US stocks rebounded after two days of successive losses with the NASDAQ up 0.57% while the S&P and DOW gained 0.41% and 0.39% respectively. US jobless claims rose to 222,000 against an expected 215,000 in a Bloomberg survey, soaring to a five-week and increasing signs of slowing in the labour market following dismal job growth in May. Yield on 10Y USTs closed 2.5bps lower at 2.0945%.
Boris Johnson took a huge lead in the race to 10 Downing Street after the first round of voting on Thursday with 114 of the 313 Tory members backing him while his closest rival Jeremy Hunt got 43. While the contest is only just starting with another vote next week, frontrunners appear to be already showing with Michael Gove joining the two and distancing themselves from the rest of the field in terms of backers. With three candidates already out (most notably Andrea Leadsom) after failing to amass enough votes, most of the remaining field will have to work harder to get enough backers to reach the minimum 33 votes required to proceed to the next round. The pound whipsawed after the vote, falling before surging to the day’s high of $1.2705 and finally closing at $1.2674 slightly lower than the previous day’s close. Yield on 10Y UKTs fell just over 3bps to 0.8345%.
The European Commission warned Italy’s government that mere verbal reassurances will no longer suffice to stave off an infringement procedure for its excessive debt. European Union finance deputies agreed with the commission on Tuesday that Italy isn’t doing enough to bring down debt and that a formal censure is warranted; the Commission could propose formal opening of proceedings in as soon as a few weeks. The Italian government is however, confident an all-out confrontation can be averted with the Commission Vice President Valdis Dombrovskis saying finance ministers will take into account any additional elements Italy will put forward. The euro closed about flat at 1.1276 while yield on 10Y DBRs fell to -0.241%.
Asia stocks traded mostly lower in the afternoon as geopolitical tensions swelled after the attack on two tankers near the Strait of Hormuz and protests in Hong Kong over the extradition bill continued albeit on a more subdued note. The NIKKEI was up 0.40% while the HANG SENG and CSI were down 0.72% and 0.99% respectively. The threat that the US could ramp up tariffs over China still remains with director of the US national Economic Council Larry Kudlow echoing President Trump’s earlier comments on the consequences of President Xi Jinping not meeting with him at the G20 summit.
Tensions in the Middle East continue to escalate after the attack on oil tankers yesterday which the US is blaming on Iran. While Iran is denying the accusations, US officials are saying initial evidence suggests the attack was done using a mine employed against oil tankers off the UAE last month, an attack Iran is also accused of. Brent which had surged over 4% in the aftermath of yesterday’s attacks, closed at $61.31 up from a $59.97 a day earlier.
Turkey’s current account recorded a deficit of $1.33 billion in April on the back of a decline in the lira and weak consumer demand which curbed imports. The deficit, almost a quarter of the April 2018 figure, outperformed a median forecast of $1.5 billion in a Bloomberg survey. The 12-month rolling deficit was down to $8.63 billion from $12.9 billion in March. Treasury and Finance Minister Berat Albayrak said the country will start posting a current account surplus in June and will post a record-high surplus this year. The lira closed lower to the dollar at 5.8688 while TURKEY 47s were trading lower at 79.040.
President Jair Bolsonaro finally broke the silence over the scandal involving his Justice Minister Sergio Moro over former President Lula’s trial. The President downplayed the effects of the leak instead pointing out that Moro had done a great service to Brazil by pointing out corruption. It was a rather busy day for Bolsonaro as he also fired his government secretary General Santos Cruz. The moderate former commander was one of the few voices of moderation in the Bolsonaro administration and repeatedly clashed with the president’s son Carlos and his more radical supporters over provocative postings on social media. Cruz becomes the third minister to leave with another, Gustavo Bebianno, having also left after clashing with Carlos Bolsonaro. The real was trading lower to the dollar at 3.8941 while BRAZIL 47s were trading higher at 104.029.
Russia’s reserves topped $500 billion for the first time since the 2014 currency crisis after an increase in foreign currency and gold holdings by $7.5 billion in the week ending June 7. The reserves have spiked in the last two years because of a budget rule that diverts revenues earned when oil trades above $40 a barrel. Although reserves have reached the level policymakers deemed would be sufficient to protect the country from swings in oil prices and Potential sanctions, Governor Elvina Nabiullina said she intends to continue growing reserves beyond the mark. The ruble closed marginally higher at 64.5553 to the dollar while RUSSIA 47s traded lower, closing at 107.632.
The South African economy continues to feel the strain of Eskom and other state-owned companies’ woes, impacting GDP growth to -3.2% in Q1. This performance will further put pressure on government finances as tax receipts will drop. Economists have started to predict that recovery will not come quick as expansion is projected to reach 1.1% by year end and 1.7% in 2020. The Central Bank continues to feel the heat as they want to avoid the risk of a downgrade from investment grade rating which is imminent. The yield on SOAF 4.665 01/17/24 was 3.977 with an Investment grade rating of Baa3 from Moody’s. In the currency space, the South African Rand was trading for 0.06737 against the greenback.