Doubts Linger That Rate Cuts Would Resolve Supply Chain Issues Stemming From Coronavirus

Notes/Observations

• Awaiting to see if other central banks join the Fed in easing. G20 teleconference call said to take place today
• Markets vote that monetary easing was not going to fix broken supply chains or limit the spread of the coronavirus epidemic
• Dealers note that central banks’ intervention at this stage would be viewed as useless but viewed as a series of synchronized actions by the G7 policymakers aiming to support developed market economies from the economic impact of the coronavirus
• Major European PMI Services hold onto expansion but mostly missed expectations in session (Beats: Italy; U Euro Zone, Germany, France, Spain)

Asia:

• Australia Feb Final PMI Services confirmed move back into contraction (49.0 v 48.4 prelim )
• Australia Q4 GDP beat expectations (Q/Q: 0.5% v 0.4%e; Y/Y: 2.2% v 2.0%e)
• China Feb Caixin PMI Services registered its 1st contraction since survey was launched in 2005 (26.5 v 48.0e)

Coronavirus:

• Global cumulative cases 91,158; Cumulative deaths 3,198
• World Bank announces $12B financing package to help countries deal with coronavirus. Fast tracked aid will help countries strengthen their health systems and accelerate response to save lives

Brexit:

• UK Chancellor of the Exchequer (Fin Min) Sunak reportedly might lift halt on fuel duties in govt budget. To scrap £2.4B diesel subsidy for farming and construction vehicle users

Americas

• Super Tuesday primaries Biden wins 9 of 14 States (Virginia, NC, Alabama, Tennessee, Oklahoma and Texas); Sanders projected to win Vermont, Colorado and CA: (Delegate Count: Biden win 395 delegates, Sanders 317, Bloomberg 33, Warren 27)
• Fed’s Mester (hawk, voter in 2020): rate cut should help offset coronavirus risks and bolster confidence in economy
• Fed’s Evans (dove, non-voter): Thought the Fed was very well positioned but felt rate cut would help boost confidence given rising risks and possible economic weakening, expectation was that virus will have short lived imprint on US, like to be 1/4-1/2 year impact on the economy with a v-shaped recovery

Mid-East/ Energy:

• Weekly API Crude Oil Inventories: +1.7M v +1.3M prior
• OPEC+ technical panel text: recommended a deepening of oil production cut of up to 1M bpd for Q2. Reports circulated that JMMC was discussing recommending 600K-1M bpd oil cut)

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.20% at 385.70, FTSE +1.35% at 6,809.23, DAX +1.08% at 12,114.27, CAC-40 +1.29% at 5,462.96, IBEX-35 +0.71% at 8,874.00, FTSE MIB +1.01% at 21,967.87, SMI +1.29% at 10,217.00, S&P 500 Futures +1.96%]

Market Focal Points/Key Themes:

• European indices in the green following Asia indices mixed and higher US futures.
• Bekaert rallying after reporting FY19 earnings that saw adj EBIT come in above estimates and Brenntag up after FY19 earnings results and proposed dividend increase. Other risers on earnings results include Legal & General, Dialog Semiconductor, Autoneum, Evonik Industries, Eurofins Scientifics and Ontex. DS Smith up on trading update. Wizz Air trading higher after issuing a trading update on COVID-19 impact; the company is considering further adjusting network capacity. Hostelworld dives as the company warned that the coronavirus led to a material drop in bookings. Intu Properties plunges after the company was forced to cancel the planned equity raise. Teamviewer down after equity offering. Metro down around press speculation that key shareholders reportedly rebuked that Sysco has expressed interest in a potential takeover of the company. Sirius Minerals shares surge on shareholder approval of takeover by Anglo American; acquirer Anglo American also up on the news. Proactis Holdings tanks after the company canceled the formal process to sell itself.
• Notable earners today include Abercrombie & Fitch, Brown-Forman, Campbell Soup and Navistar.

Equities

• Consumer discretionary: Wizz Air [WIZZ.UK] +2% (COVID-19 update on capacity)
• Consumer staples: Eurofins Scientific [ERF.FR] +7% (earnings)
• Financials: Intu Properties [INTU.UK] -26% (scrapped planned equity raise)
• Industrials: DS Smith [SMDS.UK] +2% (trading update)
• Technology: Dialog Semi [DLG.DE] +4% (earnings), TeamViewer [TMV.DE] -4% (placement)
• Materials: Sirius Minerals [SXX.UK] +17% (takeover approved)

Speakers

• ECB said to have held a conference call on Tuesday, Mar 2nd (yesterday) on coronavirus; discussed operational issues. monetary policy response was not on the agenda.
• ECB announced operational precautions linked to coronavirus; all non-essential travel restricted until April 20th. Still planning to hold its schedule post rate decision press conference after next week’s meeting but all other conferences at the ECB were postponed
• France Fin Min Le Maire stated that Europe needed to be prepared to use fiscal stimulus to aid economy. Believed that fiscal steps as more effective than monetary policy
• EU said to consider toughening the rule for a bank failure to avoid aid from going to the sector. Precautionary recapitalizations are the focus of discussions
• Indonesia Central Bank Deputy Gov Waluyo: saw GDP improving over the coming year; have many instruments to use to support growth. Had enough FX Reserves to respond to market volatility
• Japan PM Abe: Country was at brink of whether coronavirus would spread rapidly
• BOJ Gov Kuroda: Coronavirus impacted domestic economy via various routes, effects already seen from decline in tourists from China. To carefully watch economy, market developments and take appropriate action.
• BOK Gov Lee statement after Emergency Meeting that the central bank to consider and take measures to stabilize the markets and support the economy as needed; To increase ceiling for special loan facility by KRW5.0T
• China PBoC reiterated its stance to maintain its prudent monetary policy with flexibility. To lower financing costs for companies to help them in difficult times
• Iran Oil Min Zanganeh: To attend OPEC meetings in Vienna. Believed that Russia would wait until the last moment to decide on production cuts but added it was clear that there was more production compared to demand
• Saudi Arabia said to be pushing OPEC+ to agree of a deepening of oil production cuts to over 1M bpd
• Fed’s Mester (hawk, voter in 2020): Market rout did not force the Fed to cut rates but it was note

Currencies/ Fixed Income

• USD was steady, even slightly higher in today’s session after Tuesday’s volatile moves. Dealers note that aggressive and unexpected easing delivered by the Fed yesterday might maintain downward pressure on the USD. Fed Chief Powell acknowledged that this easing was insufficient to solve the myriad economic and health risks posed by the coronavirus. Markets seemed to agree that monetary easing was not going to fix broken supply chains or limit the spread of the coronavirus epidemic.
• EUR/USD approaching the 1.12 area for 2-month highs but does face some technical hurdles ahead of the 1.13 area
• USD/JPY higher in the session by 0.4% but recent technical suggest another test towards the pivotal 105 area.

Economic Data

• (RU) Russia Feb PMI Services: 52.0 v 53.6e; PMI Composite: 50.9 v 52.6 prior
• (DE) Germany Jan Retail Sales M/M: 0.9% v 0.9%; Y/Y: 1.8% v 1.5%e
• (NO) Norway Q4 Current Account Balance (NOK): 19.1B v 29.5B prior
• (ZA) South Africa Feb PMI (whole economy): 48.4 v 48.0e (10th straight contraction)
• (CH) Swiss Feb CPI M/M: 0.1% v 0.2%e; Y/Y: -0.1% v +0.1%e; CPI Core Y/Y: 0.2% v 0.2%e
• (CH) Swiss Feb CPI EU Harmonized M/M: -0.1% v 0.2%e; Y/Y: -0.2% v +0.1%e
• (SE) Sweden Feb PMI Services: 56.7 v 52.7e (2nd straight expansion); PMI Composite: 55.7 v 52.2 prior
• (HU) Hungary Jan Retail Sales Y/Y: 7.6% v 6.0%e
• (BR) Brazil Feb FIPE CPI (Sao Paulo): 0.1% v 0.1%e
• (ES) Spain Feb Services PMI: 52.1 v 52.5e (76th month of expansion but lowest since Nov 2013); Composite PMI: 51.8 v 51.7e
• (NG) Nigeria Feb PMI: 55.0 v 55.9 prior
• (IT) Italy Feb Services PMI: 52.1 v 51.3e (13th straight expansion); Composite PMI: 50.7 v 50.1e
• (FR) France Feb Final Services PMI: 52.5 v 52.6e (confirms 11th month of expansion); Composite PMI: 52.0 v 51.9e
• (DE) Germany Feb Final Services PMI: 52.5 v 53.3e (confirms 80th month of expansion); Composite PMI: 50.7 v 51.1e
• (EU) Euro Zone Feb Final Services PMI: 52.6 v 52.8e (confirms 81st month of expansion); Composite PMI: 51.6 v 51.6e
• (IT) Italy Q4 Final GDP Q/Q: -0.3% v -0.3%e; Y/Y: 0.1% v 0.0%e
• (UK) Feb Final Services PMI: 53.2 v 53.3e (confirmed 3rd month of expansion); Composite PMI: 53.0 v 53.3e
• (UK) Feb Official Reserves Changes: $1.8B v $2.2B prior
• (EU) Euro Zone Jan Retail Sales M/M: 0.6% v 0.6%e; Y/Y: 1.7% v 1.1%e

Fixed Income Issuance

• (DK) Denmark sold total DKK2.62B in 2029 and 2039 DGB bonds
• (SE) Sweden sold SEK5.0B vs. SEK5.0B indicated in 6-month bills; Avg Yield: -0.2433% v -0.3309% prior; bid-to-cover: 2.08x v 1.91x prior
• (IN) India sold total INR120B vs. INR120B indicated in 3-month, 6-month and 12-month bills

Looking Ahead

• 05:30 (UK) DMO to sell £3.5B in 0.625% Jun 2025 Gilts
• 06:00 (PL) Poland Central Bank (NBP) Interest Rate Decision: expected to leave Base Rate unchanged at 1.50%
• 06:30 (TR) Turkey Feb Real Effective Exchange Rate (REER): No est v 75.72 prior
• 07:00 (US) MBA Mortgage Applications w/e Feb 28th: No est v 1.5% prior
• 07:00 (BR) Brazil Q4 GDP Q/Q: 0.5%e v 0.6% prior; Y/Y: 1.6%e v 1.2% prior; GDP 4-Quarters Accumulated: 1.1%e v 1.0% prior
• 07:00 (MX) Mexico Feb Vehicle Domestic Sales: No est v 104.8K units prior
• 07:00 (UK) Weekly PM question time in House of Commons
• 08:00 (BR) Brazil Feb PMI Services: No est v 52.7 prior; PMI Composite: No est v 52.2 prior
• 08:00 (UK) Daily Baltic Dry Bulk Index
• 08:15 (US) Feb ADP Employment Change: +170Ke v +291K prior
• 08:30 (CA) Canada Q4 Labor Productivity Q/Q: 0.2%e v 0.2% prior
• 09:15 UK BOE Gov Baily appearing before Treasury Select Committee(appointment hearing)
• 09:45 (US) Feb Final Markit Services PMI : 49.5e v 49.4 prelim; Composite PMI: No est v 49.6 prelim
• 10:00 (US) Feb ISM Non-Manufacturing: 54.9e v 55.5 prior
• 10:00 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to cut Interest Rates by 25bps to 1.50%
• 10:30 (US) Weekly DOE Oil Inventories
• 14:00 (US) Federal Reserve Beige Book
• (BR) Brazil Jan CNI Capacity Utilization: No est v 77.7% prior
• 18:00 (KR) South Korea Jan Current Account Balance: No est v $4.3B prior; Balance of Gods (BOP): No est v $5.0B prior
• 18:30 (US) Fed’s Bullard
• 19:30 (AU) Australia Jan Trade Balance: A$4.8Be v A$5.2B prior
• 20:00 (PH) Philippines Feb CPI Y/Y: 3.0%e v 2.9% prior
• 20:05 (NZ) New Zealand to sell NZD50M in 2.5% 2040 Bonds
• 21:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision:
• 22:30 (TH) Thailand Feb CPI M/M: -0.1%e v +0.2% prior; Y/Y: 0.8%e v 1.1% prior; CPI Core Y/Y: 0.5%e v 0.5% prior
• 22:35 (JP) Japan to sell 30-Year JGB Bonds