Signs that global monetary policy will become more dovish in the near future led to a record-setting day for US stocks on a day when the market closed early in preparation for Independence Day on Thursday. The DOW closed 0.67% higher to 26,966 points, its first record since October 3; the NASDAQ closed 0.75% up to a record 8,170.23 points while the S&P gained 0.77% to another record close at 2,995.82. President Trump nominated Christopher Waller, the research director at the St Louis Fed, and Judy Shelton, the US executive director for the EBRD, for posts on the Federal Reserve’s Board of Governors. Both are proponents of a dovish monetary policy with Shelton having recently said that rates should be cut immediately. Yield on 10Y USTs slid 2.5bps to their lowest level since 2016 to 1.9498%.
Yield on 10Y Gilts further plunged below the Bank of England rate to as low as 0.6652% in the morning London time following on from Tuesday’s historic close. Tuesday’s close was the first time since the global financial crisis that yields went below the bank rate and yields went up only mildly to close 3bps lower at 0.6897%, still under the bank’s 0.75% benchmark rate. The drop in gilt yields follow BoE Governor Mark Carney’s comments that trade tensions have increased risks to growth prompting traders in money markets to bet that the central bank will cut rates by 25bps by August next year. While the general commentary from the bank has been that rates would be hiked to smoothen the Brexit impact, his comments on Tuesday seem to hint otherwise. The pound closed lower against the dollar at 1.2574.
Italian bond yields sank to a 32-month low after the European Commission refrained from instituting disciplinary measures after Rome submitted new commitments that address some of Brussel’s concerns. The Commission noted however that it will continue monitoring Italy’s budgetary execution in the second half of the year. The rally in Italian bond yields followed the trend with other Eurozone sovereigns following Christine Lagarde’s nomination to replace Mario Draghi as head of the ECB. Yields on 10Y bonds across the bloc slid 1-3bps with 10Y DBRs notably hitting a record low of -0.3998% before closing at -0.387%, about 2bps lower than the previous day’s close. The rally suggests that the market is optimistic that Lagarde will continue Draghi’s dovish measures. The euro closed slightly lower to the dollar at 1.1278.
Following a record day for their Wall Street peers, Asian stocks opened the day on a largely high note amid optimism over future easy-money policies. By afternoon trading, the HANG SENG had however pared early gains to trade in the red at 0.18% while the NIKKEI cemented early gains to trade 0.30% higher. The CSI, curiously opened on a muted note despite signs of progress on the trade-war front after White House Economic advisor Larry Kudlow said high-level US and Chinese negotiators would talk on the phone next week to set up a new round of face-to-face meetings. The Chinese bourse slid from that opening to trade 0.70% in the afternoon.
Turkey took advantage of falling global yields and somewhat improved market sentiment towards the country after the G20 summit to raise $2.25 billion in a bond sale on Tuesday. The issue brings the total amount of funds raised from international markets to $8.7 billion according to the Finance Ministry. The offering, which attracted an orderbook of about 3 times its size, was immediately converted into an equivalent euro liability and as a result of the swap transaction now has a 3.803% coupon rate. The lira closed higher at 5.6226 while TURKEY 47s closed lower at 85.760.
Argentine companies rushing to international markets after a lengthy absence are finding that the market requires significant yield to take up their debt despite the fall in borrowing costs globally. Companies are dashing to raise funds before the presidential election race starts in August but are faced with demands of high yields from investors in light of the risk the country poses after a turbulent year which saw President Mauricio Macri seek a $56 billion bailout from the IMF. State oil company YPF SA sold its $500 million offering at 8.75% while Pampa Energia SA sold its $300 million offering at 9.375%. In contrast, the last blue-chip company to sell debt before the crisis worsened, Transportadora de Gas del Sur SA, issued 7Y bonds at 6.8% in May last year. The peso closed higher to the dollar at 42.0385 while ARGENT 47s closed higher at 75.068.
Russian central bank governor Elvira Nabiullina reiterated her warnings regarding use of excess funds from the National Wealth Fund to spur growth during a banking forum in St Petersburg on Thursday. Noting that while Russia is now better protected against external shocks, low economic and income growth are a harder challenge and would need structural reforms – which take time – and not fast fixes to growth. She also pointed out that pumping cheap money would spur inflation and advocated for private capital to be used in national investment projects, although Russia will need to revamp its investment climate she emphasised. The ruble closed about flat to the dollar at 63.3213 while RUSSIA 47s closed higher at 112.370.
Reports suggest that Africa’s biggest economy, Nigeria has announced that they will sign the Africa free trade agreement which aims to eliminate 90% of trade tariffs between member states creating a market force of 1.2 billion people with a cumulative GDP of $2.2 trillion. Nigeria will sign the agreement at the upcoming African Union Summit, leaving only Eritrea and Benin outside of the agreement. The South African Rand is currently exchanging for 14.01 against the US Dollar, while the yield on 6YR SA Eurobonds is 4.069%.