Russia Signals More Easing Following Sixth Straight Rate Cut


A stellar jobs report on Friday was not enough to swing US stocks to the upside on Friday although stocks recorded gains for the week. The US economy added 225,000 jobs in January versus a 165,000 gain according to a MarketWatch poll with unemployment ticking up slightly to 3.6%. The DOW led the slide, down 0.94% (+3% for the week) while the S&P and the NASDAQ both closed 0.54% lower (3.2% and 4% up for the week respectively). Treasury yields were lower with 2Y and 10Y USTs closing at 1.4011% and 1.5834% respectively.


Chancellor Sajid Javid is reportedly considering a big tax raid on high-income earners in the March budget to help fund Prime Minister’s plan to “level up” the economy. Pension tax breaks, which mainly benefit the rich and costs the Treasury almost £40bn a year in foregone revenue. With the government at risk of failing to meet its target of a balanced budget by 2023, the Chancellor may be forced to raise taxes. The Boris Johnson government already shelved plans to lower corporation taxes to release funds for the NHS and is wary of a backlash from traditional voters if a more sweeping tax reform. The pound closed lower at $1.2892 while yield on 10Y and 30Y UKTs closed lower at 0.570% and 1.083% respectively.


Optimism that the coronavirus is under control faded in Asian markets on Monday following a surge in new confirmed cases over the weekend. China reported that 3,062 new cases had been confirmed in the 24 hours to midnight Sunday, up 15% from Saturday’s tally and in contrast to the trend during the week where the daily number of new cases was declining. The ASX closed 0.14% lower while the NIKKEI and the HANG SENG 0.60% and 0.59% respectively.. The CSI however recovered from early losses to close 0.51% higher as the PBOC promised additional lending to soften the blow of mandated closures as the government tried to curb the spread of the virus.


Following the lira’s weakening beyond 6 to the dollar on Friday, the banking regulator – BRSA – announced new measures meant to limit speculation by foreign traders on Sunday. The 6.0146 per dollar close was the weakest since May 2019 and prompted the BRSA to lower the size of currency swaps and similar transactions between Turkish lenders and foreign participants to 10% of the bank’s regulatory capital from 25%. The lira opened firmer on Monday, trading as far as 5.9775 to the dollar during early trading on Monday. TURKEY 47s traded almost two points lower on Friday, in the mid 94s.


Brazil’s monthly inflation eased against expectations in January adding weight to the central bank’s plans to keep the country’s interest rate steady following a period of easing. The IPCA index of consumer prices rose 0.21% in January down from a 1.15% surge in December and below the median 0.35% forecast in a Bloomberg survey; the annual figure, 4.19% remained above target, however. Slowing food price increases were a major driver, rising 0.39% in the month down from a 3.38% spike in December. The real closed weaker at 4.3175 to the dollar while BRAZIL 50s were higher, trading in the high 103s.


The Bank of Russia signalled openness to further easing at following another rate cut on Friday marking a divergence from the tone at the December meeting that hinted at a pause. The 25bps cut, a sixth straight cut, leaves the benchmark rate at 6% as most economist had predicted. In a statement after the meeting, Governor Elvira Nabiullina said “a relatively high probability of a rate cut at the next meeting” exists as she highlighted that disinflationary risks were higher than pro-inflationary risks in the short-term. The OFZ rally is expected to continue in 2020 as investors wager that rates could drop below 6%, the lower band of the central bank’s neutral range as Nabiullina said the range is only an estimate and the bank can go below it. The ruble closed weaker at 64.1154 to the dollar while RUSSIA 47s were flat, trading in the mid 128s.


The World Bank cautioned Ghana against continued external debt piling and exceeding its sustainability threshold; the bank rates the country as a moderate to high-risk debt distressed country. The comments by the World bank follow a successful Eurobond issue by Ghana where orderbooks totalled $15 billion for the $3 billion issued including a 41-year bond, the longest by an African country. Ghana’s debt-to-GDP level is estimated at 63% with 52% being external debt. The cedi closed weaker at 5.4250 to the dollar while GHANA 51s were lower, trading in the low 104s.