Risk aversion flows dominate; Greek and Italian bond yield drop on favorable news

Notes/Observations

- Risk-off sentiment prevails as coronavirus concerns continue; price action exacerbated by holidays (Note: Over 2700 have been infected, 80 killed)

- China announced an extension of its Lunar New Year holiday through February 2nd, in an effort to contain the virus

- PD victory in Italy regional election of Emilia-Romagna helps to avoid any escalation in the country's politics risk; 10-year BTP yield lower by over 15bps to test below 1.05%

- German IFO Business Survey missed expectations

Asia:

- China out for Lunar New Year Jan 24-30th; Hong Kong markets closed Jan 27-28th; also public holidays in Singapore, South Korea, Vietnam, Taiwan and Australia

- China has confirmed 2,744 cases of the coronavirus as of the end of Jan 26th (Sunday) and 80 deaths [vs 830 cases and 25 deaths as of Jan 23rd]

- China has extended Lunar new year holiday to Feb 2nd to try and stem impact from coronavirus, China futures on the SGX continue to decline in the session

- Japan PM Abe pick to replace outgoing BOJ official Harada (dissenter) could be announced Tuesday (Jan 28th). Reminder Harada term ends March 25th

Europe:

- Fitch raised Greece sovereign rating one notch to BB from BB-; outlook Positive. Cited upgrade due to the country's improving debt situation

- Italy Regional Early Election Results in Emilia Romagna region saw PD governor Stefano Bonaccin (centre left) win approx. 51%of the vote compared to 43%-45% for the candidate backed by the League and its allies (Insight: Results seen as giving PM Conte's govt a boost and making prospect of a snap election less likely)

Brexit:

- UK Brexit Sec Barclay noted govt will set out details on objectives for EU trade negotiations in Feb

- EU Chief Trade Negotiator Barnier reiterated view there was a risk EU/UK would fail to get a FTA by Dec 31st and the UK could crash out of the bloc.

- UK is set to approve a limited role for Huawei in the UK's 5G network

Mid-East/ Energy:

- Saudi Energy Min Abdulaziz: With OPEC+ producers have the capability and flexibility needed to respond to any developments by taking necessary actions to support the oil market stability if needed. Confident in the ability of China govt and international community to fully eradicate the coronavirus and contain it from spreading

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -1.77% at 416.14, FTSE -2.18% at 7,420.71, DAX -1.95% at 13,311.53, CAC-40 -1.99% at 5,904.52, IBEX-35 -1.39% at 9,429.00, FTSE MIB -1.06% at 23,715.57, SMI -1.46% at 10,691.50, S&P 500 Futures -1.29%]

Market Focal Points/Key Themes: European indices in the red following Asia indices closed except Nikkei which closed lower; US futures meaningfully lower. European airlines, travel retail operators and luxury goods stocks trading down reflecting concern over the continued spreading of the coronavirus in China and globally. Finnish paper and pulp equities Metso, UPM and Stora Enso down following Finnish paper mill workers to go on strike after labor union wage discussions broke down. Landis+Gyr dives following affirming FY19 outlook at the lower end of guided ranges. Sthree and Ti Fluid Systems down on earnings results. Safestyle plunges as the company reported lower FY19 revenues than previously expected. Petra Diamonds and ITM Power tank on trading/earnings as well. H&T rallying on trading update and guiding FY19 profit outlook at the top end of market expectations. Nektan surges 45% following strong H1 trading, publication of delayed annual results and return from share trading suspension. Biocartis falls after CFO resignation. Notable earners today include DR Horton and Sprint Nextel.

Equities

- Consumer discretionary: H&T Group [HAT.UK] +7% (trading update), Christian Dior [CDI.FR] -4% (Coronavirus spread), Lufthansa [LHA.DE] -4%, Air France-KLM [AF.FR] -5% (Coronavirus spread), Sthree Plc [STHR.UK] -1% (earnings)

- Technology: Altran [ALT.FR] +1.5% (AMF approves Capgemini's offer), Landis + Gyr [LAND.CH] -14% (profit warning)

- Materials: Petra Diamonds [PDL.UK] -10% (earnings)

Speakers

- German IFO economists noted that the domestic economy had a subdued start to new year and the industrial sector was slowly emerging from crisis

- China Commerce Ministry (MOFCOM): To increase major food supply as caronavirus spread

Currencies/Fixed Income

- EUR/USD reversed its modest day gains and fell towards 1.1015 level after data showed German Jan IFO survey missing consensus estimates and coming below previous reading.

- GBP/USD moved higher after housing loan data beat expectations to a 4-year high. Pair testing above 1.31 with focus on Thursday's BOE rate decision. Markets expect the MPC to keep a dovish tone and reiterated its readiness to act on any sign of deteriorating sentiment. Dealers noted that recent PMIs might not have been high enough to rule out a rate cut this week. Risk aversion flowed pushed the USD/JPY back below the 110 level.

- Peripheral yields had a banner day with both Italy and Greek 10-year yields lower by over 15bps.

- The Italian 10-year BTP yield was below 1.04% after Lega's Salvini was defeated in a regional election which reduced the possibility of a snap general election

- Greece 10-year note yield at 1.11% (record low); aided by recent sovereign upgrade by Fitch to BB

Economic Data

- (FI) Finland Jan Consumer Confidence: -4.6 v -4.2 prior; Business Confidence: -8 v -5 prior

- (DK) Denmark Dec Retail Sales M/M: -0.5% v +0.1% prior; Y/Y: -0.6% v 0.0% prior

- (TR) Turkey Jan Real Sector Confidence (Seasonally Adj): 106.4 v 108.7 prior; Real Sector Confidence NSA (unadj): 104.1 v 103.6 prior

- (TR) Turkey Jan Capacity Utilization: 75.5% v 77.0% prior

- (ES) Spain Nov Total Mortgage Lending Y/Y: -3.5% v -0.5% prior; House Mortgage Approvals Y/Y: -0.5% v -2.1% prior

- (PL) Poland Dec Unemployment Rate: 5.2% v 5.2%e

- (DE) Germany Jan IFO Business Climate Survey: 95.9 v 97.0e; Current Assessment Survey: 99.1 v 99.1e; Expectations Survey: 92.9 v 94.8e

- 04:00 (CH) Swiss Weekly Total Sight Deposits (CHF): 587.2B v 585.9B prior; Domestic Sight Deposits: 508.9B v 508.6B prior

- (UK) Dec BBA Loans for Housing: 46.8K v 44.0Ke (highest since Aug 2015)

**Fixed Income Issuance**

- None seen

Looking Ahead

- (RO) Romania Dec M3 Money Supply Y/Y: No est v 9.5% prior

- 06:00 (FR) France Q4 Total Jobseekers: No est v 3.365M prior

- 06:00 (RO) Romania to sell RON500M in 4.4% 2023 Bonds

- 06:00 (IL) Israel to sell 2023 and 2030 bonds

- 06:25 (BR) Brazil Central Bank Weekly Economists Survey

- 06:45 (US) Daily Libor Fixing

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays)

- 07:00 (MX) Mexico Nov Retail Sales M/M: +0.8%e v -2.3% prior; Y/Y: 0.4%e v 0.4% prior

- 07:30 (BR) Brazil Dec Current Account Balance: -$4.5Be v -$2.2B prior; Foreign Direct Investment (FDI): $11.0Be v $7.0B prior

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

-08:50 (FR) France Debt Agency (AFT) to sell €3.1-4.3B in 3-month, 6-month and 12-month bills

- 09:45 (EU) ECB weekly QE bond buying update

- 10:00 (US) Dec New Home Sales: 730Ke v 719K prior

- 10:30 (US) Jan Dallas Fed Manufacturing Activity: -1.6e v -3.2 prior

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills

- 13:00 (US) Treasury to sell 5-Year Notes

- 18:50 (JP) Japan Dec PPI Services Y/Y: 2.1%e v 2.1% prior

- 19:30 (AU) Australia Dec NAB Business Confidence: No est v 0 prior; Business Conditions: No est v 4 prior

- 20:30 (KR) South Korea Central Bank to sell combined KRW1.5T in 1-year and 20-year Bonds

- 22:00 (TH) Thailand Central Bank to sell combined THB75B in 3-month and 6-month bills

- 22:35 (JP) Japan to sell 40-Year JGB Bonds