• Asian equity markets traded mostly lower following a mixed Wall Street handover, US equity and DAX futures trade with heavy losses heading into the European open
• US President Trump said we are ready to adapt and do whatever to tackle the virus outbreak, VP Pence was put in charge of the virus task force
• First US coronavirus case of unknown origin confirmed in North California; CDC said it could be the first instance of “community spread”
• Microsoft (MSFT) became the latest company to cut guidance due to coronavirus; shares fell 2% after market
• In FX, DXY was softer overall, USD/JPY dipped below 110.00, KRW seesawed on surprise BoK hold and a jump in nCoV cases
• Looking ahead, highlights include EZ Consumer Confidence (Final), Economic, Industrial & Services Sentiment, US Durable Goods, GDP (2nd Estimate), PCE Prices (Prelim), Pending Sales, Japanese CPI, Unemployment Rate & Retail Sales, ECB’s Lagarde, Lane, Panetta, Schnabel, de Guindos, BoE’s Carney, Fed’s Mester & Evans, Supply from Italy and US, Norwegian Gov’t Pension Fund Annual Report, UK Brexit Negotiating Mandate Released
• Earnings include Ab InBev, Bayer, Persimmon

CORONAVIRUS UPDATE 

US President Trump said the risk to the American people from the virus is very low, we are ready to act, adapt and do whatever we have to, If congress wants to allocate more than USD 2.5bln for coronavirus, we’ll take it. Trump added that he has spoken to doctors and believe that the vaccine can be developed rapidly. The President announced that he will be putting VP Mike Pence in charge of US response to coronavirus. Trump acknowledged that Chinese President Xi is working very hard on the virus situation but noted that coronavirus could impact US GDP. US President Trump reiterated he thinks the stock markets will recover and puts some blame for the stock rout on the US Democratic debate. (Newswires) Trump Administration sees coronavirus as a serious threat with a fatality rate comparable to the flu, sources say. (Twitter) US Pentagon is mulling whether it may need additional funding to deal with the spread of COVID-19. (Newswires) US VP Pence is to lead a task force meeting on Thursday at 14:30ET/19:30GMT. (Newswires)

US National Institute of Allergy Infection Diseases Director gave a timeframe of 1 to 1.5 years for a usable vaccine. US Secretary of Health says we can expect to see more cases in the US, the degree of virus risk has the potential to change quickly. (Newswires)

First US coronavirus case of unknown origin confirmed in North California (Washington Post) CDC said that the COVID-19 case in California of unknown origin could be an instance of community spread, which would be the first time this has happened in the US. (Newswires) FDA official warned COVID-19 is "on the cusp" of being a pandemic. FDA official said a three-month estimate for COVID-19 vaccine to enter human trials could be too aggressive. (Newswires)

South Korea reported 334 more cases of new coronavirus thus far on February 26 vs. a total 284 on February 25; total cases now at 1595 and a 13th coronavirus-related death reported. (Yonhap) South Korea and US combined military exercises will be postponed "until further notice" amid coronavirus fears. (Yonhap) Japan's ruling party is reportedly considering an extra budget to tackle the virus outbreak, according to Nikkei. (Nikkei) China's Wang Yi has offered further help to Japan over virus controls. (Newswires) Germany has reported 9 new cases of coronavirus so far on February 26, whilst Demark reported its first case, according to BNO Newsroom. (Twitter)

China's Hubei province reported 409 new coronavirus cases and 26 additional deaths as of February 26 vs. 401 additional cases and 52 additional deaths on February 25, Total cases 65596 and deaths 2641. China reported an additional 433 coronavirus cases and 29 additional deaths as of February 26 vs. 406 additional cases and 52 deaths on February 25; Total China cases 78497 vs. Prev. 78064; Deaths 2744 vs. Prev. 2715. (Newswires)

US President Trump said now is not the right time to restrict travel from South Korea, Italy and other infected countries, but may impose restrictions at some point, but travel restrictions to China will not be loosened until the virus is no longer a problem. Trump said the US has plans on a larger scale quarantine if needed. (Newswires) US State Department raised the alert level for South Korea over the virus outbreak. (Newswires) IMF and World Bank are reportedly rethinking April 17-19 meeting amid coronavirus, according to sources. (Newswires)

Gilead (GILD) has initiated two Phase III studies of investigational antiviral Remdesivir for the treatment of coronavirus - studies in Asian countries to be in March. (Newswires) Kanagawa prefecture is said to have developed a faster virus test, according to TV Asahi. (Newswires)

Microsoft (MSFT) cut its Q3 personal computing segment revenue guidance due to coronavirus, sees supply chain returning to normal operations at a slower pace than previously expected. (Newswires) For reference, Co. has a 4.2% weighting in the DJIA, 4.9% in the S&P and 11.3% in the Nasdaq; Co. shares fell 2% after-market

ASIA-PAC

Asian equity markets traded mostly lower following a mixed Wall Street handover, as major indices faded gains heading into the latter part of the US session before the Dow and S&P dipped into negative territory – with the former’s losses tallying over 2000 points this week thus far. Furthermore, US equity futures trickled lower since reopen amid the rising virus cases outside China and with the first “community spread” reported in the States. ASX 200 (-0.8%) is mostly weighed on by its banking and base-metal miners, while some earnings-related movers were scattered across the index. Nikkei 225 (-2.0%) underperformed with downside led by manufacturing, automakers, and financials, whilst Panasonic shares slid over 4% after ending its solar partnership with Tesla. KOSPI (-0.7%) hit levels last seen in October last year as the index continued to be weighed on by the surging number of coronavirus cases in the country, alongside the surprise hold on rates by the BoK. Elsewhere, Hang Seng (-0.9%) joined the regional stock rout as the energy and entertainment names added further to the losses seen this week, whilst Shanghai Comp (+0.4%) showed resilience and bucked the trend despite yet another PBoC inaction, as the rate of virus deaths in the country eased, the rate new cases steadied, and with further pledges from China to cushion the virus impact and stem the contagion.

PBoC sets USD/CNY mid-point at 7.0215 vs. Exp. 7.0164 (Prev. 7.0126) (Newswires) PBOC skips open market operations for a daily net neutral position

The Bank of Korea surprisingly left its Base Rate on hold at 1.25% vs. expectations for a 25bps. The decision was not unanimous, prior dissenters Shin and Cho advocated a rate cut. The BoK also lowered its 2020 GDP forecast to 2.1% from 2.3%, whilst maintaining its inflation forecast for the year at 1.0%. BoK Governor Lee said the growth outlook assumes virus outbreak will not last too long, whilst also noting that South Korean Q1 growth could be negative. Governor Lee did state that the Central Bank has enough policy room to respond to growth risks if needed. Furthermore, the BoK stated they are to expand special loan programs by KRW 5tln to improve liquidity. (Newswires)

BoJ Board Member Kataoka said the BoJ is ready to ease without hesitation if needed, must deepen negative rates to make the shape of the yield curve more accommodative; Japan has no longer the momentum to reach its 2% goal. Kataoka added that there is room for BoJ to review its monetary policy framework and re-examine the effects of its policy, and noted that risks to economy tilted to the downside. (Newswires)

New Zealand Annual Trade Balance (Jan) -3.87B (Prev. -4.31B, Rev. -4.46B) (Newswires) New Zealand Exports (Jan) 4.73B (Prev. 5.54B, Rev. 5.50B) New Zealand Imports (Jan) 5.07B (Prev. 5.0B, Rev. 5.12B)

S&P affirmed New Zealand rating at "AA"; outlook revised to "positive" from "stable". (Newswires)

UK/EU

UK PM Johnson will on Thursday scrap previous commitments to Brussels as he publishes Britain’s goals for a trade deal with the EU, setting up a row over the so-called “level playing field” on which the two sides will do business, FT reported. Johnson’s negotiating mandate will insist that Britain should enjoy full control over its own rules in areas such as state aid, labour laws, and the environment, while also setting out a tough stance on fishing rights. (FT)

SNB's Machler reiterated negative rates are a necessary tool and SNB is prepared to intervene in the FX market. (Newswires)

FX

In FX, DXY traded on a softer footing on either side of 99.000 after the index saw some weakness during US President Trump’s coronavirus presser, which highlighted that a usable vaccine would take 12-18 months to produce, while the President also noted that US GDP could be impacted – G10 pairs largely moved in tandem with the Greenback throughout the session. EUR/USD briefly gained impetus above 1.0900 before stabilising around the figure, while GBP/USD reclaimed 1.2900 to the upside as traders look forward to PM Johnson’s unveiling of his negotiating mandate with the EU, which is expected to set out a tough stance on fishing rights. Similarly, Antipodeans moved in lockstep with the Dollar, Kiwi largely side-lined a narrowing annual trade balance deficit amid a decline in exports, whilst the Aussie ignored dismal Private Capex data. AUD/USD gained modest ground north of 0.6550 and remained above its most recent 11yr low of 0.6542. NZD/USD found mild support at ~0.6280 which coincides with the Sep 27th and Oct 17th lows from last year, although gains in the Kiwi seemed hampered after the NZ Finance Minister stated that coronavirus will have a serious short-term impact on its economy. Elsewhere, USD/JPY and JPY-crosses were uneventful for a large part of the session with the former dictated by its base currency, although modest strength was seen flowing into the Yen towards the latter part of the APAC session, which prompted USD/JPY and EUR/JPY to test 110.00 and 120.00 to the downside respectively. Finally, KRW garnered attention after the BoK surprisingly left its Base Rate unchanged at 1.25%, against rising calls for a 25bps cut – initially instigating gains in the Won. However, a surge in nCoV cases in the country saw the KRW pare back all its BoK-induced gains and reverse course. USD/KRW eclipsed 1216 to the upside vs. a BoK low of ~1209.25.

New Zealand Finance Minister Robertson said the NZ economy is in a strong position to respond to the virus, but it will have a serious impact short-term. (Newswires)

Banxico cut 2020 growth to between 0.5% and 1.5% (Prev. 0.8% and 1.8%); raises inflation forecast for Q4 2020 to 3.2% (Prev. 3.0%). Expects headline inflation to reach its 3% target in Q1 2021. Banxico also cut 2021 economic growth to between 1.1% and 2.1% (Prev. 1.3% and 2.3%). (Newswires)

COMMODITIES 

WTI and Brent front-month futures continued their sell-off in overnight trade amid growing concerns over the rising coronavirus cases, with cases outside surpassing those within China for the first time. WTI Apr’20 briefly dipped below 48/bbl whilst Brent May’20 found an overnight base at USD 52.00/bbl. In terms of forecasts, Goldman Sachs Equity Research lowered their Brent H1 and FY20 views to USD 57/bbl (Prev. USD 63/bbl) and USD 60/bbl (Prev. USD 63/bbl) respectively, citing near term demand uncertainty due to coronavirus. Elsewhere, spot gold retained an underlying bid as stocked continued to slide, with the yellow metal back to USD 1650/oz levels (vs. low USD 1639/oz) heading into the European session ahead of yesterday’s 1655/oz high. Meanwhile, copper prices traded choppily but remained modestly firmer as the weaker USD kept prices afloat.

Libyan oil production stood at 136k BPD as of February 25th, previously at 122k BPD as of February 23rd, according to NOC. (Newswires)

US 

* US T-NOTE FUTURES SETTLED 6+ TICKS HIGHER AT 133-10+. The coronavirus' spreads set the tone for risk markets, and while the direction was meandering in early trade, ultimately, yields are lower across the curve at settlement, with fresh record lows seen for 10-year yields, while 30s matched Tuesday's low. Major curve spreads were boased towards steepening, with 5s30s +6bps as traders wrapped up for the day. Today's auction of 5s was average, which by the standards of Tuesday's 2s auction means it was reasonable; the sale tailed and saw the lowest yield at a 5s auction since September 2016. Tomorrow the US will sell 7s; the 7s sector trades cheap in asset swap versus older 7s, SocGen's analysts observe, though trades fair on the fly against 5s and 10s. SocGen thinks the auction will be expensive on an outright basis, given the WI is trading below all stop-out rates since 2013. The bank notes that the 2s7s curve has flattened meaningfully this year, and that has seen 7s richen on the curve. SocGen says it has a negative bias ahead of the auction.