• Asian equity markets resumed their slump and US equity futures also suffered heavy losses in which the E-mini S&P hit limit down
• Saudi Arabia launched an oil price war to punish Russia following the breakdown of the oil deal in which the Kingdom announced it will offer deep discounts by lowering OSP to all destinations
• WTI crude futures suffering losses of more than 31% to below USD 29/bbl and Brent crude also fell off a cliff to a floor of around USD 32.00/bbl.
• DXY briefly slipped below 95.00 amid the decline in yields in which the 10yr fell to a fresh record low beneath 0.5% and the 30yr yield breached 1.0% for the first time ever
• South Korea military noted that North Korea fired 3 unidentified projectiles off the east coast which was presumed to be multiple types of short-range projectiles
• Italy has placed up to 16mln people under quarantine in which anyone living in Lombardy as well as 14 central and northern provinces would need special permission to travel
• Looking ahead, highlights include German Industrial Output, Trade, IEA Monthly Report, Eurozone Sentix

CORONAVIRUS UPDATE 

Mainland China reported 40 additional cases of coronavirus and 22 additional deaths on March 8th vs. Prev. 44 additional cases and 27 additional deaths on March 7th to bring the total number of cases in China to 80735 and death toll at 3119. (Newswires)

South Korea coronavirus cases rose by 248 to a total of 7382 and it had 1 additional death to raise the death toll to 51. (Newswires)

Italy’s COVID-19 confirmed cases rose to 7375 from Prev. 5883 and the total death toll in the country rose by 136 to a total 366, while the country has placed up to 16mln people under quarantine in which anyone living in Lombardy as well as 14 central and northern provinces, would need special permission to travel. (Newswires)

France’s coronavirus cases increased by 117 to a total of 1126 and the death toll rose by 3 to a total of 19, while it has banned all gatherings involving over 1000 people. (Newswires)

New York Mayor De Blasio said the city could have 100 coronavirus cases within 2 or 3 weeks and there could be hundreds of positive cases in the city at some point. (Newswires)

US President Trump aides are drafting economic measures to combat the virus including expanding paid sick leave although it has not been presented to President Trump yet. (Newswires)

US National Institute of Allergy & Infectious Disease Head Fauci said he is concerned over community spread, and has cautioned the increasing number of cases is making determining how the virus is contracted harder; adding further concern to large events. (FT)

German Chancellor Merkel’s government has loosened rules for short-term work compensation, making it easier for Co.’s impacted by coronavirus to apply for aid. Government is set to invest a further EUR 12.1bln per annum between 2021 and 2024. (Newswires)

US granted exclusions from import tariffs for more than 100 medical items imported from China, including face masks, examination gloves and sanitizing wipes and the White House is reportedly looking at tax deferral for airline, travel, and cruise industries impacted by coronavirus. In related news, the State Department issued a statement related to the increased risk of COVID-19 infection on a cruise ship environment in which it stated that older adults and travellers with underlying health issues should avoid situations that put them at increased risk for more severe disease. This entails avoiding crowded places, avoiding non-essential travel such as long plane trips, and especially avoiding embarking on cruise ships. (WSJ/Washington Post/Newswires)

ASIA-PAC

Asian equity markets resumed their slump and US equity futures also suffered heavy losses in which the E-mini S&P hit limit down and DJIA futures pointed to another decline of over-1000 points, as oil prices slipped by around 30% after Saudi Arabia kicked off an oil price war. The kingdom announced plans to raise its output to over 10mln bpd beginning next month and it cut the OSP for all destinations by USD 6-8/bbl following last week’s breakdown of the OPEC+ output deal in which Russia rejected the proposal for additional cuts. ASX 200 (-7.3%) posted its largest intraday loss in more than 11 years amid a collapse across the energy sector although gold miners bucked the trend due to the flight to safety, while Nikkei 225 (-5.4%) gapped below 20K and continued to tumble against the backdrop of the detrimental currency flows and following the miss on Q4 GDP which further pointed to the likelihood of a looming recession. Hang Seng (-3.9%) and Shanghai Comp. (-2.5%) conformed to the sell off as blue-chip energy names were pummelled and after continued PBoC liquidity inaction, while the latest trade data from China over the weekend showed a surprise Trade Deficit and a larger than expected contraction in Exports. Finally, 10yr JGBs were higher amid the bloodbath in stocks and as it tracked the advances in T-notes which surged nearly 2 points as US 10yr and 30yr yields delved into unprecedented levels, while the BoJ were also present in the market today for nearly JPY 1tln of JGBs. 

PBoC skipped open market operations for a daily net neutral position. (Newswires)

PBoC set USD/CNY mid-point at 6.9260 vs. Exp. 6.9228 (Prev. 6.9337)

Chinese Trade Balance YTD (USD)(Feb) -7.09B vs. Exp. 24.6B (Prev. 47.21B) (Newswires)

Chinese Exports YTD (USD)(Feb) Y/Y -17.2% vs. Exp. -14.0% (Prev. 7.9%)

Chinese Imports YTD (USD)(Feb) Y/Y -4.0% vs. Exp. -15.0% (Prev. 16.5%)

Japanese GDP (Q4 F) Q/Q -1.8% vs. Exp. -1.7% (Prev. -1.6%)

Japanese GDP (Q4 F) Y/Y -7.1% vs. Exp. -6.6% (Prev. -6.3%)

UK/EU

UK Chancellor Sunak has promised “targeted” measures to assist businesses and workers “get through to the other side” of an economic downturn and warned of a shock that could be caused by a coronavirus epidemic, while he stated this week’s Budget would include plans to give firms additional time to pay tax if staff were unable to work and shoppers stopped spending money in the normal way. (Telegraph) UK Chancellor Sunak is reportedly under pressure from industry groups to not fund coronavirus measures with tax hikes on businesses. (Guardian) This comes ahead of the UK budget unveiling this Wednesday

UK PM Johnson will be chairing an emergency Cobra meeting later today to decide whether to bring in measures to delay the spread of coronavirus in the UK. The meeting is expected to mull whether “social distancing” measures should be introduced. (BBC) This comes amid weekend developments which saw the confirmed number of cases in the UK rising to 278 on Sunday vs. 209 on Saturday, the largest increase so far. 

Fitch affirmed European Stability Mechanism at AAA, while it affirmed Luxembourg at AAA; Outlook Stable and affirmed Ukraine at B; Outlook Stable. (Newswires)

FX

FX markets were tumultuous in which the DXY briefly slipped below the 95.00 level with pressure seen amid the decline in yields in which the 10yr yield fell to a fresh record low beneath 0.5% and the 30yr yield breached under 1.0% for the first time ever. In addition, Fed Fund Rate futures priced in around 92% probability of another 75 bps cut by the Fed this month, while the greenback’s woes benefitted its transatlantic counterparts in which EUR/USD briefly approached 1.1500 where it was met with heavy resistance and GBP/USD momentarily eyed a reclaim of the 1.3100 handle. The spooked sentiment and sell-off in crude reverberated across currencies resulting to a bout of panic selling in USD/JPY which briefly fell below 102.00 to levels last seen in 2016, while commodity linked currencies AUD, CAD and NZD were also pressured resulting to a mini flash crash in which AUD/USD and NZD/USD gave up around 2 points in less than a minute to trade with losses of more than 4.5% before reversing the majority of the nose dive. EM currencies suffered the fallout from the rout especially MXN and RUB which were the underperformers with losses of more than 5% and 6% respectively, as they took a double whammy from the hot money outflows and their energy exposure. 

COMMODITIES

Oil prices declined heavily and were on track for their biggest decline on record after Saudi began an oil price war with the announcement of price cuts and to raise its output to over 10mln bpd, which was seen as a scorched earth retaliation to the collapsed OPEC+ agreement after Russia rejected additional output cuts. This pressured oil prices heavily with WTI crude futures suffering losses of more than 31% to below USD 29/bbl and Brent crude also fell off a cliff to a floor of around USD 32.00/bbl. Elsewhere, gold was initially underpinned by flight to safety but then wiped out all the gains after hitting resistance at the USD 1700/oz level, while copper fell at the open in tandem with risk appetite before consolidating just beneath USD 2.50/lb and with LME copper printing its lowest since May 2017.

Saudi Arabia launched an oil price war to punish Russia following the breakdown of the oil deal in which the kingdom announced it will offer deep discounts by lowering OSP to all destinations by USD 6-8/bbl, while it is to raise crude output to more than 10mln bpd next month. (Newswires/FT)

At least 4 Asian refineries reportedly aim to maximise purchases for April following Saudi Arabia's price cuts and Goldman Sachs Commodities Research lowered its Brent crude price forecasts to USD 30/bbl for Q2 and Q3. (Newswires)

Baker Hughes US Rig Count (6th March): Oil +4 at 682, nat gas -1 at 109 and total +3 at 793. (Newswires)

GEOPOLITICS 

South Korea military noted that North Korea fired 3 unidentified projectiles off the east coast which was presumed to be multiple types of short-range projectiles, while it added this was part of ongoing firing drills and that the projectiles flew 200KM and reached 50KM in altitude. (Newswires)

Saudi Crown Prince MBS has accused two of Saudi’s most Senior Royals of treason following accusations of organising a coup against the Crown Prince; with the two royals in question regarding as the few individuals in the way of MBS’ ascension (Guardian)

US 

The TPLEX bull-flattened intensely on Friday, bringing the 30-year yield to unseen territory – where it currently lies within the Fed’s target range, while the rest of the curve sits beneath it. No one “reason” supported the price movement, but desks note ongoing haven flows amid the virus from real money buyers, flows from convexity buyers, and chunky short-covering from leveraged accounts, in addition to an unwinding of market hedges. Furthermore, investors are likely piling into duration ahead of the weekend, where participants again dare expose themselves to risk in the face of COVID-19 and an expected rise in US cases. The sharp decline in energy prices served as the cherry on the cake as investors begin pricing in lower inflation expectations and question the stability of the global economy, increasing the allure of the sovereign bond market. By settlement, yields had fallen 9bps in the 2-year yield, 19.5bps in the 10-year yield and a jaw-dropping 33bps in the 30-year yield. US T-note futures (H0) settled 1 point & 9 ticks higher at 138-01+.

Fed's Williams (Voter, Neutral) said he thinks the world of very low neutral rates is likely to stay with us. (Newswires)

Fed's Rosengren (Non-Voter, Hawk) said the Fed should be allowed to purchase a broader range of securities and assets if the COVID-19 outbreak forces the Fed to launch a new round of asset purchases. (Newswires)

Fed's George (Non-Voter, Hawk) said the longer-run costs of balance sheet policies have not been fully taken into account and large scale asset purchases have contributed to elevated asset valuations, while she added the Fed's large balance sheet could tempt fiscal authorities to view the Fed as a funding source for its spending programmes. (Newswires)

US President Trump replaced Mick Mulvaney with Rep. Mark Meadows as White House Chief of Staff. (Newswires)