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US markets extended Friday’s gains to an all time high coming off a losing week – S&P and Nasdaq gained 0.9% and 1.6%. Energy, up 3.8% led the gains and was followed by Consumer Discretionary and IT up 1.4% and 1.3% respectively. Utilities, down 1.3% dragged the markets lower. Mirroring the US, European bourses also inched up – the CAC was up 0.9% while FTSE and DAX were up 0.3% each. UAE’s ADX gained 0.1% while Saudi’s TASI lost 0.1%. Brazil’s Bovespa reversed its gains to end 0.5% lower. Asian markets took cues from the US and European markets and opened in the green – HSI and Nikkei were up more than 1% while Singapore’s STI and Shanghai are up 0.3% and 0.6%. US 10Y Treasury yields were flat at 1.26%. US IG tightened by 1.1bp while the HY CDS spreads tightened 7.6bp. EU Main and Crossover CDS spreads tightened 1bp and 4.3bp respectively. Asia ex-Japan CDS spreads were 0.3bp tighter.
US manufacturing PMI for August came in at 61.2 vs. expectations of 62.5 and vs. 63.4 in the previous month. The Markit composite came in at 55.4, 2.9 points lower than expectations and 4.5 points lower MoM. Eurozone Markit composite PMI posted 59.5 vs. expectations of 59.7 and lower than last month’s 62.8. German Composite PMI posted 60.6 vs. forecast of 62.2 and slightly lower than last month’s 62.4. The same metric for UK came in at 55.3 vs. last month’s 59.2. Singapore’s CPI for August was 2.5% inline with the expectations and higher by 0.1% MoM.
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Special Drawing Rights (SDR) issued by the IMF to its member countries’ central banks are a reserve asset that can be exchanged for hard currencies with another central bank. The value of an SDR is set daily based on a basket of five major international currencies: the USD (42%), the EUR (31%), the CNY (11%), the JPY (8%) and the GBP (8%). An allocation of SDRs requires approval by IMF members holding 85% of the total votes and US is the biggest holding 16.5% of the votes.
$650bn of SDR came into effect on Monday, which is the largest allocation of SDR in history.
“But today we have come to a very critical level,” Wijewardene said. “With IMF or without IMF we cannot continue with this loose monetary policy anymore and we cannot maintain this low interest rate regime anymore.” “As a result the central bank has done what it should do in a situation like this. It has reversed its policy stance.” “Instead of claiming that it is going by this alternative policy, it is now going by its normal monetary policy where it has increased the policy interest rate and increase the statutory reserve ratio.” “This is actually the beginning of a long journey in order to maintain the macro-economy in Sri Lanka.” “Without going to the IMF there is no other solution.” MMT advocates claim “the printing of money has no relation to inflation or exchange rate depreciation,” Wijewardene explained. “And based on that the central bank had been printing new money on a massive scale and had been permitting commercial banks to lend to the government huge amounts of money.” he said.