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Khatija Haque - Head of Research & Chief Economist
Published Date: 15 October 2020
Comments by Treasury Secretary Steve Mnuchin dampened hopes for a pre-election stimulus program in the US, contributing to the “risk-off” tone in US markets overnight. Mnuchin said that the administration and house speaker Nancy Pelosi were “still far apart” on certain issues.
Meanwhile President Macron announced curfews in Paris and other major French cities in a bid to contain the spread of the coronavirus as the second wave escalates across Europe. Italy recorded a record number of new cases and in the US, the seven-day average of new cases rose to the highest in two months.
Boris Johnson said he was disappointed that more progress had not been made on Brexit talks over the last two weeks, and would decide whether to continue with them after the European Council summit which finishes on Friday. His advisors are expected to recommend continuing the talks. A deal will likely need to be reached by early November to allow time for it to be ratified by both the UK and European parliaments before December 31st.
There was little in the way of economic data from the major economies yesterday. US producer prices rose 0.4% m/m (0.4% y/y) in September, higher than the 0.2% m/m median forecast but still relatively subdued. In the Eurozone, industrial production slowed in August, rising just 0.7% m/m (seasonally adjusted) compared with 5.0% m/m in July. China’s CPI inflation slowed to 1.7% y/y in September, down from 2.4% y/y in August as food inflation eased. Producer inflation fell -2.1%, more than forecast. China’s M2 money supply grew by a faster than expected 10.9% y/y in September, while new loans rose by more than forecast to CNY 1.9tn.
Dubai has launched a new initiative that would allow people to work remotely from the emirate, as long as they have a minimum employment contract of one-year, health insurance coverage in the UAE and a minimum salary of USD 5000/ month. For a relatively low cost of USD 287, remote workers based in the UAE would be able to set up home, access schools and benefit from tax-free salaries, according to local press reports.
Source: Emirates NBD Research
Treasuries showed little movement overnight or this morning but still appear to have a downward bias. It is increasingly clear that no additional stimulus from the US government will be coming ahead of the presidential election as Treasury Secretary Steven Mnuchin said getting a deal done would be “difficult.” Yields on the 2yr UST were essentially unchanged at just under 0.14% while 10yr yields were slightly lower at the close at 0.7256%.
Emerging market USD debt closed slightly lower overnight as a broad risk-off tone took hold of markets. China issued USD 6bn in a multi tranche deal and the offering was heavily oversubscribed (USD 30bn of orders).
APICORP tapped a USD 250m five-year bond at 1.46%. The supranational is rated ‘AA’ by Fitch. Elsewhere Commercial Bank of Dubai was pricing its benchmark perpetual at around 6.375% and Tabreed was looking to raise a seven-year bond at around 250bps over mid-swaps.
The USD closed lower overnight, sliding by 0.16% on the DXY index. USDJPY dropped to two-week lows following the USD's sell off, dipping by almost 0.3% to reach 105.17. A break below the 105 handle will signal further losses.
The EUR was virtually unchanged, still hovering around the 1.1750 region, with little direction either way. GBP surged off the back of news that the UK government will allow Brexit talks to go beyond the former deadline set by British PM Boris Johnson. Sterling advanced by 0.59% and trades at 1.3015 today. Both the AUD and NZD experienced volatile sessions but declined this morning to reach 0.7131 and 0.6645 respectively. The governor of the RBA, Philip Lowe, inidicated the bank may expand its asset purchases to longer dated bonds. Currently the RBA is using yield curve control to target 3yr bond yields at 0.25%.
Equity indices sold off yesterday, as hopes for further US stimulus were dashed by comments from Treasury Secretary Steven Mnuchin and fears over renewed lockdowns in Europe returned to the fore. In the US, the Dow Jones, the S&P 500 and the NASDAQ lost 0.6%, 0.7% and 0.8% respectively, while in Europe the FTSE 100 was a major loser on the day, dropping 0.6% as Brexit concerns also weighed on markets.
Oil prices took heed of a drop in inventories to rally by more than 2% in both Brent and WTI futures, settling at USD 43.32/b and 41.04/b respectively. The API reported a draw in crude stocks of more than 5.4m bbl last week, the largest weekly drop since August. EIA data will be released later than usual thanks to a public holiday at the start of the week.
The IEA cautioned that OPEC+ may be unable to increase production from January as planned given the “fragile” outlook for oil demand. The agency left its demand expectations more or less unchanged but noted that the risks remain weighted to the downside.
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