US stocks rebounded yesterday as fears of an extreme escalation of a trade war somewhat subdues with President Trump downplaying the unease calling it a “little squabble”. The highest gains were recorded for the NASDAQ which posted gains of 1.14% as the DOW and S&P posted 0.82% and 0.80% respectively. President Trump also continued efforts to pressure the Federal Reserve into stimulating the US economy calling on the central bank to “match” what he said China would do to counter economic hardship being caused by tariffs. After the Twitter post, the president later told a Louisiana audience that “a little quantitative easing” would have growth hit 5%. Yield on 10Y USTs closed 12bps up at 2.501%.
Asian markets were in the green in mid-afternoon trading following gains on US stocks. The Nikkei was 0.58% up having opened just about flat, the Hang Seng Seng was 1.02% up while the CSI advanced from its 1% opening to trade 1.96% higher. China’s economy cooled off in April, as industrial output, retail sales and investment slowing below economist forecasts. YoY figures showed the greatest slowing for industrial output at 5.4% from 8.5% in March with retail sales down at 7.2% against 8.7% in March and year to date fixed-asset investments slowed to 6.1% from 6.3% in March. Economists are expecting the government to up forces to help stabilize the economy in the face of rising trade tensions with the US.
UK unemployment has hit its lowest level since 1974 edging lower to 3.8% for the three months to March compared to 3.9% for the three months to February. Some 100,000 more jobs were added in Q1 2019 compared with the previous quarter, showing the resilience of the jobs market despite the Brexit turmoil. Wage growth however slowed to 3.3% over the same period compared to 3.5% over the three months to February. The pound lost against the dollar closing at 1.2905 while yield on 10Y UKTs was just about flat closing at 1.104%.
Italy is ready to break European Union budget rules if necessary to spur jobs, Deputy Prime Minister Matteo Salvini said on Tuesday sending Italian bonds tumbling and German yields to their lowest since 2016. Italy’s 2Ys were the most hit with yield surging 11bps to 0.79% while 10Y DBRs slid 3bps to -0.1%. EU budget rules such as the 3% deficit-to-GDP ratio or 130-140% debt-to-GDP ratio are seemingly of little concern to Salvini who’s ready to do all possible to hit 5% unemployment. With some 425 billion euros of sovereign and private Italian debt held by the main banks outside Italy, a sell-off could severely hurt Europe’s financial system. The euro slid against the dollar to close at 1.1204.
Oil prices rose sharply Tuesday morning on reports of a second attack on Saudi oil infrastructure in days with brent crude futures up to $71.37 immediately following the news. The drone attack on two oil pumping stations near Riyadh was declared “act of terrorism” by Saudi Energy Minister Khalid al-Falih. Oil production was not interrupted, with state oil company Saudi Aramco saying that its oil and gas supplies to Europe have not been affected. No one has yet claimed responsibility for the attack, but a Yemeni Houthi-run TV channel announced on Tuesday morning it had launched drone attacks on several Saudi installations.
Turkey was an out-performer in EM yesterday as it posted positive industrial data for March. Industrial production rose a seasonally-adjusted 2.1% in March month-on-month, the highest in 8 months. On a theoretical basis, this marks a turning point to Turkey’s recession as industrial output has been on a steady rise for the first three months of the year, but the market will wait for official data due May 31. Finance Minister Berat Alaryak’s continued claims that the worst may be over for the economy amid expectations of positive GDP growth for Q1 also added to the positive momentum. However, real risks to the economy remain with the further weakening of the TRY with analysts expecting GDP growth to shrink 2% in 2019. The lira firmed closing at 6.0299 to the dollar while TURKEY 47s rallied to trade 78.445 at close having started the day in the low 76s.
Argentine assets have stabilised to some extent in recent weeks as the country’s central bank began to use IMF resources to intervene in the peso. While positive strides have been made by the Macri-led government – primary fiscal deficit for 2018 fell to 2.6% of GDP from 3.8% a year back – trade balance swung from a deficit to a $1.18 billion surplus as of March – the market is still concerned that the IMF programme could collapse if the populist opposition, led by former president Cristina Fernández de Kirchner, wins the presidential election in October. The fears are becoming more real as Christina Fernandez keep rising on polls despite not having put herself up for election. The peso firmed up slightly trading at 44.9090 to the dollar while ARGENTINA 47s traded just about flat closing at 66.544.
Russian steel giant, Novolipetsk Steel PJSC, is seizing on the lowest foreign borrowing costs in more than a year to issue a USD-denominated bond. The company, rated two levels above junk by Moody’s, will be looking to issue the bond with a maturity between five to seven years. The steelmaker joins a host of Russian companies that have taken advantage of ebbing fears over US sanctions to raise more than $4 billion in so far this year topping the comparative 2018 figure. The ruble firmed trading 64.95 to the dollar while Russia 47s were about flat at 102.435.