US stocks firmed on Wednesday after minutes from the Federal Reserve’s July 30-31 meeting suggested that the central bank wanted to remain flexible in implementing policy changes. The Federal Open Market Committee voted 8-2 in favour of the 25bps cut with most members agreeing with Chairman Jerome Powell that this was a “mid-cycle adjustment” and not the start of an easing cycle. The market is however expectant of another cut in September particularly given the reasons cited for the cut in July. The Fed said the cut was for three primary reasons: insurance against business slowing stemming in part from trade uncertainty, resetting inflation back to its 2% target and risk management against various downside threats to the economy. Threats from the cited reasons have largely intensified since the meeting: President Trump announced a new set of tariffs against China, long-term inflation expectations are below the target and a disruption is likely to ensue from a highly likely no-deal Brexit amidst a slowing eurozone economy. The DOW closed 0.93% higher while the NASDAQ and the S&P were up 0.90% and 0.82% respectively. The yield spread between 2Y and 10Y USTs inverted for some moments late Wednesday before normalising to close lower than Tuesday’s close 1.553% and 1.567% respectively.


UK public finances were weaker then expected in July amidst a slowing economy and increased government spending in preparation for Brexit. While the government had a surplus of £1.3 billion, it was way below the projected £2.7 billion and less than the £2.2 billion recorded in July last year. Analysts said public finances were likely to come under increasing strain following a deluge of spending promises made by the Boris Johnson government and expectations are that the long period of falling budget deficits since 2009/10 will come to an end in 2019/20. Tax revenues for the central government fell 0.5% while spending shot up 6.5% as the government embarked on a civil servant hiring blitz ahead of Brexit. The pound was lower at 1.12130 against the dollar while yield on 10Y and 30Y UKTs closed higher at 0.4767% and 1.0271% respectively.


Germany’s zero-coupon 30-year bond struggled to find buyers in Wednesday’s sale, a signal that the negative-yield environment may finally be taking a toll on investor demand. The sale managed to raise only €824 million of a €2 billion target, perhaps a sign that the global rally may be coming to an end with over $16 trillion of negative yielding securities already in existence. President Trump seized the opportunity to berate the Fed in the aftermath tweeting, “Germany…is actually being paid to borrow money, while the US, a far stronger and more important credit, is paying interest…”. The sale came as Germany is looking to ready itself for extra spending in the event of a crisis. The real subscription rate fell to 0.43 times versus 0.86 times for the last offering of similar maturity by Germany. The euro closed slightly lower at $1.1085 while yield on 10Y and 30Y DBRs closed higher at -0.671% and -0.143% respectively.


Asian markets were mostly lower in early trading on Thursday following gains on Wall Street. The NIKKEI retracted from early gains to trade 0.07% lower in the afternoon: preliminary data had showed that Japan’s manufacturing shrank for a fourth straight month. While the Jibun Bank Flash Japan Manufacturing PMI rose to 49.5 in August, it remained in contraction territory. The HANG SENG led the slide in the afternoon down 0.95% while the CSI was trading 0.23% lower. Australia’s ASX was the inly bright spot of the major indices, trading 0.34% higher in afternoon trading.


Turkey’s budget surplus of 9.9 billion liras in July was due to a 22 billion liras transfer from the central bank else a deficit of 12 billion liras would have been posted. Tax revenue has remained dented as an economic slowdown continues and the government had to pass a law allowing it to tap about 40 billion liras of central bank cash as it seeks other sources of income to finance its widening budget deficit. While tax income rose 7.3% YoY in July, revenue slumped for an eleventh consecutive month, the longest streak in 10 years. Economists forecast a deficit of 3.7% of GDP at the end of the year, which would mark the biggest shortfall since 2012. Central bank finances are expected to shore up government coffers again in August with data showing that 19 billion liras were transferred to Treasury in the first week of the month. The lira closed firmer at 5.7166 to the dollar after a slide of more than 1% on Tuesday while TURKEY 29s and 47s were slightly up, trading in the mid 102s and low 82s respectively.


Brazil is readying a plan to speed up the sale of state-controlled assets as well as formation of partnerships with private companies as part of President Jair Bolsonaro’s drive to shrink the public sector and ignite investments. The government hopes to raise about $320 million in the next several years through auctions of licences to operate infrastructure including airports, oil wells and ports as well as privatisation of such companies as the postal service and the mint. The list of 17 state-owned companies to be sold according to news site Poder360 includes electrical and telecommunication utilities Electrobras and Telebras, mint Casa da Moeda and postal service company Correios. The real closed firmer at 4.0270 to the dollar while BRAZIL 29s and 47s were up, trading in the mid 106s and high 113s respectively.


A spell of turmoil in emerging markets has prompted investors to start considering how far the ruble can fall before Russia’s central bank decides to hit brakes on rate cuts. Economists have so far been unanimous in their expectation for another 25bps cut at the September 6 meeting but market watchers expect the easing to hold should the ruble resume its declines. The currency is near the bottom of the merging market pack after oil prices took a hit as US-China tensions flared up. While it has clawed back some of the losses, analysts are expecting easing to be stopped should declines resume to around the 67 level to the dollar. The ruble closed firmer at 65.7629 to the dollar while RUSSIA 29s and 47s closed higher, trading in the high 106s and high 117s respectively.


South Africa’s Treasury has been in talks with the government over some austerity measures in budget preparation, they are proposing cuts to budget expense for the next 3 years. A 5% cut in 2020 followed by a 6% cut in 2021 and 7% in 2022. According to a Bloomberg report, the annual inflation in South Africa fell to a 6-month low to 4% as consumer spending remains under pressure and manufacturers keep process down.  The ZAR was exchanging for 15.2448 against the greenback this morning, while in the Eurobond space SOAF 28 was priced at a yield of 4.543%.