Us stocks closed at fresh records amid signals that the Phase 1 deal may be very close. President Trump tweeted that the US was getting “very close” to a deal on Thursday which should put in doubt the scheduled December 15 tariffs. The S&P and the NASDAQ closed 0.86% and 0.73% higher respectively, inking fresh records in the process while the DOW rose 0.79% closing just 0.1% shy of an all-time high. Treasury yields were higher with 2Y and 10Y USTs closing 1.6582% (+4bps) and 1.8922% (+10bps) respectively.
The Tories won the UK general election resoundingly on Thursday with a BBC projection at 6am putting the majority at 74 seats. Notably, the Tories claimed seats in traditionally Labour constituencies prompting Jeremy Corbyn to announce he would not run another election as Labour leader. Liberal Democrats leader Jo Swinson also lost her seat to the Scottish National Party and is also expected to step down. The SNP fared better than expected and is projected to take 48 of the 59 available seats in Scotland. The pound surged as high as $1.3514, the highest so far this year, on the news having closed at $1.3161 on Thursday. Gilt yields also surged with the 10Y opening 6bps higher having closed at 0.82% while the 30Y opened 4bps higher having closed at 1.336%.
Christine Lagarde’s first monetary policy meeting as ECB President started off with no changes to the stimulus package unveiled in September with the former IMF boss noting that the eurozone slowdown was showing signs of bottoming out. The hint of optimism was not enough to prompt a change to the outlook however as updated forecasts remained largely unchanged from before: 2020 growth was revised slightly lower to 1.1% from 1.2% while 2021 and the first outlook for 2022 showed growth of 1.4%. Inflation is also predicted to rise from the current 1% to 1.6% in 2022, still below the goal of just under 2%. The euro rose during Lagarde’s address before closing unchanged at $1.1130. Yield on 10Y and 30Y DBRs closed higher at -0.269% and 0.262% respectively.
Asian stocks rallied on Friday following the bullish sentiment on trade resolution as President Trump signaled that a deal was imminent. An earlier report from the Wall Street Journal had also indicated that the US had offered to reduce existing tariffs on Chinese goods by as much as 50% to add to the upbeat outlook. The CSI closed 1.78% higher while the NIKKEI and the HANG SENG rose 2.55% and 2.57% respectively. The ASX was comparatively muted, gaining 0.46% on the day.
The CBRT made yet another deeper-than-expected cut in Thursday’s monetary policy meeting shaving 200bps off the benchmark rate. The 12% current rate exceeded expectations of a Bloomberg survey which had a 12.50% rate as the median forecast. The monetary policy may no longer have room for deeper cuts as the rate on Turkish assets, formerly the highest among EM peers, is now under 2% having been over 4% previously and little would stand in the way of a selloff if another deep cut follows. The lira was firmer at 5.7914 against the dollar while TURKEY 29s were higher, trading in the high 109s.
Argentina’s new Economy Minister Martin Guzman said the country will engage bondholders to delay debt payments in his first address after assuming the position. Noting that the economy can only grow subject to modification to the debt schedule, Guzman echoed similar sentiments by President Alberto Fernandez who said the country wants to meet its debt obligations but must first grow. Although Guzman met with IMF boss Kristalina Georgieva before taking office, no dates have yet been set for planned meetings between Argentina and the IMF according to a statement by IMF spokesperson Gerry Rice on Thursday. The peso closed about flat at 59.8161 to the dollar while ARGENT 28s were up, trading in the high 42s.
The Bank of Russia meets on Friday for a monetary policy meeting that could determine the fate of a rally that has drawn a $16 billion inflow into local bonds. The OFZ rally has been spurred by a run of easing but any sign of the bank turning hawkish could alarm the $45 billion mon-resident share in local bonds. Most economists in a Bloomberg survey point to a 25bps cut but a small fraction see another 50bps cut following a slowing of inflation to 3.5% in November, an eighth straight month of slowing. The ruble closed firmer at 62.8451 to the dollar while RUSSIA 29s were slightly higher in the mid 111s.
Portfolio investment inflows for South Africa grew to the highest level in over a year in Q3 according to the latest quarterly bulletin by the South African Reserve Bank. Investment inflows increased to 40.2 billion rand compared to 10 billion rand in the previous three months buoyed September’s Eurobond sale. The $5 billion offering, the biggest Eurobond sale to date for the country, “more than offset” net sales of equities and domestic debt by foreign holders according to the central bank. Foreign direct investment slowed to 17 billion however from a previous 26.3 billion in the preceding quarter. The rand closed firmer at 14.4139 to the dollar while SOAF 29s were about flat in the mid 98s.