• Hefty losses were suffered across Asia-Pac bourses as virus-induced fears caught up to several indices on their return from the extended weekend
• China National Health Commission confirmed 4515 cases of coronavirus and total deaths at 106 as of end-January 27th
• Hong Kong Government instructed all its employees to work from home until next week and will review the measure at the time
• Looking ahead, highlights include US Durables, Case-Shiller, Consumer Confidence, Richmond Fed, UK Announcement on Huawei, ECB’s Lane, supply from Italy, UK and US
• Earnings: Apple, Pfizer, United Tech, Lockheed Martin, Starbucks, 3M Co, Stryker , Advanced Micro Devices, HCA Healthcare, T. Rowe Price, Equity Residential, eBay, Royal Caribbean Cruises, Paccar, Xilinx, McCormick & Company, Boston Properties, Maxim Integrated Products, Nucor, Principal Financial Group, Wynn Resorts, W. R. Berkley, Franklin Resource, PulteGroup

CORONAVIRUS UPDATE

China National Health Commission confirmed 4515 cases of coronavirus and total deaths at 106 as of end-January 27th, while China postponed the spring semester for schools due to the coronavirus although did not provide the exact opening dates. (Newswires)

Hong Kong Government instructed all its employees to work from home until next week and will review the measure at that time, while it urged private companies to follow suit due to the coronavirus. (Newswires) Hong Kong government states that Hong Kong markets will trade as normal on January 29th. (Newswires)

US raised China Travel Advisory to Level 3 which urges Americans to reconsider travel and the Canadian government told its citizens to avoid all travel to the Hubei province. In other news, US FDA announced key actions to advance development of medical countermeasures against the coronavirus in which it is actively working to facilitate the development and availability of diagnostics that can detect the virus. (Newswires)

Twitter reports noted the first coronavirus case in Germany has been confirmed. (Twitter)

ASIA-PAC

Hefty losses were suffered across Asia-Pac bourses as virus-induced fears caught up to several indices on their return from the extended weekend and which followed Wall St’s worst performance in nearly 4 months. ASX 200 (-1.4%) traded subdued as the energy and mining related sectors led the declines due to concerns of the impact to demand and growth from the virus epidemic, although gold stocks bucked the trend after the recent safe-haven bid for the precious metal and defensives were also resilient in the downturn. Nikkei 225 (-0.5%) was pressured by the outbreak jitters as the number of confirmed cases in China rose to 4515 and total deaths at 106, considering that the Chinese account for around 30% of foreign tourists to Japan. KOSPI (-3.1%) and Singapore Straits (-2.5%) slumped in their first trading session after the Lunar New Year in reaction to the increased number of virus cases confirmed in China and their individual countries, while India’s NIFTY Index (Unch.) was indecisive with earnings the main driver for domestic stocks. Finally, 10yr JGBs were flat amid slight fatigue from the recent extended rally and after mixed results at today’s 40yr JGB auction, although downside was also restricted due to the sell-off across regional stocks.

UK/EU

ECB’s Mersch says the risks of an asset price correction are rising, current valuations are at high levels; it is preferable to incorporate financial stability concerns into ECB policy deliberations. (Newswires)

EU Chief Brexit Negotiator Barnier said there is no possibility for frictionless trade between the EU and the UK. (Newswires)

EU is demanding that its judges have the authority to rule on any post-Brexit agreement with the UK; areas of focus will include trade, fishing and security. (Times)

As a reminder, UK PM Johnson is today expected to announce that Huawei will be allowed to build parts of the nation’s 5G network, despite warnings from the US administration. (Telegraph)

FX

DXY held on to the prior day’s gains near the 98.00 level after having recently surmounted its 200DMA, although overnight price momentum for the greenback has petered out heading closer to Wednesday’s FOMC and with reports suggesting Senate Republicans are warming to the idea of calling former National Security Adviser Bolton to testify at the impeachment trial. EUR/USD was subdued within the tight range seen so far this week, not helped by the softer than expected German IFO data, and GBP/USD traded choppy around 1.3050 as it bided time prior to the key events later this week including the BoE meeting and Brexit date. Elsewhere, USD/JPY and JPY-crosses languished on the widespread risk averse tone although the former made several attempts to regain a footing on the 109.00 handle, while antipodeans were lacklustre owing to their high-beta statuses and the China-related concerns.

COMMODITIES

Commodities were uneventful overnight in which price action consolidated following yesterday’s risk-driven moves which kept oil  subdued, although Brent crude and WTI crude futures are off their lows and just about reclaimed the USD 59.00/bbl and USD 53.00/bbl levels respectively. There were also comments overnight from Barclays which expects oil demand erosion of 600k-800k bpd for Q1 but also suggested the possibility markets overreacted to the coronavirus due to stretched positioning and lacklustre macroeconomic environment. Elsewhere, gold proceeded sideways and held on to the spoils of the recent safe-haven flows, while copper languished on the broad regional equity sell-off although has found a base around the 2.60/lb level.

Venezuela is mulling privatizing its oil industry amid its financial struggles, with names touted including Repsol, Eni and Rosneft, according to sources. (Newswires)

Barclays suggested that if the 2003 SARS outbreak is any indication, the market has likely overreacted to the coronavirus partly due to stretched positioning and the lacklustre global macroeconomic backdrop, while it expects transitory oil demand erosion of about 0.6-0.8mln BPD in Q1 or 0.2mln BPD for FY20 and sees USD 2/bbl downside to their FY forecast for WTI and Brent of USD 57/bbl and USD 62/bbl respectively in which it cited compounding effects of spillover to growth from China and region. (Newswires)

GEOPOLITICS

US President Trump's Middle East Plan will offer Palestine a path to statehood according to reports citing leaks of the plan, while there were separate comments from Israeli Centrist Leader Gantz who will look to implement US President Trump's 'landmark' peace plan immediately after the Israeli election. (Newswires/Washington Post)

An Iranian Minister stated they are preparing a new satellite launch site, although the US suggested it is a cover for the development of ballistic missiles. (Newswires)

US Secretary of State Pompeo tweeted that ruthless actions by Russia, Iranian regime, Hizballah and the Assad regime are directly preventing the establishment of a ceasefire in northern Syria, while he added we condemn the barbaric attacks and call for an immediate ceasefire. (Twitter)

US 

Yields were lower by around 4-8bps, bull flattening; major curve spreads had narrowed between 1-3bps, with much attention on the 2s5s spread, which went negative again after a lacklustre 2-year auction. Yesterday's price action was a result of the Coronavirus updates, which are beginning to weigh on perceptions of global growth. The US sold 2-year and 5-year notes, the latter tailing by 0.1bps at the lowest yield since August 2017, while the 5-year sale was weak, tailing by 1.1bps. US T-Note futures settled 19+ ticks higher at 130-28+.

Former US National Security Adviser Bolton privately told AG Barr last year that he had concerns President Trump was effectively granting favours to the autocrats of Turkey and China, according to reports citing excerpts from Bolton's unpublished book. (NYT)

US Senator Toomey proposed a ‘one-for-one’ witness deal for the impeachment trial after Bolton’s revelation and Senator Romney is generally supportive of a witness deal but has not yet signed on to a plan, according to Washington Post's Costa. (Twitter)