US stocks recovered from early losses to close in the green for the first time in three sessions. This followed comments by New York Fed President John Williams advocating for a rate cut. The comments by Williams will set an optimistic tone going into the Federal Open Market Committee meeting at the end of the month; Fed policymakers will no longer be allowed to comment as the blackout period commences today. The S&P and the NASDAQ rose 0.36% and 0.27% respectively while the DOW only just made it into green territory closing 0.01% higher. Yield on 10Y USTs closed 2bps lower at 2.0242%.
The pound rallied after comments by EU’s chief negotiator Michel Barnier said a compromise may be found over the Irish border, a major hurdle in the Brexit deadlock. He did however point out that there would be no easy solutions and that discussions would need time. While this may have set the tone for renegotiation of Theresa May’s Brexit deal, EU spokesperson Mina Andreeva told reporters there would be no renegotiation of May’s deal. The pound had fallen to a 27-month low earlier in the week after comments by Tory leadership contenders Boris Johnson and Jeremy Hunt said the Irish backstop needed to go. Thursday’s rally saw the British currency close at 1.2549 against the dollar, about a percentage point higher than Wednesday’s close while yield on 10Y UKTs was about flat at 0.7578%.
Eurozone bonds and stocks jumped on reports that ECB staff have begun looking at a potential overhaul of their inflation goal, a move that could strengthen the resolve of policymakers to pursue monetary policy. The reports came as ECB policymakers head for a meeting next week to discuss rates with economists predicting that there will be a significant change in policy language to show that rates to be cut with the cut only done after the summer break. Economists in a Bloomberg survey are seeing a 10bps cut in September to a record low -0.50% in September. The euro closed higher at $1.1277 while yield on 10Y DBRs shed 2bps to -0.310%.
Asia’s major stocks opened higher for the first time this week following dovish comments by the New York Fed chief in a speech on Thursday. Such was the optimism for a rate cut after his comments that traders increased the prospects for a half-point rate cut to 50% up from 34% on Wednesday. Stocks maintained their momentum in afternoon trading with the NIKKEI trading 2.01% up while the HANG SENG and the CSI were 1.08% and 0.71% higher.
Turkey’s international reserves rose to the highest level in four months according to Bloomberg calculations based on published weekly balance sheet data. Net reserves for the week ending July 12 rose to $32.2 billion from $30.14 billion a week earlier. Meanwhile, parliament approved a bill that tweaks reserve rules for commercial lenders and allows the government to use central bank cash for budget financing. Among other elements of the bill, it will also include incentives for companies with financial difficulties to help them restructure their debt. The lira firmed against the dollar closing at 5.6180 while TURKEY 47s traded unchanged in the mid 83s.
The Brazilian real made the most gains from broad dollar weakness triggered by dovish remarks by the New York Fed chief on Thursday. The remarks resulted in a push on the real to close at 3.7215 to the dollar, the highest since February. Positive swings on the real have realised gains of 3.3% so far this month, the highest among 32 major currencies in a Bloomberg survey. BRAZIL 47s gained to trade in the mid 109s.
The head of the monetary policy at Russia’s central bank Alexey Zabotkin cautioned the market not to expect a very significant cut in next week’s meeting. After a sharp slowdown in inflation, investors were optimistic that as much as half a percentage point could be shaved of interest rates but Zabotkin said that this would only be justified if new data results in a considerable change in forecast. He also mentioned that plans to raise government spending this year could pose a particular threat to inflation outlook. Zabotkin mentioned that the central bank may also consider holding rates steady at 7.5% this month but only 2 of 22 economists in a Bloomberg survey expect that scenario. The ruble closed higher at 62.8132 to the dollar while RUSSIA 47s were lower, trading in the high 111s.
The Zambian government recently disclosed that up to 9 foreign companies have expressed interest to acquire Konkola Copper Mine (KCM) as it is currently under liquidation. The Minister of Mines and Minerals Development Richard Musukwa further disclosed that the companies bidding a take-over are from Russia, Turkey, Canada, Australia and China. In South Africa, the Reserve Bank MPC committee settled on a rate cut of 25bps for the first time since March 2018 in a bid to support the Rand, the SARB also cut GDP growth forecast for 2019 from 1% to 0.6%. The South African Rand (ZAR) was trading for 13.871 against the greenback and the yield on 6YR RSA Eurobonds was 4.13% at close of markets yesterday.