US stocks closed higher in a second successive session of all-time highs on Monday as investors digested Citigroup’s outperformance in Q2 and awaited a wave of Q2 earnings from other companies. The S&P closed higher, but only just, at 0.02% while the DOW and the NASDAQ gained 0.10% and 0.17%. All the indices had scored intraday records during the trading session. Yield on 10Y USTs closed 4bps lower at 2.0887%.
UK Chancellor Philip Hammond warned the incoming Prime Minister that a speedy UK-US trade deal is highly unlikely pointing out that US President Donald Trump will make demands that are likely to be highly unpopular in Britain, dragging the negotiations. His comments came in the wake of statements by an ally of frontrunner Boris Johnson that a limited trade deal in “one area” of goods could be brokered as soon as October 31; Boris’ team distanced itself from the highly ambitious timescale however. Hammond, who confirmed his departure from Treasury next week, said he will do everything he can from the backbenches to stop the new government from driving “the UK over a cliff edge called ‘no-deal’ Brexit.” The pound closed lower at $1.2492 while yield on 10Y UKTs shed 3.5bps to 0.7996%.
Investors are seeing increasing chances of the ECB making purchases of senior bank debt, more so if policymakers decide to further lower interest rates which have been eating into lenders’ profits. Conflict of interest would definitely arise as the ECB would be purchasing notes from banks which it regulates. Axa econonomist Gilles Moec says this can be surmountable as decisions on resolving failing banks are the responsibility of the Single Resolution Board, an EU agency, and not the central bank. Moec further sees this as a more efficient way of helping banks brave a further rate cut than potential alternatives. The euro was slightly higher at $1.1258 while yield on 10Y DBRs fell about 4bps to -0.251%.
Asian stocks were mixed on a quiet trading day as the market largely looked ahead to earnings season in the absence of major market-moving news. The NIKKEI, back from a holiday on Monday, was trading 0.69% lower, little changed from its -0.70% opening. The CSI in like manner had not made any notable recovery from its -0.20% opening, trading 0.18% in the red in afternoon trading. The HANG SENG bucked the trend however, rebounding from a 0.1% fall at opening to trade 0.16% higher in the afternoon. On the trade front, US Treasury Secretary Steve Mnuchin and Trade representative Robert Lighthizer may travel to China this week for trade negotiations if principal level calls later this week result in significant progress.
New central bank governor Murat Uysal broke finally gave his first interview since appointment on a note that hinted restraint as he leans towards a rate cut. Speaking to state-run Anadolu Agency Uysal said room to manoeuvre exists in monetary policy but promised to preserve a reasonable real rate of return for investors. With inflation down almost 5% this year, Turkey boasts a real rate of 8.3% – the highest among over 50 major economies. The lira was firmer at 5.7147 to the dollar while TURKEY 47s were higher, trading in the mid 82s at close.
In what investors will hope is not setting precedent, Brazil’s lower house approved an amendment to include more lenient rules for women. Majority leader Aguinaldo Ribeiro mentioned that the approval of the amendment would result in an estimated 18 billion reais being shaved off savings although official figures will only be released after second round approval. The bill will now only go for a second-round vote in the lower house in August as part of a strategy to protect the bill from further amendments. The real closed weaker to the dollar at 3.7570 while BRAZIL 47s were trading higher in the mid 109s.
Russia is working on amendments to the law on the National Payment System that will require transactions in Russian territory to be honoured, effectively compelling international payment systems not to adhere to penalties on sanctioned banks. The rules will affect several international payment systems notably Visa, MasterCard and China Union Pay and may force them out of Russia. The Bank of Russia is in support the amendments saying this will protect interests of Russian citizens and local financial infrastructure. The ruble closed higher at 62.6609 to the dollar while RUSSIA 47s traded higher in the low 112s.
On the back of President Lungu’s quick-fire sacking of his finance minister on Monday, newly installed minister and former deputy governor of the Zambian Central Bank, Bwalya Ng’andu is considering implementing a new across the board sales tax of 9% and a moratorium on new debt issuance in a bid to reduce the fiscal deficit. The new minister is also expected to hold talks with Vedanta, the country’s largest mining company, to resolve the on-going legal tussle. Zambia’s dollar-denominated government bonds jumped after news of his appointment. The South African Rand (ZAR) was exchanging at 13.8984 to the US Dollar.