US stocks closed mixed on Friday taking cue from jobs data released on Friday which drew mixed sentiment on Friday. August labour figures grew 130,000 against an expected 173,000 in a MarketWatch poll; average hours worked however ticked up to 34.4 against 34.3 in August. The latter figures are more closely watched by economists as this can signal impending job losses but the drop in employment data did highlight some weakness in the labour market and cemented expectations of a Fed rate cut next week; odds of a cut ticked up slightly to 91.2%. Speaking in Zurich later on, Fed Chair Jerome Powell said the August data showed an overall picture of a healthy jobs market and in similar vein to his Jackson Hole speech said the Fed is “not forecasting or expecting a recession” though he sees “significant” downside risks. The DOW and the S&P closed 0.26% and 0.09% higher respectively while the NASDAQ fell 0.17%. Stocks were however up for the week with the NASDAQ and the S&P notching 1.8% gains while the DOW rose 1.5%. Yield on 2Y and 10Y USTs closed slightly higher at 1.5402% and 1.5602% respectively, with the yield on the benchmark 10Y note up 4.9bps for the week – the largest since July.
Asian markets opened the week higher in Monday early trading as the market digested recent economic data. Japan’s economy grew slower than anticipated in Q2 with GDP growing 1.3% YoY against a preliminary estimate of 1.8% from the Cabinet Office in August and down from 2.2% in Q1. Meanwhile, YoY trade data for August showed Chinese global exports fell 3% while imports grew 1.7%; trade with the US continued to slow with imports down 22% while exports sank 16%. The NIKKEI and the CSI had cemented early gains in the afternoon, both trading 0.56% higher while the ASX had retreated from morning highs to trade about flat at 0.01%. The HANG SENG bucked the trend slipping 0.07% in the afternoon as protests continued in Hong Kong over the weekend.
Prime Minister Boris Johnson lost yet another figure in his government following the resignation of Work and Pensions Secretary Amber Rudd, hot on the heels of the resignation of the premier’s brother Jo Johnson earlier in the week. Rudd, one of the most senior Tory Europhiles in government, said she no longer believed the government was working towards getting a deal with the EU with the same intensity it was giving towards preparation of a no-deal and berated the expulsion of 21 Tory MPs by Boris. In a seeming stamp of approval to Rudd’s remarks, Boris will be visiting Irish Prime Minister Leo Varadkar for the first time since he took the helms to discuss the Irish backstop later during the day; speaking to reporters as he toured checkpoints to inspect UK cargo in the event of a no-deal, Varadkar was however not optimistic of any breakthroughs in talks. Boris will then head back to London to try to trigger a snap election, a move set to be blocked for a second time. The pound closed weaker at $1.2283 while yield on 10Y and 30Y UKTs fell to 0.5027% and 1.0158%, drops of 9bps and 12bps off Thursday’s closes respectively.
ECB President Mario Draghi will on Thursday test the poise of policymakers as the ECB unleashes stimulus as largely expected at the September 12 policy meeting. The easing will almost certainly feature an interest rate cut that will widen the difference in borrowing costs between the euro area and elsewhere, potentially affecting foreign exchange markets. While Draghi emphasizes that the ECB strives for price stability and does not target the euro, others – President Trump in particular – will likely accuse the bank of fighting a currency war; that the euro fell to a two-year low below $1.10 last week amid anticipation of easing action will not help the ECB’s defence. A Bloomberg poll unanimously predicted a 10bps cut on the rate while the majority of respondents to the survey also forecast an immediate reactivation of bond purchases. The euro closed slightly unchanged at $1.10229 while yield on 10Y and 30Y DBRs closed lower at -0.638% and 0.082% respectively.
President Recep Erdogan continued with his unconventional rhetoric on interest rates ahead of the CBRT policy meeting on Thursday. Speaking in a televised speech on Sunday, Erdogan said interest rates would be lowered to single digits in the “shortest period” and thereafter “inflation will also slow to single digits.” The benchmark rate currently stands at 19.75% after an unprecedented 425bps cut by recently-appointed CBRT governor Murat Uysal. SocGen is pricing in a cut of 250bps at the September 12 meeting saying a cut in the 200-275bps range would be ideal, likely to result in “stable to slightly weaker” Turkish assets. Goldman Sachs changed its rate cut forecast to 275bps from a previous 175bps citing the surprise slowdown in August inflation; August inflation slowed to 15.01% against an expected 15.55% median estimate in a Bloomberg poll. The lira closed weaker on Friday at 5.7118 to the dollar while TURKEY 29s and 47s were lower, trading in the mid 104s and low 84s respectively.
Brazil inflation slowed in August month-on-month to -0.51% down from -0.01% in July. Food and transport were again responsible for most of the swing falling 0.35% and 0.39% month-on-month respectively. While YoY inflation did rise, up from July’s 3.22% to 3.43%, it remains significantly below the year’s target of 4.25% strengthening the case for another rate cut. The central bank reiterated its dovish stance with governor Roberto Neto saying on Thursday that further easing is on the horizon. The real closed firmer at 4.0605 to the dollar while BRAZIL 29s and 47s were slightly higher, trading in the low 106s and mid 115s respectively.
The Bank of Russia made its widely expected third straight rate cut on Friday, slashing 25bps off the benchmark rate to 7%. The central bank signaled more easing in the near future with governor Elvina Nabiullina telling a press conference that a cut was possible at one of the meetings before the turn of the year. Nabiullina warned that Russian exports had been hurt by the slowdown in global growth and cut the year-end inflation outlook to 4% to 4.5% from a June forecast of 4.2% to 4.7%. Growth forecasts were also not spared with forecast down to 0.8% to 1.3% from a previous 1.0% to 1.5%. The ruble closed firmer at 65.7381 per dollar while RUSSIA 29s and 47s closed lower in the mid 108s and high 120s respectively.