US stocks recorded minor gains to halt their slide on Thursday. The DOW was 0.17% up, the S&P rose 0.21% while NASDAQ climbed 0.27%. While this gave the market some reprieve from the US-China tensions, the US ramped up tariffs on its southern neighbour as a measure to force Mexico stop immigrants entering the US illegally. The 5% tariff – effective June 10 – is on all Mexican goods and could potentially rise to 25% on October 1 if the Mexican government does not proffer a solution according to a statement released by the White House. Yield on 10Y USTs lost 4.5bps to close at 2.213% as they continued their fall.
Prime Minister Theresa May is set to discuss China’s Huawei Technologies during President Trump’s state visit. The UK has not yet decided whether to follow the US which put a ban on the company on allegations of espionage. Washington is hoping to force London’s hand by threatening to limit intelligence sharing with Britain if the UK government allows Huawei to build part of the country’s 5G network, a message President Trump wants to convey himself according to reports. The pound was marginally lower against the dollar at 1.2608 while yield on 10Y UKTs was about flat at 0.8961%.
Investors largely ignored the Italy’s wrangle with the European Commission over debts as the country’s bonds were met with solid demand on Thursday. Bid-to-cover ratio for the €1.89 billion 5-year bonds was the highest since August last year at 1.78 times. Italy’s relatively high yields continue to lure investors with most of the other eurozone sovereign debt yields constricted. The euro was about flat at $1.1129 while yield on 10Y DBRs was likewise at -0.175%.
Asian stocks were trading in the red this afternoon as trade fears continued with the announcement of new US tariffs on Mexico. The NIKKEI and HANG SENG slid further from their negative openings to trade at -1.63% and -0.55% respectively. The CSI, having opened about flat was trading 0.19% lower after activity in China’s manufacturing sector fell in May, after two months of growth. The manufacturing purchasing managers’ index dropped below the 50-level separating expansion from contraction to 49.4 in May as the economy is bows to pressure from the ongoing trade war between Washington and Beijing.
Turkey officially exited its recession after data was released on Friday. In line with estimates GDP grew a seasonally adjusted 1.3% in Q1 from a decline of 2.4% in Q4 2018 but was 2.6% down YoY. Continued economic recovery still rests on prospects for the lira which has been the second worst-performing emerging market currency after Argentina’s peso this year. The lira firmed up significantly to the dollar closing at 5.8767 below the 6 mark for the first time this month. TURKEY 47s also traded more than a dollar higher at 78.025 at close.
Latin America’s two biggest economies contracted in Q1, setting the tone for a depressing year in a region grappling with low commodity prices and weak productivity. Brazil and Mexico, the region’s largest economies in that order, both had GDP contractions of 0.2% as business soured on President Jair Bolsonaro’s plans to revive and Mexico contended with a weak services sector. The US added further gloom to Mexico with announcement of tariffs that had the Mexican peso weaken by as much as 2.4% to 19.584 to the dollar having closed at 19.143. The real firmed to the dollar trading at 3.9820 while BRAZIL 47s traded higher at 99.714. as MEXICO 47s moved up to 94.413.
Russia central bank governor Elvira Nabiullina reiterated that a rate cut is still possible in Q2 or Q3. Speaking on Thursday she said that inflationary pressures which would have prompted intervention have largely subsided so the possibility of returning to rate cuts was looming. She added that de-dollarisation of reserves would continue with share of US dollars falling from as high as 45.8% at one point with Moscow believing the currency has become unreliable for international trade payments due to Washington’s trade policies and constant use of sanctions. The ruble was weaker at $65.1755 as RUSSIA 47s were higher at 105.150.