Southern EU States Drum Up Support for Recovery Fund Ahead of Friday Meeting


The spectre, that is COVID-19, showed its hand in markets on Monday prompting a pullback in US stocks in just the final hour of trading. Stocks were set for a green start to the week in line with other major indices – Europe (Stoxx up 1%; FTSE up 1.32%) and Asia (Nikkei up 2.2% and CSI up 1.8%) – before California ordered a reclosure of many recently reopened businesses. The closures, coupled with increasing US-China tensions, were enough to drag back the buoyant NASDAQ which had been up 2% intraday to close 2.13% lower. The DOW just managed to remain in the green, closing 0.04% higher as the FDA gave fast track status to Pfizer’s coronavirus vaccine.


UK GDP was up 1.8% in May marking a turnaround from April’s 20.3% tumble; YoY contraction stood at 24%. The data also comes as retail sales returned to growth in June, up 3.4% YoY, pushed by a 48.2% growth in online sales. The pound closed lower at $1.2555 while yield on 10Y UKTs closed higher at 0.186%.


Southern European states continued their push for other members to support the proposed EUR750 billion recovery plan ahead of the gathering in Brussels on Friday. Italy’s Conte urged fellow members to support the fund alongside Germany’s Merkel while Portugal’s Costa in The Hague to urge his Dutch counterpart, Rutte, to also drop opposition to certain aspects of the recovery plan. The Dutch are part of the Frugal Four EU nations who are pushing for more stringent conditions on the fund such as disbursements being loans rather than grants and a greater oversight on use of funds, among others. Peripherals largely outperformed the main rates on a day we saw yield on DBRs move higher. GGBs notably outperformed, with yields staying about flat, while BTPS also tightened, albeit to a lesser extent; PGBs and SPGBs just about moved in line with the main rates.


Asian stocks were lower on Tuesday following on the lead of Wall Street with economies enacting restrictions on business activity once more. In addition to closing state borders, Australia announced a restriction to pub visits while Hong Kong announced school closures once more; the ASX closed 0.61% lower while the HANG SENG closed 1.62% lower. The CSI shed 0.80% while the NIKKEI was down 0.87%.


SSA traded about flat to start off the week; just about equal interest was seen bid and offer side for ANGOL, notably the 25s. Increased interest was also witnessed in Nigerian banks – ETINL, FIDBAN – which have largely remained unmoved as the sovereigns retraced. Elsewhere, the Nigerian curve had mixed interest; we saw some buying interest at the short end while the belly had some axed sellers with NGERIA 31s offered at just about par.