UNITED STATES

On Sunday the new US-China tariffs came into effect, with US imposing a 15% tariff on $112bn of Chinese imports, and a 7% retaliatory Chinese tariff on $45bn of US exports, including crude oil. The data showed that the trade war didn’t go unnoticed for the region’s manufacturers, with manufacturing PMIs for Japan, South Korea and Taiwan all showing sector declines and weak domestic and global demand. The Asian stocks were mixed with Japan’s topix down 0.4%, Hong Kong’s Hang Seng and Australia’s ASX 200 both down 0.5%. China’s CSI 300 however is up 1.1% on the back of the news of activity in China’s manufacturing sector rebounding to a five-month high in August, due to a government stimulus offsetting some of the negative impact of the trade war. It’s a Labour Day Holiday today in the US so US Ts market is closed until tomorrow.

ASIA

India’s GDP growth data on Friday showed a significant decline with the Q2 growth slipping to a 6-year low 5.0% YoY vs the expected 5.7%, dragged down by the industrial, and in manufacturing sector in particular, weak growth. The government are finally stepping up to counteract the slowdown, announcing the series of measures to improve growth, including a consolidation of the 10 state-owned banks into 4 and announcing the details of approximate capital infusion into each bank as well as several governance reforms. The Asian space was quiet this morning with the US holiday with most bonds in Indian IG space (ADSEZ, POWFIN, OINLIN, BHARTI) flat to slightly wider, while in the HY space VEDLN underperformed, falling 25-50c across the curve.

UNITED KINGDOM

In UK news, Boris Johnson threatened the members of his own party to either support his Brexit plan or risk having to find another party, the GBP is opening marginally unchanged from the last week, currently trading at 1.2158 lvl vs USD. 10Y UKT is at 0.46% yield, down 2bps from the Friday’s close.

EUROPEAN UNION

In Europe, last week was all about Italy, with the bonds rallying to record levels after the political situation was seen stabilising. The new coalition of Five Star – PD was formed with Conte as the PM again. He now was given a week by President Matarella to form a new government, that would most likely oversee the 2020 Budget. BTPS 49s yield went down to as much as 1.92% and BTPS 29s to 0.92% on Thursday before retreating slightly off the lows on Friday to 2.06% and 1.04% respectively. The bonds are firmer this morning with the yields down 4bps to 2.02% and 0.98%. The European PMI data came today unsurprisingly weaker. Italy showed 11th straight contraction with August Manufacturing rising to 48.7 vs 48.5 expected, Germany stayed close to July’s 7-year low, but France confirmed a move back into expansion. Eurozone production and new orders continued to fall due to very low confidence while unemployment was also on the rise for the 4th month in a row. German bunds opened 3bps higher in yield this morning with the benchmark DBR 10Y trading at -0.69% and French FRTR 29s at -0.404% .

MIDDLE EAST

In the MENA region, the conflict between Hezbollah, the Iran-backed Lebanese paramilitary group and political party, and Israeli forces continued Sunday near the Lebanese borders without a major escalation, however. This morning Bahrain called on its citizens to leave Lebanon as a precautionary measure. In Lebanon, the US Treasury has imposed sanctions on the Jammal Trust Bank, accusing them of supporting Hizbollah, the first US sanctions on a Lebanese lender since 2011. The Lebanese bank was partnering with Washington’s largest international development agency only a year ago. The measure comes at a fragile time for Lebanon, as the country is struggling to cope with the economic crisis and a crippling public debt, with the effect of the sanctions on a bank further worsening the fears about the stability of the Lebanese financial sector. LEBAN bonds continued to weaken last week, also following a 2-notch downgrade to CCC rating by Fitch, with LEBAN 21 falling another 2.5pts to 84 lvls. The end of the week showed a slight rebound though with the 21s bonds being bid up to a point higher to 85 mid levels as the Central bank promised to repay in cash the $1.5bn LEBAN 5.45 11/28/19 and boosted their USD reserves by $1.4bn with the new overseas deposits. The MENA higher-beta space remained stable, with both KSA 49s and ARAMCO 49s trading around 3.6% yield, ADGB 47s at 2.85% and QATAR 49s at 3.26%.

RUSSIA

On the Russian front, the space continues to trade up steadily with a decline in yields in line with the rest of IG EM bonds. $ denominated Russia 47 and Russia 35 noted new highs last week of 119 and 113 handle respectively while EUR denominated Russia 29 trades at upper 107 handle. USDRUB (66 handle) continues strengthening as oil trades stronger, although modestly, as the Russian Central Bank (CBR) is also on an easing monetary cycle with expectations to cut interest rates this week by 25bp this week as inflation levels are below the 4% 1h20 target. The OFZ market continues its rally on the back of expectations of further easing with some analysts predicting a forthcoming rally in the belly of the curve where current levels are underestimated versus the long end (i.e. 10Y+)

LATAM

In Latam, Argetina continued to be in the spotlight with the country announcing a reprofiling of its short-term debt last week with a mandatory maturity extension of 3-6 months on local short-term debt, while also looking to negotiate the extension of the foreign-law debt maturity. S&P initially downgraded Argentinian sovereign debt to “SD” after the announcement, however reversed the move by an upgrade of the long-term debt to CCC- and raising the short-term sovereign credit ratings to C a day after on a terms and conditions amendment technicality. Their outlook on the Argentinian economy remains negative, however. Argentinian sovereign bonds continued their decline with the ARGENT 48 bonds closing on Friday in the 38s area, down another almost 10pts on the week and 3 pts on the day The front end underperformed with ARGENT 21 down to mid-42s, down 4pts on the day and 12pts from the start of last week. The Argentinian corporate bonds also felt the blow with the YPFDAR 47s down 4pts on Friday to high 59 levels, also 12pts lower since the beginning of the week.

For Brazil, the week ended on a positive note however, with the GDP growth data coming in strong above expectations in the Q2, rebounding to a 0.4% growth after having shrunk in the first quarter. The political side also remained stable with the expectations of the pension reform approval in the senate being a “done deal”. BRAZIL 47s was trading strong with the bonds closing at high 114 levels. In Mexico Pemex outperformed, with the bonds rallying (PEMEX 47s up 5 pts) after Mexican President AMLO reconsidered and allowed the company to resume joint ventures and auction deep water exploration blocks next year.