Moves by the Trump administration against China outweighed the announcement by the Fed to commence purchases of government debt resulting in a bleak day on Wall Street. To add to the blacklisting of Chinese tech companies for their alleged role in abuses to Uighur Muslims, the Trump administration issued visa restrictions against officials involved in the abuses. Fed Chair Jerome Powell later announced that the Fed will begin purchases of short-term US government debt in an attempt to calm the recent turmoil in overnight bank-to-bank lending. The DOW closed lower at 1.19% while the S&P and the NASDAQ shed 1.56% and 1.67% respectively. Yield on treasuries were lower with 2Y and 10Y USTs closing at 1.4194% and 1.5289% respectively.
Prospects of a Brexit deal look “essentially Impossible” according to a statement by Downing Street following a trading of accusations over the stalling of talks for a deal from either side across the Channel. The UK blames the EU for not compromising over the Irish backstop saying German Chancellor Angela Merkel said a deal is highly unlikely unless Northern Ireland continues to comply with EU rules, something Boris’ government will not accept. The EU meanwhile says the proposals do little to fulfil the UK’s commitment to a frictionless border. The pound closed lower at $1.2219 while yield on 10Y and 30Y UKTs closed lower at 0.4141% and 0.925%.
Italy is preparing to issue its first dollar-denominated bonds since 2010 with 5-year, 10-year and 30-year tranches up for grabs in the sale mandated to Barclays, HSBC and JPMorgan Chase. Eurozone’s second-most indebted nation’s bonds have enjoyed a resurgence leading performance among euro area sovereign securities with a return of 14% this year. Italy government bonds were little changed on the announcement with yield on 10Y and 30Y BTPS closing lower at 0.843% and 1.959% respectively. The euro closed weaker at $1.0957.
Asia stocks largely slipped in early trading amid the growing pessimism over this week’s trade talks. In another flare-up of tensions in the buildup to the talks, the US announced visa restrictions against yet-to-be-named Chinese officials over abuses of Muslims. The Chinese as a result, have lowered expectations of a breakthrough with the South China Morning Post reporting that Vice Premier Liu He will no longer be part of the delegation. Curiously, the CSI was trading higher in the afternoon at 0.24% while the HANG SENG was trading 0.60% lower. The NIKKEI and ASX closed 0.61% and 0.71% down respectively.
The lira was little changed against the dollar on Wednesday morning ahead of an impending military incursion into northern Syria. The Turkish currency had closed little changed on Tuesday at 5.8302 to the dollar and was little changed following communication by President Erdogan’s communications director that the military will cross into Syria “shortly” on Wednesday morning. The stability of the lira on Tuesday following a slide of more than 2% on Monday may have been due to a sale of dollars by state banks; reports suggest that the banks may have bought about $1 billion worth of lira on Monday and Tuesday. TURKEY 29s and 47s were little changed on Tuesday, trading in the high 105s and low 85s respectively.
Mexico is on course to pass a bill that seeks to stem excessive spending by government officials while also seeking to increase the cooling off period for regulators. The moves follow President Obrador’s election pledges to stamp out corruption as well as cut unnecessary government spending. The law bears down on the revolving door between public and private sector which Obrador describes as a “cancer” and would prevent high-level officials from working at companies they had regulated for 10 years, one of the longest cooling-off periods in the world. The bill has been passed in Senate and awaits passing in the lower house where it has been generally approved but debates over several articles are stopping it from going to the president for signing into law. The peso closed weaker at 19.6286 to the dollar while MEX 29s were higher, trading in the low 110s.
Non-resident shares in OFZs remained steady at 29% in September according to the Bank of Russia. This followed an uptake of 31 billion rubles worth of OFZs in the month by foreigners. US sanctions imposed some months back have also had limited impact on Eurobond holdings with foreign holdings down by just 0.5% for the month. The Ministry of Finance will hold no-limit OFZ auctions with two tranches maturing in 2022 and 2034 available. The ruble closed weaker at 65.1953 while RUSSIA 29s and 47s were up, trading in the mid 107s and mid 119s respectively.
Nigeria’s 2020 budget sees the government projecting a 7% increase in revenue for the year despite having repetitively missed previous targets by a wide margin. The country is forecasting an equivalent $22.7 billion in 2020 against a budget of an equivalent $28.5 billion: the deficit will be financed by local and international borrowing. The government had collected 58% of the 2019 target by June although government takings on crude sales were 49% below target as of June. Annual earnings projections have been missed since 2016 amid lax tax enforcement rules with nearly 60% of Nigerians not paying taxes in 2018 according to an Economic Summit Group survey. The government also plans to increase the consumptive tax rate to 7.5% from 5% as another measure to raise income. The naira closed about flat at 361.29 to the dollar while NGERIA 27s and 47s were lower, trading in the mid 99s and low 96s respectively