Trade sentiment made a sharp u-turn last week, following the more conciliatory tones from China and the US, coupled with Trump announcing his wishes to re-join the TPP. Market focus therefore rapidly shifted to geopolitical tensions which ramped up off the back of the ongoing conflict in Syria; with the US-led trilateral airstrike following Friday's market close. UST 10-year yields ended the week up 5bps, to 2.83%. The DXY (dollar) Index couldn't hold above the 90 level, tumbling 0.34% last week. Also of note is the continued UST curve flattening, which saw the 2s10s spread to fall to decade lows by close last week. As regular readers are aware, we have favoured a bias toward the longer-end of the curve with a single A credit profile across all portfolios. Meanwhile, oil rallied off the back of highest geopolitical tensions; brent was up over 8% last week.
So, another exciting week for markets which also witnessed a brief moment of panic after newswires suggested that Chinese policymakers were investigating a renminbi devaluation. As this was part of an exercise evaluating options to mitigate the potential effects of worst-case scenario US tariffs, fears were very quickly diminished. At the Boao Forum, PBoC Governor stated that China would not devalue the renminbi which helped underpin the currency; the offshore unit gained 0.64% over the week. Also of note was the US Treasury FX report which once again did not label China or any of the other watchlist nations as currency manipulators, however, added India to the monitoring list.
There were also concerns over Russian bonds which had sold-off considerably last week following further sanction news. We are holders of two hard currency, investment grade, quasi-sovereign companies: Gazprom 8.625% 2034s (USD) the state-owned global energy company and Russian Railways (RZD) 7.487% 2031 (GBP) a 100% state-owned rail transport provider. Neither issue is subject to western sanctions. We do not have any exposure to RUSAL, a sub-investment grade rated company, neither have we ever held it. We continue to monitor the situation as it evolves, searching for rotation opportunities. However, the outlook appears volatile, especially with the ongoing conflict in Syria. We continue to believe that our holdings offer attractive risk-adjusted returns and that the sell-off was overdone across the sovereign/quasi-sovereign space; just as it was for the stock market, which has recovered somewhat.
Aside from a number of Fed speakers this week, the key events are US retail sales release later today and China GDP prints on Tuesday. Meanwhile, EU members gather today to discuss the ongoing Syrian situation, Russian relations and the Iran nuclear deal, amongst other key topics. Later today SpaceX will launch the NASA TESS satellite, its mission: to search for life. Datawise the US retail sales and Empire manufacturing will garner market attention. Tuesday kicks-off with the China GDP prints; market expectations are for +6.8% yoy growth. We will also get China's retail sales and activity data readings for March. In the US we will see last month’s housing starts and building permits data. President Trump and Japan’s Abe meet on Tuesday, we expect North Korea and trade chat will dominate discussions. The IMF and World Bank Spring meetings will be watched closely; through to April, 22. UK CPI, the Fed’s Beige Book and Japan trade data are as exciting as the diary gets on Wednesday. Things could pick up on Thursday as Germany’s Merkel and French President Macron discuss EU reform and US trade conflict ahead of talks with Trump next week. Friday could be a relatively quiet day with little in the way of key data releases. Ongoing geopolitical events will also be keenly watched this week as will further global trade rhetoric; with ongoing NAFTA negotiations and the potential release of the US’s USD100bn China products tariff list.