US stocks rebounded, and in the process notched their best one-day percentage gains since January after comments by Fed chief Jerome Powell were taken as opening the door to a possible rate cut. Addressing a conference hosted by the Chicago Fed, Powell said the central bank would “act as appropriate to sustain the expansion” amid the brunt of escalating trade tensions. The statement comes alongside similar comments from other Fed officials and could be a sign that the Federal Open Market Committee is preparing the market for a policy shift. All stocks recorded gains of over 2% with the NASDAQ posting the greatest gains at 2.65% after a plunge on Monday. The S&P and DOW also recorded gains of 2.14% and 2.06% respectively. Yield on 10Y USTs climbed 5bps to 2.1296% ending a run of sliding.
President Trump may have emboldened hardline Tory Brexiteers after he claimed that trans-Atlantic trade could be “two and even three times what we’re doing now” after Brexit during a joint press conference with Prime Minister Theresa May. His comment however that everything will be up for discussion including Britain’s National Health Service drew strong criticism across the political spectrum from vying Conservative contenders Boris Johnson and Michael Gove to Labour leader Jeremy Corbyn. In a later interview with ITV, president Trump then appeared to back down remarking, “… that’s something that I would not consider part of trade. That’s not trade.” The pound was stronger against the dollar at 1.2698 while yield on 10Y UKTs gained 4bps to 0.9009%.
The proposal to have the Italy government introduce a new domestic currency to pay debts found some footing after a parliamentary vote endorsed the move. While the endorsement in Parliament is only indicative and not in any way binding, debate is now growing in Italy regarding the suggestion and the likelihood that it might fuel Rome’s Eurosceptics to facilitate a departure from the euro. This would likely infringe on some of the treaties on the euro and has ramped up investor concerns especially as it has the backing of members of firebrand Deputy Prime Minster Matteo Salvini’s League party. The euro was trading marginally higher against the dollar at 1.1252 while yield on 10Y DBRs fell marginally to -0.206%.
Asian stocks opened higher following gains on Wall Street and remained in the green in afternoon trading. The NIKKEI had the highest gains at 1.80% while the HANG SENG and CSI had somewhat subdued advances at 0.48% and 0.28% respectively. The Chinese stock market saw the loss of some $12 billion in April and May in the largest outflow of foreign capital on record. While net inflow for the year remains positive at $8 billion after strong performance in Q1, the trade war and concerns about the stability of the yuan have alarmed investors. There appears to be signs that the US-China standoff may be thawing after reports that US Treasury Secretary Steve Mnuchin will meet with the Governor of the People’s Bank of China Yi Gang on the sidelines of the G20 summit in Japan; this will be the first face-to-face meeting between high-level members of the two countries since trade talks stalled in May.
Brazil’s industrial production had a disappointing April with output increasing 0.3% from March against an estimated 0.7%. YoY, production was down 3.9% in what was a lackluster start to the second quarter in an already weak economy. The industrial sector has struggled to record back-to-back months of growth despite low interest rates. The real firmed to 3.8864 to the dollar while BRAZIL 47s were trading higher at 102.195.
American private equity manager Michael Calvey will be part of the St Petersburg International Economic Forum despite being under house arrest after the Kremlin requested his presence at the investment event once sought to rival the World Economic Forum. With sanctions not at the forefront as in previous years, Calvey and his Baring Vostok will almost surely make up most of the discussion at the event although it is not clear on what terms he is allowed to attend. Foreign direct investment remains lowest as a percentage of GDP of any developing nation with an attempt to turn to Asia having failed to make up for waning interest from the West. A bright spot will be the 1000-strong Chinese delegation led by President Xi Jinping who himself will share the stage with President Putin during a plenary session. The ruble firmed to 65.1423 to the dollar while RUSSIA 47s traded higher at 105.982.
South African Rand has been shedding value following reports of the nation’s biggest first-quarter contraction in 10 years, the rand lost more than 1% against the greenback. The GDP dropped by 3.2% on the back of declines in mining and manufacturing, doubling the forecasted dip of 1.7%. The economy seems to be in a period of stagnation as household spending slowed by 0.8%. The yield on 5YR SA Govs was 4.2% as at close of business on Tuesday, while the rand was exchanging for 0.0676 to the USDollar.