The US indices showed the biggest drop in two weeks following the soft economic data. Durable goods orders increased in December less than expected while the Philadelphia FED business index dropped sharply to minus 4.1 from (vs +14 expected); the home sales report also came weaker than expected. As a result, both S&P and Dow dropped by 0.4% on Thursday, the yield on 10Y USTs gained 3.9 bps to 2.6914% while the dollar index advanced by 0.1%. Today the US President Trump will meet with his Chinese counterpart Liu He for the latest round of trade talks in Washington; analysts are quite optimistic on the progress.
Asian equites are falling this morning following the US markets, Heng Seng is down by 0.7%, CSI 300 dropped by 0.3%. Australian coal miners slipped 5-6% after China banned imports of coking coal.
Members of the British Parliament expressed their unhappiness with Theresa May’s alleged plan to extend the Article 50 beyond March 29. Over 20 Eurosceptic Conservative MPs have stated, in private conversations, that unless the prime minister stands up and says ‘We will not leave the EU at the end of March without a deal’ then cabinet ministers will have to vote to ensure no-deal does not happen, the Financial Times have reported. UK’s fiscal results have been outstanding – January 2019 logged the largest January surplus on record. The Pound traded flat on Thursday opening at 1.3050 and finishing the day at USD 1.3043. The yield on 10Y UKT gained slightly over 1 bps, trading at 1.201% at the end of Thursday.
ECB fears a trade war with the US mainly due to President Trump’s outspokenness on his ‘America first’ framework. German carmakers are worried following Washington threatening sanctions on the EU, in particular German imported cars, as Thursday data already showed a slowdown in German factory production. The Euro traded flat, finishing Thursday at USD 1.1336, while the yield on 10Y DBR increased over 2bps, from 0.1012% to 0.1239%.
The Ruble is currently trading slightly above its 200-day moving average level, it traded up 0.1% at 65.62 per USD on Thursday. RUSSIA29 and RUSSIA47 traded almost flat. Russian corporates traded mixed, GPBRU outperformed and gained 30bps on average across the curve.
PEMEX was an important discussion point during Mexican Central Bank’s rate-setting meeting earlier this month. The uncertainty regarding the PEMEX’ financial instability was brought up as a concern of the bank board, as it could lead to another credit downgrade for the country. PEMEX lost across the curve, losing as much as 180bps at the long-end. MEX48 traded down over 20bps, almost at 92 level, while most Mexican corporates traded in the red. BRAZIL47 was down almost 70bps to 98 level, while ARGENT48 gained over 80bps, close to the 75 handle.