“By the way, you see the tariffs we’re doing? Because they broke the deal… They can’t do that, so they’ll be paying.” These were Trump’s words regarding the ongoing US-China trade talks at a rally in Florida on Wednesday. Further stoking the flames Trump went on to say there’s “nothing wrong with taking in $100 billion a year” referring to tariffs on Chinese imports. With China guaranteeing retaliatory tariffs should the US proceed with its promise, US stocks closed in the red – NASDAQ (-0.26%), S&P (-0.16%) – save the DOW which recorded a modest 0.01% gain. Yield on 10Y USTs was slightly changed at 2.469%.
Asian stocks were in the red in morning trading as D-day for escalation in tariffs draws close. This was further worsened by weaker-than-expected Chinese lending data for April with banks extending 1.02 trillion yuan in net new yuan loans against expectations of 1.2 trillion according to a Reuters poll and well bellow March’s 1.69 trillion yuan. The Nikkei was 1.2% down, the Hang Seng 1.7% down while the CSI slipped 1.4%.
In an attempt to quell growing calls for her resignation, Prime Minister Theresa May told senior Tories that the next Brexit deal will be ready for a vote in two weeks. There isn’t much evidence to suggest this as mixed messages have been sent regarding the talks: on one side, officials on both sides are saying the negotiations could soon collapse, while on the other May’s office said there will more meetings over the coming days over the discussions. In a statement that will further strengthen the resolve of Eurosceptics against a compromise customs-union-type arrangement, visiting US Secretary of State Michael Pompeo told reporters that the US is eager to sign a new trade deal with the UK. The pound closed at 1.3006 against the dollar and yield on 10Y UKTs was 2bps lower at 1.1356%.
German industrial output for March rose 0.5% in contrast to the prevailing gloomy sentiment towards the eurozone giant’s manufacturing industry. A poll of economists by Reuters had forecast a 0.5% contraction and the results point towards greater resilience to economic headwinds than was expected. This is likely to provide a boost to upcoming Q1 GDP data for Germany. The euro was little changed at $1.1196 while yield on 10Y DBRs fell 0.5bps to -0.045%.
In a letter addressed to European signatories to the 2015 nuclear agreement, Iran threatened to scale back on its nuclear pact unless it is thrown an economic lifeline within 60 days. The Iranian economy has been under pressure since the Trump administration pulled back from the nuclear pact a year ago and imposed sanctions on the nation. In a response to the letter, UK Foreign Secretary Jeremy Hunt said the UK would stick to its commitments as long as Iran does the same. In a seeming show of intent, the US deployed an aircraft carrier to the Gulf on Sunday apparently ready to meet any acts of aggression on the part of Iranians with its own with B-52 bombers also headed for the Middle East on Tuesday. Iranian President Hassan Rouhani said in a televised statement that they ultimately do not want to leave the nuclear pact.
Brazil’ s central bank held its key Selic rate at 6.5%, unchanged since March. The bank expects the rate to remain at that level for the rest of the year but noted that it could rise to 7.5% in 2020. Explaining their decision, members of Copom – the bank’s monetary policy committee – said, “Recent data on economic activity suggest that the softening observed at the end of 2018 continued in early 2019.” Brazil’s industrial production slid 1.3% increasing odds of a contraction of the economy in Q1. BRAZIl 47s gained to close at 99.019.
Russia kept up its run of huge bond sales with Wednesday’s sale netting 73.3 billion rubles ($1.1 billion) in the third largest single sale on record. There was high demand for the bonds with investors bidding for 115.6 billion rubles ($1.8 billion) with some estimating that 60% of the demand was foreign. This should be welcome news to the Finance ministry which is targeting 600 billion rubles in domestic debt this quarter. RUSSIA 47s slid to close at 102.247.