UNITED STATES

US stocks fell, retreating from strong early gains, after President Donald Trump announced plans to levy more tariffs on an additional $300 billion of Chinese goods. Unlike earlier tariffs, which targeted industrial goods and had minimal impact on ordinary consumers, the latest set would affect a wide range of consumer products including phones, toys and clothing. The DOW was hit the hardest, closing 1.05% down while the NASDAQ and the S&P shed 0.79% and 0.90% respectively. Yield on 10Y USTs fell 11bps to close at 1.8935%.

UNITED KINGDOM

The Bank of England’s Monetary Policy Committee unanimously voted to keep rates steady as was widely expected and also signaled that borrowing costs would need to rise eventually to keep inflation at the target 2%; the latter however hinges on an orderly Brexit and recovery in global growth. The bank cut its growth forecast to 1.3% in both 2019 and 2020 from 1.5% and 1.6% respectively in the May forecast and noted the forecast would hold even if rates were cut. Governor Mark Carney pointed out that forecasts were based on a smooth Brexit highlighting that this was the government’s aim and their forecasts followed from that. Markets are however seeing the contrary despite Prime Minister Boris Johnson’s public statements that they are pursuing a smooth exit. His task to command significant backing in the House of Commons became more difficult after the Tories lost their Brecon and Radnorshire seat to the Liberal Democrats cutting Boris majority to just a single seat. The pound closed lower at $1.2128 while yield on 10Y UKTs closed lower at 0.5917%.

EUROPEAN UNION

Euro area manufacturing shrank for a sixth straight month in July dragged down by Germany’s worst slump in years; the bloc’s largest economy’s factory gauge fell to 43.2 in July. The IHS Markit’s Purchasing Managers Indez fell to 46.5 from 47.6 in June. The report followed bleak growth figures for Spain, France with Italy stagnating. Respondents to the IHS Markit survey cited trade wars, Brexit and slowing global growth as the factors behind the subdued demand and weaker confidence. The euro closed slightly higher at $1.1085 while yield on 10Y DBRs slid further to -0.4511%.

ASIA

Asian stocks sank in early trading as US-China trade tensions ratcheted following imposition of tariffs on an additional $300 billion of Chinese exports to the US. The tariffs, effective September 1, came as a surprise as the next round of trade talks had been scheduled for the same month after this week’s round in Shanghai provided no significant progress. The ASX was the least hit, trading 0.39% lower in the afternoon while the HANG SENG and the CSI were trading 2.13% and 1.52% down respectively. The NIKKEI was hardest hit, trading 2.30% down following escalation of tensions between South Korea and Japan; Japan’s cabinet had removed preferential trade status from South Korea earlier on Friday.

TURKEY

Turkey central bank reserves week ending July 26 grew to $32.3 billion according to the bank’s weekly balance sheet. The private banking system also increased its holdings of foreign currency to be in the best shape to withstand a lira depreciation in 2019 so far. Private lenders hold $3.6 billion more than they owe, a near record on its own. State banks however had a hard currency shortfall of $300 million, a significant improvement from the over-2-billion deficit seen earlier in the year. The lira closed lower at 5.6040 to the dollar while TURKEY 47s closed lower, trading in the low 84s.

LATAM

Brazil’s central bank cut its benchmark rate, the Selic, by 50bps to a record low of 6%; this had only been forecast by 18 of 45 economists surveyed by Bloomberg. In a statement accompanying the decision, the bank said that the “benign scenario for prospective inflation” had prompted the adjustment for stimulus with mid-July inflation at 3.25%, a full percentage point below the year’s target. Policymakers did not expressly commit themselves to more rate cuts, instead warning that frustrations over expectations over economic reforms could drive inflation higher. The real closed weaker at 3.8404 to the dollar while BRAZIL 47s rallied to trade in the low 112s.

RUSSIA

Wednesday’s OFZ auction drew lower demand than previous auctions but still sufficiently high with a bid-to-cover ratio of 1.52 for the 19.8 billion rubles that were sold. OFZ auctions are set to continue unabated as the Finance Ministry announced last week that  212 billion rubles will be issued In OFZ bonds as part of the process of transferring the beleaguered Sviaz Bank to Promsyvazbank. The ruble closed weaker at 64.3685 to the dollar while RUSSIA 47s were higher, trading in the mid 112s.

SSA

Reports suggest that the Nigerian government plans to introduce a 5% value-added tax (VAT) on online transactions for goods and services as it seeks to increase tax receipts and shift from oil dependency. The government will ask the banks to take the charges from payments made using bank cards. The e-commerce industry in Nigeria is a multi-billion dollar industry that has been expanding significantly year on year. The Egyptian Pound was trading for 0.0603 against the greenback at the opening of markets today, while the yield on 7 YR Ghana Eurobonds was 6.78%