US stocks ended a three-day losing streak as news filtered in that a Phase 1 deal was still possible despite President Trump’s remarks on Tuesday suggesting a delay. Bloomberg News reported that US and China were progressing regarding the deal even saying the deal could be done before the December 15 tariffs kick in, citing sources familiar with talks. The S&P closed 0.63% higher while the DOW and the NASDAQ gained 0.53% and 0.54% respectively. Treasury yields were higher with 2Y and 10Y USTs closing at 1.5721% and 1.7740% respectively.
The pound rose above $1.30 for the first time since May as the market bet on a Tory victory in next week’s general elections. The pound rose 0.8% against the dollar to close at 1.3104 as polls largely continued to show at least a 10-point lead for Boris Johnson. Jeremy Corbyn’s recent advance has stalled in recent polls and remarks by pro-Europe Liberal Democrats leader Jo Swinson that she would not help Labour in the event of a hung Parliament with Corbyn at the helm did not help matters. Yields on 10Y and 30Y UKGs were higher at 0.741% and 1.274% respectively.
The euro area just about maintained growth although weakness in manufacturing is creeping to other sectors of the economy. IHS Markit’s composite PMI was stable at 50.6 although services, the main growth driver this year began to wane recording 51.9 in November from 52.2 in October. Markit’s report stated that the figures indicate “a near-stagnant economy” with services set to record the weakest quarterly expansion in 5 years. The euro was slightly lower at $1.1078 while yield on 10Y and 30Y DBRs was higher at -0.315% and 0.206% respectively.
Asian stocks were mostly higher on Thursday as sentiment on the trade front turned optimistic amid reports of talks continuing despite President Trump’s remarks appearing to suggest otherwise. The ASX led gains, up 1.16% on the day while the CSI and the HANG SENG rose 0.74% and 0.55% respectively. The NIKKEI closed 0.71% up amid the announcement of a ¥13.2 trillion ($121 billion) stimulus package, Japan’s first since 2016, as the country looks to stave off the drag from the recent tax rise and global economic weakness.
Lebanon’s central bank implemented emergency measures in the hopes of easing the country’s economic woes on Wednesday as it cut rates. Banque du Liban imposed a temporary rate cap of 5% on dollar-denominated deposits and 8.5% on local pound deposits received after December 4. In addition, the bank would only pay 50% of interest owing on banks’ dollar deposits in Lebanese pounds in Lebanese pounds with the measures being in place for six months. LEBAN bonds were not much moved by the news with 21s trading about flat in the high 55s.
Brazil will review its Q3 GDP figures following an error that resulted in billions of dollars of exports being underreported. The national statistics institute IBGE said the some $6.5 billion was underreported but the correction came too late to be included in Q3 figures; the review will be done in March when 2019 GDP figures are published. The news should come to the relief of authorities as the real weakened on the release of the report citing a widening current account deficit. Elsewhere, industrial production for October grew 0.8% month-on-month, just shy of the 0.9% forecast from a Bloomberg survey, as economic recovery maintained its slow pace to start the quarter. The real was slightly weaker at 4.2069 to the dollar while BRAZIL 29s were about flat, trading in the mid 105s.
The World Bank upped its 2019 growth forecast for Russia in its latest report to 1.2%. Having previously forecast 1% growth, the report cited increased government spending and monetary easing as factors prompting the revision. The bank sees growth of 1.6% in 2020 and 1.8% in 2021. The ruble closed firmer at 63.9398 while RUSSIA 29s were higher trading in the high 110s.
Investor concerns on deficits and growth have sent the SOAF curve to its steepest on record. Following the Q3 contraction the yield premium on SOAF 48s over 30s widened to 103bps on Wednesday having been 49bps at the start of the year. The market expects the debt ceiling to be increased as the government continues bailing out state-owned companies. The case has been the same with rand-denominated issues where SAGB 48s have seen an 18bps increase in yield while SAGB 30s have only seen a basis point increase over the same period. The rand closed slightly firmer at 14.5931 to the dollar while SOAF 29s were higher, trading in the high 98s.