Flight to safe havens continues as virus spreads

Notes/Observations

- Market volatility continues to persist as coronavirus spreads globally

Asia:

- Hong Kong Financial Sec Chan budget address announced HK$120B in counter cyclical measures and stated HK had adequate policy tools to maintain macroeconomic stability

Coronavirus:

- China National Health Commission Coronavirus Update for Feb 25th: 406 additional cases v 508 prior; Additional deaths 52 v 71 prior; Hubei: 401 additional cases v 499 prior; additional deaths 52 v 68 prior

- Korea Centers for Disease Control & Prevention (KCDC): Total cases at 1,146

- Iran's health ministry: 95 cases with 15 deaths reported

- Italy total cases at 322 with 10 deaths reported

Europe:

- Spain Parliament said to approve new 2020 budget deficit to GDP target of 1.8% vs. 2.0% for 2019

Brexit:

- UK Chancellor of the Exchequer (Fin Min) Sunak said to use the upcoming March budget statement to announce a cut to corporate tax rate to 17%; and would delay any revenue raising decisions until later in the year

Americas:

- US Official reiterated China was fully expected to meet trade deal terms with US despite coronavirus

- Fed's Kaplan (dove, voter in 2020): not prepared to say coronavirus called for a rate change; hopefully next month would bring greater clarity on virus impact

Mid-East/Energy:

- Weekly API Crude Oil Inventories: +1.3M v +4.2M prior

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -1.28% at 399.42, FTSE -0.72% at 6,967.62, DAX -1.58% at 12,588.29, CAC-40 -0.99% at 5,623.50, IBEX-35 -1.10% at 9,149.50, FTSE MIB -0.07% at 23,073.14, SMI -0.97% at 10,376.50, S&P 500 Futures -0.32%]

Market Focal Points/Key Themes: European indices in the red following Asia indices mostly lower and lower US futures. On a busy corporate earnings front, Danone up despite cutting FY20 revenue and operating outlook citing coronavirus. Other risers on earnings include Peugeot, Thales, Saipem, Edenred, ASM and Wolters Kluwer. Wolters Kluwer and ASM announced share buyback programs. Diageo down following warning that coronavirus will negatively impact FY20 sales and profit. Lufthansa also down after announcing that the company is implementing cost cutting measures to offset negative impact from coronavirus spread. Likewise, companies that reported earnings and warned over potential negative impact on financial performance from coronavirus include Hermes, ISS, Suez, Solvay, Biomerieux and SAS. London Stock Exchange trading lower after press speculation that the merger with Refinitiv could face longer EU anti trade probe delays. Notable earners today include Chesapeake Energy, Lowes, Office Depot, JM Smucker, TJX and Weibo.

 

Equities

- Consumer discretionary: ASM International [ASM.NL] +5% (earnings), Danone [BN.FR] -3% (earnings), William Hill [WMH.UK] -6% (earnings), Restaurant Group [RTN.UK] -5% (earnings), Hermes [RMS.FR] -1% (earnings)

- Industrials: Thales [HO.FR] +1% (earnings), PSA [UG.FR] +1.5% (earnings), Diageo [DGE.UK] -2.5% (coronavirus impact), Iberdrola [IBE.ES] -1% (earnings)

- Technology: Avast [AVST.UK] -1% (earnings)

 

Speakers

- ECB's Holzmann (Austria): Discussions on inflation target for Strategic Review have been intense. He expected ECB to maintain its inflation target around 2% level

- France Fin Min Le Maire: Maintaining 2020 GDP growth forecast despite outbreak of coronavirus in Italy (**Note: official 2020 GDP forecast at 1.3%)

- Sweden Central Bank (Riksbank) Gov Ingves reiterated observation that both inflation and SEK currency (Krona) had been weaker than expected. Lower inflation due to technical factors. Reiterated view that expected SEK currency (Krona) to gradually appreciate

- Canadian ratings agency DBRS: Coronavirus impact on Italy unlikely to have any implications if outbreak limited to 1-2 quarters (**Note: Nov 15th 2019 DBRS affirmed Italy sovereign rating at BBB (high), Stable trend)

 

Currencies/Fixed Income

- Safe havens flows continued to dominate as corona virus spread globally. In Europe the Italy's Lombardy region saw its number of coronavirus cases rise from 240 cases to 259 over the past 24 hours. The virus spread in Spain as well.

- EUR/USD was initially higher in the session as it tried to retake the 1.09 handle. The pair was little changed at mid-session at 1.0880 area.

- The CHF and JPY currencies were firmer on the continued risk aversion flows. Dealers watching the 110 level in USD/JPY to gauge if the Yen had regained its full safe-haven status. USD/CHF at 0.9750 and no signs yet whether the SNB would fight a stronger franc.

 

Economic Data

- (FI) Finland Jan PPI M/M: -0.7% v -0.7% prior; Y/Y: -1.6% v -0.8% prior

- (FI) Finland Jan Preliminary Retail Sales Volume Y/Y: 2.2% v 0.8% prior

- (NO) Norway Dec AKU Unemployment Rate: 3.9% v 4.0%e

- (FR) France Feb Consumer Confidence: 103e v 104 prior

- (HU) Hungary Dec Average Gross Wages Y/Y: 13.1% v 13.3%e

- (AT) Austria Feb Manufacturing PMI: 50.2 v 49.2 prior (1st expansion in 11 months)

- (CH) Swiss Feb Credit Suisse Expectations Survey: 7.7 v 8.3 prior

Fixed Income Issuance

- (IN) India sold total INR130B vs. INR130B indicated in 3-month, 6-month and 12-month bills

- (IT) Italy Debt Agency (Tesoro) sold €6.0B vs. €6.0B indicated in 6-month Bills; Avg Yield: -0.287% v -0.355% prior; Bid-to-cover: 1.58x v 1.72x prior

- (SE) Sweden sold SEK2.0B vs. SEK2.0B indicated in 2.5% 2025 Bonds; Yield: -0.4006% v -0.3364% prior; Bid-to-cover: 3.10x v 4.54x prior

- (NO) Norway sold NOK3.0B vs. NOK3.0B indicated in 1.75% Sept 2029 Bonds; Avg Yield: 1.22% v 1.43% prior; Bid-to-cover: 3.84x v 2.19x prior

 

Looking Ahead

- (CO) Colombia Jan Retail Confidence: No est v 29.7 prior; Industrial Confidence: No est v 8.5 prior

- 05:30 (DE) Germany to sell €4.0B in 0.00% Apr 2025 Bobl

- 05:30 (GR) Greece Debt Agency (PDMA) to sell €625M in 26-week bills

- 05:30 (EU) ECB allotment in 3-month LTRO

- 06:00 (IL) Israel Jan Chain Store Sales M/M: No est v -1.8% prior

- 06:00 (EU) ECB's Makhlouf (Ireland) in Berlin

- 06:00 (IT) World Health Organization (WHO) press conference in Rome

- 06:00 (CZ) Czech Republic to sell combined CZK1.5B in 2022 and 2027 bonds

- 06:45 (US) Daily Libor Fixing

- 07:00 (US) MBA Mortgage Applications w/e Feb 21st: No est v -6.4% prior

- 07:00 (MX) Mexico Dec Retail Sales M/M: -0.8%e v +1.7% prior; Y/Y: 2.4%e v 2.1% prior

- 07:00 (ZA) South Africa Fin Min Mboweni National Budget Speech

- 07:00 (RU) Russia to sell OFZ bonds

- 07:00 (UK) Weekly PM question time in House of Commons

- 08:00 (UK) Daily Baltic Dry Bulk Index

- 08:30 (EU) ECB President Lagarde in Wiesbaden, Germany

- 10:00 (US) Jan New Home Sales: 715Ke v 694K prior

- 10:00 (BR) Brazil Central Bank Weekly Economists Survey

- 10:30 (US) Weekly DOE Oil Inventories

- 11:30 (US) Treasury to sell 2-Year FRNs Reopening

- 12:00 (CA) Canada to sell 3 Year Bonds

- 13:00 (MX) Mexico Central Bank (Banxico) Quarterly Inflation Report

- 13:00 (US) Treasury to sell 5-year notes

- 16:45 (NZ) New Zealand Jan Trade Balance (NZD): -0.6Be v +0.6B prior; Exports: 4.4Be v 5.5B prior; Imports: 5.0Be v 5.0B prior

- 18:30 (AU) Australia to sell AUD500M in 6-month Bills

- 19:00 (NZ) New Zealand Feb Business Confidence: No est v -13.2 prior; Activity Outlook: no est v 17.2 prior

- 19:30 (AU) Australia Q4 Private Capital Expenditure: 0.5%e v -0.2% prior

- 20:00 (KR) Bank of Korea (BoK) Interest Rate Decision: Expected to cut 7-Day Repo Rate by 25bps to 1.00%

- 20:05 (NZ) New Zealand to sell NZD250M in 2.75% 2025 Bonds

- 20:10 (JP) BOJ Outright Bond Purchase Operation with 1~3 Years; 3~5 Years and 5~10 Years

- 23:30 (TW) Taiwan to sell TWD25B in 3-month Bills