US stocks closed mixed on Tuesday after a late-day rally lifted the S&P and NASDAQ but was not enough for a recovery for the DOW which closed 0.08% lower. The late flurry saw gains of 0.12% and 0.54% for the S&P and NASDAQ respectively. Fed officials including chair Jerome Powell and deputy Randal Quarles addressed a conference on Tuesday on the recent stress tests for banks but made no commentary regarding monetary policy and investors will have to wait for his testimony in Congress for any hints. Yield on 10Y USTs rose to 2.0648%.
The pound slid below $1.25, closing at 1.2465 against the dollar as fears of a no-deal Brexit continued to mount. Members of Britain’s Parliament, in turn, narrowly passed a measure aimed at stopping the UK’s next leader from forcing a no-deal Brexit against their wishes with the vote getting 294 members for and 293 against. Interestingly, the two candidates vying to be the next premier clashed on a televised debate on the issue just minutes after the vote: Boris Johnson is bent on suspending Parliament if it remains the only way to complete Brexit on time while Jeremy Hunt rejected the notion. Yield on 10Y UKTs closed slightly higher at 0.7189%.
The prevailing dovish tilt among global central banks has seen a depression of yields so much that even some European junk bonds are beginning to trade at levels where investors have to pay for the ‘privilege’ of owning them. The number of euro-denominated junk bonds trading with negative yield – a status usually reserved for haven sovereign bonds – currently stands at 14 having been none at the beginning of the year according to data compiled by Bloomberg. Italy is taking advantage of the lower borrowing costs with an issue of 3- and 7-year notes in the offing and it also issued a €3 billion tap on its 50Y bond that had an orderbook of nearly €17 billion. The premium on benchmark 10Y Italian notes over 10Y German bunds, a key gauge of risk sentiment, fell to 194bps last week, the lowest level in over a year. Yield on 10Y DBRs rose to -0.356%.
Asia stocks were mixed in afternoon trading on Wednesday as the market cautiously traded ahead of Fed chair Jerome Powell’s congressional testimony starting today. The HANG SENG was one of the performers, trading 0.22% higher while the CSI and the NIKKEI were down 0.55% and 0.15% in the red respectively. A Reuters report stated that US-China trade talks are set for relaunch this week although no firm deadline has been set for completion of the deal with a pledge by the Chinese to buy more agricultural produce being key to the advancement of talks.
Turkey’s new central bank governor Murat Uysal’s first statement on assuming the position was a pledge to “independently implement monetary policy instruments” to ensure price stability. This standard statement may prove quite difficult to ensure as he will have to balance market expectations as well as the president’s own. President Erdogan has made no secret of his desire for lower interest rates telling lawmakers from his ruling party that everyone needs to get behind his view that high interest rates cause inflation else there would be consequences; tellingly, this was just hours after the ouster of former governor Murat Cetinkaya. The lira closed little changed at 5.7322 to the dollar while TURKEY 47s were trading unchanged in the mid 82s.
President Jair Bolsonaro’s pension bill seems to be gaining traction now as the majority leader of Brazil’s lower house Aguinaldo Ribeiro expressed optimism that the both votes in the lower house would be concluded this week. Ribeiro said that they have about 330 votes for the bill which is more than the required 308 according to the constitution. Threats remain to its passage however as members of Bolsonaro’s party are grumbling over the lack of special treatment for police. The problem with this, as house speaker Rodrigo Maia pointed out, is the domino effect it could cause with other public servants likely to demand special treatment. The real closed higher to the dollar at 3.7910 while BRAZIL 47s closed higher in the low 108s.
Russia’s current account surplus for the first half of the year narrowed to $45.8 billion from $47.7 billion over the same period in 2018. The Bank of Russia attributed this narrowing to a reduction in the value of exports compared to imports. The marked decrease in the trade surplus was however partially offset by a decrease in the negative balance of services as a result of the slight increase in services rendered outside the country the bank said. The statement also noted that international reserves had increased by $35.2 billion. The ruble closed lower to the dollar at 63.8958 while RUSSIA 47s traded about flat in the mid 111s.