US stocks closed in the green on Wednesday to end a run of losses following a rather dovish Fed FOMC meeting. Fed Chair Jerome Powell signaled that only a “persistent significant” rise in inflation would lead him to support hikes after the FOMC unanimously voted to hold rates. The Fed also expects inflation to remain below the 2% target in 2020 despite November inflation coming at 2.1% YoY hence its signal to leave rates unchanged through 2020. The NASDAQ led gains at 0.44% while the S&P and the DOW closed 0.29% and 0.11% higher respectively. Treasury yields were lower with 2Y and 10Y treasuries at 1.6155% and 1.7914% respectively.
The UK votes in a third general election in 4 years today with polls suggesting the election may be tighter than was the case recently. Some missteps from the incumbent Boris Johnson including a decision not to attend an interview with the BBC’s Andrew Neill – a traditional event for any campaigning leader – as well as Boris’ sidestepping of an NHS query following pictures of a sick boy failing to find a hospital bed helped tighten the Tory lead. A YouGov poll released on Tuesday said the Tories were on course for a 28-seat majority, lower than the 68-seats predicted two weeks earlier. The pound closed higher at $1.3196 while yield on 10Y and 30Y UKTs was lower at 0.774% and 1.274% respectively.
German and Italian bonds were little changed ahead of the ECB policy decision, President Christine Lagarde’s first, on Thursday morning. Expectations are that Lagarde will leave the policy unchanged and not delve much into the upcoming strategic review so as not to drive her colleagues in any particular direction. Lagarde will be keen not to reopen old wounds, in particular Bundesbank President Jens Weidmann, who has already signaled his criticism on allowing inflation to run hot. The euro closed higher at $1.1130 while yield on 10Y and 30Y DBRs was lower at -0.321% and 0.206% respectively.
Asian markets were mostly higher on Thursday following the Fed’s signal that it will hold rates throughout the next year after making no changes to the rate as was widely expected on Wednesday. The HANG SENG and the NIKKEI rose 1.31% and 0.14% while the ASX shed 0.80% in contrast. The CSI slipped further from early lows to close 0.30% in the red as the December 15 tariff deadline draws close with top US officials signaling that tariffs remain on the table.
Saudi Aramco breached the $2 trillion valuation in trading in just its second day of trading on Thursday in what will be a victory for Saudi Arabia and in particular Crown Prince Mohammed bin Salman. The shares closed 10% higher on Wednesday amid continued strong local demand. Analyst remain of the view that the shares are trading at a premium with the implied 3.7% dividend yield much lower than for similar industry firms. State-backed institutions including the Public Pension Agency are expected to help support shares as they trade.
Analysts in a Bloomberg survey expect Turkey’s march towards single-digit benchmark rates to continue on Thursday with a median estimate of a 150bps cut. While economists are of the opinion that the pickup in inflation should prompt a slowdown in cuts, politics is expected to lead economics as President Erdogan holds a contrarian view that high rates lead to inflation. As has been the case before all monetary policy meeting since Murat Uysal was appointed governor, Erdogan reiterated that the country “will be moving to single digits in interest rates in 2020.” The rite is then completed by a cutting of the rates each time. The lira closed slightly firmer at 5.8035 to the dollar while TURKEY 29s were about flat, trading in the mid 109s.
Brazil cut its benchmark rate by 50bps on Wednesday to a record-low 4.5% as was widely expected. While analysts expected a signal to pause the easing cycle, central bank President Roberto Neto signaled the monetary policy committee will exercise caution in the next meeting leaving room for more easing. The economy has started to show signs of gaining steam following surprise Q3 GDP outperformance and growing retail sales with 4.2% YoY growth recorded in October. Inflation is also beginning to pick up notably with food where costs rose 0.72% in November after a sustained period of little or no growth. The real closed firmer at 4.1179 to the dollar while BRAZI 29s were higher, trading in the high 106s.
Ghana’s inflation picked up above the midpoint of the target range in November soaring to 8.2% YoY from 7.7% in October. This was the highest in four months as a weakening cedi continues to add price pressures. The cedi, trading at 5.7063 at close on Wednesday, has been extending losses against the dollar following the central bank’s move to hold rates at the November monetary policy meeting and is just 14% down versus the dollar for the year. GHANA 29s were flat in the mid 99s.