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[PODCAST] US Open Rundown 11th February 2020

  • European bourses are firmer as sentiment remains risk-on following the APAC handover
  • Coronavirus outbreak may peak later this month and then plateau, China Advisor Nanshan
  • Russian Energy Minister Novak says they will hold a meeting tomorrow with domestic oil producers to discuss the OPEC+ deal
  • The ECB could make a decision on whether to change its inflation goal by the Summer, in what is being described as a “rushed agenda”
  • In FX, the DXY is softer this morning weighed on by activity currencies on the overall sentiment, while GBP is now little changed post dated GDP data
  • Looking ahead, highlights include US New Hampshire Democratic Primary, Fed’s Powell, Quarles, Kashkari and Bullard, ECB’s Lagarde, Lane and Schnabel, BoE’s Carney and Cunliffe, US 3yr Note, EIA STEO

CORONAVIRUS UPDATE

China reported 2478 new coronavirus cases and 108 new deaths as of Feb. 10th vs. 3062 new cases and 97 additional deaths for Feb. 9th, to bring the total amount of cases to 42638 and death toll to 1016. (Newswires)

China Human Resources Ministry said overall jobs situation was stable amid coronavirus outbreak, while it added that China implemented specific measures and will support SMEs in employment. In related news, China Ministry of Transport said an estimated 160mln people in China will return to cities to resume work by February 18th. (Newswires) Chinese government research reiterated that China GDP growth could take a 1ppt hit from the coronavirus. (Newswires) China’s Hubei Province has dismissed their Communist Party boss as well as the health commission’s provincial director; anti-corruption body reported they have been dismissed for unspecified reasons with Wang Hesheng to replace them. (Newswires)

Coronavirus outbreak may peak later on this month, and then plateau according to current model and trend and China needs a stronger and more powerful systems for disease control, China Advisor Nanshan. (Newswires)

EU health ministers will meet on 13th February for an extraordinary Council; focus will be on joint solutions to prevent the spreading of the coronavirus outbreak within the EU. (Newswires)

ASIA-PAC

Asian equity markets were higher across the board after taking the cue from US peers which looked past the ongoing coronavirus concerns and resumed last week’s rally to lift the S&P 500 and Nasdaq to unprecedented levels. ASX 200 (+0.6%) was led by outperformance in tech and with firm gains in the largest weighted financials sector. Chinese markets were also upbeat despite the PBoC liquidity drain and continued rise in the casualties from the coronavirus in which the death toll has now surpassed 1000, although the pace of additional confirmed cases slowed from the prior day. Following yesterday’s reassurances offered by Chinese President Xi, the Hang Seng (+1.2%) and Shanghai Comp. (+0.4%) traded positively with the former buoyed by property names and with Geely Auto the frontrunner in Hong Kong as it explores a merger with its Volvo unit, while Japanese markets remained shut for National Day holiday.

PBoC injected CNY 100bln via 7-day reverse repos for a net daily drain of CNY 280bln. (Newswires) PBoC set USD/CNY mid-point at 6.9897 vs. Exp. 6.9904 (Prev. 6.9863)

US

Fed's Harker (Voter, Neutral) said the Fed would need to discuss the economy if coronavirus situation worsens although it is not currently at that point and suggested that a rate cut would not do anything to boost business investment. (Newswires)

Reuters/Ipsos poll showed national poll showed Sanders at 20%, Biden 17%, Bloomberg 15%, Warren 11%, Buttigieg 8%, Yang 5% and Klobuchar 3%. (Twitter)

UK/EU

UK PM Johnson is expected to approve HS2 in its entirety, but the Northern Phase 2 will be placed under review; additionally, in an attempt to placate rebellious MPs the statement will include GBP 5bln funding for bus and cycle links outside of London. Could see up to 60 Tory MPs rebel. (BBC/Sky) For reference, the Conservative party has an 80 seat majority.

UK Chancellor Javid has stated that Ministers are working on a white paper designed to outline a vision for the financial services sector after the Brexit transition period, to be published in the Spring. Designed to retain regulatory autonomy while seeking ‘a “reliable equivalence process”, on which a “durable relationship” can be built.’. On equivalence, notes that it will only be granted if each side believes the others regulations are compatible; however, this does not mean identical – full range of equivalence assessments to be conducted by June. (City AM) Subsequently, EU’s Chief Brexit Negotiator Barnier states there will not be general open-ended ongoing equivalence for financial services with UK. (Newswires)

EU Commission President von der Leyen says the EU is prepared to discuss with the UK all trade models, Australia arrangement for EU-UK ties would equate to basic WTO terms. (Newswires)

The ECB could make a decision on whether to change its inflation goal by the Summer, in what is being described as a “rushed agenda”, according to officials. The review will be split into 8-parts; inflation goal, measuring inflation, policy instruments, macroeconomic modelling, de(globalisation), digitalisation, communication, climate change. (Newswires)

Ireland Election Final Results: Fianna Fail at 38 seats, Sinn Fein at 37 seats, Fine Gael at 35 seats. (Newswires)

UK GDP Prelim QQ (Q4) 0.00% vs. Exp. 0.00% (Prev. 0.40%, Rev. 0.50%), YY (Q4) 1.1% vs. Exp. 0.8% (Prev. 1.1%, Rev. 1.2%)

-        GDP Estimate MM (Dec) 0.30% vs. Exp. 0.20% (Prev. -0.30%)

-        Estimate YY (Dec) 1.20% vs. Exp. 1.10% (Prev. 0.60%, Rev. 0.50%)

-        Estimate 3M/3M (Dec) 0.00% vs. Exp. 0.00% (Prev. 0.10%, Rev. 0.00%)

-        Manufacturing Output MM (Dec) 0.3% vs. Exp. 0.5% (Prev. -1.7%, Rev. -1.6%)

-        Manufacturing Output YY (Dec) -2.5% vs. Exp. -1.0% (Prev. -2.0%, Rev. -3.3%)

GEOPOLITICS

Twitter sources reported that the Turkish Army was heavily shelling multiple positions of the Syrian Army in the Idlib countryside, while Russian fighter jets were said to flown over the Turkish Army observation posts. (Twitter)

EQUITIES

European stocks trade firmer across the board [Eurostoxx 50 +0.7%] albeit off earlier highs, following on from a similar APAC handover - after the state of play overnight was dictated by the gains on Wall Street. Subsequently, the pan-European Stoxx 600 hit fresh record highs whilst the bellwether Eurostoxx 50 reached levels last seen in 2008.  France’s CAC (+0.3%) marginally lags regional peers with the index weighed down by Michelin (-2.8%) post-earnings after the group watered-down guidance in which it now expects the FY20 operating income to be “slightly down YY” whilst also acknowledging softness in passenger cars, light trucks and off-road tire markets. Sectors are all in positive territory and reflect risk appetite as cyclicals outpace defensives. In terms of individual movers, Daimler (+1.0%) shares remain resilient post-earnings despite a slash to its FY dividend -  which was set at EUR 0.90/shr, down from the prior of EUR 3.25/shr and below the expected EUR 1.30/shr. Shares remain buoyed following comments from its CEO who noted that cost-cutting measures will be ramped out as part of its initiative, whilst the overall risk sentiment also aids the stock as DAX30 Mar’20 futures probe its contract high of 13639 (Note: Daimler has a 5.6% weighting in DAX30). Sticking with Germany, Deutsche Telekom (+4.1%) shares are bolstered amid source reports that the long-awaited T-Mobile (+8.8% pre-market) and Sprint (+64% pre-market) merger may get the green light from US district judge later today. Deutsche Telekom is T-Mobile’s majority shareholder with a holding of ~63%. On the flip side, NMC Health (-13.6%) received a double whammy despite opening with mild gains, initial downside stemmed on the back of a City regulator probe into the complex director share pledges at NMC after the Co. revealed that it was not apparent who actually controls its largest shareholdings. Thereafter, the second wave of downside arose from KKR has confirming that it has not made an offer regarding an offer for the Co, and adding that it does not intend to make an offer for NMC – which comes amid yesterday’s upside in the NMC shares amid sources noting that it is in talks with KKR regarding a potential deal valued at around GBP 2bln.

FAA Chief, on the Boeing (BA) 737 Max, state that nothing is scheduled as of yet but they continue to narrow the issues; expect any global regulator approval to be, time-wise, close together but there may be differences regarding ungrounding

China smartphone shipments could sink 30% due to coronavirus, according to IDC. (Newswires)

FX

AUD/NOK - Déjà vu for the Aussie and Norwegian Krona, but this time the former has rallied on domestic grounds rather than Chinese data to an extent at least, while the latter has extended post-CPI gains with the aid of a firm bounce in oil prices. Aud/Usd is back above 0.6700 and Eur/Nok has crossed 10.1000 to the downside in wake of an acceleration in Australian home loans and as crude rebounds ahead of API inventory updates, the official EIA data on Wednesday and Russia’s meeting with oil companies to discuss OPEC+ proposals for deeper output cuts.

USD - Notwithstanding the ongoing outperformance noted above, and resilience in other G10 currencies, the Dollar is still appreciating steadily with the DXY nudging over another Fib resistance level before fading a fraction below the psychological 99.000 mark. Perhaps some reticence and caution ahead of Fed chair Powell part 1, but the index has carved out a marginally firmer 98.810-917 range and registered a fresh 2020 peak in the process.

CAD/NZD/GBP - The aforementioned recovery in oil has cushioned the Loonie to a degree between 1.3289-1.3320 parameters, but the Kiwi remains capped under 0.6400 as the clock ticks down to Wednesday’s RBNZ policy meeting and the Aussie continues to outshine its Antipodean counterpart (Aud/Nzd briefly above 1.0500 at one stage). However, the Pound looks more comfortable above 1.2900 vs the Greenback and around 0.8450 in Eur/Gbp cross terms following a raft of UK data including a firmer than forecast preliminary Q4 y/y GDP print. Cable stalled a whisker short of yesterday’s best and 1.2950, with attention now turning to BoE speakers from 12.30GMT.

EUR/CHF/JPY - All narrowly mixed against the Buck, as the single currency fends off more concerted attempts to breach 1.0900 and stays within striking distance of option expiries at 1.0915-20 in 1.2 bn, but lags the Franc that is still pivoting 0.9775 and holding above 1.0700 respectively amidst heightened German political uncertainty. Elsewhere, the Yen remains rangy just over 110.00 in holiday-thinned trade after Japan’s National Day and against a firmer Yuan (Cnh and Cny both maintaining 7.0000+ status vs the Usd).

EM - More Lira underperformance on geopolitical jitters as the situation in Syria threatens to escalate further after reports that Turkey has increased military activity with Government forces retaliating. Usd/Try has advanced beyond 6.0440 in contrast to Usd/Zar staying well below 15.0000 even though SA manufacturing output fell far more than expected in December.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.0915-20 (1.2BLN), 1.1000-15 (900M), 1.1050-60 (700M)

Australian Home Loans (Dec) M/M 4.4% (Prev. 1.8%). (Newswires) Australian NAB Business Confidence (Jan) -1 (Prev. -2.0) Australian NAB Business Conditions (Jan) 3 (Prev. 3.0)

India’s Finance Ministry Economic advisor expects further RBI easing; Average CPI seen falling to 4% following recent spike and GDP growth seen at 6% vs. Exp. 5% in FY20, adding that the Indian economy is set to bounce back after slowdown bottomed out. (Newswires)

FIXED INCOME

Gilts have staged an especially impressive recovery from post-GDP lows that saw the 10 year debt future fleeting loses the 134.00 handle and dip below last Friday’s low to 133.98. However, a deeper delve into the data, not to mention the fact that it was all dated sparked a short squeeze to an equally marginal new Liffe intraday high at 134.49, as Sterling hands back more knee-jerk gains amidst more hard-line Brexit remarks from EU’s Barnier and awaiting UK PM Johnson’s cabinet reshuffle. Bunds have also pared some losses from a 174.13 Eurex base and USTreasuries are holding off overnight troughs ahead of Fed chair Powell and JOLTS with the curve steeper even though 3 year note issuance looms.

COMMODITIES

WTI and Brent front-month futures are posting firm gains in early EU trade in a continuation of the sentiment-driven upside seen during the overnight session. WTI has just about reclaimed USD 50/bbl following yesterday’s sub-50 settlement whilst Brent hovers around the USD 54/bbl mark following yesterday’s settlement close to USD 53/bbl. On the OPEC+ front, Kazakhstan’s Energy Minister noted that the members would either meet in late February or early March to discuss further action – which does somewhat defer to earlier comments out of some OPEC+ members, with the Azeri Minister noting over the weekend that a February meeting was discussed but "the situation was analysed and the meeting will be held in March as planned", whilst Russian Energy Minister Novak attempted to bide his time to assess market impacts. ING notes that a March meeting “may concern many in the market as waiting too long to take action in the wake of the demand impact from the coronavirus.” For reference, sources noted the Russian Energy Minister said they will hold a meeting tomorrow with domestic oil producers to discuss the OPEC+ deal, which could add more meat on the bone regarding Russia’s next steps/thought process. Looking ahead to today’s session, the monthly EIA STEO will be released at 1700GMT with credence on global growth demand forecasts against the backdrop of the coronavirus. Thereafter, the weekly API private inventory report will be released – with forecasts for a headline crude build of 3mln barrels over the week. Tomorrow will see the release of the OPEC monthly report followed by the IEA oil report on Thursday. Elsewhere, spot gold trades lower with the yellow metal pressured by the overall risk appetite. Conversely, copper conformed to the risk tone and clambers back towards USD 2.6lb.

Russian Energy Minister Novak says they will hold a meeting tomorrow with domestic oil producers to discuss the OPEC+ deal, according to Tass citing sources. (Tass)

Wood Mackenzie said the impact of coronavirus on China gas demand will depend on severity and time required to contain the virus, sees FY gas demand reduction of 6bcm-14bcm and downside impact to Chinese LNG demand between 2.6mln-6.3mln tons in a more prolonged case. (Newswires)

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