US stocks resumed trading on a sour note having been closed for Memorial Day on Monday. The DOW was down 0.93%, the NASDAQ -0.39% and the S&P 0.84% lower. The yield on 10Y USTs fell to its lowest since September 2017 as the US-China tensions continued to up demand for haven assets. The yield fell 5.5bps to 2.2658% and has fallen by nearly 23bps since the start of the month, on course for the biggest monthly drop since March.
12 candidates are now vying to replace Theresa May as leader of the Conservative Party after Junior Brexit Minister James Cleverly put himself up for nomination. The candidate list so far has 8 names who served under May’s government at one point or the other including the Andrea Leadsom and frontrunner Boris Johnson. In the mix is also Graham Brady, who quit as leader of the Conservative’s 1922 Committee to put himself as a candidate; having been putting pressure on May to quit for a while he has a very outside chance of making it according to with some polls placing him behind James Cleverly who himself is not considered a top contender at the moment. The pound closed lower at $1.2653 while yield on 10Y UKTs also slid to 0.9164%.
Heads of the conservative, socialist, green and leftwing groups in the European Parliament released a joint statement cautioning EU leaders not to try and impose their own candidates for the bloc’s most senior job. The statement, released hours before the start of the Brussels summit that kickstarts the nomination for EU’s top jobs, insisted the European Commission presidency should go to one of the lead candidates who ran in last week’s elections. This highlights how charged the appointment of the EU’s high-ranking roles is likely to be, with some heads of state and government led by the French president rising against the parliament’s process and calling instead a negotiation among government leaders. The statement is a boost for Germany’s Manfred Weber, leader of the European People’s Party – largest grouping in parliament, but it stopped short of naming him as the parliament’s pick. His biggest hurdle remains the French, whose top campaigner Pascal Canfin said the Bavarian MEP was “totally disqualified” further stoking the Germany-France tussle for top jobs. The euro slid to $1.1160 while yield on 10Y DBRs lost 1.6bps to -0.161%.
Asian stocks were mostly lower in afternoon trading following losses on their US counterparts. The NIKKEI was down 1.21% with the HANG SENG following suit at -0.49%. The CSI recovered from a -0.2% opening to trade at 0.16%. The US decided not to label China a currency manipulator but remains on the list of nine nations that are being monitored to see if they are seeking to gain unfair trade advantages over the US by manipulating their currencies. The countries – in a list that also includes Germany and Japan among others – have their trade surpluses and other indicators closely tracked.
Turkey’s Capital Markets Board instructed the nation’s pension funds to retain a minimum amount in local stocks and government bonds in a move set to channel some 2.5 billion liras into fixed-income assets and some 500 million liras into the stock market. The move that may buoy the country’s markets but enhances concern over an increasingly interventionist style to policy making. By July 31, at least 10% of money managed by so-called standard funds needs to be invested in equities, and 25% of that held by money-market funds has to be allocated to state bonds, according to the statement. The lira firmed to close against the dollar to close at 6.0316 while TURKEY 47s were about flat at 76.890.
Mexico has been a key beneficiary of the US-China trade spat with the value of Mexican imports to the US overtaking those from China in March for the first time. Mexico has lately been focused on promoting its trade with North America and on not antagonising its and has found success with the NAFTA deal almost ratified. It has not succeeded in all areas though, with the US recently imposing a 17.5% duty on Mexican tomatoes, but its manufacturing industry is benefiting. As the trade war rages, Chinese companies could also use Mexico as an export platform to lower costs; while they do not comply with the rules of origin required to be able to export duty-free under NAFTA, Chinese companies exporting out of Mexico would pay considerably lower tariffs than the 25% they would face when exporting from China. The peso slid to trade at 19.1939 to the dollar while yield on MEXICO 47s gained to 93.784.
A senior official in the Finance Ministry said Russia may scrap a plan to buy back Eurobonds this year. The head of debt department Konstantin Vyshkovsky said debtholder demands are too high hence the intimation. The budget had planned for a buyback of up to $4 billion. Mr Vyshkovsky also said that Russia may sell another Eurobond this year, though at an amount smaller the $3.9 billion issued earlier. The ruble slid to close at 64.7110 to the dollar while RUSSIA 47s firmed to 105.365.
South Africa’s rand dropped to a 7-month low to 0.0672866 against the greenback, analysts attributed it in part to new President Cyril Ramphosa’s cabinet delay. Investors have started to bet against the incoming President’s ability to root out corruption and feel his reform agenda will prove abortive. The yield on ZAMBIN 5⅜ 09/20/22 reached 20.4% at close of trading yesterday and yield on EGYPT 5¾ 04/29/20 was 4.3%