US stocks closed in the green for a third straight day as the Wall Street rebound continued amid indications that the economic impact of the coronavirus could be blunted. Reports surfaced on Wednesday that UK researchers had made progress in lab tests while a Chinese research team claimed a cocktail of drugs could rein the virus in infected patients. An ADP report on private-sector employment also came in higher than expected, showing 291,000 new jobs against an expected 154,000. The DOW led gains, up 1.68% while the S&P and the NASDAQ rose 1.13% and 0.43% respectively. Treasury yields were higher with 2Y and 10Y USTs closing at 1.4451% and 1.6526% respectively.
The upbeat sentiment following the December election swept into the UK private sector which rose back into expansionary territory for the first time since August 2019. The 53.3 January reading for the IHS Markit composite PMI from 49.3in December also marked the fastest rate of increase since September 2018. Services, up 3.9 points to 53.9 in January – the highest in 16 months – drove the improvement. Many respondents in the survey cited an increase in certainty after the election as a major driver of growth. The pound closed weaker at $1.3002 while yield on 10Y and 30Y UKTs closed higher at 0.616% and 1.134% respectively.
The latest Eurozone PMI figures show that the economy may have turned a corner, allaying fears that weakness in manufacturing will creep into services. While the bloc’s services PMI for January came in slightly lower than the December figure at 52.5, most of the countries that had seen weakness in the sector lately rebounded. German services PMI hit a 5-month high at 51.2 while Italy recorded 50.4, a 3-month high; France hit a 4-month low, albeit still in expansionary territory at 51.1. The composite PMI for the bloc was up at 51.3 in January with the survey predicting a 0.2% Q4 GDP growth for the bloc. The euro closed weaker at $1.0999 while yield on 10Y and 30Y DBRs closed higher at -0.359% and 0.165% respectively.
Optimism on the capability of authorities to contain the coronavirus outbreak buoyed Asian markets on Thursday with indices closing sharply higher; this was despite the latest official communication on Thursday by China saying confirmed cases now topped 28,000 and 563 deaths. Markets got a further boost as China announced it was going to halve tariffs on $75 billion on US goods effective February 14. The HANG SENG led gains at 2.64% while the NIKKEI closely followed, up 2.38% on the day. The CSI and the ASX closed 1.72% and 1.05% higher on the day.
Turkish inflation’s recent acceleration may prompt a halt on the aggressive easing that has accompanied CBRT Governor Murat Uysal’s tenure. January inflation came at 12.2% YoY from 11.8% in December to push real interest rates into the negative and at the same level of Japan. The rise was unexpected as a Bloomberg survey had predicted a modest increase to 11.9% with only 4 of 22 survey respondents predicting at least 12.2%. With President Erdogan having repeatedly pushed for single-digit rates, Uysal has all to do in his quest to appease Erdogan and investors who were promised a positive real rate of return. The lira closed weaker at 5.9827 to the dollar while TURKEY 47s were slightly unchanged, trading in the high 95s.
Brazil’s central bank announced that it would halt easing after shaving 25bps off the benchmark rate to 4.25% on Wednesday. Following five straight cuts that saw the benchmark rate lowered by 225bps, the monetary policy committee said there would be no more cuts “in light of the lagged effects of the monetary easing cycle.” The committee added that they would be placing growing weight on price projections for 2021 hinting a slight hawkishness although a central bank survey of economists still sees 2020 ending below the target 4% – mid January inflation stood at 4.34%. The real – the second worst performing currency in EM this year so far – could also fuel price growth as imports become more expensive. The real closed firmer at 4.2412 against the dollar while BRAZIL 50s were flat, trading in the low 103s.
Most economists in a Bloomberg poll see the Bank of Russia cutting its benchmark rate to 6% at its monetary policy meeting on Friday as inflation continues to slide lower. Statements by the bank at the last rate meeting in December had hinted at a possible pause for Friday’s meeting but expectations that inflation slowed to 2.5% in January have raised prospects of a 25bps cut on Friday; January inflation data will be released later in the day on Thursday. Economists predicting a pause point to the expected $34 billion (equivalent) extra spending by the new Russian government which should stimulate price growth. The ruble closed firmer at 62.8794 to the dollar while RUSSIA 47s were about flat, trading in the low 129s.
South African rand-denominated government bonds have found favour in investor eyes lately with a rally extending even as coronavirus fears continue to play on investor minds. The Treasury’s weekly auction saw the strongest order book – 13.9 billion rand for 4.53 billion rand on offer – in five weeks and inflows so far this year stand at 7 billion rand ($470 million) in stark contrast to 2019, which saw foreign investors ditching a net 21.6 billion of government bonds. The rally, which has seen yields on benchmark SAGB 30s drop in five of the last six sessions, has extended even as fears of a downgrade from investment grade by Moody’s persist and Eskom’s continued blackouts threaten to dent growth. The rand closed slightly firmer at 14.7767 to the dollar while SOAF 49s were slightly higher, trading in the high 99s.