Mexico Tariffs Averted

UNITED STATES

US stocks closed over 1% higher to book a fourth successive day of gains despite a weaker-than-forecast jobs report. The NASDAQ recorded the highest gains at 1.66% while the DOW and S&P were up 1.02% and 1.05% respectively. The weak jobs data increased expectations that a Fed rate cut would be imminent with some expecting the cut to come as soon as July. Yield on 10Y USTs slid 3bps to 2.0809%.

UNITED KINGDOM

Environment secretary Michael Gove’s bid to become the next Tory leader is facing a snag as he faces difficult questions over cocaine use during his time as a journalist. The hit couldn’t have come at a worse time as the race to replace May officially begins today with a new Tory leader set for appointment at the end of July. The reputation that he is untrustworthy remains after he spectacularly withdrew support for Boris Johnson in the 2016 Conservative leadership election having backed him throughout his Brexit campaign. Potential key backers have announced support for other candidates as Scottish Conservative leader Ruth Davidson backed Sajid Javid while work and pensions secretary Amber Rudd announced support for Jeremy Hunt. The pound closed higher at $1.2737 while yield on 10Y UKTs slid to 0.8122%.

EUROPEAN UNION

According to a Financial Times report, the European Commission will issue a warning to businesses not to expect any more assistance to mitigate the impact of a no-deal Brexit. With Tory frontrunners in the race to replace May open to a no-deal exit if the EU does not renegotiate the conditions of Britain’s withdrawal. While legal proposals have been made and already been signed off by the bloc’s governments and MEPs, these will only limit short-term disruptions and the Commission will not be planning any new measures before the withdrawal date. The euro was higher at $1.1334 while yield on 10Y DBRs slid to 0.2578%.

ASIA

Asian stocks gained in Monday trading after Mexico reached a deal with the US to avert tariffs. The HANG SENG was trading highest in the afternoon at 2.18% while the CSI was up 0.76%. The NIKKEI maintained opening gains to trade 1.20% up as revised data maintained Q1 growth. Japan’s economy grew slightly higher than expected in Q1 with 2.2% YoY against a May estimate of 2.1% increasing expectations of a planned consumption tax hike from 8% to 10%. The controversial tax hike is largely opposed by the public with polls showing 60-70% against it; the last time a similar rise was effected, the economy went into recession.

TURKEY

The central bank is largely expected to hold rates unchanged on June 12, but there’s off chance that it jumps the gun and starts easing after inflation slipped just below 19% according to data released last week. The lira also had a mixed week going as low as 5.68 during the Muslim holiday before closing the week at 5.8305 little changed from its 5.849 opening on Monday. Downside risks remain with events such as a rerun of the Istanbul elections and the planned meeting between President Trump and President Erdogan where the purchase of Russia’s S-400 missile defense system will be the main issue. TURKEY 47s closed higher at 79.475.

LATAM

The 5% tariff on Mexican exports to the US was averted after the two countries struck a deal on Friday to curb immigration. The deal came to the relief of Mexico, which has 80% of its exports going to its northern neighbour, and American businesses which are already reeling as costs pile with tariffs on China. The tariff noose over the Mexicans still remains as President Trump took to Twitter to warn that tariffs could be reinstated if cooperation fails. The peso was trading as low as 19.1388  on Monday having closed at 19.6204 to the dollar on Friday. MEXICO 47s traded about flat, closing at 94.746.

RUSSIA

The Bank of Russia estimates that economic growth in Q2 will slow down to 0.3% from a previous estimate of 0.4% before picking up in the second half of the year to 0.4% in each of the subsequent quarters. The central bank attributed the weakening demand for Russian goods to the agreement to curb production in the OPEC+ coalition, which should give wing to producers already sceptical of the whole arrangement. The ruble closed stronger to the dollar at 64.8410 while RUSSIA 47s rose to 107.827.

SSA

On the back of consumer price inflation reaching a 10 year high at 110% in Zimbabwe, the President announced on Friday that the country must have a new currency by the end of the year. The RTGS Dollar which was introduced in February trading at 2.5 against the greenback and has quickly lost value of up to 57% and price of basic goods have been on the uptick.