US Stocks were hurt after the sharp increase of corona virus cases on Wednesday in China. The Dow Jones Industrial Average was down 0.43% while the Nasdaq Composite and the S&P closed at -0.14% and -0.16% respectively. US Treasury yields opened lower today after the Chinese numbers were out. This created a 3.5 bp move from 1.635% to 1.60%. The 2Y-10Y spread tightened with 10Y yields falling to 1.62% while 2Y yields were flat closing at 1.4438%.


Sajid Javid resigned on Thursday in the wake of a cabinet shake-up by Prime Minister Boris Johnson. Javid’s resignation came after refusing to sack his own team of advisers as a power struggle over who should control the economy ensued between him and Boris’ chief adviser Dominic Cummings. Javid, a known fiscal hawk, was immediately replaced by Rishi Sunak who’s expected to be looser with the purse strings. Javid’s plans for a balanced budget by 2023 may already be up in the air with Downing Street declining to confirm whether the commitment remains on the table. The pound closed higher at $1.3046 while yield on 10Y and 30Y UKTs closed higher at 0.652% and 1.129% respectively.


The German economy stagnated in Q4 2019 capping a poor year for the country mired in the worst manufacturing slump in 10 years. On an annual basis, the economy grew a measly 0.3% compared to a revised 1.1% in Q3. The figures paint a gloomy picture for 2020 however with the coronavirus having forced Volkswagen AG to shut its Chinese plants while Daimler forecast a weaker sales outlook in 2020. The economic outlook by the European Commission however expects 2020 growth to be better than 2019’s at 1.1%. The euro closed lower at $1.0841 while yield on 10Y and 30Y UKTs closed lower at -0.387% and 0.130% respectively.


5,090 additional coronavirus cases were confirmed in China on Thursday perhaps showing that Wednesday’s numbers were a ‘bump’ with the introduction of a new methodology for counting infections. This decrease from the c.15,000 on Wednesday encouraged investors to put money back in the equity markets with the Hang Seng up 0.31%, the CSI up 0.38% and the ASX gaining 0.38% as well. The only underperformer was the Nikkei which fell 0.59% following Nissan Motors plunging 9.64% as it forecast a 40% decline in annual operating income.


Turkey’s current account ran a deficit for a second straight month in December and its deficit more than doubled to $2.9 billion from December 2018. The central bank stated that deficit stemmed from an increase in imports as consumer confidence rose with the easing cycle. For 2019 however, the current account ran a $1.67 billion surplus marking a turnaround from 2018’s $28.3 billion deficit. Turkish assets were little changed on the news with the lira having closed firmer at 6.0396 to the dollar while TURKEY 47s had closed lower, trading in the high 93s.


Mexico cut its benchmark rate for a fifth straight time on Thursday in line with forecasts by economists in a Bloomberg survey. The decision to cut the rate to 7% was unanimous, marking the first time all five board members of Banxico agreed since May 2019. The board said inflation is likely to pick up faster although growth will likely be lower than its 0.8-1.8% earlier forecast. Room for further easing remains as Mexico has the highest real interest rates in the G20 although a quickening in inflation above the target 3% (3.24% in January) may point to a more measured approach to further easing. The peso closed firmer at 18.5993 to the dollar while MEX 50s were slightly higher, trading in the low 113s.


The rand firmed early morning on Friday following the State of the Nation Address by President Cyril Ramaphosa. The rand was 0.7% up at 11.30am (GMT +2) having closed at 14.9557 on Thursday. While no new sweeping measures were announced on the planned restructuring of Eskom, more was planned to address power shortages including reducing dependency on Eskom. Ramaphosa also said the budget statement on February 26 will also include spending cuts with the government in talks with labour unions over reducing the state wage bill. Yields on SOAF 29s closed at 4.566%, their lowest ever following Ramaphosa’s address.