US stocks closed mostly about flat in Wednesday trading following a remarkable recovery having tumbled at least 1% lower during the day. Stocks initially fell as yields on haven sovereigns plunged to fresh lows: 10Y USTs fell to 1.5931%, the lowest since 2016, before recovering to 1.7342% – a 3bps gain over Tuesday’s close – while 10Y bunds posted a record low of -0.610% intraday. The DOW closed 0.09% lower, albeit on the back of a recovery from sinking 2.3% while the S&P and the NASDAQ closed 0.08% and 0.38% higher. The recoveries for the DOW and S&P – which was about 2% lower at some point intraday – marks their biggest turnarounds since late December.
Plans to form a caretaker government after the ouster of Boris Johnson’s administration are seemingly heading for a stillbirth: the leader of the Liberal Democrats Jo Swinson said they can’t work to put labour leader Jeremy Corbyn into 10 Downing Street. Jeremy Corbyn is hoping to call for a vote of no confidence in the Boris administration over its pursuit of a no-deal Brexit which, should it garner enough support, would likely result in a coalition government. The main impediment to the formation of the coalition is the wide rifts between political parties with the Lib Dems sentiments being an example. The pound closed slightly weaker at $1.2143 while yield on 10Y UKTs fell about 3bps to 0.4841%.
League party leader and Italy’s Deputy Prime Minister Matteo Salvini gave the strongest hint on Wednesday night that he is looking to break up the coalition government. In a speech on the night Salvini likened the coalition to a marriage saying “If you spend more time quarreling… it’s better to look each other in the eyes and take an adult decision.” Salvini has been at odds with fellow Deputy Prime Minister Luigi Di Maio who heads the Five Star Movement ever since the government formed and has lately been accusing them of delaying his agenda, chief of which is deep tax cuts and investments which could put him foul of EU rules. Italian bonds opened lower on the news with yield on 10Y BTPs rising 11bps to 1.53% early morning. Meanwhile, yield on 10Y bunds closed at a record low of -0.581% as the euro closed unchanged at $1.1199.
Asian markets were up in early trading as better-than-expected China trade data for July outweighed the latest yuan weakening with the Thursday mid-rate set at 7.0039 per dollar by the People’s Bank of China. Despite the ongoing trade war with the US, Chinese exports had a strong July with an increase in exports of 3.3% YoY while imports fell 5.6% to achieve a trade surplus od $45.06 billion; a Wall Street Journal survey had forecast a 2% fall in exports with a trade surplus of $38.7 billion. The CSI and ASX led gains in afternoon trading, up 0.81% and 0.62% respectively while the HANG SENG and NIKKEI rose 0.59% and 0.37% respectively.
The lira’s resurgence has been largely attributed to the loss of appetite for hard currency among local investors. Having loaded up on more than $35 billion of hard currency in the nine months to early June, net foreign currency holdings among locals has flatlined according to central bank data. With the depreciation that had accompanied the hunt for hard currency now stemmed, the lira has been the best performing currency since May gaining 12% and some analysts are saying it is undervalued with 4.70 to the dollar being the fair value. The lira closed lower than 5.50 to the dollar at 5.4942, the strongest since April 1 while TURKEY 47s rallied to trade in the mid 84s up from the 82s on Tuesday.
President Jair Bolsonaro’s landmark pension bill will now proceed to Senate after garnering overwhelming support in the second lower House vote; the bill passed with a 370 to 124 support of the legislation set to save the fiscus $235 billion over a decade according to the government. Eight amendments proposed by opposition which would have reduced savings were later rejected after the vote. Major opposition to the bill has been because of the increase in the retirement age meaning more years in employment for Brazilians. The vote in Senate is expected to be held towards the end of September and if the voting patterns in the lower House are anything to go by, should pass smoothly. The real closed weaker at 3.9706 to the dollar while BRAZIL 47s rallied to trade in the mid 113s.
The latest set of US sanctions on Russia had little impact on Wednesday’s OFZ auction with the 20-billion-ruble-auction of 2024 bonds drawing more investors than the previous week’s, with a bid-to-cover ratio of 2.96%; some analysts had predicted a slowing in demand for OFZs because of the sanctions. Russian Eurobonds themselves rallied in afternoon trading on Wednesday with yields falling across the curve: RUSSIA 47s rallied to close in the low 115s having closed in the low 113s on Tuesday. The ruble closed slightly weaker at 65.3320 to the dollar.
International Finance Corporation Vice President for the Middle East and Africa, Sérgio Pimenta, expressed his belief that Ghana can be one of the fastest growing economies in the world if the government maintains its prudent economic management system. He said this in a recent visit to Ghana to expand the IFC’s involvement and support. In Nigeria the state oil company, NNPC plans to partner with Dangote refinery, with a capacity of 650,000bpd to open up as a fuel exporter across the African region, sighting Africa’s need for a refining capacity which the company could fill. In the early hours of trading today the Ghanaian Cedi (GHs) was exchanging for 5.3884 against the greenback while the yield on NGERIA 3s8 dipped up to 7.618% on the back of a marginal increase in price.