• Asian equity markets gradually improved and shrugged off the lacklustre lead from Wall St, Mainland China underperformed  
• Coronavirus cases have risen to 440 with the death toll now at 9; US Center for Disease Control and Prevention confirmed the first case in the US  
• EU is reportedly preparing to offer the UK a trade deal on tougher terms than its deals with other leading trade partners  
• In FX, DXY traded slightly firmer, USD/JPY recouped some of its losses and antipodeans underperformed  
• Looking ahead, highlights include Canadian CPI, US Existing Home Sales, Japanese Trade Balance, BoC Rate Decision & Press Conference, EU Commission President von der Leyen  
• Earnings: ASML and Abbott Laboratories  

ASIA-PAC

Asian equity markets gradually improved and shrugged off the lacklustre lead from Wall St, where all major indices snapped their streak of record closes amid jitters related to the coronavirus with 440 cases reported in China and the death toll now at 9, while the CDC also confirmed the first case of the virus in the US. Nonetheless, ASX 200 (+0.9%) and Nikkei 225 (+0.7%) managed to rebound from opening weakness as outperformance in Consumer Staples, Tech and Healthcare underpinned the Australian benchmark to a fresh all-time high, while Tokyo sentiment was mainly driven by currency moves but with weakness seen in some automakers including Mitsubishi Motors after several of its locations were raided in Germany on suspicion of using emission cheating devices. KOSPI (+1.1%) gained with Hyundai Motor boosted amid earnings despite missing expectations on Q4 net as it still showed a turnaround from the loss Y/Y and both its operating profit and revenue topped forecasts. Elsewhere, Hang Seng (+1.1%) nursed some of the prior day’s near-3% losses and Shanghai Comp. (+0.1%) eventually joined in on the recovery after it initially slipped to its lowest levels so far this year due to the ongoing outbreak fears and after experts suggested the possibility of a mutation in the coronavirus. Finally, 10yr JGBs were indecisive amid a pullback in T-notes which retraced some of the prior day’s advances after hitting resistance around 129.20 and with prices also failing to benefit despite slightly firmer demand at the enhanced-liquidity auction for longer dated JGBs.

PBoC injected CNY 30bln via 14-day reverse repos. (Newswires) PBoC set USD/CNY mid-point at 6.8853 vs. Exp. 6.8818 (Prev. 6.8606)

China National Health Commission Vice Minister Li announced 440 confirmed cases in 13 provinces and 9 deaths have been confirmed from the coronavirus as of January 21st, while the China National Health Commission said Wuhan City is to establish a daily communication system and that China has banned live animals including poultry from entering Wuhan. Furthermore, it said there has been effective work on tracking the origin of the virus and that there is no evidence so far of super spreaders although there were comments from China Disease Control Center chief Gao that the new coronavirus is adapting and mutating.

US Center for Disease Control and Prevention confirmed the first case of coronavirus for the US in Washington state, while it also noted that there are active conversations regarding vaccines and diagnostics for the Wuhan Coronavirus with the National Institutes of Health. (Newswires)

UK/EU

EU is preparing to offer the UK a trade deal on tougher terms than its deals with Canada, Japan and several other leading trade partners. Two senior EU sources confirmed the Commission’s approach, which could hit the pharma and auto industries the hardest. (Telegraph) As a reminder, the EU will publish its draft trade mandate on February 1st, which will be formally adopted by EU leaders on February 25th.

US President Trump said they will strongly consider auto tariffs if a deal is not made with Europe and he ordered the Commerce Department to withhold the report on national security impact related to imported auto goods from lawmakers, while officials confirmed to not release the report as it could interfere with ongoing negotiations. (Newswires)

The OECD has asked the UK to “hold fire” on a new digital tax on large technology firms planned for April. (BBC) Furthermore, US Treasury Secretary Mnuchin has warned UK PM Johnson that trade sanctions will be put in place if UK goes ahead with the new digital tax plans. (Times) FX

In FX markets, the DXY traded slightly firmer and extended on the prior day’s highs amid lacklustre trade in most its counterparts and the ongoing developments in Washington where the Republican-controlled Senate stuck to party lines and blocked proposals by Senate Democrat Leader Schumer to subpoena further evidence for the Trump impeachment trial. Elsewhere, EUR/USD was subdued after the recent pullback from resistance around its 200-hour MA and failure to hold on to 1.1100 handle, while the tailwinds in GBP/USD from stronger than expected jobs data has faded and the pair meandered around 1.3050 where there is a minor option expiry set for today’s New York cut. USD/JPY recouped some of its losses to briefly reclaim the 110.00 handle, while antipodeans were pressured amid the underperformance in China and following a weaker CNY reference rate setting. 

COMMODITIES

Commodities were mixed overnight with WTI crude future slightly pressured to briefly re-approach the USD 58.00/bbl level to the downside amid early coronavirus-related jitters and with Goldman Sachs suggesting a potential USD 3/bbl drop in oil prices if the virus plays out similar to SARS which could reduce global demand by 260k bpd largely due to reduced jet fuel demand. In addition, focus for the complex now shift to the latest stockpile numbers with the holiday-delayed private sector inventory report due later. Gold prices were pressured overnight amid mild gains in the greenback and the overnight recovery in sentiment which also provided some reprieve for copper prices to reclaim the USD 2.80/lb level.

US total shale regions oil production in February expected +22k BPD at 9.2mln BPD, according to EIA. (Newswires)

US 

Treasuries rallied overnight as downside was seen in APAC equity bourses due to reports of Coronavirus in China, as well as the Moody’s downgrade of HK. There was some paring back of gains into the European session, and a lack of Tier-One US releases/speakers, but gains were extended after the CDC confirmed a case of the Coronavirus in the US. The heavy slate of corporate issuance did little to shake the complex either, with supply especially notable from financials after earnings have cleared. There was also some chunky USD issuance from Pemex (USD 5bln, 2-parter; books said to be around USD 25bln) as well as Saudi Arabia (USD 5bln, 3-parter, due Thursday). At settlement, the curve had bull-flattened, with yields down around 3.5bps in the front-end of the curve, and lower by over 6bps in the long-end. US T-note futures (H0) settle 17 ticks higher at 129-18+.

US Senate Republicans blocked proposals from the Democrats including the subpoena of documents from the OMB and State Department, as well as the subpoena of officials including acting White House Chief of Staff Mulvaney to testify in the Trump impeachment trial. (Newswires)