The weaker tone of the week has continued yesterday for Asia and European sessions, culminating with an almost 2% S%P fall shortly after the US open, as the US jobless claims data posted another miss (2.98mn vs 2.5mn estimated). The risk off mode did not survive the US session however, as the equities turned to a sharp recovery, ending the day +1.2% for S&P and +).9% for NASDAQ. The US Treasury curve flattened. 30Y bonds slid 5bp in yield to 1.29%, 10Y USTs decreased 3bp to 0.62%, other tenors lowered 1bp. The mood persisted on Friday with both Asian and European indices trading up around 1% on average. economies were on lockdown with the consensus forecast standing at -3.8% QoQ. Oil prices resumed their recovery with Brent up above $32/b today as the IEA pointed that the global oil production was set to decrease this month to the lowest level in nine years, and OPEC+ had already reduced its daily exports more than 6mmb/d in the first fourteen days of May, while the demand forecast is set to increase as the lockdown measures ease.
HK Hang Seng and Chinese CSI indices, however, did not sustain the early gains and were notable underperformers, down approx. 1% at the time of writing. The decline could be attributed to the less than impressive retail data for the early days of China’s economic reopening, which showed the persistence of the weaker consumer sentiment despite the resumption of business. The slump in retail sales moderated in April to a 7.5% contraction, but it was worse than the consensus of minus 6%. Factory output, up 3.9%, beat estimates of 1.5% growth. President’s Trump warning that he could “cut off the whole relationship” with China did not help either, as the doubts arise whether China can meet the first-year targets of its trade deal. In Asia credit markets India IG outperformed yesterday, while China IG saw some profit taking in high-beta tech.
In Mena region, BHRAIN and OMAN curves were outperformers in lower-beta on the day, with OMAN trading 20-25bps tighter, while BHRAIN closed flat on the day. EGYPT saw some selling in the long end, with EGYPT 47 trading down 2pts to mid 95s area. Turkey also did not fare well with the bonds widening 20-30bps in yield, despite a stronger TRY. In IG, KSA curve has initially traded down with the recent new issue KSA 60 dropping to low 102s, before rebounding to 103 levels in the evening. EGYPT saw some selling in the long end, with EGYPT 47 trading down 2pts to mid 95s area.
In Latam, Brazil underperformed, as the country has now reached its highest number of daily deaths at almost 900 to a total of 12,000. PETBRA curve was down 1-2pts on average, tracing a similar move in BRAZIL sovereign, BRAZIL 47 traded down as low as 94.5, down 1pt on the day. Colombian economy is expected to decline 4.5% for 2020 according to Fitch as a result of Covid, COLOM curve slid around 20-50c on average. Mexico, now seen as more attractive relative to Columbia by some analysts, due to the pricing in of the downside rating actions and deteriorating economy by the investors, has seen some demand yesterday. MEX 47 fell 1.5pts initially po low 90s area before showing a rebound and ending the day flat at mid 91s levels. CHILE exhibited similar behaviour with the recently issued CHILE 31 trading down to as low as high 98s area before rebounding fully to high 99s levels.
The risk-off tone did not escape Russia and CIS regions with RUSSIA 47 trading down a point to low 126 levels, while KAZAKS curve remained widely unchanged. UZBEK curve on the other hand tightened 4bps in yield, while ARMEN was the most notable outperformer, tightening as much as 19bps in yield. UKRAIN traded down 2-3pts, despite the news of Rada passing the Banking reform bill on Wednesday, bringing the possibility of IMF support (contingent on said reform) ever closer. UKRAIN 30 EUR was seen trading as low as mid 80s levels, down from the earlier week’s highs of 84.
In SSA, the selling persisted in the space. NGERIA and GHANA curves widened 20 bps in yield on average, ANGOL 49 traded down 3pts in cash to as low as 51 (down 3pts), while SENEGL was spared with SENEGL 48 only showing a relatively modest 50c decline on the day. The move is reversed this morning however, with the space showing a pretty strong open with buyers in NGERIA and ANGOL driving the bonds up at least 1.5-2pts.
And just because it’s Friday: in Kansas City Zoo’s Penguins took a field trip to Nelson-Atkins Museum of Art, and were reported to seem to really appreciate Caravaggio.
Have a fantastic Friday everyone!