US stocks closed higher to end a two-day losing streak as US-China trade negotiations came to the core. Some optimism had seeped into the market following reports that the US may be open to a limited deal while China was offering to up purchases of US agricultural products. Also in focus were minutes from the last Fed meeting, where several officials argued that chances of a recession “had increased notably in recent months” and argued for an even more aggressive stance despite several members believing that there shouldn’t have been a rate cut. The NASDAQ led gains at 1.02% while the S&P and the DOW rose 0.91% and 0.70% respectively. Yield on 2Y and 10Y treasuries closed higher at 1.4657% and 1.5836% respectively.
Prime Minister Boris Johnson will meet up with Irish premier Leo Varadkar in the hopes of keeping Brexit talks alive. Boris will hope the meeting with Varadkar will ease tensions following an acrimonious Tuesday in which Downing Street officials accused the Irish premier and Angela Merkel of blocking a deal. Ireland will be key to any deal as the contentious Irish backstop remains the sticking point although the Irish premier said it would be difficult to get a deal done in time for the sitting of the House of Commons on October 19 to vote on a deal, if any. The pound closed lower at $1.2206 while yield on 10Y and 30Y UKTs closed higher at 0.4588% and 0.9646% respectively.
Italy’s dollar-bond sale saw huge demand with an oversubscription of just over 2.5 times as orders surpassed $18 billion for the $7 billion offering in three tranches. Such was the demand for the high-yielding offering – the $2 billion 10Y tranche was priced at about 3% yield, almost double the equivalent US Treasuries – that the offering had to be doubled from the initial $3.5 billion estimate; the 5Y and 30Y tranches amounted to $2.5 billion each. Yields on 10Y and 30Y BTPS rose to close at 0.869% and 1.982% respectively. The euro closed firmer at $1.0970.
Asian markets recovered from early losses to trade higher in the afternoon following some optimism over US-China trade talks. An earlier report by the South China Morning Post that little progress had been made in precursor low-level meetings to the main talks beginning to day to send stocks lower. Optimistic reports from Bloomberg and the New York Times said the US was moving towards a partial deal, including putting off tariffs scheduled for next week as well as allowing some companies to deal with Huawei. The CSI was trading 0.48% higher in the afternoon while the HANG SENG and the NIKKEI were up 0.39% and 0.41% respectively. The ASX closed about flat at 0.01%.
The lira closed about 0.7% weaker against the dollar at $5.8702 following the invasion of Turkish troops into Kurdish-controlled Syria. An announcement by President Erdogan of the operation reversed early gains before losses picked up even as state banks increased their dollar sales. TURKEY 29s shed about half a point to trade in the low 105s while TURKEY 47s shed almost a full point to close in the mid 84s.
Brazil consumer prices fell sharply in September raising bets that the central bank will continue cutting rates. Annual inflation slowed to 2.89% from 3.43% in August to slide further away from the 4.25% target. Food and beverages contributed significantly to the drop, falling 0.43% in the month, a second straight drop in the process. The woes were also seen in Mexico where annual inflation slid to 3% in September, the lowest level in 3 years. Odds of another quarter point cut at the next Banxico meeting also rose on the report. The real closed weaker at 4.1098 to the dollar while BRAZIL 29s and 47s were higher, trading in the low 105s and high 111s respectively.
Finance Minister Anton Siluanov told business representatives at a Moscow meeting that the liquid part of Russia’s wellbeing fund will pass 7% of GDP in 2020 to enable about 400 billion rubles to be channeled towards investment, primarily in large projects. The goal of the spending, Siluanov said, would be to attract investment, not generate returns, and should encourage private sector money to also take part in investment. Elsewhere, Wednesday’s OFZ auction saw the Finance Ministry sell an equivalent $646 million of the 2034 tranche (1.9 bid-to-cover ratio) and an equivalent $165 million of the 2022 tranche (4.7 bid-to-cover ratio). The ruble closed firmer at 64.8918 to the dollar while RUSSIA 29s and 47s were about flat, trading in the mid 107s and mid 119s respectively.
The rand firmed after two days of declines as business confidence surprisingly rose according to a South African Chamber of Commerce and Industry report, closing at 15.1720 against the dollar. Business confidence for September increased to 92.4 in September from 89.1 a month prior; the figure was lower than the 93.3 a year earlier. The currency maintained its winning streak in the morning ahead of the release of a manufacturing report, going as high as 15.0869 as the slight optimism over a potential trade deal between the US and China seeped into the market. SOAF 26s closed lower, trading in the mid 103s as did SOAF 48s , trading in the mid 107s.