US stocks suffered their biggest one-day decline of the year on Monday following the falling of China’s yuan to above 7 to the dollar. The NASDAQ shed the heaviest as China-sensitive tech stocks came under pressure to close 3.47% down on the day; of particular note were stocks of Apple, Alibaba and Chinese internet giant JD.com Inc which lost more than 4.5% each. The DOW tumbled 2.90%, the biggest selloff since late December while the S&P closed 2.98% in the red, the worst since early December. Yield on 10Y USTs fell to 1.706%, the lowest since late 2016.
Prime Minister Boris Johnson’s penchant for hyperbole seems to have caught up with him again early into his premiership. This time it concerns the announced £1.8 billion for the NHS which Boris said was new money added to the already existing NHS budget under Theresa May. A senior analyst at Nuffield Trust think-tank said the said money was already sitting on hospital balance sheets as a result of restraints from Treasury on capital expenditure. Health secretary Matt Hancock however came out to emphasise Boris’ claims that it was indeed new cash for the NHS. The pound was slightly lower at $1.2143 while yield on 10Y UKTs fell about 4bps to 0.5108%.
German factory orders for June rose more than expected with data showing an increase of 2.5% in June compared to 0.5% in a Reuters poll. The data showed that most of the orders were foreign, rising 5% while domestic orders fell 1%. This comes as a relief to the euro area’s largest economy having suffered an onslaught of negative data. Tuesday report however showed that demand is subdued in the eurozone with orders falling 0.6% while orders rose 8.6% from outside the eurozone. The euro closed higher at $1.1203 while yield on 10Y DBRs shed 2bps to -0.516%.
Asian stocks fell in early trading following Wall Street’s worst day of the year amid escalating US-China trade tensions. The US Treasury Department labelled China a currency manipulator late on Monday following a tweet by President Trump accusing China of the same; the move could see sanctions being imposed on China threatening to ratchet already-high tensions. Most indices rose from early lows in afternoon trading except the ASX which slid further to -2.44%. The CSI was trading 1.65% lower while the HANG SENG and the NIKKEI were trading 0.65% and 1.11% down respectively. The recoveries came after China’s central bank set the yuan’s reference point higher than expected in the morning at 7.0304 in onshore trading and 7.0807 offshore against the dollar.
Reports suggest that Turkey banks have approached Treasury about swapping some of its local currency bonds about to mature with longer-dated ones. The switching bond auctions, should they happen, will Treasury finance its impending obligations without paying principal to bondholders in cash. Turkey is facing a period of budget deficits as an economic downturn keeps pressure on public finances already burdened by a spending spree. Furthermore, Turkey has not issued any long-dated lira debt since July 2018 and is facing 74.3 billion liras ($13.3 billion) of debt maturing in Q1 2020 according to the Treasury website, almost 35% of its total local currency obligations for the year. The lira closed lower at 5.5712 to the dollar while TURKEY 47s were lower, trading in the high 82s.
Brazil economists lowered their forecasts for the Selic rate at the end of the year to 5.25% from 5.5% a week earlier according to this week’s central bank Survey. This follows the cutting of the Selic by 50bps to 6% last week by the central bank when expectations were in favour of a 25bps cut. Economists maintained their end of year inflation forecast at 3.80% while the median forecast for economic growth remained unchanged. The real fell to 3.9773 to the dollar while BRAZIL 47s were slightly higher, trading in the mid 112s.
The ruble braved off an expected collapse in emerging market assets after the effect if the latest round of sanctions proved limited for the time being. The currency closed off about 0.4% weaker against the dollar at 65.5179 and at one time during Monday’s trading session was 0.4% firmer. The sanctions came as somewhat of a surprise as investors had gradually relaxed their fears about sanctions with an approximated $13 billion having flowed into Russia’s OFZs as at the end of July. With Russia having already placed all of its planned Eurobonds for the year and currently running a budget surplus, analysts believe the impact of the latest round of sanctions will be limited. RUSSIA 47s closed slightly up, trading in the high 112s.
The Egyptian economy continues to see robust growth and an investor darling since agreeing a reform package in 2016 which enabled them to seal a US$12 billion IMF grant. The nation has earned investors the highest returns in EM this year on the back of tweaks to fiscal, monetary policy and subsidy cuts. Analysts predict a further 3.5% appreciation of the Egyptian pound (EGP) by the start of 2020 against the US Dollar and this may translate into greater returns for the holders of Egyptian assets which have earned investors up to 26% returns in 2019. The EGP was trading at 16.5473 to the greenback at the open of markets today, while the yield on EGYPT 5⅞ 06/11/25 reached 5.389%.