Fed Chair Jerome Powell’s comments yesterday dampened hopes of a rate cut resulting for some investors in yet another day in the red for US stocks. While he did note that “an ounce of prevention is worth more than a pound of cure”, Powell also remarked that they (him and other Fed officials) were grappling with whether uncertainties about trade and the global economy would last for long and whether they would be serious enough to warrant policy accommodation. The NASDAQ was heaviest hit losing 1.51% while the DOW and S&P shed 0.67% and 0.95% respectively. Yield on 10Y USTs lost 3bps to close at 1.985%.
Boris Johnson ramped up his Brexit rhetoric with a “do or die” pledge to leave the EU by October 31 as he and rival Jeremy Hunt lay out their strategies for Brexit. Boris then challenged Hunt to come up with an alternative to the commitment to leave by the deadline with or without a deal in an open letter via Twitter. Hunt retorted that the insistence on a deadline would likely lead to general election and a likely victory for the Labour party which is anti-Brexit. Hunt emphasized the EU’s stance that it will not renegotiate Theresa May’s deal and they wouldn’t trust Johnson to renegotiate in any case. The pound closed lower at $1.2689 while yield on 10Y UKTs lost 2bps to 0.7925%.
The head of Italy’s lower house budget committee, Claudio Borghi, said the country’s deficit will be less than previously forecast at 2%. This should help win over the EU with the Commission having held off disciplinary proceedings over the debt issues for a week. Borghi’s comments echoed Finance Minister Giovanni Tria’s optimism that an EU censure could be averted. The row with the EU has been over how to reduce the deficit with Rome insisting this be done gradually to avoid harming the economy while Brussels is in favour of a swift action. The euro was just about flat at $1.1366 while yield on 10Y DBRs lost 2bps to -0.331%.
Asia stocks were mostly in the red in afternoon trading despite hopes of renewed trade talks as the leaders of the US and China will meet during the G20 summit. Top negotiators on both sides, Chinese Vice Premier Liu he and US Trade Representative Robert Lighthizer had a telephone conversation on Monday though no details were released about their call. Only the HANG SENG was trading in the green at 0.23% while the NIKKEI was trading 0.51% lower and the CSI was 0.11% down.
Ahead of his meeting with President Trump at the G20 summit, President Erdogan reiterated that Turkey will not be stepping back from the purchase of Russia’s S-400 missile defense system calling it a matter of sovereignty. He also said that deliveries of the S-400 system would start next month. This should likely be a talking point during his meeting with Trump. Addressing reporters afterwards, Erdogan shot down speculation regarding a cabinet reshuffle saying, “There is no change of cabinet with such impositions from outside.” The lira firmed closing at 5.7953 to the dollar while TURKEY 47s closed higher at 83.455.
Polling firm Isonomia expects President Mauricio Macri to lose the primary vote in August to rival Alberto Fernandez. Isonomia also said that markets expect Fernandez to win the first round of voting in October. Macri has so far failed to improve the economy since he took power in 2015. While fiscal deficit which stood at 8% when he took over should be all but gone at year end, largely due to an unpopular drive to eliminate subsidies, other fundamentals have deteriorated. Debt has grown from 53% of GDP to 89%, inflation is at 57% about double the unofficial 2015 figure and the economy has shrunk by 4.1% over the same period. His main criticism has been that he overpromised and that may come back to haunt him in the elections. The peso closed firmer at 42.3855 to the dollar while ARGENT 47s closed lower at 70.991.
The Bank of Russia is published an optimistic forecast for the country’s economy in its quarterly report on Monday. Noting that the slump in the first quarter was temporary, Q2 should see an expansion of 0.5 – 1% YoY. Q3 should see even more growth at 0.8 – 1.3% YoY on the back of increased government spending. The report also attributed the ruble’s strong performance in Q2 to international investor demand and higher oil prices. The ruble closed weaker to the dollar closing at 62.8627 while RUSSIA 47s traded lower closing at 110.665