US stocks ended yet another tumultuous week on a good note as stocks posted gains on Friday although this was not enough to overturn an overall slide for the week. The DOW closed 1.20% up while the S&P and the NASDAQ rose 144% and 1.67% respectively. On the trade front, President Trump said that September talks with China were still scheduled to go ahead as planned despite a seeming upscaling of tensions. Yield on 10Y USTs closed at 1.5538%, 2bps higher than Thursday’s close.
Prime Minister Boris Johnson will this week travel to Germany and France in his first overseas trip to make it clear that the UK is leaving the EU without a deal. The visit comes as Boris is battling efforts to stop his no-deal exit with his office publishing a statement noting that Parliament “will not, and cannot, cancel the referendum,” on Sunday. Plans to counter the disruption likely to ensue the no-deal exit are already in motion with the government preparing for a meltdown at ports as well as shortages of key supplies in the short term. The pound closed higher at $1.2149 while yield on 10Y UKTs was up 5bps to 0.4635%.
German finance minister Olaf Scholz said the government could spend an extra €50 billion in an economic crisis, to mark the first time a number has been put on possible fiscal stimulus. With the economy having contracted 0.1% in Q2, pressure is increasing on Angela Merkel’s government to consider suspending its balanced-budget policy even as Scholz signaled that any stimulus measures are not imminent. Pointing at the achievement of a national debt below 60% of GDP, Scholz highlighted that there exists fiscal leeway in the event of a crisis. The euro closed lower at 1.1090 against the dollar while yield on 10Y DBRs closed 3 bps higher at -0.685%.
Asia stocks opened the week on a high despite remarks by President Trump that he was not ready to make a deal with China yet. The HANG SENG was trading the highest in the afternoon up 2.18% even as protestors defied a police ban to stage a peaceful march. The CSI surged over 1% from morning gains to trade 1.87% in the afternoon while the ASX was up 0.91%. The NIKKEI was trading 0.78% higher in the afternoon despite figures showing that Japan exports for July fell for the third straight month.
Turkey’s Treasury exceeded its legal borrowing limit after accumulating 98 billion liras ($17.6 billion) of debt in the first seven months of the year according to data released by the Ministry of Treasury and Finance. The borrowing limit was already raised twice this year to 89.2 million meaning they have exceeded the limit by 8.8billion liras. Ministry officials however clarified that the limit refers to a net year-end figure and debt repayments during the rest of the year will give room to stay within prescribed laws. The official pointed out that the legal debt limit in Turkey does not set a cap on the amount but refers to a net figure calculated by subtracting principal payments of maturing debt. The lira closed slightly weaker at 5.5796 to the dollar while TURKEY 47s were higher, trading in the mid 83s.
Dollar withdrawals from Argentine banks totaled $700 million on Monday and Tuesday last week as savers pulled their deposits in the aftermath of Alberto Fernandez victory in the primaries. This marked the largest two-day withdrawal in five years percentage-wise as this equaled 2.3% of total dollar deposits in the financial system. The dollars are also considered as part of the central bank’s foreign reserves and may help explain the $2.6 billion drop in reserves last week as policymakers also sold dollars to shore up the peso. Argentines holding dollars are generally sceptical in times of currency crises fearful of ‘corralito’ – measures that froze bank accounts and stopped dollar withdrawals. The peso closed over 4% firmer to the dollar on Friday at 54.800 while ARGENT 47s rallied on Friday to trade in the high 48s having been in the mid 46s on Thursday.
The tussle between the central bank and Russia’s Economy Ministry over growing consumer credit is likely to be re-ignited following the release of data by the central bank. The data showed that unsecured consumer lending grew 25% in the 12 months to July 1 with the share of Russians who struggle to pay back loans having surged to around a third this year from 20% in 2017 according to a VTsIOM poll. While inflation has been easing, the economy has not been improving as much with retail sales up 1.7% so far this year against the average 3% recorded last year; this has largely contributed to the underperformance of the economy with H1 growth at 0.7% against a projected 1.3% for the year. The ruble closed weaker at 66.5160 while RUSSIA 47s were lower, trading in the low 118s.