UNITED STATES

US stocks fell together with the T yields yesterday the US ISM manufacturing data surprised the market with the worse than expected data (down 2.1 pts to 49.1 in August). The data moved into contraction territory for the first time since 2016. The news came as the US is preparing for the Hurricane Dorian approaching the US from the Bahamas and the US-China trade war uncertainty continues as the US and Chinese officials seem to be struggling to set the timetable for the further trade talks this month. T 10Y yields fell 7bps to as low as 1.43% yesterday before retreating today to 1.47%, as the investors took the news to imply a higher probability of another rate cut by the Fed this month. S&P shed 0.7%. The market will be awaiting the US Jobs data now for the further hints on the state of the economy.

ASIA

In Asian markets, Hong Kong’s Hang Seng index gained 1.2% this morning despite the disappointing private sector data, slumping to its worst level in a decade during August. China’s CSI 300 gained 0.1%, as the Caixin PMI for China’s services rose to 52.1 last month from 51.6 in July, beating the estimates. Japan’s Topix slipped 0.2% while Australia’s ASX fell 0.5%, on the back of the news of Australian GDP growth slowing down to its lowest level since 2009, growing just 0.5% compared to the first quarter.

EUROPEAN UNION

From Europe the news were more positive with UK and Italy in the spotlight. In Italy, the recent political crisis finally got resolved as the Five Star members approved the new government with an online referendum. Now the PM Conte has to present the new ministers to the president. The yields continued to fall across the Italian curve together with the CDS, down 12-15bps on average. BTPS 49s is up at mid-145 levels this morning, up more than 3 points since the beginning of the week.

UNITED KINGDOM

In Britain, the PM Johnson was defeated in Parliament yesterday, as the Tory rebels switched to support the opposition Labour, taking control of the parliamentary agenda in a bid to pass legislation to prevent a no-deal Brexit and leaving the country on the brink of a snap general election, as threatened by Boris Johnson in response. Yesterday’s vote now effectively allows a second vote later today, passing a law to force the PM to delay Brexit to January 31st should the deal not be agreed before the original deadline. The pound tumbled to below $1.20 yesterday, a 3-year low, before rebounding back to $1.21 levels today on the hopes of avoiding a no-deal Brexit. Elsewhere Germany benchmark 10Y bunds ended the day marginally unchanged in yield at -0.7%, after dipping to -0.73% during the day, the yields are up at -0.67% this morning.

MIDDLE EAST

In MENA yesterday the flows were seen picking up, with the demand mainly seen in the IG and HY sovereigns, as well as IG names. Both ADGB 47s and KSA 49 traded up about half a pt to high 125 levels both. LEBAN curve finally stabilised and started it’s rebound, with LEBAN 21s up 1.5pts to mid-86 lvls and LEBAN 37s up 2.5 pts to low 69 lvls, as the PM announced the country to be in a state of  economic emergency and the government has begun working on a plan to accelerate public finance reforms, also aiming to cut the budget deficit to 7% of GDP next year and keeping the currency peg to the USD. In other high Beta names, the front end of the OMAN curve outperformed with the OMAN 25 up 50c and offers seen lifted, while the OMAN 47 was marginally unchanged at mid-93s lvls.

LATAM

In LATAM, the news from Argentina of the reestablishment of capital controls by Macri earlier this week didn’t seem to shake the market too much, despite this bringing the risks of these being potentially prolonged by Fernandez, should he win the elections and hence having a harmful effect on the economy. Further, Fitch upgraded Argentina to CC rating from SD, following S&P earlier last week. The peso surged, implying the market’s approval of Macri’s decision, dropping to 55 lvl vs USD. Meanwhile, the government announced a 35% minimum wage boost in an attempt to regain the confidence of the voters. ARGENT sovereign bonds prices were marginally unchanged in the long end and only 50c lower in the belly, as the bonds are trading already in the range of potential recovery levels already. The provinces and corps were weak however with YPFDAR curve closing down 50c – 2pts in price and BUENOS now trading in the low 30s. In Brazil the data on the industrial production print disappointed, leading to lowering of the GDP expectations. Nevertheless, PETBRA curve closed higher, up 12.5-25c on average. In Mexico, an IG food producer BIMBOA took advantage of the low yields, issuing 600 mio of USD denominated 30Y notes at T+215bps spread, the bond was seen bid at 20c up from reoffer late last night.

RUSSIA

In Russia the positive sentiment prevailed, with sovereign Eurobonds trading up as much as 1.5pt in the long end (RUSSIA 47 up at 120.5 mid and Russia 35 seen trading as high as 114.5 yesterday), on the back of the T yields continuing its decline, and the 1-week RUB deposit auction drawing an impressive demand from investors, with a consensus view that the CB of Russia will deliver a rate cut on Friday this week. KAZAKS curve followed the moves of RUSSIA with KAZAKS 45 up a pt to mid-147 levels. UKRAIN is also enjoying a bid with UKRAIN 32s up 2 pts to mid 105 levels today, while UKRAIN 40 GDP-linked warrants are seen bid at mid-92 levels, which is more than 40 points gain from the levels of 2018!