Impasse between German ConCourt and ECB to be Resolved
UNITED STATES
US stocks opened the week in the green continuing on the previous week’s uptrend. The NASDAQ closed in the green for a seventh straight session, gaining 1.10% while the S&P and the DOW rose 0.65% and 0.59% respectively. Yield on 10Y USTs closed higher at 0.7085%.
UNITED KINGDOM
Prime Minister Boris Johnson is set to announce a relaxation of social distancing rules and reopening of such facilities as cinemas and museums on Tuesday as the government presses ahead with lockdown easing. This follows the lowest COVID-19 daily death toll since March with 15 recorded on Monday as the curve appears to be flattening. The pound closed higher at $1.2469 while yield on 10Y UKTs closed lower at 0.238%.
EUROPEAN UNION
The impasse between Germany’s constitutional court and the ECB will be resolved “without drama” in the very near future according to German finance minister Olaf Scholz. The remarks were met with optimism by the market with the spread between 10Y BTPS and 10Y DBRs narrowed to 181bps, close to 3-month lows. An earlier ruling by Germany’s highest court had threatened to stop Bundesbank participation in the ECB’s QE and sell the more than €500 billion of bonds it bought for the programme. The euro closed firmer at $1.1261.
ASIA
Asian stocks were higher on Tuesday amid some positive signs of economies getting back up with the latest data releases. PMI figures for Australia and Japan showed improvements more so for Australia with services back in expansion territory while manufacturing came just shy at 49.8; Japan manufacturing came slightly lower from may figures although services improved, albeit still in contraction territory at 42.3. The NIKKEI rose 0.50% while the ASX and the CSI were up 0.17% and 0.18% respectively. The HANG SENG led gains, up 1.36%.
TURKEY
Analysts expect the CBRT to cut another 25bps off Turkey’s benchmark rate at Thursday’s MPC meeting bringing total easing to 1,600bps since July 2019. The room to cut for the central bank is getting narrower as the central bank pledges to maintain a positive real rate for investors; may inflation came in slightly higher at 11.4% although the central bank forecasts end-2020 inflation at 7.4%. The lira closed about flat at 6.8477 to the dollar while TURKEY 30s were lower, trading in the mid 90 levels.
LATAM
Brazil is considering lowering the 2023 inflation target to 3%, in line with EM peers Mexico and Chile. While the decision has not yet reached consensus, it will follow a gradual lowering of the target with end-2020 set at 4%, 3.75% for 2021 and 3.5% for 2022 with a 1.5 percentage points tolerance range. The latest central bank survey sees inflation ending the year at 1.61% and 3% in 2021. The real closed firmer at 5.2544 to the dollar while BRAZIL 30s were about flat, trading in the low 96s.
SSA
Bond yields on ZAR-denominated debt are rising ahead of the presentation of South Africa’s adjusted budget on Wednesday. With a deficit forecast to widen as much as 15% of GDP according to Investec, the unprecedented borrowing by the government at more than ZAR1 billion a day may not be enough to plug the hole in finances. The government projects debt to rise to 80.5% of GDP in 2020 before topping 100% in 2025. The rand closed slightly firmer at 17.3240 to the dollar while SOAF 29s were lower, trading in the mid 97s.