• China has stated that the number of people infected with Coronavirus has risen to 2744 with the death toll at 80
• China warned that the coronavirus is getting stronger and the number of cases could increase
• This heavily pressured US equity futures which slipped around 1% in early trade and spurred safe-haven bids for T-notes and gold
• Italy's Centre-Left bloc, led by the Democratic Party are set to defeat Matteo Salvini’s League in the Emilia Romagna regional election
• Looking ahead, highlights include German IFO, US New Home Sales, ECB’s Mersch, US 2 and 5yr supply
• Earnings: Allergan, D.R Horton, Dover, Arconic, Whirlpool, Juniper

CORONAVIRUS UPDATE

China warned that the coronavirus is getting stronger and the number of cases could increase, while China National Health Commission confirmed 2744 cases of coronavirus and death toll at 80 as of the end of January 26th. (Sky News/Newswires)

China extended the Lunar New Year holiday to February 2nd to contain the coronavirus, while other reports noted that Wuhan has suspended visa and passport services for Chinese citizens until January 30th. However, a twitter source suggested that 5mln people had left Wuhan prior to China’s lockdown taking effect. (Newswires/Twitter)

US confirmed the country’s 5th coronavirus case, while it was reportedly arranging a charter flight to evacuate its diplomats and citizens from Wuhan. Australia also confirmed a 5th case of coronavirus, while France declared the first 2 cases of the virus and the French Health Minister noted it is likely there will be others. (Newswires)

ASIA-PAC

A broad risk-averse tone resumed across asset classes following on from last Friday’s declines on Wall St. where the S&P 500 posted its worst weekly performance since August amid ongoing coronavirus fears, with the number of confirmed cases stateside now at 5. Furthermore, the latest official update from China stated the number of infected rose to 2744 with the death toll at 80, and China also warned that the coronavirus is getting stronger and the amount of cases could increase. This heavily pressured US equity futures which slipped around 1% in early trade and spurred safe-haven bids for T-notes and gold, while Nikkei 225 (-1.9%) sold off due to the virus outbreak fears, detrimental currency flows and against the backdrop of thinned conditions with nearly all major bourses in the region closed for holiday. India’s NIFTY (-0.4%) was also lower after large-scale protests yesterday regarding the Citizenship Amendment Act, but with losses limited amid corporate earnings including ICICI Bank. Finally, 10yr JGBs were underpinned on safe-haven buying due to the coronavirus jitters which also spurred T-notes to gap higher by about 10 ticks at the re-open, although the upward momentum for JGBs has since petered out amid the lack of BoJ presence in the market and absence of most regional participants.

China Banking and Insurance Regulatory Commission is to encourage banks to appropriately reduce lending rates for sectors heavily impacted by the coronavirus outbreak. (Newswires)

UK/EU

UK PM Johnson is expected to decide as early as this week regarding US request to ban Huawei from the UK 5G network which could impact the UK-US "special relationship". (Axios) The Times speculates that this decision could be announced on Tuesday.

UK Brexit Secretary Barclay said the UK will layout more details next month regarding its objective for a free trade agreement with the EU. (Newswires) US Treasury Secretary Mnuchin sad the US hopes to complete a trade agreement with the UK by year-end. (WSJ)

The EY Item Club has lifted its UK 2020 GDP forecast from 1% to 1.2% and raised 2021 to 1.7% from 1.5%, whilst “urging” the BoE to not cut rates this week; suggests policymakers should “wait and see” on the basis that growth is expected to improve. (Times)

EU is to request its partners around the world to temporarily treat UK as part of the bloc as it tries to navigate through the transition period, according to reports citing a diplomatic note which is to be sent to over 160 countries. (FT) EU will reportedly be tough regarding state aid for companies in which member states are determined to restrict Britain's ability to support key industries through state funds as a price for agreeing a trade deal. (FT) EU will seek to sanction the UK for breaching any deal on a future relationship as it looks to prevent "competitive undercutting or freeriding" from UK companies post-Brexit, according to a report citing an internal document. (FT)

Italy's Centre-Left bloc, led by the Democratic Party are set to defeat Matteo Salvini’s League in the Emilia Romagna regional election, resulting in a much-needed victory for PM Conte’s coalition government and therefore has dampened the likelihood of a snap election. Note, the League is set for an easy win in Calabria, however, this is seen as a less significant vote. (Newswires)

Fitch raised Greece to BB from BB-; Outlook revised to Stable from Positive, while it affirmed Finland at AA+; Outlook revised to Stable from Positive. (Newswires)

FX

DXY is uneventful and held on to most of Friday’s gains which saw EUR/USD and GBP/USD fall below 1.1050 and 1.3100 respectively. However, the single currency has since found mild reprieve after League party leader Salvini’s threat to evict Italy’s fragile coalition government hit a snag as his party is seen to have failed to win the key regional election in Emilia Romagna, while GBP/USD remained subdued near its 200-Hour MA of 1.3059 heading into the Brexit date this Friday. Elsewhere, USD/JPY fell below 109.00 due to the risk-averse tone and antipodeans were also pressured by the downbeat sentiment, as well as their exposure to China and weakness in CNH.

COMMODITIES

Overnight commodities trade was dictated by the risk appetite in which WTI crude futures fell over 2% to below USD 53.00/bbl due to demand concerns following further increases in coronavirus cases, although oil prices are off their worst levels as there were also comments from Saudi’s Energy Minister that noted gloomy expectations related to the virus outbreak but suggested that the kingdom and OPEC+ are able to respond to support stability in the oil market if required. Elsewhere, gold surged at the open on a safe-haven bid but has pared some of the gains on profit taking/position squaring, while copper prices were subdued by the downbeat risk tone and mass closures in the region including its largest purchaser China. 

Baker Hughes Rig Count Oil +3 at 676, Nat gas -5 at 115, Total -2 at 794. (Newswires)

Saudi Energy Minister Abdulaziz said they are closely observing developments in the global oil market resulting from gloomy expectations regarding impact from coronavirus, while he added that Saudi and OPEC+ producers have the capability and flexibility required to respond to any developments by taking necessary action to support oil market stability if required. (Newswires)

GEOPOLITICS

Iran nuclear agency deputy chief said they have the capacity to enrich uranium at any percentage if the government decides to. (Newswires)

There was an attack on the US embassy in Baghdad, Iraq where 3 rockets hit the embassy which left one individual injured although the injuries were only minor and the person later returned to duty, while the US embassy is said to have informed the Iraqi government that there will be a military response according to Twitter sources. (Newswires) 

US 

The TPLEX was bid on Friday, particularly in the long end, as risk appetite dissolved due to the ongoing coronavirus. The move higher in the T-Note coincided with Spoos being offered (falling beneath 3200) in the latter part of the European session, the move lower in yields was exacerbated following the US PMIs, which were by no means disastrous, appeared more of an obstacle for participants to get out the way before moving into Treasuries ahead of the weekend – where concerns linger on the threats posed globally by the coronavirus. Note that some heavy block trades were noted after the T-Note passed the 130-00 level; some analysts note a slew of short covering as prices move closer to concentrated option strikes, specifically 130-16 and 130-25, although the key 1.67% figure in the 10-year yield served as resistance for the benchmark, but loomed close in the tail end of the day. By settlement, the Treasury curve had bull-flattened, where the 2s10s fell just beneath the 20bps figure: 2-year yield down 2bps and 10-year yield down 5bps. US T-note futures (H0) settled 16 ticks higher at 130-09.

US President Trump’s administration widened its steel and aluminium tariffs to include certain imported nails, staples, electrical wires and some downstream components used in autos and tractors. In other news, US President Trump said US could save 50% on drugs purchased from abroad and that the administration will announce drug price policy changes soon. (Newswires)

Former National Security Adviser Bolton’s unpublished book stated that President Trump told him in August that he wanted to continue freezing security aid to Ukraine until they helped with investigations into Democrats including the Bidens. However, US President Trump later tweeted that he never told Bolton the aid to Ukraine was tied to investigations into Democrats, including the Bidens and that if John Bolton said this, it was to sell a book. (Newswires/Twitter)