US stocks closed mostly lower on Thursday following a survey suggesting that US manufacturing was now contracting. IHS Markit’s US Manufacturing PMI for August was at 49.9, just into contraction territory while services slowed to 50.9 from 53.0 in July. The S&P and NASDAQ closed lower at -0.05% and -0.36% respectively. The DOW bucked the trend closing 0.19% higher, buoyed by the unlikeliest of sources – Boeing! A positive note from an analyst saying that the Federal Aviation Administration certification flight for the beleaguered 737 Max could be 4 to 6 weeks away pushed Boeing shares 4.24% higher; the planes have been grounded since an Ethiopian Airlines 737 Max crashed in March. Yield spread between 2Y and 10Y USTs briefly inverted again on Thursday before closing at 1.6121% and 1.6131% respectively.
The pound surged to a 3-week high as the market seized on suggestions by European leaders that a Brexit deal may yet be agreed on. German Chancellor Angela Merkel and French President Emmanuel Macron indicated that it may be possible to find a solution to the impasse albeit without straying too far from the existing deal, Macron cautioned. The pound gained 1.1% to $1.2268 in the afternoon, it’s highest value since July 29. Brexit uncertainty has taken its toll on the currency with 1.9% having been shed in July. The pound finally closed at $1.2251 while yields on 10Y and 30Y UKTs closed higher at 0.516% and 1.0877% respectively.
Germany’s central bank is not seeing an immediate need for fiscal stimulus even as it expects the economy to shrink again this quarter; economists at the Bundesbank predict a GDP contraction of 0.1% this quarter. This would mean eurozone’s largest economy would enter a technical recession having contracted 0.1% in Q2. Signs are indeed pointing to yet another contraction after Markit’s German Manufacturing PMI for August came at 43.6; added to the 43.2 recorded in July, this points to yet another dour quarter for Germany. The euro closed lower at $1.1080 while yield on 10Y and 30Y DBRs was higher at -0.644% and -0.101% respectively.
Asian markets were higher in early trading on Friday as the market look forward to Jackson Hole meeting for Fed officials kicking off today. The ASX and NIKKEI cemented early gains to trade 0.29% and 0.35% higher in the afternoon with the NIKKEI largely unmoved by the escalation of Japan-South Korea tensions. South Korea announced that it would stop sharing intelligence on North Korea with Japan in retaliation for having its preferential trade status revoked last month. The HANG SENG and CSI retreated slightly from early gains to trade 0.53% and 0.43% respectively. The onshore yuan reached 7.0882 per dollar, its weakest level since 2008.
After a spell of increases Turkey’s net international reserves fell for the week ending 16 August according to central bank data. Reserves fell to an equivalent $34.5 billion from $35.3 billion at the end of the previous week calculated at the CBRT rate. Meanwhile the lira is beginning to come under pressure having shed over 3% in the last five sessions. Having been the darling of emerging market currencies over the last three months, notching a carry return of more than 11% – 3 times the next best performer, traders now believe they have reaped the best of its above-average yield. Expectations of further rate cuts in the coming months abound eroding the currency’s yield advantage. The lira closed weaker at 5.7686 to the dollar. TURKEY 29s closed higher in the mid 102s while TURKEY 47s were lower trading in the mid 81s.
The Argentine peso appears to be holding firm at about 55 to the dollar following interventions by the central bank and Economy Ministry. The BCRA and Economy Ministry sold $94 million and $60 million in the forex market on Wednesday while new limits on holdings of dollars by commercial banks limited demand. Sovereigns picked up on Thursday gaining 0.5points across the curve as dialogue between the government continued although without anything of substance besides willingness of the opposition to pay obligations. Opposition candidate and frontrunner in the October elections, Alberto Fernandez then said during an interview that he is more worried about 2021 obligations than next years and pledged that the country will not default under his presidency. ARGENT 28s and 48s both closed higher in the low 48s while the peso was slightly weaker closing at 55.1075 to the dollar.
Russia is once again exceeding its oil production target under the OPEC+ agreement as the impact of the Druzhba pipeline contamination wanes. The country’s daily output in August has averaged 11.3 million barrels a day according to calculations based on Energy Ministry data and is the highest since February. August daily production is only 91,000 barrels below the country’s October 2018 output but the OPEC+ agreement wants production 228,000 barrels lower instead. The ruble closed firmer at 65.6178 per dollar while RUSSIA 29s and 47s about flat trading in the high 106s and low 117s respectively.
On Thursday, the US Export-Import Bank announced the intention for the board to vote on a US$5billion LNG Project financing in Mozambique and the outcome will be announced in September. The project will be very beneficial for the African nation and would bring development to the Ravuma Basin, one of the world’s most extensive untapped reserves of natural gas. The South African Rand (ZAR) was trading at 15.1995 at early hours of trading today while the yield on MOZAM 23s was 8.013%.