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[PODCAST] EU Open Rundown 12th February 2020

  • Asian equity markets were mostly higher but with gains limited as coronavirus fears lingered
  • China reported an additional 2015 coronavirus cases and 97 deaths as of February 11th to bring total confirmed cases to 44653 and death toll at 1113
  • RBNZ stood pat on rates as expected, whilst adopting an overall neutral tone
  • EIA lowered its forecast for world oil demand growth for this year but increased its estimate for 2021 and reduced its forecast for US crude output growth
  • Looking ahead, highlights include EZ Industrial Production, Riksbank rate decision, OPEC Monthly Oil Report, ECB’s Lane, Fed’s Powell, Harker & Daly, Riksbank’s Ingves, supply from Germany & US
  • Earnings: Cisco Systems, NVIDIA, CVS Corp, CME Group, ABN AMRO, Ahold Delhaize, Akzo Nobel

CORONAVIRUS UPDATE

China reported an additional 2015 coronavirus cases and 97 deaths as of February 11th vs. Prev. 2478 additional cases and 108 deaths on Feb. 10th, to bring total confirmed cases to 44653 and death toll at 1113. (Newswires)

Japan confirmed another 39 from the cruise ship off Yokohama tested positive for coronavirus including 1 quarantine officer. (Jiji)

ASIA-PAC

Asian equity markets were mostly higher but with gains limited as coronavirus fears lingered and following the lack of conviction on Wall St. where US stocks notched fresh record highs at the open before gradually fading the moves throughout the day. ASX 200 (+0.5%) traded positively with the biggest movers driven by earnings releases including the largest of the Big 4 banks CBA, resulting in outperformance in the top-weighted financials sector, while Nikkei 225 (+0.5%) was also lifted as it played catch up on return from holiday and with SoftBank sitting on double-digit percentage gains following the federal court approval of the merger between its unit Sprint with T-Mobile. Elsewhere, Hang Seng (+1.0%) and Shanghai Comp. (+0.7%) were kept afloat but with the mainland initially indecisive after the PBoC refrained from liquidity operations for a neutral daily position and as participants contemplated over the ongoing outbreak in which the number of cases and death toll continued to mount albeit at a slower pace with the additional number of cases at 2015 which is the lowest since January 30th. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and following the mixed results at the 10yr inflation-indexed auction, while pressure was also seen in New Zealand bonds in the aftermath of the less dovish statement from the RBNZ.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 6.9718 vs. Exp. 6.9719 (Prev. 6.9897)

US President Trump National Security Adviser O'Brien said coronavirus could have an impact on the phase one deal in which it could affect the size of Chinese purchases of US agriculture goods. (Newswires)

UK/EU

UK PM Johnson's Cabinet reshuffle tomorrow will not be "a revolution", according to sources, with ministers prepared for a limited shake-up that will see several Remainers promoted at the expense of Leavers. (Telegraph)

BoE Governor Carney said EU financial services equivalence regime is "relatively unstable" and that London will remain the gateway to global markets for many including Europe, for the foreseeable future. (Newswires)

BoE's Haskel said the current limited room on monetary policy means he continues to prefer to move now on rates and trend towards intangible assets reinforces low rate environment. (Newswires)

ECB's Lane said we are currently at a stage in which accommodative policy is still required. (Newswires)

ECB's Schnabel said the ECB's current policy stance is necessary to achieve sustained price stability in the Euro area and that developments in real estate prices are rightly coming under scrutiny. (Newswires)

FX

DXY was steady and consolidated after having recently pulled back from resistance just shy of the 99.00 level, with the greenback finding little to spur price action from Fed Chair Powell who stuck to the script in the first day of his testimony to Congress, while the ongoing New Hampshire Democrat Primary results also failed to provide any major surprises with Sanders projected to win as expected given the home advantage with him being the Senator from the neighbouring state of Vermont. Elsewhere, EUR/USD was stuck within yesterday’s tight range and GBP/USD held above 1.2950, while USD/JPY found mild support from the risk appetite. Antipodeans were the biggest gainers with NZD/USD surging after the RBNZ kept rates unchanged as expected and revised its forecast for the rate path in which it now sees the OCR at 1.1% in June 2021 vs. Prev. forecasts of 0.9% through to March 2021.

RBNZ kept the Official Cash Rate unchanged as expected at 1.00%. RBNZ noted that policy has time to adjust if needed, that low interest rates remain necessary and inflation is close to the mid-point. Furthermore, the RBNZ added that employment was at or slightly above maximum sustainable level and sees the overall impact from coronavirus will be of a short duration. Furthermore, the RBNZ adjusted forecasts of the rate path in which it sees OCR at 1.00% in June 2020 1.10% in June 2021 vs. Prev. forecasts of 0.9% through to March 2021. (Newswires) RBNZ Governor Orr said there are many signs household spending growth is increasing and noted that coronavirus is a risk which could have a larger impact although the central bank has time to respond, while it added they are looking at the assumption of 6-week disruption due to coronavirus and have taken half of the expected GDP growth for Q1 off the table in projections amid the coronavirus outbreak. (Newswires) 

COMMODITIES

Commodities were mostly higher amid the predominantly positive risk tone during Asia trade which saw WTI crude futures shrug-off the mild pressure from the larger than expected build in headline private sector crude inventories and bounce back above the USD 50.00/bbl level. EIA released its Short-Term Energy Outlook in which it lowered its forecast for world oil demand growth for this year but increased its estimate for next year and reduced its forecast for US crude output growth. Gold prices were kept subdued, while copper gained in tandem with the mostly upbeat sentiment and continued strength in Chinese commodity prices. 

US Private Inventory Crude Stocks (w/e 7th Jan) +6.0mln (exp. +3.0mln, prev. +4.18mln). (Newswires)

EIA STEO cut 2020 world oil demand growth by 310k BPD to 1.03mln BPD but raised forecast for 2021 world oil demand growth by 140k BPD to 1.52mln BPD. Furthermore, it sees US crude output to rise 960k BPD to 13.2mln BPD in 2020 (prev. rise of 1.06mln BPD) and increase 360k BPD to 13.56mln BPD in 2021 (prev. rise of 410k BPD). EIA added that the magnitude and duration of the coronavirus’s effects remain highly uncertain, although it is reducing estimates for Chinese and global oil consumption. (Newswires)

GEOPOLITICS

US Army is planning to set up a new military command post to cooperate with European allies in countering potential threats from Russia. (WSJ)

US is prepared to sign a deal with the Taliban that would see the withdrawal of US troops and the start of peace talks between the insurgents and the Afghan government, although a deal would only proceed if the Taliban adhere to a pledge to reduce violence over a 7-day period. (NBC)

US 

The TPLEX pared-back Monday’s gains overnight before finding a floor in the European session. Although US equities opened at new ATHs, participants weren’t eager to push yields any higher, following on from Monday where yields pushed lower despite an equity rally. The curve structure was little changed too, with some desks noting the 3-year auction as keeping the front/belly end weighted: the auction tailed the 1.392% WI by 2bps and Dealers took a larger share than usual, although it was covered 2.56x, higher than the six-auction average. By settlement, yields up to the 10-year maturity were higher by just over 4bps, while the 30-year was only 3bps higher. US T-note futures (H20) settled 11+ ticks lower at 131.00.

Fed's Kashkari (Voter, Dove) stated interest rates are slightly accommodative and are not providing much of a boost, while he suggested that it seems like the battles between the US and China on trade are not getting worse but noted that coronavirus is a downside risk for China and if it hits the US in scale it would also be a downside risk here. (Newswires)

Fed's Bullard (Non-Voter, Dove) said that China’s economy is expected to slow noticeably this quarter due to the coronavirus, while the best case for the US is a soft landing following the recent rate cuts as housing and other interest rate-sensitive sectors rebound. Bullard also stated it is appropriate to remain steady on rates and that progress is needed to be seen on inflation, while he would welcome inflation readings above 2%. Furthermore, Bullard noted that monetary policy currently feels a "little bit accommodative" and that rate normalisation of previous years will "pay dividends" as the Fed has scope to react to a downturn. (Newswires)

New Hampshire Democratic Primary results projected Bernie Sanders to win as expected with 26.0%, Buttigieg 24.4%, Klobuchar 19.8%, Warren 9.3% and Biden 8.4% after 93% of votes were accounted for, while Andrew Yang dropped out of the Democrat Presidential candidate race. (Newswires)

Senate Majority Leader McConnell said he does not believe the Senate and House could reach an agreement on the budget this year. (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