• Sentiment is bolstered in EU hours on expectations for stimulus measures due to the coronavirus
• However, G7 statement reportedly does not currently include specific language calling for fresh fiscal spending or coordinated rate cuts
• Commentary from the BoE & ECB on a virus response, ECB stands ready to take appropriate and targeted measures as necessary and commensurate with the underlying risks
• AUD is outperforming G10 peers after the 25bp RBA cut as guidance intimates rates may remain at this point in the near-term
• Looking ahead, highlights include ECB’s Schnabel, de Cos, 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 974 additional coronavirus cases and 3 additional deaths to bring total cases to 5186 and death toll to 34. (Newswires) An additional case has been reported in Tokyo. (Neutral)

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 action plan on coronavirus says it is possible that up to one fifth of employees could be absent from work during peak weeks; will consider closing schools and encouraging home working, in addition to cutting large scale gatherings. (Newswires) Prior to this, reports noted that the UK is working on measures to support health service, businesses and economy as needed in response to the coronavirus. (Newswires)

CENTRAL BANK/G7 STIMULUS COMMUNICATION

EU Finance Ministers are unlikely to take any decisions during tomorrow's call on the coronavirus response, according to officials. (Newswires) Note, this appears to refer to an additional call taking place tomorrow, and not today’s Finance Minister call which is schedule for 12:00GMT/07:00EST

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)

French Finance Minister Le Maire has a 'very positive' call with ECB President Lagarde regarding coronavirus reaction, want a 'strong and coordinated' response at the EZ and G7 levels. (Newswires)

German CSU affiliate says Germany's surplus could be used to offset the coronavirus. (Newswires)

US President Trump tweets RBA cut rates to a record low 0.5% and stated it will most likely further ease in order to make up for China’s Coronavirus situation; calls on the Fed to ease and cut rates big. (Newswires)

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)

ECB are carrying out work on a potential longer-term loan scheme for medium and small firms impacted by the coronavirus, according to sources; no decision is imminent, any decision would still need to be raised with the Governing Council and face considerable scrutiny and some on the GC still regard the issue as short-term and outside the scope of monetary policy; requires fiscal support. (Newswires)

ECB's Holzmann says the bank must act accordingly, but not overreact. When asked if TLTRO was an option to provide support to businesses impacted by coronavirus, says it is definitely an area for consideration but there is no urgency at the moment; would not currently support an interest rate reduction to help curb the impact from COVID-19. (Newswires)

Outgoing BoE Governor Carney at the Treasury Select Committee: role in coronavirus is to help the economy through a shock that will be large but temporary; will ensure that all necessary contingency plans are in place and steps are taken to support the UK economy. Monetary policy may be required to reinforce the expected recovery if signs of recovery are not sustained as early signs are encouraging but growth and inflation recovery is not assured. Should expect a response which has a mixture of fiscal and central bank elements - in the process of changing our assessment of the economic outlook; expect to see one or two quarters of economic impact from the virus. When asked about changing rates before the March meeting, says the MPC has always acted in a timely way - doesn't want to bind the committee in regard to timing. (Newswires)

-        BoE's Ramsden says that a potential 250bp of BoE policy loosening via rate cuts and QE would have the potential to make a significant contribution

-        BoE's Tenreyro says that in her view, persistent softness in prices pressures relative to labour costs is a downside risk to the MPC's inflation projection; stronger rebound may be needed, towards the top end of the range suggested by surveys in order to remove the need for near-term stimulus.

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 (-1.2%) 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 (U/C) and Shanghai Comp. (+0.7%) 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 spill-over 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)

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) China's Foreign Ministry says that the US' actions against Chinese media have resulted in a serious negative impact on bilateral relations, reserve the right to take further action. (Newswires)

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)

US

Former Democrat Presidential runners Beto O'Rourke and Pete endorsed Biden. (Newswires)

UK/EU

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)

UK Construction PMI (Feb) 52.6 vs. Exp. 48.8 (Prev. 48.4). (Newswires)

EU HICP Flash YY (Feb) 1.2% vs. Exp. 1.2% (Prev. 1.4%); F&E Flash YY (Feb) 1.4% vs. Exp. 1.3% (Prev. 1.3%)

-        HICP-X F, E, A & T Flash YY (Feb) 1.2% vs. Exp. 1.2% (Prev. 1.1%)

-        Unemployment Rate (Jan) 7.4% vs. Exp. 7.4% (Prev. 7.4%)

EQUITIES

European equities (Eurostoxx 50 +2.1%) trade with firms gains as market participants continue to place bets on a coordinated policy response with G7 Finance Ministers and monetary policy officials scheduled to hold a call at 1200GMT/0700EST today. Ahead of this call, a draft version of the statement appears to make no specific calls for fresh fiscal spending or coordinated rate cuts, however, world leaders will pledge to work together to mitigate the economic fallout from COVID-19. Furthermore, reports ahead of the call at midday were based on a draft version of the text, which could ultimately be revised to provide more of a robust response, should it be deemed to be necessary. In terms of sector specific performance in Europe, gains have been relatively broad-based with all ten key sectors trading markedly higher. Travel names including Deutsche Lufthansa (+9.5%), Air France (+6.5%), and Tui (+5.5%) have been granted some reprieve from recent losses, albeit, it’s difficult to gauge exactly how much the sector would benefit from a response by monetary authorities given that travel restrictions would likely remain in place regardless. Elsewhere, Qiagen (+18.7%) sit at the top of the Stoxx 600 after Thermo Fisher announced a USD 10bln deal to buy the Co, Direct Line (+4.3%) trade higher post-earnings, whilst support has been seen for the Spanish banking sector after a court ruling over mortgage terms could prevent lenders from having to make large compensation payments to customers. To the downside, Hiscox (-4.7%) lag peers over concerns about coronavirus-related claims, a disappointing earnings update for Ashtead (-0.5%) has weighed on Co. shares, whilst Novartis (flat) are marginally softer after the Co.’s subsidiary are to pay USD 195 over antitrust violations.

Gilead's (GILD) antiviral drug remdesivir is expected to be used to treat patients infected with the novel coronavirus in South Korea as part of a trial, Yonhap citing drug industry sources. (Yonhap)

FX

USD - The Dollar is on a firmer footing after extending declines on Monday and the DXY briefly breaching Fib support (97.193) just ahead of 97.000, but crucially from a tech perspective managing to ‘close’ back above. Meanwhile, the Greenback has also gleaned some traction from a rebound in US Treasury yields amidst a strong recovery in equities and risk assets in general on the premise that more global monetary authorities are providing ammunition to combat COVID-19, with additional supportive policies in the pipeline. On that note, G7 Finance Ministers and Central Bankers are holding a conference call around 12GMT to discuss whether the situation warrants coordinated action, which has helped the index return to the 97.500 axis.

GBP/AUD - Somewhat perversely perhaps, the Pound and Aussie are among the major outperformers even though BoE Governor Carney and MPC members Tenreyro are hinting at some form of policy stimulus at the post-Budget meeting pending what new UK Chancellor Sunak has in store on March 11. Cable is back above 1.2800, albeit with the aid of an encouraging construction PMI as the headline reclaimed 50+ status, while Eur/Gbp has retreated through 0.8700 after running into resistance fractions shy of the 200 DMA and with contacts noted decent model/program offers on the way back down. Back down under, Aud/Usd has been volatile following the RBA’s 25 bp ease overnight and forward guidance suggesting the official cash rate may be held at the new 0.5% record low until the extent of the nCoV (and bushfire) damage is known rather than reduced again to the lower bound that in theory would only leave QE in reserve for any further economic downturn.

JPY/SEK/NOK - The other strong G10 units as the Yen holds above 108.00 vs the Buck following a second test of support circa 108.50 that is now forming a double chart formation, while the Scandi Crowns are rebounding firmly from yesterday’s lows against the Euro on the back of renewed risk appetite that has filtered through to oil and other commodities. Eur/Sek has reversed sharply within 10.6475-5535 parameters and likewise Eur/Nok between 10.3870-3165.

NZD/CHF/EUR/CAD - The Kiwi continues to lag its Antipodean counterpart, with Nzd/Usd straddling 0.6250 ahead of the latest GDT auction and awaiting the RBNZ’s response to the coronavirus, while the Franc has handed back some gains vs the Dollar on the 0.9500 handle in contrast to Eur/Chf pivoting 1.0650 in wake of firmer than forecast Swiss GDP. Moreover, the Euro has lost momentum more broadly as Eur/Usd fades around 1.1155 and some distance from Monday’s best levels nearer 1.1185 irrespective of more reports about targeted ECB liquidity and push-backs against near term of knee-jerk rate cuts and QE, via Holzmann this time. Similarly, the Loonie has waned on the approach to 1.3300 and Wednesday’s BoC policy convene that could see a less confident assessment and statement if not action to counter the effects of China’s epidemic.

EM - It’s back to broad depreciation against the Usd, but with the Zar also hit extremely hard by the SA plunging into a deep recession via a 1.2% q/q Q4 GDP contraction, while the Try continues to lament heightened military conflict in Syria’s Idlb.

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%)

FIXED

Bunds continue to lead the broad reversal in mainstream bonds with the added weight of a healthy bounce in Italian BTPs that is permeating through the Eurozone periphery. The 10-year German debt future has now tested sub-177.00 support at 176.83, albeit in a relatively orderly manner and lock-step with EU stocks and risk sentiment overall. Gilts found support a fraction above 135.00 and US Treasuries are holding at the upper end of overnight session extremes awaiting the G7 at high noon with diminishing expectations and potentially more policy insight from Fed speakers due later.

COMMODITIES

WTI and Brent front month futures are bolstered this morning in-line with the generally firmer risk-sentiment, as markets anticipate some form of stimulus package from central banks and with the G7 meeting today at mid-day London time to discuss the situation. In terms of where we currently stand, WTI and Brent are posting gains of around USD 1.50/bbl at present and remain in proximity to their session highs in the mid USD 48/bbl and USD 53/bbl realm. Crude specific, has seen remarks from the Kremlin that we should wait for the OPEC+ meeting for details on whether Russian is ready for additional output cuts. Additionally, Lukoil’s VP expects OPEC to cut production in excess of 1mln BPD; believes that a cut of 600k-1mln would be sufficient to bring prices above the USD 60/bbl mark. Recall the JTC recommended a cut of 600k and Russian Energy Minister Novak has remarked that they have received no communication from Saudi on a 1mln BPD move; are reviewing the 600k recommendation ahead of this week’s Thursday/Friday meeting. Turning to metals, spot gold has remained within a comparatively tight range of around USD 15/oz for much of the session, the yellow metals upside has, thus far, been effectively capped by the USD 1600/oz handle. Focus for the safe haven does remain affixed to the coronavirus, and the potential for a policy response to tackle this, as well as other geopolitical concerns such as the ongoing Syrian conflict; in which the Turkish Military confirm that a Syrian Government warplane was shot down as well as reports of ballistic missiles being fired in the region.

Lukoil VP says that coronavirus impact on global markets will be short-lived and the OPEC+ meeting will help balance oil markets. OPEC+ cut of 600k-1mln bpd would be enough to push prices back to USD 60/bbl but they will lower production as much as they are requested to do so. (Newswires)

Russia's Kremlin, when asked if Russia is ready for additional output cuts, says we should wait for the OPEC+ meeting later in the week. (Newswires)

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)

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)

A Syrian Government warplane has been targeted by Turkish forces in Idlib, according to SANA; Turkey later confirmed that a plane had been shot down. (Newswires)

Russia's Kremlin says possible meeting on Syria between President Putin, Iranian President Rouhani and Turkish President Erdogan is being discussed. (Newswires)