• European bourses are modestly firmer, with gains roughly in-line with their APAC peers
• Turkish President Erdogan says he is presenting his final warning to the Syrian government regarding Idlib and says that a military operation is a "matter of time”
• GBP was briefly bolstered on strong UK CPI, with the DXY modestly firmer overall largely on a soft JPY
• Boeing are to inspect undelivered 737 Max craft for foreign objects after debris found in undelivered craft
• Looking ahead, highlights include US Building Permits & Housing Starts, Canadian CPI, FOMC Minutes, CBRT Rate Decision, Fed’s Bostic, Mester, Kashkari, Kaplan and Barkin

CORONAVIRUS UPDATE

China’s Hubei province reported 1693 new cases and 132 additional deaths from the coronavirus as of February 18 vs. 1807 additional cases and 93 deaths on February 17: death toll 1921 vs. Prev. 1800. China’s Mainland reported additional 1749 coronavirus cases and 136 additional deaths as of February 18 vs. 1886 additional cases and 98 deaths on February 17: Total cases 74185 vs. Prev. 72436, total deaths 2004 vs. Prev. 1789. (Newswires)

South Korea reported 15 more cases of coronavirus, bringing the total to 46, according to Yonhap. South Korean Finance Minister plans to announce prelim stimulus measures by end-Feb, via Yonhap. (Yonhap)

China is reportedly mulling mergers and cash injections to bail airlines, according to sources. (Newswires)

ASIA-PAC

Asian equities traded with cautious gains following on from a mixed lead on Wall Street, where the Dow fell for a third consecutive day following Apple’s profit warning, albeit the Nasdaq ended the session relatively flat. ASX 200 (+0.4%) traded sideways throughout most of the session and failed to gain much traction from a slew of earnings, although heavyweight Westpac’s shares were under pressure amid additional costs expected to be incurred due to its regulatory investigation. Nikkei 225 (+0.9%) outperformed following the prior session’s steep losses as tech names recouped losses and with the index underpinned by a softer JPY, meanwhile, Nissan shares led the gains despite its alliance partner Renault’s downgrade to junk status at Moody’s. Elsewhere, Hang Seng (+0.5%) and Shanghai Comp (-0.3%) pared opening losses with the former propped up by its behemoth oil names and financials (ex-HSBC), whilst the latter saw support amid further anticipated easing measures ahead of tomorrow’s LRP announcement – with the rates widely expected to be reduced following the 10bps MLF cut by the PBoC earlier in the week. Finally, Singapore’s Straits Times Index (+0.7%) was buoyed following the unveiling of a generous Singapore Budget, which allocated almost USD 5bln to tackle the impacts of the coronavirus outbreak.

PBoC set USD/CNY mid-point at 7.0012 vs. Exp. 6.9965 (Prev. 6.9826) - weakest fix since Dec 25th, 2019. (Newswires) PBOC skipped open market operations for a daily net neutral position

A US Judge has dismissed the Huawei lawsuit against the US which alleged that the US improperly limited its US business. according to the court ruling. (Newswires) Huawei said it will consider further legal options. (Global Times)

Japanese Trade Balance Total Yen (Jan) -1.313T vs. Exp. -1.6945T (Prev. -152.5B, Rev. -154.6B) (Newswires)

US

US Democratic Primary Polls:

·       NBC News/WSJ: Sanders 27% (Unch), Biden 15% (-11), Bloomberg 14% (+5), Warren 14% (-1) Buttigieg 13% (+6) and Klobuchar 7% (+2). (Newswires)

·       Public Policy Institute of California: Sanders 32%, Biden 14%, Warren 13%, Bloomberg 12%, Buttigieg 12%, Klobuchar 5%, Steyer 3%. (Twitter)

·       ABC News/Washington Post: Sanders 32% (+8), Biden 17% (-11), Bloomberg 14% (+6), Warren 11% (U/C), Buttigieg 7% (+2), Klobuchar 6% (+3)

US Attorney General Barr has considered resigning over US President Trump’s tweets regarding ongoing cases. (WSJ)

UK/EU

China is prepared to restart preparatory work with British Officials on a future trade deal according to Xiaoming the Chinese Ambassador to London; adding, that it may take time before they have detailed discussions due to the coronavirus, Sky News. (Twitter)

UK CPI YY (Jan) 1.8% vs. Exp. 1.6% (Prev. 1.3%); MM (Jan) -0.3% vs. Exp. -0.4%

-        Core CPI YY (Jan) 1.6% vs. Exp. 1.5% (Prev. 1.4%); MM (Jan) -0.6% vs. Exp. -0.6%

-        ONS says the rise in inflation was due to higher petrol prices and airfares falling less than a year ago, also affected by 2019's energy price cap

GEOPOLITICS 

Turkish President Erdogan says he is presenting his final warning to the Sryian government regarding Idlib and says that a military operation is a "matter of time" and their demands were far from being met in talks with Russia. (Newswires)

-        Also, maintains determination to cut interest rates and inflation

Russian Kremlin says Russia will remain in contact with Turkey regarding Idlib, to prevent tensions from further escalating; Russian Defence Minister has agreed with Libya's Haftar that there is no alternative to a political settlement in Libya, Ria. (Newswires/Ria)

US Secretary of State Pompeo says they are prepared to talk to Iran at any time, but they need to fundamentally change their behaviour. (Newswires)

EQUITIES

European equities (Eurostoxx 50 +0.4%) are posting steady gains in early EU trade after mounting a recovery from yesterday’s losses with macro newsflow otherwise relatively light thus far. Gains across sectors are relatively broad-based with IT names being granted some reprieve from yesterday’s Apple-inspired declines (STMicroelectronics +2.8%, Dialog Semi +2.6%, Infineon +1.9%), whilst HSBC (+2.7%) are also recouping recent losses following its recent restructuring announcement. Lagging its peers are energy names with recent upside in crude prices not enough to bolster sentiment for European producers. Elsewhere, above-forecast earnings from Puma (+8.6%) has sent its shares to the top of the Stoxx 600, helping to lift competitor Adidas out of negative territory after it warned that it has endured a material negative impact in China as a result of the coronavirus. Other gainers include Deutsche Telekom (+3.4%) and Covestro (+2.9%) post-earnings, whilst to the downside, Renault (-2.1%) shares are suffering after its debt was downgraded to junk status at Moody’s, with auto names/parts producers also suffering.

Boeing (BA) – Co. is to inspect undelivered 737 Maxes after debris was found in undelivered 737 Max planes, according to CNBC; this reportedly will not impact plane's return to service. (CNBC)

Taiwan Semiconductor (2330 TT) - Co. has started reducing its chip capacity support for Huawei, but is still working closely with Huawei on some chip solutions, according to sources cited by Digitimes. (DigiTimes)

FX

ZAR/GBP/SEK/NOK - Inflation metrics have given the Rand, Pound and Swedish Crown something else to consider aside from the broader fluctuations in risk sentiment largely on unfolding events in China and the external impact of COVID-19. Usd/Zar is consolidating around 14.9500 in wake of headline SA CPI rebounding towards the SARB’s 2020 average rate, while Cable pared declines from another test of decent sub-1.3000 support on the back of UK headline and core rates (y/y) both beating consensus, in stark contrast to Swedish readings falling far short of expectations and even recently downgraded Riksbank projections. Hence, Eur/Sek is hovering just shy of resistance circa 10.6000 and diverging from Eur/Nok that is back down around 10.0300 amidst a pick-up in risk appetite on more speculation about additional Chinese stimulus. Back to Sterling, fresh lows now being forged on a lack of follow-through buying and persistent jitters about a hard Brexit given little sign of the EU budging from level playing field lines.

NZD/AUD/CAD - Not quite zero to hero, but the Kiwi has pared more losses from Tuesday’s lows following supportive comments from RBNZ Governor Orr overnight claiming that the domestic economy and OCR rate are both in a good place presently. Nzd/Usd has rebounded to 0.6400 in response, but Aud/Nzd remains above 1.0450 as the Aussie gleans traction from the YUAN reclaiming 7.0000+ status (just) after a first PBoC fix under the handle since Xmas Day. Indeed, Aud/Usd is straddling 0.6700 where a mega 2.6 bn expiries roll off compared to yesterday’s 0.6674 base and awaiting jobs data for more independent direction, while NZ Q4 CPI also looms for the Kiwi. Prior to all that, the Loonie will be looking for impetus via Canadian inflation as Usd/Cad retreats from post-manufacturing sales peaks close to 1.3280 and hovers near 1.3230.

JPY/XAU - The Yen has succumbed to more pronounced safe-haven flow/position unwinding, as Gold appears to be the port of choice and store of value most avidly sought at the current juncture. As such, Usd/Jpy has breached the prior ytd apex and is now aiming for 110.50 in front of a Fib (110.64), while spot bullion inches further beyond Usd1600/oz and to within a whisker of the January 8 pinnacle (Usd1611.42).

EUR/CHF - Both narrowly mixed against a firmer Dollar in general, with the DXY inching closer to 99.500 in advance of US data and FOMC minutes amidst a raft of Fed speakers, and by definition displaying relative resilience. The single currency is pivoting 1.0800 with underlying support in the form of decent expiry interest at 1.0785 (1.2 bn), while the Franc continues to meander between 0.9800-50 and 1.0600-50 vs the Euro.

EM - The Lira is still languishing below 6.0000 vs the Greenback in wake of the latest more measured CBRT rate cuts (-50 bp) and a reiteration of cautious guidance for further easing given recent spikes in inflation and above forecast Turkish CPI prints. Moreover, on top of his usual pre-policy meeting prompting for further rate normalisation (easing) President Erdogan upped the ante vs Russia and Syrian Government forces with a warning that attacks in Idlib will not be tolerated.

Turkish CBT Weekly Repo Rate* (Feb) 10.75% vs. Exp. 10.75% (Prev. 11.25%)

-        Considering all factors to inflation outlook, decided to make a more measured cut to the policy rate, current policy stance remains consistent with the projected disinflation path.

RBNZ Governor Orr said that the economy and current monetary policy are in a good place. (Newswires)

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.0785 (1.2BLN), 1.0825 (275M), 1.0850 (260M), 1.0900 (320M)

-        AUD/USD: 0.6700 (2.6BLN), 0.6740-50 (1.4BLN)

-        USD/CAD: 1.3200-05 (600M), 1.3270-75 (450M), 1.3290 (1.1BLN)

-        USD/JPY: 109.85 (500M), 109.95 (330M), 110.00 (1.1BLN)

Swedish CPIF YY* (Jan) 1.2% vs. Exp. 1.6% (Prev. 1.7%); MM* (Jan) -1.5% vs. Exp. -1.2% (Prev. 0.4%)

FIXED INCOME

In similar vein to pre-UK inflation data price action, but even more emphatic, Gilts quickly shrugged off firmer than anticipated CPI prints to post a new wtd peak through 134.00 and the February 14 high in the process, at 134.08 (+31 ticks vs -13 ticks at worst) on the premise that the pick-up in y/y inflation will not impact BoE policy given greater attention on activity indicators and the ongoing threat of a hard Brexit. The firm rebound has been reflected elsewhere, albeit to a lesser extent as Bunds nudged up to 174.74 (+21 ticks vs -1/4 point at one stage) and the 10 year T-note climbed to 131-08 awaiting the return of US participants and a busy data slate interspersed with fresh or more timely Fed commentary.

COMMODITIES

WTI and Brent prices are firmer at present, as focus moves away from the demand side and the coronavirus to potential supply headwinds. Via the tensions between Ukraine and Russia yesterday, US’ sanctions on Rosneft as well as the ongoing dispute in Libya. On the latter, the recent attacks on Tripoli’s ports have caused the Government to pull out of ongoing peace talks. From an OPEC perspective, we are still awaiting word from Russia on the JTC’s recommendations and today sees OPEC meeting with the IEA amongst other agencies; so, focus will be on any pertinent remarks or guidance from this. Note, due to the US President’s day holiday tonight will see the API weekly inventory release where last week’s headline crude printed a larger build than was expected (+6mln vs. Exp. +3mln). Turning to metals, where spot gold retains a firm bid this morning, as sentiment overall remains conflicted and tentative due to the ongoing geo-political updates and in what has been a relatively quiet session thus far; particularly when compared to yesterday’s mid-day flurry. The yellow metals recent high from January 8th is 1611.42, after which we return to levels not seen since 2013. Elsewhere, China has increased its H1 rare earths output quota by 10% in an attempt to increase production following the coronavirus induced disruptions.

Libya NOC said fuel tankers are being evacuated from ports after shelling near IPG tanker. Libya Oil Output fell to 123.5k BPD vs 135.75k BPD on Monday. (Newswires)

China oil refineries processing 25% less when compared to last year, according to sources. (Newswires)