UNITED STATES

US stocks closed higher on the announcement of a White House and Congress deal on the debt ceiling in addition to reports of progress on the trade talks and good corporate earnings. The DOW closed 0.65% higher after better-than-expected earnings from Coca-Cola and United Technologies while the S&P rose 0.68%. The NASDAQ braved an early storm to also close 0.58% higher; tech stocks had fallen in the morning after the Department of Justice officially confirmed that it was opening an antitrust investigation on Google, Amazon, Facebook and Apple. All the stocks in question had fallen more than 1% save Apple whose decline was eased by reports that it is in advanced talks to buy Intel’s smartphone chip business. Yield on 10Y USTs rose to 2.0812%.

UNITED KINGDOM

Boris Johnson was confirmed as the new Conservative Party leader yesterday as has been largely expected since Theresa May announced her resignation. There were no twists in his bid this time round, defeating his rival Jeremy Hunt by a 2:1 margin. While he got congratulatory messages from all over with President Trump calling him “Britain Trump”, the EU and the IMF are more wary to the risks he may pose. The IMF, in its latest world economic outlook, revised global growth downward by 0.1% to 3.2% for 2019 citing the increased risk of a no-deal Brexit as one of the key factors weighing down on global economic growth alongside trade tensions. With British MPs already banding together to stop a no deal exit and the EU seemingly digging in its heels regarding a renegotiation of May’s Brexit deal, Boris has a tough job in waiting in 10 Downing Street. The pound whipsawed on the announcement, falling then spiking before falling again to close at $1.2440, lower than Monday’s close. Yield on 10Y UKTs closed lower at 0.6901%.

EUROPEAN UNION

IHS Markit’s latest report on Germany PMI showed the euro area’s largest economy is under increased strain after posting its worst performance in 7 years to send yield on benchmark bunds tumbling to -0.390% having closed at -0.355% on Tuesday. Manufacturing PMI for July stood at 43.1 down from June’s 45.0 marking its lowest level since 2012. The report attributed the decline partly to the increased concerns towards outlook for the car industry particularly as the US continues to threaten tariffs on EU vehicles. Germany would be the hardest hit of eurozone economies were US tariffs to come into effect as its exports to the US make up the greatest proportion of total vehicle exports in the bloc. The euro closed lower against the dollar to 1.1152

ASIA

A Wall Street Journal report indicating that a US delegation will travel to Shanghai for high-level trade talks today set Asian stocks on a high on opening today. In another welcome sign, White House economic advisor Larry Kudlow said China may be prepared to buy more US agricultural products, a reported sticky point in the resumption of negotiations. Major stocks remained in the green in the afternoon with the ASX and NIKKEI closing 0.77% and 0.41% up respectively while the HANG SENG and the CSI were trading 0.58% and 0.64% higher respectively.

TURKEY

The scale of the almost-certain rate cut at Thursday’s Monetary Policy Committee meeting for Turkey’s central bank meeting has proved quite difficult to predict for analysts. An average forecast of a 2.5% cut has come from polls conducted by Bloomberg and Reuters but the range of cuts has varied from as little as 50bps to a massive 800bps. The uncertainty largely stems from how difficult it is to predict what President Erdogan wants as his sacking of former governor Murat Cetinkaya reportedly stemmed from a clash over the depth of rate cuts among other things. Headroom does exist for a significant cut with slowing inflation and a narrowing deficit but analysts are generally in consensus that anything in excess of 300bps would be counter-productive. The lira closed weaker at 5.7180 to the dollar while TURKEY 47s traded higher in the mid 84s.

LATAM

Former Brazil central bank president Affonso Celso Pastore is forecasting a cut of the benchmark Selic to 5% by year-end. Citing depressed growth and slow inflation, the former central banker is calling for a half-point cut this month and expects another of the same magnitude then one or two more by year end. Mid-July inflation stood at 3.27%, nearly a full point below the 2019 target; the figure was 0.09% above the mid-June figure but was the slowest rise in more than a year. Pastore’s remarks echo those of another former central banker Luiz Fernando Figueiredo who was the central bank’s monetary policy director. Figuiredo said that “it makes no sense to start slow” citing the need for economic stimulus as he called for an initial 50bps cut and sees the Selic at 5% at the end of the year. The real closed weaker at 3.7749 to the dollar while BRAZIL 47s were higher, trading in the mid 110s.

RUSSIA

The ruble touched 70.2442 against the euro against the euro Wednesday morning, its strongest level since March 2018. The firming has been due to a number of factors: a globally weaker euro, firming oil prices amid Iran-related tensions and month-end tax payments that usually prompt conversion of hard currency from export-oriented companies. The ruble should receive further support from the OFZ auction later in the day if the recent trend in demand for the bonds continues. The ruble closed slightly weaker against the dollar at 63.1717 on Tuesday while RUSSIA 47s were higher, trading in the mid 112s.