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[PODCAST] EU Open Rundown 13th February 2020

  • China's Hubei province reported 14840 new coronavirus cases under revised standards and 242 additional deaths as of February 12th
  • Asian equity markets traded cautiously as the euphoria from the record highs on Wall St were soured by the latest updates from Hubei
  • DXY stalled after printing fresh 3-month highs above the 99.00 level where it met resistance to provide some much-needed reprieve for EUR/USD
  • US Treasury Secretary Mnuchin stated that the implementation of the mini-trade deal with China has slowed down due to the nCoV
  • Looking ahead, highlights include German CPI (F), US CPI & Initial Jobless Claims, Banxico Rate Decision & IEA Monthly Oil Report, Fed’s Williams, ECB’s Lane & Panetta, supply from Italy and the US, UK Cabinet Reshuffle
  • Earnings: PepsiCo, Linde, Fidelity, AIG, Kraft Heinz, Airbus, ThyssenKrupp, Commerzbank, Barclays, Credit Suisse

CORONAVIRUS UPDATE

China's Hubei province reported 14840 new coronavirus cases under revised standards and 242 additional deaths as of February 12th, in which 13332 of the cases were made by clinical diagnosis. Furthermore, reports noted Hubei authorities began using CT scans to test and diagnose patients amid shortages of RNA test kits and today’s numbers included cases diagnosed through CT scans for the first time. (Newswires/Twitter)

WHO said the number of newly confirmed coronavirus cases declined steadily for the past week but added that it must be interpreted with extreme caution and that the outbreak could still go in any direction. (Newswires)

CDC said it was seeing "fewer and fewer" travellers from China and no new cases at US airports, while it added new controls to avoid testing mishaps with the coronavirus and is likely to see some "community spread" in the US. (Newswires)

Japan confirmed another 44 coronavirus cases from the cruise ship off Yokohama. In related news, Japanese PM Abe adviser Hamada said Japan would need fiscal support if there is a hard impact from coronavirus. Furthermore, Japanese government 'virus package' is expected to include certain help for companies and stronger testing related to the coronavirus. (Newswires)

Hong Kong postponed the resumption of schools to March 16th from March 2nd due to coronavirus, while the Taiwan Cabinet is said to propose a special budget of TWD 60bln for support amid impact from coronavirus. (Newswires)

US Treasury Secretary Mnuchin does not expect the coronavirus to have an impact on economic growth beyond this year, while he talked with Fed Chair Powell on the global economic impact of coronavirus and agreed it's too soon to say what the impact will be. Furthermore, Mnuchin added that the implementation of the mini-trade deal with China has slowed down due to the nCoV and that the entire "chapters" of Phase Two have been "dealt with". (Newswires)

Vietnam reportedly quarantined a commune of 10k people due to coronavirus, according to AFP. (Twitter)

ASIA-PAC

Asian equity markets traded cautiously as the euphoria from the record highs on Wall St were soured by a significant jump in the number of additional coronavirus cases. The Hubei province reported 14840 new coronavirus cases under revised standards and 242 more deaths as of February 12th in which 13332 of the cases were made by clinical diagnosis. Nonetheless, ASX 200 (+0.2%) remained afloat with a slew of earnings the main driver for the biggest movers in the index including Big 4 bank NAB and with TPG Telecom bolstered after the federal court approved its merger with Vodafone Hutchison Australia, while Nikkei 225 (-0.2%) succumbed to the flows into the JPY and as participants also digested quarterly results. Elsewhere, Hang Seng (-0.4%) and Shanghai Comp. (-0.6%) were subdued amid uncertainty following the surge in confirmed cases and although some suggested the number would have been less than the prior day without the adjustments, the number of new fatalities more than doubled. Finally, 10yr JGBs were choppy amid the cautious risk tone and after the BoJ’s presence in the market for over JPY 1.2tln of JGBs heavily concentrated in 1yr-10yr maturities, did little to spur demand for the benchmark.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 6.9785 vs. Exp. 6.9787 (Prev. 6.9718)

China replaced the Hong Kong and Macau Affairs Office head, while the Hubei Province Party Secretary and Wuhan Communist Party chief were also removed from duty. (Newswires)

China's Defence Ministry said it strongly condemned US actions on indictments against China military personnel related to the Equifax case, while it urged the US to correct its mistakes and rescind the indictments. (Newswires) 

UK/EU

As a reminder, UK PM Johnson will today announce his cabinet reshuffle, however, speculation suggests that changes are likely to be limited. (Newswires)

UK RICS Housing Survey (Jan) 17 vs. Exp. 3.0 (Prev. -2.0). (Newswires)

FX

DXY stalled after printing fresh 3-month highs above the 99.00 level where it met resistance to provide some much needed reprieve for EUR/USD which languished firmly below 1.0900, while GBP/USD was uneventful near the 1.2950 level and sandwiched in between a cluster of Hourly-MA levels. Elsewhere, USD/JPY slipped below 110.00 and antipodeans were also pressured as markets were spooked on the announcement of the surge in coronavirus cases, although the relevant pairs are off their lows amid the uncertainty from the coronavirus. In addition, there were comments from RBA Governor Lowe who continued to suggest a lack of urgency to loosen policy in which he noted that low interest rates are working but will take time and that they are not obsessed with getting inflation back to target in a hurry.

Bank of Canada Governor Poloz said the Canadian economy is in a pretty good place and suggested that lowering rates could increase risks from higher debt levels. (Newswires)

RBA Governor Lowe said outlook in Australia is improving but added that coronavirus is having an uncertain impact and noted that Chinese policy stimulus will be good for Australia. Furthermore, RBA Governor Lowe said low interest rates are working and are going to take time, while he added they are not obsessed with getting inflation back to target in a hurry. (Newswires)

RBNZ Assistant Governor Hawkesby said the RBNZ has a genuine neutral bias but is open to review that in light of developments, while he added that the impact from coronavirus expected to be modest but will review it if travel restrictions are prolonged or virus is more widespread. (Newswires) 

COMMODITIES

Commodities were mixed overnight as oil prices consolidated after the downbeat risk tone triggered a mild pullback from the prior day’s firm gains in which WTI and Brent crude futures notched gains of more than 3% and 4% respectively in tandem with Wall St’s rally to fresh record highs. Nonetheless, the momentum has since petered out due to the coronavirus-related concerns, while participants also lie in wait for Russia’s response to the OPEC+ deal. Elsewhere, gold prices benefitted from a safe-haven bid but with upside capped as the greenback held near 3-month highs, while copper was marginally pressured after markets were spooked by the jump in additional coronavirus cases.

GEOPOLITICS

US President Trump said the senate should not vote for the Iran war powers resolution and suggested that the US is doing very well with Iran and this is not the time to show weakness, while he added that Iran would have a field day if his hands were tied which sends a very bad signal. (Newswires)

US 

The TPLEX bear steepened on Wednesday, ahead of Treasury supply with the T-Note seeing the most pronounced selling (compared to other maturities), as risk appetite continued to improve. Similar to Tuesday, the majority of the move happened in the overnight session, before finding its floor in early European trade. Desks note the selling was lead by real money as dealers sought concession ahead of the 10-year auction, in what was, more broadly, the most expensive since October. Nonetheless, the USD 27bln refunding auction was fairly decent, stopping through the 1.623% WI by 0.1bps, covered 2.58x (vs. six-auction average 2.41x), and dealers didn’t have to take down as much as usual, with both directs and indirects taking more than average. How much higher the 10-year yield can move in the near term remains up to debate, there are suggestions of algos/programme sellers “lurking” above 1.64% on the 10-year yield, a level which heavy gamma hedging took place last week, a level which could be tested if expectations move closer to that of a v-shaped recovery in the global economy post the coronavirus. By settlement, yields were higher across the curve with the 10-year yield at 1.63%, seeing the 2s10s widen by just under 1.5bps. US T-note futures (H20) settled 10 ticks lower at 130-22.

US Federal Budget (USD)(Jan) -33.0B vs. Exp. -11.5B (Prev. -13.3B). (Newswires)

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