Rates Rise as PBOC Injects Liquidity into Chinese Market

People’s Bank of China injects liquidity to support domestic markets amid coronavirus fears. Chinese equity markets closed down 8% on the first trading day since the Lunar New Year. Meanwhile, coronavirus cases have surpassed 20,500, the death rising to 425. The outbreak has reduced Chinese oil demand by 20% (the largest supply shock since the recession) and as a result OPEC is meeting in Vienna later today to discuss cutting oil production to support prices. The PBOC announced it added $174 billion in liquidity to the market by offering funds in the overnight market for a second day in a row to spur lending. The PBOC’s actions helped risk assets bounce back yesterday, the 10-year treasury yield climbing 5 basis points to 1.577%.

Iowa caucuses fail to produce definitive result due to counting issues. The Iowa caucuses are particularly important in the presidential race as it provides an indication to which Democratic candidate the swing state is leaning towards. The Iowa Democratic Party elected to use a mobile app this year which showed “inconsistencies in the reporting,” delaying the result to later today. Many candidates took this opportunity to claim a favorable result. The democratic nomination race now turns to the New Hampshire primary- which takes place early next week.

Day ahead. Later this morning, factory order numbers will be released. The headline consensus is as increase of 1.3% after December’s 0.7% decrease. Disney and Chipotle are among the companies reporting earnings today. President Trump is set to deliver his State of the Union address tonight and is expected to draw stark contrasts between his policies and those of democratic candidates.