US stocks closed mixed on Thursday following a flood of corporate earnings in what was the busiest day of the earnings season so far. The DOW was the only blip of the day closing 0.11% lower following a tumble in 3M shares; 3M stock fell 4.1% after a drop in quarterly sales as well as accompanying commentary that suggested that the slowdown is continuing instead of bottoming out. US economic reports also painted a mixed picture with orders on durable goods falling 1.1% in September while initial jobless claims for the week ending October 19 fell by 6,000 to 212,000. Treasury yields closed slightly lower with 2Y and 10Y USTs at 1.5777% and 1.7660%.
Conceding defeat on his vow to take Britain out of the EU by October 31, Prime Minister Boris Johnson has challenged Commons to support a general election arguing that a “broken parliament” is to blame for the Brexit impasse. The elections, set for December 12, would be put to a vote on in the House of Commons on Monday and Boris will be hoping it will be third time lucky having been defeated twice on the issue in September. Boris would need the backing of two thirds of Parliament to have polls meaning he would be highly dependent on Labour support. Labour leader Jeremy Corbyn said a party decision will only be made after the EU decides on the Brexit extension application. The pound closed lower at $1.2851 while yield on 10Y and 30Y UKTs fell to 0.625% and 1.116%.
The ECB held rates constant as was widely expected in Thursday’s monetary policy meeting which was also the last for outgoing President Mario Draghi. The meeting was held as the latest IHS Markit survey’s showed that the monetary package unveiled in September was yet to yield much fruit in the economy. The PMI for German manufacturing rose an incremental 0.2 to 41.9 in October, remaining firmly in contraction territory, while the composite index for services and manufacturing edged up 0.1 to 48.6 in October. Eurozone composite PMI was up 0.1 to 50.2 in October with GDP growth for Q3 forecast at a measly 0.1%. The euro closed lower at $1.1104 while yield on 10Y and 30Y DBRs closed lower at -0.397% and 0.110%.
Asian markets were mixed in muted trading on Friday in the absence of major market-moving news. US Vice President Mike Pence reiterated expectations for the Phase 1 trade deal between US and China even as he berated China for its intervention in Hong Kong and treatment of Muslim groups. The CSI was 0.11% higher in the afternoon while the HANG SENG was 0.36% lower. The ASX closed 0.68% higher while the NIKKEI pared early gains to close 0.22% higher. The retreat on the NIKKEI followed the resignation of Trade Minister Isshu Sugawara over reports that he made unlawful donations to his supporters.
The CBRT delivered yet another deep rate cut in Thursday’s meeting shaving off 250bps to leave the rate at 14%. This was more than every forecast in a Bloomberg poll which had a median estimate of 100bps and brings the total cuts under Governor Murat Uysal’s watch to 10% so far. The lira closed slightly weaker at 5.7645 to the dollar perhaps highlighting that the market has reached the edn of its tolerance for the substantial cuts. TURKEY 29s and 47s were higher however, trading in the high 106s and mid 86s respectively.
Investors have largely priced in a victory for Alberto Fernandez in Sunday’s election and there should be very little, if any, selloff in the aftermath according to BTG Pactual analysts. Having defeated the incumbent Mauricio Macri by a whopping 16 points with close to half of the votes in the August primaries, markets were roiled prompting a massive selloff of Argentine assets. A minority of analysts see a possibility of Fernandez not getting enough support for an outright victory – securing at least 45% of the vote or at least 40% with a 10-point margin – triggering a runoff; odds however still point to a Fernandez victory in that scenario. Analysts thus believe that the market has already priced in a victory for the Peronist opposition. The peso closed weaker at 59.5975 to the dollar while ARGENT 48s closed higher in the mid 42s.
A Bloomberg survey of economists sees Russia’s benchmark rate ending the year at 6.50% from the current 7% despite the slew of alternative forecasts seeing a 100bps of cuts in store by year end. Interestingly, the survey began on October 18, when central bank governor Elvira Nabiullina gave hints that the bank would be open to deeper cuts than the quarter points that have been seen so far this easing cycle. Also curiously, the survey forecast no change in year-end inflation expectations at 4.6% despite increasing expectations of a downward revision of inflation the central bank’s forecast during the monetary policy meeting later on today. The ruble closed weaker at 64.0717 to the dollar while RUSSIA 29s were up, trading in the low 108s.
South Africa’s annual headline inflation fell to 4.1% in September, going lower than the median estimate of 4.3% in a Bloomberg survey, and marking a 30th straight month that it has remained within the central bank’s target range. The rand has been firming in the aftermath, up 0.9% this week, albeit having closed weaker on Thursday at 14.7012 to the dollar. SOAF 29s closed slightly higher in the low 101s as did SOAF 48s which were in the low 109s.