US stocks closed mixed on Wednesday following days of notching record highs as reports surfaced that the Phase 1 US-China trade deal could be delayed until December added to poor earnings in the energy sector. Reuters, citing a senior US official, said that the deal could be delayed amid discussions over terms as well as the signing venue. Energy exploration and production companies reported lower than expected Q3 results with oil producer Diamondback Energy notably shedding 14% on Wednesday after low oil and gas prices resulted in lower profits. The S&P closed 0.07% higher while the DOW was about unchanged at 0.00% and the NASDAQ down 0.29%. Treasury yields were lower with 2Y and 10Y USTs closing at 1.6126% and 1.8301%.
The Bank of England meets for a monetary policy meeting on Thursday where policymakers are widely expected to keep rates unchaged amid yet-unresolved Brexit. Much of policy decisions rest on the outcome of December’s general election and eyes will be on the bank’s quarterly forecasts which will likely provide clues on the direction under differnet scenarios. The quarterly forecasts, in a new format dubbed the Monetary Policy report, will provide insight on how the central bank now views outlook for inflation and UK growth as well as whether the lingering uncertainty will lead the bank to become dovish in the near future. The pound closed lower at $1.2855 while yield on 10Y and 30Y UKTs closed lower at 0.715% and 1.232%.
Alarm bells continue to sound in Germany after industrial production for September fell more than forecast in September. Output fell 0.6% from August against expectations of 0.4% in a Reuters poll and 4.3% in the 12 months to September. The figures support the recent slashing of the country’s 2019 growth forecast from 0.8% to 0.5% by the government-appointed Council of Economic Experts. Eurozone’s largest ecnomy is on the brink of a technical recession and next week’s GDP figures are generally expected to show another contraction in Q3. The euro closed slightly lower at $1.1066 while yield on 10Y and 30Y DBRs closed lower at -0.333% and 0.197%.
Asian markets were mostly down in early trading on Thursday following reports that the signing of a deal may be pushed back to December having previously been expected to be ready by mid-November. Early losses were however recovered after the Chinese mInistry of Commerce said the US and China had agreed to roll back tariffs in phases later on Thursday. Ministry spokesperson Gao Feng said on reaching a Phase 1 deal, tariffs would be rolled back in identical proportions simultaneously based on the agreement. Should the tariff rollback materialise, it will represent a key milestone in the de-escalation of the trade war as removal of tariffs has been a major demand since the beginning of negotiations. The ASX led gains on the day up 1.00% while the HANG SENG and the NIKKEI closed 0.57% and 0.11% higher respectively. The CSI recovered from a 0.3% slip in the mornig to close about flat at 0.00%.
Having enjoyed about a decade of credit-fuelled growth, Turkey may have to find alternative means to again spur growth in the economy. Deleveraging has become a constant of the economy following 2018’s currency shock with lending struggling to take off despite the CBRT easing rates by 10% and state banks willing to pump money iinto the economy. Credit growth in lira was barely above zero last quarter, adjusted for inflation, from the preceding three months where it fell 3.2%. Corporate hard-currency liabilities have also fallen some $32 billion to $303 billion at the end of August while corporate assets in hard currency have grown $7 billion. The lira closed frimer at 5.7498 to the dollar while TURKEY 29s and 47s were up, trading in the low 108s and low 86s respectively.
The Brazilian real shed over 2% on Wednesday to closed at 4.0748 against the dollar following Pterobras’ wins in the auction of oil deposits. The real had gained on Tuesday following increased outlook for inflows of foreign currency ahead of the nation’s largest auction of crude deposits. While four fileds were available for bidding, only two received bids with Petrobras winning both albeit having to split the biggest field, Buzios, with two Chinese companies which got 10%. More auctions may still happen in the future as the second biggest field, Sepia, and the Atapu field did not receive any bids. BRAZIL 29s were slightly higher, tradin in the mid 105s as were BRAZIL 47s, trading in the low 111s.
Russian inflation slowed for a seventh straight month to an annual 3.8% in October. Weak consumer demand continues to limit spending even as the central bank has cut the rate at 4 consecutive meetings. Bank of Russia Governor Elvira Nabiullina said the balance of risks has now shifted towards disinflation with the central bank predicting that price growth will slow to 3% in January. Expected spending increases and the delayed effect of rate cuts should push price growth back to 4% later in 2020 the central bank’s research department added. The ruble closed weaker at 63.8799 while RUSSIA 29s and 47s were higher, trading in the mid 108s and high 118s.
Kenyan lawmakers voted to remove interest rate caps for banks, paving way for the ditching of an act that deprived businesses of credit. The law, which came into effect three years ago and set the ceiling to what lenders can charge on loans to 4% above the benchmark rate, was supposed to improve terms for borrowers but instead made it harder for borrowers as banks became increasingly selective on who could be afforded credit. Micro-finance banks and mobile-money lenders who had not been subject to the law will likely be victims of the law as banks will now work on getting back their lost market share. The shilling closed firmer at 102.90 to the dollar while KENINT 28s and 48s were lower, trading in the high 106s and low 106s respectively.