A tech rally led to Wall Street stocks closing in the green to kickstart a busy earnings week where 144 S&P 500 components and a third of DOW components are due to report earnings. Tech stocks were boosted after a meeting between President Trump and CEOs of some tech companies resulted in a promise by Trump to process applications to supply Huawei quickly. The DOW closed 0.07% higher while the S&P and NASDAQ closed 0.28% and 0.71% up respectively. Yield on 10Y USTs closed lower at 2.0464%.
Boris Johnson stands to take over a deeply divided Conservative party after assuming the leadership of the Conservative party as is widely expected; Jeremy Hunt, his rival, has claimed the result will be “closer than what people think” but bookmakers are unanimous in the opinion that Boris will succeed May. Parliamentary majority for the Tories is on the brink of being lost with so much polarisation over how to deliver Brexit in addition to the loss of members as Tory MP Charlie Elphickle was suspended after being charged with sexual assault. In turn MPs may not put so much effort in working towards delivering Brexit as their eyes will be on an early general election as Brexit teeters on. The pound slid further to close at $1.2476 while yield on 10Y UKTs fell to 0.7063%.
European banks will be looking forward to how the ECB will mitigate the effects of further interest rate cuts into the negative. ECB President Mario Draghi has already highlighted how measures may be needed to prevent further squeezing of lenders’ profits if rates are reduced further, as looks likely. The ECB is the only one of five central banks with negative rates not to introduce mitigatory measures for lenders but its case is no easy feat as the system will have to be fair for the 19 nations that use the euro. Tiering, a measure by which some deposits at the central bank are exempt from the negative interest rate, has been the most common proposal but this is fraught with challenges as it will invite criticism from smaller nations that stronger economies are being unfairly supported being the ones parking the most deposits at the ECB. The euro closed lower at $1.1209 while yield on 10Y DBRs slid 2bps to -0.346%.
Asian stocks opened in the green following in the footsteps of their Wall Street peers which kicked off a busy earnings week in the green. There also was optimism on the trade front as the South China Morning Post reported that US officials would be in Beijing next week for trade talks while President Trump agreed to grant timely licences to US firms that want to sell to Huawei. Major stocks had cemented early gains in afternoon trading with the NIKKEI 0.95% higher while the CSI and the HANG SENG were 0.32% and 0.25% respectively.
Turkey is heading towards another collision course with the US over American-backed Kurdish fighters in Syria. Turkey insists that Syrian Kurdish fighters roam too close to its border and would want a safe zone to be created which would be off-limits to the Kurdish fighters else they will launch an operation to create the zone themselves. Turkey already sees the Kurdish militant group, YPG, as an enemy because of its links to another Kurdish separatist movement, PKK, they have been fighting for over thirty years; PKK has however been branded a terrorist organization by the US. The lira closed lower against the dollar at 5.6796 while TURKEY 47s traded about flat in the high 83s.
Argentina’s central bank will keep its key rate at or above 58% until August’s primary vote as it looks to avoid major currency volatility before presidential elections. The bank also unveiled a bi-mothly average target for its monetary base in July and August, which remains at 1.34 trillion pesos; previous targets were on a monthly basis. The average target for its monetary base will allow it to offer more pesos in the second half of July, when demand is higher, and mop up the excess liquidity in August. The IMF signaled support for the measures. The peso closed lower at 42.4550 to the dollar while ARGENT 47s were lower, trading in the mid 74s.
A report by Russia’s Economy Ministry says the economy expanded 0.7% YoY in the first half. The report also stated that total output remained weak, expanding a modest 0.8% YoY in Q2 and 0.5% in Q1. Demand continued to be weak with a sharp slowdown in inflation which stood at 4.5% as at 15 July, a fall in new jobs and a decline in imports despite a strengthening ruble. The ruble closed slightly weaker at 63.0998 to the dollar while RUSSIA 47s were unchanged trading in the low 112s.