• Major Asian indices traded lower across the board amid cases spikes outside China; KOSPI lagged, Shenzhen outperformed; Japan was closed – US equity, DAX and Eurostoxx 50 futures opened with steep losses
• In FX, DXY traded on either side of 99.500, Antipodeans were pressured, EUR was weighed on, KRW saw further weakness
• WTI and Brent futures posted losses of over 2.5% each, spot gold eclipsed 1680/oz at the open vs. Friday’s sub-1650/oz close
• South Korea reported 161 (Prev. 169) additional cases, bringing the total to 763 (Prev. 602); virus alert has been raised to the “highest” amid the cases spike
• Italy’s virus cases rose to 152 with three deaths; Iran has also confirmed 43 cases and eight deaths; Ontario's government has confirmed presumptive positive case of coronavirus in Toronto
• Six Chinese provinces, including Guangdong have lowered their coronavirus emergency response levels; China pledged further support
• Looking ahead, highlights include German Ifo Survey, ECB’s Lagarde, BoE’s Haldane, Fed’s Mester

CORONAVIRUS UPDATE 

South Korea reported 161 additional cases, bringing the total to 763, with seven deaths also confirmed as of February 23 vs. 169 additional cases, total at 602 and five deaths on February 22. South Korea raised virus alert to the “highest” as virus cases spiked. (Yonhap) Further, the South Korean government was asked on Sunday to draw up a supplementary budget for use in effects to contain the virus outbreak. (Newswires/Yonhap) South Korean Finance Minister said it will stem any herd-like speculative moves in FX, will soon announce measures to boost exports, investments and domestic demand. (Newswires)

Italy reported that the total number of cases rose to 152, with a third confirmed death. The country has implemented measures to try to halt the outbreak of the virus in the country, including around a dozen towns in lockdown. (Guardian) Subsequently, Austria has ceased all train traffic to Italy, although later reports noted that some train traffic has resumed. (Newswires) Ontario's government has confirmed presumptive positive case of coronavirus in Toronto, Canada. (Newswires) Iran has also confirmed 43 cases and eight deaths. Saudi Arabia, Kuwait, Iraq, Turkey and Afghanistan imposed travel and immigration restrictions on the country. (Newswires) Four more Britons flown back from the Diamond Princess cruise ship tested positive for the virus, bringing UK’s total to 13. (Guardian)

China's Hubei province reported 398 new coronavirus cases and 149 additional deaths as of February 23 vs. 630 additional cases and 96 additional deaths on February 22. China reported an additional 409 coronavirus cases and 150 additional deaths as of February 23 vs. 648 additional cases and 97 deaths on February 22; Total China cases 77150 vs. Prev. 76936; Total deaths 2592 vs. Prev. 2442. Reports also noted that 24734 patients have been discharged as of February 23. (Newswires)

Chinese provinces Yunnan, Guangdong, Shanxi and Guizhou have lowered their coronavirus emergency response levels, according to local authorities. (Newswires) Furthermore, six provinces in China lowered coronavirus emergency response levels: Guangdong, Shanxi lowered response to level 2. Gansu, Liaoning, Guizhou, Yunnan lowered response to level 3, according to CNBC’s Yoon. (Twitter) China is allowing non-local residents to leave Wuhan city if not under medical observation or quarantine and under some circumstances. (Newswires/Global Times)

Chinese President Xi said the government will step up policy support measures to help achieve economic and social development targets for 2020. China's MOF said the government will look into further targeted tax cuts, will increase transfers to virus-hit regions. PBoC Vice Governor Chen said the Central Bank is reviewing whether to cut the benchmark deposit rates and added that the impact of the virus outbreak on China’s economy will be short and limited, macro-management tools are ample, the Yuan will not appreciate or depreciate by a large margin. Meanwhile, the PBoC said it will also make use of the inclusive monetary policy tool and adjust policies relating to requirement reserve ratio cuts. (Global Times) Elsewhere, IMF Director Georgieva said the current baseline scenario for China’s economy is a return to normal levels in Q2 with a relatively minor and short-lived impact on the global economy, China’s 2020 GDP is seen at 5.6% (Prev. 6.0%) whilst global GDP is seen dropping by 0.1ppt due to the coronavirus outbreak. (Newswires)

China's National Medical Products Administration has approved certain drugs for COVID-19 including a reagent that can differentiate between the flu and COVID19, which is a critical find, said renowned epidemiologist. (Global Times)

Nebraska, California and Illinois are reportedly the only states to have the capacity to test for the coronavirus, according to sources. CDC reportedly has set up a surge testing capacity until the new testing kits become available, sources added. (Newswires)

Australian Treasurer Frydenberg said the Australian economy is resilient despite the impacts coronavirus is having on China. (Newswires) Australia raised travel advisory to South Korea and Japan amid the coronavirus outbreak. (Newswires) New Zealand PM Arden said New Zealand is to extend travel ban for foreigners arriving from China. (Newswires)

ASIA-PAC

Asian equities traded with steep losses across the board following Wall Street’s decline on Friday, amid the rapid rise in the number of coronavirus cases outside China - which prompted the Dow to post its worst daily performance since February 7th, S&P recorded its largest one-day loss since late-January, whilst the Nasdaq notched its worst session since January 27th. Furthermore, weekend development caused US equity futures to open the week with notable downside, with S&P Mar’20 dipping below 3300, Nasdaq Mar’20 declining over 1.5% and DJ Mar’20 slumping over 300 points. ASX 200 (-2.3%) was pressured by its large-cap financial stocks and some mining stocks as yields and base metal prices fell, instigating a breach below the key 7000 mark in the index. South Korea’s KOSPI (-3.7%) opened with detrimental losses following the spike in the number of cases in the country alongside seven confirmed deaths and the country’s alert level raised to the “highest” over the weekend, resulting in the index dipping below the 2100 psychological level. Furthermore, Samsung Electronics’ shares slid over 3% after the Co. shut its operations plant in Gumi City in South Korea after an employee was reported to be infected with the COVID-19 virus. As a reminder, Japanese markets were shut as participants observe Emperor’s Birthday holiday. Elsewhere, Hang Seng (-1.7%) and Shanghai Comp. (-0.2%) joined the stock rout, with the former heavily pressured by its large-cap energy names as prices in the complex plumb the depths. Meanwhile, Mainland was initially resilient in comparison amid further pledges by China to support impacts of the virus, with President Xi over the weekend stating that the government will step up policy support to help achieve economic and social development targets for 2020. Conversely, Shenzhen Comp. (+1.3%) fared better after Guangdong, the province in which the tech hub resides in, lowered its coronavirus response level from the first level to the second level, subsequently, Shenzhen traffic saw an uptick today. Finally, UST Mar’20 futures and Bund Mar’20 futures retained an underlying bid overnight amid the risk aversion in the market.

USTR official Doud said there are no plans are in place for Phase Two of the US/China trade deal; USDA's McKinney said China has not made a request to delay trade pledges. (Newswires)

China state planner said it is to cut electricity prices for firms by 5% between the first of February to June 31st. (Newswires)

PBoC set USD/CNY mid-point at 7.0246 vs. Exp. 7.0230 (Prev. 7.0210) (Newswires) PBoC skipped open market operations for a net daily drain of CNY 300bln

UK/EU

UK PM Johnson is poised to kick start trade negotiations with the US within the next two weeks, on March 2 the “red lines” for its US negotiations will be published, expected to push back on US demands drug and health firms to have greater access to the British market. (Telegraph) US Treasury Secretary Mnuchin said the main focus for 2020 is a US-UK trade agreement. (Newswires)

UK PM Johnson’s Brexit team are reportedly working on a secret proposal to ensure of no checks on goods passing from Britain to Northern Ireland. (Times) French President Macron said he is unsure an EU-UK trade deal will be struck by December 31st 2020, stating that negations will be “tense”, with fishing rights a key sticking point. (BBC)

UK Chancellor Sunak could relax fiscal rules to either; 1) raise GBP 26bln by allowing the government to go 1% above or below a balanced current budget or 2) raise GBP 11bln by allowing the government to achieve a balanced budget in 5 years vs. current 3. (Telegraph)

EU summit failed to come to an agreement on the next EU budget. (Newswires) Furthermore, EU sources indicate that ambassadors will not be able to reach an agreement on Barnier's negotiating mandate on Monday and will rely on the 'political push' of ministers on Tuesday instead to rubber-stamp the text. (Twitter)

Germany’s Hamburg election prelim final party vote results: SPD 39% (vs. 45% in 2015), Greens 24.2% (vs.12.3%), CDU 11.2% (vs. 15.9%), Left Party 9.1% (vs. 9.0%), AfD 5.3% (vs. 4.9%) and FDP 5.0% (vs. 5.0%). (Europe Elects)

FX

In FX, DXY rebounded from Friday’s post-PMI low of 99.227 and traded on either side of the 99.500 mark, whilst most of the strength was recorded towards the latter part of the APAC session. EUR/USD and GBP/USD moved largely in tandem with the Greenback, although the former saw more pronounced losses at the open, potentially on the rising virus cases reported in Italy – EUR/USD drifted higher following an open of just north of 1.0810, although upside was more-so on the back of DXY receding back below 99.500 at the time. Cable meandered around 1.2950 throughout a bulk of the session having found an overnight base at its 100 WMA ~1.2941, and with little reaction to reports that UK/US trade talks are to kick-start next week, with the PM’s mandate for US talks to be published on March 2nd, expected to push back against some key US demands. Elsewhere, AUD and NZD showed early weakness and gapped significantly lower at the open amid the weekend coronavirus news flow, thereafter AUD/USD found buyers around the 11yr low at 0.6585 before reclaiming 0.6600+ status. Meanwhile, NZD/USD remained pressured by the overall risk-aversion and with upside capped by disappointing retails sales. KRW experienced further weakness in which USD/KRW rose above 1215 to hit levels last seen in August 2019 - as the country raised its alert to the “highest” amid the spike in cases, meanwhile, South Korea’s Finance Minister pledged to stem “herd-like” speculative FX movements following the recent substantial weakness in the currency. USD/JPY and JPY-crosses initially gapped lower at the open before stabilising around break-even despite the soured risk tone, as traders focus on Japan’s deteriorating economy and with Japanese players out of the markets amid the public holiday.

Fitch affirmed Turkey at 'BB-'; Outlook “Stable”. S&P affirmed Switzerland at “AAA”; outlook “Stable”. (Newswires)

COMMODITIES 

Commodities overnight reflected risk-off sentiment following the substantial rise in the number of cases reported outside China over the weekend. WTI and Brent front-month futures opened trade with losses of almost USD 1/bbl before extending on the downside to trade some 3% lower throughout the session. WTI Apr’20 gave up the USD 52/bbl handle vs. Friday’s close north of USD 53/bbl, whilst Brent Ap’20 fell below 57/bbl vs. Friday’s ~USD 58.40/bbl close. Reports also noted that Sublime China information show independent refiners’ run rates in Shandong fell to 41.84% (Prev. 47.82%) over the week, ING highlight that this is the lowest run-rate since 2015 and thus highlights the reduction in fuel consumption in the country at present. Elsewhere, spot gold saw substantial gains at the open as prices soared above USD 1650/oz to a fresh multi-year high of 1681/oz over 15-minutes before prices abated and stabilised around USD 1660/oz throughout most of the session, potentially on profit-taking and a firming USD, ahead of potential mild resistance at USD 1685/oz (4th Feb 2013 high), as investors flocked to the safe-haven asset amid the overall risk aversion in the market. Conversely, copper prices saw further declines due to the demand implications of the virus spread outside China, and with further pressure added by the risk tone. Copper slid further below USD 2.6/lb before finding an overnight base just below USD 2.56/lb. Finally, zinc prices fell to their lowest in over 3 ½ years amid rising inventories and demand woes from the virus outbreak.

Baker Hughes Rig Count (21 Feb): Oil rigs +1 679, NatGas rigs unch at 110, total rigs +1 at 791. (Newswires)

GEOPOLITICAL 

Israeli Defence Forces confirm it has attacked Palestinian Islamic Jihad (PIJ) targets in the Gaza Strip and Syria, via ELINT News. This follows reports noting of rocket barrages from Gaza on Sderot town and surrounding communities in southern Israel, whilst strikes on PIJ bases in Gaza continue. (Twitter) Palestinian Islamic Jihad (PIJ) announced two of its members were killed in Israeli airstrikes in Damascus, Syria (Twitter)

Libya's legitimate government will not participate in any further peace talks in Geneva, the head of the country's High Council of State said on Saturday. This follows comments on Friday from the UN Libya Envoy Salame who said talks between the GNA and Haftar are going in the right direction and still expect political talks between the two sides to go ahead in Geneva on Feb. 26th. (Newswires)

Turkish President Erdogan emphasised to Russia’s Putin that the Syrian government must be controlled in Idlib. (Newswires)

US still sees a military role in Venezuela as an option to oust Maduro, naval blockade among options that have been discussed. But Trump admin hopes military action is not necessary, according to Bloomberg reporter. (Twitter)

US 

*US-T-NOTE FUTURES (H20) SETTLE 13+ TICKS HIGHER AT 131-27+. The Treasury curve bull-flattened on Friday, and 30-year yields fell to a fresh record low sub-1.90%; 10-year yields are also firmly sub-1.50%, now eying last year's low just beneath 1.43%. Some desks have noted that the cash yield on Treasuries and the cash yield on stocks is near the widest in around three decades, yet bonds continue to find buyers; some have explained this dynamic by pointing to growth slowing in Q1 2020, and scepticism that inflation will pick-up. Investors will therefore be keeping a close eye on next week's PCE report on Friday. The coronavirus is not concerning Fed officials just yet (although it is clearly a concern at the BOJ), and policymakers have generally given a nod to the December SEP projections which foresee an unchanged FFR in 2020; and in terms of the data, investors will put more stock into the manufacturing ISM due on 2nd March, and other regional manufacturing surveys next week. With that said, markets have added to expectations of Fed easing in 2020, with 47.5bps of easing priced through the end of this year (it was around 38bps a week ago).

Nevada caucus results vote split (88% reported): Sanders 47.1%, Biden 21%, Buttigieg 13.7%, Warren 9.6%, Klobuchar 3.9% (Associated Press)

Morning Consult post-debate poll: Sanders 30% (+2), Biden 19% (unch), Bloomberg 17% (-3), Elizabeth Warren 12% (+2), Buttigieg 11% (-1), Klobuchar 5% (-1). (Newswires)

Fed Vice Chair Clarida (Voter) said he looks at asset prices, but never in isolation and balanced against other signals for policy path, sees survey evidence as important as financial market signals in assessing the policy rate and inflation expectations. (Newswires)