• APAC stocks traded mixed: China was buoyed by the PBoC, Nikkei 225 lagged on dismal domestic GDP
• Total Mainland coronavirus cases are now at 70548 and death toll at 1770, whilst 1425 were discharged from hospital on Sunday
• China cuts its 1yr MLF by 10bps to 3.15%, 1ppts below the 1yr LPR which is to be announced on Thursday
• The Trump Administration said it would increase tariffs on EU aircrafts to 15% from 10% beginning March 18th
• OPEC+ is mulling cancelling plans for an emergency earlier meeting, keeping the March 5-6 dates instead, according to delegates
• In FX, DXY trimmed some of Friday’s gains, EUR and GBP traded flat, AUD, CNH and CNY outperformed
• Looking ahead, highlights include ECB’s Lane
• Note: US President’s Day Holiday – Desk will open as usual for APAC coverage on Sunday 16th, but will close at 18:00GMT/12:00CST on Monday 17th before re-opening for APAC coverage at 22:00GMT/16:00CST

CORONAVIRUS UPDATE

China's Hubei province reported 1933 new coronavirus cases and 100 additional deaths as of February 16th vs. Prev. 2420 additional cases and 139 deaths on February 14th. Furthermore, China reported 105 new deaths in the mainland from coronavirus on Feb 16th vs. 142 on Feb 15th, with mainland cases rising by 2048 on Feb 16th vs. 2009 on Feb 15th. Total Mainland coronavirus cases are now at 70548 and death toll at 1770 vs. 1523 on February 14th. Global Times noted that 1425 were discharged from hospital on Sunday, bringing the total “cured and discharged” across China to 10844. (Newswires/Global Times)

China will further implement measures this year to reduce corporate taxes and cut unnecessary government expenses to cushion the burden of the virus outbreak, according to Chinese Finance Minister Liu Kun. (Newswires)

Chinese Diplomat Wang Yi said the nCoV epidemic is overall under control; some countries overreacted to the outbreak. (Newswires) China Global Times tweeted "Chinese experts said that there may be a surge on nCoV confirmed recently as more cities outside Wuhan in Hubei include clinically diagnosed cases and medical staff may face more pressure.". (Twitter)

Chinese President Xi reportedly issued orders to contain the virus outbreak 13 days before the public was warned of its severity, contradicting reports which date the President’s earliest involvement almost two weeks later, according to the official Communist party magazine cited by FT. (FT)

NEC Director Kudlow said that the virus outbreak could impact US GDP by two-to-three tenths of a percent in Q1. (Newswires)

Japan reported 70 additional coronavirus cases on Diamond Princess cruise ship, taking the total to 355 - largest outside China. (Newswires)

Moody's cut China 2020 GDP growth forecast to 5.2% (Prev. 5.8%) and affirms 2021 forecast at 5.7%, citing coronavirus outbreak. (Newswires)

ASIA-PAC

Asia-Pac stocks traded mixed following Wall Street’s flat close on Friday whereby major bourses recovered following reports that the White House is considering tax incentives for people in the US to purchase stocks. ASX 200 (-0.1%) pulled back from near-record highs with the index’s heaviest weighted financial sector leading the losses. Nikkei 225 (-0.7%) underperformed the region but climbed off lows after opening with steep losses following a deeper-than-expected contraction in Japanese Q4 GDP, on a QQ and an annualised basis, with the breakdown also showing that manufacturing contracted by 5.9% on a quarterly basis. As such, a slew of the index’s manufacturing names plumbed the depths, whilst Nissan shares added pressure after its alliance partner Renault slashed their dividend on Friday. Hang Seng (+0.6%) and Shanghai Comp. (+1.6%) remained resilient with the former following suit from the latter extending on opening gains amid further support from Chinese authorities, including touted MLF operations, reductions to corporate taxed and cuts to unnecessary government expenses.

China is said to be mulling making some US agricultural purchases by late February early March to show its Phase One trade deal commitment to the US, although no final decision has been made, according to sources. (Newswires) China has decided to further allow imports of poultry from the US following a series of risk assessments. Chinese officials and analysts have maintained that China will fulfil its Phase One commitment once the epidemic is over and has so far refrained from invoking a force majeure clause in the agreement to consult with US officials. (Global Times) Chinese Diplomat Wang Yi said China is focused on implementing Phase One trade deal with the US; as Phase One is implemented, China will consider starting Phase Two. (Newswires)

The Trump Administration is reportedly considering a proposal to halt deliveries of jet engines for a new airliner being developed in China amid fears of reverse engineering, according to sources. (WSJ)

PBoC injected CNY 200bln via 1yr MLF at 3.15% vs. Prev. 3.25%, according to a statement (Newswires) Note the 1yr MLF is now 1ppt below the January 1yr LPR, with the February setting due on Thursday. PBoC injected CNY 100bln via 7-day reverse repo and drained a net CNY 900bln on the day. (Newswires) PBoC set USD/CNY midpoint at 6.9795 vs. Exp. 6.9796 (Prev. 6.9843)

Japanese GDP QQ (Q4) -1.6% vs. Exp. -0.9% (Prev. 0.4%, Rev. 0.1%) - Sharpest decline since Q2 2014; Manufacturing -5.9% QQ, Services +2.2% QQ Japanese GDP Deflator 1.3% vs. Exp. 1.1% (Prev. 0.6%) Japanese GDP QQ Private Consumptions Prelim (Q4) -2.9% vs. Exp. -2.0% (Prev. 0.5%) N.B. Consumption was impacted by pullback in demand following sales tax hike, warm winter and typhoons, impact from sales tax hike was less than the prior 2014 tax hike.

BoJ Governor Kuroda said that monetary policy steps will need to be considered if the virus outbreak has a large impact on the Japanese economy, will consider additional easing steps without hesitation. Meanwhile, Japanese Economy Minister Nishimura said the government will swiftly implement emergency steps to counter coronavirus using funds from budget reserves and will take all necessary steps flexibly. (Newswires)

GOP Senator Rick Scott proposed a bill to restrict US sales to Huawei, cutting the minimum requirement of US made parts from 25% to 10% in its products. (The Hill)

UK/EU

The Trump Administration said it would increase tariffs on EU aircrafts beginning March 18th on planes from France, Germany, Spain, and the UK, which will be subject to 15% tariffs vs. Prev. 10% that took effect in October. USTR noted that it remains open to a negotiated settlement. Prior duties will remain on certain other European products such as Scotch and French wine at 25%. (WSJ)

UK Chancellor Sunak is preparing to loosen the UK's fiscal rules in the budget under pressure from No. 10, according to FT. Officials note that an option for flexibility could be a “balanced budget” target on a rolling 5yr basis, and a target range of +/- 1% could be introduced. Officials also said that no new framework had been formally discussed with the Chancellor. (FT) UK Transport Secretary Shapps stated that the Government’s budget may be delayed following the resignation of former Chancellor Javid. (BBC) Further delays could stop the Office for Budget Responsibility from publishing two forecasts in the financial year.

UK Chief Brexit Negotiator Frost's speech today is expected to note the chances of a deal with the EU are being undermined by Brussels view that the UK should stick to EU rules. Frost will call on the EU to offer the UK a deal similar to those struck by Canada, Japan and South Korea. Meanwhile, reports note that the EU is yet to reach a full accord on their language of a mandate but are not showing any intentions of backing away from level playing field requirements. (FT) French Foreign Minister Le Drian has warned that the EU and the UK face bitter negotiations over their future relationship in the coming months as the two sides remain far apart on a range of issues. Le Drian said it will be tough for the UK to reach a free trade deal by year-end and Brussels will defend its interests when talks begin next month. (FT/BBC)

UK Government is in talks with the China Railway Construction Corporation which claimed that it can build the HS2 line in five years at a much lower cost. (Sky News)

Italian PM Conte has denied speculation that he was looking to put together a new coalition. (Newswires)

UK Rightmove House Prices (Feb) M/M 0.8% (Prev. 2.3%). (Newswires)

S&P affirmed Sweden at AAA; outlook “Stable.” (Newswires) S&P affirmed Hungary at BBB; outlook revised to “Positive” from “Stable.” (Newswires) Fitch affirmed Hungary at BBB; outlook “Stable.” (Newswires)

FX

In FX, DXY trimmed some of Friday’s gains but retained a 99.00+ status ahead of the US President’s Day Holiday. EUR/USD and GBP/USD remained relatively flat with the former below 1.0850 and the latter on either side of 1.3050, after the latter found some support around its 200 WMA at 1.3033, while some traders highlighted EUR/GBP options at strikes 0.8300-10 potentially acting as a magnet in the cross. Elsewhere, USD/JPY and JPY-crosses traded within a tight intraday band amid the cautious risk sentiment in the market, with former having found mild support at its 10 DMA ~109.70 – with further support seen around 109.50 which coincides with the 21 DMA and the Feb 7th low. JPY was little swayed by Japan reporting a deeper than forecast GDP contraction, which showed the largest QQ decline since Q2 2014, although the uptick in GDP deflator – used as an inflation indicator – could provide the BoJ with some solace. Elsewhere, Antipodeans remained choppy and initially moved in tandem with the risk sentiment, with AUD/USD receding in early trade after touching mild resistance at 0.6730, whilst levels to the downside include Thursday’s 0.6707 low and last week’s base at 0.6657. Meanwhile, NZD/USD was suppressed as a downbeat GDP assessment by NZ PM Arden took AUD/NZD above the psychological 1.0450. Finally, CNH and CNY encountered mild strength in which both pairs fell below 6.9800 vs. the Greenback amid the overall optimism in Chinese markets coupled with China’s moves to keep the Phase One trade deal with the US intact.

New Zealand PM Arden said 2020 GDP growth is expected to be between 2.0-2.5% with temporary impacts from the coronavirus outbreak. (Newswires)

COMMODITIES

WTI and Brent futures were pressured in early APAC trade due to the ongoing narrative surrounding the coronavirus outbreak and with further downside bias added to the complex by reports that OPEC+ is mulling cancelling plans for an early meeting while keeping the original March 5/6th dates in place. Front-month futures saw accelerated selling following breaks below key psychological levels, although the moves were fleeting/short-lived as sentiment picked back up following China’s stimulus injections – prices head into the European session flat/modestly positive. Elsewhere, spot gold held onto a bulk of Friday’s gains with prices north of 1580/oz throughout the session, with the metal’s 21DMA seen around the 1570/oz area. Finally, copper prices rebounded with a vengeance amid the simulative measures from China, with prices briefly topping USD 2.63/lb during APAC trade (vs. low USD 2.60/lb).

OPEC delegates suggested OPEC+ is mulling cancelling plans for an emergency earlier meeting, keeping the March 5-6 dates instead. (Newswires)

Baker Hughes (14th Feb): Oil -2 at 678, NatGas -1 at 110, total at 790, unchanged. (Newswires)

GEOPOLITICS

The Leader of one of the main Iranian-backed Shia militia groups, Harakat Hezbollah, has declared that a “countdown has begun” regarding attacks on US forces in Iraq. (Twitter)

Rockets have dropped near the US Embassy in Iraq, according to officials – no injuries were reported. (Newswires)

Yemen Houthi Military spokesperson said they have downed a tornado warplane, belonging to "enemy forces" in Al-Jawf, Saudi Arabia. (Newswires)

Iranian President Rouhani said that Iran will never yield to US pressure for talks. (Newswires)

US 

US T-NOTE FUTURES (H20) SETTLED 7 TICKS HIGHER AT 130-31+: The TPLEX bull flattened on Friday as participants took a more risk-averse stance ahead of the weekend. The bid gained traction from early European trade, with the 10-year yield finding its lows at 1.573%, remaining nearby till settlement. After a few sessions of T-Note selling, the bid is likely partly due to some position squaring, mediocre data, as well as traders looking to cut their risk exposure over the weekend, where the known unknown is whether the nCoV will escalate further, pressing more fears of pandemic rather than the current epidemic. Additionally, following the duration-heavy supply from the Treasury in the past few sessions, the selling pressure (exacerbated by dealer hedging) will have subsided. By settlement, the whole curve was flatter, seeing the 2s10s narrow by 1.5bps, leaving the 10-year yield at 1.59%. One desk highlights that the 10-year yield has now settled higher for the third straight weekly close, nodding to an easing of concerns.

White House is reportedly considering incentives to encourage stock buying, according to CNBC citing sources. (CNBC)

Fed’s Mester (Voter, Hawk) said monetary policy is in a good place, reiterated Fed's guidance that unless there is a material change to the outlook, policy will remain the same. Mester also added that she is not a fan of negative rates. Mester said she does not believe the expansion is tiring and is positive on the US consumer, seen signs of manufacturing stabilising. On the domestic economy, she noted that inflation is low but believes it will hit the 2% target at year-end of early next year. She said coronavirus is a risk for growth but has not marked down her 2020 forecast because of the coronavirus. Mester reiterated that the overnight operations and treasury bill purchases are not QE. (Newswires)

Fed's Kashkari (Voter, Dove) said there is still slack in the labour market. (Newswires)