• Asia traded mostly higher as the region took impetus from the rally on Wall St amid hopes of a coordinated effort to address the fallout from the coronavirus
• G7 Finance Ministers and Central Bankers planned call to discuss the virus will take place at 1200GMT/0700EST
• A draft statement reportedly does not currently include specific language calling for fresh fiscal spending or coordinated rate cuts
• ECB said it stands ready to take appropriate and targeted measures as necessary and commensurate with the underlying risks
• RBA cut rates by 25bps to 0.50% as money markets had fully priced in, and will ease policy if needed to support sustainable growth
• DXY nursed recent losses and briefly reclaimed the 97.50 level although the rebound was relatively mild amid further expectations of a more aggressive response by the FOMC
• Looking ahead, highlights include Swiss GDP, UK Construction PMI, EZ CPI, ECB’s de Guindos, Schnabel, de Cos, BoE’s Carney, Fed’s Mester, Evans

CORONAVIRUS UPDATE 

China National Health Commission reported 125 additional cases and 31 new deaths for March 2nd vs. Prev. 202 additional cases and 42 deaths on March 1st which brings the total number of Chinese cases to 80151 and death toll to 2943. (Newswires)

South Korea reported 600 additional coronavirus cases and 3 additional deaths to bring total cases to 4812 and death toll to 34, while Italy’s total cases rose to above 2,000 from 1,694 and the death toll increased by 18 to a total of 52. (Newswires)

US VP President Pence said there are 43 cases of coronavirus in US and 6 deaths but added that despite the deaths, risk to Americans remains low and there could be a vaccine going into clinical trial in 6 weeks. Pence added that therapeutics could be ready for late summer or fall and that they plan 100% screening for Italy and South Korea in the next 12 hours. (Newswires) US Senate Majority Leader McConnell said he wants to pass the supplemental spending bill for COVID-19 within the next two weeks, while US Senator Shelby wants to pass virus funding this week and suggested they could possibly move it on Thursday. (Newswires)

UK PM Johnson is to unveil government plan to combat spread coronavirus and separately commented that a "significant expansion" of COVID19 in the UK is "clearly on the cards". Furthermore, reports also noted that the UK is working on measures to support health service, businesses and economy as needed in response to the coronavirus. (Newswires)

G7 Finance Ministers and Central Bankers planned call to discuss the virus will take place at 1200GMT/0700EST and will be led by US Treasury Secretary Mnuchin and Fed Chair Powell. In related news, G7 was said to be drafting the statement regarding coronavirus response to be issued on Tuesday or Wednesday in which finance leaders will pledge to work together to mitigate damage to economies from coronavirus. However, the statement does not currently include specific language calling for fresh fiscal spending or coordinated rate cuts and the G7 statement still under discussions with the language subject to change. (Newswires) 

ASIA-PAC

Asia traded mostly higher as the region took impetus from the rally on Wall St amid hopes of a coordinated effort to address the fallout from the coronavirus, with G7 Finance Ministers and Central Bankers planning a call to weigh the coronavirus response which will be led by US Treasury Secretary Mnuchin and Fed Chair Powell, while FFR futures were now pointing to a 75bps cut by the Fed this month. This inspired a surge across the major US indices led by the DJIA which rose over 5% which was the most in over a decade and posted its biggest point gain on record of nearly 1300 points. ASX 200 (+0.7%) and Nikkei 225 (-1.0%) were lifted at the open with Tech and Healthcare frontrunning the broad sector gains in Australia and as markets also awaited the widely anticipated rate cut by the RBA, while the Japanese benchmark was less decisive and retraced all its gains amid detrimental flows into the currency. Elsewhere, Hang Seng (+0.1%) and Shanghai Comp. (+0.6%) were positive in which the latter breached the psychological 3000 level with sentiment supported by the global stimulus hopes and a continued decline in the pace of coronavirus cases in mainland China. Finally, 10yr JGBs slumped to below 153.50 on spillover selling from USTs amid the rally in stocks, although JGBs later found reprieve despite mixed 10yr JGB auction results, as the sentiment in Japan deteriorated and following the BoJ announcement for another JPY 500bln unscheduled repo operation.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 6.9516 vs. Exp. 6.9523 (Prev. 6.9811)

Trump admin is ordering four Chinese state-owned news outlets to cut their Chinese staff in the US by about 40%, amid a broader response to Beijing’s restrictions on American journalists and the expulsion of three WSJ reporters last month. In related news, China Global Times tweeted that the Trump administration has apparently failed to consider the political consequences of its actions and that attempts to suppress China's rising influence and win the competition with China by clamping down on its media will not succeed. (Twitter)

Japanese PM Abe said the government has already compiled stimulus package aimed at forestalling risks under supplementary budget and next FY budget, while he added they will monitor virus impact and will not hesitate to act if further spending measures are required. (Newswires)

BoJ offered to buy JPY 500bln in unscheduled repo operations for a 2nd consecutive day. (Newswires) 

UK/EU

UK Treasury Committee is to question BoE Governor Carney alongside MPC members today and will also conduct an evidence session with Andrew Bailey regarding his appointment as next BoE Governor. (Newswires)

UK Chancellor Sunak will reportedly have to rethink key parts of the budget next week due to growing concerns of a downturn from the coronavirus, according to former ministers and advisers. (Guardian)

ECB is closely monitoring developments and their implications for the economy, medium-term inflation and the transmission of monetary policy. Furthermore, the ECB said it stands ready to take appropriate and targeted measures as necessary and commensurate with the underlying risks, while it added that the coronavirus outbreak is a fast developing situation, which creates risks for the economic outlook and the functioning of financial markets. (Newswires)

FX

DXY nursed recent losses and briefly reclaimed the 97.50 level although the rebound was relatively mild amid further expectations of a more aggressive response by the FOMC as reflected by Fed Fund Rate futures which priced in about 70% probability for a 75bps cut by the Fed this month, while participants also looked ahead to Super Tuesday with Buttigieg, Klobuchar and O’Rourke all in endorsement of former VP Biden. EUR/USD and GBP/USD were uneventful with the single currency holding on to recent gains at the 1.1100 handle which had been at the expense of the greenback, while GBP/USD languished below 1.2800 with the UK and EU now in official trade negotiations surrounded by plenty of pessimism, not helped by UK threats to walk away. Elsewhere, USD/JPY failed to stay afloat of 108.00 and antipodeans were initially subdued following weak data from Australia although later rebounded despite the RBA lowering rates by 25bps as expected. This triggered an initial dovish knee-jerk reaction which was instantly reversed given that the rate cut had been 100% priced in, while the statement from the central bank didn't suggest a great urgency to immediately cut again and with the central bank optimistic for the economy to return to an improving trend once the outbreak was contained.

RBA cut rates by 25bps to 0.50% as money markets had fully priced in, while it stated the board took the decision in response to coronavirus outbreak and will ease policy if needed to support sustainable growth. RBA added that the coronavirus has clouded the near-term outlook for the global economy and GDP in the March quarter is likely to be noticeably weaker than earlier anticipated, although it noted it is too early to tell how persistent the effects of coronavirus will be and that the Australian economy is expected to return to an improving trend once coronavirus is contained. (Newswires)

Australian PM Morrison said 21 out of 34 coronavirus patients have recovered and that targeted fiscal measures will be needed after the outbreak, while he suggested they are highly aligned with the RBA on challenges due to coronavirus and expects the Big 4 banks to fully pass on a reduction in the RBA’s Cash Rate Target. (Newswires)

Australian Building Approvals (Jan) -15.3% vs. Exp. 1.0% (Prev. -0.2%, Rev. 3.9%). (Newswires) Australian Building Approvals (Jan) Y/Y -11.3% vs. Exp. 2.4% (Prev. 2.7%) Australian Current Account Balance (AUD)(Q4) 1.0bln vs. Exp. 2.3bln (Prev. 7.9bln, Rev. 6.5bln) Australian Net Exports Contribution (Q4) 0.1% vs. Exp. 0.2% (Prev. 0.2%)

COMMODITIES

Commodities were mostly higher with upside fuelled by the heightened risk appetite which saw WTI crude futures gain over 6% on Monday amid the record surge in the DJIA and expectations for a production cut at this OPEC+ meeting later this week to address the fallout to the oil market from the coronavirus outbreak, with Saudi Arabia reportedly plans to propose a 600k BPD cut in the belief Russia would eventually agree to a smaller cut. Elsewhere, gold prices continued to nurse recent losses but with upside capped by resistance at the USD 1600/oz, as well as the heightened risk appetite which was also the driver behind the marginal gains copper.

CME raised COMEX 100 gold futures maintenance margins by 9.1% to USD 6000/contract from USD 5500/contract and raised COMEX 5000 silver futures maintenance margins by 9.1% to USD 6000/contract from USD 5500/contract from April, while it lowered CME lowers nat gas Henry Hub futures maintenance margins by 13.3% to USD 1300/contract from USD 1500/contract. (Newswires)

Russia's Lukoil VP expects OPEC+ to cut output by more than 1mln BPD and stated that the coronavirus outbreak has hit oil demand although it is short term, while they expect Brent to rise above USD 60/bbl in mid-March. (Newswires)

GEOPOLITICS 

UN Nuclear watchdog plans to issue report criticizing Iran for not providing access to sites of interest, according to diplomats. (Newswires)

North Korea is believed to have tested a super-large multiple rocket launcher in this week's projectile launches after reducing firing intervals for operational deployment, according to experts and military sources. (Newswires) 

US 

The curve bull-steepened, with yields on 10s and 30s finding fresh record lows (1.03% and 1.58% respectively). Desks had also observed the interesting dynamic that Treasuries still caught a hefty bid despite risk-bouncing back after monetary and fiscal policymakers tried to assure markets with talk of support. A big part of that might be a result of dovish central bank pricing, with the implied probability of rate cuts getting boosted among major central banks. In fact, pricing was a source of interest, given that the market is nearly priced for nearly three rate cuts by the Fed's meeting on 18th March, while pricing through the end of the year now has four rate cuts pencilled in. Whether the Fed can deliver on those expectations remains to be seen, although a key focus will be Tuesday's term repo operations (which have seen oversubscriptions in recent offerings) given that the cost of borrowing overnight rose to 1.80% on Monday (above the top-end of the federal funds rate target range between 1.50-1.75%) from 1.65% on Friday. Some speculate that the Fed could tweak its offerings as an immediate way of stemming the tightening in financial conditions. US T-note futures (H0) settled 13+ ticks higher at 135-08+.

US President Trump said he hopes the Fed is looking at stimulus, while there were also reports that NEC Director Kudlow and Treasury Secretary Mnuchin favour an emergency rate cut from the Fed. (Newswires)

US Senator Klobuchar terminated her presidential campaign and provided support for Former VP Biden, while former Democrat Presidential runners Beto O'Rourke and Pete Buttigieg also endorsed Biden. (Newswires)