Revived hopes for a trade deal outweighed lacklustre economic data to send US stocks to record highs on Friday. Commerce Secretary Wilbur Ross added to the optimism following Thursday’s remarks on trade resolution by White House economic adviser Larry Kudlow saying finishing touches are being put on the Phase 1 deal. Consumer spending picked up in October from the September slump as retail sales grew 0.3% although industrial output fell more than expected, falling 0.8%. The DOW closed 0.80%, in the process going over 28,000 points while the S&P and the NASDAQ also notched records, closing 0.95% and 0.73% higher. Treasury yields closed higher with 2Y and 10Y USTs closing at 1.6101% and 1.8308%.
Tory leader Boris Johnson hopes to win over corporate Britain at the CBI conference on Monday by providing tax breaks worth about £1 billion a year and also pledging to reduce rates. Boris is expected to tout the speedy delivery of Brexit under a Tory government leaving businesses to focus on core business issues without the uncertainty. In addition to pledging to increase employment allowance, thereby reducing employer bills for national insurance, Boris is also proposing an increase in the R&D tax rate from 12% to 13% in a bid to boost industrial production. The pound closed firmer at $1.2897 while yield on 10Y and 30Y UKTs closed higher at 0.729% and 1.261%.
Asian stocks were mostly higher on Monday taking cues from the trade optimism which spurred Wall Street to record highs on Friday. The HANG SENG led gains with 1.35% as courts ruled that the government ban on masks was unconstitutional amid continuing protests while the CSI and the NIKKEI rose 0.62% and 0.49% respectively. The ASX recovered mildly from a 0.6% slide in early trading to close 0.40% lower.
Turkey factory production rebounded for the first time in over a year, a sign that the economy may be getting back to its feet after last year’s recession. Industrial production for September rose 3.4% YoY to end the longest streak of declines since 2009. The rebound came as the central bank eased it benchmark rate by 10% in three meetings this year in addition to the recent pick-up in bank lending. Economists still see the economy shrinking in 2019 however, with a Bloomberg survey showing a median estimate of a 0.3% contraction. The lira closed about flat on Friday at 5.7477 to the dollar while TURKEY 29s and 47s were higher, trading in the mid 110s and low 89s respectively.
Brazil Lower House Speaker Rodrigo Maia is once again set to lead President Bolsonaro’s reforms in Congress having successfully steered the pension reform bill. Maia said during an interview that Congress will likely tackle reforms Bolsonaro wants to institute from the complex tax system to spending caps, and all these before July when House members start focusing on local elections. Brazil’s tax system is regarded as one of the most complex in the world with companies taking as much as eight months to prepare tax returns. Bolsonaro, together with Finance Minister Paulo Guedes, also delivered bills to Congress that aim to cap budget deficits at the value of investment received. BRAZIL 29s and 50s were about flat, trading in the low 105s and low 96s respectively.
Russia is hoping to make another effort to take control of its oil prices by supporting the latest initiative by the St Petersburg International Mercantile Exchange (Spimex). Russian exporters currently get pricing estimates from trading firms and agencies, usually over the phone and the exchange is planning to launch online auctions where buyers and sellers will transact and in turn Spimex will get real prices. Having long relied on western pricing agencies such as Platts and Argus for price information, Russia will be hoping it will be third-time lucky for Spimex as the two previous attempts failed to garner interest thus providing a platform on which it can determine daily prices of its oil. The ruble closed firmer against the dollar at 63.7610 while RUSSIA 29s and 47s were about flat, trading in the mid 108s and mid 119s respectively.
South Africa is set for yet another nail-biting week as it awaits S&P’s rating review on Friday. While the rating agency already has the country’s debt in junk territory, it remains the only major ratings agency to keep the outlook at stable. A Bloomberg survey of 22 economists saw 16 of them expecting a downgrade of the outlook to negative following in the footsteps of Moody’s and this is likely to be followed by another downgrade further into junk territory. In its most recent assessment in May, S&P warned that continued fiscal deterioration and weaker economic performance could prompt yet another downgrade; the recent Medium-Term Budget Policy Statement showed both hence the wide expectations of an outlook downgrade. The rand was weaker at 14.7383 to the dollar Monday morning, having closed at 14.7114 on Friday. SOAF 29s and 49s were higher, trading in the mid 99s and low 97s respectively.