US stocks snapped a two-day losing streak to mark the first win for the quarter as investors bet that signs of a slowing economy would inspire another rate cut by the Fed this October. Odds of a cut upped as the ISM’s index for the US services sector fell to 52.6 from 56.4 in August; services account for over two thirds of the US economy and have shown resilience in the face of trade tensions. The NASDAQ led gains, closing 1.12% higher while the S&P and the DOW rose 0.80% and 0.47% respectively. Treasury yields continued falling with 2Y and 10Y yields closing 1.3901% (-8.8bps) and 1.5431% (-5.6bps) respectively.
IHS Markit’s September survey showed a sharp drop in UK economic activity while a growing number of employers cut staff. Service sector activity fell into contraction territory at 49.5 against 50.6 in September spelling ominous signs for an economy where services account for 80% of the UK economy. The release follows similarly dismal reports of contraction in construction (43.3) and manufacturing (48.3) to push the all-sector index to 48.8 from 49.7 in August. A fifth of service sector companies also reported drops in workforce numbers to mark the first decline in jobs for five months and the sharpest since 2010. The pound closed slightly higher at $1.2332 while yields on 10Y and 30Y UKTs closed lower at 0.4681% and 0.9653% respectively.
Fears of a recession in Germany grew following weakening in the services sector more than expected in September. Woes in manufacturing have spread into the greater economy with the composite PMI showing a contraction for the first time since April 2013. The index, a weighted average of manufacturing and service figures, fell to 48.5 from 51.7 in August marking the swiftest pace of contraction in the process. The composite index for the greater eurozone economy also fell to 50.1 against 51.9 in August. The euro closed marginally higher at $1.0965 while yield on 10Y and 30Y DBRs closed lower at -0.590% and -0.082% respectively.
Trading was muted in Asian markets as investors took a wait-and-see approach ahead of employment figures from the US. The NIKKEI and ASX closed 0.32% and 0.47% higher, building on from early morning gains, while the HANG SENG was down 1.32% in the afternoon – the worst performance by a margin in Asia on the day. Protracted protests have weighed down on the economy with retail sales having dropped 23% YoY in August.
Turkey is pushing ahead with measures pump credit into the economy according to the latest raft of measures the CBRT is planning. The central bank is proposing for yet another bout of looser reserve requirements for banks that support export-oriented industries; the bank may lower the amount lenders park with the regulator or increase interest paid via the remuneration facility. In August, the central bank set higher remuneration rates on liira reserves for banks with 10-20% loan growth (15% against 5% for banks which do not meet minimum loan growth) and reserve ratios at 2% for banks meeting the same criteria while remaining unchanged for the rest. The lira closed firmer at 5.6948 to the dollar while TURKEY 29s traded higher in the mid 106s.
Argentine presidential candidate Alberto Fernandez is pushing for a reprofiling for debt. Speaking during a radio interview, Fernandez said creditors are open to reprofiling as they understand that Argentina cannot currently pay. Fernandez seemed keen on Uruguay-style reprofiling saying it is very possible; the Uruguay approach involved the country extending maturities by 5 years while keeping the coupon and principal constant and saw 93% of creditors taking up the offer. The peso closed slightly firmer at 57.815 to the dollar while ARGENT 28s and 48s traded lower in the mid 40s and low 42s respectively.
Russia’s push to spend big this year has been stifled by a spending squeeze by the Finance Ministry resulting in stalled growth. As at the end of August, less than 60% of the annual budget had been spent and less than a third of the money allocated to the $400 billion National Projects infrastructure plan for the year had been used. While Russia usually goes on a spending burst in the second half of the year, there is likely to be a more muted burst this year as the Kremlin is requiring an enormous amount of detail on project measurement and targets. The spending backlog off the budget stood at 700 billion rubles ($10.8 billion) at the end of August and will likely be pushed into next year to avoid cramming it into the last four months according to the Bank of Russia. The ruble closed slightly firmer at 65.1272 to the dollar while RUSSIA 29s and 47s traded higher, in the high 106s and high 118s respectively.
Nigeria’ central bank hit lenders with an equivalent $1.4 billion in penalties over failure to meet the set loan to deposit ratio. The central bank had in June given banks up to the end of September to ensure that 60% of deposits held would be turned to loans as the bank tries to spur growth in the economy. Of the country’s six largest banks only Access Bank was spared while Citi and Zenith got the heaviest penalties. While the funds taken by the central bank are not technically penalties as they will be refunded once the target is attained, analysts estimate that potentially 90 billion naira ($250 million) would be lost as income for the affected banks. The central bank also upped the loan to deposit ratio target to 65% with December 31 being the deadline to achieve the target. The naira closed firmer at 360.54 to the dollar while NGERIA 47s traded lower in the mid 96s.