Lira Borrowing Costs Shoot Up as Restrictions on Foreign Lending Squeeze Liquidity


US stocks resumed trading on a high following the Fourth July Weekend, brushing off concerns over surges in new COVID-19 infections. The tech-heavy NASDAQ gained 2.26% to post a new record while the DOW and the S&P gained 1.78% and 1.58% respectively. Yield on 10Y USTs closed slightly higher at 0.6759%.


Chancellor Rishi Sunak is set to announce another round of stimulus this week as part of a broader boost to the economy amid the pandemic. The £3 billion will target energy efficiency (£2 billion for new green homes, £1 billion for insulating public buildings) and follows £1.5 billion poured in earlier for the arts industry. The pound closed about flat at $1.2492 while yield on 10Y UKTs closed higher at 0.201%.


German industrial output for May increased sharply as was largely expected according to the latest figures by Destatis. Total industrial output rose 7.8% month-on-month albeit lower than the 10% forecast in a WSJ poll; production was down 19.3% YoY however. The euro closed higher at $1.1309 while yield on 10Y DBRs closed about flat at -0.431%.


Chinese stocks held onto gains even as most of their Asian peers closed lower on Tuesday. The CSI closed 0.37% higher following urging of investors to buy by state media. The HANG SENG led losses down 1.38% while the NIKKEI shed 0.43%. The ASX closed about flat at -0.02% as the central bank announced that it would maintain the benchmark rate at 0.25%.


Overnight borrowing costs for the lira on Monday following heavy clampdown in the Turkish currency market. The overnight rate jumped as high as 66%, almost ten times the weighted average cost of central bank funding, at 7.58% on Friday. State banks had on Friday sold more than $1 billion in a bid to defend the lira and are effectively barred from lending to foreign accounts freely. The lira closed about flat at 6.8614 to the dollar while TURKEY 30s were lower, trading in the low 137s.


Brazilian industrial production rose 7% month-on-month in May amid limited reopening of some factories. YoY production plunged 21.9%, the second worst on record and economists expect GDP to shrink 6.5% in 2020. The real closed weaker at 5.3576 to the dollar while BRAZIL 30s were higher, trading in the low 98s.


Head of Russia’s debt department Konstantin Vyshkovsky said the government may not use the full limit of its equivalent $70 billion target this year even as other governments pump record stimulus into economies. With more than $500 billion in reserves, the country does not really need to borrow to fund stimulus but the frugal spending means recovery will likely be lower than in other economies. Vyshkovsky also said a Eurobond is still likely this year with the issue being the country’s first since sanctions barring US investors from taking part in non-ruble debt sales. The ruble closed weaker at 71.8102 to the dollar while RUSSIA 29s were lower, trading in the mid 114s.


Ghana’ s Finance Minister Ken Ofori-Atta said the budget deficit is expected to widen to more than 10% of GDP in 2020, more than double the 5% limit stated in legislation. Projections of fiscal metrics have worsened since the onset of the global pandemic with growth projected at 1.2% from an initial 6.8%. The cedi closed about flat at 5.7775 to the dollar while GHANA 30s were about flat, trading in the high 121s.