS outbreak, and following last Friday’s losses on Wall St where markets pulled back from record highs but still notched the best weekly performance since June last year. ASX 200 (-0.1%) and Nikkei 225 (-0.6%) were subdued with underperformance seen in Australia’s tech and energy sectors although downside in the index was stemmed by resilience in gold miners and defensives, while the Tokyo benchmark recouped some of the opening losses on favourable currency flows. Elsewhere, Hang Seng (-0.6%) and Shanghai Comp. (+0.5%) were cautious due to the rising infected numbers and as some businesses resumed operations, although the mainland showed some early resilience amid continued PBoC efforts including the first round of special re-lending funds for tackling the coronavirus and CNY 900bln of reverse repo operations to sustain liquidity levels. Finally, 10yr JGBs were higher amid the cautious risk appetite in the region and with the BoJ present in the market in which it upped the purchases in 10yr-25yr maturities.   

PBoC injected CNY 700bln via 7-day and CNY 200bln via 14-day reverse repos for a net neutral daily position, while the PBoC announced to offer the first round of special re-lending funds for tackling the coronavirus on Monday and will offer the facility weekly to banks later in the month. (Newswires) PBoC set USD/CNY mid-point at 6.9863 vs. Exp. 6.9829 (Prev. 6.9768)

PBoC could potentially cut its deposit rate, according to an advisor - details remain light. (Newswires)

China Global Times tweeted a good number of Chinese companies will scoop back to business operations although companies need to take the safety of their workers as the top priority, while it later tweeted that many SMEs in China will not restart business today due to shortage of protective supplies. (Twitter)

Chinese CPI (Jan) Y/Y 5.4% vs. Exp. 4.9% (Prev. 4.5%) Chinese PPI (Jan) Y/Y 0.1% vs. Exp. 0.1% (Prev. -0.5%)

UK/EU

UK Foreign Minister Raab said a Singapore deal will be one of the first wave of free trade agreements and wants a deal over the line ASAP, while Raab also stated the UK plans to start trade negotiations with Japan before spring and complete an FTA by year-end. In related news, the UK is reportedly planning to announce locations of as many as 10 freeports this year. (Newswires) EU member states are reportedly toughening their demands for 'status quo' access to UK fishing waters post-Brexit. (Telegraph) Norwegian PM Soldberg has warned Britain that Brexit should not be utilised as an opportunity to shut out other countries from fishing in British waters. (Politico)

UK PM Johnson is expected, on Tuesday, to announce his decision on the HS2 rail line; with UK Sunday Papers reporting that the London to Birmingham section will go ahead, but remaining sections will be under review. Separately, a Cabinet reshuffle is expected to occur prior to the Easter recess on Thursday. (Politico)

UK Chancellor Javid is considering a large tax increase on higher earners in the March budget. (FT) Furthermore, the Chancellor is also considering limiting tax relief on pension contributions to 20% and introducing a “recurring” wealth tax on the owners of expensive homes. (Telegraph)

Senior Conservative’s have written to Conservative MPs highlighting concerns around Huawei’s role in the UK’s 5G network, wanting ‘high risk’ Co’s to be ruled out immediately or alternatively phased out over time. Subsequently, China’s UK ambassador to the UK has criticised these comments, and the 35% cap that has been placed on Huawei’s involvement in the 5G network. (BBC)

The “Boris bounce” will be dampened by the disruption caused to the global economy from the coronavirus outbreak, economists have warned. (Telegraph)

EU’s efforts to hammer out a budget deal by the end of February is reportedly at risk of being de-railed by widening divisions between richer and poorer member states, according to diplomats. European Council President Michel is convening an EU leaders’ summit on February 20th in an attempt to negotiate on the seven-year EU budget - which must be settled by year-end. (FT)

Irish PM Varadkar’s Fine Gael party is seen taking 36 seats, while Fianna Fail is seen to win 45 seats and Sinn Fein at 37 seats in Ireland’s snap general election. (Newswires)

ECB’s de Guindos says we have tools and willingness to use them if necessary. We can lower interest rates further, increase the volume of debt purchases or increase liquidity injections, but the side effects are increasingly evident. That is why we continually insist that it is now up to other actors to come into play. (ECB)

EZ Sentix Index (Feb) 5.2 vs. Exp. 4.1 (Prev. 7.6)

-        Sentix Chief Huebner notes "in view of the significant declines in Chinese economic data, it is clear that the negative effect is likely to be much greater if it does not become apparent in the coming days that the spread of the virus has been taken away."

-        While morale deteriorated in Asia and the EZ, the US showed resilience

Bank of France Business Sentiment 96 vs. Exp. 97 - sees Q1 GDP growth of 0.3% (vs. -0.1% in Q4 2019). (Newswires)

EQUITIES

Overall a lacklustre start to the week for European equities [Eurostoxx 50 -0.2%] following on from a gloomy APAC session as investors continued to weigh ramifications of the nCoV outbreak in which the death toll exceeded that of the SARS outbreak. Some desks note that this week will be crucial to see if the outbreak morphs into a pandemic (a global epidemic). Back to Europe, bourses are mixed with some mild impetus derived from headlines which reaffirmed China’s commitment to find a breakthrough in drugs for the pathogen (although price action was somewhat fleeting), whilst sectors also broadly mixed with no clear reflection of the overall sentiment. In terms of individual movers, NMC Health (+11.0%) leads the gains in the pan-European index after sources noted that the Co. is in talks with KKR regarding a potential deal, albeit KKR is having trouble fixing a price amid the recent volatility in NMC share prices – a ballpark figure of GBP 2bln is touted. Further, the source added that KKR might face competition from other US-based PE firms. Italian-listed Exor (+6.0%) remains a top gainer in the Stoxx 600 after source reports that Covea is reportedly in discussions regarding the acquisition of the Exor-controlled PartnerRe in an all-cash deal valued at USD 9bln - subsequently, Scor (-2.8%) shares trade lower as Covea hold some 8.5% of Scor. Elsewhere on the downside, Roche (-0.5%) shares are subdued as its top-line results for an Alzheimer’s treatment did not reach a primary endpoint.

China’s Shenzhen has rejected a request by Taiwan’s Foxconn to resume production at its key plant in the city, Shenzhen will check the Co’s plant again to ensure measures are properly in place, according to sources. (Newswires) Note, Foxconn are a Apple (AAPL) supplier.

Researcher Trendforce has cut its Q1 2020 global smartphone production forecast to -12% YY amid the coronavirus outbreak and Q1 2020 global production is seen at a 5yr low at 275mln units. (Newswires)

General Motors (GM) - will be restarting production in China from February 15th. (Newswires)

FX

NOK/AUD - The clear G10 outperformers and both fuelled by CPI data, albeit indirectly in the case of the latter. Eur/Nok has recoiled sharply on the back of significantly stronger than expected Norwegian headline and core inflation that was boosted by higher food prices, transport costs and other services items, while Aud/Usd has rebounded on the coat-tails of the Yuan in wake of Chinese CPI beating consensus by some distance and PPI printing positive in y/y terms for the first time in 7 years. The Norwegian Krona is hovering around 10.1300 against the Euro within circa 10.1930-10.1090 parameters and the Aussie is trying to regain grip of the 0.6900 handle vs its US counterpart, as Usd/Cnh pulls back a bit further from recent 7.0000+ peaks despite the PBoC’s firmer Usd/Cny midpoint fix overnight.

GBP/NZD - Sterling has recovered pretty well from another bout of selling pressure that pushed Cable back below 1.2900 and Eur/Gbp over 0.8500 again, but the rationale for the recovery appears as uncertain as the catalyst for the early EU session declines, suggesting technical factors and/or spec positioning looking for sustained Pound weakness that simply failed to materialise. Elsewhere, the Kiwi is pivoting 0.6400 against its US rival, but lagging in Aud/Nzd cross terms ahead of Wednesday’s RBNZ policy meeting even though the prospect of any change in the benchmark rate is deemed remote, and an element of caution could be warranted given a greater chance that guidance may be skewed towards further easing, if warranted and China’s coronavirus causes more widespread contagion.

EUR/CAD/JPY/CHF - All narrowly mixed and rangebound vs the Greenback, as the DXY holds just shy of last Friday’s 97.722 post-NFP high and between 97.709-599, with Eur/Usd tightly bound around 1.0950 irrespective of more poor Eurozone data and political angst (only this time roles somewhat reversed as Italian IP plummeted and Germany’s CDU party leader opts not to run for Chancellor). Similarly, the Loonie is straddling 1.3300 ahead of Canada’s LEI and housing data, while the Yen is holding off recent lows and rebound highs amidst latest reports of a potential anti nCoV ‘breakthrough’ and Franc flitting either side of 0.6775/1.0700 against the Euro after mixed Swiss CPI reads vs expectations and weekly sight deposits.

EM - Broad rebounds against the Dollar, but with the Lira only really stopping the rot with the aid of intervention and capital controls following Turkey’s BDDK lowering bank currency swap and FX forward limits to 10% from 25% previously. Usd/Try meandering from 6.0145 to 5.9775 or thereabouts.

Norwegian Consumer Price Index YY (Jan) 1.8% vs. Exp. 1.2% (Prev. 1.4%)

-        Norwegian Core Inflation YY (Jan) 2.9% vs. Exp. 2.0% (Prev. 1.8%)

Turkey banking watchdog BDDK said it was lowering the limit for Turkish banks’ forex swap, spot and forward transactions with foreign entities to 10% of a bank’s equity from Prev. 25%. (Newswires)

Notable FX Option Expiries, NY Cut:

-        AUD/USD: 0.6625 (1.4BLN), 0.6750 (920M)

FIXED INCOME

Bonds are off best levels, but still bid/underpinned with the core Eurozone debt future leading the way, albeit incrementally and still capped well below highs posted earlier in February. Chart impulses aside, latest reports about ramped up efforts to contain the Chinese virus outbreak have sapped some demand for safe-havens as stocks pare some losses, as Bunds hover around 174.37 vs 174.51 at best, Gilts flatline after edging a minor new Liffe peak at 134.42 and 10 year T-notes crest 131-00. However, Italian BTPs continue to lag after dire ip data and Fitch affirmed the sovereign’s BBB standing with a stable outlook, as expected.

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.

Russian Energy Minister Novak stated that Russia is not yet prepared to announce its position on OPEC+ actions. In related news, Oman’s Oil Minister said he supports the output cut recommendations from the OPEC+ JTC, while there were separate comments from Azerbaijan’s Energy Minister who expects no early OPEC+ meeting and noted a February meeting was discussed and situation was analysed but the meeting will be held in March as planned. (Newswires)

PetroChina plans to reduce its crude throughput by 320k bpd for February due to the coronavirus. (Newswires)

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