US stocks closed at their highest levels in six weeks after positive comments by President Trump on the trade front and the latest comments from the ECB hinting at further stimulus. The DOW and S&P rose 1.35% and 0.97% respectively to move within less than 1.5% of their record closes while the NASDAQ rose 1.39%. President Trump tweeted that there will be an extended meeting with Chinese President Xi Jinping at the G20 summit in Japan which should prompt a resumption of the trade talks that had stalled. Yield on 10YT USTs fell 3bps to 2.0595%.
International development secretary Rory Stewart could rightly count himself as being the most victorious of Tory candidates after Tuesday’s vote for the Conservative premiership. While he pulled up fourth in terms of number of votes after frontrunner Boris Johnson, Jeremy Hunt and Michael Gove, he made the most gains almost doubling his 19 votes tally from the initial round to 37 votes this time round. Home Secretary Sajid Javid just managed to scrap through getting the required 33 votes. His other rivals, noting his growing momentum, were on his case during a televised BBC debate featuring the five remaining candidates particularly as he emphasized how impossible it would be to renegotiate a deal with the EU. The next round of voting will whittle down the list to two candidates who will fight it out for votes from 160,000 voting Conservative party members. The pound gained slightly against the dollar to 1.2558 while yield on 10Y UKTs closed 4bps lower at 0.8047%.
European Central Bank policymakers anticipate using a rate cut as the first stimulus move instead of quantitative easing should they need to act again to boost inflation. The remarks, by officials who refused to be named, follow comments by the bank’s president Mario Draghi at the institution’s annual forum in Portugal that additional stimulus will be required if the economic outlook does not improve. While Draghi did not elaborate on which would be his primary tool for stimulus, he did mention a rate cut as well renewed asset purchases even if that meant raising self-imposed limits on how much the bank can buy. His comments however drew the ire of Donald Trump who tweeted that Draghi’s comments which had resulted in the euro weakening against the dollar was “making it unfairly easier for them to compete against the USA”. The euro closed lower against the dollar at 1.1194 while yield on 10Y DBRs fell close to 8bps to -0.3214%.
Asian stocks surged on opening today following the lead of their Wall Street counterparts and on renewed optimism regarding trade tensions following President Trump’s tweet that he had had a “very good telephone conversation” with President Xi Jinping. Having opened at least 1.5% higher, stocks remained in the green in afternoon trading with the HANG SENG 2.32% up while the CSI was 1.12% higher. The NIKKEI also remained in the green at 1.72% despite exports data showing a drop in May, a contraction for the sixth straight month.
Having appeared not to hold rallies to drum up support for the AKP in Sunday’ s elections, President Erdogan made an about-turn and addressed supporters on Tuesday devoting his speech to criticizing CHP candidate Ekrem Imamoglu. The initial plan had been based on an assessment by the ruling AKP that the president’s eminence during the March elections had benefitted the opposition. The plan now is that he will spend the week in Istanbul after the first televised debate between Imamoglu and AKP’s Binali Yildirim did not produce a clear win according to most commentators. The lira closed higher to the dollar at 5.8278 while TURKEY 47s closed higher at 79.880.
Brazil is looking to reduce its 2022 inflation target to 3.5% in a bid to align it with other emerging market economies. The tolerance range of 1.5% either side will be maintained as policymakers would want to cushion the impact of possible inflation shocks. Other Latin American nations have stricter inflation goals with Chile, Colombia and Mexico targeting 3% and have even narrower tolerance bands. The move is likely to boost investor confidence in the government’s commitment to bringing down inflation but may force the central bank to assume a tighter monetary policy. The real closed lower at 3.8607 to the dollar while BRAZIL 47s closed higher at 104.645.
Russia has been steadily decreasing its holdings of US Treasuries with the holdings falling to $12.136 billion in April – the lowest level since 2007 – from $13.716 billion in March. The country is seemingly taking cue from China which shed $7.5 billion of treasuries to $1.11 trillion, the lowest level in two years. Russia has been on a drive to move away from holding dollars in its reserves moving to other currencies such as the euro and the yuan. The ruble firmed to the dollar to 64.0260 while RUSSIA 47s closed higher at 109.277.
In Mozambique, President Filipe Nyusi was present at a signing ceremony with Anadarko Petroleum Corp CEO Al Walker, on the commissioning of a US$25bn liquified natural gas project which was described as the largest foreign direct investment in Africa. The project is expected to produce as much as 50 million tons per year when it reaches full capacity, with off-takers in Asia and Europe. The potential in this industry can help ease some of the financial distress and the see the government secure a restructuring deal on Eurobond and other foreign debt commitments.