The DOW logged a fourth successive gain on Monday but was the only bright spark on a day that did not have major market-moving news. The DOW was up 0.14% while the S&P and the NASDAQ fell 0.01% and 0.019% respectively. Treasury Secretary Steven Mnuchin said during a TV interview that China’s decision to meet for talks is a sign of “good faith” somewhat confirming market expectations that little progress would come out of the talks slated for October which do not yet have an agenda. Yield on 2Y and 10Y USTs closed higher at 1.5928% and 1.6438% respectively.
Prime Minister Boris Johnson lost a second vote in his attempt to get approval for a snap election on Monday. To add to his woes, the House of Lords passed into law a bill ruling out a no-deal exit on October 31 and further forces the premier to ask for a three-month Brexit delay if there is no parliament-approved deal by October 19. The law will mean Boris will have to put his act together in agreeing on a deal with the EU else face the humiliation of falling back on his campaign vow to leave the EU on October 31 deal or no-deal. The pound surged to close at $1.2347, its highest level since late July. Yields on 10Y and 30Y UKTs surged about 8bps to 0.5877% and 1.096% respectively.
Germany posted its biggest surplus in four months as exports grew against a largely expected decline. July exports grew 3.8% YoY to push the foreign trade balance to €21.4 billion in July up from €16.6 billion in June. The data provided some comfort for the eurozone’s largest economy in the face of weak business confidence and falling industrial production. The data however will likely not be enough to avert growing calls for Germany to abandon its balanced budget policy and provide more stimulus to the ailing economy. A letter from the Deputy Finance Minister Bettina Hagedorn to a lawmaker stating that adjustments may be made during the 2020 budget planning was interpreted as a hint of the government’s openness to ditching the hallmark German policy. Bunds extended declines in the aftermath with 10Y DBR yields rising 5bps to -0.585% while 30Y yields climbed 8bps to -0.003%. The euro closed higher at 1.1048 against the dollar.
Asian markets took a cue from their Wall Street peers to trade mixed early Tuesday. The NIKKEI rose from morning highs to trade 0.32% up in the afternoon while the HANG SENG was just in the green at 0.07%. The ASX slid further from morning lows to -0.65% in the afternoon as the CSI recovered somewhat from morning lows to -0.04% in the afternoon. Chinese consumer inflation beat expectations in August largely due to a surge in pork prices. CPI rose 2.8% in August YoY versus an expected 2.6% according to a Wall Street Journal poll. Pork prices went up 46.7% YoY while overall meat prices including beef and mutton were up 31% as consumers shifted to other meat variants.
Turkey’s banking regulator BDDK wants banks to write off loans extended to some energy projects as part of a larger plan to clear lenders’ books and in turn boost credit in the economy. At least three projects will have their credit classified as non-performing loans in the process writing off close to $3 billion; many banks are however not so keen on reclassifying massive amounts of debt so quickly. With Treasury and Finance Minister Berat Albayrak having earlier said that the government will not cover any losses incurred by banks and the move – if effected – resulting in the NPL ratio up 40bps to 5%, the Borsa Istanbul Banks Sector Index fell as much as 1.4% on the news. The lira closed weaker at 5.7492 to the dollar while TURKEY 29s and 47s fell to the high 103s and high 83s respectively.
Argentine has taken to using some old tricks reaping some benefits from the capital controls President Mauricio Macri imposed earlier in the month. By employing what are known as blue-chip swaps, Argentines are making returns of 7% and legally for that matter. The profit emanates from the difference between the MEP dollar – which entails buying and selling bonds in different currencies – and the official exchange rate. The move is resembling the days of Christina Fernandez’ tenure when similar capital control measures were undertaken and is starkingly in contrast of the free market policies that ushered most of Macri’s tenure. The peso closed at 56.0100 to the dollar while ARGENT 28s were about flat in the low 43s and ARGENT 48s slid about a point to the mid 44s.
Russia’s move to diversify from dollar holdings in its reserves has been paying off lately as the country has taken to use more of other assets. Russia has taken a particular liking to gold, with gold reserves having quadrupled in the past decade, and the bet in gold has particularly paid off. With the recent surge in gold prices, the value of Russia’s gold has surged 42% in the past year to $109.5 billlion making up the largest share of reserves since 2000 at 20.7%. The ruble closed about flat at 65.5398 to the dollar while RUSSIA 29s and 47s fell to trade in the low 108s and high 119s respectively.