US-China to Resume Trade Talks

UNITED STATES

The month ended on a high note for US stocks with stocks recording impressive performance to cap off a week that had started on a low note. The rise was on the back of hopes for a US-China trade pact which ultimately turned true after a commitment to renew trade talks was agreed by President Trump and his Chinese counterpart at the G20 summit. The S&P closed 0.58% higher, in the process recording the best June performance since 1955. The DOW (+0.28%) and NASDAQ (+0.48%) likewise closed the month with notable gains with June performance being the best since 1938 and 2000 respectively. Yield on 10Y USTs closed lower at 2.0051%.

UNITED KINGDOM

Jeremy Hunt will set out a 10-point plan today for softening the disruption of crashing out of the EU. This follows his comments that he is open to a no-deal Brexit albeit “with a heavy heart.” His sentiments come as he tries to win over Eurosceptic Conservatives having voted Remain in 2016. The speech comes at a critical time as this will be the final week for campaigning before ballots are cast between July 6 and 8. Hunt, who has made his personal competence and seriousness a central tenet to his campaign, will also highlight how his no-deal plans contrast with Boris Johnson’s less detailed approach. The pound closed higher at $1.2696 while yield on 10Y UKTs closed higher at 0.8313%.

EUROPEAN UNION

The jostling for top positions in the EU’s institutions with France now considering IMF boss Christine Lagarde as its candidate for the ECB top post who, should she make it will be the bank’s first female president. France however is more inclined to getting its candidate to the Commission presidency with Frenchman Michael Barnier being tipped for the post. Meanwhile, Angela Merkel is having a hard time getting her candidates in as her proposal to have Dutch Socialist Frans Timmermans lead the Commission was shot down during Sunday’s meeting. She appeared downbeat as she addressed reporters after the meeting saying, “this won’t be a very simple negotiation, to put it mildly.” The euro closed about flat at $1.1373 while yield on 10Y DBRs closed lower at -0.3292%.

ASIA

Asia stocks opened on a high after the US and China agreed to stop escalating the trade wars and resume negotiations. After his meeting with President Xi Jinping at the G20 summit, President Trump was delighted with the talks and said the US is “going to work with China where we left off.” The current tariffs however, remain. Latest data from Japan and China economies was less positive; the Bank of Japan’s quarterly survey of major companies showed confidence deteriorated to 7 in Q2 from 12 in Q1 while in China the Purchasing Manager’s Index remained in contractionary territory. Optimism from news on the trade front outweighed the latest data nonetheless with the NIKKEI was trading 2.13% up while the CSI was 2.07% higher in afternoon trading.

MIDDLE EAST

Oil prices rallied this morning after Russia and Saudi Arabia agreed to extend their oil production agreement for another 6 months. Brent surged as high as $66.67 a barrel having opened at $65.85. The OPEC+ group will meet in Vienna this week and is largely expected to extend the agreement to remove 1.2 million barrels from the market a day. The move however was received with some reservations by Iran with its Energy minister warning that the cartel could die if the two largest members of the grouping continue to unilaterally set output targets. While he said Iran will not block an extension of the OPEC+ deal, it points to a growing split in the group over the increasing dominance of Russia and Saudi Arabia, the world’s largest crude exporters.

TURKEY

The lira reacted favourably to comments by President Trump over the S-400 purchase going as high as 5.6800 to the dollar on this morning having closed at 5.7937 on Friday. Speaking after meeting with President Erdogan at the G20 summit, Trump said Turkey had been “treated very unfairly” in its efforts to buy US Patriot missiles and thus reverted to the S-400s. Erdogan remarked after the meeting that Trump had reassured him that he would not impose sanctions; this is likely not to go down well with Congress where there is bipartisan agreement on preventing Turkey from getting the Russian defence system. TURKEY 47s closed slightly higher at 84.260.
Argentina’s push to follow the US shale boom is moving ahead after the country delivered its first-ever exports of light crude and liquefied natural gas from its massive Vaca Muerta shale deposit in June. Major oil companies Shell and Exxon Mobil have also announced intent to ramp up operations in the shale deposits that are expected to deliver 70,000 barrels a day next year. This should be welcome news to Argentina’s economy which is yet to recover from last year’s currency crisis. The peso closed slightly higher to the dollar at 42.478 while ARGENT 47s closed higher at 72.462.

RUSSIA

Russia’s move to divert excess oil revenue to hedge against oil price fluctuations has won the country plaudits on the global financial stage but at the expense of popularity with consumers. While more than $100 billion has been saved, the general Russian population has largely struggled as incomes continue to fall with projections that incomes adjusted for inflation are expected to fall for a sixth year in 2019. Some economists are arguing that the rule takes more from the public than it gives back as it keeps the ruble artificially weak in times of good while offering limited protection in bad times. The ruble was slightly weaker to the dollar at 63.2100 while RUSSIA 47s closed at 110.590.

SSA

In Western Africa ECOWAS, the Economic Community for West African States adopted a single currency named Eco, with plans to launch by 2020. The meeting was held in the Nigerian State Capital and the Nigerian President handed over chairmanship of the organization to the President of Niger Republic, Mahamadou Issoufou. EGYPT 27s are currently trading at a yield of 6.424% while the Egyptian Pound (EGP) was trading at 16.696 to the US Dollar.