US stocks finally bucked the trend and closed in the green in the wake of the temporary relief for networks that use Huawei equipment. The DOW was up 0.77%, the NASDAQ +1.08% and the S&P gained 0.85%. For all the tumult, stocks remain within 5% of their all-time highs with the S&P actually within 3% of the record. US companies in China are facing a backlash due to the trade tensions with about half the members of the American Chamber of Commerce saying they are facing retaliation in the form of slower customs clearance, more inspections and delayed licence approvals in the two weeks since tariffs were upped. Yield on 10Y USTs was up 1bp to 2.426%.
The pound stemmed its slide as it gained after Theresa May announced that she’s prepared to give Parliament a vote on holding a second Brexit referendum rallying to 1.2788 before closing at 1.2705 up slightly from Monday’s close. This was after having slid to a four-month low against the dollar in the morning to 1.2685 amid the gloomy prospects for May’s next Brexit bill and the jostling among Tories to replace her. With previous efforts to get a deal having been thwarted by Parliament, May said she will also give lawmakers a vote on customs arrangements. The yield on 10Y UKTs was up 2bps at 1.085%.
Germany is ready to push one of its own for one of EU’s top jobs. Chancellor Angela Merkel is looking to have a German lead the European Commission or ECB but faces resistance from French President Emmanuel Macron who is also looking to have a Frenchman leading. The Germans believe they should be allowed to lead one of the EU institutions being the largest contributor to the bloc’s budget and having not led any of the institutions since the 1960s. Both of the country’s top picks for the positions are a hard sell however for Merkel: Manfred Weber, the pick for the European Commission post, has largely failed to make a mark in the European Parliament while Jens Weidmann, the pick for the ECB position, often incites strong opinions especially given his criticism of the incumbent Mario Draghi. The euro was slightly lower against the dollar at 1.1159 while the yield on 10Y DBRs gained closing at -0.064%.
Asian stocks were mixed in the afternoon; the CSI was 0.76% down while the Hang Seng inched up 0.04%. The Nikkei was up just 0.05% as exports fell for a fifth month running with a decline of 2.4% in April. While exports to China and Europe fell, exports to the US rose almost 10% on the back of strong demand for Japanese cars. On the trade-talks front, the Chinese ambassador to the US said that China was still open to resuming talks but blamed the US for the breakdown in negotiations saying they “changed their minds so often.”
Turkey’s central bank rolled back a tightening of monetary policy it delivered this month saying it would start offering funds at its cheapest rate of 24% down from 25.5% that has been in place for the last two weeks. The lira traded weaker against the dollar after the decision, losing some 0.4% before closing at 6.0666 slightly unchanged from Monday. The move trails similar measures that have been taken lately to defend the lira before a re-run of the Istanbul elections next month. TURKEY 47s closed lower at 79.18.
President Jair Bolsonaro sounded less confrontational when he spoke about overhauling the pension system. Speaking to business leaders in Rio he said that he was open to an alternative bill to his but maintained that there has to be an overhaul to the system. His spokesman said after the speech that the president wants to partner with lawmakers to negotiate a reform. The concern over the government’s ability to approve substantial reform have been fueling uncertainty that is hurting the economy. BRAZIL 41s closed at 100.67 while the real firmed to close at 4.0395 to the dollar.
Russia oil sales to the US are increasing rapidly as the supplier is stepping in to cover the supply gap from Venezuela sanctions and OPEC supply cuts. A report suggests that 5 million barrels were delivered in just the first half of May while the February figure according to the Energy Administration Agency is 16 million; some 137 million barrels were shipped in all of 2018 to put it in perspective. The increasing supply of Russian oil to the American market is in stark contrast to the rhetoric the US has been pushing on Europe because of the Nord Stream 2 pipeline from Russia to Germany. The ruble closed marginally higher to the dollar at 64.4226 while RUSSIA 47s was up at 105.21.
In Nigeria the Monetary Policy Committee voted to retain the benchmark rate at 13.5% in a bid to continue her efforts to bring down inflation which currently stands at 11.37% to the target band of 6% – 9%. In a bid to manage high debts and plummeting foreign currency reserves, the government is urgently seeking greater shares of its key natural resource and as a result, have cranked up the heat on Konkola Copper Mines. President Lungu was confirmed his intention to sell the mine to new investors and dispossess Vedanta from ownership. The Zambian Kwacha as at Wednesday morning was trading at 0.0724 to the USD while the yield on ZAMBIN 24 reached 18.4%.