US stocks closed in the red for a second straight day on a day of mixed earnings results and economic data while the lack of progress on trade talks added to the mix. Investors generally came into the earnings season with a bearish view on corporate profits with analysts expecting S&P 500 earnings to fall 3% in Q2 according to FactSet data. The S&P shed the most closing 0.65% lower on the day while the DOW and NASDAQ fell 0.42% and 0.46% respectively. Yield on 10Y USTs shed about 6bps to close at 2.0451%.
Bank of England policymakers appear to be moving away from their expectation for interest rates to be raised “at a gradual pace and to a limited extent”. Some policymakers have come out to say that outlook is weakening since the June decision as the economy continues to churn out largely gloomy data. Calls for a rate hike would be highly dependent on a smooth Brexit; this is getting more unlikely with Brexit Secretary Steve Barclay remarking that the risk of no-deal split is “underpriced” in the aftermath of Tuesday’s falling of the pound by almost 1%. A rate hike would also need confidence by policymakers the current economic slowdown is temporary. The pound rebounded, closing at $1.2433 while yield on 10Y UKTs shed 6bps to close at 0.7576%.
European stocks opened lower today as the economic slowdown hurt company profits in the current earnings session. The Stoxx Europe 600 opened 0.6% lower as major companies reported sales declines and gave profit warnings. A case in point would be Daimler AG’s profit warning last week just weeks after a previous lower guidance. So significant was the latest profit warning that S&P has now revised the German car manufacturer’s long term ‘A’ credit rating from stable to negative. The euro closed higher at $1.1224 while yield on 10Y DBRs slid to 0.290%.
Asian markets opened in the red as a new wave of economic warning signs hit the market. Efforts to restart trade talks seem to have stalled with Wall Street Journal reporting that the Huawei issue remains a point of contention: the Chinese are supposedly waiting to see if the US will relax restrictions on the company as recent reports suggested before committing to new negotiations. Elsewhere, South Korea’s central bank cut interest rates for the first time in 3 years as trade tensions with Japan heat up while Japanese exports fell for the seventh month running in June. Major bourses had slid further in afternoon trading from the poor openings to trade 1.97% lower for the NIKKEI while the CSI and the HANG SENG were 1.04% and 0.60% down respectively.
Turkey will no longer be able to buy the US F-35 fighter jets in what may be the first set of punitive measures after delivery of the Russian S-400s. President Trump confirmed this, albeit in a tone of regret, but blamed the Obama administration for ‘forcing’ Turkey’s hand. There is still room for other punitive measures as a State Department official commented that all options under the Countering America’s
Adversaries Through Sanctions Act were being examined. Turkish companies are also likely to be suspended from making parts of the F-35 which could have generated more than $9 billion over the programme’s lifetime. The lira closed firmer at 5.6846 while TURKEY 47s rose to the mid 83s.
Argentina’s inflation cooled for a third straight month in June as prices rose 2.7% in June while the annual inflation was 55.8% down from 57.3% a month earlier. This should be welcome news for President Mauricio Macri ahead of elections as other economic indicators including a stronger peso and falling interest rates paint a rosier picture of the economy subjected to austerity measures. His odds for winning elections have also been increased since he chose an influential senator from the opposition Peronists as his running mate, a move likely to gain him some support from Peronists. The peso closed firmer at 42.5163 to the dollar while ARGENT 47s were trading lower in the high 74s.
Russia’s OFZ auction is still seeing good demand although Wednesday’s auction was a significantly smaller size. The Ministry of Finance saw a demand of 26.9 billion rubles against 10.19 billion rubles that were on offer. Other data released on Wednesday also showed improving economic indicators as retail growth was at 1.4% YoY adding to the strong 3.3% YoY increase seen in industrial production. The impressive data should galvanise the central bank to cut rates during next week’s meeting. The ruble was firmer, closing at 62.9395 to the dollar while RUSSIA 47s traded higher in the mid 112s.