• Sentiment remains affixed to the coronavirus, with European bourses down and US equity futures currently posting losses of 1%
• South Korea reported over 500 more cases of new coronavirus thus far, taking the total to 1766; with increases in multiple countries
• Italian coronavirus cases may be inflated due to testing errors, WHO Official; did coincide with a mild uptick in sentiment
• Microsoft have cut their Q3 personal computing guidance and supply chain normalisation due to the coronavirus
• GBP is subdued as the UK’s EU negotiating mandate takes a hard-line/uncompromising initial stance
• Looking ahead, highlights include US Durable Goods, GDP (2nd Estimate), PCE Prices (Prelim), Pending Sales, Japanese CPI, Unemployment Rate & Retail Sales, ECB’s Lane, de Guindos, Fed’s Mester & Evans, Supply from US

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)

South Korea reported over 500 more cases of new coronavirus thus far on February 26 vs. a total 284 on February 25; total cases now at 1766 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)

Italian coronavirus cases may be inflated due to testing errors, WHO Official. (Newswires)

-        Italian think tank Prometeia has lowered its 2020 GDP estimate to -0.3% in the wake of the coronavirus outbreak. (Newswires)

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)

PBoC says they are to ensure ample liquidity via RRR cuts in appropriate time, will increase re-lending and re-discount credit; Will look into, and instigate, policies to support the capital replenishment of China's smaller lenders in order to aid the real-economy. (Newswires)

Japanese PM Abe has requested that all elementary, junior and high schools in Japan close from March 2nd until Spring Break. While, China are to postpone the re-opening of education facilities in principle, according to State TV. (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)

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 (-2.1%) 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 (+0.3%) joined the regional stock rout as the energy and entertainment names added further to the losses seen this week, whilst Shanghai Comp (+0.1%) 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 Mandate for EU trade negotiations: UK willing to trade on a no-deal basis with the EU if trade talks fail, want equivalent settlements to be carried out by June

-        Will be no role for the ECJ in any dispute mechanism; Should not require UK to follow EU standards

-        In line with the EU-Canadian agreement precedent, deal should recognise the right of each party to set their own labour priorities and adopt or modify tax laws

-        UK will not link access to its fishing waters to access EU markets

-        Should provide for streamlined customs arrangements covering all trade in EU goods

EU Consumer Confidence Final (Feb) -6.6 vs. Exp. -6.6 (Prev. -6.6, Rev. -8.1)

-        Economic Sentiment (Feb) 103.5 vs. Exp. 102.8 (Prev. 102.8, Rev. 102.6)

-        Industrial Sentiment (Feb) -6.1 vs. Exp. -7.3 (Prev. -7.3, Rev. -7.0)

-        Services Sentiment (Feb) 11.2 vs. Exp. 11.2 (Prev. 11.0)

-        Business Climate (Feb) -0.04 vs. Exp. -0.28 (Prev. -0.23, Rev. -0.19)

ECB's Schnabel says that price pressures remain subdued, and that medium-term horizon is longer than has previously been; the ECB is "very worried" about the COVID-19 and it is raising uncertainty to a large degree. Adds, that nobody knows where the reversal rate is and it is not clear if we have reached it; this rate is not one number, is constantly moving – tiering has created further space. (ECB)

BoE’s Cunliffe says the UK has weak domestic inflation, despite domestic cost pressures; question is how much of weak UK domestic inflation is cyclical against structural

-        Sees inflation coming from the UK labour market

-        Should not rush into radical conclusions regarding monetary policy framework, there is policy space

-        If we have a shock, policy space should be used rapidly in order to avoid any liquidity traps 

GEOPOLITICS 

Russian Kremlin denies that President Putin will be meeting with Turkish President Erdogan to discuss Syria on March 5th, despite claims from Erdogan. (Newswires)

EQUITIES

Once again, it’s been a tough start to the session for European equities (Eurostoxx 50 -2.3%, FTSE 100 -1.9% and now in correction territory) as market sentiment is dictated by incremental newsflow surrounding COVID-19. Focus continues to reside on developments external to China with the further selling pressure being brought about by multiple updates including the potential first “community spread” case in the US, the mounting case count in South Korea and government’s across the globe lifting their threat levels over the virus. Despite comments from the WHO that the coronavirus case count might have been inflated in Italy by testing errors, markets have not been able to stage anything close to a meaningful recovery. From a sector standpoint, as has been the case throughout the week, selling has been relatively broad-based with only utility names holding up marginally better than their peers following earnings from Engie (+4%). Travel names continue to remain the ugly duckling in Europe with recent- cost-cutting measures across the sector unable to stop the rot; Tui -6.3%, easyJet -7.5%, Lufthansa -7.5%, RyanAir -7%, IAG -8%. Elsewhere, it’s been a busy morning of corporate updates with WPP (-14%) at the foot of the Stoxx 600  after a disappointing Q4 sales outturn, Belgian Heavyweight AB Inbev (-9.5%) are lower after warning on Q1 profits in the wake of COVID-19, whilst UK homebuilder Persimmon (-4.5%) lag peers after posting an annual decline in profits. To the upside, Carrefour (+3.5%) are firmer after announcing increased cost savings targets alongside earnings, Reckitt Benckiser (+2.5%) have reversed losses seen at the opening after taking a GBP 5bln impairment on Mead Johnson Nutrition and British American Tobacco (+1.5%) are showing mild gains after showing pretax profit and sales growth in its latest earnings update. Stateside, focus will be on Microsoft (-2.5% pre-market) after the Co. cut its Q3 personal computing segment revenue guidance due to coronavirus.

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

FX

USD - The Greenback has unwound all and more of its gains vs most G10 peers amidst ramped up Fed rate cut expectations on the ever-increasing spread of China’s COVID-19 epidemic to the point of pandemic proportions. The Buck’s retreat coincides with a marked rise in the number of suspected US cases and one confirmed in North Carolina from unknown origin that the CDC contends may constitute a community spread. In response, the DXY has reversed further below the 99.000 level to a 98.658 low and not far from Fib support at 98.550 that virtually coincides with another strong technical mark in the form of a late November 2019 high. Ahead, multiple US data releases and more Fed rhetoric, but for the time being it’s all about coronavirus and contagion.

EUR/NZD/CHF/AUD - The major beneficiaries of the aforementioned US Dollar demise, with the Euro embarking on a firmer recovery rally through 1.0900, 1.0926 resistance and a 1.0937 Fib before pulling up just ahead of 1.0950, a decent 1.0955 option expiry (1 bn) and another Fib at 1.0958. Meanwhile, the Kiwi and Aussie have both pared losses from sub-0.6300/0.6550 lows even though the RBNZ and NZ Finance Minister have warned of near term downside economic effects from the nCoV, with the former estimating a 0.3% point q/q hit to Q1 GDP, and Australia’s PM expressed concerns about a global pandemic that warrants action. In similar vein, the Franc has shrugged off latest dovish SNB commentary to a certain extent, as Usd/Chf slips closer to 0.9700 in contrast to Eur/Chf remaining above 1.0600 on the relative common currency strength noted above.

JPY - Volatile trade for the Yen around 110.00 vs the Greenback and within a 120.56-119.96 range against the Euro, as underlying safe-haven demand alongside dovish BoJ remarks propelled the Japanese unit to best levels before key chart support and psychological levels held. However, a raft of looming Japanese economic indicators should provide some fundamental direction, including CPI, jobs, IP and retail sales.

CAD/NOK/GBP/SEK - The Loonie is meandering either side of 1.3325 ahead of Canadian current account data and capped by another marked decline in crude, but showing a bit more resilience than the Norwegian Crown that has fallen below 10.2750 vs the Euro in wake of much weaker than forecast retail sales. Conversely, the Swedish Krona has been cushioned by encouraging sentiment indicators and wider trade surplus, with Eur/Sek retreating towards the bottom of 10.6125-5570 extremes. However, Sterling is back under pressure on a combination of bearish factors, as Cable reverses from around 1.2950 to 1.2870 or so and Eur/Gbp tests 0.8500 on heightened no deal Brexit prospects, more month end cross flows and elevated BoE easing expectations rather than actual MPC guidance via Cunliffe.

EM - Losses across the board on broad risk aversion, but with the Try also subject to further Syrian related angst as Russia refutes any meeting in early March and the Lira breaches a key mark (circa 6.1600 vs the Usd) that had been providing a buffer.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.0820 (1.1BLN), 1.0900 (632M), 1.0915-25 (1.2BLN), 1.0955 (1BLN)

FIXED INCOME

In many ways it’s been more of the same for the mainstream 10 year benchmarks, but after following external leads in early trade due to Liffe’s later kick-off Gilts gradually caught up and overtook their peers to get within a tick of Wednesday’s 135.05 apex at one stage. No definitive or easy to pinpoint catalyst, but UK STIRs also eclipsed 3 month counterparts along the way to infer a more dovish BoE spin and/or heightened hard Brexit positioning. Meanwhile, Bunds have not bettered their previous Eurex best like 10-year USTs in the run up to a raft of US data, 7 year supply and Fed speak.

COMMODITIES

WTI and Brent prices are, once again, subdued on virus demand concerns as cases continue to rise and spread globally; currently, front-month futures are lower by around USD 1.0/bbl and remain just below the USD 48/bbl and USD 52/bbl marks. WTI is currently on track to post a weekly loss in excess of 10%, a loss which would be the largest weekly decline since December 2018 on a percentage term. Crude specific newsflow, away from the virus has been light, with the only pertinent comments stemming from Russian Energy Minister Novak that he wishes to increase co-operation with both Saudi Arabia and OPEC+; further pushing back on the talk of a rift within the cartel. In terms of notably commentary Gazprom have remarked that, because of the lack of clarity over demand, OPEC+ should wait a while longer before making a decision around adding to or extending production; which comes ahead of next week’s OPEC+ gathering. Turning to metals where spot gold is little changed on the day and has seen a much less volatile session than has occurred over the last few weeks; interestingly, the precious metal is currently little moved from the unchanged mark on a weekly basis in-spite of a range just shy of USD 65/oz at present. Elsewhere, copper prices are modestly softer and continued to be afflicted alongside other base metals on demand-side fears.

Russian Energy Minister Novak says Russia wants to continue cooperation with Saudi within the OPEC+ and bilaterally. (Newswires)

Norwegian Sovereign Wealth Fund: Q4 ROI was 5.1%, 2019 was 19.9%; held 70.8% in equities (Prev. 69.1%), 26.5% in fixed income (Prev. 28.2%) and real estate 2.7% (Prev. 2.8%). (Newswires)