Equities failed to sustain the yesterday’s gains with tensions between China and US deepening over the Hong Kong security law, passed by China. US has retaliated to the news with threats ranging from possible potential sanctions, expulsion of Chinese students from the US with ties to military schools to ending Hong Kong’s special trading status. The UK announced that they could open a path to citizenship for 300k HK residents should China stick to the securities laws. Even the strong data out of the US (continuing jobless claims fell for the first time in pandemic era (21mn vs 25.7mn estimated)) was not enough to keep the markets up. S&P 500 was down 0.2% while the NASDAQ was down 0.5%. Treasuries rallied with 10Y yield down 5bps to 0.66% and Oil gave up some of its yesterday’s gains, Brent closing at $35/b levels after almost reaching $36/b earlier on the day.
In Europe German retail sales data were an upbeat surprise, falling only 6.5% y/y in April, much better than the 14% fall expected, giving hopes that the fall in German GDP in Q2 could be more muted than expected. 10Y DBR yields are following USTs this morning, down 2bps to -0.44%. European Periphery continued its rally, stemming from the earlier proposed EU recovery plan, CEE outperformed with new ROMANI 30 trading at 104 levels this morning, up 4pts this week. New Macedonia 26 issue traded quite well as well, up 2-3 points from reoffer. SPGB 48 also up 4pts on the week, trading at 133 this morning; while Italy and Greece slightly lagged, with BTPS 49 and GGB 42 only up 3pts to mid-130 and mid 142 lvls respectively. Cyprus bonds stayed flat on the week after a strong demand driven rally the previous week.
In MENA, the market felt weaker since mid-week with KSA 60 trading a point down yesterday to mid-111 levels despite the stronger oil move, while QATAR 50 stayed flat at low 119 levels. Lower beta names underperformed with OMAN 47 trading down 1.5pts to low 76 area and new EGYPT 50 continued its slide, down to 99 after reaching as high as 101.5 on Tuesday.
In LATAM, Petrobras has come to market, issuing $3.25bn across 2 tranches 10Y and 30Y, $1.5bn @ 5.6% and a 30yr for $1.75bn @ 6.9%. The bonds traded up as high as 40c from reoffer yesterday before going weaker from US open on speculator selling however managed to recover back to reoffer later in the day. BRAZIL traded marginally stronger with BRAZIL 50 trading up 50c to mid-93 levels and MEX showing similar moves, with MEX 40 up to low 121 levels. Argentina sovereigns were quiet overall with price 50c weaker.
Russia continued its strong performance with Sovereign bonds trading up yesterday. It is worth noting that RUSSIA 47, currently trading at 135 levels has now fully recovered in price from the fall sustained in COVID driven sell-off in March. KAZAKS curve also stayed strong, although sellers were seen in the long end. High beta names underperformed with UKRAIN 30 and UZBEK 29 staying flat yesterday at 82 and high 108 levels, respectively.
In SSA Nigerian Central Bank unexpectedly cut its key rate by 1% to 12.5%, the lowest in 4 years to try to avert the recession. The Eurobonds continued its slide however with NGERIA 38 loosing another point, trading down to mid-86 levels. Elsewhere, ZAMBIN outperformed, staying flat on the day with buyers continuing to support the paper. While ANGOL saw more prominent selling with ANGOL 49 down 2pts to low 60s area.