• Asian equity markets weakened across the board following a non-existent handover from their peers on Wall St
• China confirmed 224 coronavirus cases so far and a 4th death from the outbreak. WHO called an emergency meeting amid the spread to more cities
• BoJ kept monetary policy settings unchanged as expected with NIRP maintained at -0.1% and 10yr JGB yield target at around 0%, while reaffirming forward guidance
• US President Trump spoke with French President Macron in which they agreed to pursue talks on digital tax until year-end
• Looking ahead, highlights include UK Labour Market Report, German ZEW, US President Trump speaks at Davos, supply from Germany and the UK

ASIA-PAC

Asian equity markets weakened across the board following a non-existent handover from their peers on Wall St, while further reports of coronavirus cases added to the subdued tone. ASX 200 (-0.2%) pulled back from record highs amid broad sector weakness and with BHP pressured after quarterly iron ore production fell short of analyst estimates, while Nikkei 225 (-0.9%) retreated below 24k as Japanese exporters suffered from safe-haven flows into the domestic currency. Elsewhere, Hang Seng (-2.5%) and Shanghai Comp. (-1.3%) also declined with the former reeling after Moody’s downgraded Hong Kong’s sovereign rating by 1 notch to Aa3, and amid heightened concerns surrounding the ongoing coronavirus outbreak which has spread to more Chinese cities with 224 cases confirmed so far resulting to 4 deaths. Finally, 10yr JGBs rose back above the 152.00 level as the risk averse tone spurred similar strength in T-notes, while prices largely ignored the BoJ policy announcement in which the central bank kept all policy settings unchanged as widely expected and reaffirmed its forward guidance but suggested that overseas risks somewhat eased.

PBoC injected CNY 100bln via 14-day reverse repos. (Newswires) PBoC set USD/CNY mid-point at 6.8606 vs. Exp. 6.8590 (Prev. 6.8664)

China confirmed 224 coronavirus cases so far and a 4th death from the outbreak. China also noted the virus can be transmitted person-to-person, while the World Health Organization called an emergency meeting amid the spread to more cities. (Newswires)

China MOFCOM official said China welcomes competitive US products to enter its markets and hopes US will create conditions to facilitate its exports to China. MOFCOM added that said China will expand imports based on market conditions and in line with WTO rules, while it also stated the sides will work on implementing the trade and that the deal adheres to WTO rules. (Newswires)

BoJ kept monetary policy settings unchanged as expected with NIRP maintained at -0.1% and 10yr JGB yield target at around 0%, while it reaffirmed forward guidance that rates will remain at current or lower levels for as long as needed to guard against risk momentum for hitting price target may be lost. BoJ also stated the economy is sustaining momentum for reaching the 2% price target although momentum is lacking strength and that downside risks regarding overseas economies eased somewhat. Furthermore, the central bank raised Real GDP growth forecasts but lowered Core CPI forecasts in its Outlook Report. (Newswires) 

UK/EU

US President Trump spoke with French President Macron in which they agreed to pursue talks on digital tax until year-end and that it is important to complete successful negotiations regarding the digital services tax, according to White House spokesman. (Newswires)

UK government lost three votes in the House of Lords regarding Brexit legislation as Peers in the upper chamber supported calls for EU nationals to be given a physical document as proof they have the right to live in the UK post-Brexit, although reports added that ministers will seek to reverse the moves when the bill returns to the Commons. (BBC)

Reports suggest the EU wants any agreement with the UK to include potential fines if the UK violates any pact. (Newswires) FX

DXY remained flat within the prior day’s tight range owing to the recent MLK holiday and with attention in Washington turning to the start of the Trump impeachment trial at the Senate which begins later today. The greenback’s transatlantic counterparts were also indecisive in which EUR/USD eyed a reclaim of the 1.1100 handle and GBP/USD oscillated around 1.3000 where it was eventually supported despite recent warnings the EU will not agree to a FTA with the UK unless it signs up to “equivalence” in the way goods are produced in the UK and the EU. Elsewhere, USD/JPY slipped below 110.00 and JPY-crosses were pressured as the broad risk averse tone triggered safe-haven flows, while antipodeans also traded subdued due to their high-beta characteristics which overshadowed the firmer reference rate setting by the PBoC. 

COMMODITIES

Commodities were mixed with price action driven by the risk averse tone which pressured Brent and WTI crude futures overnight in which the former slipped below USD 65.00/bbl level, to extend on the prior day’s uninspiring trade due to the US market closure. Conversely, there were some optimistic comments on crude from Barclays which maintained crude Brent and WTI crude forecasts at USD 62/bbl and USD 57/bbl respectively for 2020, citing slim chances of a de-escalation in US-Iran tensions and anticipation of a pick-up in oil demand growth. Elsewhere, gold prices were underpinned on safe-haven flows amid the broad risk averse tone which had also pressured copper to test the USD 2.80/lb level to the downside. 

GEOPOLITICS

3 rockets fell inside Baghdad’s Green Zone in Iraq, although no casualties were reported according to police. (Newswires)

US 

US Senate Majority Leader McConnell proposed impeachment trial rules with no guarantee witnesses will be called to testify and which would grant House Democrats and White House lawyers 24 hours each for opening arguments, according to the resolution. Furthermore, the White House would be able to propose an early motion to dismiss all charges against US President Trump, although US Senate Democrat Leader Schumer called trial proposals a cover up and national disgrace, while he will offer amendments. (Newswires)

US Agriculture Secretary Perdue stated there is no need for additional farm aid following the US-China trade deal. (Newswires)