• European bourses are flat/mixed at present, as focus switches to today’s ECB meeting
• French Finance Minister Le Maire says they have reached an agreement with the US regarding the basis for digital tax discussions at next week's OECD
• US is preparing for a longer and more wide-spread campaign to exclude Huawei from 5G cellular networks globally
• Norges Bank left rates unchanged at 1.5% as expected, with AUD outperforming a firmer USD post-AUS jobs data
• Looking ahead, highlights include ECB policy announcement, US Weekly Jobs, DoEs, EZ Consumer Confidence, NZ and Japanese CPI
• Earnings: Intel, P&G, American Airlines, Union Pacific, Southwest Airlines, VF Corp, Kimberley Clark, KeyCorp

ASIA-PAC

Asian equity markets weakened following the indecisive performance on Wall St where stocks finished relatively flat after a pullback from record highs, and with sentiment spooked amid ongoing coronavirus as the total confirmed cases in China rose to 571 and number of deaths at 17. ASX 200 (-0.6%) was dragged lower by heavy losses in Industrials, with better than expected jobs data dampening calls for an RBA rate cut next month. Nikkei 225 (-1.0%) was pressured by a firmer currency and disappointing trade data including a wider than expected decline in Exports, while Hang Seng (-1.5%) and Shanghai Comp. (-2.8%) slumped with investors reducing exposure heading into the start of the week-long mainland holiday closure and tomorrow’s shortened session in Hong Kong as focus centred on the outbreak concerns, with losses for the mainland bourse exacerbated on a break below the psychological 3000 level. Furthermore, it was reported that China shutdown public transit as well as the airport in Wuhan to contain the spread of the virus and local doctors estimated the number of cases could reach as many as 6000, in which the related jitters kept markets on edge and overshadowed the upward revision to Chinese December trade data, as well as the PBoC’s targeted medium-term lending facility announcement. Finally, 10-year JGBs were higher and tracked similar upside in T-notes with prices supported by the risk averse tone and with the BoJ present in the market today heavily concentrated on 5yr-10yr maturities.

PBoC skipped reverse repos but announced CNY 240.5bln1-year targeted medium-term lending facility as expected, with the rate kept unchanged at 3.15% despite some press speculation China may offer the TMLF at a lower rate. (Newswires) PBoC set USD/CNY mid-point at 6.8876 vs. Exp. 6.8861 (Prev. 6.8853)

China confirmed 571 total cases of the new coronavirus and the number of deaths from the virus was reported at 17, while China's Wuhan closed public transit and its airport to contain the spread of the virus. In separate reports, local doctors in Wuhan were said to estimate the number of coronavirus cases could reach as high as 6000 and the Wuhan Municipal Health Commission is said to prepare at least 5400 hospital beds for potential patients. (Newswires/Caixin)

China Global Times tweeted that the Chinese Embassy in France have contacted a person and informed the local emergency department to handle her case after she had entered France and posted on social media that she had a fever & cough. In related news, there were earlier comments from the WHO that it has not seen third or fourth generation transmission of coronavirus in China or secondary level spread in countries where it has been exported to. (Newswires)

China revised USD-denominated trade figures for December with the Trade Balance surplus revised to USD 47.21bln from USD 46.79bln, Exports Y/Y revised to 7.9% from 7.6% and Imports Y/Y revised to 16.5% from 16.3%. (Newswires)

Japanese Trade Balance Total Yen (Dec) -152.5B vs. Exp. -150.0B (Prev. -85.2B). (Newswires) Japanese Exports (Dec) Y/Y -6.3% vs. Exp. -4.2% (Prev. -7.9%) Japanese Imports (Dec) Y/Y -4.9% vs. Exp. -3.4% (Prev. -15.7%)

US  

French Finance Minister Le Maire says they have reached an agreement with the US regarding the basis for digital tax discussions at next week's OECD; US' proposal for the future tax deal to be optional has been taken off of the table, says they are close to a deal with the US regarding digital tax, adding that we are moving in the right direction. (Newswires)

US is preparing for a longer and more wide-spread campaign to exclude Huawei from 5G cellular networks globally., WSJ; a U.S. official said Washington is “engaged in all countries” and plans to give financial assistance to developing countries to use alternative suppliers in 5G networks via newly empowered government agencies and initiatives, such assistance may help: Nokia (NOKIA FH), Ericsson (ERICB SS) and Samsung. (WSJ)

British Officials have recommended a limited role for Huawei in the UK's 5G network, National Security Council are to decide on this next week., according to sources. (Newswires)

UK/EU

UK Downing Street is reportedly discussing whether the UK should, at the March WTO meeting, sit independently from the EU; which would defy the ‘duty of sincere co-operation’ that all EU states adhere to and which the transition period sees continuing until year end, according to sources. (City AM)

EU Commission President von der Leyen may visit Washington early next month according to EU head of delegation. (Newswires)

GEOPOLITICS

US special representative to Iran Brian Hook warned that new Islamic Revolutionary Guards Corps Commander Ghaani will face the same fate as his predecessor Soleimani if he follows in the same path. (Al Arabiya)

Turkish Foreign Minister says the Russian S-400 system is compatible with NATO, and they require a working group to study this. (Newswires)

EQUITIES

European stocks trade relatively mixed, with bourses off worst levels [Eurostoxx 50 -0.1%] – following on from a downbeat APAC session which saw the Mainland underperform on coronavirus jitters alongside position closures ahead of its week-long Lunar New Year holiday. Sectors are mixed with defensives performing slightly better than cyclicals, and with underperformance seen in the consumer discretionary sector – heavily weighed on by Renault (-4.2%), following a downgrade at Citi. In terms of other individual movers, STMicroelectronics (+7.3%) leads the gains in the Stoxx600 following an upbeat earnings report in which it also stated that it will invest USD 1.5bln in Capex to support strategic initiatives. Sticking with upside, Novozymes (+6.4%) remains a top-gainer post-earnings in which it announced a share buyback programme. On the flip side, miners including the likes of Rio Tinto (-2.1%), Antofagasta (-2.8%) and BHP (-1.6%) bear the brunt of softer base metal prices. Broker-induced action includes Maersk (+1.1%), Compass Group (-1.6%) and Continental (-1.3%).

FX

AUD/JPY - The marked G10 outperformers, as the Aussie rebounds firmly against the Greenback and Kiwi on the back of better than expected jobs data, albeit largely seasonal, to test resistance around the 200 DMA (0.6880) and reclaim 1.0400+ status respectively. To recap, December’s payroll count beat consensus almost 2-fold, and while entirely due to the part-time tally, the jobless rate dipped to 5.1% and prompted at least a couple of local banks to roll-back RBA rate cut forecasts. Meanwhile, the Yen has made a more concerted break above 110.00 vs the Buck towards 109.50 amidst renewed qualms over the spreading Chinese coronavirus and further retracement in the Renminbi through 6.9000 to 6.9330+.

NZD/GBP/EUR/CHF/SEK/NOK - All holding relatively steady vs the Usd, as the DXY continues to dither either side of 97.500 rather aimlessly awaiting further direction and/or independent impetus that may come via weekly claims and the LEI. On that note, Nzd/Usd remains retrained just below 0.6600 ahead of Q4 NZ CPI that will feed into February’s RBNZ policy meeting considerations, while Cable is still capped circa 1.3150 before Friday’s preliminary UK PMIs and following mixed data/surveys since several BoE members, including Governor Carney, revealed dovish leanings along the lines of existing MPC dissenters Saunders and Haskel. Conversely, Eur/Usd is not anticipating much from the upcoming ECB confab other than information about the strategic review, with the pair meandering under 1.1100, but keeping afloat of key support levels that kick in from 1.1070. Elsewhere, SNB chair Jordan has backed up Maechler’s insistence that being labelled as a currency fixer by the US will not impact policy, adding that NIRP and FX interventions are still necessary as the Franc remains highly valued. Moreover, rates may yet be required to be more negative, leaving Usd/Chf idling between 0.9674-93 and Eur/Chf nudging the top of a 1.0730-47 band. Turning to Scandinavia, Eur/Sek and Eur/Nok are pivoting 10.5400 and 9.9600 respectively, with the Swedish Crown deriving some support from a significant decline in jobless rates and Norwegian Krona acknowledging broadly unchanged assessments and guidance for steady depo rates from the Norges Bank.

CAD - The major laggard and still smarting after Wednesday’s dovish/cautious BoC outlook that was underscored by Governor Poloz stating that easing is now an option depending on how data unfolds and the domestic economy develops rather than a pre-emptive cut that was discussed. The Loonie has nursed some losses after sliding to circa 1.3170, though Usd/Cad remains above 1.3150 and still prone to extending gains towards upside chart targets ahead of 1.3200, such as the 100 DMA (1.3179).

Norges Bank Rate Decision: 1.5% vs. Exp. 1.5% (Prev. 1.5%): committee's current assessment of the outlook and the balance of risks suggests rates to remain at present level in the coming period.

-        New information largely confirms the picture of the economic developments presented in the December Report

-        Capacity utilisation in the Norwegian economy appears to be somewhat above a normal level, but new information supports the view that the economy is probably near a cyclical peak

Australian Employment Change (Dec) 28.9k vs. Exp. 15.0k (Prev. 39.9k)

Australian Full Time Employment Change (Dec) -0.3k (Prev. 4.2k)

Australian Unemployment Rate (Dec) 5.1% vs. Exp. 5.2% (Prev. 5.2%)

Fitch affirmed New Zealand's foreign currency IDR at AA: Outlook revised to Positive from Stable. (Newswires)

Indonesian 7-Day Reverse Repo* (Jan) 5.00% vs. Exp. 5.0% (Prev. 5.0%). (Newswires)

SNB Chairman Jordan does not see a new minimum exchange rate at present, CHF remains highly valued and it's important to keep expansive policy. Negative rates are a necessity in Switzerland could cut rates further if needed, he sees slight Swiss growth improvement this year, but more risks are to the downside; aware that negative rates have side effects, tiering aims to minimise these.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1005 (801M), 1.1025 (250M), 1.1075-85 (665M), 1.1100-05 (500M), 1.1110 (1BLN), 1.1200 (1.1BLN)

FIXED

It would be rash to say that the latest debt rally has run its course and probably more apt to suggest that buyers/bulls are pausing for breath before the US open and ECB. Bunds did extend gains to 172.69 at best, but may be conceding some ground to the ongoing BTP resurgence and firm bounce elsewhere in the Eurozone. Meanwhile, Gilts emulated their 133.90 contract high before running out of steam and 10 year US T-notes faded ahead of 130-00, with the yield not convinced about venturing too far below 1.75%, but the curve retaining a flatter bias and decent underlying bid amidst the latest bout of China-related risk aversion (albeit relatively mild/contained, thus far).

COMMODITIES

A subdued session in the commodity sphere for now– WTI and Brent front-month futures remain in the doldrums given the implications of coronavirus on sentiment, global growth and on airline fuel demand, with added pressure from the surprise build in API crude (+1.6mln vs. Exp. -1.0mln). Desks also keep in mind the recent supply-side developments that markets seem to have overlooked for now: 1) Libya’s output decline on force majeures, 2) Iraqi blockades, 3) halted Kazakh oil flows to China and 4) Shell declaring force majeure of its Nigerian Bonny Light imports. Analysts at ING calculate that the disruptions add up to around 1.4mln BPD – “which would be more than enough to shift the global market into deficit over 1H20”, ING says, adding that spare capacity is capping gains with OPEC’s +3mln BPD holding. On that note, Nigerian Oil Minister Sylva stated that the current OPEC+ cuts are sufficient to avoid oversupply, whilst stating that his preferred Brent prices stands between USD 60/bbl and the “upper 60s”. WTI Mar’20 futures dipped below the USD 56/bbl having taken out in its 200 and 100 DMAs at 57.53/bbl and 57.29/bbl respectively, whilst Brent Mar’20 hit seems to be capped by its 100 DMA at 62.82/bbl. Elsewhere, spot gold retains its 1550/oz+ status with little by way of fresh fundamental catalysts to influence price action – although from a technical standpoint, the 50 and 200DMA have converged to form a golden cross around 1500/oz. Copper has meanwhile succumbed to the humdrum risk sentiment with prices finding mild intraday support at its 50 DMA ~2.7415/lb.

US Private Inventory Crude Stocks (w/e 17th Jan) +1.6mln vs. Exp. -1mln (Prev. +1.1mln). (Newswires)

Goldman Sachs said the main headwind for gasoline and distillates this year will be from high available refining capacity, while it added that recent weakening in fundamentals amid near-record high net speculative positioning points to further downside risk. (Newswires)

Nigerian Oil Minister Sylva says the current OPEC+ cuts are sufficient to avoid oversupply, preferred oil price is between USD 60/bbl and the upper 60’s. (Newswires)