US stocks closed in the green on Thursday with the DOW notably marking its longest winning streak in over a year following a softening of US-China trade aggressions coupled with the ECB’s stimulus measures. Stocks reversed modest early losses following reports of a possible interim trade deal which President Trump later confirmed while the ECB’s rate cut and hints of further easing strengthened hopes that the Fed may also usher easy-money policies for the long-run. The S&P closed 0.29% higher to fully retrace the August pullback while the DOW and NASDAQ gained 0.17% and 0.30% respectively. Yield on 2Y and 10Y USTs rose to 1.7192% and 1.7715% respectively.
Mario Draghi’s delivered sizeable stimulus in his swansong policy meeting as his tenure as ECB president draws to a close. While he faced considerable resistance from Governing Council members from core economies, he managed to gain enough support remarking that “consensus was so broad that there was no need to take a vote.” The latest stimulus package cut the rate by 10bps to -0.5% while also resuming asset purchases with €20 billion of net purchases to start in November. Banks’ concerns were also taken into consideration with a 2-tier system being introduced for their deposits to mitigate effects of negative rates on their profitability while TLTROs will now be subject to lower interest rates as well as extended maturities. Bonds initially rallied but then reversed as limits on the extent of the quantitative easing were revealed. Italy’s bonds however rallied as some calculations showed that it had the most to gain from the QE programme with yield on 10Y BTPS falling as much as 27bps after the announcement before closing at 0.8645%, 10bps lower than Wednesday’s close. Bunds pulled back after the initial rally with yields on 10Y and 30Y DBRs closing at -0.516% (+5.1bps) and 0.037% (+1.5bps). The euro also reversed an initial weakening to close firmer on the day at $1.1065.
Asian stocks were higher on Friday following further easing of US-China trade tensions. Following the suspension and postponement of some tariffs by both parties on Wednesday, Thursday saw President Trump signaling that he would be open to a smaller-scale interim deal. Furthermore, a Wall Street Journal report stated that China was looking to narrow the scope of upcoming negotiations: in a bid to resolve some of the immediate issues the Chinese are looking to split negotiations into two – one to tackle trade issues led by Vice Premier Liu He and another would be assigned to focus on thornier security and geopolitical issues. With the CSI closed for holidays, the NIKKEI led the gains in the afternoon up 1.05% while the HANG SENG and the ASX gained 0.49% and 0.21% respectively.
The CBRT followed up July’s record rate cut with yet another jumbo cut on Thursday shaving 325bps off the benchmark rate; this totals 7.5% in just two meetings since governor Murat Uysal took over in July. While estimates had been for a lower cut, with a median estimate of 275bps, the market reacted favourably with the lira soaring 1.6% to close at 5.6579 against the dollar. Bonds also rallied with TURKEY 29s and 47s making gains of over 1pt to trade in the mid 104s and high 83s respectively. The Monetary Policy Committee however signaled less scope for deeper moves while highlighting that inflation is now likely to end the year below its earlier forecasts.
Argentine inflation shot up in August following a plunging of the peso in the aftermath of President Mauricio Macri’s defeat in the primary elections. Inflation hit 4% in August and 54.5% YoY ending the four-month streak of declines. The monthly figure was below estimates of 4.4% but marked the fastest pace since March. With the peso having fallen 26% in August, analysts forecast September inflation of 5.8% according the central bank’s monthly survey anticipating prices to rise even more because of a lag between the peso’s weakening and price adjustments. The peso closed slightly firmer at 56.1188 to the dollar while ARGENT 28s closed slightly higher, trading in the high 41s.
Russia’s Finance Ministry forecasts the budget surplus to slow to 0.8% of GDP at the end of 2020 before narrowing to 0.2% in 2022 as spending in national infrastructure projects fully kicks in. Addressing a briefing during the Moscow Financial Forum, Finance Minister Anton Siluanov said the ministry was however not discussing raising the 7% of GDP cutoff level to begin drawing from the National Wellbeing Fund for investment. In a move also highlighting the determination to reduce dependency on the dollar, Siluanov also announced that debt offerings for 2020 will be in non-dollar currencies which might also include the yuan. The ruble closed 1.2% firmer against the dollar at 64.7193 while RUSSIA 29s and 47s closed higher, trading in the low 107s and high 118s respectively.