Risk aversion build mometum as the number of coronavirus cases rise with focus on South Korea, Italy and Iran

Notes/Observations

- New coronavirus cases fall in China, but risk aversion sentiment picked up momentum as global cases rose (including in South Korea, Iran and Italy) prompting risk of a prolonged global economic impact

- Italy announced it would to quarantine several towns in the northern part of the country

- German IFO Survey beats expectations; showed little impact by virus to date.

Asia:

- IMF cut China 2020 GDP growth forecast from 6.0% to 5.6%

- China President Xi: To step up policy adjustments to support economy; measures dealing with virus effective, 'vigilance' is needed

- China PBOC Vice Gov Chen to conduct RRR discounts soon, considering 'tweak' to RRR to release liquidity; reviewing whether to cut benchmark deposit rate

- China National Development and Reform Commission (NDRC): Overall trend of economy is unchanged

Coronavirus:

- China Health on coronavirus: Cumulative cases 77262(+416); Cumulative death toll 2595(+150)

- China provinces in Yunnan, Guangdong, Shanxi and Guizhou had all lowered their coronavirus emergency response levels

- South Korea reported over 200 new cases of coronavirus, brings total to over 830

- Italy quarantined northern towns in coronavirus outbreak- Number of cases topped 150

Europe:

- G20 finance ministers draft communique changes language on coronavirus from 'a clear risk to growth' to an element that needs to be monitored. Considering adding climate change as risk element to growth

- Germany Regional Election Results for Hamburg (exit polls): Centre-left Social Democratic Party (SPD) in the lead with 37.5% of vote; Greens second (doubling % from 2015 election), making a coalition likely again; Merkel's conservative Christian Democratic Union (CDU) 3rd with 11.5% (record low)

- ECB’s Visco (Italy) stated at the G20 that needed 2 quarters to understand impact of COVID-19. If growth did not rebound in those 2 quarters, policy makers should act in a coordinated way using fiscal policy

- ECB’s Villeroy (France) stated that the G20 monetary policy space was limited and saw more focus on fiscal policy if stimulus is necessary

- Moodys revised outlook on France to Stable from Positive; Affirms Aa2 sovereign rating

Brexit:

- UK Brexit’s team said to have been told to draw up plans to get round the Northern Ireland protocol to try and evade Irish sea checks on goods. Issue to be discussed in cabinet on Tuesday (Feb 25th)

Americas:

- Treasury Sec Mnuchin: believed we were very close to consensus on Pillar Two in OECD tax reform talks

- Bernie Sanders has won the Nevada Democratic Caucuses (as expected): Support for Sanders was at ~47.5%

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -3.5% at 412.9, FTSE -3.3% at 7166, DAX -3.6% at 13094, CAC-40 -3.7% at 5805, IBEX-35 -3.3% at 9557, FTSE MIB -4.4% at 23686, SMI -3.3% at 10741, S&P 500 Futures -2.5%]

Market Focal Points/Key Themes:

European indices down sharply following Asia indices lower and lower US futures. European markets slide on continued global spread of coronavirus, with 150 new cases diagnosed in Italy over the weekend. Sectors particularly affected by contagion fears include luxury goods and airline equities. LVMH, Kering, Moncler, Ferragamo and Tod’s all slide and Air-France and Lufthansa plunge as well. Associated British Foods down following 1H trading update; the company expects strong growth in 2H operating profit but warned of clothing supplies shortages at Primark if the impact of coronavirus in China is prolonged. B&S Group, PostNL and Almirall down following earnings results. Bunzl and Ascential up following earnings; Ascential reported strong organic revenue growth and announced a £120M share buyback program. On the M&A front, Countrywide trading higher, as the company confirmed it is in discussions with LSL Property Services regarding a possible all-share combination. Notable earners today include Cooper Tire and Rubber, McDermott International and Graham Holdings.

Equities

- Consumer discretionary: AB Foods [ABF.UK] -2% (trading update), Ascential [ASCL.UK] +3% (earnings; buyback)

- Consumer staples: Danone [BN.FR] -3% (analyst action)

- Materials: Fresnillo [FRES.UK] +2% (project update), Plant Health Care [PHC.UK] -34% (placing), UniCredit [UCG.IT] -4% (CEO to stay), Fresnillo [FRES.UK] +2% (project update)

- Industrials: PostNL [PNL.NL] -8% (earnings).

Speakers

- EU official: EU27 to adopt mandate to begin negotiations with UK on transition on Tuesday, Feb 25th. EU would then be prepared to begin negotiation during week of March 2nd

- Italy govt said to be studying stimulus measures including tax relief and financial support in virus-hit measures

- EU Commission Crisis Management Commissioner Lenarcic: To mobilize over €230M to the global fight against the coronavirus. Up to member States on decision regarding border controls

- Geman IFO economists noted that the domestic economy did not seemed to be affected by the coronavirous. Virus outbreak in China was a potential danger but hard to forecast; Reduction of 1,0% in China GDP could impact Germany by 0.1% in its growth

- Bank of Korea (BoK) to give its upcoming rate decision online due to concerns over coronavirus (**Insight: BOK usually announces rate decision in press room at main building of the central bank)

- China Tourism Ministry said to have asked Chinese residents not travel to the US citing unfair treatment from excessive epidemic prevention measures and US security measures

- China banking regulator (CBIRC): Encourages financial institutions to write off some non-performing loans (NPL) ratio

- More reports that China top legislature decided to delay the annual legislative meetings, which were originally scheduled to start early March, due to the coronavirus outbreak

- President Trump: Believed US and India could sign a great trade agreement. Announced that US to sign a $3B military sales with India on Tuesday, Feb 25th

- US official said to see no material impact from coronavirus on the phase-1 trade agreement

Currencies/ Fixed Income

- FX and metal markets saw a pick-up in volatility from concerns that a prolonged outbreak of the coronavirus would impact global economic outlook. IMF did cut China’s 2020 GDP from 6.0% to 5.6% from its concerns on the virus outbreak. G20 finance ministers communique changed language on coronavirus from 'a clear risk to growth' to an element that needs to be monitored. Although the number of new coronavirus cases fell in China but focus was the rise outside the country including in South Korea, Iran and Italy.

- Euro Zone government bond yields dropped on risk aversion flows (except for Italy) stemming from the spread of the coronavirus in Europe

- EUR/USD holding above last week’s 3-year lows and held above the 1.08 in the session. Better Germany IFO data helped to lessen the headwinds in the pair for the time being.

- USD/JPY was lower by 0.2% to trade at 111.30 by mid-session. The JPY trying to win back some of its safe-haven status its seemed to have lost last week.

- US 10-year yield at 1.38% and lower by just under 10bps in the session. The German 30-year bond retedted the negative territory for the 1st time since oct as a result of the safe-haven flows.
Spot Gold at fresh 7-year highs as the metal probes the $1,700/oz area (higher by 2.7% from the Asian open today.

Economic Data

- (DK) Denmark Jan Retail Sales M/M: +0.5 v -0.4% prior; Y/Y: +2/7% v -0.5% prior

- (TR) Turkey Feb Real Sector Confidence (Seasonally Adj): 106.7 v 106.4 prior; Real Sector Confidence NSA (unadj): 106.9 v 104.1 prior

- (TR) Turkey Feb Capacity Utilization: 76.0%e v 75.5% prior

- (TW) Taiwan Jan Industrial Production Y’/Y: -1.5% v -4.3%e

- (TW) Taiwan Jan Unemployment Rate: 3.7% v 3.7%e

- (CZ) Czech Jan PPI Industrial M/M: 1.3% v 0.3%e; Y/Y: 2.4% v 1.3%e

- (CZ) Czech Feb Consumer Confidence Index: -3.0 v -2.3 prior; Business Confidence: 9.4 v 9.8 prior; Composite Index (Consumer & Business Confidence): 6.9 v 7.4 prior

- (NG) Nigeria Q4 GDP Y/Y: 2.6% v 2.2%e

- (EU) Daily ECB Liquidity Stats

- (TW) Taiwan Jan M2 Money Supply Y/Y: 4.6% v 4.1% prior; M1 Money Supply Y/Y: % v 7.4% prior

- (DE) Germany Feb IFO Business Climate Survey: 96.1 v 95.3e; Current Assessment Survey: 98,9 v 98.6e; Expectations Survey: 93.4v 92.1e

- (CH) Swiss weekly Total Sight Deposits (CHF): 592.3B v 590.1B prior; Domestic Sight Deposits: 500.6B v 504.2B prior

Fixed Income Issuance

- None seen

Looking Ahead

- 06:00 (IL) Israel Jan Unemployment Rate: No est v 3.4% prior

- 06:00 (IS) Israel to sell 2022, 2025, 2029 and 2047 Bonds

- 06:00 (RO) Romania to sell RON700M in 4% 2022 Bonds

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

- 07:00 (TR) Turkey to sell 13.8% 2021 Bonds

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

- 08:00 (PL) Poland Jan M3 Money Supply M/M: -0.8%e v +1.5% prior; Y/Y: 8.8%e v 8.3% prior

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

- 08:30 (US) Jan Chicago Fed National Activity Index: -0.16e v -0.35 prior

- 08:30 (CA) Canada Dec Wholesale Trade Sales M/M: +0.4%e v -1.2% prior

- 08:50 (FR) France Debt Agency (AFT) to sell €3.0-4.2B in 3-month, 6-month and 12-month bills

- 09:00 (IL) Israel Central Bank (BOI) Interest Rate Decision: Expected to leave Base Rate unchanged at 0.25%

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

- 10:30 (US) Feb Dallas Fed Manufacturing Activity Index: 0.0e (flat) v -0.2 prior

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

- 13:30 (UK) BOE Chief Economist Haldane Speaks in London

- 15:00 (US) Fed's Mester on Economy at NABE Conference

- 17:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 109.1 prior

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

-19:00 (AU) Australia to sell AUD100 M in 0.75% 2027 Bonds

- 20:10 (JP) BOJ Outright Bond Purchase Operation with 10~25 Year and 25 Years~ maturities

- 22:00 (TH) Thailand Central Bank to sell combined THB70B in 3-month and 6-month Bills

- 22:30 (HK) Hong Kong to sell 3-month and 6-month bills

- 23:30 (TW) Taiwan to sell TWD170B in 2-year Certificate of Deposits (NCD)