US stocks closed the week in the red as the market digested a report suggesting that the Trump administration is considering limiting US investments in China while keeping an eye on the impeachment inquiry on President Trump. The curb on US inflows to China could hit several billions worth of investment according to Bloomberg News, threatening to escalate trade tensions. The NASDAQ slid the most, down 1.13% while the S&P and DOW closed 0.53% and 0.26% respectively. Stocks also closed the week down with the DOW shedding 0.43% while the S&P and the NASDAQ shed 1.01% and 2.19% respectively. Yield on 2Y and 10Y USTs closed lower at 1.6315% and 1.6801% respectively.
The British government plans to present detailed proposals to the Brexit agreement to the EU after the Conservative Party conference this week. Brexit Secretary Stephen Barclay seemed to confirm this during an interview with The Times during which he said the UK would share its proposal “in coming days” after the conference. The proposals would primarily detail solutions to the contentious Irish border issue. Hopes will be that the EU will accept the proposed solutions in time else Boris will have to face a major climbdown from his election rhetoric by asking the EU for an extension beyond October 31. The pound closed lower at 1.2292 against the dollar while yield on 10Y UKTs was lower at 0.497%.
Asian stocks were mostly lower Monday morning as the downbeat mood on Wall Street last week rolled over into Monday trading. The HANG SENG was trading 0.52% higher in the afternoon while the NIKKEI and ASX shed 0.56% and 0.11% respectively. The CSI was also in the red, down 0.25% in the afternoon, as the official manufacturing Chinese PMI for September remained in contraction territory for a fifth month running, even as the 49.8 reading was a slight improvement over August’s 49.5.
Turkey’s trade deficit slowed to $2.5 billion in August from $3.2 billion in July according to a Turkstat release on Monday. While the figure represents a 1.2% YoY increase over last year’s figure for the same period, year to date the deficit has fallen a whopping 58.2% over the deficit over the same period in 2018. Exports have been just about the same from last year’s figures on a year-to-date basis but imports have significantly lowered, falling 16.4% to $131.939 billion. The lira closed slightly weaker at 5.6726 to the dollar on Friday while TURKEY 29s and 47s were up, trading in the low 106s and low 87s respectively.
Brazil’s unemployment remained level at 11.8% after four successive months of declines, a sign of the struggles the Bolsonaro administration faces in reviving the labour market. The economy however created 121,000 formal positions in the same month, a gain of about 44,000 over the July figure. Speaking after the release of the data on Friday, Economy Minister Paulo Guedes however said the rate should continue on a downward trajectory as he forecast growth of more than 2% in 2020, double the expected 1% thus year. The real closed firmer at 4.1691 to the dollar while BRAZIL 29s and 47s traded lower in the mid 104s and mid 112s respectively.
Russia has been touted as one the best possible market to seek refuge in emerging markets in the event of global recession according to Saxo Bank. Being one of two countries, together with South Korea, to have room to make both fiscal and monetary stimulus among emerging countries, it stands to be better able to weather the storm. Both countries have high real interest rates as well as budget surpluses and Russia has built up significant reserves in addition to sharp slowdown in inflation. The ruble closed weaker at 64.6807 to the dollar while RUSSIA 29s and 47s traded lower in the low 107s and low 119s respectively.
South Africa’s rand weakened the most among emerging market currencies as investors awaited feedback on the latest economic blueprint from the ruling party ANC: the rand was trading over 0.4% weaker against the dollar in the morning having closed at 15.1275 on Friday. While the economic blueprint offers some market-friendly measures such as relinquishing the state’s near-monopoly on electricity, ports and railways, there are significant doubts whether the ANC’s National Executive Committee will pass it; the country’s largest labour union and an alliance partner for the ANC, COSATU, criticised the paper, calling it incoherent in a sign of the battle it faces to pass. Finance Minister Tito Mboweni did issue a warning to the NEC that the government’s choices are becoming increasingly restricted as the country faces stagnant growth and high unemployment. SOAF 28s were up on Friday, trading in the low 97s.
The rally in ZAMBINs continued on Monday with 27s leading the charge, up over half a point in the morning. The rally continued following the announcement by Finance Minister Bwalya Ng’andu that the government had begun re-engaging the IMF over a possible bailout package. In a positive sign, the IMF agreed to send back a resident representative after the last one had been recalled in August following protracted negotiations over a failed bailout. This added to the rally that followed Friday’s budget presentation as Ng’andu stuck to VAT, not implementing the punitive sales tax plan that had been mooted thus appeasing mining companies which have been at loggerheads with government over the proposal. The budget also projected a reduction of the fiscal deficit to 5.5% of GDP from 6.5% this year, something that should help in IMF negotiations. The kwacha closed weaker at 13.1750 to the dollar.