• European bourses are firmer, but off of session highs, as focus turns to Davos programming
• Coronavirus cases have risen to 440 with the death toll now at 9; US President Trump stated the US case is under control
• EU is reportedly preparing to offer the UK a trade deal on tougher terms than its deals with other leading trade partners
• Sterling outperforms on firmer CBI data for January while G10 peers are mostly little changed vs. USD
• 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: Johnson & Johnson, 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 (+1.2%) 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 (+1.3%) nursed some of the prior day’s near-3% losses and Shanghai Comp. (+0.3%) 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. (Newswires) US President Trump states that they have the Coronavirus under control from a US point of view, with only one US case at present; adds there is no talk of describing this as a 'pandemic'. (CNBC)

Huawei is stockpiling up to a year's worth of supplies amid fears of toughening US tech sanction which the company anticipates could happen next month, according to sources cited by Nikkei. (Nikkei)

US Treasury Secretary Mnuchin said Phase Two China trade deal can be done before or after the 2020 elections, adding that if it takes longer “that’s fine”. Mnuchin reiterated that Phase Two can be compartmentalised into 2a, 2b, 2c; with tariffs rolled backed in stages as the sections are completed (CNBC) US tariff reduction in China Phase One deal to take effect on February 14th, as outlined in the deal, according to the USTR office. (Newswires)

US  

US President Trump reiterated that the Fed raising rates was a big mistake and notes that US GDP would be near 4% if it wasn't for the Fed. (Newswires)

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. US Senate passed a resolution along party lines to govern President Trump's impeachment trial, Senate to resume at 1200CST/1800GMT. (Newswires) French Finance Minister Le Maire says that France has not decided to withdraw the French digital tax. (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.

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)

Italy's 5-Star leader Di Maio is to resign as leader of the 5-Star party today but is to retain his position as foreign minister, according to sources cited by Politico. Senator Vito Crimi is slated to temporarily take over as chief of the party. (Politico)

French Finance Minister Le Maire calls on Germany to spend more public money as they have the fiscal space to do so. (Newswires)

UK CBI Trends - Orders (Jan) -22 vs. Exp. -23.0 (Prev. -28.0) (Newswires)

EQUITIES

A choppy session for European stocks thus far [EuroStoxx 50 -0.2%], with a mixed performance across regional bourses and following on from a mostly positive APAC handover. Italy’s FTSE MIB (-0.6%) lags its peers with the Italian Banking Index hitting 6-week lows – on the back of Di Maio’s resignation as the Italian 5SM leader. On the other end of the spectrum, SMI (+0.6%) outperforms with almost all of its stocks in positive territory. Sectors are mixed with no clear reflection of the overall market sentiment. In terms of individual movers, Airbus (+1.7%) shares are supported after a source noted that Boeing doesn’t expect regulators to sign off on the 737 Max until June or July, months later than the manufacturer previously expected. Traders also attribute the losses in Tui (-4.3%) to the Boeing news. Elsewhere, Daimler (-1.7%) reversed opening gains on the back of another profit warning in which it expects FY19 results to be below forecasts, with the return on sales of Mercedes-Benz vans also forecast below prior guidance. Meanwhile, ASML (-1.2%) shrugged off a mostly in-line earnings report and a EUR 6bln share buy-back programme, potentially on concerns that the Co. may not completed this programme given that the FY19 share buy-back was incomplete. FX

CHF/EUR - Although safe-haven flows are unwinding amidst less acute concern about China’s coronavirus and knock-on effects, partly due to Chinese efforts to contain the spread and extent of contamination, the scale of Swiss Franc declines suggest that something else is afoot. Indeed, Usd/Chf has rebounded firmly above 0.9700 to around 0.9730 and Eur/Chf is hovering nearer a circa 1.0790 peak vs 1.0735 trough even though the single currency has retreated further from 1.1100+ highs vs the Dollar towards key technical support (100 DMA at 1.1070) and recent lows (1.1066 from December 20). Eur/Usd has been undermined to a degree by renewed Italian political instability awaiting an official 5-Star Movement announcement that is expected to confirm the resignation of leader Di Maio and leave one of the coalition Government parties without a head. No evidence to support the theory until next Monday’s weekly Swiss sight deposit statement, but perhaps the Franc has been sold in advance of anticipated FTQ positioning?

JPY/NZD/AUD/GBP/CAD - The Yen has also conceded some ground on renewed risk appetite premises, but holding close to 110.00 against the Greenback, while the Aussie and Kiwi remain depressed below 0.6600 and 0.6850 respectively as the clock ticks down to Thursday’s major Antipodean data points in the form of CPI and jobs. Elsewhere, Sterling is rangy in Cable and Eur/Gbp cross terms either side of 1.3050 and 0.8500 awaiting Friday’s preliminary UK PMIs that could well be the final jigsaw pieces for next week’s BoE policy meeting, and similarly the Loonie is biding time between 1.3050-1.3100 in the run up to Canadian CPI just before the BoC.

EM - The Rand continues its recovery from worst levels after in line SA CPI and last week’s surprise SARB ease prompted Usd/Zar upside to test the 200 DMA yesterday, but also as the Dollar stalls after another look at the same DXY chart resistance level around 97.720. However, the Rouble is fading after a fleeting relief rally on the formation of a new Russian Government alongside oil prices towards 62.0000 again. 

FIXED

Gilts appear to have led the latest recovery leg in mainstream debt, but Bunds were first to bounce from worst levels and not just due to the fact that Liife gets under way hours after Eurex. However, more upbeat UK macro news via the latest CBI industrial trends survey has nudged the 10 year benchmark off its 133.73 perch in contrast to its German peer that just rebounded to 172.43 and a fresh intraday/multi-week peak despite an even more emphatic/impressive revival in BTPs of over 1 full point from the depths, albeit still underwater. Elsewhere, a rather begrudging/reluctant grind higher in US Treasuries ahead of housing data and into key/psychological levels, like 129-20 in the 10 year note future/1.75% cash yield.

COMMODITIES

WTI and Brent front-month futures remain lacklustre in mid-week trade – with participants pointing dampened sentiment on the coronavirus outbreak alongside demand woes for the complex, amid lower demand from airlines in light of cancelled flights ahead of the Chinese Lunar Year. Bearish supply-side fundamentals also weigh on the futures as EIA expects US total shale oil production to rise by 22k BPD in February to 9.2mln, with a predominant increase by the Permian. WTI meanders around USD 58/bbl ahead of its 200 DMA at 57.57/bbl and the 100 DMA at 57.29, whilst the Brent contract fell below its 100 DMA (62.79/bbl) with eyes on its 200 DMA at 63.97/bbl as Mar’20 futures test yesterday’s low just above 64/bbl. As a reminder, the weekly API Private crude inventories will be released later today on account of Monday’s MLK US market holiday. Spot gold prices have clambered off overnight lows after a test of the 1550/oz to the downside and ahead of potential modest resistance at its 50 HMA (~1559/oz) which did cap gains in the yellow metal during yesterday’s session. Meanwhile, copper prices found an overnight base around 2.8/lb but ultimately remains flat intraday.

Saudi Energy Minister states that oil market stability is guaranteed by OPEC+, thus oil prices barely reacted to the Libyan supply disruption. (Newswires)

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

Brazilian oil minster sees Brazilian 2020 oil output at 3.5mln BPD (Prev. 3.1mln BPD), believes the current oil price around USD 64/bbl as “fair”. (Newswires)