UNITED STATES

US stocks closed in the green as optimism continued to pervade markets following the dropping of plans to impose tariffs on Mexico by the US. The NASDAQ rose the highest at 1.05% while the DOW and S&P climbed 0.30% and 0.47% respectively. Yield on US treasuries recorded their biggest 1-day climb in 9 weeks as investors ditched government paper for equity after the easing of the Mexico tariff threat. The 10Y note gained 6.75bps to close at 2.1484%.

UNITED KINGDOM

As the race to replace Theresa May officially began yesterday, the main contenders appeared to agree on one point: ending the Tory focus on debt reduction as the guiding standard of economic policy. Curiously, the same candidates have also promised cuts in personal and income taxes from Michael Gove’s replacement of VAT to Jeremy Hunt’s reduction of corporation tax to 12.5% to Boris Johnson’s tax cut for top earners. Boris’ tax cut has drawn the most criticism from fellow candidates in addition to criticism over his seeming media-shyness as he has not held any press conferences or broadcast interviews instead communicating via his columns in the Daily Telegraph. The pound was lower at $1.2685 while yield on 10Y UKTs was up 2.6bps to 0.838%.

EUROPEAN UNION

Uncertainty regarding Brexit has resulted in a boost to foreign investment in the European Union other 27 countries in the three years since the Brexit vote according to a Financial Times analysis. Total capital invested in the bloc in the three years to Q1 2019 was up 43% from the preceding three while the UK suffered a 30% drop in foreign investment. The increased capital flow has improved the eurozone’s labour market with 474,000 more jobs having been created in the latest three-year period compared to the three-year period before that. The euro was lower against the dollar at 1.1312 while yield on 10Y DBRs was up over 3bps to close at -0.22%.

ASIA

Asian stocks were trading higher in afternoon trading with Chinese stocks leading the gains despite the increased threat of tariffs by Donald Trump. The CSI was trading 2.58% up while the HANG SENG gained 0.77% and the NIKKEI climbed 0.33%. The US President told reporters on Monday that tariffs would be raised against China on goods that are currently not under tariffs if Chinese President Xi Jinping skipped the G20 summit later this month. No indications however have been given that the Chinese President will not attend the meeting.

TURKEY

Turkey papers are reporting that a Russian delegation is expected in Turkey June 28-29 to make preparations before the delivery of the S-400 missile defence system.  Interestingly, this is immediately after a NATO summit scheduled for June 26-27 where US and Turkish defence officials are supposed to discuss the purchase of the S-400. Acting US Defence Secretary Patrick Shanahan wrote his Turkish counterpart Hulusi Akar telling him that the US will not plan for Turkish participation at a meeting for the F-35 jets and that Turkish participation in the F-35 programme would end on July 31 if the S-400 purchase is not cancelled. The lira was up closing at 5.7755 to the dollar while TURKEY 47s traded higher at 80.175.

LATAM

The process to reform Brazil’s pension system hit yet another bump as lower house minority leader Jandira Feghali announced that opposition parties will try to block the reading of the pension reform report next Thursday. Feghali said this after an alleged conversation between Justice Minister Sergio Moro and prosecutors in the Operation Car Wash corruption probe was published over the weekend. The opposition, which constitutes 11 of the 49-member special committee on pension reform, is calling for the removal of Moro from his ministerial post and the suspension of prosecutors. The real was aboult flat to the dollar at 3.8888 while BRAZIL 47 traded lower at 103.328.

RUSSIA

S&P Global Ratings warned Russia that it risks opening up its economy to fluctuations in oil prices if the proposal to start spending a $59 billion sovereign wealth fund on local projects proceeds. The proposal, made by First Deputy Prime Minister Anton Siluanov over the weekend, would mark a turnaround in policy which stipulates that excess money from the fund will be invested abroad. With foreign direct investment inflows having dried up in recent years, the Finance Ministry is looking for money to help implement President Putin’s $400 billion national projects. The plan is likely to meet resistance from the central bank, with governor Elvira Nabiullina saying at last week’s International Economic Forum that structural reform should be employed to spur growth instead of throwing money at development. The ruble firmed to close at 64.7737 to the dollar while RUSSIA 47s traded higher to 108.180 at close.

SSA

Moody’s ratings agency on Monday reduced its forecast for South Africa’s 2019 economic growth to 1.0% from 1.3% on the back of a first quarter contraction that had impacted government revenue and policy options.  The yield on 5 YR SOAF treasuries were 3.895% and 9 YR was 4.888% at close of market yesterday, The ZAR is trading at 0.0677708 to the dollar.