The shares trade lower. Full steam ahead for alstom shares after the french trainmaker says its in talks. Airbus shares hit a onemonth low as they say they deeply regret a u. S. Decision to hike tariffs on europeanmade aircraft. Good morning, everybody. Happy monday the story weve been following the last couple of weeks that has gripped markets and the world, lets talk about coronavirus. Chinese authorities have reported almost 2,000 new cases of coronavirus and 100 new deaths it takes the toll total death toll to almost 1,800 the rise in new cases reverses two days of relative declines over the weekend the 380 american nationals quarantined on the diamond princess cruise ship off the coast of japan disembarked after two weeks. They were put on charter flights returning to the u. S around 40 americans tested positive for the virus and will remain in japan. And europe has seen its first coronavirus fatality after an 08yearold chinese tourist died in france. Egypt also confirmed a case of coronavirus. That is the first in africa. A speech by chinese president xi jinping suggests the countrys top leadership knew about the dangers of the virus two weeks before making it public xi said he began giving orders on how to combat the virus on january 7th, however, officials only revealed the virus could spread between humans in late january. Several authorities in hubei, the epicenter of the virus, have been criticized and dismissed over their handling of the outbreak Chinas Central Bank has cut its medium term lending rate as it scrambles to ease the fallout from the coronavirus they will lower the Interest Rate on 200 billion yuan on loan to Financial Institutions and they are expected to announce further easing measures later this week. Lets get to hong kong and get more on the reaction i take it stock markets in hong kong have reacted well after the announcement overnight from the pboc. Thats right. There was a lot of riskon kind of sentiment playing out in the Greater China markets after they heard from the pboc, the message was, we got you. Of course, as you mentionsed, that mlf cut is, you know, really the latest we heard in terms of what the party line has been out of china, that were going to protect the chinese economy from the negative impact of the coronavirus pretty much green across the board. Take a look at the shenzhen sta startup closing 4 higher at the end of the day the market is riding on whispers about further, you know, action of easing by the pboc. In fact, this thursday were going to see what kind of decision they make in terms of the loan prime rate as well. I think that can be a further leg up before the Greater China markets, at least until thursday we were talking about shanghai composite, for example, a higher by more than 2 or so for the day. All sectors are in the money led by all these cyclicals, including autos and technology, very much broadbased gains and this puts the index into precoronavirus outbreak levels. Pretty meaningful, i would say i do want to talk about the hang seng index because pretty much a standout laggard in the china region today all sectors were higher on the day. We did see moderate gains of 0. 5 , but not to the level that we saw in terms of the mainland chinese. This comes as the National Secretary of hong kong was, you know, warning of a record level of budget deficits for the next fiscal year. In fact, a lot of, you know, hong kong players, especially when it comes to retail tourism and airline spaces are struggling and Cathay Pacific is one good example theyre coming out with a profit warning for the first part of this year, of course flagging the potential hit from the coronavirus. You know, they say they cut the february and march capacity by 40 . Also saying there could be further reaction in the month of april. Just to get the big headline that january inbound passenger was down 40 according to Cathay Pacific. Of course, were seeing some green across the board but really reacting to the easing stance from the pboc today. Definitely a positive start to the week then in terms of risk sentiment, but obviously we have to see the economic impact, how it all plays out thank you for latest from hong kong. Speaking of the economic impact, singapore has warned it may plunge into recession this year after reporting its biggest jump in new coronavirus cases this year. They cut the growth forecast this year by one percentage point, highlighting the risk from the fastspreading illness. The japanese economy has contract contracted at its fastest pace in six years Fourth Quarter gdp fell by 6. 3 on an annualized basis, much more than the forecast and the first decline in five quarters that is as the outlook for the Current Quarter is clouded by the coronavirus. Bank of japan governor said the outbreak is currently the biggest uncertainty for the japanese economy, so a huge decline there in japanese gdp for the Fourth Quarter, not even taking into consideration coronavirus. Lets get out to head of bank lombardi i want to start with your thoughts on dollar yen looking at that currency pair today, there hasnt been that much movement. Were still shy of 1. 10. You would think on a number as weak as this that we would see a reacti reaction, sort of riskoff reaction in the yen but none has materialized what do you point to i think its fair to say dollar yen hasnt done much since the beginning of the year. Its been fluctuating between 1. 1 108, 110 i think the biggest catalyst for the dollar yen is whats happening. Weve seen a drop in yields from 1. 9 down to 1. 6 given the fact that over the past few weeks they pretty much stabilized around this level, the major catalyst for a big move into dollar yen is really absent to a larger extent we have to say that the drop, although it was definitely much bigger than expected, but to a larger extent it was expected largely because of the v. A. T. Tax hike nonetheless, its i think if you look historically, it will take periods at which youre getting more protracted than oneoff quarter of a quarter contraction of the japanese economy to actually start triggering movement in the dollar yen for me, biggest catalyst is whats happening in u. S. Yields and yield differentials. Nothing is happening the past two, three weeks and so were getting this range trading from dollar yen. Its having an impact on certain assets and not others. We see u. S. Stock markets go from strength to strength, even european markets have been doing quite well, fx markets resilient, the dollar trade is very strong but not so much the case for commodities you just alluded to the fact that and rates have been rallying do you think that that very fine structure can change if coronavirus actually continues to linger for another couple months or so well, i think the extent of the time it will take until we reach some sort of full containment will definitely have an impact on markets because it will have the more it remains and the more the bans and the city quarantines remain in place, the bigger hit to activity in china is going to be i think, look, you mentioned equities as far as Monetary Policy is concerned, as far as Monetary Policy is at pretty much near the zero lower, i think equities will perform well. I think we saw flight to safety with the dollar rallying since the 21st of january. But over the past ten days or so, were started differentiation. That has built because of expectations that the pboc and chinese authorities are going to ramp up stimulus, monetary and fiscal and ifyou look at the best performance right now in currencies, they are the commoditylinked commodities whereas the worst performer like the euro, japanese yen are basically the ones with either zero or negative rates i think its pretty much weve moved from a flight of safety to the end of january to more like a carry trading environment. Interesting you were saying about the carry environment there, and obviously that ties into the discussion were having about dollar yen, but to bring it back to coronavirus, and if we do get an episode of riskoff, do you still think the dollar yen trade as a safe haven trade will work out in that scenario it will in a certain extent its kind of a weird pair because you get both safe havens at the end of the day what matters is which dominates the other. I think historically what weve learned is that when we get similar episode, natural disasters like this, what happens is japanese investors seem to repatriate investments i think this will happen if we move into a fullblown epidemic. Well pick up the conversation next chapter and i want to pick your brain on the euros. Something weve been watching closely. The head of fx strategy at bank lombardo. The west is winning, thats the message u. S. Secretary of state mike pompeo had for delegates at Munich Security Conference as he sought to reassure european allies over president trumps America First policy pompeo was responding to criticism from germanys president who warned that washington had rejected the concept of international cooperation. The u. S. Secretary of state also said the socalled demise of nato was, quote, greatly exaggerat exaggerated. Hadley spoke to u. S. Defense secretary mark esper. What i mean is what i outlined in my speech earlier today. As we look at our National Defense strategy it says were in this era of great power competition. That means we need to focus more on highintensity warfare Going Forward and our longterm challenges are china, number one, and russia, number two. And what we see happening out there is china, continues to grow its military strength, its economic power, commercial activity and doing so in many ways illicitly or its using the International Rules based order against us to continue this growth, to aconveyor technology and to do the things that really undermine our nations, i say that plural, sovereignty, that undermine the rule of law. When we talk about what happens next within the 5g sectors, a lot of governments say to us, listen, if there was a better, cheaper alternative to huawei, wed be using it, but unfortunately that doesnt seem to be the case what is the u. S. Government planning to do to get u. S. Companies there . We need to do our part not just with u. S. Companies but with european companies, some Asian Companies and we need to make sure we provide an affordable, competitive alternative. We cant be duped into a company thats subsidized by the chinese government, that ties ties, close ties to the communist party and allow them into our networks and compromise them it will undermine our security, it will undermine our ability to Exchange Information and intelligence to do all those things we need to do to guarantee the security of our countries and security of our peoples. How much money are you willing as the pentagon to put behind that kind of technology were putting hundreds of millions of dollars behind it right now by running test beds at several bases where we ib invite commercial vendors in, open up the community, if you will i can put aside unnecessary regulation that inhibits the testing and we can really help Companies Grow in a partnership with dod it enables us, too we need to access data at the speed and volume of relevance to war fighting if we can help commercial vendors get there, it helps us and also helps the marketplace pompeo and u. S. Secretary of defense mark esper accusing china of carrying out a strategy with huawei. Translator they have for months been repeating their kic criticism and smears of china. They say the same thing wherever they go about china. I dont want to waste our time responding to each and everything theyve said. I can generally say these accusations against china are lies they are not based on facts. The tech war of woshdz is heating up again if you want to get involved in the conversation, anything we discussed on the show so far, whether its chinas easing measures or the market performance, can you tweet us streetsignscnbc. Coming up on street signs, well be right back in a few moments, well talk about the eu and the uk, which will apparently rip each other apart in trade talks, according to frances foreign minister. More when we come back [ ] you want a freshsmelling home, but some air fresheners use heavy, overwhelming scents. Try febreze one; a range of innovative air fresheners with no heavy perfumes that you can feel good about using in your home to deliver a light, naturalsmelling freshness. Febreze one neutralizes stale, stuffy odors and releases a subtle hint of fragrance like bamboo or lavender eucalyptus. To eliminate odors with no heavy perfumes, try febreze one. Brand power. Helping you buy better. Welcome back to street signs. Lease get a check on how markets are this morning the hangover from asian markets was mixed. We spoke about the shanghai composite with our colleague chinese shares have jumped more than 2 after pboc made cuts and announced further tax cuts that boosted the Chinese Markets. Not so much the case for the nikkei trading deep in negative territory after a very disappointing gdp. The stoxx 600 is starting on a positive foot, up 0. 2 of a percentage point lets talk about the individual breaking it down by markets. The ftse 100 up 0. 2 of a percentage point early hours of trading. Dax around 0. 1 of a percentage point firmer on the session. Worth bearing in mind, we have a lot of Company Earnings that have been drivers. From the macro perspective, later this week we have very important pmi numbers to watch out for in europe as well as the german indicator all of those things backloaded towards the end of the week certainly will be on investors minds. Lets switch and talk about sectors. I mentioned it was a positive sector for the chinese indices we are seeing some knockon effects. Basic resources up 1 . Autos up 1 . To the dune side, real estate trading soft, down almost 0. 6 of a percentage point and tech coming under a bit of selling pressure, down about 0. 1 of a percentage point as well well talk more about tech, especially as Mark Zuckerberg will be in brussels for meetings with the commission. Something to keep an eye on there from a tech standpoint some Company Earnings for you. Shares in bayer and bsf are trading lower following a u. S. Federal trade decision which ruled companys products have damaged crops. The jury awarded a missouri peach farmer 265 million after he claimed the companies encouraged farmers to use the weed killer irresponsibly. Bayer says it will appeal the decision, adding the prosecution presented no competent evidence that its monsanto herb db sides were responsible for the crop losses they face more than 140 lawsuits in connections with the weed killer. Shares in airbus have hit a twomonth low after a dispute escalates between the u. S. And European Union this after the u. S. Imposed tariffs on aircraft imported from the eu. It will go up from 10 to 15 next month airbus says it will hurt u. S. Airlines and its customers and switching to the auto sector, faurecia is trading at the top of the stoxx 600 after the french automaker reported a rise in full net year profit and sales. However, the group warns Market Conditions will be tough in 2020 and is predicting another gruelling year for the Auto Industry with car production likely shrinking 3 worldwide. Faurecia ceo Patrick Koller spoke to us about the headwind. We demonstrated our resilience, achieved all of our financial targets, why we continue to invest and have accelerated our transformation in the future and sustainable mobility you know, we lost 5. 8 of the market in 2019 before 1. 1 and this year, yes, i believe that we will be at minus 3 with china most probably at minus 5 , which means that we will lose about 1 million to 2 million cars again in china. Switching to industrials alstom is trading higher after its heard they are in talks with bombardier. The proposed deal would help alstom compete more effectively with its main global competitor, chinas crrc corps the deal was blocked last year by european regulators. To the uk, shares . Yup ter aset for their best days after they struck a deal to buy merian investors jupiter says the acquisition will enable it to accelerate its growth strategy. So that stock is up almost 9 in trading. And the eu and the uk will, quote, rip each other apart in trade talks following britains departure from the bloc, according to French Foreign minister jeanwhy ves le drian he added londons aim was striking a trade deal by the end of the year will be difficult. Lets get back out to the head of the fx strategy at bank lombard. Still early discussions but im watching the pound very closely here it seems to me that the mentality is still very much buy on depth here. The pound is trading still north of 130 what is your take on where the pound goes well, thats a Million Dollar question, isnt it, or the Million Pound question look, i think as far as the discussions are concerned, i think theres going to be a lot of noise its going to be hard negotiations its clear that Boris Johnson is working along two dimensions first of all, he doesnt want to realign with eu regulation represents a big, big handle for the european unit. At the same time he doesnt seem willing to request an extension which means the time is really, really short to come up with a trade deal that really covers essential parts of the economy i think, you know, last week sterling beat some expectations that we may get some sort of a bigger fiscal stimulus by the uk government well see about that its still early days. I think for now, for the near term, it does provide some sort of temporary floor for sterling between 130 and 129, or thereabouts. But id be very surprised with the near term we were actually able to break the 132, 133 highs on a closing basis we saw back in december. Thats largely because the no deal brexit premium is still priced into sterling and into a number of uk ass