US stocks closed higher on Wednesday spurred by gains in energy stocks amid the continued volatility in global markets. The rise in energy stocks was on the back of figures from the US Energy Information Administration which showed crude oil inventories going lower by 10 million barrels last week, resulting in an increase in oil prices. The DOW led gains with 1.00% while the S&P and NASDAQ were 0.65% and 0.38% lower; stocks remained lower for the month by at least 3%. The yield spread between 2Y and 10Y USTs remained inverted with yield on the 2Y note closing lower at 1.5000% while 10Y notes closed slightly higher at a yield of 1.4794%.
Prime Minister Boris Johnson sent the pound tumbling over 1% on Wednesday after his decision to request a suspension of parliament from the Queen; the Queen consented later in the afternoon. Parliament will be suspended for five weeks until October 14 and parliamentarians across the divide have been outraged as they view it as the government’s move to pass a no-deal. Technically, it is only an extra three days of suspension as parliament was going to be on hold for conference season and Boris wants to have the traditional Queen’s speech thereafter on October 14. The pound recovered slightly to close 0.6% lower at $1.2212 while yield on 10Y UKTs and 30Y UKTs closed lower at 0.4407% (-6bps ) and 0.9893% (-5bps) respectively.
Italian bonds continued with their rally on Wednesday amid the almost-certain coalition between the Five Star Movement and the Democratic Party. Both parties met President Sergio Matarella in the afternoon to present their common programme and signal their agreement to have Giuseppe Conte remain as prime minister. Conte will still have to iron out a few issues especially the insistence by Democrats that they will occupy the sole deputy premier position and do away with the two that existed during the previous coalition. The new government should have it easier in debt management with the falling yields likely to save the Treasury at least 1% of GDP in debt servicing according to some calculations. Yield on benchmark 10Y BTPS fell to a record low of 0.977%, going sub-1 for the first time while premium over 10Y DBRs touched the lowest level since May last year when the previous coalition was being formed. Yield closed at 1045% on the day while the euro was lower at $1.1078.
Asian markets were generally lower on Thursday as investor concerns over global economic slowdown increased with the inversion of the US Treasury yield curve while hopes of progress on US-China trade talks dampened after comments by US Treasury Secretary Steve Mnuchin. Mnuchin told reporters that he expected a Chinese delegation in Washington for trade negotiations but would not confirm if this this would be in September as previously scheduled. Stocks had made some gains off morning lows in the afternoon but remained in the red: the HANG SENG was trading 0.25% lower while the CSI and NIKKEI were 0.11% and 0.09% down respectively. The ASX had however made enough recovery to trade 0.10% higher in the afternoon.
A Turkish Statistics Institute report released on Tuesday showed that confidence grew across the board in August, a comeback from the gloom of the July report where confidence largely fell; the report covered such areas as economy, consumers, services retail trade and construction. Economic confidence grew 7.9% month-on-month to 87.1 and notched the best YoY figures year-to-date, albeit still in the negative, at -1.3%. The Borsa Istanbul 100 advanced 0.5% in the aftermath while the lira rose 0.1%. The Borsa closed slightly lower at -0.13%, milder than Tuesday’s 1.1% fall while the lira closed at 5.8151 to the dollar, up 0.2%. TURKEY 29s and 47s closed higher in the mid 102s and high 81s respectively.
Brazil and Mexico are set for another dose of rate cuts in September if latest inflation figures are anything to go by. Latin America’s two largest economies had tame inflation figures in early August with consumer prices in Mexico falling 0.08% while in Brazil’s inflation slowed to 3.22%. In both instances, none of the economists who participated in Bloomberg surveys had forecast slowing. Falling food costs were the major drivers of the slowing inflation particularly in Brazil – food and beverages account for a quarter of the index – where prices dropped 0.17% while in Mexico agricultural prices fell 1.44% dragged down by poultry and avocados. Mexico’s inflation currently stands at 3.29%, just 25bps above the central bank’s 3% target while Brazil’s, at 3.22%, is more than a full percentage point below the 4.25% target. Analysts are now mostly pricing 50bps cuts at the September meetings. The real and peso closed weaker at 4.1682 and 20.1107 to the dollar while BRAZIL 47s and MEX 47s were higher, trading in the mid 114s and mid 104s respectively.
Wednesday’s OFZ auction saw massive interest, with the 10 billion 2024 tranche having a bid-to-cover of 3.8 while the 2022 tranche of similar size had a bid-to-cover ratio of 11.3. The considerable demand will ease some concerns that investor demand was waning following the Bank of Russia’s release on July OFZs holdings. July figures had shown a decrease in non-resident uptake as well as holdings of OFZs, bucking the increasing trend which had accompanied the auctions this year. The ruble closed weaker at 66.7868 to the dollar while RUSSIA 29s and 47s were up, trading on the mid 107s and low 119s respectively.
According to a Bloomberg report emerging market investors are piling back into safer asset classes as fears of a global economic slowdown increase, in light of mounting trade tensions and other indicators. In another report by Reuters, Zambia government was advised to put in place measures to fight corruption and to enable them to unlock donor aid and investments that have been withheld for fear of diversion. This statement was made by Fergus Cochrane-Dyet, the British High Commissioner to Zambia. The yield on ZAMBIN 24 was 20.27% at market opening, while Zambian Kwacha (ZMW) was trading at 13.025 against the greenback.