US stocks closed lower on Tuesday following President Trump’s renewed attacks on China even as US negotiators are in China for trade negotiations. Trump put pressure on China to agree to a deal quickly saying terms of agreement would be tougher if he is re-elected. Investors also await the Fed’s decision today with a 25bps cut expected even in the face of healthy US economic data according to latest reports. The DOW closed lower at 0.09% while the NASDAQ and S&P shed 0.24% and 0.26% respectively. Yield on 10Y USTs closed lower at 2.058%.
The pound continued its slide on Tuesday as market fears over a no-deal Brexit continued unabated. The currency has fallen 4% since the end of June, on track for its worst month since October 2016, with 2.5% having been shed since Boris Johnson took office. The currency fell as low as $1.2122 in the morning but recovered somewhat to close at $1.2152, though lower than Monday’s close. During his visit to Wales on Tuesday, Prime Minister Boris Johnson said “it’s up to the EU” whether Britain leaves with or without a deal and reiterated that his government was not aiming for a no-deal but was prepared to do it as he tried to do a bit of firefighting. Yield on 10Y UKTs further slid 2bps to 0.6329%.
German inflation slowed more than expected in July falling to 1.1%YoY in July against an expected 1.3% according to a Reuters poll. The data comes ahead of Wednesday’s eurozone inflation data, which has fallen well below the ECB’s target of just under 2% in recent months, helping pile pressure on the central bank to come up with a policy response to stubbornly low inflation and slowing growth. Meanwhile, Germany’s constitutional court will have a fresh hearing on the legality of the ECB’s quantitative easing programme just the central bank looks to resume it. The complainants want Bundesbank, the largest purchaser of bonds under QE, to stop participating in the ECB programme a move they argue is essentially monetary financing and therefore illegal. The euro closed slightly higher at $1.1155 while yield on 10Y DBRs closed lower at –0.4013%.
Asia markets opened down after President Trump’s tweets that further added to the pessimism regarding progress in trade talks. In a series of tweets on Tuesday morning, Trump slated China for not buying more American agricultural produce as well as took credit for its slowing economy. Markets had not made any recovery in afternoon trading with the NIKKEI and HANG SENG leading the slide at -0.77% and -1.31% respectively while the CSI and ASX were trading 0.45% and 0.41% lower in turn.
Turkey’s central bank governor Murat Uysal makes his public debut today as he presents the bank’s base scenario for inflation through the rest of 2019 and for the next two years. Uysal will be presenting the central bank’s latest take on inflation that should provide a guide to what may be the biggest easing push in emerging markets. Policy makers had left inflation projections unchanged in April at 14.6% for this year and 8.2% for next year. The lira closed firmer at 5.5587 to the dollar while TURKEY 47s were unchanged, trading in the mid 85s.
Mexico’s President Andres Lopez Obrador said in an interview that his country’s benchmark rate is too high for a slowing economy and remarked that “it’s important to lower rates to kickstart the economy.” The Mexican leader has largely refrained from publicly expressing a view about interest rates since taking office and did put a disclaimer during his interview that he respects the central bank’s freedom to set rates independently; his case sets him apart from such leaders as the US Trump and Turkey’s Erdogan who have publicly called on rates to be lowered and even fired governors in the latter case for not heeding to calls for rate cuts. Mexico’s benchmark rate has been held at 8.25% even as inflation slowed to below 4% and as a result has one of the world’s highest real interest rates. Mexico’s economy shrank in Q1 and a median estimate in a Bloomberg survey points to another contraction in q2 hence the calls for a rate cut. The peso closed about flat at 19.0628 to the dollar while MEXICO 47s closed lower, trading in the mid 97s.
Russia’s Finance Ministry will be offering 20 billion rubles maturing in 2025 in today’s OFZ auction. Hopes will be that interest will remain peaked as was the case in last week’s offering where 49% of the 2039 bonds was picked up by foreigners. Commenting on the interest in emerging market debt of late, the head of the debt department in the Russian Finance Ministry Konstantin Vyshkovsky said that the plan to raise 2.5 trillion rubles in debt this year was on track. The ruble closed slightly weaker at 63.5110 to the dollar while RUSSIA 47s were about flat, trading in the mid 112s.