US stocks climbed at the end of a bruising week after President Trump pointed out that restrictions on Huawei may be eased as part of a bigger trade agreement with China: the DOW was up 037%, the NASDAQ up 0.12% while the S&P rose 0.14%. All stocks however ended the week lower with the DOW in particular, falling for a fifth straight week. Durable goods orders fell 2.1 per cent last month to $248.4bn from March’s 1.7 per cent gain. Although the monthly numbers can be volatile, the recent run of data have been patchy — with orders falling by the most in four months in February — and raising concerns about the health of the US economy.
An emotional Theresa May announced she will quit as Britain’s prime minister and Conservative party leader on June 7. Boris Johnson, a top contender to take over, praised May’s “dignified statement” and said he wants a pragmatic exit from the bloc, but the country must prepare for no-deal as a negotiating tactic. May’s main rival, opposition Labour Party Leader Jeremy Corbyn, was far less generous, saying May was “right” to quit and that whoever replaces May must call an immediate election. The next Tory leader faces a daunting task as the party performed dismally in European elections – Nigel Farage’s Brexit Party is poised to emerge victorious while the Tories are poised for a fifth-place finish with just 10% of the vote and behind Labour notably. The pound rose on Friday to close at 1.2714 to the dollar and kicked off the week on a strong note rising 0.2% on both on the greenback and the euro at 7am London time. Yield on 10Y UKTs was marginally up at 0.9546%.
Asian stocks were mixed in afternoon trading on Monday with the NIKKEI up 0.31% while the HANG SENG was 0.11% down. The CSI was also in the green at 1.21% despite a slump in industrial profits in April. Data released on Monday showed a contraction of 3.7% YoY – the quickest rate of monthly contraction since December 2015 – compared to a rebound of 13.9% in March YoY. The figures are seemingly another pointer to a slowdown in China’s economy and comes as trade tensions escalate with the US.
Europe’s far-right and nationalist parties made noteworthy gains in this weekend’s European Parliament elections resulting in a more diverse and fragmented legislature. As predicted in polls, the centre-left and centre-right have lost their combined majority for the first time in 40 years thus giving more leverage to smaller parties and the effects may be pronounced on environmental rules, trade liberalisation and tech regulation. The euro was little changed against its major peers on Monday immediately following the results of European parliamentary elections as pro-EU parties largely held their ground. It was trading at 1.1206 to the dollar in the morning having closed at 1.1204 on Friday. Yield on 10Y DBRs was up slightly closing at -0.1177%.
Turkey’s central bank took another step to improve its reserves by upping the amount of foreign currency lenders are required to park at the regulator. The monetary authority increased reserve requirements for foreign-exchange deposits by 200bps in measures targeted at withdrawing around $4.2 billion of liquidity from the market. Last week’s data showed that Turkey’s net international reserves dropped to the lowest level since October with concerns lingering that the central bank is trying to prop up the lira before next month’s elections. The lira gained closing at 6.0821 to the dollar while TURKEY 47s slid to 76.510.
The IMF cut its GDP projection for Brazil to between 1% and 1.5% from its April estimate of 2.1%. This was made in a statement on Friday while also noting that there are significant downside risks to the estimate. The IMF report also highlighted the importance of reforming the pension system noting that economic recovery could be derailed by failure to approve strong pension reform. Inflation slowed more than forecast, rising 0.35% against a predicted 0.41% but surged to 4.93% YoY, above the 4.25% target for 2019. The real closed stronger at 4.0227 to the dollar while BRAZIL 47s lost marginally to 99.174.
The Druzhba pipeline remains closed some four weeks after discovery of high levels of organic chlorides in Russian crude flowing to Europe. The pipeline ships some 1.5 million barrels of crude into central Europe per day and has affected supply with Poland forced to tap into emergency petroleum reserves. Although Russian officials have given a figure of 20 million contaminated barrels, oil traders assume as much as 40 million could have been tainted. The puzzling thing though, is that Russian production has remained constant despite the pipeline accounting for some 10% of daily output and questions are now being asked whether Russia has millions of barrels of empty storage to hoard the crude. The ruble firmed to the dollar closing at 64.8612 while RUSSIA 47s gained to 104.780.
Cyril Ramaphosa was sworn in as South Africa’s president on Saturday, the new leader made clear his plans on stimulating economic growth, reducing curbing costs where feasible. He also highlighted unemployment and poverty alleviation as some of his key targets. A stable currency, dipping inflation levels, steady interest rate levels and fresh optimism following the swearing in of a new President have all helped to a corporate bond rally in South Africa, following a decline recorded last year. The South African Rand (ZAR) fell below its 30-day average of 0.06961 to 0.06943 on Monday morning.