Better-than-expected corporate earnings added to the positive sentiment regarding the trade war to spur US stocks to record highs on Monday. 76% of 356 companies in the S&P 500 have reported earnings above expectations according to Refinitiv data. The NASDAQ and the S&P gained 0.37% and 0.56% respectively to notch records for a second successive session while the DOW also joined in, gaining 0.42% to close at a record 24,462.11 points. Yields on 2Y and 10Y USTs closed higher at 1.5822% and 1.7770% respectively.
UK retail sales for October shrugged off the uncertainty surrounding Brexit and a general election to rise 0.6% YoY. The data, compiled by KPMG and the British Retail Consortium, showed the October figure as the fastest growth rate since April and quite higher than the 0.1% growth in the 12 months to October. Separate data from Barclaycard showed non-essential spending, which includes non-food retail and leisure activities, rose 2% YoY in October. The pound closed lower at $1.2884 while yield on 10Y and 30Y UKTs closed higher at 0.725% and 1.227%.
Eurozone PMI made a weak start to Q4 rising from 45.7 to 45.9 in October, still firmly in contraction territory according to HHS Markit’s latest release. Germany, the bloc’s largest economy, remained the primary source of weakness recording a manufacturing PMI of 42.1, albeit an improvement from September. Jobs were also lost at the fastest pace since 2013 and worries are the downturn could spill over to households. The euro closed slightly lower at $1.1128 while yield on 10Y and 30Y DBRs closed higher at -0.351% and 0.193%.
Asian stocks were higher on Tuesday building on the momentum from their Wall Street peers and optimism on the trade war de-escalation. The Financial Times reported on Monday that the US was considering rolling back tariffs on some $112 billion of Chinese goods that were introduced in September with China expected to reciprocate. Plans to also find an alternative venue for the signing of the Phase 1 deal are afoot after the cancellation of the APEC summit due to unrest in Chile with some US venues such as Hawaii and Alaska being considered as well as neutral venues such as Brazil. The NIKKEI resumed trading having been closed on Monday to lead gains at 1.76% while the CSI and ASX closed .54% and 0.15% respectively. The HANG SENG also managed to finish 0.49% higher despite an HHS market report showing private sector PMI slumped further into contraction, recording 39.3 in October from 41.5 previously.
Saudi Arabia’s Aramco is finally going ahead with its public listing after it published its intention to float on Sunday. The IPO, three years in the making, had faced some bumps in recent times including attacks on its infrastructure in September which cut its production by half and skeptical foreign investors who did not believe the company was worth the $2 trillion valuation Crown Prince Mohammed bin Salman thought it was worth. While the Saudi government has conceded the company is not worth that much now aiming for something between $1.6- and $1.8 trillion, the listing will now go ahead in Riyadh for the oil company which recorded a profit of $111 billion in 2018. The Saudi government has cut taxes on the company and pledged to pay a minimum of $75 billion in dividends as it incentivizes investors not to sell. The IPO prospectus will be released on November 9.
Brazil sold $3 billion of dollar-denominated bonds on Monday amidst the market warming up to government reforms and an increased appetite for risk assets. The issues – a $500 million reopening for a tranche due in May 2029 and $2.5 billion due in January 2050 –garnered considerable demand with the 2050 issue coming in at a spread of 265bps over US Treasuries, tighter than originally planned. Such has been investor interest in Brazilian assets that 5Y credit default swaps are at the lowest since 2013, when Brazil was still investment-grade, and the real was the best performing currency in Latin America in October. The real closed lower at 4.0173 to the dollar while BRAZIL 47s were lower, trading in the high 112s.
Kenya’s population grew 26% in the last decade to 47.7 million according to a census report from the National Bureau of Statistics. This will add pressures to the government as improvement of social services – healthcare and affordable housing – form President Uhuru Kenyatta’s Big Four Agenda. With revenue collection being below targets, the government has been forced to increase the budget deficit forecast to 6.2% of GDP for 2019-20 amid an ever-increasing debt-to-GDP ratio. The shilling was about flat at 103.30 per dollar while KENINT 48s traded higher in the mid 107s.