• European bourses are subdued as risk-off resumes on growing virus concerns
• World Health Organization said evidence of human-to-human transmission outside of China is deeply concerning
• Japanese medical expert said it has been confirmed in China that the coronavirus can be transmitted from people without symptoms
• Ahead of BoE market expectations price in around a 50% chance of a cut vs. analyst consensus of 6-3 unchanged
• Looking ahead, highlights include German CPI (Prelim), US GDP (Advance), Japanese CPI, Unemployment Rate & Retail Sales, BoE Rate Decision, MRP & Press Conference
• Earnings: Amazon, Visa, Verizon, Coca-Cola, UPS, Altria, Eli Lilly, Raytheon

CORONAVIRUS UPDATE

China reported there are now 7711 total coronavirus cases and death toll at 170, while suspected cases are said to have increased to 12126. (Newswires) Note, the virus is now in every region of mainland China.

World Health Organization said evidence of human-to-human transmission outside of China is deeply concerning and suggested the numbers outside of China hold the potential for much larger outbreak, while it is to hold an emergency meeting today to re-evaluate whether the outbreak constitutes a Public Health Emergency of International Concern. (Newswires)

Japanese medical expert said it has been confirmed in China that the coronavirus can be transmitted from people without symptoms, while there were separate reports that 3 Japanese nationals who returned from Wuhan yesterday have tested positive for the coronavirus. (Newswires)

White House created a task force on coronavirus in which its members have been meeting daily since Monday, while US President Trump has charged the task force with leading the US government response to the coronavirus. (Newswires) White House Economic Adviser Kudlow said airlines are placing voluntary restrictions on flights to China due to virus outbreak and further restrictions are being discussed. (Newswires)

ASIA-PAC

Asian sentiment was downbeat as the overhang from the coronavirus outbreak continued to take its toll across the region and following an indecisive lead from the US, where markets reacted to the FOMC policy announcement. ASX 200 (-0.3%) and Nikkei 225 (-1.7%) were subdued with underperformance across Australian mining names as demand concerns overshadowed the higher quarterly production updates by Fortescue Metals and Newcrest Mining, but with downside for the broader market stemmed by resilience in financials, while losses in Tokyo were exacerbated by flows into the JPY. KOSPI (-1.7%) was pressured after index heavyweight Samsung Electronics posted a 38% drop in Q4 net and Hang Seng (-2.6%) slipped deeper into correction territory after the number of confirmed coronavirus cases in the mainland increased to 7711 and the death toll now at 170, while the TAIEX (-5.8%) slumped as Taiwan participants returned to the market for the 1st time in 10 days and took their turn to play catch up to the epidemic fears. Finally, 10yr JGBs were higher due to the broad weakness in risk appetite and following upside in T-notes which were supported post-FOMC and saw the US 10yr yield decline to a 3-month low, while the mostly improved results from the 2yr JGB auction added fuel to the upside momentum.

US 

White House Economic Adviser Kudlow said the Fed has been moving in the right direction, but would like them to be bolder, while he also suggested that intensity of EU trade discussions will resume soon. (Fox Business News)

UK/EU

UK PM Johnson will inform the EU he is prepared to accept post-Brexit border checks instead of Britain being under EU rules which could mean additional paperwork and physical inspections of goods for businesses. (Telegraph)

EU seeks to create a single European data market to challenge dominance of US tech giants, while large online platforms may face new rules to ensure open and fair competition according to an EU document. (Newswires)

UK Lloyds Business Barometer (Jan) 23 (Prev. 10). (Newswires)

German Saxony State CPI YY (Jan) 1.8% (Prev. 1.4%); MM (Jan) -0.6% (Prev. 0.6%)

German Unemployment Chg SA (Jan) -2k vs. Exp. 5.0k (Prev. 8.0k); Unemployment Rate SA (Jan) 5.0% vs. Exp. 5.0% (Prev. 5.0%)

EU Consumer Confidence Final (Jan) -8.1 vs. Exp. -8.1 (Prev. -8.1), Unemployment Rate (Dec) 7.4% vs. Exp. 7.5% (Prev. 7.5%)

-        Economic Sentiment (Jan) 102.8 vs. Exp. 101.8 (Prev. 101.5, Rev. 101.3)

-        Services Sentiment (Jan) 11.0 vs. Exp. 11.2 (Prev. 11.4, Rev. 11.3)

EQUITIES

An overall bleak session in the European equity-space [Eurostoxx 50 -0.9%] following on from a similar APAC handover which saw the Hang Seng post losses in excess of 2.5% - as risk aversion continues to materialise with the virus outbreak. Sectors are mostly in the red with the exception of utilities amid and outperformance/less pronounced downside in defensives to reflect the risk aversion. The energy sector stands as the underperformer amid the price action in the oil complex coupled with downbeat earnings from oil-titan Shell (-3.4%) which account for ~1.2% of the Stoxx600 and ~10% of the FTSE 100 (Shell A and B shares combined). In terms of earning-driven movers: Roche (+0.7%) remain supported by an above-forecast EPS and a dividend increase despite missing on profit and sales forecasts. Swatch (-3.6%) missed on earnings estimates and noted that it sees no quick rebound in its key Hong Kong market. As such, luxury peers are pressured in sympathy with the likes of LVMH (-1.7%), Richemont (-1.7%) posting firm losses. H&M (+9.8%) rose to the top of pan-European index amid stellar numbers and the appointment of a new CEO. Meanwhile, Deutsche Bank (+2.1%) erased opening losses which came amid a deeper than forecast net loss. Losses diminished amidst the conference call which provided investors with reassurance regarding early signs of progress in its overhaul. Other earnings-related movers include Diageo (-1.9%), Volvo (+7.7%), BT (-5.9%) and Unilever (+1.4%).

Microsoft Corp (MSFT) – Q4 19 EPS USD 1.51 vs. Exp. USD 1.32, Revenue USD 36.9bln vs. Exp. USD 35.68bln - Azure number coming in significantly above street expectations at 64% constant currency growth rate. Intelligent Cloud: USD 11.9bln vs. Exp. 11.40bln vs. Co guidance of USD 11.25bln-11.45bln. Productivity & Business Processes: USD 11.8bln vs. Exp. USD 11.42bln, vs. Co guidance of USD 11.3bln-11.5bln) (Newswires) Co. shares rose 4% after-market

Facebook Inc (FB) - Q4 19 EPS USD 2.56 vs. Exp. USD 2.53, Revenue USD 21.08bln vs. Exp. 20.88bln. MAU 2.5bln (exp. 2.493bln. Ad revenue USD 20.7bln vs. Exp. USD 20.517bln. Boosts buyback programme by USD 10bln. Expenses USD 46.71bln, +51% YY. (Newswires) Co. shares fell 7% after-market

Tesla Inc (TSLA) - Q4 19 Basic EPS USD 2.14 vs. Exp. USD 1.72, Revenue USD 7.38bln vs. Exp. USD 7.02bln; GM 22.5% vs. Prev. 24.3%. Goal is to increase Model 3 capacity further using the Shanghai factory.  (Newsiwres) Co. shares rose 11.6% after-market

FX

USD - Not much bang for the Buck from the Fed as downgrades to the state of US consumption and level of inflation relative to target halted the DXY’s steady rise above 98.000 and sapped broad demand for the Dollar amidst the progressive spread of China’s coronavirus. However, as the death toll and number of cases (confirmed or suspected) continue to mount, Usd/CNH has rebounded further to temporarily test and breach the psychological 7.0000 mark alongside more pronounced depreciation in EM currencies overall, and especially those closely connected or correlated to commodities that are prone to steep price declines on the probability of depressed demand. Hence, the Greenback may well retain a relatively firm underlying bid ahead of data in the form of advance Q4 GDP and initial claims even though a French bank is flagging mild month end selling for portfolio rebalancing purposes.

CHF/EUR/JPY/XAU - The renowned, but not always reliable or consistent safe and pseudo safe havens are all outperforming, and particularly the Franc that has been flagging of late. Usd/Chf has retreated towards 0.9700 and Eur/Chf is back below 1.0700 as the single currency remains heavy on the 1.1000 handle within a spread of hefty Eur/Usd option expiries stretching from 1.0985 (1.3 bn) through 1.1000-05 (1.7 bn) to 1.1045-50 (1.1 bn). Note, firmer German state CPIs, solid jobs data and rather mixed Eurozone sentiment indicators have all hardly impacted, but the Euro did get a boost from more month end cross buying vs the Pound at one stage (into 9 am fix as usual). Meanwhile, the Yen has bounced over 109.00 ahead of a raft of Japanese macro releases and Gold remains bid between Usd1575-82/oz parameters.

NOK/NZD/AUD/CAD/GBP - A triple blow for the Norwegian Krona as a steeper retracement in crude prices against the backdrop of heightened risk aversion combines with a big retail sales miss to propel Eur/Nok beyond resistance around 10.1200 and close to 10.1500. Similarly, the Kiwi, Aussie and Loonie have all declined through deeper chart support and/or significant levels vs their US counterpart, at 0.6500, 0.6737-25 and 1.3200 respectively, with the latter now eyeing Canadian average earnings for some independent impetus. Conversely, Sterling has staged a stoic recovery to reclaim 1.3000+ status in Cable terms and pare some lost ground vs the Euro within a 0.8454-87 band on short covering and position/hedge tweaking ahead of the BoE at high noon as expectations for a 25 bp rate cut or no move flit either side of evens – check out our full preview of super Thursday via the Research Suite.

EM - More pain for regional currencies, but added angst for the Lira as the CBRT Governor echoes Turkey’s Finance Minister with regard to deeming the Try competitive at current levels (circa 5.9800), while maintaining projections for CPI to decelerate further and hit target over the forecast horizon.

CBRT Governor says 2020 year-end inflation forecast mid-point 8.2% (Prev. 8.2%), 2021 mid-point at 5.4%, inflation is expected to stabilise around 5% target in the mid-term, downward trend in inflation expected to continue throughout 2021; Current dollarisation at 51% vs. 56% in May 2019, downward trend seen continuing. CBRT maintains their prudential stance. (Newswires)

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.0985 (1.3BLN), 1.1000-05 (1.7BLN), 1.1035-40 (800M), 1.1045-50 (1.1BLN) 

FIXED

It remains to be seen if the dip in debt futures proves transitory or more terminal, and the looming UK rate decision could be crucial if not the determining factor in that regard. Bunds are holding around 174.42, Gilts some ¼ point down from their high (poignantly perhaps given the tight call for -25 bp or nothing from the MPC) and 10 year T-notes just shy of the 131-12 overnight best, while Italian BTPs have recovered from a degree of auction-related selling within 147.41-147.87 confines. Ahead, aside from super Thursday, the first look at US Q4 GDP, weekly claims, a BoC speaker and a slew of Japanese data.

COMMODITIES

Another downbeat session or the energy complex thus far, with prices weighed on by on the ongoing demand implication of the coronavirus, rise in US crude stocks as per yesterday’s DoEs and with the current sentiment also providing further pressure on the contracts. WTI Mar’20 futures found an overnight base at around 52.30/bbl ahead of the Monday’s (and January) low at 52.20/bbl, whilst its Brent counterpart hovers around the 59/bbl at time of writing, with support seen at 58.50/bbl – which marks the January low and has been tested twice this week. On the OPEC -front, the Algerian Energy Minister alluded to the possibility that the March confab will be brought forward to February amid the effect of the Wuhan flu on outbreak on prices, and added that an extension to the output cut pact is possible – no dates have been flagged for a February meeting yet. Moreover, OPEC members are said to be preparing a report on the virus’ impact on energy prices for members to review. Elsewhere, spot gold prices retain an underlying bid, part-aided by the FOMC’s decision yesterday ahead of today’s BOE and WHO presser. Copper prices sees continued downside pressure amid the ongoing coronavirus woes – on a sentiment and demand front with the latter a function of border closures to China.

World Gold Council noted annual gold demand fell 1% Y/Y in 2019 to 4355.7 tons, while it expects India 2020 gold demand to rebound this year from a 3yr low in which it sees India gold demand at 700-800 tons vs. Prev. 690.4 tons last year but will remain below the 10yr average of 843 tons. (Newswires)