US stocks closed lower on Thursday as trade anxieties continued to hover on investor sentiment. Stocks pared early losses to close moderately lower on reports that China had invited the US to Beijing for face-to-face negotiations. The NASDAQ led the slide, closing 0.24% lower while the DOW and S&P closed 0.20% and 0.16% down respectively. This is likely to end successive weeks of gains as indices are on track to close at best 0.4% lower for the week. Treasury yields closed higher with 2Y and 10Y USTs closing 1.6046% and 1.7723% respectively.
Labour unveiled its election manifesto on Thursday that pushed it further away from corporate Britain as fears of a return to the state intervention era of the 1970s. Jeremy Corbyn’s plan aims to increase borrowing and taxation further from the plans in the 2017 election manifesto with borrowing increasing from £250 billion in 2017 to £400 billion while extra taxation will grow from £48.6 billion to £82.9 billion a year. The increased taxes will hit businesses and high earners the hardest as Labour aims to fund social care, the NHS as well as scrap college tuition. In addition, Labour wants to nationalize utilities, railways, Royal Mail as well as introduce ownership funds that would hand over 10% of companies to workers. The pound closed slightly weaker at $1.2914 while yield on 10Y and 30Y UKTs was higher at 0.754% and 1.308% respectively.
Bundesbank said German banks face a tougher outlook as a slowing economy adds to pressures of negative rates on Thursday. Bundesbank data showed wider banking sector profits plunged 31% last year with Deutsche bank notably making losses of €4.1n billion for the first nine months of the year. Average return on equity stood at 2.4% for banks in 2018, the second lowest in the EU and some way below the 6.1% average according to the European Banking Federation. The central bank’s sentiments were also echoed by Moody’s which cut its outlook for Germany’s banking system from neutral to negative citing expectations of a further decline in profitability as net interest income falls. The euro closed weaker at $1.1059 while yield on 10Y and 30Y DBRs closed higher at -0.325% and 0.194% respectively.
Asia stocks closed higher on Friday amid reports of the next round of face-to-face trade talks in the offing. Reports suggested that Vice Premier Liu He invited US officials to China for talks aimed at alleviating concerns over progress in resolving the tariff war. The CSI however closed lower at -0.63% while the NIKKEI and the HANG SENG rose 0.32% and 0.48% respectively. The ASX also closed higher as the Westpac weigh-down appeared to have waned closing 0.55% higher.
A recent Bloomberg survey of economists sees the Turkish economy growing in 2020 and 2021 but some way below the government targets for the coming years. The Turkish government set 5% growth targets for upcoming years but the survey only sees the economy expanding 2% in 2020 and 3% in 2021. Even so, 3 respondents in the 28-member survey see a 30% chance of a recession in the next 12 months highlighting the uncertainty the market has regarding whether the economy has fully recovered. The survey also sees the benchmark rate at 13% at the end of Q1 2020. The lira closed about flat at 5.6970 to the dollar while TURKEY 29s were slightly unchanged, trading in the lower 110s.
Brazil managed to stick to its primary deficit target for the year according to government estimates. Having set a primary deficit target of 139 billion reais for 2019, Economy Minister Paulo Guedes announced that the deficit may be a little lower than 80 billion reais for the year as ministries had managed to stay within spending estimates. The government will thus be able to unfreeze some budget resources at the end of the year according to Guedes. The real closed slightly firmer at 4.1950 to the dollar while BRAZIL 29s were slightly higher, trading in the low 105s.
The latest Bloomberg survey of economists forecasts an additional cut to the key rate by the end of the year. The survey sees the rate cut by a further 25bps at the December meeting and the forecast is supported by the IMF as Russian mission head James Roaf said this would be reasonable in the face of forecasts of inflation staying under the 4% target in 2020; survey respondents see 2020 CPI at 3.5% down from a previous 3.7%. Growth should pick up to 1.7% in 2020 and 1.9% in 2021. The ruble closed firmer at 63.7078 to the dollar while RUSSIA 29s were higher, trading in the mid 109s.