US stocks eked out gains on Monday to close at fresh all-time highs as notable progress on the trade front remained elusive. While steps are being made towards thawing US-China relations with the US extending a 90-day reprieve for companies to continue trading with Huawei, reports surfaced that Beijing was concerned with President Trump’s insistence that tariffs wouldn’t be rolled back; China was then considering continuing talks but wait until the impeachment and elections are done. The S&P edged up 0.05% while the DOW and the NASDAQ both closed 0.11% higher. Treasury yields were lower with 2Y and 10Y USTs closing at 1.6021% and 1.8170% respectively.
Prime Minister Boris Johnson abandoned the reported tax cut which was to be unveiled during the address at the CBI conference on Monday. With the government having committed to balancing books, little would have been left for public services and the money will instead be used on the NHS. Projections for public finances show books just barely getting in the black in 2022-23 leaving little room for unplanned spending promises this election. While Boris did regret that the government would not be able to fulfil its 2017 pledge to reduce corporate taxes to 17% in 2020, the premier pointed out that significant progress had been made from the 28% in 2010 to the current 19%. Boris also took the chance to take a shot at his main rival, Labour’s Jeremy Corbyn, saying taxes would be whacked “back up to the highest levels in Europe”. The pound closed firmer at $1.2953 while yield on 10Y and 30Y DBRs was higher at 0.750% and 1.279%.
Germany has not fully rebounded even as it averted an expected Q3 recession according to Bundesbank. In the central bank’s latest monthly report, the bank said the economy will likely stagnate in Q4 although there are cagey signs that the manufacturing slump may be easing. The Bundesbank pointed to the improvement in manufacturer’s business expectations and the holding up of order inflows as promising signs for the end of the manufacturing slump. The report noted that Q2 had been the roughest of the patch and “there’s currently no reason to fear Germany will slide into a recession.” The euro was slightly higher at $1.1072 while yield on 10Y and 30Y DBRs closed was about flat at -0.336% and 0.184%.
Asian stocks were mixed on Tuesday as market sentiment wavered with divergent reports on the progress of a trade deal. Reports surfaced on Monday saying China thought the tariff rollbacks had been agreed in principle and were concerned with President Trump’s dismissive rhetoric on rolling back tariffs. China’s CSI (+0.85%) and Hong Kong’s HANG SENG (+1.55%) led gains on the day, presumably buoyed by the lowering of the interest rate on regular reverse repurchase open market operations by the PBOC on Monday. The ASX followed suit closing 0.77% higher although the NIKKEI closed 0.53% lower.
Turkey has decided to end a public-private partnership system to used to construct massive hospitals. The opposition CHP had been berating the decision by the government projecting that the budgetary burden of 30 city hospitals – operational and planned – will top $142 billion over 25 years. Besides the CHP concerns, the strain on the fiscus also prompted the move with the 2019 budget allocation of an equivalent $900 million set to double next year as four new hospitals start operating. The central government ran a deficit of 100.7 billion liras in the first 10 months of the year, up 62% from the same period last year and analysts say the abandonment of the PPP model should free up more resources for other public services as 60% of the health budget would have gone to funding the city hospitals. The lira closed firmer at 5.7357 to the dollar while TURKEY 29s closed higher, trading in the upper 110s.
The latest survey by the Brazilian central bank saw economists raise their 2020 growth forecasts for a second straight week as well as lowered their estimate for the benchmark rate. Economists see the Selic fall to 4.25% from a previous 4.50% even as growth picks up and raised the growth forecast to 2.17% from an earlier 2.08%. Amid tame weak inflation, the central bank is likely to cut rates again in December going by recent comments of central bank president Roberto Campos Neto. Inflation expectation remained steady however at 3.60%, albeit below next year’s target of 4%. The real closed at its weakest ever at 4.2087 to the dollar while BRAZIL 29s were lower, trading in the high 104s.
After months of speculation, missed (self-imposed) deadlines and delays, South Africa finally appointed a CEO for the beleaguered Eskom on Monday. The appointee, Andre de Ruyter, is little known in state enterprise circles and the jury is still out on him. Possibly true to de Ruyter’s low profile nature, Eskom bonds were lower even as a significant step was taken towards the turnaround of the company. ESKOM yields were higher with 28s up some 15bps since the announcement while 21s were up some 20bps. De Ruyter will also have to manage labour unions, most of whom were angling for a black candidate to lead the firm. The rand closed weaker at 14.8134 to the dollar.