• Initial gains for European equities proved to be fleeting. US futures indicate a lower open
• DXY softer, largely at the expense of JPY as USD/JPY breaches 107.00 to the downside
• OPEC reportedly agrees on a 1.5mln bpd output cut, subject to Russian approval; who would reportedly agree to a 1mln cut
• Bernie Sanders and Elizabeth Warren are reportedly in discussions on cooperating if the latter exits the presidential race
• Looking ahead, highlights include US Initial Jobless Claims & Factory Orders, OPEC Meeting, Fed’s Williams & Kaplan, BoE’s Carney & Haldane, BoC’s Poloz.

CORONAVIRUS UPDATE 

Mainland China reported 461 additional cases of coronavirus and 31 additional deaths on March 4th vs. Prev. 119 additional cases and 38 deaths on March 3rd, with the total number of cases in mainland China now at 80,409 and death toll at 3,012. (Newswires) Reports noted that a 36-year old man thought to have recovered from coronavirus, died from respiratory failure in Wuhan 5 days after being discharged from hospital. (SCMP)

China's Vice Finance Minister says China has allocated 110.48bln Yuan in funding relating to the coronavirus. (Newswires)

South Korea confirmed 438 additional coronavirus cases and 3 more deaths to take total cases to 6088 and death toll to 35, while Italy’s confirmed coronavirus cases rose to 3089 (Prev. 2502) and deaths rose to 107 (Prev. 79). (Newswires)

BoJ is reportedly considering a new lending programme to counter the coronavirus' impact, according to sources. (Newswires)

US Vice President Pence said there are over 100 coronavirus cases in US and noted one additional death yesterday. In related news, the total confirmed cases in New York rose to 11 (Prev. 6) and cases in greater Seattle rose to 39 (Prev. 27), while California reported its first death from coronavirus and declared a state of emergency due to the coronavirus in which there are 53 confirmed cases in the state. (Newswires)

England's Chief Medical Officer Whitty says there is community transmission of the virus in Britain; now mainly in the stage of trying to delay the virus' spread rather than contain it. (Newswires)

Italy's Deputy Economy Minister Castelli says it is likely that they increase their spending on the coronavirus to EUR 5bln, and a temporary suspension of the EU stability pact is among the options being considered, according to a paper. (Newswires)

Another Carnival Corp. Grand Princess cruise ship was impacted by the coronavirus outbreak and has been ordered to return to port after a former passenger died following a recent cruise. (WSJ)

US House voted 415-2 to pass USD 8.3bln coronavirus bill as expected which goes to the Senate and US President Trump has stated he will sign the bill. This followed reports that congressional negotiators agreed to a USD 8.3bln coronavirus emergency bill with USD 3bln designated for R&D of vaccines, therapies and diagnostics. (Newswires)

US Department of Health and Human Resources said it intends to buy 500mln N95 respirators to support healthcare staff in coronavirus outbreaks. (Newswires) Note: Largest suppliers of N95 respirators to the CDC are Honeywell (HON), 3M (MMM) and Kimberley-Clark (KMB).

ASIA-PAC

Asia-Pac indices rose across the board following the constructive pick up from Wall St where all major indices surged and the DJIA posted gains of almost 1200 points after Joe Biden’s Super Tuesday victory and with sentiment also underpinned by US data, as well as further response measures including the BoC’s 50bps rate cut and IMF’s USD 50bln aid package. ASX 200 (+1.1%) was underpinned by hopes of looming stimulus which Australian Finance Minister Cormann reiterated will be announced very soon and as healthcare tracked the outperformance of the sector stateside which was boosted after Biden overtook ’Medicare for All’ advocate Sanders as favourite in the Democrat nomination race, while TPG Telecom was the biggest gaining stock post-earnings and after the ACCC declared it will not appeal the decision to allow the Co.’s merger with Vodafone. Nikkei 225 (+1.1%) also benefitted from notable strength in pharmaceuticals including Takeda which is developing a coronavirus drug and completed the sale of certain OTC and non-core assets, although further upside in the broader market was capped by an indecisive currency. Elsewhere, Hang Seng (+2.1%) and Shanghai Comp. (+2.0%) conformed to the optimism and eventually outperformed despite early hesitation after the PBoC continued to hold off on liquidity operations and amid a slight increase in the mainland coronavirus cases, while reports also noted local companies and officials were falsely boosting metrics to achieve back-to-work targets. Finally, 10yr JGBs were choppy and initially slumped following the post-settlement declines in T-notes through 136.00 amid a return of corporate issuers to the market, although JGBs later recouped some of the losses following the break helped by the 30yr JGB auction which attracted higher prices before slipping back again to beneath 154.00.

PBoC skipped open market operations for a daily net neutral position. (Newswires) PBoC set USD/CNY mid-point at 6.9403 vs. Exp. 6.9378 (Prev. 6.9514)

US Senator Grassley suggested the US should give China leeway in implementing the trade deal due to coronavirus, while he added the outbreak would likely delay the start of negotiations on a Phase 2 trade agreement. (Newswires)

China Global Times tweeted that as US economy faces rising pressure from coronavirus, the US could be more compelled to suspend tariffs on China and a turning point in the trade war might be reached due to the epidemic citing Chinese trade experts. (Newswires)

Local companies and officials are reportedly fraudulently boosting electricity consumption and other metrics amid stringent new back-to-work target, according to an investigation by Chinese press. (Caixin)

US

Fed's Bullard (Non-Voter, Dove) said the situation around coronavirus remains volatile and Fed is monitoring it daily, while he added he will not prejudge March meeting and that a barrier to cutting again this month is that action has just been taken and would need further data to justify another cut. Furthermore, Bullard said he does not want the market to overfocus on the March meeting so there will not be much new information on hand and noted the Fed has plenty of flexibility and shown it can act between meetings in volatile situations. (Newswires)

Fed adopted final rule establishing stress capital buffer for large US banks which Fed staff estimate would increase capital requirements for the largest banks and lower requirements for smaller, less complex banks. (Newswires)

Bernie Sanders and Elizabeth Warren are reportedly in discussions of cooperating if the latter exits the presidential race. (Washington Post)

UK/EU

The Times’s Matt Chorley tweeted that UK Parliament could break for Easter and not come back until September citing a senior parliamentary source, while other reports also noted that Downing Street confirmed PM Johnson is in talks with the parliamentary authorities about a possible shutdown if the outbreak continues to get worse. (Twitter/Times/Sky News)

EQUITIES

Initial gains for European equities (Eurostoxx 50 -1.5%) turned out to be fleeting as sentiment remains vulnerable to the ongoing spread of coronavirus and questions surrounding the efficacy of monetary and fiscal responses. Unexpected rate reductions by the FOMC and BoC this were welcomed by the market, however, central bank action thus far has done little to assuage concerns over the supply-side impact from the spread of COIVD-19 with the UK’s Chief Medical Officer today warning that there is now community transmission in Britain and officials are now at the stage of trying to delay the virus’ spread rather than contain it. From a sector standpoint, performance is relatively mixed with energy, materials and consumer discretionary names the laggards, whilst consumer staples and health care names are faring slightly better than their peers. In terms of individual movers, Merck (+1.8%) sit at the top of the Stoxx 600 after earnings which saw the Co. forecast strong profit growth, Aviva (U/C) have also been supported, albeit fleetingly, post-earnings with the Co. posting record profits. To the downside, Capita (-23.9%) are trading with heavy losses as concerns continue to mount over the Co.’s debt levels, Continental (-10.9%) have also suffered post-earnings after posting a EUR 1.2bln loss and noting falling demand for cars, ITV (-10.7%) shares have been dealt a blow after positing soft earnings and revenues for FY19.

2020 passenger business losses could amount to USD 63-113bln depending on the spread of COIVD-19, according to IATA. (Newswires)

FX

JPY - It’s been a steady grind and measured move, but Usd/Jpy and Yen crosses are trending lower again amidst more worrying headlines concerning the coronavirus that have halted a recovery in risk appetite prompted by latest attempts to contain the epidemic and economic fallout. On that note, the BoJ is said to be looking at a new credit facility following the IMF, PBoC and others, while conventional policy stimulus via YCC tweaks and a standard rate cut are bound to be under consideration as well. Usd/Jpy has retreated through 107.00 and now testing Wednesday’s 106.85 overnight low and an October 2019 base close by, while Eur/Jpy is below 119.50 even though the single currency is also trying to extend gains vs the Dollar.

NZD/GBP/CHF/EUR - All firmer against the Greenback, with the Kiwi making a more decisive break of 0.6300, though probably assisted by a degree of Aud/Nzd retracement after mixed Aussie trade data. Meanwhile, Cable has crossed more resistance levels on the way to and through the 1.2900 handle, like the 10 and 21 DMAs, as Eur/Gbp continues to pull back from another 200 DMA peak. However, 1.2950 and 0.8600 may be tough to breach without additional bullish momentum ahead of more BoE commentary and a speech from EU’s Barnier on the first round of trade talks with the UK at noon. Elsewhere, the Franc is firmer around the 0.9550 axis, but Eur/Chf more restrained either side of 1.0650 as the Euro stages another advance on 1.1200 amidst broad Buck weakness in G10 circles and the DXY losing impetus following yesterday’s upbeat US data/survey releases – index fading ahead of 97.500 and now only just holding above 97.000. Note, however, decent option expiry interest may hamper Eur/Usd between 1.1175-80 (1 bn).

AUD/CAD - As noted above, Aud/Usd is lagging somewhat within a 0.6637-07 range in wake of trade data showing weaker than forecast exports and imports under the wider than expected surplus, while Usd/Cad remains above 1.3400 following the BoC’s 50 bp ease and ahead of Governor Poloz presenting the EPR later today.

EM - The aforementioned deterioration in sentiment has derailed recoveries in regional currencies to the extent that the Rand has not been able to reap much reward from a modest improvement in SA business morale or a significantly narrower than anticipated current account deficit.

Notable FX Expiries, NY Cut:

-        EUR/USD: 1.1000 (800M) 1.1045-50 (600M), 1.1100 (370M), 1.1150 (500M), 1.1175-80 (1BLN), 1.1190-1.1200 (780M)

-        EUR/GBP: 0.8600 (500M)

-        USD/JPY: 107.65-75 (950M), 107.90-108.00 (1.7BLN)

Australian Trade Balance (AUD)(Jan) 5.21bln vs. Exp. 4.80bln (Prev. 5.22bln, Rev. 5.38bln). (Newswires) Australian Exports (Jan) M/M -3% (Prev. 1.0%) Australian Imports (Jan) M/M -3% (Prev. 2.0%)

FIXED

Well that didn’t last long in terms of a risk revival, as coronavirus jitters resurface on the back of latest updates indicating an escalation in the non-Chinese case count and death toll to derail the rebound in equities. Bunds, Gilts and US Treasuries all hit fresh session highs, at 175.22, 136.22 and 136.09+ respectively vs 174.65, 135.81 and 135-12+ at the other extremes, but have eased off best levels as reports circulate from Vienna that OPEC+ have reached an accord to reduce output by 1.5 mn bpd, subject to Russia relenting of course. Ahead, several US data points before a late speech from Fed’s Kaplan, but all rather irrelevant or at least upstaged by Tuesday’s surprise FOMC policy action, which could also render that March meeting somewhat redundant in terms of a move at least.

GEOPOLITICS 

Syrian air defences intercepted hostile targets over Homs, while reports noted that Israeli jets targeted the Hezbollah HQ in Homs and that Iranian-backed militias' weapons depots were destroyed in Quneitra. (Twitter)

US Envoy Jeffrey says that the purchase of the S-400 missile system by Turkey is a very serious concern as the US are considering support regarding Syria's Idlib. (Newswires)

COMMODITIES

The crude complex was modestly in negative territory for much of the session however recent source reports out of OPEC have bolstered WTI and Brent front month futures substantially, although this has since begun to pair back. The report noted that OPEC have agreed to a 1.5mln BPD cut, which would be above the 1.0-1.2mln sought by Saudi but in-line with some reports yesterday. However, and likely the reason for the pairing in price action, this OPEC agreement is subject to approval from Russia who so-far has not offered much indication of their view. Now perhaps more so than any other point in the week participants remains focused on Russia’s stance, but the likelihood of seeing an update to this today has perhaps been diminished by reports that Energy Minister Novak has returned to Russia; albeit, he will be returning for the OPEC+ meeting tomorrow. Elsewhere, spot gold has been grinding higher throughout the session after trading relatively range-bound overnight. The yellow metal is currently posting gains in proximity to USD 10/oz, but is still a way off recent multi-year highs at USD 1689.29/oz. Gold aside, base metals aren’t too changed on the day with copper seemingly remaining capped by the USD 2.60lb mark but ING believes that metals in general are beginning to show signs of support following this week’s policy action.

OPEC ministers have agreed to a oil cut of 1.5mln BPD, according to sources – subsequently, Russia are reportedly ok with a 1mln BPD production cut according to Energy Intel’s Bakr citing sources. (Newswires/Twitter)

OPEC are seen making approval of a significant oil output cut at today's meeting, however, a decision from Russia is still required, according to sources. (Newswires)

-        Iranian oil minister says the size of any production cut has not yet been agreed to, must still be discussed; will try to find a way to help the market stabilise, Shana.

Russian Energy Minister Novak says he will return to Vienna tomorrow to hold discussions with OPEC+. (Newswires)

Mexico private sector has drafted plan of investment in the energy sector valued around USD 92bln. (Newswires)