US stocks closed the week in the red and in the process recorded the worst May since 2010 in the wake of President Trump’s plans to impose tariffs on Mexico. The DOW closed 1.41% lower while the S&P and NASDAQ lost 1.32% and 1.51% respectively. This concluded a month of regression for the stocks with the DOW 6.7% down, the S&P 6.6% lower while the NASDAQ suffered the greatest losses with a 7.9% decline. The yield on 10Y USTs continued its slide closing at 2.1246%, the lowest since 2017.
Asian stocks were in the red in the afternoon as global trade tensions showed no signs of easing. The NIKKEI was 0.92% lower, the CSI was 0.32% in the red while the HANG SENG had lower losses at -0.07%. China’s retaliatory tariffs on $60 billion of US goods came into effect on Saturday and the country announced on Friday that it will establish its own list of unreliable entities as retaliation for the blacklisting of Huawei. China’s Vice Commerce Minister Wang Shouwen also stated that Beijing could restrict the export of rare earths to the US as the products made from the metals – mostly electronic components – are no longer being freely supplied to Chinese companies despite China having an 80% share of the rare-earths market.
Never being one to follow convention, President Trump took time to weigh in on Britain’s political turmoil before his state visit. While he insisted that he wasn’t giving a complete endorsement to any of the 12 Tory candidates vying to replace May, he said Boris Johnson “would be excellent” and would perform “very good job” running the country. This should come as awkward for May who will hold talks with Trump before she leaves office on Friday. Trump also fuelled speculation that he is arranging for a meeting with prominent Brexiteer and leader of the Brexit party Nigel Farage by urging Britain to have Farage to lead Brexit negotiations according to the Sunday Times. The US President said it was “a mistake” for the Tory government not include him in the negotiations with Brussels. The pound was slightly up against the dollar at 1.2629 while yield on 10Y UKTs was 1bp lower at 0.8853%.
German inflation slowed to the weakest in over a year in May, stressing the weakness of euro-zone price pressures. Annual consumer-price growth in the bloc’s largest economy was 1.3%, compared with a Bloomberg forecast of 1.4%. Reports suggest that eurozone inflation will follow suit and ease from a 5-month high when data is released on Tuesday. The yield on Germany’s 10Y DBRs fell to a record -0.213% in intraday trading, taking out the previous low of -0.205% set in July 2016, before closing at -0.202%. The euro was slightly up against the dollar at 1.1169.
Turkey’s inflation slowed for a second month on the back of a moderation in food costs as weak domestic demand continues to prevail. In data released by Turkstat Monday morning, consumer prices were up 18.7% in May YoY, compared with an increase of 19.5% in April. Analyst had estimated that the figure would be higher at 19.3%. Food inflation went down to 28.4% from 31.9% in April but remains well above the year end forecast by the central bank of 16%. The lira was little changed on the news trading at 5.8476 at 10.03am local time having closed at 5.8391 to the dollar on Friday. TURKEY 47s closed slightly higher at 78.137.
A recession is looming for Mexico after President Trump threatened new tariffs on Latin America’s second largest economy. With the economy already shrinking after a 0.2% contraction in Q1 2019, the tariffs would be heavily felt by the country whose economy is highly dependent on exports with some 80% going to the US according to the World Bank. GDP forecasts had already been falling before the tariffs announcement and forecasts have been further slashed to a measly 0.8% of growth in 2019 after the tariff announcement. The peso was weaker closing at 19.6165 to the dollar while MEXICO 47s traded lower at 94.193.
Gazprom’s quarterly profit rose to its highest since 2007 as the Russian gas giant recorded an equivalent $8.24 billion beating analyst estimates. This is on the back of higher export prices as well as foreign-exchange gains. Prices for exports to Europe and Turkey rose an average 12% while a weaker ruble YoY also supported sales as some of the company’s revenue is in foreign currencies. The ruble closed weaker to the dollar at 65.4319 while RUSSIA 47s were lower at 104.955.
President Emmerson Mnangagwa of Zimbabwe has reached a milestone deal with the IMF in a bid to boost the newly adopted RTGS dollars. Under this agreement, the Central Bank of Zimbabwe will undertake to desist from printing new notes and taking on new foreign debt. The IMF program will provide advice and not loans. Budget cuts, increased taxation and austerity measures have been put in place to support the economy. This IMF monitoring would run until early 2020.