Markets turn defensive after Apple says it doesn't expect to meet Q1 revenue guidance; German ZEW misses expectations

Notes/Observations

- Markets turn defensive after Apple says it doesn't expect to meet Q1 revenue guidance citing coronavirus.

- EU data continues to distorts the stabilization theme painted recently by ECB and EU officials. German ZEW survey misses expectations on coronavirus concerns; focus on Friday's preliminary PMI data

Asia:

- China National Health Commission Coronavirus Update for Feb 17th: 1.9K additional cases v 2.0K prior; Additional death 98 v 105 prior. Total confirmed cases 72,436, total deaths 1,868

- China was considering delaying the annual National People's Congress meeting that is scheduled in March

- China to start application for tariff exemption on US goods, US products for tariff exemption applications include LNG and crude oil (Reminder On Feb 6th: China Tariff Committee announced that it would cut tariff rates by as much as 50% (some goods to be cut from 10% to 5% prior and others from 5% to 2.5%) on $75B in US goods, effective Feb 14th

- Moody's cut China 2020 GDP growth forecast from 5.8% to 5.2%

- RBA Feb Minutes: Reviewed case for further rate cuts at meeting but considered the risks outweighed the benefits. Believed that case for further easing "rested largely on the only gradual progress towards the bank's inflation and employment goals

- South Korea president Moon: Economic situation is worse than expectation; ordered cabinets to prepare strong steps to help companies

Europe:

Eurogroup chief Centeno stated that it expected any economic impact from coronavirus to be temporary. Slowdown was still with us and we had agreed to coordinate any need for further policy response. Thus reports circulated that Eurogroup discussed ways to pursue a more growth-friendly fiscal policy mix

Brexit:

- UK Chief Brexit Negotiator Frost: UK aimed to minimize as much as it could trade friction through customs facilitation, Reiterated stance to seek a Canada type FTA with EU

- UK Government said to consider reduction in pension tax relief for higher earnings from 40% to 20% ahead of budget talks. Move would raise £10B/year. Ministers had shelved plans for a mansion tax and national revaluation of homes after pushback from Tory MPs

Americas:

- Mexico Fin Min Herrera: Mexico clearly has room to keep cutting interest rates after reaching CPI target in 2019

 

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.53% at 429.70, FTSE -0.46% at 7,399.14, DAX -0.78% at 13,676.52, CAC-40 -0.54% at 6,052.81, IBEX-35 +0.01% at 10,023.00, FTSE MIB +0.30% at 25,196.60, SMI -0.40% at 11,124.00, S&P 500 Futures -0.48%]

Market Focal Points/Key Themes: European indices in the red following Asia indices down and lower US futures. HSBC down after reporting FY19 earnings results, suspending share buybacks and announcing 35K job cuts plan as part of restructuring program. Other decliners following earnings results include Straumann, HeidelbergCement, Enagas and Glencore. Deutsche Boerse relatively flat after FY19 results and proposing to raise dividend. Kerry and IHG up on earnings. Semiconductor chip equities Dialog Semiconductor, Infineon and STMicroelectronics down following Apple warning that it will not meet Q2 revenue guidance. European car manufacturers Renault, Peugeot, BMW, Volkswagen and Daimler down following EU27 January new car registrations down y/y. On the M&A front, UBI Banca rallying after a takeover bid from Intesa Sanpaolo; Italian banks Banca Monte Paschi de Siena and Unipol Gruppo are up in sympathy. Alstom trading lower after reaching agreement to acquire Bombardier's rail unit for ~€7.45B. ThyssenKrupp falls after Kone withdrew from discussions to acquire the company's elevator technology business; Kone down as well. Notable earners today include Advance Auto Parts, Medtronic, Transocean and Walmart.

 

Equities

- Consumer discretionary: Carrefour [CA.FR] +3% (analyst action)

- Consumer staples: Kerry Group [KYGA.UK] +4% (earnings)

- Financials: UBI Banca [UBI.IT] +23% (Intesa SanPaolo to launch a voluntary public exchange offer), HSBC [HSBA.UK] -5% (earnings; cost reduction program)

- Healthcare: Basilea Pharmaceutical [BSLN.CH] -7% (earnings)

- Industrials: Kendrion [KENDR.NL] -6% (earnings)

- Technology: Dialog Semiconductor [DLG.DE] -4.5%, Infineon [IFX.DE] -2.5% (Apple coronavirus warning)

 

Speakers

- UK Govt confirmed Chancellor of the Exchequer Sunak (Fin Min) to hold spring budget speech on Wed, March 11th

- Italy govt said to call key vote regarding Omnibus decree

- German ZEW Economists noted that the end of 2019 and the beginning of 2020 saw a worse than expected development of the German Economy. Feared negative effects of the coronavirus epidemic in China on world trade have been causing a considerable decline of the ZEW indicator

- South Africa Central Bank (SARB) Gov Kganyago: Coronavirus to impact developing markets. Reiterated stance that growth challenges went beyond monetary policy

-Singapore Fin Min Heng budget speech noted that the global impact of coronavirus remained unclear and must prepare for economic impact that could be worse than expected; To introduce two special packages valued at SGD5.6B to support jobs and cost of living

- China top expert reportedly saw coronavirus outbreak peaking in Feb [in line with prior reports]

 

Currencies/Fixed Income

- Risk aversion sentiment creeping back into markets after Apple warned of supply disruption from the coronavirus related shutdowns. Core bond yields lower across the board as a result. USD/JPY continued to consolidate below the 110 area on safe-haven flows (last at 109.70) EUR/USD drifting back towards 3-year lows as continue EU data distorts the stabilization theme painted recently by ECB and EU officials. EUR/USD at 1.0825 area just ahead of mid-session.

 

Economic Data

- (EU) EU27 Jan New Car Registrations: -7.5% v +21.7% prior (1st decline in 5 months)

- (NG) Nigeria Jan CPI Y/Y: 12.1% v 12.1%e

- (SE) Sweden Jan Unemployment Rate: 7.5% v 6.0% prior; Unemployment Rate (Seasonally Adj): 7.1 v 6.9%e; Trend Unemployment Rate: 7.0% v 7.0% prior

- (HK) Hong Kong Jan Unemployment Rate: 3.4% v 3.4%e

- (UK) Jan Jobless Claims Change: +5.5K v +2.6K prior; Claimant Count Rate: 3.4% v 3.4% prior

- (UK) Dec Average Weekly Earnings 3M/Y: 2.9% v 3.0%e; Average Weekly Earnings (ex-bonus) 3M/Y: 3.2% v 3.3%e

- (UK) Dec ILO Unemployment Rate: 3.8% v 3.8%e; Employment Change 3M/3M: +180K v +148Ke

- (DE) Germany Feb ZEW Current Situation Survey: # v -10.0e; Expectations Survey: # v 21.5e

- (EU) Euro Zone Feb Expectations Survey: # v 25.6 prior

Fixed Income Issuance

- (BE) Belgium Debt Agency (BDA) opened its book to sell EUR-denominated Jun 2040 OLO via syndicate; guidance seen +12bps to mid-swaps

- (ID) Indonesia sold combined IDR18.5T v IDR15.0T target in 3-month and 12-month bills, 5-year, 10-year , 15-year, 20-year and 30-year bonds

- (ZA) South Africa sold total ZAR4.53B v ZAR4.53B indicated in 2030, 2032 and 2044 bonds

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

- (ES) Spain Debt Agency (Tesoro) sold total €1.268B vs. €1.0-2.0B indicated range in 3-month and 9-month bills

 

Looking Ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO)

- 05:30 (DE) Germany to sell €5.0B in Mar 2022 Schatz

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR)

- 06:00 (BR) Brazil Feb IGP-M Inflation (2nd Preview): No est v 0.6% prior

- 06:30 (EU) ESM to sell €1.5B in 6-month bills

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed)

- 08:00 (RU) Russia Jan PPI M/M: +0.1%e v -0.4% prior; Y/Y: -1.9%e v -4.3% prior

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

- 08:30 (US) Feb Empire Manufacturing: 5.0e v 4.8 prior

- 08:30 (CA) Canada Dec Manufacturing Sales M/M: +0.8%e v -0.6% prior

- 08:45 (IT) ECB's Panetta (Italy)

- 09:00 (EU) Weekly ECB Forex Reserves

- 09:00 (EU) European Finance Ministers meet (ECB's De Guindos to attend)

- 10:00 (US) Feb NAHB Housing Market Index: 75e v 75 prior

- 10:00 (MX) Mexico weekly International Reserve data

- 12:30 (SE) Sweden Central Bank (Riksbank) Gov Ingves in NY

- 16:00 (US) Dec Net Long-term TIC Flows: No est v $22.9B prior Total Net TIC Flows: No est v $73.1B prior

- 18:50 (JP) Japan Dec Core Machine Orders M/M: -8.9%e v +18.0% prior; Y/Y: -1.35e v +5.3% prior

- 18:50 (JP) Japan Jan Trade Balance: -¥1.685Te v- ¥154.6B prior (revised from -¥152.5B); Adjusted Trade Balance: -¥568.0Be v -¥102.5B prior; Exports Y/Y: -7.0%e v -6.3% prior; Imports Y/Y: -2.0%e v -4.9% prior

- 19:00 (AU) Australia Jan Skilled Vacancies M/M: No est v 0.6% prior

- 19:00 (AU) Australia Jan Westpac Leading Index M/M: No est v # prior

- 19:30 (AU) Australia Q4 Wage Price Index Q/Q: 0.5%e v 0.5% prior; Y/Y: 2.2%e v 2.2% prior

- 22:00 (CN) China to sell 1-year and 10-year Upsized Government Bonds -22:30 (JP Japan to sell 12-month bills