German Business Sentiment Takes a Turn for Worse


US stocks closed sharply lower on Monday as markets continued to reel from the continued spread of the coronavirus. The death toll continues to mount as cases of infection neared 3,000 in China and continue to be discovered in more countries including Canada and Germany. The NASDAQ led the slide, dropping 1.89% while the S&P was down 1.57%. The DOW shed 1.57% as well to erase all of the year’s gains ending below the 2019 close of 28,538.44. Treasury yields continued to fall with 2Y and 10Y USTs closing at 1.4409% and 1.6809% respectively.


German business sentiment soured in January following two straight months of improvements according to the latest Ifo survey. The Ifo business-climate index came in at 95.9 down from December’s 96.3 and well below a 97.0 forecast in a WSJ survey. The index was weighed down by a significant drop in sentiment for the service sector while the manufacturing sector showed signs of recovery after a notable improvement in the manufacturing business climate according to a statement by Ifo; the services sector index had reached a six-month high in December. The euro closed lower at $1.1019 while yield on 10Y and 30Y DBRs closed lower at -0.385% and 0.127% respectively.


Asian markets continued to slide amid concerns over the persistent outbreak of the coronavirus. The death toll from the virus now tops 100 and China has extended the New Year holiday until the weekend with some cities even extending it by a week longer. The ASX resumed trading down 1.35% while the NIKKEI closed 0.55% lower as the HANG SENG and the CSI remain closed.


Lebanese lawmakers overwhelmingly voted to pass a 2020 budget plan that predicts a 6% deficit on Monday. The budget approval comes ahead of a $1.2 billion maturity payment for bonds due in March and the government is stuck between either paying off the bond or conserving its depleting reserves. Continuing protests have not helped the cause, having turned violent lately, and one of the key factors behind a 50% decline in revenue towards the end of 2019. LEBAN 20s due on March 9 closed lower, trading in the high 79s and yielding over 200%.


The latest central bank survey saw Brazilian economists lowering their forecasts for inflation and the key rate for 2020 following some disappointing data. Economists forecast the Selic to close at 4.25% in December from a previous 4.5% while inflation will be 3.47% some way below the 4% target. Data releases earlier this month saw underperformance in industrial output and retail sales prompting bets that there is room to cut rates at the February 5 policy meeting. The real closed weaker at 4.2108 to the dollar while BRAZIL 50s were slightly higher, trading in the low 101s.


The latest shakeup in Russia’s cabinet may mean the long-awaited major spending push will be out in full force for 2020. Anton Siluanov, seen as the architect of frugal spending that had been associated with Russia lately was replaced in his first deputy prime minister position by Andrey Belousov who is a known advocate for greater state role in the economy. New Prime Minister Mikhail Mishutstin’s first address in a cabinet meeting saw him promising accelerated progress on delivering the $400 billion National Infrastructure spending programme. The ruble closed weaker at 62.9790 to the dollar while RUSSIA 47s were about flat, trading in the mid 127s.


Kenya’s central bank made a second consecutive cut to its benchmark rate on Monday citing anchored inflation expectations and an economy that’s underperforming. The rate, now 8.25%, is at its lowest level in eight years and came unexpectedly with economists having forecast no change. Inflation is expected to stay within the target 2.5-7.5% band and the cut should target demand and output. The shilling closed about flat at 100.95 while KENINT 48s were over point down, trading in the low 107s.