UNITED STATES

US stocks were on track to finish higher for the week but a sudden escalation of the trade war sent indices tumbling and in turn lower for a second week in a row.  President Trump had already started the day on a war path with the Fed after Chair Jerome Powell’s speech at the Jackson Hole meeting was not as entirely dovish as the market wanted; Powell noted that they had seen additional risks to the economy but at the same time the US economy was performing well with inflation closer to the 2% target prompting Trump to ask who was the US’ “bigger enemy, Jay Powell or Chairman Xi?” The NASDAQ closed the lowest on the day and for the week, down 3.00% and 1.8% respectively. The S&P and the DOW in like manner also closed sharply lower at -2.59% and -2.37% for the day and 1.4% and 1% for the week respectively. The yield spread between 2Y and 10Y USTs flirted with inversion intraday as was the case throughout the week before closing lower than Thursday’s closes; yield on 2Y USTs closed at 1.5332% while yield on 10Y USTs closed at 1.5351%.

UNITED KINGDOM

British Prime Minister Boris Johnson insisted the UK would not be paying the $39 billion divorce bill in the event of a no-deal Brexit as EU officials said the onus to find alternative solutions to the Irish backstop was on Britain. After a meeting with European Council President Donald Tusk on the sidelines of the G7 meeting, Boris said chances of a deal were improving but it was still “touch and go” whether one could be finalised. Boris also mentioned that a trade deal with the US would not be done as quickly as had been previously suggested putting a timeline of at least a year as the most probable period to reach a deal; he stressed that the NHS would not be part of any deal however. The pound closed slightly higher at $1.2251 while yield on 10Y and 30Y UKTs closed lower at 0.4791% and 1.0779% respectively.

EUROPEAN UNION

German banks are pushing back against proposals to ban them from charging retail depositors for parking funds with them. The proposal was put forward in response to fears that banks could start charging their depositors if the ECB effects a rate cut. Finance minister Olaf Scholz said he would look at the legal implications of blocking banks from instituting the charges to which the Federal Association of German Banks hit back, saying it could lead to instability on financial markets. German banks are the hardest hit in Europe by negative interest rates as they hold about a third of total excess deposits on which the ECB levies negative interest rates. The euro closed higher at $1.1144 while yield on 10Y and 30Y DBRs closed lower at -0.6774% and -0.1299% respectively.

ASIA

Asian markets plunged in early trading as US-China trade tensions went up a notch. The Chinese government announced tariffs 5% and 10% on $75 billion of US imports effective in two tranches, on September 1 and December 15 respectively; this, the government said, was in response to 10% tariffs announced on $300 billion of Chinese goods. The move drew the ire of President Trump immediately “ordered” US companies to leave China before imposing another round of tariffs: existing tariffs on $250 billion of Chinese goods would be raised to 30% from 25% effective October 1 while tariffs on $300 billion of Chinese goods was raised to 15% from 10% and would be effected in two stages, on September 1 and December 15. The HANG SENG and the NIKKEI led the losses in the afternoon, trading 2.95% and 2.17% lower. The CSI and ASX also remained in negative territory in afternoon trading at -1.30% and -1.27% respectively.

TURKEY

The lira crashed over 11% to its lowest level in almost a year to 6.3838 against the dollar in wee hours of Monday having closed at 5.7593 on Friday. The crash, albeit only a flash with the lira back to normal levels of 5.80 as of 10:40 Turkey time, was prompted by a sell-off in Japan in the aftermath of the escalation of US-China trade tariffs on Friday. The yen was driven higher as a flight to haven currencies ensued forcing Japanese investors to liquidate long lira positions. The lira had been a darling for emerging market trades in Japan with Japanese retail investors having traded 1.39 trillion yen ($13.2 billion) for lira in July. TURKEY 29s were about flat, trading in the mid 102s while TURKEY 47s were up, trading in the high 81s.

LATAM

President Jair Bolsonaro’s plans to privatise or sell state-owned companies is gaining steam following the approval of a sale of 20 million shares of Banco do Brasil with more companies set to follow suit. Even Petrobras has not been spared with the Chief of Staff Onyx Lorenzoni saying the process to privatise is ongoing with newspaper reports saying the plan is to complete the process before the end of Bolsonaro’s tenure. Elsewhere, thousands of Brazilians joined country-wide demonstrations urging the government to continue corruption investigations as well as show support for Justice minister Sergio Moro over allegations of abuse of power in the Car wash investigation. Demonstrators also urged President Bolsonaro to reject recently passed legislation that imposes prison time for unlawfully obtained evidence among a raft of other actions; judges are in support with the country’s attorney general recommending that the president reject at least some of the legislation as it “could intimidate judges and prosecutors in the performance” of their duties. The real closed weaker at 4.1223 to the dollar while BRAZIL 29s and 47s were higher, trading in the high 105s and low 114s respectively.

RUSSIA

President Putin is maintaining Russia’s tight financial policy with a budget that is balancing at the lowest crude price in more than a decade. This year’s budget balances at a $49.20 a barrel for Urals crude – the main export blend – the lowest break-even level in more than a decade according to a Moscow think-tank. The figure was below $42 for the greater part of the year after the government raised taxes and was slow to start planned spending. A surplus of 3.4% of GDP, double the full-year target, was reported for the first seven months of the year. The flip side of the fiscal caution has been sputtering growth with H1 growth of 0.7% being just over half the planned target for the year. The ruble closed weaker at 66.0112 to the dollar while RUSSIA 29s and 47s were higher, trading in the high 106s and high 117s respectively.

SSA

Zambian Finance Minister Dr Bwalya Ng’andu has announced that the country is making progress in the implementation of fiscal consolidation and austerity measures and that progress would be shared publicly on a quarterly basis. He further stressed that the recent approval of the supplementary budget has enabled a realignment of government expenditure to critical programs, still within the scope of the total budget approved for the current year. The Zambian Kwacha (ZMW) was exchanging at 13.015 against the greenback at early trading on Monday, while the yield on ZAMBIN 24s was 19.943% at the same time.