• Risk-off remains as coronavirus concerns continue to weigh
• China’s National Health Commission confirmed 2744 cases of coronavirus and death toll at 80 as of the end of January 26th
• China extended the Lunar New Year holiday to February 2nd to contain the coronavirus; unclear if market closures will follow suit
• Italy’s Centre-Left bloc defeated Salvini’s league in Emilia-Romagna, with BTP’s substantially outperforming as such
• FX space is mixed vs. a modestly firmer USD, with safe havens stronger and antipodeans weaker on virus concerns
• Looking ahead, highlights include US New Home Sales, ECB’s Mersch, US 2 and 5yr supply
• Earnings: Allergan, Dover, Arconic, Whirlpool, Juniper

CORONAVIRUS UPDATE – Newsquawk analysis on headline feed

China warned that the coronavirus is getting stronger and the number of cases could increase, while China’s 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)

China Global Times notes that a couple formerly infected with coronavirus recovered after 10 days' treatment, the couple now tests negative for the virus. (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 (-2.0%) 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 (-1.0%) 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)

US 

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)

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)

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)

German Ifo Business Climate New (Jan) 95.9 vs. Exp. 97 (Prev. 96.3); Expectations New (Jan) 92.9 vs. Exp. 95 (Prev. 93.8, Rev. 93.9); Current Conditions New (Jan) 99.1 vs. Exp. 99.2 (Prev. 98.8)

-        Ifo notes that the German economy had a subdued start to the year

-        Demand has increased in the industrial sector, there is reason to be cautiously optimistic

-        Expects German economy to grow 0.2% in Q1

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)

Cyberattacks which targeted European and Middle Eastern government are believed to be hackers acting in the interests of the Turkish government, sources state. (Newswires)

EQUITIES

European stocks see hefty losses across the board [Eurostoxx 50 -2.2%] following muted but negative APAC session as the region experiences mass holiday closures. For reference, the pan-European Stoxx 600 index sees around 95% of its stocks in negative territory. UK’s FTSE 100 (-2.5%) sees slightly more pronounced downside amid heavy-bleeding from large-cap miners and energy names, in-fitting with price action in the respective complexes - Rio Tino (-4.8%), Antofagasta (-4.3%), Anglo American (-4.5%), Glencore (-4.5%), BP (-2.0%) and Shell (-2.0%).  Meanwhile, Italy’s FTSE MIB (-0.7%) fares better in light of the aftermath from the Emilia Romagna regional elections which diminished the chances of an Italian snap election, thus Italian banks cushion losses in the index with tailwinds from favourable BTP price action – Ubi Banca (+0.1%), Banco BPM (+0.1%), Intesa Sanpaolo (-0.1%). Sectors are broadly, but firmly in the red, with Materials (-2.8%) lagging amid the base-metal price action. Defensives meanwhile see losses to a lesser extent than their cyclical peers. Consumer discretionary names also remain a laggard amid the demand implications from the virus outbreak for luxury goods and travel names, such as: Swatch (-3.6%), Richemont (-3.0%), IAG (-6.0%) and easyJet (-5.5%). In terms of individual movers; William Hill (-1.7%) saw losses at the open amid a breakdown in expansion talks with CBS Sports. Bayer (-1.5%) conforms to losses seen in the region despite a pushback from a spokesperson regarding last-week’s sources reports of an imminent settlement to its Roundup weedkiller scandal. On the flip side, positive broker moves see RWE (+0.1%), Uniper (+0.1%) Orsted (+0.1%) and Italgas (+1.4%) in the green.

FX

EM - Broad losses experienced in the EM-sphere, led by downside in the Yuan as the coronavirus crisis claims more lives and spreads further towards the West (full analysis available on the Newsquawk feed). USD/CNH has gained traction and breached 6.9800 to the upside (vs. 6.9400 low), topping its 200 and 55 DMAs at 6.9817 and 6.9843 respectively – with talks of potential stimulus measures by the Chinese Government to cushion the economic impact of the outbreak. TRY and ZAR feel the Yuan contagion with USD/TRY looking for a test of 5.9500 to the upside whilst USD/ZAR inches closer to 14.6000, but could see mild resistance at 14.5970 (21st Jan high) with reported stops above the round figure and ahead its 200 DMA at 14.6105.

CAD, NOK, RUB - Energy-related FX succumb to losses seen in the complex as jitters materialise regarding the implications of the virus outbreak on global oil demand. The Rouble remains the most impacted as USD/RUB surpasses 62.50 (vs. 62.24 open) before stopping short of its 200 DMA (62.63). The Loonie meanwhile extends losses vs. the Buck as the pair found support ~1.3150 before taking out its 55 and 100 DMAs (at 1.3158 and 1.3178 respectively) ahead of the psychological 1.3200. Similarly, Norway’s oil-correlated Crown drifted lower since the open – EUR/NOK reclaimed 10.0000 (which also coincides with its 55DMA) to the upside and topped its 100 DMA (10.0183) – with potential resistance touted at 10.0500.

AUD, NZD - The antipodeans also drift in tandem with the risk aversion and headwinds from detrimental base metal price action amid the aforementioned virus woes. AUD/USD has given up its 0.6800-status as losses exacerbated amid the domino-effect coronavirus would have on the Australian economy via China’s anticipated economic slowdown – with reports noting that Chinese GDP could see a reduction of as much as 1ppt. The pair remains the marked G10 underperformer thus far and eyes 0.6755 (26th Nov low and 76.4% Fibo of the Oct to Dec move) to the downside for a potential support level, and with some AUD 800mln in options seen expiring at strike 0.6765. Meanwhile, its Kiwi counterpart looks to test its 55 DMA to the downside at 0.6550.

JPY, DXY - Safe haven flows have seen an early bid in the Japanese currency, as USD/JPY gapped below 109.00 at the open vs. Friday’s 109.25 close. Since then, the pair has fluctuated on either side of the round figure having found a base around 108.75, and with technicians eyeing 108.67 (100 DMA) and 108.52 (200 DMA) should the base fail to hold, and with 109.00 seeing circa USD 800mln in options expiries. DXY meanwhile remains flat intraday having notched a current range of 97.800-941 and with little by way of schedule data/speakers to sway the state of play.

EUR, GBP - Mixed session for the Sterling and Single Currency, but relatively muted action compared to some of its G10 and EM peers. EUR/USD saw some pressure amid a downbeat German Ifo Survey which reaffirmed that the German economy has a subdued start to the year, but somewhat echoed Markit’s assessment that the manufacturing sector is slowly emerging from its downturn. EUR/USD failed to glean much reprieve from the development in Italy after the Centre-Left bloc defeated Salvini’s league in regional elections, thus dimming the chances of a snap election. The pair hovers just above 1.1000, having clocked in a current range of 1.1015-35. Meanwhile, Cable found an overnight base at 1.3050 and took advantage of some weakness seen in the Single Currency. EUR/GBP drifts further below 0.8450 whilst GBP/USD meanders just under 1.3100, having eclipsed the level in recent trade.

Notable Expriries, NY Cut:

-        AUD/USD: 0.6765 (800M), 0.6880 (230M)

-        USD/JPY: 109.00 (805M), 110.50 (300M)

FIXED

Debt is broadly lifted this morning on coronavirus concerns, with a full analysis piece available on the Newsquawk headline feed, as the risk-off theme continues to dominate. Coronavirus aside, Italian debt is firmer by over 200bp at present as the left-wing bloc successfully repelled Salvini’s League in the Emilia Romagna regional election; Democratic Party took 51.4% and the League’s coalition 43.7%, and as such significantly reduces the chances of another general election. Price action which has sent the BTP-Bund yield spread below 140 (tested 138.0 at best) thus far, to levels not seen since September/October’19. Technically speaking, for BTP’s resistance lies at 147.13 and then clear-air until 147.86; after-which very little is present before 150.00. Periphery aside, core debt is firmer on the aforementioned broad macro theme, for Bunds resistance lies just above 174 at 174.05, which coincides with the 31st October high and the 50DMA (currently, 173.88 at best). Moving to the States where an incredibly quiet calendar provides little inspiration on a macro perspective; however, this week seen the largest number of US Co’s reporting earnings, which will provide insight into the economy’s health – as well as the FOMC on Wednesday. USTs are bid in a similar fashion to European bonds with yields suppressed, 10-year yield having convincingly relinquished the 1.70 mark to the downside overnight, with a test of 1.60 now perhaps on the cards if this morning’s price action continues.

COMMODITIES

WTI and Brent front-month futures continue their downward trajectory amid the materialising concerns surrounding the virus outbreak’s impact on global growth, oil demand and overall sentiment. While some desks have drawn comparisons to the SARS virus in 2003, which trimmed 0.15ppts off of global growth, some believe that the comparisons may be slightly unfair, albeit some economists note that Chinese GDP could see a reduction of as much as 1ppt. WTI Mar’20 futures gapped lower at the open before downside exacerbated and prompted the contract to test levels close to USD 52/bbl to the downside, levels last seen in October 2019. Similarly, Brent Mar’20 surrendered the USD 60/bbl handle and currently posts loses around USD 2/bbl; the contract did find some support at USD 58.50/bbl. Elsewhere spot gold is bolstered by the flows in to safe-havens, with prices testing USD 1590/oz to the upside during APAC trade vs. Friday’s ~USD 1570/oz. The overall demand/global growth aspect of the outbreak of the coronavirus has led to sharp losses in base metal prices: copper slumped around 2% at one point and dipped below USD 2.62/lb vs. Friday’s ~USD 2.67/lb close, whilst iron ore futures fell as much as 6% at one point.

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)

UAE Energy Minister said the country's compliance with the OPEC pact has exceeded 100%. (Newswires)