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PODCAST] US Open Rundown 13th February 2020

  • China's Hubei province reported 14840 new coronavirus cases under revised standards – the methodology has not changed outside Hubei
  • European stocks trade with losses across the board [Eurostoxx 50 -1.4%], FTSE 100 underperforms
  • Risk aversion sees safe-haven FX bid, DXY is softer below 99.000 and energy futures decline
  • Looking ahead, highlights include US CPI & Initial Jobless Claims, Banxico Rate Decision, Fed’s Williams, ECB’s Lane & Panetta, supply from the US, UK Cabinet Reshuffle

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)

Shanghai Health Commission Official notes that the methodology for coronavirus diagnosis has not changed in areas outside the Hubei province. (Newswires)

The Chinese Institute of Certified Public Accountants is in close talks with relevant authorities, raising the postponement of annual fiscal report disclosure, citing uncertainty resulting from coronavirus. (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)

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 (-0.1%) succumbed to the flows into the JPY and as participants also digested quarterly results. Elsewhere, Hang Seng (-0.3%) and Shanghai Comp. (-0.7%) 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)

ECB's de Cos says monetary policy will continue to be highly accommodative for a prolonged period of time. (Newswires)

 

German CPI Final YY* (Jan) 1.7% vs. Exp. 1.7% (Prev. 1.7%); MM* (Jan) -0.6% vs. Exp. -0.6% (Prev. -0.6%)

-        HICP Final YY* (Jan) 1.6% vs. Exp. 1.6% (Prev. 1.6%); MM* (Jan) -0.8% vs. Exp. -0.8% (Prev. -0.8%)

European Commission Economic Forecasts - Real GDP: EZ: 2019 1.2% (Prev. 1.1%); 2020 1.2% (Prev. 1.2%); 2021 1.2% (Prev. 1.2%) - Inflation: EZ: 2020 1.3% (Prev. 1.2%); 2021 1.4% (Prev. 1.3%)

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) 

EQUITIES

European stocks trade with losses across the board [Eurostoxx 50 -1.4%] following on from a similar APAC handover, as sentiment took a blow following an unprecedented rise in COVID-19 cases after an adjustment to standards. Bourses are firmly in the red, with the FTSE 100 (-1.7%) underperforming regional peers amid a slew of factors including losses in large-cap miners, oil giants and heavyweight financials. Market contacts highlighted notable selling program triggered for Eurostoxx 50 futures and a technical break below yesterday’s low in the DAX exacerbated downside. Sectors are largely lower but reflect risk aversion as defensive fare modestly better than cyclicals, with materials and energy sectors underperforming amid price action in their respective complexes. Back to the FTSE, Barclays (-2.0%) shares fell post-earnings after the Co. noted that it would be challenging to reach a 2020 ROTE of over 10%, while UK regulators opened a probe into CEO Staley’s link to Jeffrey Epstein. Meanwhile, miners bear the brunt of declines across the base metal markets – with Antofagasta (-1.7%), Glencore (-1.9%) and BHP (-0.8%) all lower. Similarly, oil giants feel downward pressure from the price action in the energy complex, albeit BP (-2.9%) and Shell (-3.0%) also trade ex-div today. Elsewhere, SMI-heavyweight Nestle (-2.3%) shares fell after missing revenue and organic sales growth forecasts whilst also halting the production of its low-sugar brand due to coronavirus’ impact. Note: Nestle has ~19% weighting in the SMI and ~3.2% weighing in the Stoxx600. Credit Suisse (-0.7%) shares fell with the broader market after initially seeing some reprieve from earnings after posting a 69% jump in annual net profit despite the spying scandal. Other earnings-related movers include Orange (+1.9%), Centrica (-16%), Zurich Insurance (+0.7%), Clariant (+4.9%) and Pernod Ricard (+1.7%)

FX

JPY/CHF/XAU/DXY - The traditional safe-havens are back in demand and outperforming, as revised classification standards used to determine whether an individual has contracted the coronavirus at the source in Hubei has hugely inflated the number of confirmed cases and reignited concerns about the overall tally and contagion, especially if the new methodology is rolled out to other provinces. In response, the Yen is back above 110.00, the Franc is nearer 0.9750 than 0.9800 and Gold is back up around Usd 1575/oz from circa Usd 1560 at one stage yesterday, while the Dollar has pulled back accordingly.

GBP/EUR - Sterling remains relatively resilient in the face of the downturn in broad risk sentiment, albeit partly due to the Greenback losing momentum, as noted above, and the Euro continuing to depreciate amidst weak fundamentals and more outflows against currencies that are costlier to fund. However, Cable is still capped ahead of 1.3000 and the 10 DMA (1.2984 today) that was matched, but not surpassed and Eur/Gbp has not spiralled down through 0.8400 as Eur/Usd holds just above key Fib support (1.0864), for now at least.

USD - The DXY has slipped a bit further from Wednesday’s new multi-month high (99.052 to 98.852) on the aforementioned deterioration in risk appetite that has boosted the Jpy, Chf and Xau, though the index and Buck overall remains underpinned ahead of US CPI, weekly claims and more Fed speak via Williams. Technically, 99.249 forms nearest chart resistance, while support resides down at 98.544.

CAD/NZD/AUD/NOK/SEK - The Loonie has lost its crude prop, but is gleaning enough support to hold around 1.3250 after comments from BoC Governor Poloz reiterating the cons of looser monetary policy and claiming that Canada’s economy is in a good place, while the Kiwi is consolidating off post-RBNZ peaks circa 0.6450 following Deputy Governor Hawkesby underlining a genuine neutral stance and the Aussie is acknowledging RBA Governor Lowe reiterating a wait-and-see bias given no rush to get inflation back to target as Aud/Usd meanders in the low 0.6700+ area and Aud/Nzd pivots 1.0425. Ahead, NZ manufacturing PMI and food prices. Elsewhere, the Norwegian Crown is naturally more attune to a dip in oil prices, but its Swedish peer is also wary about a return to risk aversion.

EM - Widespread declines vs the Dollar including the Yuan for obvious reasons, but also the Lira even though Turkish ip beat consensus and the Rand regardless of a more pronounced recovery in SA mining production. Similary, the Mexican Peso is on the back foot awaiting the anticipated 25 bp Banxico rate cut later today.

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)

FIXED INCOME

It remains to be seen whether the latest bounce in bonds lasts or extends beyond recent peaks that are proving impervious, but the current revival has been more compelling in outright price terms given that Bunds reached 174.64, Gilts 134.32 and 10 year US T-notes 131-05+ before topping out. In contrast, EU equities have pared some declines ahead of the US open and data that may divert attention from all things China virus outbreak related for a while, then the 30 year auctions and a speech from Fed’s Williams.

COMMODITIES

WTI and Brent front-month futures have erased a bulk of the prior session’s gains, with prices south of 51/bbl and 55.50/bbl respectively, as the unexpected jump in coronavirus cases sparked risked aversion, while no sense of urgency from Russia regarding output action also adds to the bearish narrative. Further on the OPEC front, Kremlin stated that Moscow has not yet decided on further action with OPEC on oil cuts, adding that it will announce a deal in due course – as a reminder, the Russian Energy Ministry met with domestic oil producers yesterday with some comments alluding to most Russian companies wanting the cuts to be continued for one more quarter. Elsewhere, the IEA monthly oil report downgraded its 2020 demand growth forecast by 365k BPD – the deepest among the three oil market reports, citing impacts of the coronavirus on demand. This follows OPEC and EIA slashing their respective 2020 global oil demand growth forecasts by 230k BPD and 310k BPD. Elsewhere, spot gold retains an underlying bid amid the risk-off sentiment with prices meandering 1575/oz. Conversely, copper sees sentiment-driven losses with prices back below 2.6/lb after briefly reclaiming the level.

IEA Monthly Report: cuts 2020 oil demand growth forecast by 365k bpd to 825k bpd citing coronavirus; lowest since 2011. (Newswires)

Russian Kremlin says Russia has not yet decided on further action with OPEC on oil cuts and will announce position on deal in due course. (Newswires)

Libyan oil output stands at 191,475bpd as of Wednesday February 12th, according to the NOC. (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