Here you will find regular updates of what we consider to be important news items relating to the FX, Commodity and Equity markets:
Pound pauses for breath amid Brexit limbo, dollar steadies
Source: Retuers | OCTOBER 24, 2019 / 2:02 PM
HONG KONG (Reuters) - The British pound stabilised on Thursday as the Brexit project entered a fresh holding pattern, while the dollar held firm as traders took a breather from Sino-U.S. trade headlines.
Currency markets are also sticking to tight ranges ahead of key central bank meetings this week and next with the euro zone, Japan and United States due to review policy.
Sterling GBP=D3 held at $1.2911 after Britain's parliament backed a withdrawal deal, but rejected the government's tight timetable, while European Union members delayed deciding whether to grant a three-month extension to the Oct. 31 leaving date.
The pound has soared 6% in two weeks of volatile trade since British Prime Minister Boris Johnson flagged and then clinched a deal with the EU on the terms of Britain’s exit from the bloc.
European Council President Donald Tusk said he recommended the leaders of the EU’s 27 other member states back a delay, with senior EU diplomats saying a three-month delay is most likely.
Other majors were stable without much news to move the greenback.
Positive comments from U.S. and Chinese leaders earlier in the week about progress negotiating a truce in a their trade dispute had rallied trade-exposed currencies.
That has begun to run out of steam as concerns about the health of the U.S. economy returned to the fore.
Traders also await U.S. Vice President Mike Pence’s speech later in the day, after his strong criticism of China in a speech in October last year escalated bilateral tensions and triggered a global share selloff..
For now, the dollar was steady in Asian trade, gaining marginally against the Australian and New Zealand dollars while slipping marginally against the euro and Japanese yen.
Against a basket of currencies .DXY the dollar was flat at 97.459.
It stood at 108.65 yen JPY=, and drifted higher from a five-week low touched against the kiwi on Tuesday, with the New Zealand dollar buying $0.6420 NZD=D3. The Australian dollar bought $0.6851 AUD=D3.
The Chinese yuan was flat at 7.0623 in offshore trade CNH=.
The euro held at $1.1132 with traders looking to euro zone manufacturing and services data and the outcome of a European Central Bank meeting, both due later on Thursday.
“Small improvements across France, Germany and pan-Eurozone and for both manufacturing, services and composite readings are the consensus expectation,” National Australia Bank’s Head of FX Strategy, Ray Attrill, said in a note.
Note: This is an opinion piece from Forexlive.com
EU will grant Brexit extension. What happens next
Source: Forexlive.com |
Johnson defiant so far but he will send it and ask parliament to vote Monday
UK parliament passed the Letwin amendment by a vote of 322-306 today in a move that forces Boris Johnson to write a letter to the EU and ask for a Brexit delay.
So far the Prime Minister has been defiant; he said he will not negotiated a delay. However the law is clear that he must send the letter Sunday.
The only question is whether the EU will grant the delay. On that front, France's Macron has been hinting at blocking it but The Guardian reports that the delay will be approved.
Senior EU officials said it was clear during the discussions among the leaders at a summit on Thursday that "they would grant an extension". "Even [the French president Emmanuel] Macron in the room didn't suggest otherwise," the source said.
There were four primary reasons for the Letwin agreement:
- To ensure the UK doesn't accidentally leave the EU with no-deal
- To prevent a situation where UK lawmakers face a deal-or-no deal scenario, leaving them squeezed into taking a deal they didn't like to prevent disaster (this was what Boris was counting on)
- To give MPs more time to consider the deal
- To buy time for alternatives
The final option is an interesting one as three senior Labour leaders broke with Jeremy Corbyn and endorsed a second referendum shortly after the vote.
What happens next is that Boris will send the letter but will try on Monday to get parliament to support the principle of this deal followed by presenting the Withdrawal Bill on Tuesday. The good news for traders is that the vote will take place after the market re-opens.
His odds at this point aren't great (though it still certainly has a solid chance). Passing this amendment takes away the threat of a near-term no-deal Brexit and that prevents some lawmakers from being 'scared into' supporting it. The vote also shows that Johnson lacks the votes he needs for a majority, however there may be some who will support his deal but wanted to take a no-deal Brexit off the table first.
Sterling steady ahead of Brexit deal vote showdown
Source: Reuters | OCTOBER 19, 2019 / 4:43 AM
LONDON (Reuters) - The pound held steady on Friday ahead of Saturday’s vote on the Brexit deal approved at the European Union summit.
Sterling lost initial gains after British Prime Minister Boris Johnson’s new deal was approved by the EU as relief that a no-deal Brexit could be off the table succumbed to doubts as to whether the deal will win parliamentary approval.
“(The pound is) reflecting pessimism over the likelihood of whether the deal will be able to pass through Parliament tomorrow,” said Lee Hardman, currency analyst at MUFG. “We think it’s going to be a close call. We’re a little more optimistic.
After gaining as much as 6% against the dollar in the previous six days, the pound moved in a relatively narrow range, holding near five-month highs of $1.2872, a cent down from Thursday's peak of $1.2988 GBP=D3. It was little changed against the euro, at 86.58 pence EURGBP=D3.
The market is on alert for further swings in the pound, with options linked to volatility expiring within the next week more than doubling in price since Oct. 11 GBPSWO=FN.
Implied overnight volatility on sterling rose to more than 18%, a new seven-month high GBPONO=FN.
Investors and analysts polled by Reuters this week predict that the pound will rally nearly 4% - to nearly $1.34 - if the deal is approved by the British parliament.
Dollar nurses losses; pound's fate tied to EU summit
Source: Reuters | 17/10/2019
HONG KONG (Reuters) - The dollar found support on Thursday having weakened on lackluster U.S. retail data, while the volatile pound was on edge as Britain and the European Union scrambled to secure a last-minute Brexit deal.
Sterling GBP= swung about a five-month high overnight, knocked around by a series of mixed headlines on the likelihood of progress at an EU leaders summit in Brussels later on Thursday.
It has surged some 5% since last week as negotiations stepped up, and sat in early Asian hours at $1.2816 per pound. The dollar was steady against most major currencies.
“I think we’re all grateful that we might be coming to some sort of an end to the recent saga,” said Nick Twidale, director of Sydney-based trade finance provider Xchainge.
“Anything that isn’t a hard Brexit is going to be positive for the sterling,” he said, adding a deal or something close to one could push the pound to $1.3500 or above.
Failure could drop it below $1.2200, Commonwealth Bank of Australia analyst Richard Grace said in a note.
Against the euro EURGBP= the pound also stood just under a five-month high at 0.8638 per euro.
The U.S. dollar had dropped on Wednesday as U.S. retail sales fell for the first time in seven months, painting a gloomy picture of the economy and making a case for rate cuts.
It was a touch weaker against the euro EUR= at $1.1074 and the Japanese yen JPY= at 108.69, but slightly stronger against the Australian and New Zealand dollars. Against a basket of currencies .DXY the dollar hit a month low of 97.898 overnight and was steady around that level on Thursday.
The Aussie AUD=D3 weakened a fraction to $0.6755 after a senior Reserve Bank of Australia official said a national property downturn had proven a larger-than-expected drag on the economy.
However traders are focused on employment data due at 0030 GMT for the next read on the health of the labor market and the likely outlook for monetary policy.
“If the unemployment rate rises sooner than we expect ... this increases the risk that the RBA cuts the cash rate in November,” said National Australia Bank’s head of FX strategy, Ray Attril, who anticipates unemployment keeping steady.
Lingering worries about trade tensions between the United States and China have also kept investors’ risk appetite in check, weighing on the Aussie and other trade-exposed currencies.
Reports of a partial trade deal between the world’s two largest economies last week initially cheered markets, but a lack of details on the agreement has since curbed enthusiasm.
The New Zealand dollar NZD=D3 drifted lower, following dovish comments from a top central banker on Wednesday, and sits at $0.6290, not far from a four-year low hit two weeks ago.
China’s yuan, which fell on Wednesday as new U.S. legislation backing pro-democracy protests in Hong Kong threatened to widen the rift between Beijing and Washington, weakened a little further.
BBC report on "EU mulls new emergency summit to 'get Brexit deal done' "
Source: Forexlive.com | Tue 15 Oct 2019 01:43:20 GMT
A report from the BBC on Brexit negotiations leads off with:
- it's extremely hard to see how a new Brexit deal can still be agreed by this Thursday.
- Negotiations continue - but time is tight, and, to use the words of even the most upbeat of those involved, "there's still much work to do".
But, more encouragingly, continues (bolding mine):
- EU internal talk is focussing now on a possible "holding pattern statement" at this week's EU leaders summit, along the lines of "we've made great progress in negotiations but still need more time".
- There are also renewed mutterings about a new Brexit summit maybe towards the end of the month.
Article is here, (was posted a good few hours ago), and it ain't all roses. Still, better than the situation looked at the beginning of this week.
GBP caught a bid earlier in the session on this item:
- Brexit - slightly more positive reports coming out on deal progress
- GBP higher in very early Asia - here's why ICYMI (spoiler: Brexit innit?)
Stocks rise on cautious Brexit deal hopes, oil extends losses
Source: Reuters | OCTOBER 15, 2019 / 2:26 PM
TOKYO (Reuters) - Asian stocks and Wall Street futures inched higher on Tuesday as some investors held out hope that Britain still had a chance to avoid a messy exit from the European Union at key negotiations this week.
Capping broader gains, however, was a perceived lack of progress coming out of U.S.-China trade negotiations.
Reports of a “Phase 1” trade deal between the United States and China last week had earlier cheered markets but the dearth of details around the agreement has since curbed this enthusiasm with oil prices extending declines, Chinese stocks weaker and the safe-haven yen holding gains versus dollar.
The focus has now shifted to Europe where officials from Britain and the EU will meet at a make-or-break summit on Thursday and Friday that will determine whether or not Britain is headed for a so-called no-deal Brexit.
“Given the parliamentary intervention, I would say the chance of a no-deal Brexit is around 10% to 20%,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.
“If there is a deal, sterling would rally and risk assets would rally, but the reaction could be limited to a day.”
U.S. stock futures rose 0.23% on Tuesday in Asia after the S&P 500 ended 0.14% lower.
Traders, however, cautioned that sentiment remains fragile because the outcome of Brexit talks is far from certain and the U.S.-China trade war remains a risk to global growth.
British Prime Minister Boris Johnson wants to strike an exit deal at an EU summit on Thursday and Friday to allow an orderly departure on Oct. 31.
The main sticking point remains the border between EU member Ireland and Northern Ireland, which belongs to the UK. Some EU politicians have expressed guarded optimism that a deal can be reached.
However, diplomats from the EU have indicated they are pessimistic about Johnson’s proposed solution for the border and want more concessions.
In the currency market, sterling GBP=D3 edged up to $1.2620, below a three-month high of $1.2708.
The yen JPY=EBS, often considered a safe haven in times of economic uncertainty, held steady at 108.35 versus the dollar.
A perceived lack of progress in resolving a prolonged trade row between the United States and China also weighed on investor confidence.
Chinese stocks .CSI300 fell 0.38% on Tuesday, led by declines in the technology sector. In the onshore market, the yuan CNY=CFXS traded at 7.0654 per dollar, weaker than a one-month high of 7.0494 reached on Monday.
The United States agreed to delay an Oct. 15 increase in tariffs on Chinese goods while Beijing said it would buy as much as $50 billion of U.S. agricultural products after tense negotiations last week.
However, Washington has left in place tariffs on hundreds of billions of dollars of Chinese goods.
Trade experts and China market analysts say chances are high that Washington and Beijing will fail to agree on any specifics - as happened in May - in time for a mid-November meeting between Trump and Chinese President Xi Jinping.
U.S. crude fell 0.49% to $53.33 per barrel following a 2% decline overnight due to worries that global energy demand will remain weak.
Brent crude also fell 0.42% to $59.10 per barrel.
By early last week, hedge funds had become the most bearish towards petroleum prices since the start of the year, according to an analysis of position records published by the U.S. Commodity Futures Trading Commission and ICE Futures Europe.
Yen rises, yuan drops on report of trade-talks stalemate
Source: Reuters | OCTOBER 10, 2019 / 1:43 PM
SINGAPORE (Reuters) - The yen rose and the yuan fell on Thursday, after a news report said deputy-level trade talks between Chinese and U.S. officials in Washington had failed to make much headway, sending investors scurrying for safety.
The South China Morning Post, citing unnamed sources familiar with the discussions, said no progress was made on key issues and China’s lead negotiator, Vice Premier Liu He, planned leaving Washington a day early.
The safe-havens of the yen JPY= and Swiss franc CHF= each rose as much as 0.3% though some of the gains were soon retraced after CNBC said the White House was unaware of any plans by the Chinese delegation to leave early.
The yen last stood at 107.35 per dollar and the franc at 0.9936 per dollar. The euro EUR= nudged higher to $1.0988.
China’s yuan dropped 0.4% to hit five-week low in offshore trade, before it too recovered.
The trade-sensitive Australian AUD= and New Zealand NZD= dollars hit week lows before turning flat. Against a basket of currencies the dollar .DXY fell 0.1% to 99.012.
The moves offered a preview of what to expect if the talks achieve little or nothing, said Joe Capurso, senior currency strategist at the Commonwealth Bank of Australia in Sydney.
“We don’t see any easy route to an agreement so we can see this going on for quite some time,” he said.
Markets have for weeks gyrated as the likelihood of a breakthrough at the talks has waxed and waned while signs of the toll that the Sino-U.S. trade dispute is taking on the global economy have growth in strength and number.
Optimism that some sort of partial agreement between the parties could be reached had rallied risk assets overnight, before the SCMP report quickly unwound most of the hopes.
“The markets still seem to be travelling with a glimmer of optimism,” said Ray Attrill, head of FX strategy at National Australia Bank, with one possibility a deal that staves off U.S. tariff rises in return for agricultural purchases by China.
“But as things stand that looks like a little bit naively optimistic that that was going to be the result of this. We’re back to saying that chances are no trade deal.”
Tensions had flared leading in to the deputy-level discussions after U.S. imposed visa restrictions on Chinese officials and blacklisted some Chinese tech firms it believes are implicated in the poor treatment of Muslim minorities.
Surprised and upset by the blacklisting, China lowered expectations for progress from the talks, Chinese government officials told Reuters.
The SCMP report cited a source saying the talks had so far skirted some of the thorniest issues, including technology transfers and state subsidies in China.
Liu, who is scheduled to meet U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin later on Thursday, no longer plans to remain in the U.S. capital for meetings on Friday, the paper said.
The Chinese yuan CNH= fell as far as 7.1677 per dollar, its weakest since Sept. 4, before recovering in offshore trade.
The Australian dollar AUD=D3 and New Zealand dollar NZD=D3 each fell 0.1% to touch one-week lows, but then steadied with the Aussie last buying $0.6717 and the kiwi $0.6287.
The pound was flat after a rollercoaster overnight session where it leapt on reports of a breakthrough on the Irish backstop and then gave up the gains as hopes of progress on a key sticking point for a Brexit deal were dashed.
It steadied at $1.2214 per pound, not far above a one-month low.
Capital economics had been forecasting a Reserve Bank of New Zealand interest rate cut in February 2020 of 25bps
- Adding a further cut forecast now, for May 2020, again for 25bps
- economic activity and inflation both subdued
- unemployment rate rising fast
- but "if the government doesn't step up its game soon, the risks are clearly skewed toward the Bank cutting more, perhaps even into negative territory"
RBNZ next meet on November 13
- OCR & MPS Media conference
then … the next is 3 months later on 12 February 2020
- OCR & MPS Media conference
Sterling soft, dollar drifts lower as trade hopes fade
Source: Reuters | OCTOBER 9, 2019 / 1:56 PM
SINGAPORE (Reuters) - The British pound nursed losses on Wednesday, after hitting a one-month low on reports that Brexit talks between Britain and the European Union were close to breaking down, while the dollar weakened slightly on rising trade tensions.
In a telephone call on Tuesday, German Chancellor Angela Merkel told British Prime Minister Boris Johnson that a deal was “overwhelmingly unlikely,” a Downing Street source said.
That leaves the outcome on Oct. 31, when Britain is due to quit the EU, deeply uncertain, and the pound GBP= dropped half a percent to its lowest since early September. It recouped a fraction of the fall in Asian trade to hold at $1.2217.
The dollar, meanwhile, gave up some ground gained overnight as the U.S. imposition of visa restrictions on Chinese officials over the treatment of Muslim minorities threatened to derail already delicate trade negotiations.
The move, together with the blacklisting of Chinese firms over the same issue, cast a pall over Sino-U.S. talks in Washington, sending investors to safety.
“The tensions will persist through to the year-end at least,” said Westpac analyst Imre Speizer in Auckland, who is not expecting the talks to deliver a breakthrough deal.
“It’ll be volatile good news, bad news, repeat for the rest of the year, but overall a negative tone.”
The safe-haven Japanese yen JPY= edged higher, with the dollar buying 107.00 yen.
In other markets, stocks tumbled and bond yields fell.
China's Commerce Ministry: Still discussing Oct trade talk details with US
Source: Forexlive.com | Thu 26 Sep 2019 07:15:15 GMT
Upbeat comments from China ahead of October meeting
- Welcomes US firms to invest in China, will firmly protect their legall rights
- China's unreliable entity list does not target any specific country
- Still going through procedure on introducing unreliable entity list
- Hopes US meets halfway and finds a win-win solution in a fair and respectable way
- preparing for making progress in trade talks in October
This is generally continuing the upbeat mood we have seen running up to these October talks. However, there is not a lot new here, but plays into general positive noise for sentiment. Let's see how we ago from here - mild positive in my book for risk.
Source: Forexlive.com | Wed 25 Sep 2019 05:41:12 GMT
The GBPUSD is being pushed and pulled on Brexit concerns and joins the emery throng of currency moves that are political rather than strictly economic. For better or for worse, welcome to trading by geo-politics.
So, the Supreme Court has ruled that PM Johnson's prorogation of UK Parliament was unlawful. So what's next for the GBP?
- Election - The Tories are ahead in the polls= GBP negative
- No confidence vote - GBP positive (then negative when election is outcome)
- Deal with EU - GBP positive
- No deal outcome - GBP negative
Latest word is that the UK Gov't will make a quick push for an election vote this Thursday. However, the election vote most likely won't work unless Johnson agrees to a Brexit extension. Here we are, right back in a mess.
GBPUSD above 100 EMA on 1 hour chart at present.
Dollar edges higher, sterling shaky before Supreme Court ruling
Source: Reuters | SEPTEMBER 24, 2019, 12:52pm Singapore
SINGAPORE (Reuters) - The dollar held firm on Tuesday as the euro struggled on more signs of economic trouble in the euro zone, while sterling wallowed near one-week lows before a key Supreme Court ruling related to the suspension of Britain’s parliament this month.
Traders were also keeping a watchful eye on Sino-U.S. trade talks which is set to resume next month, with constantly-shifting expectations on the prospect of a deal keeping markets on edge in the past month.
The dollar rose slightly against the yen to 107.59 and inched higher against a basket of currencies to 98.664. It was steady against the euro, which stayed under $1.10 mark where it had fallen on Monday following dismal readings on German manufacturing.
Sterling was also under the gun, wallowing at $1.2429, near a one-week low, ahead of a UK Supreme Court ruling due around 0930 GMT.
The court will rule on whether Prime Minister Boris Johnson acted unlawfully when he suspended parliament just weeks before Brexit, with the case’s outcome potentially complicating his plans to lead his country out of the European Union next month.
Overall, traders were cautious in light of the Brexit uncertainty, Sino-U.S. trade talks and a slowing global economy.
Data in Asia further underscored the fragility of growth across key economies. Japanese manufacturing activity shrank at the quickest pace in seven months September, while Thailand also posted a sharper-than-expected drop in production in August.
What are the risks around the UK Supreme Court ruling?
Source: Forexlive.com | This is a good summary of what may happen later today in the UK.
The UK Supreme Court will decide on whether it was lawful to suspend parliament at 09:30/10:30 GMT on Tuesday.
This is a big political story because it would underscore Boris Johnson's contempt for parliament and laws; which is a tough position to take when the foundation of your leadership is a supposed respect for a referendum.
Yet it might not be that big of a deal for markets.
Sure, expect some GBP strength is Boris gets his hand slapped. It will affirm that parliament is in control and can stop a no-deal Brexit but they have pretty much done that already. Sure, there was a tail risk that Johnson could prorogue again and force a no-deal Brexit but what were the odds of that? I'd say they were infinitesimal.
And if Johnson wins? Well that doesn't change anything either. Parliament comes back as scheduled and on we go.
It all still ends in an election and that's the risk event that everything should be priced around. The problem is that it's so uncertain that it's tough to see through it. So we're stuck muddling along trading Brexit headlines that are full of sound and fury but signify nothing.
So what will happen? The questioning from the supreme court justices hinted that that they could find Johnson acted improperly to prorogue parliament but also rule that they don't have the power to order parliament back. That leaves the entire episode as a win for no one.
Maybe there is a bit of GBP selling on the headlines but I don't see it as tradeable.
Pound rebounds towards six-week high vs dollar
Source: Reuters | SEPTEMBER 17, 2019 / 8:48 PM
LONDON (Reuters) - Sterling headed towards six-week highs against the dollar on Tuesday as investors continued to cut their short positions, even as Prime Minister Boris Johnson stuck to his pledge to take Britain out of the European Union by Oct. 31.
Analysts said investors were continuing to reverse their bets against the currency as they worried about being caught on the wrong side should the pound further extend a rally it started last week.
“This does come down to positioning,” said Jane Foley, an analyst at Rabobank. She said that if after the short positions were covered and there was no more good news on Brexit, sterling looked “vulnerable”.
A broader weaker dollar also helped the pound move higher on Tuesday.
Johnson is required by a law passed this month to ask the EU for a three-month delay to Brexit if a deal is not approved by Oct. 19, but British media reported that his team are looking at ways to circumvent it. Johnson said on Monday Brexit would happen on Oct. 31, with or without a deal.
Britain’s top court has started to hear the government’s argument that Johnson’s decision to suspend parliament until shortly before the Brexit date was not illegal as Scottish judges concluded last week.
His opponents say the suspension was aimed at impeding parliament from preventing a no-deal Brexit, an accusation Johnson denies.
“The decisive question for the pound exchange rates remains whether or not a no-deal Brexit at the end of October is de facto off the agenda,” Commerzbank analysts told clients, adding that the latest developments showed sterling’s recent rally was not justified.
The currency has firmed more than 3% in the past month, its gains accelerating after parliament passed the law ruling out no-deal Brexit. It jumped 1.3% last Friday, grasping at a headline — later denied — that Johnson’s Northern Ireland allies may soften their Brexit stance.
The pound was last up 0.4% at $1.2481 after losing ground on Monday.
Sterling on Monday touched a six-week high of $1.2515. The currency was buffeted by the volatile dollar, which rose late on Monday as oil prices eased and trade tensions with Japan appeared to cool.
Traders are now preparing for the U.S. Federal Reserve’s policy meeting this week.
Against the euro, sterling was flat at 88.56 pence having touched a three-month high on Monday.
With less than seven weeks until the Brexit deadline, Johnson is hoping a Brexit deal can be clinched at an EU summit on Oct. 17-18. He said a Brexit deal was emerging, but the EU said he had offered nothing to break the impasse.
Commerzbank noted that on options markets, insuring against a steep pound fall still carries a sizeable premium.
That shows “options traders do not exclude a major sterling bang”, they added.
Two-month implied sterling volatility, the contract encompassing the Brexit deadline and a possible general election, ticked up to a one-week high.
Two-month volatility was over 15 vols in early-September before tumbling last week to a 9.3 vols low. It stands now around 10.3 vols. Meanwhile, three-month volatility, with mid-December expiry, has risen one vol in the past week as investors try to price election risk.
Also, reflecting Brexit jitters, Bank of America Merrill Lynch’s monthly fund manager survey showed investors increased their underweight on UK equities to 30% in September.
Sterling rockets as Irish backstop hopes add to Brexit optimism
Source: Reuters | SEPTEMBER 13, 2019 / 9:02 PM
LONDON (Reuters) - The pound extended the last week’s dramatic rally on Friday as investors pounced on a media report that Northern Ireland’s largest political party had agreed to accept some European Union rules after Brexit.
The report in the Times newspaper was swiftly denied by the party but still supported the view that Britain and the EU can agree a deal to replace the Irish backstop, the main sticking point in negotiations between London and Brussels.
Talk of an alternative to the Irish backstop, which Prime Minister Boris Johnson wants scrapped, comes as investors slash their short positions on the pound because of the receding risks of a no-deal Brexit.
“All those Boris shorts are beginning to bail as they realise he can’t deliver no-deal (Brexit),” said Viraj Patel, FX & global macro strategist at Arkera.
Having hit a three-year low below $1.20 last week, sterling has soared since the British parliament voted to stop Johnson’s government from taking Britain out of the European Union on Oct. 31.
The British currency has now rallied 4% in just eight days, a significant reversal of fortunes from earlier this month when talk of a no-deal Brexit intensified.
On Friday, the pound strengthened more than 1% to as high as $1.2475 GBP=D3, its strongest since July 25, before settling at $1.2431 towards the end of the London trading session.
Against the euro, sterling added as much as 0.8% to trade at 88.910 pence EURGBP=D3, close to its highest since June.
Credit Suisse on Friday became the first major bank to change its view on UK equities, pointing to the reduced chances of the country crashing out of the EU and saying that some equities look cheap compared with foreign counterparts.
While the prospect of a no-deal Brexit on Oct. 31 has fallen sharply, Britain still faces months of uncertainty and the outcome is not clear.
Irish Prime Minister Leo Varadkar on Friday said the gap between Britain and the EU over Brexit remained “very wide”.
Oil prices surge 15% after attack on Saudi facilities hits global supply
Source: Reuters | SEPTEMBER 16, 2019 / 10:21 AM
NEW YORK (Reuters) - Oil prices surged more than 15% to their highest level in nearly four months at the open on Sunday after an attack on Saudi Arabia’s oil facilities on Saturday that knocked out more than 5% of global oil supply.
Brent crude futures jumped more than 19% to a session high of $71.95 a barrel at the opening, while U.S. crude futures surged more than 15% to a session high of $63.34 a barrel. Both benchmarks rose to the highest since May.
Prices were up about 12% by 6:50 p.m. (2250 GMT), as gains were capped after U.S. President Donald Trump said he authorized the release of oil from the U.S. Strategic Petroleum Reserve (SPR) if needed in a quantity to be determined because of the attack on Saudi’s facilities.
State oil giant Saudi Aramco said the attack cut output by 5.7 million barrels per day, at a time when Aramco is trying to ready itself for what is expected to be the world’s largest share sale.
Aramco gave no timeline for output resumption. A source close to the matter told Reuters the return to full oil capacity could take “weeks, not days.”
Saudi Arabia’s oil exports will continue as normal this week as the kingdom taps into stocks from its large storage facilities, an industry source briefed on the developments told Reuters on Sunday.
“The surge in prices is the natural knee jerk reaction but the path ahead and ability to sustain at elevated levels remains dependent on the duration of the outage, the ability to meet export commitments through domestic drawdowns, demand elasticity at higher prices as well as government and agency policy,” said Michael Tran, managing director of energy strategy at RBC Capital Markets in New York.
“Even if the outage normalizes quickly, the threat of sidelining nearly 6% of global oil production is no longer a hypothetical, a black swan or a fat tail. Welcome back, risk premium.”
The attack on plants in the heartland of Saudi Arabia’s oil industry, including the world’s biggest petroleum-processing facility, came from the direction of Iran, and cruise missiles may have been used, according to a senior U.S. official.
“Saudi authorities have claimed to control the fires, but this falls far short of extinguishing them,” said Abhishek Kumar, head of analytics at Interfax Energy in London.
“The damage to facilities at Abqaiq and Khurais appears to be extensive, and it may be weeks before oil supplies are normalized,” Kumar said.
Saudi Arabia is set to become a significant buyer of refined products after attacks on Saturday, consultancy Energy Aspects said in a note.
State oil firm Saudi Aramco will likely buy significant quantities of gasoline, diesel and possibly fuel oil while cutting liquefied petroleum gas exports.
U.S. gasoline futures jumped 11%, while U.S. heating oil futures rose about 6.5% at the open.
Saudi Arabia's oil supply disrupted after drone attacks: sources
Source: Reuters | SEPTEMBER 15, 2019 / 1:30 AM
DUBAI/LONDON (Reuters) - Saudi Arabia’s oil production and exports have been disrupted, said three sources familiar with the matter, after drone attacks on two Aramco plants on Saturday, including the world’s biggest oil processing facility.
One of the sources said the attacks have impacted 5 million barrels per day of oil production — almost half the kingdom’s current output. The source did not elaborate.
Saudi Aramco operates the world’s largest oil processing facility and crude oil stabilization plant in the world at Abqaiq, in eastern Saudi Arabia. The plant has a crude oil processing capacity of more than 7 million barrels per day.
Saudi Aramco operates the world’s largest oil processing facility and crude oil stabilization plant in the world at Abqaiq, in eastern Saudi Arabia. The plant has a crude oil processing capacity of more than 7 million barrels per day.
Euro gains after ECB decision, yen weakens on trade hopes
Source: Reuters | SEPTEMBER 12, 2019 / 1:04 PM
NEW YORK (Reuters) - The euro gained against the dollar on Thursday, erasing earlier losses, after the European Central Bank launched new stimulus but failed to live up to some dovish market expectations.
The ECB cut its deposit rate to a record low -0.5% from -0.4% and will restart bond purchases of 20 billion euros a month from November.
It also said it expects bond purchases to run for as long as necessary and end shortly before it starts raising the key ECB interest rates.
“We got a little bit of everything, but when all was said and done I think markets were expecting the bazooka to come out, and we definitely didn’t get the bazooka,” said Win Thin, global head of currency strategy at Brown Brothers Harriman in New York.
The euro was last up 0.33% at $1.1045, after earlier dropping as low as $1.0925. That was the lowest since the single currency fell to $1.0924 on Sept. 3, which was the lowest in more than two years.
Central banks globally are fighting against slowing growth and tepid inflation, with the U.S.-China trade war adding further headwinds to the global economy.
The safe-haven Japanese yen weakened after Bloomberg News reported that Trump administration officials have discussed delaying or rolling back some tariffs on Chinese goods.
It comes after U.S. President Donald Trump on Wednesday welcomed China’s decision to exempt some U.S. anti-cancer drugs and other goods from its tariffs, and announced a short delay to scheduled tariff hikes on billions worth of Chinese goods.
The greenback was last up 0.07% at 107.89 yen.
U.S. data on Thursday showed that underlying consumer prices increased solidly in August, leading to the largest annual gain in a year, but rising inflation is unlikely to deter the Federal Reserve from cutting interest rates again next week to support a slowing economy.
It comes after data on Wednesday showed that U.S. producer prices unexpectedly rose in August.
This next major economic focus will be retail sales data on Friday.
ECB Preview : The market might be looking for too much.
Source: Forexlive.com | Wed 11 Sep 2019 18:36:27 GMT
What's priced in for tomorrow?
A question that's been doing the rounds in markets is: What's priced in for the ECB? That's the kind of question that's always out there but the chorus is especially loud this time as market participants try to get a handle on the multitude of mixed signals from various speakers, along with leaks.
A good guess is that deposit rates will be cut by 10 bps to -0.50%, forward guidance will be extended beyond mid-2020 and 30 billion more of QE will be announced.
The latest 'sources' story caught the eye of analysts at RBC because it gave insight on how the market could react to something along those lines.
They note that the story had some headline-grabbers like that the ECB 'could' delay a QE announcement until conditions worsen but that overall the story was balanced. However they noted that the market -- especially the bond market -- dumped on the report.
"Market positioning is very lopsided towards a 'comprehensive' package that entails large rate cuts as well as a restart of the asset purchases programme," they note.
The OIS market is pricing in 14 bps of cuts so there's a good tilt towards something extra there but QE could easily disappoint.
I think there is a good chance of disappointment as the ECB shifts even harder towards badgering governments do do more on the fiscal side. That could weigh on the euro because it could read like it's the ECB throwing in the towel. At the same time, it could be spun in a positive way and that could put a squeeze on the hefty short-euro position.
It's a very tough one to handicap and the better trade may be to wait for the dust to settle and then go with the flow.
Brexit in chaos after court rules PM's suspension of parliament was unlawful
Source: Reuters | SEPTEMBER 11, 2019 / 10:19 AM
LONDON (Reuters) - Prime Minister Boris Johnson’s suspension of the British parliament was unlawful, a court ruled on Wednesday, prompting immediate calls for lawmakers to return to work as the government and parliament battle over the future of Brexit.
Scotland’s highest court of appeal ruled against Johnson’s decision to prorogue, or suspend, parliament from Monday until Oct. 14 — a blow for the government as it seeks to leave the European Union on Oct. 31 with or without a deal.
With seven weeks to go, the government and parliament are locked in conflict over the future of Brexit, with possible outcomes ranging from leaving without a deal to another referendum that could cancel the divorce.
“We are calling for parliament to be recalled immediately,” said Scottish National Party lawmaker Joanna Cherry, who led the legal challenge, after Scotland’s Court of Session ruled the prorogation should be annulled.
“You cannot break the law with impunity, Boris Johnson.”
CONFUSION CONTINUES - EXPECT VOLATILITY TO SPIKE AGAIN
Citigroup Says Gold May Top Record
Recession risks and investor demand underpin bank’s outlook
Prices seen ‘stronger for longer, possibly breaching $2,000’
Gold prices may rally to a record above $2,000 an ounce in the next two years, according to Citigroup Inc., which gave a laundry list of positive drivers including rising risks of a global recession and the likelihood that the Federal Reserve will reduce U.S. interest rates to zero.
“We expect spot gold prices to trade stronger for longer, possibly breaching $2,000 an ounce and posting new cyclical highs at some point in the next year or two,” analysts including Aakash Doshi said in a note received Sept. 10. That would exceed the record of $1,921.17 set in 2011.
Pound retreats from six-week highs as Brexit uncertainty brews
Source: Reuters | SEPTEMBER 9, 2019 / 6:55 PM
LONDON (Reuters) - Sterling trimmed earlier gains on Monday as punters took profits after a rally lifted the British currency to six-week highs thanks to surprisingly strong data and hopes that Britain will not crash out of the European Union without a deal.
Expectations of more political uncertainty also weakened the British currency after John Bercow, Speaker of Britain’s House of Commons, announced that he would be standing down.
“The Speaker has definitely been seen by many as supportive of those opposing No Deal, so anyone coming in to a post where neutrality is so important would have to be less supportive,” said John Marley, a senior FX consultant at FX risk management specialist SmartCurrencyBusiness.
“On that basis No Deal chances just got a little bit stronger, hence the drop in sterling.”
Against the dollar, the pound trimmed gains to stand up 0.3% on the day at $1.2323. It jumped to a six-week high of $1.2385 in London trading after economic data beat forecasts.
Brexit will be delayed again, according to a Reuters poll of economists that continued to put the chance of Britain and the European Union parting ways without agreeing a deal at 35%, despite the UK parliament attempting to block a no-deal exit.
Earlier, the pound received a rare boost from surprisingly strong economic data.
Economic output in July alone was 0.3% higher than in June, the Office for National Statistics said, marking the biggest rise since January and topping all forecasts in a Reuters poll of economists that had pointed to a 0.1% increase.
Versus the euro, it also gained 0.25% to 89.48 pence.
The pound has been especially volatile since last week after lawmakers returned to parliament.
Prime Minister Boris Johnson last week failed to win enough support from lawmakers to call an early election and parliament also approved a bill which aims to block a no-deal Brexit at the end of October. That would force him to seek a delay to Brexit.
“The threat of a no-deal Brexit has somewhat receded but has not gone away completely, which is reflected around current levels,” said Esther Maria Reichelt, a strategist at Commerzbank.
The political uncertainty prompted hedge funds to unwind some of their negative bets against the British currency.
A euro slump on the ECB is a buying opportunity - Morgan Stanley
Source: Forexlive.com | Mon 9 Sep 2019 18:29:18 GMT
Morgan Stanley on the ECB decision
Morgan Stanley thinks the ECB may be more focused on steepening the yield curve that easing lending conditions.
If so, that argues for less QE and more rate cuts. That's a scenario that could lead to short-term euro selling as it's used to fund carry trades.
This weakness would be short-lived in our view, and would be an attractive entry point for EUR longs. The more EUR is used as a funding currency, the more it is likely to rally should a risk shock lead to carry trade unwinds. We think any risk rally in the coming weeks is tactical and unlikely to last long, so this unwind seems likely to us.
Perhaps more importantly, there is a risk that Lagarde draws a harder line with policymakers and says that it's time that they step up and deliver stimulus -- something that could lift the eurozone economy and the euro.
On a trade of the week, MS recommends buying AUD/USD at 0.6800 (spot 0.6868) with a target of 0.7200 and a stop at 0.6665.
Dollar dips on mixed U.S. jobs data, Powell hints at rate cuts
Source: Reuters | SEPTEMBER 6, 2019 / 1:29 PM
NEW YORK (Reuters) - The dollar was marginally lower on Friday against a basket of currencies, holding above a one-week low as a mixed report on the U.S. jobs market in August reinforced the view of a slowing expansion and chances of more interest rate cuts from the Federal Reserve.
Fed Chair Jerome Powell did little to ruffle those expectations. At an overseas event on Friday, he cited risks in particular U.S.-China trade tensions that may derail the current U.S. economic expansion, which is the longest one on record.
“The jobs data were sufficiently mixed,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC in New York. “The market is not going to change its view of a rate cut later in September.”
The U.S. Labor Department said domestic employers hired 130,000 workers in August, fewer than the 158,000 forecast among economists polled by Reuters, while hourly wages grew 0.4% last month, a tad faster than the 0.3% increase projected by analysts.
Interest rate futures still implied traders positioned for a quarter-point rate decrease at the Fed’s Sept. 17-18 policy meeting, according to CME Group’s FedWatch program.
“We are going to act as appropriate to sustain the expansion,” said Powell on a panel in Zurich.
“The Fed will keep the record long expansion going with future rate cuts as significant risks to the outlook will warrant further accommodation,” said Edward Moya, senior market analyst at OANDA in New York.
In late U.S. trading, an index that tracks the greenback against the euro, yen, sterling and three other currencies .DXY was 0.03% lower at 98.386 after hitting a one-week low of 98.085 on Thursday.
The dollar index is on track for nearly a 0.6% decline, its steepest weekly loss in a month.
The greenback lost ground against its rivals as global tensions receded this week, most notably with China and the United States agreeing to high-level trade talks in October.
Dollar dips on mixed U.S. payrolls data, awaits Powell
Source: Reuters | SEPTEMBER 6, 2019 / 1:24 PM
NEW YORK (Reuters) - The dollar slipped on Friday against a basket of currencies, holding above a one-week low as a mixed report on the U.S. jobs market in August reinforced the view of a slowing expansion and the possibility of more interest rate cuts from the Federal Reserve.
Traders now await clues on the Fed’s next move after it embarked on its first rate cut since 2008 in July when Fed Chair Jerome Powell participates on a panel about the economy and monetary policy in Zurich, which begins at 12:30 p.m. EDT (1630 GMT).
“The jobs data were sufficiently mixed,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC in New York. “The market is not going to change its view of a rate cut later in September.”
The U.S. Labor Department said private and public employers hired 130,000 workers in July, fewer than the 158,000 forecast among economists polled by Reuters, while hourly wages grew 0.4% last month, a tad faster than the 0.3% increase projected by analysts.
Interest rate futures still implied traders positioned for a quarter-point rate decrease at the Fed’s Sept. 17-18 policy meeting, according to CME Group’s FedWatch program.
At 10:06 a.m. EDT (1406 GMT), an index that tracks the greenback against the euro, yen, sterling and three other currencies was 0.19% lower at 98.223 after hitting a one-week low of 98.085 on Thursday.
The dollar index is on track for 0.67% decline, its steepest weekly loss since June.
The greenback lost ground against its rivals as global tensions receded this week, most notably with China and the United States agreeing to high-level trade talks in October.
Safe-haven bids for the dollar abated in response to political opposition to a “no-deal” Brexit and Hong Kong leader Carrie Lam’s withdrawal of an expedition bill that triggered months of violent protests.
“The world stared into the abyss this week, and it pulled back,” Chandler said.
Still, global tensions have not dissipated, so there remain some underlying bids for the dollar and yen, he said.
Sterling traders eye vote on early election after big rebound
Source: Reuters | SEPTEMBER 6, 2019 / 8:50 PM
LONDON (Reuters) - The British pound edged lower on Friday after a tumultuous week in which it plunged to three-year lows before rebounding strongly as lawmakers voted to block a no-deal Brexit, making a snap election more likely.
The British parliament’s upper chamber on Friday approved a bill which aims to block a no-deal Brexit at the end of October by forcing Prime Minister Boris Johnson to seek a delay to Britain’s European Union departure.
Traders have been expecting the bill to be passed and so the pound remained unchanged on the day as concerns about an early general election lingered. The bill is expected to receive a Royal Decree on Monday.
Looking for ways to hold an election mid-October, British Prime Minister Boris Johnson said he would rather die in a ditch than delay the planned Oct. 31 departure from the EU.
“The likelihood that there will be another general election in the UK in the coming months opens up another set of uncertainties for sterling investors,” said Jane Foley, Rabobank’s senior currency strategist.
UBS reckons that an election is still the most likely scenario and that a no-deal Brexit will be averted on Oct. 31.
“We have long been of the view that the U.K. faces an election before the final decision on Brexit is made. We stick to this view, but we now have more uncertainty about the timing,” said Dean Turner, economist at UBS, in a note on Wednesday.
Lawmakers will on Monday hold another vote on a motion on whether to hold an early election. Opposition parties want to ensure that an election does not allow Johnson to lead the United Kingdom out of the EU without a deal next month.
Britain’s opposition Labour Party will not support Prime Minister Boris Johnson’s bid to call an early election in a vote in parliament on Monday, a source in the party said.
By 1530 GMT, the pound was down 0.2% at $1.2313, but still far above the sub-$1.20 three-year lows hit on Monday. It has gained more than 1% this week - putting it on track for its best weekly performance since June.
Against the euro the pound dropped 0.3% to 89.73 pence, leaving the British currency close to its strongest level since July 25.
“The main threat to sterling’s recovery is if Johnson’s Conservative party were to win with a majority in an early election. They could then overturn the legislation requiring them to ask for an extension, increasing the threat of leaving without a deal,” said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management.
Haefele predicted that the pound would weaken to $1.15 or lower in the event of a no-dealn Brexit.
UBS’s Turner sees the pound rallying to $1.30 in the scenario of a Labour-led government. If Labour was to share the majority with other parties, sterling would go to $1.25, he said in the note.
While huge uncertainty about the political outlook in Britain remains, investors have taken solace from lawmakers’ determination to block a no-deal Brexit that economists say would be severely damaging for the UK economy.
Expectations for sterling price swings in the months ahead have fallen sharply as the risk of a no-deal exit from the EU receded, with implied volatility gauges back to levels of mid-August after spiking to their highest in 2019 earlier this week.
Yen falls as global tensions abate, sterling rises
Source: Reuters | SEPTEMBER 5, 2019 / 1:22 PM
NEW YORK (Reuters) - The yen slipped on Thursday as global tensions including the U.S.-China trade conflict showed signs of thawing, bolstering investor confidence and reducing demand for safe-haven currencies.
The pound rose to its highest level against the dollar in more than a month on hopes that a no-deal Brexit would be avoided.
“Funding currencies are in retreat on a ratcheting down of tensions on a global basis,” said Karl Schamotta, director of global markets strategy at Cambridge Global Payments in Toronto.
The most notable development was China and the United States agreeing on Thursday to hold high-level talks in early October in Washington. That stoked hopes the world’s biggest economies would move toward a deal to resolve their trade differences.
Their heated rhetoric and tit-for-tat tariffs have rattled investors and their outlook on the global economy since this summer.
“That’s very positive since it’s been so tumultuous for markets the past few months because of the trade war,” Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California, said of the October trade talks.
In late U.S. trading, the dollar JPY=EBS was up 0.53% at 106.975 yen after reaching 107.235 yen, which was its highest level since late July.
Against the euro, the yen EURJPY=EBS was 0.5% lower at 118.015 after falling to 118.6, marking a three-week low versus the common currency.
The dollar was 0.04% weaker versus a basket of currencies .DXY on lower safe-haven demand, but its losses were limited by some encouraging news on the U.S. labor market and service sector.
Payroll processor ADP said U.S. companies hired 195,000 workers in August, which exceded the 158,000-worker increase that analysts polled by Reuters had forecast.
Traders and analysts await the government’s monthly payrolls report due at 8:30 a.m. (1230 GMT) on Friday as a confirmation of resilience in the labor market.
Sterling continued its rally after British lawmakers approved legislation on Wednesday to extend the Brexit deadline for the third time and rejected Prime Minister Boris Johnson’s motion to hold a snap election.
The pound GBP=D3 was last trading up 0.60% at $1.2327, moving further from a three-year low reached on Tuesday.
Pound hits three-year low as election threat adds to Brexit jeopardy
Source: Reuters | SEPTEMBER 3, 2019 / 10:35 PM
LONDON (Reuters) - Sterling sank to a three-year low below $1.20 on Tuesday as Prime Minister Boris Johnson’s implicit threat to lawmakers to support him on Brexit or face an election sent investors rushing to dump British assets.
The pound sat near its multi-year troughs late Tuesday after a cross-party alliance defeated Johnson in parliament in an effort to block a “no-deal” Brexit. The vote led Johnson to push for a snap election.
The pound, which has lost nearly 20% of its value since Britain voted to leave the European Union in 2016, fell to as low as $1.1959 GBP=D3 before rebounding after Johnson lost his working majority in the British parliament on Tuesday following the defection of one of his Conservative Party lawmakers.
Barring an October 2016 flash crash when sterling briefly reached $1.15, sterling has not regularly traded below $1.20 since 1985, according to Refinitiv data.
Traders in London said heightened uncertainty was panicking investors, as the battle over Brexit reaches a crescendo this week.
Opponents of 'no-deal' Brexit defeat PM Johnson, who promises an election
Source: Reuters | SEPTEMBER 3, 2019 / 11:04 AM
LONDON (Reuters) - British lawmakers defeated Boris Johnson in parliament on Tuesday in a bid to prevent him taking Britain out of the EU without a divorce agreement, prompting the prime minister to announce that he would immediately push for a snap election.
The government was defeated by 328 to 301 on a motion put forward by opposition parties and rebel lawmakers in Johnson’s party - who had been warned they would be kicked out of the Conservative Party if they defied the government.
More than three years after the United Kingdom voted in a referendum to leave the European Union, the defeat leaves the course of Brexit unresolved, with possible outcomes still ranging from a turbulent ‘no-deal’ exit to abandoning the whole endeavour.
Tuesday’s victory is only the first hurdle for lawmakers, enabling them to take control of parliamentary business.
On Wednesday they will seek to pass a law forcing Johnson to ask the EU to delay Brexit - for a third time - until Jan. 31 unless he has a deal approved by parliament beforehand on the terms and manner of the exit.
It puts Johnson in a similar bind to that faced by his predecessor Theresa May, who failed three times to get the backing of lawmakers for the Withdrawal Agreement that she had negotiated with the EU. Johnson took over from her six weeks ago with a promise that his more robust approach would force a better deal out of the EU that would satisfy parliament.
The 21 Conservative rebels who now face expulsion from the party include Nicholas Soames, the grandson of Britain’s World War Two leader Winston Churchill, and two former finance ministers - Philip Hammond and Kenneth Clarke.
“I don’t want an election, but if MPs vote tomorrow to stop negotiations and compel another pointless delay to Brexit, potentially for years, then that would be the only way to resolve this,” Johnson told parliament after the vote.
“I can confirm that we are tonight tabling a motion under the Fixed Term Parliament Act.”
In an historic showdown between prime minister and parliament, Johnson’s opponents said they wanted to prevent him playing Russian roulette with a country once touted as a confident pillar of Western economic and political stability.
They argue that nothing can justify the risk of a ‘no-deal’ Brexit that would cut economic ties overnight with Britain’s biggest export market and inevitably bring huge economic dislocation.
Johnson cast the challenge as an attempt to force Britain to surrender to the EU just as he hopes to secure concessions on the terms of the divorce, helped by the threat to walk out without one. Ahead of the vote, he said would never accept another delay to Brexit beyond Oct. 31.
Hedge Funds Smell Blood in New Zealand as Kiwi Shorts Soar
Source: Bloomberg | September 2, 2019, 12:26 PM GMT+12
Hedge funds are ramping up their short bets against the New Zealand dollar.
Net short speculative positions against the kiwi rose to their highest since November, according to the latest Commodity Futures Trading Commission data. The New Zealand dollar was August’s weakest Group-of-10 currency, down 3.5% as economic data deteriorated and trade-war tensions rattled the globe.
Heightened trade tensions between the U.S. and China have roiled global markets this year, and the Trump administration slapped the latest tariffs on roughly $110 billion of Chinese imports on Sunday. New Zealand is particularly vulnerable with China’s share of the country’s exports climbing to 26% in July from 23% a year ago.
The kiwi fell as much as 0.5% against the U.S. dollar in early trading Monday. It has weakened more than 6% against the greenback year-to-date.
Pound Falls as Investors Brace for Brexit Fight or Snap Election
Source: Bloomberg | September 2, 2019, 10:41 PM GMT+12
Sterling slips to three-week low as Johnson eyes national poll
Could hit $1.10 if government wins and seeks no-deal: MUFG
The pound fell to the lowest level in three weeks as a showdown between U.K. lawmakers over Brexit loomed large.
Sterling was the worst performer among its Group-of-10 peers as Prime Minister Boris Johnson threatened to kick out Conservative lawmakers who vote to block a no-deal Brexit, with his allies even raising the prospect of a snap election.
U.K. lawmakers return from their summer vacation Tuesday and are planning legislation to force Johnson to delay Brexit until Jan. 31 unless he can strike a deal with the European Union by mid-October.
“A snap election would initially be seen as pound negative given the government is expected to win on a no-deal platform,” said Lee Hardman, an analyst at MUFG. “We would expect to see cable initially fall below $1.20, and then toward $1.10 if the government wins a majority and seeks no deal, if the EU does not back down on the backstop."
The pound has fallen close to 4% since Johnson took over from former Prime Minister Theresa May in July. Investors have upped their bets on a no-deal Brexit due to his “do or die” rhetoric, but the possibility of a snap vote adds another layer of uncertainty.
Adding to the pound’s woes, the U.K. manufacturing sector shrank in August at the fastest pace since 2012. Construction and services figures are due later this week with services activity expected to come in slightly lower than the prior month.
U.K. government bonds rallied for a fourth straight month into the end of August as investors braced for Johnson to suspend Parliament ahead of the Brexit deadline on Oct. 31, limiting the time available to prevent a chaotic exit from the European Union. Opposition lawmakers will present legislation Tuesday that would force the U.K. to delay Brexit again if an agreement hasn’t been reached.
The pound fell as much as 1% to $1.2036 and weakened 0.6% to 90.94 pence per euro. The yield on U.K. 10-year bonds fell five basis points to 0.43%.
New Zealand’s Dollar Can’t Catch a Break From Trade or Economy
Source: Bloomberg | end August wrap
Kiwi has tumbled about 4% this month as RBNZ lowered rates
Westpac predicts further declines over next three months
New Zealand’s dollar is August’s weakest Group-of-10 currency as economic data deteriorated and trade-war tensions rattled the globe.
The kiwi slid as much as 0.4% Friday, breaking below the 63 U.S. cent level to the lowest since September 2015. The currency has tumbled about 4% this month, with a half point interest-rate cut from the Reserve Bank of New Zealand adding to losses. Economic data have also weighed -- business confidence numbers Thursday hit an 11-year low with inflation expectations dropping to 1.70%, the least since late 2016.
“Commodity currencies remain under pressure,” said Jason Wong, a senior market strategist at Bank of New Zealand in Wellington. “With the trade war and slower growth, fundamental headwinds remain and we target 0.6150 by year-end.”
New Zealand dollar has led losses in growth-linked currencies in August.
Heightened trade tensions between the U.S. and China have roiled global markets this month, and New Zealand is particularly vulnerable. China’s share of the country’s exports climbed to 26% in July, from 23% a year ago.
Investors are expecting more easing from the RBNZ, which could put further pressure on the currency. Traders are now pricing in an 83% chance of another rate cut in November. Westpac predicted the kiwi will be the only G-10 currency to fall over the next week, month and three months in a report Thursday.
“This week’s break below 0.6350 signals a move to the 0.6250 area which was last seen in September 2015,” strategist Imre Speizer wrote.
Still, given the depth of the kiwi’s decline, some sort of recovery would not be unusual, Bank of New Zealand’s Wong said.
“After a near 7% plunge since mid-July, some consolidation is overdue and a gap up on positive news is possible,” he said.
Stocks Slip as Latest Tariffs Kick In; Yuan Lower: Markets Wrap
Source: Bloomberg | September 2, 2019, 9:06 AM GMT+12
U.S. markets are closed Monday for the Labor Day holiday
Trump places tariffs on $110 billion of Chinese goods
Asian stocks fell with U.S. equity futures after the latest tariffs kicked in on Chinese goods and data showed further weakness in China’s manufacturing sector. The yen edged higher and the yuan retreated.
Japan and South Korea saw modest stock declines, while Australian shares were little changed. S&P 500 futures dropped 1% before paring losses, and Treasury contracts advanced. President Donald Trump’s tariffs on $110 billion in Chinese imports came into effect on Sunday, as did retaliatory levies by China. Cash Treasuries won’t trade and U.S. equity markets will be shut for the Labor Day holiday. The dollar was steady.
Investors are still reeling from a volatile August that saw a collapse in Treasury yields and declines for global equities.
A drop in the official China purchasing managers’ index on Saturday highlighted the pressure facing the world’s second-largest economy from weaker demand and escalating trade tensions with the U.S.
“There is a long way to go,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “Share markets may still have to fall further to pressure Trump to resolve the issue.”
Elsewhere, Argentina’s government is imposing currency controls to halt the flight of dollars out of the country as it teeters on the brink of default. In the U.K., Boris Johnson all but sounded the election gun and told lawmakers from his party to back his Brexit plan or risk having to find another party.
Here are some key events coming up:
- Australia sets monetary policy on Tuesday.
- Fed speakers include New York Fed’s John Williams on Wednesday and Fed chair Jerome Powell on Friday.
- The U.S. jobs report on Friday is projected to show nonfarm payrolls rose by 165,000 in August, slightly above the month prior. Estimates of the employment situation are for unemployment to be steady at 3.7% and the average hourly earnings rate of increase to slow to 3.0%.
These are the main moves in markets:
- Futures on the S&P 500 Index dropped 0.6%. The underlying gauge added 0.1% on Friday.
- Japan’s Topix index fell 0.3%.
- South Korea’s Kospi declined 0.3%.
- Australia’s S&P/ASX 200 Index slid 0.1%.
- The yen rose 0.1% to 106.18 per dollar as of 9:04 a.m. in Tokyo.
- The offshore yuan slipped 0.2% to 7.1759 per dollar.
- The euro added 0.1% to $1.0992.
- The kiwi sank 0.4% to 63.02 U.S. cents.
- The Bloomberg Dollar Spot Index was flat.
- The British pound was steady at $1.2159.
- Futures on 10-year Treasuries advanced about 0.2%. The yield on 10-year Treasuries gained less than one basis point to 1.50% on Friday.
- Australia’s 10-year yield remained at 0.89%.
- West Texas Intermediate crude fell 0.5% to $54.82 a barrel.
- Gold rose 0.6% to $1,529.02 an ounce.
Euro Falls to Two-Year Low Amid Trade Concerns, Trump Ire
Source: Reuters | August 31, 2019, 4:25 AM
Currency slides as much as 0.9% to $1.0963 as August ends
Traders executed stop orders on euro-dollar around $1.1000
The euro sank below $1.10 for the first time since May 2017 amid low liquidity on a late-summer trading session.
The common currency lost as much as 0.9% against the U.S. dollar, getting as low as $1.0963. The selloff picked up dramatically around 11 a.m. New York time as London closed for the month and after currency options expired.Full .
Sterling investors hold their nerve despite Johnson's gambit
Source: Reuters | AUGUST 30, 2019 / 4:27 AM
LONDON (Reuters) - Prime Minister Boris Johnson’s most audacious bid yet to take Britain out of the European Union on Oct. 31 with or without a deal on their future relations is not panicking money managers yet.
Some even sense an opportunity, believing the British currency is cheap, and the government’s gambit could make clinching a new withdrawal deal with the EU more likely.
Johnson on Wednesday received royal approval to suspend parliament for a month from mid-September to mid-October. Critics have called it an outrageous move aimed at limiting the amount of time lawmakers have to pass legislation to stop a no-deal Brexit before Oct. 31.
For his part, Johnson insisted there would still be plenty of time for parliamentarians to debate Brexit.
Sterling dropped more than 1% early on Wednesday, bruised by the prospect of an economically damaging withdrawal from the EU, and another showdown between the government and parliament that may end in a general election. Markets rushed to price in more volatility for the British exchange rate between now and November.
But this week's move southwards was orderly - and at around $1.22 GBP=D3 sterling is still quite a way from the 2-1/2-year low of $1.2015 reached earlier this month. The pound is also nearly 3% above its 2019 low against the euro EURGBP=D3.
That’s partly because many traders have already slashed their sterling exposure, leaving fewer people in desperate need to offload. Some also argue that negative news is largely priced in - notwithstanding the wild swings likely over the next two months, the pound should eventually be worth much more, they say.
“Even if we fall into a no-deal Brexit, we could see a downside of about 5% from current levels but the upside could be more, especially if officials respond with a stimulus package to cushion the economic impact,” said Ugo Lancioni, managing director of global fixed income and currency management at Neuberger Berman.
Lancioni, who manages about $41 billion of assets, is positioned positively on the pound, citing the relatively low value of the currency compared with other developed market peers.
Wall Street rallies after China trade comments
Source: Reuters | AUGUST 30, 2019 / 12:05 AM
NEW YORK (Reuters) - U.S. stocks rallied more than 1% on Thursday, buoyed by gains in the trade-sensitive technology and industrial sectors as China expressed hope on trade negotiations with the United States, easing concerns that rising tensions could stoke a recession.
China’s commerce ministry said both sides are discussing the next round of talks scheduled for September, but progress would be determined by whether Washington could create favorable conditions.
U.S. President Donald Trump said in a Fox News radio interview that trade talks were scheduled for Thursday “at a different level,” but did not provide details.
Some analysts cautioned that the comments from China were light on substance, and pointed to month-end rebalancing on Friday as supportive of stock gains.
“It sounds to me like more of a continued slow-walking,” said Thomas Martin, senior portfolio manager at Globalt Investments in Atlanta. “But clearly it is time to not ratchet things up further.”
Chipmakers, which draw a large part of their revenue from China, also gained, sending the Philadelphia semiconductor index .SOX up 2.25%.
Industrial names that have also been highly correlated to trade progress, such as United Technologies (UTX.N), advanced, with the sector up 1.77%.
The Dow Jones Industrial Average .DJI rose 326.15 points, or 1.25%, to 26,362.25, the S&P 500 .SPX gained 36.63 points, or 1.27%, to 2,924.57 and the Nasdaq Composite .IXIC added 116.51 points, or 1.48%, to 7,973.39.
Still, the three main indexes were on course to log their worst monthly performance and first monthly decline since a selloff in May, on worries the intensified trade battle between the world’s two largest economies will lead to a global recession.
The Trump administration on Wednesday made official its additional 5% tariff on $300 billion in Chinese imports and set collection dates of Sept. 1 and Dec. 15, prompting several hundreds of U.S. companies to warn of price hikes.
A number of companies, including electronics retailer Best Buy Co Inc (BBY.N) and teen apparel retailer Abercrombie & Fitch Co (ANF.N), reported results earlier on Thursday and warned of the impact from tariffs.
Shares of Best Buy slid 7.99%, making it one of the worst performing issues on the S&P 500, while those of Abercrombie tumbled 15.10%.
Pound gains as UK opposition parties agree front to stop no-deal Brexit
Source: Reuters | AUGUST 27, 2019 / 8:28 PM
LONDON (Reuters) - The British pound rose on Tuesday as opposition parties vowed to try and pass a law to prevent a no-deal Brexit at the end of October, encouraging traders to buy sterling even though most fear the country is headed for a disorderly exit from the EU.
Parliament returns from its summer break next week and is preparing for a battle with Prime Minister Boris Johnson, who has pledged to take Britain out of the European Union on Oct. 31, with or without an exit agreement.
Labour leader Jeremy Corbyn on Tuesday hosted talks with other opposition parties and they agreed to try and stop a no-deal Brexit, including through passing legislation that would force Johnson to seek a delay to Brexit.
The pound extended its earlier gains after the statement.
Sterling rose more than 0.7% on the day to hit as high as $1.2310, its strongest since July 29, before giving up some of those gains to trade at $1.2259.
The British currency also hit a one-month high versus the euro at 90.17 pence, before steadying at 90.58 pence per euro .
Investors are growing increasingly concerned that Britain is headed towards a no-deal Brexit on Oct. 31 that could disrupt trade flows and weaken the economy, though some also believe the currency has moved too far downwards.
“We are slightly positive on sterling in our portfolios as we think that a hard Brexit is already priced into the markets,” said Ugo Lancioni, managing director of global fixed income and currency management at Neuberger Berman.
“Though there is a risk that the pound could fall another 5% from these levels in a knee-jerk reaction to a hard Brexit, these levels are attractive. Also, in the case of a hard Brexit, the (Bank of England) BoE might launch a stimulus package.”
Despite Tuesday’s moves, many investors are sceptical about the opposition’s ability to stop Johnson.
Speculators cut their short positions against the pound in the week to Aug. 23, according to the latest CFTC positioning data, although outstanding shorts - at around $7 billion - remain close to their highest level in more than two years.
“Sterling’s limited reaction to the trade tensions tells us the market’s focus is clearly on Brexit,” UBS global wealth management strategists said in a note on Tuesday, referring to the trade conflict between the United States and China.
“If the global economic outlook turns sour, the Bank of England could have to change tack and join the global central bank easing bandwagon. Thus, we acknowledge that risks have risen of the pound appreciating somewhat less than we forecast.”
Source; Forexlive.com | Mon 26 Aug 2019 23:05:12 GMT
A snippet from a UBS piece, the bank forecasting gold to range 1450 to $1600USD over the next three months.
- citing a risk of slower global growth due to US-China trade tensions
- which could well lead to further central bank easing around the globe
- also, gold a safe haven
Their 6 month forecast is 1600USD
- 12 month forecast 1500USD
Wall Street bounces on softer trade tone
Source: Reuters | AUGUST 27, 2019 / 12:01 AM
NEW YORK (Reuters) - U.S. stocks rose on Monday, as major indexes bounced following a sharp sell-off in the prior session, as U.S. President Donald Trump forecast a trade deal with China and somewhat cooled investor concerns after a ramp up in combativeness derailed markets last week.
Trump said after a G7 summit of world leaders in Biarritz, France, that he believed China was sincere about the desire to reach a deal, citing what he described as increasing economic pressure on Beijing and job losses there.
Shares of tariff-sensitive companies rose in response, with Apple Inc’s (AAPL.O) 1.40% gain providing the biggest boost to each of the major indexes.
Chipmakers, which are heavily reliant upon China for revenue, also rose with the Philadelphia Semiconductor index .SOX adding 0.66% after dropping more than 4% on Friday.
Still, market participants noted the rebound was less dramatic than the drop in markets last week, and they expected recent volatility to continue.
“Six months ago, those sorts of comments would’ve weighed more heavily so there is some degree of the market looking past it and wanting some proof at this point,” said Willie Delwiche, investment strategist at Robert W. Baird in Milwaukee.
“So you’ve got a great deal of uncertainty with Trump, the Fed, the economy and so investors are unsettled and are nervous so it is ‘shoot first, ask questions later’ kind of mentality right now.”
The Dow Jones Industrial Average .DJI rose 144.97 points, or 0.57%, to 25,773.87, the S&P 500 .SPX gained 17.34 points, or 0.61%, to 2,864.45 and the Nasdaq Composite .IXIC added 65.86 points, or 0.85%, to 7,817.63.
Commerce Department data showed new orders for key U.S.-made capital goods rose modestly in July, while shipments fell by the most in nearly three years. The report which could provide the Federal Reserve with more fuel to cut interest rates again next month.
Concerns about the global economy slipping into recession and uncertainty over the pace of U.S. interest rate cuts have created some anxiety about how long the current U.S. expansion will last. The S&P 500 is now off more than 5% from its record high hit in late July after suffering its longest run of weekly declines since May.
Even with broad gains on Monday that saw all 11 S&P 500 sectors rise, Wall Street’s fear gauge, the CBOE Volatility index .VIX, hit its highest level in more than a week earlier in the session.
Trump regrets not raising tariffs on China higher, White House says
Source: Reuters | AUGUST 25, 2019 / 11:50 PM
BIARRITZ, France (Reuters) - President Donald Trump wishes he had raised tariffs on Chinese goods even higher last week, the White House said on Sunday, even as Trump signaled he did not plan to follow through with a demand that U.S. firms find ways to close operations in China.
Trump raised eyebrows on the sidelines of a G7 summit when he responded in the affirmative to questions from reporters on whether he had any second thoughts about raising tariffs on Chinese goods by 5%.
“President Trump responded in the affirmative - because he regrets not raising the tariffs higher,” White House spokeswoman Stephanie Grisham said in a statement afterward that sought to clarify the president’s remarks.
Trump announced the additional duty on some $550 billion in targeted Chinese goods on Friday, hours after China unveiled retaliatory tariffs on $75 billion worth of U.S. goods.
The move was the latest round in a tit-for-tat trade war between the world’s two largest economies that has damaged global growth, upset allies, and raised market fears that the world economy will tip into a recession.
It came just hours after Trump said he was ordering U.S. companies to find “alternatives” to China, including closing operations there and moving production to the United States.
Trump indicated on Sunday that he was not planning such a step at this time, however.
“I could declare a national emergency. I think when they steal and take out, and — intellectual property theft, anywhere from $300 billion to $500 billion a year, and where we have a total loss of almost a trillion dollars a year ... in many ways, that’s an emergency,” he said.
“I have no plan right now. Actually, we’re getting along very well with China right now. We’re talking,” Trump said.
Mnuchin said the president did want U.S. businesses to start looking to shift investments away from China, saying they would be better off in the event the U.S.-China trade war lasted for a long time.
“We want them to be in places where they’re trading partners that respect us and trade with us fairly,” he said on the “Fox News Sunday” program.
‘SECOND THOUGHTS ABOUT EVERYTHING’
During his meeting with Johnson on Sunday in France, Trump was asked if he had second thoughts about his latest escalation.
“Yeah, sure. Why not?” he said.
Trump will get lower rates from the fed at some stage, but at what cost to the economy?
Dollar skids on heightened U.S.-China trade tension
Source: Reuters | AUGUST 23, 2019 / 1:21 PM
NEW YORK (Reuters) - The dollar stumbled on Friday after President Donald Trump ordered U.S. companies to start looking for an alternative to China as Beijing imposed more tariffs on American goods, further exacerbating a prolonged trade war between the world’s two largest economies.
That triggered mass selling in the dollar, which fell from a three-week high against the euro and to one-week troughs versus the Japanese yen and Swiss franc. Benchmark U.S. 10-year Treasury yields US10YT=RR also fell sharply.
The dollar, however, strengthened against the Chinese yuan in the offshore market, hitting a two-week high CNH=.
“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA,” Trump wrote on Twitter.
Trump cannot legally compel U.S. companies to abandon China immediately. He gave no detail on how he might proceed with any such order.
His tweet followed China’s announcement on Friday of retaliatory tariffs on about $75 billion worth of U.S. goods, putting as much as an extra 10% on top of existing rates.
“All of this adds to uncertainty in terms of geopolitics,” said Fran Rodilosso, head of fixed income portfolio management at VanEck in New York. “Obviously, the uncertainty is with regard to global growth and that has been everyone’s chief concern.”
Trump’s comments overshadowed a speech by Federal Reserve Chair Jerome Powell, who did not announce a major stimulus measure to ease a worsening global economic outlook, but set the stage for further interest rate cuts.
Powell said the U.S. economy was in a “favorable place” and the Fed would “act as appropriate” to keep the economic expansion on track.
“Fed Chairman Powell’s speech at Jackson Hole suggests that he is leaning toward a September rate cut, but he did not lay out a reaction function regarding the Fed’s rate path beyond September,” said Philip Marey, senior U.S. strategist, at Rabobank. The Fed’s annual economic symposium in Jackson Hole, Wyoming, ends on Saturday.
Trump, however, was enraged by Powell’s speech, saying he was not sure who was the bigger enemy, the U.S. central bank chief or Chinese leader Xi Jinping.
“As usual, the Fed did NOTHING! It is incredible that they can ‘speak’ without knowing or asking what I am doing, which will be announced shortly,” Trump wrote on Twitter.
“By escalating the trade war, President Trump will get what he wants from the Fed: lower rates,” said Rabobank’s Marey.
Wall Street plunges as U.S.-China trade war intensifies
Source: Reuters | AUGUST 23, 2019 / 11:22 PM
NEW YORK (Reuters) - Wall Street tumbled on Friday after the U.S.-China trade war escalated in dramatic fashion, with President Donald Trump demanding that American companies seek alternatives to doing business with China after Beijing announced its own slate of retaliatory measures.
All three major U.S. stock indexes ended the session sharply lower, posting their fourth consecutive weekly declines.
The latest exchanges in the long-running tariff row triggered a broad-based sell-off that hit shares of companies with high exposure to China the hardest, such as chipmakers and other top technology names. Dow Jones Industrials components Intel Corp and Apple Inc dropped 3.9% and 4.6%, respectively.
The developments overshadowed a highly anticipated speech from U.S. Federal Reserve Chair Jerome Powell, in which he reiterated a pledge the central bank would “act as appropriate” to support the economy, but he stopped short of committing to the series of rapid-fire rate cuts Trump has been demanding.
Trump’s tweeted response to the speech labeled Powell an “enemy.”
“(Trump) seems to be irate that China reacted to what the U.S. has done and is basically having a mini-tantrum and is angry at everybody,” said David Katz, chief investment officer at Matrix Asset Advisors in New York. “He’s angry at China, he’s trying to put the blame on the market and the economy on Powell.”
“But at this point, it’s very clear ... that the issues that have been coming to fruition of late with the economy and the slowdown are all trade-related and have very little to do with the Fed,” Katz added.
Bernard Baumohl, managing director and chief global economist at the Economic Outlook Group in Princeton, agreed.
“The biggest folly is the belief that lowering interest rates by 25 or 50 bp will do anything to revive the economy,” Baumohl said. “Don’t ask the Federal Reserve to bail out the economy, because they’re not going to be able to do it this time.”
The escalating U.S.-China trade dispute has emerged as a major tripping point for the market in recent weeks. Friday marked the third decline of more than 2% for the S&P 500 so far in August, and the benchmark index has now shed 5.8% in the last four weeks.
Yields for 2-year and 10-year U.S. Treasuries entered inversion territory, a classic recessionary red flag. The curve has traded in and out of inversion for the past three days.
The Dow Jones Industrial Average fell 623.34 points, or 2.37%, to 25,628.9, the S&P 500 lost 75.84 points, or 2.59%, to 2,847.11 and the Nasdaq Composite dropped 239.62 points, or 3%, to 7,751.77.
All 11 major sectors in the S&P 500 ended the session in negative territory. Energy and technology were the biggest percentage losers, both sliding more than 3%.
Trade-sensitive chipmakers dropped on the bellicose trade rhetoric, with the Philadelphia SE Semiconductor index dipping 4.4%.
Specialty retailer Foot Locker Inc plummeted 18.9% on the heels of disappointing second-quarter results.
Computer hardware company HP Inc announced the departure of chief executive officer Dion Weisler and forecast lower-than-expected fourth quarter profit, sending its shares down 5.9%.
Declining issues outnumbered advancing ones on the NYSE by a 4.52-to-1 ratio; on Nasdaq, a 5.27-to-1 ratio favored decliners.
The S&P 500 posted 33 new 52-week highs and 38 new lows; the Nasdaq Composite recorded 38 new highs and 195 new lows.
Volume on U.S. exchanges was 8.07 billion shares, compared with the 7.58 billion average over the last 20 trading days.
Dollar holds gains after Fed minutes temper rate cut expectations
Source: Reuters | AUGUST 22, 2019 / 12:26 PM
TOKYO (Reuters) - The dollar held gains on Thursday after minutes from the Federal Reserve’s last policy meeting hosed down some aggressive expectations the central bank would embark on a series of deep interest rate cuts.
Asian currencies are expected to trade in tight ranges on Thursday ahead of U.S. Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole on Friday for signs of just how far the U.S. central bank is prepared to lower rates.
His comments are of particular interest after an inversion in the Treasury yield curve highlighted the risk that the U.S. economy may fall into recession. While the Fed’s minutes tempered some dovish expectations, markets still broadly expect further rate cuts as growth slows.
“Yields are supportive of the dollar for now, but this may not last after Powell’s speech,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.
“Additional rate cuts are thoroughly priced in. If Powell sounds slightly hawkish, stocks could sell off, which would hurt the dollar against safe-haven currencies like the yen.”
At the Fed’s last meeting in July, the U.S. central bank cut interest rates for the first time in a decade to 2.00-2.25%. The Fed next meets Sept. 17-18.
The dollar held steady at 107.79 yen JPY=EBS following a 0.36% gain on Wednesday, its biggest since Aug. 13.
Against the Swiss franc CHF=EBS, the dollar traded at 0.9822, close to a two-week high of 0.9831.
Fed policymakers were deeply divided over whether to cut interest rates last month but were united in wanting to signal they were not on a preset path to more cuts.
However, this message is not likely to sit well with U.S. President Donald Trump, who has repeatedly bashed Powell for not cutting interest rates more aggressively.
Benchmark 10-year Treasury yields < US10YT=RR> gained after the minutes, but interest rate futures are pricing in a 100% probability of a rate cut at the Fed’s September meeting, a 75% chance of an additional cut in October, and a 48% likelihood of another cut in December, the CME’s FedWatch tool shows.
The Fed and other central banks are cutting interest rates to contain a global economic slowdown caused by a prolonged trade war between the United States and China.
Sterling traded a tad lower at 91.89 pence per euro EURGBP=, on course for its second day of losses, as uncertainty about Britain’s divorce from the European Union weighed on the pound.
Against the greenback, sterling GBP=D3 was little changed at $1.2132.
French President Emmanuel Macron said on Wednesday there would be no renegotiation of the terms for Britain’s exit from the EU.
British Prime Minister Boris Johnson is due to meet Macron in Paris on Thursday. German Chancellor Angela Merkel challenged Britain to come up with alternatives to the Irish border backstop within 30 days after meeting Johnson on Wednesday.
Johnson, who won the premiership a month ago, is betting the threat of “no-deal” Brexit turmoil will convince Merkel and Macron that the EU should do a last-minute deal to remove the Irish backstop.
Australia and New Zealand’s Central Banks Are Leading What Seems to Be a Race to the Bottom
Source: Bloomberg | August 22, 2019, 7:00 AM GMT+12
Australia and New Zealand’s central banks are pondering what until recently seemed unthinkable: deploying the types of extreme monetary policies that were spawned globally by the 2008 global financial crisis. Bond-purchase programs and negative interest rates were for years seen Down Under as the preserve of countries that had gorged on risky derivatives and been reckless with debt. There’s been a sharp change of tune, however. Now, the two central banks are at the forefront of what appears to be a race to the bottom -- where even interest rates at zero may not be far enough.
1. What’s changed?
Only last year, the RBA and RBNZ signaled their next rate move would be up. But China’s slowing economy, its damaging trade dispute with the U.S. and the darkening global outlook mean Australia and New Zealand may need to find extra stimulus. The central banks have cut rates to historic lows of 1%, around the same level the U.S. Federal Reserve and Bank of England had when they turned to asset purchases -- known as quantitative easing -- to support their economies following the financial crisis. Both the RBA and RBNZ have left the door open for further reductions, leaving little in the way of conventional ammunition -- particularly if they need to respond to an external shock. With that in mind, RBA Governor Philip Lowe and his RBNZ counterpart Adrian Orr have said it’s prudent to discuss unconventional options now -– but made it clear they won’t necessarily have to use them.
Goldman Sachs forecasts USD/JPY to 103 (3 month horizon)
Source: Forexlive.com | Wed 21 Aug 2019 02:56:35 GMT
Goldman Sachs forecast for USD/JPY to 103 in three months
- despite its up move already this year
GS acknowledge though that upside risks for are growing
- US data remains strong
- speculation on looser fiscal policy globally is growing
GS note parallels with 2016, which saw yen eventually weaken
- Fed becoming less hawkish
- worries on China
- weaker global growth
- concern central banks are running easing options
& in 2016 there was a reversal of these factors and USD/JPY moved off its lows. GS say there's risk of a rerun of this.
Pouring petrol on the fire?
Wall St. rallies on stimulus cheer, trade optimism
Source: Reuters | AUGUST 19, 2019 / 11:47 PM
(Reuters) - U.S. stocks surged on Monday, building on previous session’s rally, fueled by growing hopes that major economies would act to prop up slowing growth, while technology stocks got a lift from trade optimism.
China’s central bank unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies, close on the heels of report of a potential German economic easing. The benchmark S&P 500 was looking at its best two-day jump since early June.
After the three main Wall Street indexes racked up their third straight weekly loss despite Friday’s bounce, investors will weigh trade risks and signs of slowing growth against the potential for more action from the U.S. Federal Reserve and others in September.
The focus this week will be on Wednesday’s release of minutes from the Fed’s July policy meeting, when the central bank cut rates for the first time in more than a decade, and Chair Jerome Powell’s speech in Jackson Hole on Friday.
“Everything is up because the Street is expecting Fed Chairman Powell to push for an additional cut when he addresses bankers in Jackson Hole,” said Peter Kenny of Kenny’s Commentary LLC and Strategic Board Solutions LLC in New York.
Shares of Apple Inc (AAPL.O) provided the biggest boost to the three main Wall Street indexes. President Donald Trump said on Sunday that he had spoken with Apple Chief Executive Officer Tim Cook who “made a good case” that tariffs could hurt Apple.
“There is a recognition that this trade policy is having a negative impact on the economy. With the election coming up next year, there maybe an incentive to get these trade issues behind. Trump does seem to listen if the voices are loud enough,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.
Adding to the optimism around trade, Washington extended a reprieve given to Huawei Technologies that permits the Chinese firm to buy supplies from U.S. companies so that it can service existing customers.
Trade-sensitive chipmakers gained with the Philadelphia chip index .SOX up 2.06%.
At 12:36 p.m. ET, the Dow Jones Industrial Average .DJI was up 245.55 points, or 0.95%, at 26,131.56 and the S&P 500 .SPX was up 33.69 points, or 1.17%, at 2,922.37. The Nasdaq Composite .IXIC was up 112.19 points, or 1.42%, at 8,008.18.
All of the 11 major S&P sectors were higher with a 1.88% rise in energy sector .SPNY leading the gainers. Defensive real estate .SPLRCR and utilities .SPLRCU posted the smallest gains.
Data, politics fuel big gains for pound vs euro, dollar for the week
Source: Reuters | AUGUST 16, 2019 / 8:17 PM
LONDON (Reuters) - The pound advanced broadly on Friday, notching up its biggest daily rise versus the euro in nearly five months, as a combination of news and decent data provided enough ammunition to speculators to buy the struggling British currency.
After being hit by growing concerns of Britain crashing out of the European Union without a deal by Oct. 31 after Boris Johnson became prime minister last month, the pound saw a brief reprieve this week.
GRAPHIC: Trade-weighted sterling since Brexit vote - here
The pound advanced to an eight-day high versus the greenback and also jumped 1% against the euro currency, its biggest single day rise since late March.
Though traders are wary of seeing too much upside for the currency before the British Parliament returns from recess in September, investors take as a positive sign a growing opposition from political parties to Johnson’s promise to take Britain out of the EU with or without a deal.
The bid in bonds is absolutely relentless: 10-year yields fall to new lows
Source: forexlive.com | Thu 15 Aug 2019 17:52:16 GMT
10-year falls below 1.5000%
One of the curious things about market action in the past week as the the bond bid is relentless. It's there when there are waves of risk aversion (like yesterday) but it's also there on days like today that are calm -- and even there on days when stocks rally.
The 10-year yield just broke 1.50% for the first time since 2016 and is now down 55 basis points since Trump's new tariffs..
One school of thought is that yields are being dragged down by Europe and that's a fair argument but it can't just be Europeans buying all these bonds. This move is insane. In turn, gold is starting to get a bid.
Are we in flash crash territory here?
Sterling bounces as Labour prepares bid to avert no-deal Brexit
Source: Reuters | AUGUST 15, 2019 / 9:32 PM
LONDON (Reuters) - Sterling rose on Thursday to the highest in more than a week, supported by news that the opposition Labour Party was mounting a bid to bring down Prime Minister Boris Johnson and stop him taking Britain out of the EU without a deal.
The currency also was lifted by better-than-expected retail sales, which came on the heels of Wednesday’s higher inflation numbers that raised hopes the economy might be in better shape than previously thought.
Labour said it would call a vote of no-confidence in Johnson’s government as soon as it believes it can win it and would form a temporary government under leader Jeremy Corbyn to delay Brexit.
While derivatives indicate market players may be trimming back some short sterling positions, the currency’s prospects remain clouded by the risk of Britain exiting the European Union without a divorce agreement at the end of October.
“The market is not 100% convinced a no-confidence vote will work,” said Jordan Rochester, a currency strategist at Nomura.
The risks, alongside fears of a global economic recession, drove yields on British government bond yields to new lows, with the bond yield curve between two-year and 10-year rates remaining inverted — a possible warning of economic recession.
This means short-dated Gilts pay a higher yield than their long-dated counterparts. Thirty-year yields fell below 1% and the 10-year yields were at record low around 0.4%.
By 1530 GMT, the pound was 0.5% higher at $1.2136, having briefly touched a high of $1.2150. However it remains not far from the 31-month low of $1.2015 it reached on Monday.
Analysts said $1.20 was acting as a floor for the pound but the level could be tested if worries of a no-deal Brexit build up again. Investors barely hold any sterling options with strikes below $1.20, according to Refinitiv data, an indication that there would be few buyers for sterling if it falls below this level.
Against the euro, the pound rose by 0.8% at 91.7 pence, standing well off recent 10-year lows of 93.26 pence.
The cost of protection against unexpected moves in the currency, seen in the three-month options pricing, eased a bit off seven-month highs. Three-month risk reversals, which encapsulate the Brexit deadline, paint a similar picture.
British inflation data offers support to struggling pound
Source: Reuters | AUGUST 14, 2019 / 8:30 PM
LONDON (Reuters) - The pound edged higher on Wednesday after inflation picked up in July, but the currency held within sight of a two-and-a-half year low as brewing concerns about a no-deal Brexit weighed on investor sentiment.
The consumer price index rose 2.1% year-on-year in July from 2% in June, above a Reuters poll forecast of a 1.9% increase. The Bank of England’s inflation target is 2%.
“Stronger than expected UK CPI inflation data this morning has a modest impact on the short end of the curve,” said Jane Foley, senior forex strategist at Rabobank.
“The move, however, has not been sufficient to distract attention from the pressure that has been exhibited on the longer end of the curve,” Foley said, referring to signs of a global recession and the risk of Britain crashing out of the European Union without a transition deal in place.
The U.S. Treasury yield curve inverted for the first time since 2007 on Wednesday. A curve inversion - when short-dated bond yields are higher more than their longer-dated counterparts - is seen as a reliable warning for an impending recession.
The drop in bond yields sent a chill through global markets.
Against the dollar GBP=D3, the pound was up 0.1% at $1.2074, above a low of $1.2015 hit on Monday, its weakest since January 2017. Versus the euro EURGBP=D3, the British currency was ahead slightly at 92.615 pence.
Higher inflation would normally translate into higher interest rates, and therefore a stronger currency. But with the potential for a no-deal Brexit rising as the Oct. 31 deadline approaches, the central bank is likely to remain in a wait-and-see mode until there is clarity, analysts say.
U.S. stocks stumble on fears of looming recession
Source: Reuters | AUGUST 15, 2019 / 12:03 AM
NEW YORK (Reuters) - Wall Street stumbled on Wednesday as investors fled equities for safe-haven assets, seeking shelter amid gathering signs that a recession could be on the horizon.
All three major U.S. indexes were sharply lower as short- and long-dated Treasury yields inverted for the first time in 12 years, a potential signal of imminent recession.
Elsewhere, ominous indicators suggested a faltering global economy, hobbled by the intensifying U.S.-China trade war, Brexit jitters and geopolitical concerns. Germany reported a contraction in second-quarter GDP, and China’s industrial growth in July hit a 17-year low.
“Every central bank around the world is trying to prop up economies and every politician around the world is trying to destroy economies,” said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York. “What’s happening in Hong Kong, what’s happening with Brexit and the trade war, it’s all a mess.”
Yields for 2-year and 10-year Treasuries inverted for the first time since June 2007, months before the onset of the great recession, which crippled markets for years.
Such a yield inversion is held by many as a traditional harbinger of recession.
“When you’re in an ultra-low interest rate environment as we’ve been, you’ve got to ask if the old metrics still apply,” Pursche added. “My guess is yes.”
The CBOE volatility index, a gauge of investor anxiety, jumped 4.26 points to 21.78.
Spot gold prices rebounded, rising over 1% as market participants fled stocks for the precious metal.
The Dow Jones Industrial Average fell 653.29 points, or 2.49%, to 25,626.62, the S&P 500 lost 71.78 points, or 2.45%, to 2,854.54 and the Nasdaq Composite dropped 216.34 points, or 2.7%, to 7,800.02.
All of the 11 major sectors in the S&P 500 were in the red, with energy and financial suffering the largest percentage loss.
Interest rate-sensitive banks fell 4.1%.
Dollar soars versus yen after U.S. makes trade concessions
Source: Reuters | AUGUST 13, 2019 / 1:13 PM
NEW YORK (Reuters) - The U.S. dollar took off on Tuesday morning, clobbering the Japanese yen, after the Trump administration said it would delay 10% tariffs on some Chinese products scheduled to begin next month, a significant concession in the trade conflict between Washington and Beijing.
The U.S. Trade Representative said it would delay tariffs on laptops and cellphones, among other products, set to be imposed in September.
The U.S. dollar rose 1.49% to 106.85 Japanese yen per dollar. The yen is a safe-haven asset which benefits in moments of geopolitical uncertainty and during economic downturns. The U.S.-China trade war had begun to affect economic growth in the United States and raise fears that the conflict could lead to a recession.
Other safe havens like Treasury bonds also saw prices fall as investors moved money into riskier assets. The dollar index was 0.38% higher at 97.749, and the offshore Chinese yuan was 1.38% stronger at 7.0050.
The news had a modest effect on interest rate forecasts for 2019. Two to three cuts have been priced in by the end of the year, though on Tuesday morning expectations of two rate cuts increased to 47.9% from 45.7% a day prior, according to CME Group’s FedWatch tool.
Still, some analysts cautioned a moderate response. “The fact is that we have seen this film before, and it could be naive to think so much on the back of this headline,” said Naeem Aslam, chief market analyst at ThinkMarkets in London.
The U.S. dollar was also buoyed on Tuesday after the United States reported that consumer prices in July increased, though the easing of trade tensions could tamp down further inflationary pressures.
The Labor Department on Tuesday reported that the consumer price index increased 0.3% last month, lifted by gains in the cost of energy products and a range of other goods. The CPI had edged up 0.1% for two straight months. In the 12 months through July, the CPI increased 1.8% after advancing 1.6% in June. Economists polled by Reuters had forecast the CPI would accelerate 0.3% in July and rise 1.7% on a year-on-year basis.
Financial markets have fully priced in an interest rate cut in September. Expectations that rates will be cut by 25 basis points rose to 92.7% from 84.6% a day prior as fewer traders bet on a more dramatic 50-basis-point cut next month.
13th August, 2019
Goldman Sachs analysts on Sunday said they no longer expected Washington and Beijing to come to a trade agreement before the 2020 presidential election. They lowered their forecast for fourth-quarter U.S. growth and said the chances a protracted trade war would lead to recession were rising.
Uncertainty about U.S. trade policy could lead state-side companies to reduce their capital expenditures, hire fewer workers and produce less.
“Using industry-level data, we find that greater exposure to sales to China has been associated with slower capex growth as the trade war has intensified. We estimate a total uncertainty and sentiment drag on GDP of 0.1-0.2%,” the Goldman Sachs analysts wrote.
Wall Street slides on geopolitical, recession fears
Source: Reuters | AUGUST 12, 2019 / 11:39 PM
NEW YORK (Reuters) - U.S. stocks dipped in a broad sell-off on Monday as rising geopolitical tensions spooked investors away from equities and the extended U.S.-China trade war stoked fears of impending global recession.
All three major U.S. stock indexes started the week in the red, with few earnings reports and no economic data to soothe market jitters over protests in Hong Kong, the rejection of Argentine President Mauricio Macri’s economic agenda in primary elections, and a tariff dispute that has beleaguered markets for months.
“It’s the end of summer so a lot of market players aren’t on the job,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. “It happens seemingly every August where we have events that move the market out of proportion to the events.”
Goldman Sachs Group Inc said on Sunday that its economists see recessionary risks increasing as the trade war between the world’s two largest economies drags on, and no longer expect a resolution before the 2020 U.S. presidential election.
The move away from risk sent gold prices higher and U.S. Treasury yields lower.
“It’s a flight to safety given the global situation, from Hong Kong to Strait of Hormuz,” Hellwig added.
Data on inflation, housing starts and retail sales are due later in the week, and will be scrutinized by market participants for signs of economic softening.
“Consumer confidence has held up well so we’ll see where the rubber meets the road with retail sales,” said Hellwig.
The Dow Jones Industrial Average fell 308.75 points, or 1.17%, to 25,978.69, the S&P 500 lost 30.85 points, or 1.06%, to 2,887.8 and the Nasdaq Composite dropped 79.90 points, or 1%, to 7,879.24.
All 11 major sectors of the S&P 500 were in the red, with financials, energy and materials suffering the largest percentage losses.
Second-quarter reporting season is approaching the finish line, with 452 of the companies in the S&P 500 having reported. Of those, 73.5% have beaten consensus estimates.
Looking ahead to the third quarter, there have been 58 negative pre-announcements compared with 19 positive, resulting in a 3.1 negative-positive ratio, higher than 2.7 average since 1997.
Yen buoyed by China jitters; sterling under water
Source: Reuters | AUGUST 12, 2019 / 12:01 PM
SYDNEY (Reuters) - The dollar remained on the defensive against the safe-haven yen on Monday as the Sino-U.S. trade dispute looked set to drag on with no settlement in sight, while holidays in Japan and Singapore made for very thin trading.
Confusion still lingered after U.S. President Donald Trump on Friday said he was not ready to make a deal with China and even called a September round of trade talks into question.
Goldman Sachs over the weekend cut its forecast for U.S. economic growth, warning that a trade deal was unlikely before the 2020 presidential election and that the risks of a recession were increasing.
“Overall, we have increased our estimate of the growth impact of the trade war,” the bank said in a note.
All eyes will be on Chinese figures on retail sales and industrial output due Wednesday to gauge the impact of the long-running tussle on domestic activity.
Beijing has allowed its yuan to ease in recent weeks as an offset to the tariffs, pressuring emerging market currencies across Asia and boosting the yen.
The dollar went the other way against the yen, easing to 105.40 JPY= after hitting a seven-month low around 105.25 on Friday. The dollar was hardly alone, with the euro down at 118.16 yen EURJPY= and near its lowest since April 2017.
Likewise, sterling had sunk to depths not visited since 2016 at 126.69 yen GBPJPY= having shed over eight yen in little more than two weeks.
The pound struck a two-year trough on the dollar on Friday after data showed the UK economy unexpectedly contracted in the second quarter, only adding to the bearishness over Brexit and the chance of a no-deal exit.
Sterling was last at $1.2020 GBP= and eyeing support at $1.1979, which marks a low from January 2017.
The Telegraph reported Labour MPs had been told to cancel all travel in early September in anticipation of Jeremy Corbyn tabling a motion of no confidence in the government.
The euro was steady on the dollar at $1.1200 EUR=, bound between resistance at $1.1249 and support at $1.1175.
Politics remained a drag with the prospect of snap elections in Italy up in the air as opposition built to League chief Matteo Salvini’s plans for a vote.
Another hurdle will be Germany’s gross domestic product figures on Wednesday where a contraction is a real risk given a steep drop in factory output in June.
Sterling revisits two-year lows as UK economy shrinks
Source: Reuters | AUGUST 9, 2019 / 8:21 PM
LONDON (Reuters) - Sterling skidded again on Friday, hitting its lowest in more than two years, after an unexpected second quarter contraction in the economy alarmed investors already fretting that Britain is headed for a no-deal Brexit.
The pound, which has lost 3.7% of its value against the dollar since arch-Brexiteer Prime Minister Boris Johnson’s arrival in office in late July, sank to $1.2056, the weakest it has been since January 2017, and was last down by 0.5% at $1.2072.
GRAPHIC: Sterling at new 31-month low - tmsnrt.rs/2MS7lSb
Against the euro, the pound slid to a new two-year low of 92.885 pence and was last down by 0.7% on the day.
The British currency has been close to being the worst performing in the developed world these past couple of weeks since Johnson became prime minister on July 24.
Britain’s economy shrank at a quarterly rate of 0.2%, the first contraction since 2012 and below all forecasts in a Reuters poll.
Year-on-year economic growth slid to 1.2% from 1.8% in the first quarter, Britain’s Office for National Statistics said, its weakest showing since the start of 2018.
British government bond yields fell as investors sought safety in fixed income assets.
UK domestic stocks weakened, although London’s export-heavy blue chip FTSE 100 index clawed its way back into positive territory as sterling plunged.
Some investors now expect Britain to enter a technical recession, which represents two consecutive quarters of negative growth, if the economic situation continues to worsen.
“Overall, these are clearly a disappointing set of figures which have significantly raised the likelihood of a technical recession,” said Azad Zangana, senior European economist and strategist at Schroders.
The pound has suffered a torrid few weeks as investors priced in the growing risk of Britain exiting the European Union under Johnson on Oct. 31 without a deal to smooth the transition.
BNP Paribas raised on Friday the probability of a no-deal Brexit to 50% from 40%. Some analysts say there could be more pain to come.
“As the political risk premium rose, sterling was the worst-performing major currency in each of May, June and July, but the negative risk premium can still rise further,” RBC Capital Markets analyst Adam Cole said.
Johnson is planning to hold a parliamentary election in the days after Brexit if lawmakers sink the government with a no-confidence vote, British media have reported, further unnerving currency traders.
It is growing increasingly likely that Johnson will face a vote of no confidence soon after Sept. 3, when parliament returns from its summer recess, analysts say.
Johnson says Britain, which voted for Brexit in 2016 by a 52%-48% margin, must leave the EU on schedule on Oct. 31, with or without a divorce deal with the bloc. Delaying an election until after Brexit could be a tactic to ensure that happens even if parliament withdraws support for his government.
Vasileios Gkionakis, global head of forex strategy at Lombard Odier, said he was worried about an election, but was also ready to unload some sterling short positions he had accumulated since a lot of bad news had been already priced in.
“If no-deal (Brexit) increases in probability, then of course sterling would be a sell, but until then I’m becoming a bit more neutral,” Gkionakis said, adding that he expects sterling to “settle around $1.20” before market participants reassess their expectations of that outcome.
Others in the market mirrored Gkionakis’ views on Friday.
Paul Hollingsworth, senior European economist at BNP Paribas, said he was “reluctant to enter short sterling positions” and that he found “risk-reward more attractive to consider entering structural long sterling positions as we get closer to September”.
The shrinking economic growth in the second quarter did not make investors more confident that the Bank of England will cut interest rates in September. Some economists expect the central bank to embark on more easing soon, however.
“As uncertainty continues to loom over the UK economy, the difficult run of data is expected to continue and the BoE will need to consider its next step carefully as its global peers embark on further rate cuts,” said Geoffrey Yu, head of the UK Investment Office at UBS Wealth Management.
Money markets are pricing in a 25 basis point cut by January 2020.
Sterling hits two-year low vs euro amid talk of early election
Source: Reuters | Sterling hits two-year low vs euro amid talk of early election
LONDON (Reuters) - Sterling briefly fell to a two-year low against the euro after a media report said new Prime Minister Boris Johnson was preparing to hold an election in the days after the deadline for Britain to leave the European Union on Oct. 31.
The prospect of a no-deal Brexit, as well as an early election, have hit sterling hard in recent weeks. The pound had found some respite earlier on Thursday as risk appetite returned to financial markets.
But the currency then dropped 0.4% to as low as 92.65 pence per euro, its weakest since Aug. 30, 2017, after the Financial Times, citing unidentified senior aides to the prime minister, reported that Johnson would hold an election in the days following Brexit if lawmakers sunk his government with a vote of no-confidence.
Against the dollar the British currency also dropped to as low as $1.2095.
By 1515 GMT, the pound had recovered and was flat on the day at 92.35 pence against the euro and $1.2148 versus the dollar.
“The pound has been in a pretty narrow range of just over 1% against the U.S. dollar for the past week and the markets are clearly taking stock of the recent declines before embarking on the next move,” said David Cheetham, market analyst at online broker XTB.
Johnson has said he will take Britain out of the European Union on Oct. 31 even if that means leaving without a transition agreement.
He has demanded the EU show it is willing to change the deal it had agreed with his predecessor before new talks can begin. The EU has repeatedly said it will not reopen the negotiations.
Foreign exchange strategists polled by Reuters predict that the pound will trade between $1.17 and $1.20 as the Oct. 31 deadline approaches.
Investors have also been buying options to protect against unexpected swings in sterling, sending the cost of three-month options to its highest since January. Three-month risks reversals, which include the October deadline, imply that investors expect the pound will fall rather than rise.
The median forecast for a Brexit with no deal agreed jumped in an Aug. 2-7 Reuters poll of economists to 35%. That was up from 30% in July and the highest since Reuters began asking the question two years ago. Betting markets also forecast a higher chance of a no-deal Brexit.
Gold Tops $1,500 as Investors Seek Shelter From Gathering Storm
Source: Bloomberg | August 8, 2019, 6:44 AM GMT+12
Bullion in demand on fallout from U.S.-China trade dispute
China added to gold reserves for an eighth straight month
Gold futures rallied above $1,500 an ounce on sustained demand for the traditional haven as the U.S.-China trade war festers, global growth slows and central banks around the world ease monetary policy.
The metal advanced as much as 2.6% an ounce on the Comex to the highest since 2013. The move extends this year’s climb to 19%, with gains underpinned by inflows into exchange-traded funds and central bank purchases. China’s central bank expanded its gold reserves for an eighth straight month in July.
Source: Forexlive.com | Thu 8 Aug 2019 03:48:28 GMT
Forex news for Asia trading Thursday 8 August 2019
- China trade balance data for July - exports up
- Latest estimate for GBP/USD: to 1.17 ahead of the October 31 Brexit date
- RBA 'bias index' says further rate cuts to come
- Just waking up? Global markets focus on the yuan again.
- PBOC onshore yuan mid rate setting was not as weak as expected for CNY
- PBOC sets USD/ CNY reference rate for today at 7.0039 (vs. yesterday at 6.9996)
- FX option expiries for Thursday August 08 at the 10am NY cut
- More from RBNZ's Hawkesby: Confident inflation will rise after the 50bp cut
- Here is how to get a zero % mortgage for 20 years (yes, really)
- Japan to export some semiconductor manufacturing materials to South Korea
- Sky reports that two-thirds of UK exporters yet to take basic steps for no-deal Brexit
- Japan BoP Current Account Balance for June: ¥ 1211.2bn (vs. expected ¥ 1148.8bn)
- China Securities Journal reports China considering new measures to stabilize trade
- Here's a US recession indicator nudging its highest since 2007
- UK data - RICS House Price Balance for July: -9% y/y (expected -1%)
- Another bank expects further easing from the RBNZ, and a lower NZD
- AUD/USD levels for the session ahead
- RBNZ's Hawkesby says the Bank wants to see inflation expectations rise
- Saudi Arabia speaking with other oil producers to discuss ways to halt oil prices slide
- RBA's Bullock says small business facing tighter credit conditions
- RBNZ 50 basis point cut yesterday - but their easing cycle is not over
- More from RBNZ's Orr - low interest rates are just as effective as ever
- Trade ideas thread - Thursday 8 August 2019
- RBNZ Gov. Orr says again negative rates are possibility
The People's Bank of China set the mid-rate for USD/CNY above 7 today for the first time in a decade, weakening the yuan again but not by as much as the market had expected. Expectations for the reference rate were well above the 7.0039 result and the immediate response was u-turn (lower) for USD/CNH and some encouragement for risk currencies. USD/JPY traded a little higher but as I update is holding under its US time high. AUD/USD managed to pop its overnight high to just over 0.6780.
NZD/USD was shifted around by further comments from the RBNZ Governor and Assistant Governor. Both Orr and Hawkesby maintained their easy outlook for policy and largely reiterated what they had said the previous day following the shock half-point rate cut. NZD/USD traded a (circa) 0.6440/0.6470 range.
EUR/USD has edged a few ticks higher from early levels but has not been a focus for the session. Cable has performed better, its up 30-odd points on the day here in Asia. The Canadian dollar added points against the USD, helped not only by the better sentiment re yuan but also by steadying oil prices.
Chinese trade data for July was released today, showing further growth in the trade surplus with the US. Exports to the US did pull back (exports were higher to the rest of the world), but imports from the US dropped.
As an added note on the yuan, while it was set at its lowest for 10 years against the USD, against its basket the decline has taken it to its lowest (below 92) since the basket was introduced in 2015 (the basket is against the currencies of 24 of China's trading partners.)
Sterling rout not yet over as no-deal Brexit odds jump - Reuters poll
Source: Reuters | AUGUST 8, 2019 / 1:09 PM
LONDON (Reuters) - Sterling’s recent slide is not yet over as the chances Britain and the European Union part ways without a withdrawal deal have jumped again after arch-Brexiteer Boris Johnson took over as prime minister last month, a Reuters poll found.
Johnson, who was the face of the leave campaign ahead of the 2016 referendum and who took office on July 24, has repeatedly said he will take Britain out of the EU on Oct. 31 with or without a deal. Sterling GBP= fell to a low against the dollar not seen since early 2017 at the start of August.
Before that divorce date arrives, the pound will fall further and trade between $1.17 and $1.20, a Reuters poll of foreign exchange strategists predicted, below the $1.21 it was at on Wednesday.
“Fears of a no deal Brexit are likely to worsen, though we anticipate it will be avoided. Our official house view is that there will be a delay, but kicking the can down the road doesn’t ease uncertainty,” said Jane Foley, head of FX strategy at Rabobank and the most accurate forecaster for major currencies in Reuters FX polls last year.
Britain was originally due to leave the EU at the end of March but the departure date was extended.
The median forecast for a disorderly Brexit - whereby no deal is agreed - jumped in an Aug. 2-7 Reuters poll of economists to 35%, up from 30% given in July and the highest since Reuters began asking this question two years ago.
Forecasts in this poll ranged from as low as 15% to a high of 75%.
“Until now, it was difficult to know what a Johnson-led government would do about Brexit, given his indecisiveness, unpredictability and, at times, conflicting messages on Brexit,” said Daniel Vernazza, chief international economist at UniCredit.
“However, it now seems pretty clear that Boris Johnson’s strategy is to try to force through a no-deal Brexit on October 31,” Vernazza, who does not expect Johnson to succeed, added.
Economists in Reuters polls since the June 2016 referendum have consistently warned a no-deal Brexit would be the worst outcome for Britain’s economy.
But as they have since late 2016 when Reuters first started asking about the most likely eventual outcome, a strong majority of economists polled still think the two sides will eventually settle on a free-trade deal.
Again in second place was the more extreme option of leaving without a deal and trading under World Trade Organization rules.
The third most likely outcome was Britain remaining a member of the European Economic Area, paying into the EU budget to maintain access to the Single Market yet having no say over policy. Fourth place once more went to cancelling Brexit.
With a deal expected, median forecasts in the wider poll of over 50 forex market watchers gave a healthier outlook for sterling and it was expected to have rallied to $1.27 in six months and then be trading 10% higher at $1.33 in a year.
Against the euro, which may struggle as the European Central Bank is expected to ease policy in September, the pound GBPEUR= will also gain ground. On Wednesday, one euro was worth about 92.1 pence but in a year, the poll said it would drop to 87.1p.
Full Article: https://www.reuters.com/article/uk-britain-eu-poll/sterling-rout-not-yet-over-as-no-deal-brexit-odds-jump-reuters-poll-idUSKCN1UY04B
RBNZ cash rate decision and Monetary Policy Statement - where to for the NZD
Source: Forexlive.com | Tue 6 Aug 2019 22:03:12 GMT
A rundown on scenarios for the Reserve Bank of New Zealand today - announcement due at 0200GMT 7 August 2019
- Oh, and do be aware Governor Orr's press conference will follow an hour later.
Via Westpac, this in brief. The bank expects:
- 25 bp cut
- and stating that they might cut the OCR further, depending on the data
- Most likely … ease again in November
- forecasts will show the OCR dropping to 1.1%
- a 70% chance we think
- NZD/USD +30 pips
Our dovish scenario
- a 25% chance
- cut, and an OCR forecast lowered to 1.0%
- NZD/USD would fall 1c
Our hawkish scenario
- a 5% chance
- cut and an OCR forecast indicating no further easing
- NZD/USD would rise 1.3c
- RBNZ decision day. Here's how the huge drop in the unemployment rate will impact.
- RBNZ monetary policy decision for July 2019 due this week - Shadow Board recommends on hold
- RBNZ to cut Wed - BAML
- RBNZ monetary policy meeting Wednesday - preview
- RBNZ to cut today and keep dovish tone - UBS
- More rate cuts from the RBNZ now expected (ANZ)
- BNZ now sees the RBNZ cutting rates
GLOBAL MARKETS-Stock markets inch higher as currency war fears ease
Source: Reuters |AUGUST 7, 2019 / 2:40 AM
NEW YORK, Aug 6 (Reuters) - Global stock markets rebounded Tuesday after China’s central bank fixed the yuan at a slightly stronger rate, soothing fears that a protracted trade war between the U.S. and China would spill over into a currency war as well.
The slight gains followed a rout in global markets Tuesday after the yuan dropped past 7 to the dollar, spurring the United States to label Beijing a currency manipulator.
Safe-haven assets, including bonds, gold and currencies like the yen and Swiss franc, dipped as investors moved tentatively back into the euro, sterling and some emerging-market currencies. Yet investor sentiment remained fragile.
“I think the tipping point for a more prolonged negative trend (for risk assets) is quite close,” said Hans Peterson, SEB Investment Management’s head of asset allocation.
On Wall Street, the Dow Jones Industrial Average rose 56.54 points, or 0.22%, to 25,774.28, the S&P 500 gained 9.73 points, or 0.34%, to 2,854.47 and the Nasdaq Composite added 51.36 points, or 0.66%, to 7,777.40.
The pan-European STOXX 600 index % and MSCI’s broad gauge of stocks across the globe gained 0.02%.
U.S. President Donald Trump and Treasury Secretary Steven Mnuchin said on Monday China was manipulating its currency, and that Washington would engage the International Monetary Fund to clamp down on Beijing.
“Officially labelling China a currency manipulator gives the United States a legitimate reason to take even more steps,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“The markets are now scrambling to factor in the possibility of the United States imposing not only an additional 10% of tariffs on Chinese imports, but the figure being raised to 25%.”
Goldman Sachs also said it no longer expects a trade deal to be struck before the November 2020 U.S. presidential election. Morgan Stanley said more tit-for-tat tariffs could tip the world economy into recession by the middle of next year.
Though U.S. Treasury yields had edged back up to 1.74% from October 2016 lows of 1.672%, German yields stayed down at minus 0.54%. Markets are now pricing in a 100% chance the European Central Bank will cut its already negative interest rates again next month.
China’s offshore yuan had stretched the previous day’s slide, briefly weakening to 7.1382, the lowest since international trading in the Chinese currency began in 2010. But it pulled back to 7.0469 after Beijing’s firmer-than-expected fixing on Tuesday.
The Japanese yen, a perceived safe-haven in times of market turmoil and political tensions, touched a seven-month high of 105.520 per dollar before dropping back as far as 106.700 in volatile trade.
Oil prices rebounded slightly from big falls in recent sessions, but Brent crude remained near seven-month lows around $60 a barrel due to escalating trade tensions between China and the United States. Brent crude oil futures rose 0.3% to $60.01 per barrel. U.S. crude rose 0.3% to $54.87.
Spot gold stalled after advancing to a six-year peak of $1,474.80 an ounce as investors sought safety.
“People are just rebalancing their portfolios in favor of bonds, gold, Japanese yen, Swiss francs and the usual safe havens,” said SP Angel analyst Sergey Raevskiy.
Markets brace for volatility surge as currencies enter trade war
Source: Reuters | AUGUST 6, 2019 / 3:36 AM
LONDON (Reuters) - China’s decision to let its yuan plunge through a previously sacrosanct level means a tit-for-tat trade conflict could morph into a currency war, injecting volatility into long-dormant foreign exchanges and piling pressure on world markets.
Beijing on Monday allowed the yuan to breach the 7 per dollar level for the first time in 11 years, a move seen as a direct response to U.S. President Donald Trump’s escalation of their trade conflict through more tariffs.
China’s willingness to use its currency to offset the impact of a year-long trade dispute is of huge symbolic, if not economic, importance: it shows Beijing is prepared to use its currency as a tool to respond asymmetrically to Trump’s levies.
For global markets, the move opens up a new front that could dramatically raise volatility in the forex market after a prolonged period of calm, especially if it emboldens others to try to weaken their currencies to shield their economies from a global downturn.
“This is the formal introduction of currencies into the trade war,” said Richard Benson, head of portfolio investments at foreign exchange asset manager Millennium Global.
“If anything, it had been currency stability that was used within the trade war. Now this is an overt, explicit move by the Chinese in response to Trump’s tariffs,” Benson added.
Benson said it had become extremely difficult to predict where currencies were headed from here - economic fundamentals told you to buy the dollar .DXY EUR=EBS, but the risk Trump may hit back encouraged some selling of the greenback.
On Monday, the immediate winners and losers were clear.
The yuan suffered its biggest drop since 2015 CNH=EBS, although analysts noted that the fall seemed orderly and Chinese authorities comfortable with the move so far.
China’s massive role in global trade also means moves in the yuan reverberate much more powerfully and widely than they once did.
The yuan is the biggest component in the euro’s trade-weighted index, and a weakening yuan comes at a time when the euro zone economy cannot cope with it, noted Kit Juckes, a strategist at Societe Generale.
U.S. designates China as currency manipulator for first time in decades
Source: Reuters | AUGUST 6, 2019 / 10:11 AM
WASHINGTON (Reuters) - The U.S. government has determined that China is manipulating its currency and will engage with the International Monetary Fund to eliminate unfair competition from Beijing, U.S. Treasury Secretary Steven Mnuchin said in a statement on Monday.
The move brings already tense U.S.-Chinese relations to a boil and fulfills U.S. President Donald Trump’s promise to label China a currency manipulator for the first time since 1994.
The U.S. action follows China allowing its yuan to weaken past the key 7-per-dollar level on Monday for the first time in more than a decade. Beijing later said it would stop buying U.S. agricultural products, inflaming a yearlong trade war with the United States.
The sharp 1.4% drop in the yuan comes days after U.S. President Donald Trump stunned financial markets by vowing to impose 10% tariffs on the remaining $300 billion of Chinese imports from Sept. 1, abruptly breaking a brief ceasefire in a bruising trade war that has disrupted global supply chains and slowed growth.
The news knocked the dollar sharply lower and bolstered the price of gold .
The Treasury Department said a statement from the People’s Bank of China (PBOC) on Monday made clear that Chinese authorities had ample control over the yuan exchange rate.
The PBOC said Monday it would “continue to ... take necessary and targeted measures against the positive feedback behavior that may occur in the foreign exchange market.”
“This is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis,” the Treasury statement said.
It said China’s actions violate its commitment to refrain from competitive devaluation as part of the Group of 20 industrialized countries. Treasury said it expected China to adhere to those commitments and not target China’s exchange rate for competitive purposes.
U.S. law sets out three criteria for identifying manipulation among major trading partners: a material global current account surplus, a significant bilateral trade surplus with the United States, and persistent one-way intervention in foreign exchange markets.
After determining a country is a manipulator, the Treasury is required to demand special talks aimed at correcting an undervalued currency, with penalties such as exclusion from U.S. government procurement contracts.
The U.S. Treasury had designated Taiwan and South Korea as currency manipulators in 1988, the year that Congress enacted the currency review law. China was the last country to get the designation, in 1994.
Goldman Sachs on yen - forecasting lower still for USD/JPY
Source: Forexlive.com |Mon 5 Aug 2019 00:07:08 GMT
GS reckon yen is still undervalued as a safe haven asset:
The 'case for more directional bullish Yen positions has strengthened'
- USD/JPY forecast is 103 within 3 months
- Recommend short EUR/JPY, targeting 111
- hedging flows
- trade war acceleration
Meanwhile, USD/JPY to its lowest since much earlier this year:
Beijing Won’t Let Hong Kong Unrest Go On, State Media Warns
Source: Bloomberg | August 4, 2019, 3:20 PM GMT+12
News agency says groups must not challenge the ‘bottom line’
Commentary criticizes throwing of national flag into harbor
China’s central government won’t sit by and let the disruption in Hong Kong go on, according a commentary by the Xinhua News Agency, which condemned the violence that’s wracked the financial hub for weeks and took aim at protesters whom it said tossed a Chinese national flag into the harbor.
“We must warn all the ugly forces that try to challenge the central authority and undermine the bottom line of the ‘one country, two systems’ principle,” the news agency said on Sunday. It added: “The central government will not sit idly by and let this situation continue,” while reiterating that it’s sticking to the one country, two systems regime.
Trump's new tariffs may set stage for more Fed rate cuts
Source: Reuters | AUGUST 2, 2019 / 10:59 AM
(Reuters) - U.S. President Donald Trump’s surprise move on Thursday to impose new tariffs on Chinese imports has thrown the Federal Reserve another curveball that may force the central bank to cut interest rates more than it had hoped was necessary to protect the U.S. economy from trade-policy risks.
In a series of tweets, Trump said he will slap 10% tariffs on $300 billion of Chinese imports starting Sept. 1, saying he was unsatisfied with the pace of trade negotiations between the two superpowers.
Some $250 billion of Chinese imports are already subject to a 25% duty aimed at pressuring the world’s second biggest economy to strike a trade deal.
The president’s mid-afternoon bombshell sent stock markets tumbling and Treasury bond yields plunging to their lowest levels in nearly three years.
It unleashed frantic buying in interest rate futures markets that 24 hours earlier had been scarred by Fed Chair Jerome Powell’s indication that Wednesday’s quarter percentage point interest rate cut - the first since the financial crisis - was not intended as the start of a lengthy easing cycle.
By the close of trading on Thursday, however, markets had restored full expectations that the Fed indeed would need to ease policy substantially more from here.
“Today’s announcement increases the risk that the Fed cuts rates by more than 75 (basis points) in total this year,” Deutsche Bank Senior U.S. Economist Brett Ryan wrote in a note to clients.
Trump’s aggressive and at times unpredictable trade policies were already central to the argument Powell presented for Wednesday’s rate cut, approved by an 8-2 vote by the Federal Open Market Committee.
The uncertainty spawned by the existing tariffs and other Trump trade policies have had a chilling effect on business sentiment and investment, Powell said. Weak global growth and low inflation also factored into the decision to cut rates.
Still, Powell said he viewed the cut as an insurance policy, calling it a “mid-cycle adjustment” and not a start to a full-blown rate-cutting cycle.
Whether the Fed can still stick to that limited plan is now in question. If trade troubles deepen into a full blown trade war, DRW Holdings analyst Lou Brien said, “Any further Fed rate cuts will no longer be considered mid-course adjustments so much as they will be thought of as necessities to prevent a recession.”
Traders are betting the new tariffs make a longer rate-cutting cycle more likely.
Fed funds futures now imply that traders see an 81.9% chance the Fed will lower rates again in September, up from less than 50% late on Wednesday, CME Group’s FedWatch tool showed.
The fed funds market suggested traders are rebuilding bets on a possible third rate cut by year-end with an implied 68.9% chance for such a move, up from 39% late Wednesday.
Powell Says Fed Cut Not Start of Long Series, Drawing Trump’s Ire
Source: Bloomberg | August 1, 2019, 6:00 AM GMT+12
Fed chief calls quarter point cut insurance against risks
Trump says in tweet that ‘as usual, Powell let us down’
Federal Reserve Chairman Jerome Powell said the first interest rate cut since the financial crisis was to “insure against downside risks” but didn’t signal the start of a lengthy easing cycle, drawing a sharp rebuke from President Donald Trump.
“We’re thinking of it as essentially in the nature of a mid-cycle adjustment to policy,” Powell said at a press conference Wednesday following the quarter percentage-point reduction. “It’s not the beginning of a long series of rate cuts,” he said, adding: “I didn’t say it’s just one” move.
Financial markets were whipsawed during the press conference as Powell struggled to define the rate path ahead. He attempted to explain how the cuts were mainly defensive, aimed at supporting the economy in a time of too low inflation, weakening global growth and trade tensions. At the same time, he said the U.S. grew at a “healthy pace” in the first half and the outlook is “favorable.”
The two-year Treasury yield at one stage jumped as much as 11 basis points on the day. The 10-year yield premium over the two-year rate flattened to levels unseen since March. The Bloomberg dollar index advanced to its strongest level since May.
The volatility generated complaints from some traders that Powell had wrong-footed them by mentioning a mid-cycle adjustment before later clarifying that the Fed wasn’t one-and-done in terms of further cuts.
It’s not the first time the Fed chief has stumbled with investors and drawn criticism for not living up to his commitment to use plain English to explain monetary policy. He was blamed in December for unsettling markets with hawkish comments he later walked back.
“This was always a challenging balancing act for Powell,” said James McCann, senior global economist at Aberdeen Standard Investments. He said the chairman wanted to show the Fed was supporting the economy while pushing back against signs of panic or that officials saw “the need for a very aggressive easing cycle.”
Two Fed officials dissented against the decision to lower the target range for the benchmark rate to 2%-2.25%. The shift was predicted by most investors and economists..
“We’re looking for another 25 basis points, probably later than September, but before the new year,’’ said Roberto Perli, a partner at Cornerstone Macro LLC in Washington.
Officials also stopped shrinking the Fed’s balance sheet effective Aug. 1, ending a process that very modestly tightens monetary policy and was previously scheduled to come to a close at the end of September.
Trump welcomed the end of the balance-sheet runoff but attacked Powell for failing to begin “a lengthy and aggressive rate-cutting cycle which would keep pace with China, the European Union and other countries.”
“As usual, Powell let us down,” Trump said in a tweet.
Sterling slides again amid scramble to price no-deal Brexit
Source: Reuters | JULY 30, 2019 / 6:53 PM
LONDON (Reuters) - Sterling tumbled towards $1.21 on Tuesday as growing concerns about the chances of a disorderly Brexit spurred investors to hedge or slash their exposure to British assets.
The pound, its fortunes tied to the years-long process of negotiating Britain’s exit from the European Union, is suffering from signals of panic among investors that the UK is headed for a no-deal Brexit under new Prime Minister Boris Johnson.
Financial markets had regarded that eventuality, which many economists believe would severely damage the British economy, as relatively unlikely.
The British currency has now shed around 2.4% of its value since Johnson took over last week and is headed for its worst monthly performance since October 2016, not long after the country voted to leave the EU. Sterling traded as high as $1.32 in May.
“The tail risk of either a general election or no-deal Brexit were seen as a lower probability earlier but are increasingly getting priced in as a base case scenario,” said Supriya Menon, a strategist at Pictet Asset management.
There seemed to be less room for compromise between London and Brussels, she added.
Johnson said on Tuesday that Britain would leave the EU on Oct. 31 “no matter what”. Ireland warned that the bloc would not renegotiate a Brexit withdrawal deal rejected three times by British lawmakers.
This week’s selloff in the British currency - long the most sensitive gauge of market sentiment towards the Brexit process - shows little sign of abating, with options markets implying more pain in store.
A gauge of expected swings in the price of the pound before the Oct. 31 Brexit deadline has jumped to the highest since before March 29, the original date for Britain to leave.
Sterling selling has accelerated since Johnson - whose cabinet is packed with Brexit supporters - took over with the explicit agenda of taking Britain out of the EU by Oct. 31, whether transitional trading agreements are in place or not.
Simon Derrick, chief currency strategist at BNY Mellon, said the no-deal Brexit shift had caught the market by surprise. “There’s plenty of space for sterling to suffer because when sterling moves it tends to move very sharply,” he said.
The pound fell to a low of $1.2120 in Asian trading and was last down 0.5% on the day at $1.2153
Sterling briefly shot below $1.15 in October 2016 during a so-called ‘flash crash’ in Asian trading. But otherwise, the current tumble under Johnson has brought the currency close to the 32-year lows struck in late 2016 and early 2017.
On the Bank of England’s trade-weighted GBPTWI=BOEL index, which measures sterling against its trading partners’ currencies, the pound has dropped to its weakest since August 2017.
Investors are also fretting about the possibility of a snap election which could well see Johnson strengthen his position. Weekend opinion polls showed his Conservative Party with a significant lead over opposition Labour.
The current parliament is resolutely opposed to no-deal Brexit but an election that provided Johnson with a big majority could allow him to overcome that obstacle.
“Sterling isn’t cheap enough to buy until EUR/GBP is the other side of 0.95 and there isn’t the faintest glimmer of positive news on the horizon,” said Kit Juckes, a currency strategist at Societe Generale, calling the pound “parachute-less”.
Options markets suggest investors expect heightened sterling volatility in late September and early October, when the UK and EU parliaments return from summer recess and a clearer picture emerges of where Brexit negotiations are headed.
Odds on a no-deal Brexit have narrowed since Johnson came to power, although bookmakers generally see a no-deal Brexit in 2019 as less likely than Britain leaving with an agreement in place or the departure date being postponed again.
Pound plunges towards $1.22, prices rising chance of no-deal Brexit
Source: Reuters | JULY 29, 2019 / 6:21 PM
LONDON (Reuters) - Sterling plunged to 28-month lows on Monday and headed for its biggest daily fall against the dollar since November as investors scrambled to factor in the risk of a no-deal Brexit and the possibility of a snap election.
A still-deeper fall in sterling remains on the cards; all metrics show that a disorderly British exit from the European Union is far from being fully priced in.
While most investors have until now bet on a last-minute agreement to avert a hard Brexit, that expectation is receding under new Prime Minister Boris Johnson.
“There is a realisation the market had not fully priced the increased chances of a no-deal Brexit,” said Claire Dissaux, head of global economics and strategy at Millennium Global Investments.
“The appointment of the cabinet (at the end of last week) showed that the default policy of this government is to leave with no deal,” she said.
Sterling losses accelerated after it breached a key psychological level of $1.23 and Johnson repeated that while he wanted to secure a new trade deal with the EU, the UK would exit the bloc on Oct. 31 with or without an agreement.
By 1600 GMT it was down 1.3% at $1.2229 after hitting $1.2213 earlier, its lowest since March 2017. Against the euro, the pound touched 91.16 pence, its weakest since September 2017.
“All the stops are out and the pound is now in free fall,” Neil Wilson, an analyst at online brokerage Markets.com, said, adding the pound could tumble all the way to $1.21 if the $1.22 level was breached.
The British government said on Monday it assumed there would be a no-deal Brexit because a “stubborn” EU was refusing to renegotiate their divorce. Ireland called Johnson’s approach “unhelpful”.
The 27 other EU members have repeatedly said the divorce settlement is not up for negotiation.
Many investors say a no-deal Brexit could tip Britain’s economy into a recession.
Adding to the pound’s travails is the possibility of an early parliamentary election. The Conservative Party has risen in opinion polls since Johnson became leader, according to YouGov, which showed support for the party at 31%, well above the opposition Labour Party.
An election win could allow Johnson to overcome parliament’s opposition to a no-deal Brexit.
RUSH FOR OPTIONS
The sterling selloff, which sparked fears of a potential flash crash, has sent investors rushing for protection against more swings in the currency around the time of Britain’s expected departure.
Three-month implied volatility GBP3MO= rose above 10 vols for the first time since early April.
Andreas Koenig, head of global forex at Amundi, is among those with short sterling position. Concern is rising about a potential liquidity squeeze should more investors rush to dump sterling, he said adding that investors had now “taken the October 31 deadline a bit more seriously.”
Hedge funds are increasingly “shorting” sterling - essentially betting it will fall - with data showing that hedge funds increased net short sterling positions to $6.11 billion in the week to July 23, the highest in nearly a year.
But no-deal Brexit may not be fully priced yet - the price of options expiring after Oct. 31 is elevated, but well below levels seen before the initial March 29 deadline.
Neil Jones, head of European hedge fund sales at Mizuho, said FX markets had factored in about a 20% chance of no-deal Brexit but were starting to price in a 50% chance.
“Sterling/dollar will continue a lower trend in reaction to weekend UK political developments,” he said.
The currency is also being pressured by the likelihood of an interest rate cut in coming months. The Bank of England is expected to keep interest rates on hold this week but money markets are fully pricing in a rate cut by end-January 2020
Hedge Funds Are Betting Australian Dollar Will Get Slammed
Source: Bloomberg |
Currency tumbled last week as RBA said ready to lower rates
AUD/USD remains in bear trend with 200-DMA capping rallies
Australia’s dollar took a beating last week and worse may be to come in the form of quarterly inflation data due Wednesday.
The currency slid about 1.5% over the five days through Friday as influential Westpac Banking Corp. economist Bill Evans brought forward his forecast for the next interest-rate cut to October, and Reserve Bank of Australia Governor Philip Lowe said he was ready to ease again to revive economic growth.
Dollar near two-month top after U.S. GDP boosts yield appeal
TOKYO (Reuters) - The dollar held firm on Monday, staying near a two-month high against a basket of currencies after better-than-expected U.S. GDP data last week boosted its yield attraction against rival currencies.
The U.S. Federal Reserve is widely expected to cut interest rates for the first time in more than a decade this week, but such a move is being widely seen as a pre-emptive one to protect the economy from global uncertainties and trade pressures.
“What everyone is interested in right now is whether the U.S. will enter a full rate-cut cycle. The GDP figures were a bit stronger than expected, putting a dent to the view of the U.S. entering a long easing cycle,” said Kyosuke Suzuki, director of forex at Societe Generale.
The dollar index =USD stood little changed at 97.968, after having hit a two-month high of 98.093 on Friday.
U.S. gross domestic product increased at a 2.1% annualized rate in the second quarter, above forecast of 1.8%, as a surge in consumer spending blunted some of the drag from declining exports and a smaller inventory build.
The data pushed up U.S. bond yields and cemented expectations that the Fed will go for a smaller interest rate cut of 25 basis points, rather than 50 basis points, to 2.0-2.25 percent.
While U.S. money market futures price in a total of almost 75 basis points of cuts by the end of the year to 1.5-1.75 percent, that still leaves the dollar with the highest interest rates among major currencies.
The European Central Bank signaled last week that it is likely to cut interest rates deeper into negative and adopt more easing measures in September to shore up the sagging euro zone economy.
The euro stood at $1.11315 EUR=EBS, almost flat in Asia and not far from Thursday's low of $1.1101, a trough since May 2017.
Against the yen, the dollar traded at 108.62 yen JPY=EBS, down slightly from late U.S. levels on Friday, when it had risen to a two-week peak of 108.83 yen.
Ahead of the Fed, the Bank of Japan is starting its two-day policy meeting later on Monday.
Market players expect the BOJ to send dovish messages and it could try to put on a semblance of easing by changing its forward guidance but refrain from rate cuts and other major policy moves given its lack of policy ammunition.
The Australian dollar dipped to one-month low of $0.6900 and last stood at $0.69105 AUD=D4 following Chinese data on Saturday showing profits earned by the country's industrial firms contracted in June after a brief gain the previous month.
U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer will meet with Chinese Vice Premier Liu He for talks in Shanghai starting on Tuesday, their first face-to-face meeting since U.S. President Donald Trump and Chinese President Xi Jinping agreed to revive talks late last month.
But Trump on Friday offered a pessimistic view of reaching a trade deal with China, saying Beijing may not sign one before the November 2020 election in hopes a Democrat who will be easier to deal with, will win.
Sterling fell to a near 28-month low as a no-deal Brexit seems increasingly likely under new British Prime Minister Boris Johnson.
Sterling falls as UK and EU lock horns again over Brexit
Source: Reuters | JULY 26, 2019 / 8:54 PM
LONDON (Reuters) - The British pound weakened on Friday, weighed down by European Commission President Jean-Claude Juncker’s telling Britain’s new prime minister, Boris Johnson, that a deal agreed by his predecessor was the best and the only Brexit agreement.
Juncker told Johnson on Thursday that the European Union would analyse any ideas put forward by Britain, provided they were compatible with the withdrawal agreement.
Johnson has repeated his pledge this week to renegotiate the withdrawal agreement and promised to take Britain out of the EU on Oct. 31 with or without a deal. He has also said the so-called Northern Irish backstop must be abolished to avoid a no-deal Brexit.
The backstop requires Britain to adopt some EU rules unless a future arrangement is found to keep open the land border between Northern Ireland and Ireland. The now-invisible frontier between the British province and EU member Ireland is Britain’s only land border with the bloc.
Ireland’s foreign minister said on Friday that Johnson’s approach was “very unhelpful” and would block an agreement.
Concerns that Britain under Johnson is headed for a no-deal Brexit have sent sterling plummeting, although its moves this week have been minimal after investors rushed to price in a government under the eurosceptic face of the 2016 Brexit campaign in the run-up to his taking over.
“The Brexit impasse has already reared its ugly head, just days into Boris Johnson’s tenure as UK prime minister ... The deadlock appears to solidify market concern over the prospects of a no-deal Brexit, keeping the pound rooted around the $1.24 mark against the U.S. dollar,” said Han Tan, analyst at FXTM.
Sterling fell 0.4% to $1.2406, a fair way below its weekly high of $1.2522. The pound hit a 27-month low of $1.2382 last week as fears of a no-deal Brexit jumped.
Banks say the pound could drop as low as $1.00 in the event of a sudden, disorderly exit from the EU, Britain’s biggest trading partner.
Against the euro, the pound lost 0.2% to 89.695 pence per.
The Bank of England gives its monetary policy decision next Thursday.
Few economists expect the bank to change rates from the current 0.75%. The focus will be on policymakers’ assessment of Britain’s economic slowdown and whether it justifies a rate cut down the line.
Money markets are pricing in a 25-basis-point cut by June 2020.
Here is a breakdown, courtesy of Forexlive.com, of the various likely outcomes facing the UK at the moment, with regards to BREXIT. This situation has obviously gone on for far too long now, and is set to take a determining course over the next week, so we think it is worthwhile posting the whole article.
UK Parliamentary gridlock: Where now for Brexit?
Source: Forexlive.com | Sat 20 Jul 2019 10:15:41 GMT
Fear and loathing in Westminster
Last week saw some pretty bleak forecasts from the UK's office for budget responsibility (OBR). The OBR said that UK borrowing would rise to £60 billion from £29.3bn. You can read the whole report here. However, at the same time there was a UK amendment at the end of last week preventing a no-deal Brexit being imposed on a frozen UK parliament. So, with a potential stop sign to a potential BOJO Brexit bonanza, where now for Brexit and the GBP?
GBP shorts are crowded
Sterling shorts are certainly looking crowded now. As of July 12 GBP shorts were the largest spec position of traders on the major currencies. GBP shorts are at 73K vs 64K These shorts increased further this week to 76K. The GBP remains in a strange position of having decent data, but it is constantly weighed down by Brexit Blues. Last week saw average earnings up to 3.4% m/m and Retail sales up 1.0% vs -0.3% expected. If the Brexit blues lift, via a Brexit resolution, there is a clear GBP buy with hundreds and hundreds of pips to the upside. But it is not there yet, as Brexit still drags on. However, will a change of players get some traction for a deal?
A change of guard, a change of approach?
With a set of new players now trying to agree a UK-EU deal there may be a compromise possible. UK PM hopeful, Boris Johnson, will be seen as a more aggressive negotiator, prepared to walk away from the EU's table. And, as is obvious, the person walking away from the table is placed to get the best deal, especially when they are truly prepared to walk. My only uncertainty is that, yes Boris will walk, but will UK parliament allow him to? Will Boris, when faced with the prospect of walking actually be able to do it? It's easier said than done. There was another move last week from the UK Parliament to prevent a No-deal Brexit. So, if BOJO is frustrated and an election is called what could Labour do?
Could a Labour government solve Brexit?
Labour are functionally a 'remainer' party now under Jeremy Corbyn who wants Briatin to stay in the EU. However, his remainer leanings have dis-enfranchised a huge number of leave labour voters. Jeremy Corbyn is increasingly being seen as an extreme socialist who is out of touch with UK politics. He is also at present desperately trying to fight off claims of anti-Semitism from his own party. However, his silence on the issue is leaving people with no-doubt that there is a problem here. A very nasty, insidious problem. Corbyn now may face a no-confidence vote from his own peers. There was an advert placed in the paper last week, signed by 60 labour peers, trying to shake Corbyn from allowing anti-semitism to grow within his own party. When you see your own party releasing a national advert , you know there is a problem.
If there was a general election then I can't see Labour generating a huge groundswell of support apart from those who want a socialist agenda. Not only do they have an extreme socialist agenda, face accusations of allowing anti-semitism to grown within the party, but they have also alienated the normal stalwart working class Labour vote. Where does that traditional labour voter now turn?. Never before has the working man lacked a spokesman in my living memory the way it lacks one now. I feel very sad for that voter right now, as they lack a political friend. If the average labour voter realised how detached Westminster has become from their day to day life then the sadness would be felt more keenly than it is now.
Nigel Farage and the Brexit Party
So, if Labour are in no place to sort out Brexit when they can't even sort out racism with their own party, where are we? Well, don't forget Nigel Farage. He is plain speaking, easy to understand and relatable. He is the only person who really has major support from the most leavers across the various UK parties. In fact it was his UKIP party that forced Britain's membership of the EU onto the political agenda a few years back now. Without him, there would almost certainly have been no Brexit. So, if Boris is ultimately frustrated and hamstrung to act, and a general election is called I could see Farage getting in. He formed the Brexit Party in January 2019 in response to the present political gridlock. I mean the vote was for the UK to leave, so people are asking, 'why haven't we left'. The strength with Farage is that he will get us out of Europe in a jiffy. The weakness with Farage is that he has only one policy that connects - Brexit now. That is not usually enough to engage an electorate. However, in these times, with Brexit balls up after balls up, that will be enough. I could easily see the people saying, through the electorate, 'all we want is for you to deliver Brexit'. All Farage would need to do wouldbe to believe that this one policy will be enough and make no apology for having one policy. If you have even seen Farage speaking in the European Parliament you will know that he wouldn't even bat an eyelid at telling the EU that Britain's off. It is quite addictive to watch Farage in action in the European Parliament. It is a bit like watching a car crash, it's horrendous with the level of destruction , yet compelling. If Nigel Farage could fly under this single banner of 'I'll get you out of Europe' (and make no apology for doing so) then all present attempts to thwart Brexit will simply harden leavers resolve. Every new Parliamentary delay will only just find fresh punishment at the polls in a future general election and give Farage the firepower from the polls to have one last hurrah in Europe. The final Big Bang he has worked so tirelessly to achieve.
UK now faces potential polarisation
On face value the chances of a no-deal Brexit are less now, this is true. Maybe the EU will make some concessions. Maybe Boris will unite a Parliament to deliver Brexit. However, if the conservatives can't deliver Brexit we open the door to a huge political shift. In a struggling global economy it is only natural that nationalism rises. We have seen defensive trade deals, nationalism across Russia, China and the US. The rise of right wing parties in Europe were seen in the last European elections, albeit less than people feared. So, the chances of a no-deal Brexit may be less, but the chances of a more polarised UK, and by implication a more radical Brexit exit , have increased. Risk for the GBP remains elevated and many will still prefer to sell GBP rallies than to ride out the present political uncertainties.
Fed's Rosengren: US economy doing quite well, not having a slowdown
Source: Forexlive.com | Fri 19 Jul 2019 20:43:56 GMT
Comments from Rosengren
- Most of the news we've had is quite good
- Act aggressively if you're clearly going into a downturn but I'm not convinced that's seen
- Trading partner weakness pushing 10-year yield lower
- Economy has definitely stabilized since last year but it's still strong
- I don't want to ease if economy doing perfectly well
There's no doubt that he won't be supporting a 50 bps cut. I think we can put that entire notion to bed.
I think Powell deserves a lot of blame for that talk. The market was showing a good chance of 50 bps and he kept sending out dovish messages. The market is still showing an 18% chance of 50bps.
Sterling pushed back to $1.25, on shaky ground
Source: Reuters | JULY 19, 2019 / 8:44 PM
LONDON (Reuters) - The pound hovered around $1.25 on Friday after its biggest daily jump in more than two months in the previous session, though traders were still focused on the growing risks of a no-deal Brexit
A vote by U.K. lawmakers on Thursday will make it harder for Britain’s next prime minister to try to force a no-deal Brexit, a move which rallied the pound, but market watchers believe it is increasingly likely Britain will crash out of the European Union without a deal by the end of October.
Economists at Berenberg, who now assign a 40% probability of a hard Brexit, say the decision by Boris Johnson, the favourite to succeed Prime Minister Theresa May, to surround himself with hardline eurosceptics is an indicator of such growing risks.
“By surrounding himself with hardliners, Johnson could find himself boxed into a hard Brexit with little room for manoeuvre,” they wrote in a note.
In addition, Britain could face more political turmoil because the new prime minister may find it difficult to back up campaign pledges, given the government’s is reliant on a smaller party for a slim majority in parliament. That in turn could spark a general election, hurting the pound, analysts say.
“The latest developments support our view that a snap general election is becoming the most likely way to break the Brexit deadlock in parliament,” said Lee Hardman, currency analyst at MUFG.
“In these circumstances, we still believe the pound should continue to trade on a weaker footing heading into the crunch autumn period,” he said.
On Friday, those concerns dominated sentiment with the pound weakening 0.3% to $1.2499 and 0.1% versus the euro to 89.74 pence.
Investors had dumped the pound earlier this week, sending sterling to a 27-month low against the dollar and a six-month low versus the euro, before recovering some of those losses on Thursday. Derivative markets also signalled a similar degree of unease with implied volatility on the pound for three month maturities rising to its highest levels since early April.
Dollar held back by lower U.S. yields, rebound in pound
Source: Reuters | JULY 18, 2019 / 12:46 PM
TOKYO (Reuters) - The dollar nursed light losses on Thursday, weighed down by lower U.S. yields and a rebound in the pound from 27-month lows.
The dollar index .DXY versus a basket of six major currencies was flat at 97.200 after shedding 0.2% the previous day.
The index had climbed to a one-week peak of 97.444 the previous day on stronger-than-expected U.S. retail sales and a slump in sterling. But it nudged lower as Treasury yields fell in the wake of weak U.S. housing market data and concerns about the unresolved U.S.-China trade conflict.
“The dollar basically handed back earlier gains as Treasury yields pulled back and on IMF comments, and came back to where it was a few days ago,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.
Various economic data have given conflicting signs regarding the state of the U.S. economy, but that does not change the bigger picture of the dollar facing downward pressure due to an impending rate cut by the Federal Reserve, Kanda said.
The International Monetary Fund (IMF) on Wednesday said the greenback was overvalued by 6% to 12%, based on near-term economic fundamentals.
The Fed is widely expected to lower interest rates by 25 basis points (bps) at its July 30-31 policy meeting, with some in the market wagering on a larger 50 bp cut.
Sterling GBP was steady at $1.2434. It had stumbled to $1.2382, its lowest since April 2017 on Wednesday amid growing risks of Britain leaving the European Union in a no-deal Brexit, before selling abated.
The euro EUR was flat at $1.1228 after crawling up 0.1% on Wednesday. The single currency's gains were modest as it was restrained by expectations of easing from the European Central Bank as early as next week.
Dollar firm on upbeat U.S. data; pound and euro hit the skids
Source: Reuters | JULY 17, 2019 / 12:34 PM
TOKYO (Reuters) - The dollar was firm on Wednesday after upbeat U.S. data tempered expectations of aggressive policy easing by the Federal Reserve later this month, while the struggling pound and euro also provided additional impetus to the greenback.
The dollar index .DXY against a basket of six major currencies was effectively unchanged at 97.363 after gaining 0.5% the previous day.
The dollar rose after stronger-than-expected June U.S. retails sales data reduced the chance of the Fed cutting interest rates by 50 basis points rather than 25 basis points at its month-end policy review.
“The strong U.S. data is a key driver behind the dollar’s latest gains, but weakness in European currencies, notably the pound and euro, is also playing a significant role as well,” said Junichi Ishikawa, senior FX strategist at IG Securities.
The pound GBP retreated to a 27-month low of $1.2396 overnight as Boris Johnson and Jeremy Hunt, the two candidates to be Britain's next prime minister, vied to outgun each other on taking a harder Brexit stance.
Sterling last traded little changed at $1.2411.
The euro EUR was steady at $1.1212 after losing more than 0.4% the previous day. The losses came after a survey by the ZEW institute showed that the mood among German investors deteriorated more sharply than expected in July amid an unresolved trade dispute between China and the United States as well as political tensions with Iran.
The dollar was almost flat at 108.215 yen JPY= after advancing 0.3% against the yen overnight on the strong U.S. retail sales data.
The Australian dollar AUD=D4 edged up 0.05% to $0.7016, having lost 0.4% on Tuesday following comments by U.S. President Donald Trump.
The United States still has a long way to go to conclude a trade deal with China but could impose tariffs on an additional $325 billion worth of Chinese goods if it needed to do so, Trump said.
The Aussie is sensitive to the economic fortunes of China, Australia’s largest trading partner.
The impact of Trump’s comments on other major currencies, however, was limited.
“The U.S.-China trade row is not at the center of the market’s attention right now. Focus is on the Fed’s policy, U.S. data and their impact on yields,” Ishikawa at IG Securities said.
Singapore’s Export Slump Worsens as Trade-War Impact Spreads
Source: Bloomberg | Updated on
Non-oil exports fell 17.3% as electronics plunged 31.9%
Analysts are downgrading growth prospects as outlook worsens
Singapore’s exports plummeted in June amid a worsening trade war, spelling more bad news for the city state’s economy.
Non-oil domestic exports contracted 17.3% from a year ago after falling a revised 16.3% in May, Enterprise Singapore said in a statement on Wednesday. That was worse than the median estimate of a 9.6% decline in a Bloomberg survey of economists.
Sterling sags on Brexit concerns, weighs on euro
Source: Reuters | JULY 16, 2019 / 12:48 PM
TOKYO (Reuters) - The pound struggled near a six-month low against the dollar on Tuesday, hampered by persistent worries over Brexit that, in turn, weighed on the euro.
The dollar fought for traction against the yen as the prospect of a Federal Reserve interest rate cut later in the month continued to keep the greenback on the defensive.
The pound was a shade lower at $1.2515 following an overnight loss of 0.5%. A slip below $1.2439 would take sterling to its lowest since early January.
The euro was little changed at $1.1260 after shedding 0.1% the previous day, constrained by expectations for a dovish European Central Bank meeting next week.
Sterling was under pressure as investors were nervous about the prospect of eurosceptic Boris Johnson winning the Conservative party leadership contest and becoming the next British prime minister as early as the end of this month.
Poor economic data and signals from the Bank of England that it could cut interest rates instead of raising them as previously expected have also hit the pound.
“The euro has been weighed by the long struggling pound, which in turn is likely to suffer from Brexit-related woes until the Conservative party leader is decided next week,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
RBA Monitoring Job Market ‘Closely,’ to Adjust Rates If Needed
Source: Bloomberg | Updated on
June-July cuts will bring ‘more assured progress’ on inflation
Policy makers see spare capacity in labor market for some time
Australia’s central bank is focused on the jobs market and said it will adjust policy if needed to support economic growth and keep inflation on track to return to target.
In minutes of its July 2 meeting, when it cut interest rates for a second month to a record-low 1%, the Reserve Bank noted wages growth remained low overall and “spare capacity was likely to remain in the labor market for some time.”
Source: Forexlive.com | Mon 15 Jul 2019 05:34ull:58 GMT
The New Zealand dollar is buoyed after Chinese data earlier today
Despite Chinese data showing that Q2 GDP slowed to its weakest annual pace in 27 years, the details were the main focus with some better-than-expected performance in domestic demand and factory activity for the month of June.
That was enough to give risk currencies a bit of a lift and help out the risk mood in Asia Pacific trading. The kiwi benefited the most as the currency also gained on the cross against the aussie, with the latter also holding firmer.
The yen moved slightly lower as well but the drop isn't really that substantial with USD/JPY holding near the 108.00 handle still so far.
Other major currencies remain more subdued with tight ranges still prevailing for the most part and less than 0.1% changes against the dollar. The Fed remains one of the key talking points since last week but let's see if there's anything else for markets to go on to start the week in an otherwise rather muted calendar day - in terms of economic data.
China second quarter GDP growth slows to 27-year low, more stimulus expected
Source: Reuters | JULY 15, 2019 / 11:21 AM
BEIJING (Reuters) - China’s economic growth slowed to 6.2% in the second quarter, its weakest pace in at least 27 years, as demand at home and abroad faltered in the face of mounting U.S. trade pressure.
While more upbeat June factory output and retail sales offered signs of improvement, some analysts cautioned the gains may not be sustainable, and expect Beijing will continue to roll out more support measures in coming months.
China’s trading partners and financial markets are closely watching the health of the world’s second-largest economy as the Sino-U.S. trade war gets longer and costlier, fuelling worries of a global recession.
Monday’s growth data marked a loss of momentum for the economy from the first quarter’s 6.4%, amid expectations that Beijing needs to do more to boost consumption and investment and restore business confidence.
The April-June pace was in line with analysts’ expectations for the slowest since the first quarter of 1992, the earliest quarterly data on record.
Germany June wholesale price index -0.5% vs +0.3% m/m prior
Source: Forexlive.com | Fri 12 Jul 2019 06:00:20 GMT
Latest data released by Destatis - 12 July 2019
- Prior +0.3%
- Wholesale price index +0.3% y/y
- Prior +1.6%
Slight delay in the release by the source. The index measures the value of sales made by wholesalers in Germany, it provides an indicator of consumption and retail pattern.
The drop here isn't a convincing sign of robust domestic demand to end the second quarter and just only reaffirms the notion that the German economy is seen stagnating in Q2. EUR/USD holds steady near highs at 1.1272 still, mainly on the back of a weaker dollar.
Goldman Joins Wall Street Chorus Warning About Possible U.S. FX Intervention
Source: Bloomberg | Updated on
Action to weaken the dollar is a ‘low but rising risk’
Analysts contemplate U.S. dollar sales as Trump targets FX
The buzz around possible U.S. currency intervention is growing louder as Goldman Sachs Group Inc. has now weighed in on an idea that’s been making the rounds on Wall Street.
President Donald Trump’s repeated complaints about other countries’ foreign-exchange practices have “brought U.S. currency policy back into the forefront for investors,” strategist Michael Cahill wrote in a note Thursday. Against a fraught trade backdrop that’s created the perception that “anything is possible,” the risk of the U.S. acting to cheapen the dollar is climbing, he said.
Dollar falls to five-day lows after Powell's comments
Source: Reteurs | JULY 11, 2019 / 3:11 PM / UPDATED AN HOUR AGO
LONDON (Reuters) - The dollar fell to a five-day low on Thursday after Federal Reserve Chair Jerome Powell kept the door open for U.S. interest rate cuts, though investors were wary of selling dollars aggressively until a policy review later this month.
In testimony to Congress, Powell pointed to “broad” global weakness that was clouding the U.S. economic outlook amid uncertainty about the fallout from the trade conflict with China and other nations.
His comments did little to change market expectations — money markets expect one rate cut later this month and a cumulative 68 basis points of cuts until the end of 2019 — but market watchers said Powell’s views will drive the dollar.
“Once we get a quarter-point rate cut, which markets are widely expecting, Powell will keep all options open on the table, and that means the dollar’s outlook is uncertain,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.
Against a basket of other currencies, the dollar fell 0.2% to 96.83, its lowest since July 5 and near the three-month low of 95.84 from late June.
Uncertainty about the dollar’s outlook prompted some investors to unwind short positions against some heavily shorted currencies, such as the Australian dollar, which rose 0.2% in early London trading.
Latest positioning data showed that hedge funds had built up a large short position in the Australian dollar in recent weeks because of the trade tensions between Washington and Beijing.
In contrast, hedge funds had rapidly unwound large long positions in the dollar, especially against a basket of major and emerging-market currencies, anticipating U.S. rate cuts.
Elsewhere, the British pound rose from six-month lows to $1.2529. But it remains down for the week, amid Britain’s economic gloom and a fast-approaching Brexit deadline.
Gold Gets Fed Boost After Powell Flags Rate Cut Amid Global Risk
Source: Bloomberg | Updated on
Prices could stay on ‘upward path,’ Vanguard’s Innes says
Minutes from Fed meeting confirm inclination to ease policy
Gold rose for a third day after the Federal Reserve indicated that it’s preparing to cut interest rates for the first time in a decade as the global economy slows.
Bullion’s trading above $1,400 an ounce again as investors took note of the Fed’s dovishness, damping doubts over monetary policy easing that arose following stronger-than-expected U.S. payrolls data. Speaking to Congress on Wednesday, Chairman Jerome Powell said June’s jobs report was “great news,” but not enough to tilt the balance because wages weren’t rising fast enough to trigger much inflation.
Source: Forexlive.com | Wed 10 Jul 2019 09:18:02 GMT
GBP/USD rises to a high of 1.2483 on the day.
Buyers are beginning to work their forward a little bit on the session as the pound is creeping slightly higher amid the release of the May monthly GDP data earlier and higher UK gilt yields. Of note, 10-year gilt yields are up by 6 bps on the session to 0.78% - their highest level in a week amid a bit of a beat down in European bonds.
In my view, the GDP data earlier failed to offer us anything new and just reaffirms weakening economic conditions in the UK seen in Q2 2019; despite what the headline reading or the 3m/3m reading may suggest.
Looking at the cable chart, price is now running into minor resistance at 1.2481 as sellers still hold near-term control with price trading below both key hourly moving averages. That remains the risk for sellers in the near-term.
In the bigger picture:
It's all about trying to find a firm daily break below the January low of 1.2441. Price managed to hit a low of 1.2440 in overnight trading but failed to hold a break to the downside, leading to a minor bounce towards the close.
From a technical perspective, that could suggest a bit of a pause as we approach key support levels but given the pound outlook, it's hard to argue for prolonged strength in the quid so long as Brexit uncertainty continues to linger.
As such, be on the look out if price retraces back towards 1.2500 and the 100-hour moving average at 1.2520 as I reckon sellers will be poised to add to shorts around the region. That said, the dollar will be under heavy scrutiny today with all eyes being on Fed chair Powell so that will be the next key factor affecting cable - more so in the near-term than what the technicals and sentiment is suggesting at the moment.
Three Bank Failures Open New Chapter in Never-Ending Financial Crisis
Source: Bitcoin.com | Interesting piece
US Bank Fails for the First Time Since 2017
More than 10 years have passed since the collapse of Lehman Brothers, which burned almost $10 trillion in market capitalization in global equities within a month. Back then, it was determined that banks, large and small, had gotten themselves into trouble with mortgage-backed securities, the price of which turned out to be significantly overestimated.
Now, following waves of quantitative easing and huge bailouts for those deemed “too big to fail,” indications have emerged that the traditional banking system is heading towards its next big disaster. The main question that remains to be answered is what the trigger will be.
Analysts have warned it may be the record high level of global debt currently standing at well over $240 trillion, which is three times the size of the global economy. Others are pointing to China’s deeply indebted financial system. Europe’s banking sector, as deleveraged as it may seem, still has its unresolved issues, especially acute and chronic in some countries of its southern flank.
ForexLive Asia FX news wrap: AUD dip - weaker business confidence in June
Source: Forexlive.com | Tue 9 Jul 2019 03:51:00 GMT
Forex news for Asia trading Tuesday 9 July 2019
- Mexico's dep foreign minister says ratification of new NAFTA is not in danger
- Gold bought by central banks in 2019 on track for 700 tons (651.5 t in 2018)
- One for the crypto folks - PBOC wants Facebook’s Libra under central bank oversight
- Hong Kong leader Carrie Lam says the extradition bill is 'dead'
- Australia June Business Confidence 2 (prior 7) & Conditions 3 (prior 1)
- US approves major arms sale to Taiwan
- People’s Bank of China sets yuan reference rate at 6.8853 (vs. yesterday at 6.8881)
- Japan's industry minister says export restrictions could be eased, or strengthened
- NZD traders - here's an analyst looking for more RBNZ rate cuts ahead
- "What to expect from China’s economy" - dual-mainline of “big consumption & new economy”
- Japan, South Korea officials to hold bilateral trade talks this week
- Australia - ANZ Roy Morgan Weekly Consumer Confidence: 117.6 (prior 118.9)
- Japan wages data for May - cash earnings and real cash earnings both fall
- UK's Hammond told PM May he will fund her plans as a trade-off for her free vote to stop a no-deal Brexit
- Ex-PBOC official says the yuan to rise over the long term
- UK data - BRC sales like-for-like -1.6% y/y (vs. expected -1.1%)
- Australian prudential regulator winds back capital requirements call on banks
- Australia - AFR says RBA rate cuts, government tax cuts are 'more than enough' stimulus
- NZ Deputy PM Peters is taking credit for the falling NZD, but not for falling business confidence
- New Zealand - ANZ Truckometer for June: -4.5% m/m (prior +0.8%)
- UK PM May says UK's ambassador to the US has her full support
- Senior Chinese diplomat warns of ‘disastrous consequences’ if US treats China as ‘enemy’
- US tariffs news - to impose levies on structural steel from China and Mexico, but not from Canada
- Trade ideas thread - Tuesday 9 July 2019
USD/JPY initially traded higher in the Asia morning, moving towards 108.90 but failing to carry on higher from there. Its subsequently come back under 108.80. There was little news nor data to account for the move (we did get Japanese wage figures for May, showing the fifth consecutive year-on-year decline).
Moves elsewhere were limited also, and also with little news nor data impact. Australia was a bit of an exception. We had the June iteration of the National Australia Bank Business Survey which showed a drop from business confidence (to 2 from a prior 7) and a rise for business conditions (to 3 from the previous 1). Both well, well down from highs and barely holding long-run averages. The employment sub-index was of particular interest, given the RBA focus on labour market developments. It rose to 5 (from May's 2, and April's -2), an encouraging sign.
Chart via Goldman Sachs' response piece to the data, illustrating the fall for the measures in past months:
AUD/USD slid from highs circa 0.6975 on the session to lows around 0.6955.
NZD/USD had a small range and is net little changed for the day. Something to note is the NZ Deputy PM giving the government credit for the lower NZD (see bullets above). This should create an interesting response if it comes to the attention of the Tweeter in Chief in the US - Trump will not be impressed by a foreign government achievements lowering a currency against the USD.
EUR, GBP, CHF, CAD are all not a lot changed against the USD on the session. Gold also. BTC/USD gained.
Still to come:
Source: Forexlive.com | Mon 8 Jul 2019 06:57:34 GMT
EUR/USD maintains a narrow range but the near-term bias continues to favour sellers in the aftermath of the US non-farm payrolls
Price is holding near flat levels on the day with markets still finding its footing to start the new week. The dollar is now trading mixed against the rest of the major currencies bloc, with overall changes rather minimal to start the session.
EUR/USD is holding around 1.1220 as price contests with daily swing region resistance around 1.1216-20 currently. But more importantly, price is still holding below both key hourly moving averages and that still puts sellers in near-term control of the pair.
Further support is only seen around 1.1180-00 with bids lined up around the figure level. That will be the key downside spot to watch in the coming sessions today.
Meanwhile, to the topside there is resistance from the 100-day moving average @ 1.1259 followed by the 100-hour MA (red line) @ 1.1273 before price will revisit offers around 1.1300 with the 200-hour MA (blue line) seen @ 1.1313 next.
Those will be levels to define any upside risk for the pair ahead of more key events later this week, with markets keeping an eye on Fed chair Powell's testimony on Wednesday.
There is little on the agenda to move things along today and with markets already having priced out a 50 bps rate cut by the Fed this month, there isn't much else to push the issue for now. As such, just be wary of trade headlines in the meantime as traders will wait on more clues from Fedspeak to determine how they should proceed next.
Morgan Stanley Turns Bearish on Global Stocks as Challenges Grow
Source: Bloomberg | July 8, 2019, 1:11 PM GMT+12
Lowest allocation to equities in at least five years: MS
Elevated valuations and profit headwinds among the concerns
Morgan Stanley cut its global equities allocation to the lowest in five years, and downgraded its investment recommendation to underweight, saying the outlook for stocks over the next three months looks particularly poor.
Profit forecasts remain too optimistic, as measures of manufacturing health around the world keep deteriorating, strategists including Andrew Sheets wrote in a note Sunday. Expectations for looser central bank policy are high, leaving little to boost already elevated equity prices, they said.
Gold Heads for the Longest Stretch of Gains in 8 Years
Source: Bloomberg | July 5, 2019, 3:33 PM GMT+12
Non-farm payrolls could provide clues on the Fed’s next move
Bullion set for seventh weekly gain as looser policy expected
Gold is headed for the longest stretch of weekly gains since 2011 as investors count down to the release of a highly-anticipated U.S. jobs report that could provide clues on the Federal Reserve’s interest rate path.
Bullion’s higher for the seventh week as investors bet on looser policy from the central bank after signs of a slowdown. The non-farm payrolls data later Friday is projected to show a rise of 160,000 in June, and while that would up from 75,000 a month earlier, it’d be lower than the rise a year earlier.
Leading Forecaster Expects Pound to Climb 6% By End of 2019
Source: Bloomberg | Updated on
Svenska Handelsbanken says sterling has already bottomed out
Currency could revive on missed October deadline, weak dollar
One of the pound’s most accurate forecasters is also one of the most bullish on the currency, predicting a rebound on expectations that Britain will miss the latest deadline for leaving the European Union.
The pound will climb about 6% to $1.33 by the end of the year according to Svenska Handelsbanken AB, which was among the most accurate forecasters on the pound for the past three quarters. Kiran Sakaria, a 28-year-old strategist at the Swedish firm, said its assessments are strengthened by its distance from the daily churn of Britain’s political drama, and a focus on economic fundamentals instead.
These had been coming up sterling negative throughout the first half of the year. But now the same signals are flashing more bearish for the dollar, with the possibility of a July Federal Reserve interest rate cut and a U.S. slowdown, he said.
Stock Futures Mark Time, Dollar Awaits U.S. Jobs: Markets Wrap
Source: Bloomberg | Updated on
Major U.S. indexes rose to all-time highs; Bond yields fell
American markets close Thursday; Friday brings jobs report
U.S. and European stock futures were little changed after a muted session in Asia, where benchmarks notched modest gains in trading thinned by Thursday’s U.S. holiday.
AUD/USD meets key resistance levels, can buyers make a breakthrough?
Source: Forexlive.com | Thu 4 Jul 2019 05:46:34 GMT
AUD/USD is currently challenging the 100-day moving average
Price is knocking on the door of key resistance levels with the first being the 100-day MA (red line) @ 0.7033. The close yesterday fell just short of that but buyers are still looking poised on the new day to keep pushing the issue so far today.
There are also light bids resting around 0.7050 but the more notable resistance levels to the upside are the trendline resistance from June last year, which rests at 0.7061, and the 200-day MA (blue line) @ 0.7098.
Both of these levels played a part throughout the year so far in limiting gains as seen during the 31 January and April highs pointed out above. As such, these will be key resistance levels that buyers must be able to break above in order to justify any further extension.
From a fundamental perspective, the RBA has said that the aussie is on the lower end of its expected range and with their latest statement giving room for a pause in rate cuts, perhaps that may help to alleviate some pressure off the currency for the time being i.e. traders looking for short covering.
However, domestic economic conditions remain subdued and with the global economic outlook still cloudy amid ongoing US-China trade tensions, it's hard to see how sustainable a run higher in the aussie can be.
That said, as a trader we can never really argue with what the charts are saying either and we'll always have to look at that before firming our view on any given currency. So, let's see if buyers can find enough conviction to break higher but I would be wary of gains if price starts moving towards 0.7200 or above from here.
Looking at the near-term chart, the risk for buyers is if price starts to move back below the key hourly moving averages between 0.6990 and 0.7003, as well as the 0.7000 handle.
Source: Forexlive.com | Wed 3 Jul 2019 09:14:02 GMT
It's been a torrid week for the pound from a data perspective
- UK May mortgage approvals 65.4k vs 65.5k expected
- UK June manufacturing PMI 48.0 vs 49.5 expected
- UK June construction PMI 43.1 vs 49.2 expected
- UK June services PMI 50.2 vs 51.0 expected
To save you the details from clicking on the individual data points, here's a summary:
- Weakest consumer credit growth since April 2014
- Weakest manufacturing PMI print since February 2013
- Weakest manufacturing output component since October 2012
- Weakest construction PMI print since April 2009
- Weakest composite PMI print since July 2016
The PMI releases also sees the services sector stagnating towards the end of Q2 with Markit suggesting that this should lead to a 0.1% contraction in the UK economy for the second quarter of the year. Adding that it would be "unprecedented for the BOE to not loosen policy with the all-sector (composite) PMI at its current level".
Add in BOE governor Carney's comments overnight and the ongoing Brexit uncertainty amid the Tory leadership race, it's hard to argue for pound strength from a fundamental perspective at this point in time.
HSBC says the RBA is more likely to cut the cash interest rate in August than today (July)
Source: Forexlive.com | Tue 2 Jul 2019 00:45:55 GMT
The Reserve Bank of Australia monetary policy decision is due at 0430 GMT on July 2 2019.
- Here is what the AUD needs to do to prompt an RBA rate cut
- RBA interest rate decision due today - here's a bank not expecting a rate cut
- RBA monetary policy decision due July 2 2019 - preview (most expect a rate cut)
- RBA likely to deliver second cut today - BAML
- More on the 0.7 big figure for AUD/USD ... and on the 0.6960 level.
- the "balance of risks appears skewed to the upside"
HSBC is another of the (minority) that have called the RBA on hold today, some remarks via chief economist Paul Bloxham. Bloxham acknowledges a decent possibility for a cut today but says August is more likely:
- RBA likely to want more time to evaluate the impact of their cut to the cash rate in June
- And, waiting a further month would give the bank more information on local and overseas economic developments
- "The RBA has made it clear that it is not yet willing to consider unconventional policy tools, but has also noted that its lower nominal bound for the cash rate is probably around 50 basis points - so it is rapidly running out of room to cut"
- "With less firepower available, the central bank may want to spread the cuts out"
China's Premier Li Keqiang says China will not resort to yuan devaluation
Source: Forexlinve.com | Tue 2 Jul 2019 03:06:24 GMT
More from China's Premier
- will not resort to competitive yuan devaluation
Comment comes after the PBOC revalued the yuan (ie higher for CNY) today.
- will further ease ownership limits in more sectors
- will reduce negative list for foreign investors
- will push forward opening up of manufacturing sector
- economy facing new downward pressure
- China will scrap ownership limits for securities by 2020
Stocks Climb Globally on Trade Truce; Oil Jumps: Markets Wrap
Source: Bloomberg | Updated on
U.S. and China agreed to proceed with fresh trade negotiations
Crude oil surpasses $60 in NY as OPEC+ extends production pact
Stocks advanced globally after the U.S. and China reached a truce in the trade war and agreed to resume talks toward a deal. Treasuries, gold and the yen dropped, but a series of weak factory reports from major economies took the edge off the bond retreat.
Futures on on all three main U.S. equity gauges rose 1% or more. Contracts for the Nasdaq Composite Index set the pace on news that President Donald Trump agreed to ease restrictions on Chinese tech giant Huawei as part of his accord with China’s Xi Jinping.
Technology stocks led the Stoxx Europe 600 Index, with energy shares also among the big gainers as crude surged to a five-week high after the trade truce and thanks to a deal between major producers to extend output cuts. Shares in Shanghai and Japan led Asia gains, with markets in Hong Kong closed for a holiday amid further protests in the city.
Traders are relieved in the wake of the G-20 gatherings after the agreement to resume talks lent some hope that a damaging global trade war can still be resolved. In a reminder of the high stakes, a series of major purchasing manager readings on Monday morning showed declines, while Japan said it plans to slap export restrictions on some tech items to South Korea. U.S. factory data are also due today.
“With China-U.S. trade tensions temporarily out of the way, focus will probably head back towards U.S. data,” wrote strategists at DBS Group Holdings Ltd., characterizing Monday’s reaction in currency markets as “more relief than rally.” Friday’s American payrolls report will be “important to determine if May’s weakness was just a one-off,” they wrote.
Elsewhere, the lira rallied after Trump indicated he may reassess his threatsto sanction Turkey if it goes ahead with a Russian missile purchase. Swiss stocks rose as much as 1.3% as never-before-tested provisions to safeguard liquidity kicked in following a showdown with the European Union.
One by One, Yen Is Breaking Down Barriers Toward 100 Threshold
Source: Bloomberg | June 27, 2019, 10:00 AM GMT+12
Yen has gained more than 4% versus dollar in past two months
Leveraged funds swung to a net long yen position in June
The barriers preventing the yen from reaching 100 per dollar, a target that has proved elusive for the past two years, are dropping one by one.
An escalation of the U.S.-China trade war took the haven asset through 110 in mid May. Next to go was resistance at 108.50, which crumbled late last month when President Donald Trump threatened to put a 5% duty on Mexican imports. The threshold of 105 now looks vulnerable as U.S.-Iran tensions worsen and investors await a planned meeting between Trump and Chinese counterpart Xi Jinping at this week’s Group-of-20 summit.
Dollar gains after Fed pushes back on big rate cut bets
Source: Reuters | JUNE 26, 2019 / 1:21 PM
LONDON (Reuters) - The dollar rose on Wednesday as expectations dwindled for aggressive cuts in U.S. interest rates after comments by Federal Reserve officials.
Fed Chairman Jerome Powell stressed the central bank’s independence from U.S. President Donald Trump, who is pushing for rate cuts. St. Louis Fed President James Bullard, considered one of the most dovish U.S. central bankers, surprised some investors by saying a 50-basis-point cut in rates “would be overdone.”
The dollar fell last week after policymakers opened the door to rate cuts in coming months. Some traders thought the Fed might cut rates by as much as 50 basis points next month.
However, the overnight comments tamped down those expectations, pulling the dollar up from three-month lows against a basket of other currencies in the previous session at 95.843. It was up 0.1% at 96.273.
Commerzbank strategists said a 50-basis-point cut would indicate the Fed was in a hurry, increasing the likelihood more would be coming than the market expected. Money markets are currently pricing in up to three rate cuts this year.
But the bounce is likely to be short-lived. Derivative markets suggest markets are ready for a weaker dollar.
Against the Japanese yen, for example, traders have built up large option bets between 107.50 to 107 yen. In the cash market, the yen was trading at 107.45 yen.
The New Zealand dollar was the big gainer early in London against the U.S. dollar. The kiwi gained 0.4% to $0.6661 from $0.6536 after the Reserve Bank of New Zealand left rates unchanged at 1.5% at its policy meeting, though it signalled another cut was likely.
Elsewhere, the pound remained near five-month lows at $1.2669 after Boris Johnson, the leader in a contest to replace Prime Minister Theresa May, reiterated his commitment to leave the European Union with or without an agreement by Oct. 31.
Dollar weighed by Fed prospects; Swiss franc, gold shine on geopolitics
Source: Reuters | JUNE 25, 2019 / 1:39 PM
TOKYO (Reuters) - The dollar on Tuesday remained shackled by the prospects of monetary easing by the Federal Reserve while the safe-haven Swiss franc and gold were supported by simmering tensions between Washington and Tehran.
The euro hit a three-month high of $1.14065 in early Asia trade. It has gained 2.0% from a two-week low of $1.1181 touched a week ago as the dollar has lost steam.
The dollar was on the defensive against the yen at 107.35 yen, a tad above Friday’s five-month low of 107.045.
The U.S. currency’s index against a basket of six major rivals fell to its lowest level in three months to 95.953, having lost 1.7% over the past week.
Selling in the dollar accelerated after the U.S. Federal Reserve signalled it would cut interest rates before year-end on mounting worries about the fallout from tariff wars President Donald Trump is waging against China and many other trading partners.
U.S. bond yields dropped on Monday, with money market derivatives increasing bets on a 50-basis-point rate cut next month. A 25-basis-point cut is already fully priced in.
Investors looked to whether Trump and Chinese President Xi Jinping would at least call a truce in their trade war when they are expected to meet at the G20 summit in Osaka later this week.
Trump considers his meeting with Xi at the G20 summit in Japan this week an opportunity to “maintain his engagement” and see where China is on their trade dispute, a senior U.S. official said on Monday.
The dollar’s weakness was the most notable against traditional safe-haven assets, reflecting concerns about tensions between the United States and Iran.
Trump targeted Iranian Supreme Leader Ayatollah Ali Khamenei and other top Iranian officials with sanctions on Monday, taking a dramatic, unprecedented step to increase pressure on Iran.
The dollar traded at 0.9721 franc, having slipped to 0.9710 on Monday, its lowest since late September.
The Swiss currency strengthened to near two-year highs against the euro to 1.1079 per euro, within touching distance of 1.1057 hit on Thursday, its highest since July 2017.
Gold also shot up to $1,425.3 per ounce, reaching its highest levels in nearly six years.
Even the price of bitcoin held firm, staying near one-year high above $11,000.
“Assets that can be used as an alternative means of settlement are favoured, as the dollar is being shunned. Geopolitics and the Fed are two main reasons behind this,” said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.
Elsewhere, the British pound remains dogged by Brexit concerns as eurosceptic Boris Johnson is seen as likely to win a majority of votes from Conservative party members who will decide the next leader and prime minister.
Johnson reiterated his promise to take Britain out of the European Union on Oct. 31, with or without a deal.
The pound fetched $1.2737, capped by resistance around $1.2760-65.
The Sneaking Suspicion the RBNZ Could Spring a Surprise Rate Cut
All 24 economists in Bloomberg survey see no change tomorrow
Still, RBNZ may want to stay ahead of the easing curve
Under governor Adrian Orr, New Zealand’s central bank has shown it’s not afraid of springing a surprise. That’s why some economists and traders have a sneaking suspicion it could cut interest rates tomorrow.
Conventional wisdom says the Reserve Bank’s monetary policy committee will wait until August, when it will have move information to justify another reduction. But the move toward lower rates globally, coupled with weak domestic economic data, makes a case for getting on with the job -- even as all 24 economists surveyed by Bloomberg expect no change.
More than One Year Later, BTC Price Skyrockets Past $10K
Source: Bitcoin.com | from June 21st, 2019
On June 21, the price of bitcoin core (BTC) crossed the $10,000 mark for the first time since March 08, 2018. At the moment BTC has a $180 billion dollar market capitalization as the cryptocurrency gathered more than 166% over the last six months.
BTC Surpasses $10K
Digital asset fans celebrated once again as the price of BTC crossed the $10K zone on Friday, June 21. All week long cryptocurrency enthusiasts watched charts in anticipation and there were a few close calls in the last 48 hours. At press time there’s roughly $20 billion in global BTC trade volume and the digital asset is the top traded crypto coin today besides tether. The top ten exchanges swapping the most BTC include Coinbase, Bitfinex, Bitstamp, Kraken, Gemini, Bitflyer, Bitforex, Coinbene, Binance, and Bitz. The currency pair traded the most with BTC is tether (USDT) capturing 59% of all trades. This is followed by USD (20%), EUR (4%), JPY (4%), and KRW (2.2%). 2019 has been a good year for BTC prices and charts also resemble the patterns of late 2017.
The Fed’s Impending Interest Rate Cut and Facebook Coin
Lots of traders have different opinions to why things have been so bullish for digital currency markets. Some have assumed it has to do with tether, while others believe it may have to do with specific factors like Facebook’s Libra announcement. As soon as BTC neared the $10K zone, mainstream media started reporting on the event. CNN assumes the bullish prices is due to the “Federal Reserve and Facebook.” According to the columnist Paul La Monica the probability of an interest rate cut in July has been costly to the USD. Moreover, that element combined with the latest Facebook announcement makes the CNN Business author believe it “can bring cryptocurrencies out of the shadows and to a more mainstream audience.”
Fundstrat Global’s Tom Lee thinks that BTC prices could reach new heights in 2019 and believes the $10K price zone is a turning point.
“In most markets, a ‘new high’ is needed to confirm a breakout — But with bitcoin, when it trades at a price seen only 3% of its history, this has confirmed a new high imminent — This makes crypto different,” Lee tweeted on Thursday before the $10K rally.
Overall most markets in the top ten have seen significant price gains with ethereum (ETH) markets leading the pack. ETH has jumped over 8.9% in the last 24 hours and is more than $300 per coin. Binance coin (BNB) is up 4.7% while bitcoin cash (BCH) is up 5.7% on June 21 as well. So far the market capitalization of the entire cryptoconomy is over $308 billion with $68 billion in total global trade volume. BTC/USD prices touched a high of $10,229 and markets have been holding between $10,100-10,180 per coin at the time of publication.
Disclaimer: Price articles and markets updates are intended for informational purposes only and should not to be considered as trading advice. Neither Bitcoin.com nor the author is responsible for any losses or gains, as the ultimate decision to conduct a trade is made by the reader. Always remember that only those in possession of the private keys are in control of the “money.”
Euro hits three-month high as Fed easing prospects weigh on dollar
Source: Reuters | JUNE 24, 2019 / 1:28 PM
TOKYO (Reuters) - The euro rose to a three-month high against the dollar on Monday, as bearish bets on the U.S. currency remained solid on prospects of a near-term interest rate cut by the Federal Reserve.
The euro stretched its rally last week, up 1.4%, and advanced about 0.15% to $1.1386 in early Asian trade, its highest since March 22.
The dollar index versus a basket of six major currencies was a shade lower at 96.135, having struck 96.093 on Friday, its lowest since March 21, after the Fed last week opened the door for a potential rate cut as early as next month.
That weighed on the dollar and in turn reinvigorated its counterparts like the euro, which has had troubles of its own including Italy’s debt problem and the possibility of the European Central Bank having to ease policy.
“It is true that the ECB may have to ease policy especially with the Fed having shifted to an easing bias,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
“But the ECB already employs a negative interest rate policy and does not have much further room to ease even if they wanted to, unlike the Fed. It is factors like these which have seemingly supported the euro.”
Hedge Funds Hold Out Hope for Kiwi Even as Second Rate Cut Looms
Source: Bloomberg | Updated on
Leveraged funds refrained from going bearish amid kiwi slide
Next key event for kiwi traders is RBNZ meeting Wednesday
Positive signs may be emerging for the world’s worst-performing major currency.
The out-of-favor kiwi dollar has tumbled about 3% this quarter as the Reserve Bank of New Zealand turned dovish and cut interest rates, the first central bank in the developed world to do so. Economic growth held at a five-year low in the three-months through March, leaving the door open for further easing.
Markets Update: Digital Currency Economy Surpasses $300 Billion
Source: Bitcoin.com | 22/06/2019
Digital currency prices have spiked considerably in the last 24 hours and bitcoin core (BTC) stopped short about $70 in an attempt to cross the $10K price zone. Most cryptocurrencies are up between 2-8% on Friday, June 21 and the entire cryptoconomy surpassed $300 billion.
$300 Billion and Still Rising
Six days ago news.Bitcoin.com reported on the surge that took place after a majority of cryptocurrency prices pulled back the week prior. This Friday, just before the weekend, on June 21 digital currency prices have spiked considerably and the entire market valuation of the 2000+ coins in existence has gained more than $25 billion. During the early morning trading sessions on Friday, BTC’s fiat value touched a high of $9,921 on Bitstamp but has since retreated to prices between $9,700 and $9,875.
At the time of writing 1 BTC is trading for $9,860 per coin and the market is up today by 5.6%. This is followed by ethereum (ETH) markets which are up 6.7% today and each ETH is swapping for $286. Ripple (XRP) is only up 3.5% and each XRP unit is trading for $0.44. Lastly, the fourth market cap position still belongs to litecoin (LTC) which has gained 2.4% today and is trading for $137 per LTC.
As the EURUSD moves above its 200 day MA, the EURJPY is also strong today.
Source: Forexlive.com |
Trading back above the 200 hour MA
As the EURUSD breaks above the 200 day MA for the first time since May 2018, the EURJPY is also having a strong move higher today. That move came after trading to a new low since June 3.
The move higher has taken the pair above its 100 hour MA at 121.473, the 38.2% retracement of the move down from the June high at 121.789 and the 200 hour MA at 121.896. We just moved to a new session high and in the process scooted to the 50% retracement of the same move higher at 122.05. The price just reached 122.083.
Risk for longs is now at the 200 hour MA. Stay above and the bulls are firmly in control. Move below, and there may be some more profit taking into the weekend.
Dollar heads for big weekly loss, political tensions boost yen
Source: Reuters | JUNE 21, 2019 / 12:57 PM
LONDON (Reuters) - The dollar was headed for a big weekly loss on Friday, touching a five-month low against the Japanese yen and struggling versus the euro after a dovish shift by the Federal Reserve.
In joining the European Central Bank by opening the door to interest rate cuts and more stimulus to counter an economic slowdown, the Fed sent the dollar to its biggest two-day loss of 2019.
Forex markets were much quieter on Friday, however, as traders took stock.
The focus now shifts to whether the United States and China can resolve their trade row at a Group of 20 leaders summit in Japan next week.
Presidents Xi Jinping and Donald Trump are due to meet on the sidelines of the G20 next weekend, but analysts say chances of a decisive breakthrough are low.
An escalating dispute between the United States and Iran after the downing of an unmanned U.S. surveillance drone also supported buying of the safe-haven yen, which hit a five-month high on Friday.
“The yen is continuing to benefit from the dovish shift in Fed and ECB policy alongside other low-yielding currencies such as the Swiss franc,” said MUFG analysts in a note. The yen rose as high as 107.04 yen per dollar before settling at 107.3.
Money markets are pricing in three Fed rate cuts before year-end, starting with the next meeting in July, and tipping as many as five cuts through mid-2020. That could undermine the dollar but some analysts also say that given it still yields more than other major currencies it is likely to remain in demand.The dollar index, which measures the greenback against a basket of currencies, fell 0.1% to 96.495, its lowest for two weeks.
The euro hit a new weekly high of $1.1319, up 0.2% on the day, after French and German business activity strengthened more than expected in June, according to surveys.
“The dollar’s upside is capped, because we are already looking past the Fed’s July meeting for more rate cuts,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.
“Central banks are in a competition to ease policy, so it’s a question of which currency to sell. There are some hopes surrounding G20, but we’ve been here before only to be disappointed.”Sterling changed hands at $1.2699. The Bank of England on Thursday struck a less dovish tone than other central banks but cut its second-quarter growth forecast, capping a pound rally.
Trump warned Tehran a U.S. attack was imminent, called for talks: Iranian officials
Source: Reuters | JUNE 20, 2019 / 3:39 PM
DUBAI (Reuters) - Iranian officials told Reuters on Friday that Tehran had received a message from U.S. President Donald Trump warning that a U.S. attack on Iran was imminent but saying he was against war and wanted talks on a range of issues.
News of the message, delivered through Oman overnight, came shortly after the New York Times said Trump had approved military strikes against Iran on Friday over the downing of a U.S. surveillance drone, but called them off at the last minute.
“In his message, Trump said he was against any war with Iran and wanted to talk to Tehran about various issues,” one of the officials told Reuters, speaking on condition of anonymity.
“He gave a short period of time to get our response but Iran’s immediate response was that it is up to Supreme Leader (Ayatollah Ali) Khamenei to decide about this issue,” the source said.
Gold Spikes to More Than 5-Year High as Fed Signals Ready to Cut
Source: Bloomberg | Updated on
Spot prices rises as much as 2.5% to highest since Sept. 2013
Easier monetary conditions likely to stay, CMC’s McCarthy says
Gold jumped to the highest in more than five years after the U.S. Federal Reserve indicated a readiness to cut interest rates and the dollar tumbled.
Gold had a lackluster start to the year but gained momentum this month as investors sought havens amid slowing global growth due to the fallout from the U.S.-China trade dispute and as central banks adopt a more dovish tone. The metal has now broken through a five-year resistance line in a dramatic surge that brought it within spitting distance of $1,400 an ounce.
LONDON (Reuters) - The dollar sank on Thursday and is on track for its biggest two-day drop this year after the U.S. Federal Reserve signalled it was ready to cut interest rates as early as next month.
The Fed joined its global peers such as the European Central Bank and the Australian central bank this week in signalling that more policy stimulus is needed to boost growth, sending relatively higher yielding currencies such as the Australian dollar to the Korean won rallying.
“With global central banks engaged in a battle to weaken their currencies, there is a rush to high quality currencies with higher interest rates,” said Neil Mellor, a senior currency strategist at BNY Mellon in London.
The dollar fell 0.3% against a basket of its rivals to 96.755. It fell 0.5% to a six-month low against the Japanese yen at 107.47.
The greenback came under additional pressure after benchmark 10-year Treasury yields fell to the lowest in more than two years.
“Even though the market had anticipated much of what the Fed said, the dollar’s fall was still a relatively large one,” said Daisuke Karakama, chief market economist at Mizuho Bank.
“The main question is no longer if the Fed will cut rates in July, but whether the easing will be by 25 or 50 basis points.”
The overnight drop in global bond yields has boosted rate cut bets across global markets with money markets pricing in three rate cuts from the Fed before the end of the year and as many as five cuts until mid 2020.
Expectations of more rate cuts from the Fed boosted the Norwegian crown with the currency rallying 0.8% versus the dollar and nearly 0.5% against the euro with markets widely expecting the central bank to raise interest rates at a policy decision.
China’s yuan rallied to its strongest level in five weeks amid broad dollar weakness and signs that China and the United States are returning to the negotiating table in their trade dispute.
Goldman Sachs now expects Fed rate cut in July and Sept
Source: Reuters | JUNE 20, 2019 / 4:41 PM
TOKYO (Reuters) - Goldman Sachs Group Inc analysts now expect the U.S. Federal Reserve to cut interest rates in July and in September, according to a research note issued after Fed Chairman Jerome Powell on Wednesday signaled a rate cut as early as next month.
This marks a reversal for Goldman, whose economists said as recently as June 16 that the hurdle for rate cuts is “higher than widely believed.” Goldman is one of the 24 primary dealers that does business directly with the Fed.
Interest rate futures surged in response to Powell’s remarks at the end of a two day policy meeting that left rates on hold. Traders are now betting heavily on three cuts by the end of the year. The Fed’s target rate the Fed funds rate is 2.25% to 2.50%.
Dollar near two-week high before Fed as dovish ECB supports
Source: Reuters | DAVOS JUNE 19, 2019 / 12:44 PM
TOKYO (Reuters) - The dollar held near a two-week high on Wednesday ahead of the Federal Reserve’s closely-watched policy decision later in the day, supported by a surprisingly dovish European Central Bank and bearish eurozone economic data.The dollar index versus a basket of six major currencies was steady at 97.653 after climbing to 97.766 on Tuesday, its highest level since June 3.
The focus was on whether the greenback can retain its strength after the Fed’s two-day policy meeting ends later on Wednesday.The Fed is widely expected to stand pat on monetary policy this time but open the door for an interest rate cut at the next meeting in July.
“The market has mostly priced in a July rate cut and unless there is a big dovish surprise at the FOMC (Federal Open Market Committee) meeting it is hard to imagine the dollar coming under downward pressure,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.
“But there will be a lot to digest at this FOMC, such as the Fed’s views on the economy and prices and Chair (Jerome) Powell’s comments. It is hard to tell which of these factors the market decides to latch on and react to.”
The prospect of the U.S. central bank lowering rates has also driven benchmark Treasury yields to near two-year lows while boosting equity prices.
The euro traded at $1.1190, languishing near session lows after shedding 0.2% overnight, when it brushed a 15-day trough of $1.1181.
The common currency dropped along with a decline in German government bond yields, which hit a new record low on Tuesday, after ECB chief Mario Draghi said the bank will need to ease policy again if inflation doesn’t head back to its target.
A closely watched survey by the ZEW Institute showing that the mood among German investors had deteriorated sharply in June also weighed on the euro.
Traders are also focused on whether signs that the United States and China are preparing for trade talks at a Group of 20 leaders summit later this month will improve sentiment for risk assets and commodity currencies. U.S. President Donald Trump said on Tuesday he will have an extended meeting with Chinese President Xi Jinping at the G20. The world’s two largest economies are in the middle of a costly trade dispute that has pressured financial markets and damaged the world economy. Signs of a thaw between the two countries would encourage so-called “risk off” trades, which tend to cause the yen to fall and the Australian dollar to rise.
“If a meeting between Trump and Xi goes well, sentiment will improve, which will be supportive for dollar/yen,” said Tohru Sasaki, head of Japan markets research at JP Morgan Securities.
“But these days we cannot be sure about trade because attitudes and comments change from time to time and come out suddenly.”
The Australian dollar was a shade higher at $0.6871 after mounting a rebound the previous day. Australia exports a lot of commodities to China, so it would benefit greatly from progress toward ending the trade war. However, it may prove difficult to turn bullish on the Aussie dollar over the long term because of growing expectations that the Reserve Bank of Australia may have to cut rates again.
The dollar was little changed at 108.32 yen after losing modest ground overnight as traders kept their powder dry before the outcome of the Fed’s policy meeting.
The yuan advanced to its strongest level in over three weeks on the trade news before paring its gains on doubts the Trump-Xi talks would produce a durable trade deal.
Pound at five-and-a-half-month low as Johnson leads, Aussie vulnerable
Source: Reuters | JUNE 18, 2019 / 1:07 PM
TOKYO (Reuters) - The British pound on Tuesday languished near this year’s low on rising worries Boris Johnson, the front-runner to replace UK Prime Minister Theresa May, could put Britain on a path towards a dreaded no-deal Brexit.
The Australian dollar is also at its lowest levels since the flash crash of early January, hit by growing expectations of another rate cut by the country’s central bank and by the spectre of a further slowdown in China - Australia’s largest export market.
The yen and the euro were steadier, with investors holding out for trading clues from policy-setting meetings by the U.S. Federal Reserve and the Bank of Japan as well as a conference organised by the European Central Bank, all scheduled this week.
Worries about Brexit hit the British pound, which tumbled to a 5-1/2-month low of $1.2532 on Monday and last traded at $1.2539.
Sterling also fell to its weakest level since January against the euro, which climbed to 89.50 pence, compared to a two-year low of 84.56 touched just over a month ago.
Former foreign minister Boris Johnson got a boost on Monday in his campaign to succeed May as one of his former rivals and EU supporter Matt Hancock backed him.
That rattled markets as Johnson, the face of the official campaign to leave the European Union in the 2016 referendum, has promised to lead the United Kingdom out of the EU with or without a deal.
The pound could be in for a rough ride in coming days, with a raft of potentially market-moving events ahead, including consumer inflation and retail sales data, due on Wednesday and Thursday respectively, and the Bank of England’s policy announcement on Thursday.
Asia stocks cautious before Fed, oil on defensive
TOKYO (Reuters) - Investor caution ahead of the Federal Reserve’s interest rate meeting capped Asian stocks on Tuesday, while crude oil prices retreated as global growth worries overshadowed supply concerns stemming from recent Middle East tensions.The Shanghai Composite Index lost 0.25%, Hong Kong’s Hang Seng rose 0.15% and Japan’s Nikkei dipped 0.3%. MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2%.
Bucking the trend were Australian stocks, which rose 0.3% after minutes from the Reserve Bank of Australia’s (RBA) last policy meeting pointed to the possibility of another interest rate cut.
The Fed, facing fresh demands by U.S. President Donald Trump to cut interest rates, begins a two-day meeting later on Tuesday. The central bank is expected to leave borrowing costs unchanged this time but possibly lay the groundwork for a rate cut later this year.
Fresh hopes for looser U.S. monetary policy have been a tonic for risk assets markets, which were buffeted last month by an escalation in the trade conflict between Washington and Beijing. The S&P 500 has gained 5% this month after sliding in May on trade war fears.
“In just a few months, the market has turned from being guided by the Fed to actively guiding the Fed,” wrote interest rate strategists at Bank of America Merrill Lynch.
Focus is now on how close the Fed could be to cutting interest rates amid the raging U.S.-China trade war, signs of the economy losing steam and pressure by President Trump to ease policy.
“The FOMC (Federal Open Market Committee) meeting is the week’s biggest event so there will be a degree of caution prevailing in the markets,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.
“Expectations for a rate cut in July have increased significantly, so the markets could experience disappointment if the Fed does not send strong signals of impending easing.”
U.S. Treasury yields dipped on Monday after the New York Fed’s “Empire” gauge of business growth in the state showed a fall this month to its weakest in more than 2-1/2-years, fanning rate cut expectations.
The dollar index against a basket of six major currencies stood little changed at 97.468 after pulling back from a two-week high on the decline in Treasury yields.
The Australian dollar fell to a fresh five-month low of $0.6851 after minutes from the RBA’s June meeting showed the central bank thinks it may have to ease policy again to push down unemployment and revive wages and inflation.
The central bank cut rates to a record low of 1.25% at its meeting earlier this month, to support the slowing economy.
The pound extended an overnight slump and brushed $1.2512, its lowest since Jan. 3. Concerns that arch-Brexiteer Boris Johnson will replace Theresa May as prime minister have dogged sterling. [GBP/]
The euro was a shade higher at $1.1231 after spending the previous day confined to a narrow range.
U.S. crude oil futures shed 0.13% to $51.86 per barrel after retreating 1.1% the previous day and Brent crude lost 0.2% to $60.81 per barrel following Monday’s loss of 1.7%.
Oil prices had fallen on Monday as weak Chinese economic data released at the end of last week led to fears of lower global demand for the commodity.
Concerns over weakening demand overshadowed tensions in the Middle East, which remained high following last week’s attacks on two oil tankers in the Gulf of Oman.
RBA Says Further Rate Cut ‘More Likely Than Not’ in Period Ahead
Source: Bloomberg | Updated on
Lower rates not ‘only policy option’ to help cut unemployment
Central bank comments in minutes of June 4 policy meeting
Australia’s central bank is likely to lower interest rates again to drive increased hiring and boost households’ confidence that inflation will return to target.
The Reserve Bank made the comment in minutes of its June 4 policy meeting, when it eased the cash rate to 1.25% in the first reduction in almost three years. The report was released in Sydney Tuesday.
Source: forexlive.com |
I posted earlier on National Australia Bank expecting the Reserve Bank of Australia to cut to 0.75% this year:
Adding a couple more fresh calls today:
- RBC forecast the RBA to 0.5%, by May of 2020 (cuts in August 2019, Feb and May 2020)
- Macquarie also have a 0.5% cash rate expected in 2020
- Australian underemployment rate elevated, just 0.5% under below its historical high
- Labour market slack is ample
- A sustained period of above-trend growth and above-average employment generation is needed
- Global developments also key, with the risk of a shift easier in the policy stance of global central banks, especially G7
Dollar set for weekly gain before Fed meeting
TOKYO (Reuters) - The dollar held steady early in Asia on Friday, and was set to show a weekly rise as investor focus turned to next week’s Federal Reserve meeting for cues on a possible interest rate cut in light of rising risks to trade and global growth.
The dollar index against a basket of six rivals was basically unchanged at 97.001, and on track for a near 0.5% gain this week. The index had touched an 11-week low of 96.459 last Friday.
The Federal Open Market Committee’s (FOMC) two-day policy meeting is set to begin on Tuesday. With trade tensions rising, U.S. growth slowing and hiring in May declining, markets have priced in at least two rate cuts by the end of 2019.
There was only an 11.3% expectation on Thursday that U.S. interest rates will be at current levels in July of this year, compared to 74.1% a month ago, according to the CME Group’s FedWatch tool.
“Ahead of the FOMC meeting, people are expecting dovish comments from the Fed, which is weighing on the dollar in general,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
“However, other currencies like euro and sterling are weak and their weakness is helping the strength of the dollar,” he said.
Investors’ attention on Friday will also be on U.S. retail sales data due later in the day for insights into the state of domestic demand in the world’s biggest economy.
Against the yen, the dollar dipped 0.05% to 108.34 yen. The yen showed little reaction to the latest round of trade negotiations between Tokyo and Washington on Thursday.
Japan and the United States deepened their understanding over each other’s position on trade and will continue discussions, Japan’s economy minister Toshimitsu Motegi said after meeting with U.S. Trade Representative Robert Lighthizer.
Motegi said the two would probably meet again ahead of the G20 summit meeting in Osaka, Japan late this month.
The euro edged up 0.03% to $1.1280, holding up after falling during the past two sessions, though it was still set for a weekly loss of 0.44%.
Elsewhere, the Australian dollar was a shade lower at $0.6913, staying within reach of this month’s low of $0.6901 touched on Thursday.
Oil futures dipped in early trading on Friday, having risen sharply on Thursday following attacks on two tankers near Iran and the Strait of Hormuz, a key passage for seaborne oil cargoes.
Mizuho’s Yamamoto said rising oil prices resulting from geopolitical tension in the Middle East could create a drag on the dollar, adding that higher crude prices were not necessarily bad for the global economy.
SNB's Jordan: Swiss franc is still highly valued
Source: Forexlive.com | 13/06/2019
Comments by SNB chief, Thomas Jordan
- Global economy signs remain mixed
- Risks to baseline scenario remains to the downside
- Inflation expectations have declined slightly
- SNB policy rate signals level for short-term money market
Mainly a reiteration of the statement earlier. Of note, despite them saying that inflation expectations have declined, they still projected that inflation will be seen improving this year compared to their March forecasts.
That said, CPI at +0.6% y/y is nothing to really shout about. It's a far cry from 2% and for them to be able to normalise monetary policy still.
German economic outlook for Q2 subdued- ministry
Source: Reuters | JUNE 13, 2019 / 8:09 PM
BERLIN, June 13 (Reuters) - The outlook for Europe’s biggest economy is restrained for the second quarter due to headwinds from global trade conflicts that are weighing on the export-dependent industrial sector, Germany’s Economy Ministry said on Thursday.
“After significant growth in gross domestic product in the first quarter, the prospects for the second quarter remain subdued,” the ministry said in its monthly report. However, it struck a more positive note for later in the year.
“After the muted developments in the second quarter, positive influences should take hold more forcefully with a gradual improvement of the external environment,” it added.
ForexLive Asia FX news wrap: Gold on the move
Source: Forexlive.com | Wed 12 Jun 2019 03:51:44 GMT
Forex news for Asia trading Wednesday 12 June 2019
Hong Kong developments:
- Fitch with a (timely) update on Hong Kong - rating and outlook both affirmed, unchanged
- HKD one-month borrowing rates to their highest since October of 2008
- Hong Kong's government has postponed debate on the extradition bill to an unspecified time
- HK press cite police fearing protesters arming themselves with bricks, other weapons
- Hong Kong protests could turn more ugly in the hours ahead
- China inflation data for May: CPI 2.7% y/y (expected 2.7% ) and PPI 0.6% y/y (expected 0.6%
- Google is moving some hardware production out of China, for 2 reasons (both are govmt meddling)
- PBOC sets USD/ CNY mid-point today at 6.8932 (vs. yesterday at 6.8930)
- Iron ore on the move higher - Dalian iron ore up 4% at open
- Australia - monthly consumer confidence -0.6% m/m (prior +0.6%)
- EUR/USD - upside is fairly limited from here
- Japan PPI for May: 0.7% y/y (expected 0.7% y/y)
- Japan Core Machinery Orders for April: 5.2% m/m (expected -0.8%)
- Australian weekly consumer confidence 114.6 (prior 116.9)
- China Securities Journal says PBOC has room for further targeted RRR cuts
- New Zealand data - May card spending (retail) -0.5% m/m (expected +0.5%)
- ICYMI - US President Trump tweets the Euro & other currencies are devalued against the dollar
- Here's an argument why euro is only a slightly undervalued
- Goldman Sachs forecasts choppy USD "downside in the months ahead" because 1980s
- ICYM - Three BoE monetary policy makers warn of several interest rate rises
- Oil: UAE Energy Minister says OPEC close to reaching agreement on extending production cuts
- UK PM hopeful Boris Johnson promises no more Brexit delays
- Trade ideas thread - Wednesday 12 June 2019
- PIMCO expecting rate cut forward guidance at next week's FOMC meeting
- Private survey oil data shows a build in inventory (a draw was expected)
Gold has had a gain of a few dollars on the session here, tensions in Hong Kong have been cited as one supportive factor.
Protests in Hong Kong took a nastier turn today, with a more aggressive police response (reports of capsicum spray being used on some protesters). As I update the latest is that Hong Kong's Legislative Council President Andrew Leung has postponed debate on the controversial extradition law to an unspecified time. HK financial markets were on the move also, with a strong showing for the HK dollar, moving away from the weak end of its band (USD/HKD lower) and borrowing rates higher (1 month HIBOR to highs last seen in Oct of 2008, 2 month HIBOR to highs last seen in Nov of 2008).
News flow otherwise was barely existent.
We did, though, get some data points. Notable from Japan were PPI and machine orders, while from China it was May month inflation. CPI climbed to its highest since February 2018 on the back of rising food prices (fruit and pork much higher), while the core rate remains much more subdued.
Across FX the needle did not move much.
USD/JPY, EUR/USD, GBP/USD, USD/CAD are barely changed on the session.
NZD/USD has dripped a little lower, down 15 or so points from earlier session highs just above 0.6585. We got some disappointing retail sales data (card spending, see bullets above, is the data I refer to; spending on electronic cards in NZ accounts for nearly 70% of core retail sales). I don't know if the fall in the kiwi can be pinned on this, but it didn't help.
AUD/USD is also a touch lower, down circa 10 points from its early session high. Disappointing consumer confidence data (2 readings) released today.
Trump Has a Point: The Euro Is 22% Too Cheap Using OECD Measure
U.S. president says ‘devalued’ euro puts U.S. at disadvantage
Purchasing-power-parity models show euro is undervalued
U.S. President Donald Trump’s latest Twitter missive on financial markets holds water for some currency watchers.
Trump said Tuesday that the euro is “devalued” against the dollar, “putting the U.S. at a big disadvantage.” He may not be wrong: the common currency is over 22% undervalued versus the greenback according to the Organization for Economic Cooperation and Development’s purchasing-power-parity model. And then there’s the “Big Mac” approach to gauging currency valuations, which shows the euro is about 15% too cheap.
China Is Buying More and More Gold as the Trade War Drags On
Source: Bloomberg | Updated on
PBOC expands its holdings by more than 70 tons since December
Central bank demand bolsters global consumption amid trade war
China extended its gold-buying spree, adding to reserves for a sixth straight month, as the protracted trade war with the U.S. hurts growth expectations and boosts demand for a portfolio diversifier.
Opinion Piece: Source: Forexlive.com
Source: Forexlive.com | Tue 11 Jun 2019 02:45:24 GMT
You know what its like, your analysis is telling you one thing but you go all like 'Nah, that won't happen' …
Bank of America / Merrill Lynch research, cites the historical slope of the 1 month to 6 month Fed Funds futures
- history of this spread back to 1989 suggests the market has never priced an amount of inversion equal to today's levels without the Fed cutting
- suggests Fed could be cutting in a month
- Fed typically cuts 50bps in the first month of an easing cycle
And then the 'but, no':
- Fed would only consider easing in current environment to combat a slowdown
- Fed has generally pushed back against idea of a pre-emptive cut to support inflation
- Fed most likely to cut in September
Sterling jumps after weak U.S. jobs data hammers the dollar
Source: Reuters | JUNE 7, 2019 / 9:07 PM
LONDON (Reuters) - Sterling rose to a two-week high on Friday after weak U.S. jobs data weighed on the dollar and bolstered the case for a Federal Reserve interest rate cut.
The opposition Labour Party beat off the insurgent Brexit Party - which has sought to seize on anger with mainstream parties by pushing for a no-deal Brexit - in a by-election in eastern England whose results came in overnight, although analysts said that with the ruling Conservatives coming in third it would not improve sentiment towards the pound by much.
Helped mostly by an ailing dollar rather than because traders feel more confident that Britain can avoid a no-deal Brexit, the pound is on course for its first weekly gain in five.
Investors have shied away from making big bets on the pound in recent weeks as a leadership contest to take over from Theresa May as Conservative Party leader and prime minister heats up.
Boris Johnson, who campaigned to leave the European Union in the 2016 referendum, is favourite to win, worrying investors that he could set Britain on a course towards leaving the bloc without a deal.
That would send sterling hurtling lower, but this week the pound has managed to recover from five-month lows thanks to a dollar weakened by the prospect of Federal Reserve interest rate cuts.
Sterling went as high as $1.2757, its strongest since May 21, and was last up 0.4% at $1.2743. That left it up 0.8% this week after four consecutive weeks of losses.
Adam Cole, strategist at RBC Capital Markets, noted that the Labour party’s win over the Brexit party in the Peterborough by-election was extremely narrow, “so we don’t expect GBP to find much relief from the recent rise in political risk premia.”
Others, however, said the results would support the pound as it raised expectations of another delay to Brexit. Britain is currently scheduled to leave the EU on Oct. 31.
“Opposition Labour party narrowly beating the newly formed Brexit party was a surprise to the market I would suggest and reawakens the chances of a further A50 delay, which right now is a firm pound positive,” said Neil Jones, head of hedge fund currency sales at Mizuho bank.
Weak U.S. employment report raises red flag on economy
Source: Reuters | JUNE 7, 2019 / 4:13 PM /
WASHINGTON (Reuters) - U.S. job growth slowed sharply in May and wages rose less than expected, raising fears that a loss of momentum in economic activity could be spreading to the labor market, which could put pressure on the Federal Reserve to cut interest rates this year.
The broad cool-off in hiring reported by the Labor Department on Friday was before a recent escalation in trade tensions between the United States and two of its major trading partners, China and Mexico. Analysts have warned the trade fights could undermine the economy, which will celebrate 10 years of expansion next month, the longest on record.
Adding a sting to the closely watched employment report, far fewer jobs were created in March and April than previously reported, indicating that hiring had shifted into a lower gear. The labor market thus far has been largely resilient to the trade war with China.
“Today’s report makes a cut more likely, and supports our view that the trade tensions will ultimately slow growth enough for the Fed to respond in September and December with cuts,” said Joseph Song, an economist at Bank of America Merrill Lynch in New York.
Nonfarm payrolls increased by 75,000 jobs last month, the government said. It was the second time this year that job gains dropped below 100,000. Economists polled by Reuters had forecast payrolls rising by 185,000 jobs last month. Job growth in March and April was revised down by 75,000.
Bank of Japan to Cut Negative Rate in September, JP Morgan Says
Source: Bloomberg | June 7, 2019, 6:37 PM GMT+12
The Bank of Japan will lower its short-term interest rate to -0.3% from -0.1% in September to head off risks posed by an expected Federal Reserve rate cut, JPMorgan Chase & Co. said in a research note.
Fed cuts are now expected in September and December after escalating U.S.-China trade tensions and President Donald Trump’s threat of tariffs on Mexico have raised the risk that global growth will deteriorate, said Hiroshi Ugai, chief Japan economist at JPMorgan.
That will pressure the BOJ to act to prevent a narrowing of the rate spread with the Fed at a time when the yen will be strengthening and economic growth and inflationary pressures deteriorating, Ugai says. JPMorgan will revise down its economic growth outlook next week after Japan releases revised gross domestic product figures for the first quarter, he said.
The BOJ would risk a sharp strengthening of the yen if it didn’t respond to the Fed’s move, Ugai said.
Even before the recent U.S.-China flareup, a growing number of economists had begun to predict the BOJ would undertake additional monetary easing in the face of sagging growth and inflation. But relatively few thought that easing would take the form of a cut to the negative rate, which has been broadly unpopular in Japan.
The BOJ is likely to offer some compensation to banks to alleviate the squeeze on their profits from the lower rate, Ugai said.
JPMorgan had previously expected the next BOJ policy change would be to extend its pledge to keep interest rates extremely low, Ugai said.
The bank doesn’t expect the BOJ to cut its target for the yield on 10-year Japanese government bonds or to increase its purchases of exchange-traded funds in September, but if the U.S.-China trade talks completely fall apart and trigger a plunge in stock prices, the BOJ may expand its purchases of ETFs in July from 6 trillion yen to 8 trillion yen annually, he said.
"When cutting the short-term policy rate, the BOJ might allow the 10yr yield to be lowered to around -0.2% at max, the lowest bound of the range around the 0% target," Ugai wrote.
Dollar pressured before payrolls data, poised for worst weekly performance for 2019
TOKYO (Reuters) - The dollar was under pressure on Friday and was poised for its worst weekly performance for the year, as investors waited on a key U.S. jobs report that is expected to back expectations for a near-term Federal Reserve rate cut to support a slowing economy.
Not helping the U.S. currency was the European Central Bank’s policy review on Thursday where it refrained from hinting at an interest rate cut and instead pushed back the timing of its first rake hike since the 2008 financial crisis.
Market participants’ immediate focus was on the U.S. non-farm payrolls data for May due later on Friday, and early signs weren’t good with hiring expected to have dropped in a boost to rate doves and dollar bears.
A slowdown in the U.S. labor market was evident in a worse-than-expected ADP National Employment Report released on Wednesday, which showed private U.S. employers added 27,000 jobs in May, the smallest monthly gain in more than nine years.
“The ADP report was unexpected so it’s hard to know what to expect” from the U.S. jobs data, said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
The dollar has been hit in recent weeks by the rising expectations for a U.S. rate cut before year-end, as an escalating China-U.S. trade row hurts business confidence and growth. Recent comments from Fed officials have also pointed to an easing in coming months.
Markets have priced in slightly more than a 50% probability rates will be cut 25 basis points by the end of July and one more cut would follow by the end of the year, according to the CME Group’s FedWatch Tool.
Against a basket of six peers, the dollar was a shade lower at 97.029, trading about 0.3% above an eight-week low of 96.749 brushed on Wednesday.
The index was on course for a 0.75% loss this week, its worst weekly performance since early December last year.
The euro jumped half a percent during the previous session as markets had positioned on a more dovish signal from the ECB and an acknowledgement of weak economic growth in the bloc.
The single currency was steady at $1.1275 and was set for a weekly gain of nearly 1%, its best weekly performance against the dollar since late September last year, when it rose nearly 1.1%.
“I think the ECB policy was quite dovish as the forward guidance was prolonged, but the market was hoping the bank would be even more dovish,” said Daiwa’s Ishizuki.
China Has Lots of Policy Room if Trade War Worsens, Central Bank Governor SaysSource: Bloomberg News |
China has “tremendous” room to adjust monetary policy if the trade war with the U.S. deepens, People’s Bank of China Governor Yi Gang said.
“We have plenty of room in interest rates, we have plenty of room in required reserve ratio rate, and also for the fiscal, monetary policy toolkit, I think the room for adjustment is tremendous,” said Yi in an exclusive interview in Beijing.
Germany May construction PMI 51.4 vs 53.0 prior
Latest data released by Markit - 6 June 2019
- Prior 53.0
Slight drop in construction activity as the headline reading hits a four-month low. Of note, new orders fell for the first time since August last year so that points to some near-term downside risks in the construction sector. A minor data point though.
EUR/USD holds steady at 1.1232 currently, still trapped in a narrow range on the day
Investors Stampede Into Gold as Top ETF Jumps Most Since `16
Source: Bloomberg | Updated on
Holdings in SPDR Gold Shares expand as investors target haven
Rate-cut bets, slowdown concerns, trade war bolstering demand
The biggest bullion-backed exchange-traded fund is suddenly getting a lot of love. Holdings in SPDR Gold Shares surged by the most in almost three years as the U.S.-China trade war, signs of a slowdown, and speculation the Federal Reserve will cut rates combined to fan demand.
Assets in the SPDR ETF jumped 16.44 metric tons, or 2.2%, on Monday to post the biggest gain since July 2016, while a tally of holdings in all ETFs saw the biggest increase this year. The swing toward the traditional haven came as gold prices surged above $1,300 an ounce to hit the highest since February.
Yen gains on U.S.-Mexico trade woes; ECB awaited
Source: Reuters |JUNE 6, 2019 / 12:53 PM
TOKYO (Reuters) - The yen edged up versus the dollar on Thursday as sentiment soured over U.S.-Mexico talks on tariffs and immigration, fuelling broader concerns about global trade hostilities and raising appetite for safe-haven currencies.
In a move that could deepen Washington’s trade conflict with its partners, U.S. President Donald Trump unexpectedly told Mexico last week to take a harder line on curbing illegal immigration or face 5% tariffs on all its exports to the United States.
The dollar was down 0.16% at 108.286 yen, handing back a bulk of the gains made overnight.
The greenback was supported earlier on Wednesday on initial optimism towards U.S.-Mexico trade talks, and an Institute for Supply Management (ISM) survey showing that U.S. services sector activity expanded at a brisk pace in May.
“The dollar had risen against the yen earlier on speculation that the U.S.-Mexico negotiations would produce positive results, but headed back down on headlines saying an agreement had not been reached,” said Shinichiro Kadota, senior strategist at Barclays in Tokyo.
“The focal point today will be on the ECB and how dovish President Draghi could be.”
The European Central Bank makes its monetary policy decision later on Thursday. The central bank will try to give the ailing euro zone a boost and may even set the stage for more action later this year as an escalating global trade war unravels the benefits of years of monetary stimulus.
ECB President Mario Draghi is expected to maintain guidance about the possibility of more stimulus.
Yen jumps, peso tumbles on Trump's tariff threat on Mexico
Source: Reuters | MAY 31, 2019 / 12:51 PM / 2 DAYS AGO
NEW YORK (Reuters) - Investors rushed into the perceived safety of the Japanese yen on Friday, with the currency scoring its best day against the dollar in four months, after U.S. President Donald Trump’s threat to impose tariffs on Mexico roiled financial markets and stoked recession fears.
Taking aim at what he said was a surge of illegal immigrants across the southern border, Trump vowed on Thursday to impose a tariff on all goods coming from Mexico, starting at 5% and ratcheting higher until the flow of people ceases.
The Mexican peso tumbled against the greenback, losing as much as 3.4% at one point, for its steepest single-day loss since October. It was down 2.65% at 19.6485 per dollar.
Trump’s surprise duties on Mexican imports “spurred sharp losses in the Mexican peso and a general risk-off move that strengthened the yen,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.
Several different currencies have served as safe havens during the global trade conflict, but the yen has consistently been among the strongest this year, and on Friday investors appeared to opt for the Japanese currency.
The yen increased 1.11% at 108.41 per dollar and 0.75% per euro.
Gold hits six-week high on increasing belief in central bank cuts
Source: Forexlive.com | Fri 31 May 2019 19:28:20
Gold up $17 today
In a world of uncertainty, gold shines ever-brighter.
That's certainly the case today with Trump announcing new tariffs and risk assets getting beaten up. Gold is up $17 to $1306.
The rally breaks the May high of $1303 and means the precious metal will close the month at the highs.
Gold also rallied nicely in the Nov-Dec period on a similar round of fears about trade. The upside here is considerable but it will need to coincide with a deteriorating in economic data.
The Fed funds market is pricing in a 73% chance of two Fed rate cuts this year.
Potential SNB intervention draws closer as the franc gains on haven demand
Source: Forexlive.com |
EUR/CHF is looking to test a critical support level once again
The SNB's comfort range for the swissie is EUR/CHF holding between 1.1200 to 1.1400 levels. Of course, the higher the pair moves (weaker swissie) then the better for the SNB. But with markets running with a risk-off mood, it has put the currency back in demand as haven flows dominate.
As such, EUR/CHF is beginning to slip back under the 1.1200 handle and nears a critical test of support levels around 1.1163-83. For those chasing further shorts, a word of caution as the SNB may be seen intervening to limit the pace of the franc's gains.
However, the more pressing issue for the SNB will be how does it battle against increasing demand for haven assets (the franc in this case) in the midst of rising global trade tensions and a worsening global economy?
There's no doubt that they have the means to combat such a move but realistically, they can only slow down the intensity of the rise in the franc rather than cause a counter-reaction. Nonetheless, the lower EUR/CHF moves from hereon, the more it increases the potential for the Swiss central bank to step into the market.
If we do breach support at 1.1163-83, further support is only seen towards the 1.1000 handle next and that could be an area where the SNB draws a hard line on things.
Mexican peso slides, yen gains as Trump shakes markets with new tariffs
TOKYO (Reuters) - The Mexican peso sank to three-month lows against the dollar on Friday after Washington unexpectedly said it will slap tariffs on all goods coming from its southern neighbour.
The safe-haven yen advanced as the Trump administration’s move to escalate its trade war with other countries shook already fragile investor sentiment in global financial markets.
“The news on Mexican tariffs came just as the United States is imposing tariffs on China, and the timing is stirring up the markets,” said Daisuke Karakama, chief market economist at Mizuho Bank.
“Headlines related to trade issues come in short, unpredictable bursts. Currency market reaction is therefore quite intense, but also tends to be short-lived.”
The Mexican peso was down 1.8% at 19.4812 per dollar after President Donald Trump said on Thursday the United States will impose a 5% tariff on all goods coming from Mexico from June 10 until illegal immigration is stopped.
At one point, the peso weakened to 19.5950 per dollar, its lowest since March 8.
“Imposing these tariffs is in principle, not allowed under the free trade agreement currently in place between Mexico and the United States or under WTO general frameworks,” wrote Tania Escobedo, strategist at RBC Capital Markets.
The dollar index against a basket of six major currencies was flat at 98.106 after inching down the previous day, when it snapped two straight sessions of gains amid a continuing decline in U.S. yields.
The index was still headed for a 0.5% gain this week, supported by weakness in peers such as the euro and sterling, and the U.S. currency’s own status as a safe-haven in times of market and economic troubles.
“The dollar’s recent gains are part of the flight-to-quality into the United States, notably the strong investor demand for Treasuries which has driven their yields lower,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.
The 10-year U.S. Treasury note yield has declined steadily this week and touched 2.171% on Friday, its lowest since September 2017.
The euro was steady at $1.1133. The single currency was down 0.62% this week, weighed by factors including concerns over Italy’s rising debt and the prospect of Trump opening up a European front in his trade war.
China Has Rare Earths Plan Ready to Go If Trade War Deepens
Measures would focus on heavy rare earths given U.S. reliance
Applications widespread across electronics, medicine, military
Beijing has readied a plan to restrict exports of rare earths to the U.S. if needed, as both sides in the trade war dig in for a protracted dispute, according to people familiar with the matter.
The government has prepared the steps it will take to use its stranglehold on the critical minerals in a targeted way to hurt the U.S. economy, the people said. The measures would likely focus on heavy rare earths, a sub-group of the materials where the U.S. is particularly reliant on China. The plan can be implemented as soon as the government decides to go ahead, they said, without giving further details.
Rising pound volatility gauges signal no-deal Brexit nerves
LONDON (Reuters) - The pound held near four-month lows on Wednesday but with the contest to succeed Prime Minister Theresa May under way and the clock ticking on Brexit, investors are preparing for greater currency swings in coming months.
A gauge of the difference between expected swings in sterling over the next three and the next six months rose to its highest level in more than three years, with implied vol gauges signalling rising anxiety linked to Britain’s Oct. 31 deadline to exit the European Union.
May is to step down as Conservative Party leader on June 7 and most candidates to succeed her, including front-runner Boris Johnson, have signalled they are prepared for a no-deal departure if Brussels does not reopen Brexit negotiations.
On the other hand, sterling is being supported by chances of a second Brexit referendum, following pro-EU parties’ strong performance in European Parliament elections. The UK parliament also strongly opposes a no-deal outcome.
The currency has lost more than 3% so far in May, its worst month in a year.
Justin Onuekwusi, a fund manager at Legal & General Investment Management, said markets were probably assigning too high a probability to a no deal.
Noting parliament’s opposition to that outcome, he said: “If you look at the downside and upside of sterling, the upside risks are reasonably significant. If we see bigger falls in sterling we will take bigger steps to increase our exposure.”
Against the euro, the pound was trading at 88.22 pence, not far from a four-month low of 88.50 pence hit last week.
It slipped 0.2% against the dollar to around $1.2621, just off four-month lows of $1.2605 hit last week.
Derivative markets meanwhile indicate increased jitters especially around Oct. 31, with implied volatility contracts expiring after that date trading at a significant premium to those expiring earlier.
“Lots of sub-plots may emerge along the way but we are moving toward another binary outcome that will likely result in increased pound volatility,” MUFG analysts told clients.
British government bonds too reflected the nerves, with 10-year yields at 0.90%, down around 30 basis points in May.
FOREX-Trade fears and falling yields push yen to 2-week highs vs dollar
LONDON, May 29 (Reuters) - The Japanese yen firmed to a two-week high versus the dollar on Wednesday as concerns of a further escalation in the trade conflict between the United States and China prompted investors to rush to perceived safe-haven assets.
A global wave of risk aversion sent sovereign bond yields tumbling across the world. Benchmark U.S. Treasury yields fell to their lowest levels since September 2017 while New Zealand bond yields tumbled to a record low.
The People’s Daily newspaper, owned by China’s ruling Communist Party, said Beijing was ready to use rare earths for leverage in its trade war with the United States. It added in an extremely strongly worded commentary “don’t say we didn’t warn you”.
The yen edged 0.2 percent higher to 109.15 against the dollar, its highest level since May 15 this year and not far away from an early February high of 109.02 yen.
But the dollar’s losses remain broadly confined against the yen as the greenback remained firm against other currencies such as the euro and the pound.
The dollar - bolstered by its status as the world’s reserve currency - was less than half a percent below a two-year high of 98.37 hit last week against a basket of its rivals. It was broadly steady at 97.97.
“Investors currently regard the greenback as the go-to instrument in a time when global growth is threatening to turn lower on the back of a trade dispute and political fragmentation abroad,” said Konstantinos Anthis, head of research at ADSS.
The U.S. Treasury Department said in a report on Tuesday it reviewed the policies of an expanded set of 21 major U.S. trading partners and found that nine required close attention due to currency practices: China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, and Vietnam.
Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch, said the report had a muted impact on risk sentiment, adding that investors are watching how the United States and China will deal with their trade dispute going into the G20 meeting in Japan next month.
UK ever more polarized as Brexit Party storms to EU vote win
SOUTHAMPTON, England (Reuters) - Nigel Farage’s Brexit Party stormed to victory in a European election, riding a wave of anger at the failure of Prime Minister Theresa May to take the United Kingdom out of the European Union.
A European Parliament election that the United Kingdom only took part in because May delayed Brexit showed a country even more polarized over the EU divorce nearly three years since a 2016 referendum in which it voted 52% to 48% to leave.
The United Kingdom was supposed to have left on March 29 but it remains a member of the EU and its politicians are still arguing over how, when or even whether the country will leave the club it joined in 1973.
May on Friday announced she was stepping down, saying it was a matter of deep regret that she could not deliver Brexit. The Conservative Party was on course for one of its worst results in a nationwide election ever.
Across England and Wales, voters turned away in anger from May’s Conservatives and the opposition Labour Party of Jeremy Corbyn, which had sought a softer version of Brexit.
The Brexit Party came first while explicitly pro-EU parties - the Liberal Democrats, Greens and Change UK - were, combined, a few percentage points behind.
Farage, elected as a Member of the European Parliament for the South East of England, said he wanted to be involved in Brexit negotiations and warned that British politics was on the cusp of major upheaval unless Brexit took place on Oct. 31.
“We want to be part of that negotiating team,” Farage said in Southampton, southern England.
“If we don’t leave on Oct. 31 then the score that you have seen for the Brexit Party today will be repeated in a general election and we are getting ready for it.”
Asia's Worst Currency Hammered as Funds Buy Foreign Stocks
Local investors boosted trading of overseas assets by 51%
We are raising allocation to foreign assets, says Heo at Midas
As if South Korea’s won doesn’t have enough to worry about, a stampede in local investors toward overseas assets is threatening further losses in Asia’s worst-performing currency.
Korean investors traded a net $37.9 billion of foreign stocks and bonds last quarter, a 51% increase over the previous three months, data from Korea Securities Depository showed. The won has tumbled almost 6% this year as economic growth has slowed, exports have been pummeled by the U.S.-China trade war and a souring semiconductor market has hurt companies such as Samsung Electronics Co.
NZDUSD trades to lowest new year lows but stalls the fall ahead of retail sales in new day
Source: Forexlive.com | 22nd May, 2019
Retail sales for 1Q estime 0.6% vs 1.7% in 4Q
In the new trading day, the NZ retail sales report for the 1Q will be released. The estimate is for a 0.6% gain. That comes after a 1.7% gain in the 4Q. That was the strongest quarter since 1Q 2017 (also 1.7%).
The price today, fell in tandem with the AUDUSD after RBAs Lowe spoke toward a potential easing at the next meeting. The odds of an ease in June is up to about 70% in June.
The RBNZ already cut once (at their meeting on May 8th). There is a 47% chance of cut at the August meeting and a 63% chance by November. It is not a sure thing but the bias remains a cut.
Anyway, the retail sales report today has the potential to goose the market.
Looking at the daily chart above, on the topside, the pair has a trend line that cuts across at 0.6552 level. Last week, on May 16, the pair stalled against that trend line and moved back down. Above that, the 0.6572-79 will be eyed. That area is home to a swing low at the beginnning of the year and was lows at the end of April as well (see yellow area and green numbered circles). The high from May 16th stalled in that area before moving lower.
Moves above the trend line at 0.6548 and the swing area at 0.6572-79 would give buyers something to hang more of a confident long on. Staying below, keeps the sellers more in control from the daily perpective.
On the downside on the daily chart, the swing low from October 26th at 0.64639 is the next obvious target, followed by the even more obvious 2018 low at 0.64241. Below that, and the open road will point toward a lower trend line on the daily at 0.6394 (and moving lower - see red circled numbers).
Drilling to the hourly chart, there are some closer levels of importance on the top and bottom side.
On the topsdie, a trend line at at 0.6528 and the 100 hour MA at 0.6534 are hurdles to get and stay above. The 200 hour MA is up at 0.62577.
ON the downside, a lower trend line cuts across at 0.6478 (and moving lower). A move below will next look toward the aforementioned 2018 lows at 0.6463 and 0.6424.
How the Yuan Could Create Havoc
Another hit. It seems every day carries some news destined to make U.S.-China trade negotiations more difficult, with the ban against Huawei the latest example. The effects of the spat have started to show on currency markets and could deliver collateral damage, and European exporters could be big losers.
The escalation of tensions has pushed China’s yuan to year-lows against the dollar, near the 7.0 level seen as critical by several strategists at JPMorgan and Nordea. Further weakness could hurt Chinese asset prices and risk appetite globally, making it “the most important gauge worldwide currently,” Nordea says, and something that European equity investors can’t ignore.
The trade confrontation could drag on, according to Sebastien Galy, a senior macro strategist at Nordea Investment Funds. The next G20 meeting (June 28-29) could be decisive, and if no deal is in sight, the market will likely speculate on a devaluation of the renminbi and higher tariffs, providing a shock to the equity market, Galy writes.
Indeed, the U.S.-China dispute is the most significant hit to the early 2019 consensus of a cyclical global recovery, JPMorgan strategists write, adding that the Chinese Central Bank has been willing to act to prevent further weakness in the yuan.
“While it seems unlikely that China will let the yuan trend lower too durably beyond the 7 threshold, it appears equally unlikely to us that they will not be tempted to do so, just for a while, to test some nerves a bit,” Makor strategist Stephane Barbier De La Serre writes. The strategist has a 7.15 target for the currency, which would have a material impact on global equities, particularly on cyclicals and tech stocks.
The yuan has also lost ground against the euro, which is bad news for European firms selling goods overseas. JPMorgan strategists closed their overweight recommendation on European exporters this week, arguing the euro could be bottoming out. Should the world avoid a full-blown trade war, that might help the region’s banks, a sector JPMorgan recommends rotating toward, alongside value stocks.
Forexlive Americas FX news wrap: Quiet Monday as Fed speak fails to move the needle much
Forex news for NY trading on May 20, 2020.
- Stocks down but it could have been worse
- USDCNH slows the rise....Can you trust it though
- Fed's Williams: Policymakers want to maintain a strong labor market, keep inflation low
- Crude oil futures settle at $63.10
- President Trump and Chair Powell both speaking at 7 PM tonight
- Pres. Trump: Reports of US setting up talks with Iran are false
- Fed Vice Chair Clarida repeats comments from recent speeches
- Austria's Chancellor Kurz trying to control damage from Strache's weekend resignation
- BOE Broadbent: UK business investment trends are still negative
- Handelsblatt interview with Fed's Bullard: US economy is performing quite well
- China's Global Times editor: Turning point for US semiconductor companies
- European shares end with declines
- Lindsey Graham: Escalating tensions with Iran
- Fed's Harker: US economy will not grow faster than 2% w/out more work at connecting employers with workers
- More Bostic: Businesses telling him consumer demand is strong
- Fed's Harker: Monetary policy should not be robotically driven by rules
- Feds Bostic: Two way risks on the economy
- Chicago Fed national activity index for April -0.45 vs -0.20 estimate
- The AUD is the strongest and the USD and EUR are the weakest
In other markets:
- Spot gold, up $.30 or 0.02% $1277.85
- WTI crude oil futures trading up $.44 or 0.70% at $63.20
In the US stock market to day, the major indices closed lower and did not see positive levels in the day, but they were off low levels as well. European shares were also lower with the German Dax, France CAC and Italian FTSE MIB hit particular hard.
Fed speakers were the other "events" for the day.
- Fed's Bostic was non-committal as to his projections for rates next although he did not expect the Fed to act anytime soon (one way or the other).
- Fed's Harker was skeptical that the US could grow faster than 2% without more work connecting employers with workers.
- Vice Chair Clarida's prepared text was the same as the May 13th and April 9th (or very similar) with the central theme that the Fed was close to inflation and employment goals
- NY Fed's Williams said that the policymakers want to maintain a strong labor market, keep inflation low
Each came and went without much of a market reaction.
Perhaps, the forex market is gearing up for Fed's Powell who will be the keynote speaker tonight at the Atlanta Fed's Financial Markets conference (starting at 7 PM ET/2300 GMT).
Other news came late in the day US said it is creating a 90-day temporary general license for Huawei and 68 entities. That might ease some anxiety for the market but trade tensions seem to continue to be a concern.
The snapshot the the strongest and weakest currencies at the end of the day show the AUD as the strongest and the USD as the weakest. Those two currencies held the same rankiings at the start of the day. Through the day, the AUD gave back some of their gains, while the USD also gave back some of their losses.
Sterling rises off five-month lows after biggest weekly drop this year
Source; Reuters | Monday 20th May, 2019
LONDON (Reuters) - Sterling inched above five-month lows on Monday as British Prime Minister Theresa May makes a last-ditch attempt to get a Brexit deal through parliament before she leaves office, though scepticism from the opposition Labour Party capped gains.
After failing three times to get parliament’s approval for her EU divorce deal, May said she will present a “new, bold offer” to lawmakers with “an improved package of measures” in a final attempt to secure a Brexit deal.
Though there is broad scepticism that any such deal will go through, sterling did rise 0.3% higher against the dollar to $1.2754, though this is only after having dropped 2.2% last week, its worst week since October 2017.
Australian Dollar Climbs as Coalition Retains Power in Election
Source: Bloomberg | Updated on
PM Morrison defies opinion polls to hold onto government
Currency gains as much as 1% following Liberal-National’s win
Australia’s dollar rose after the conservative Liberal-National coalition retained power in an election over the weekend.
The currency gained as much as 1% after Prime Minister Scott Morrison’s center-right government defied opinion polls and hung on to power. It pared the advance to trade up 0.4% at 68.98 U.S. cents as of 9:25 a.m. in Sydney, with investor focus shifting back from politics to the nation’s monetary policy, where bets have for an interest-rate cut have been rising.
“The coalition win has removed an uncertainty and so the move higher on the AUD this morning shouldn’t be a surprise,” said Rodrigo Catril, senior FX strategist at National Australia Bank Ltd. in Sydney. “That being said, we don’t expect the move to be longer lasting -- the Aussie’s fortunes are largely dependent on U.S.-China trade tensions and whether or not the Reserve Bank of Australia embarks on another round of monetary easing.”
A $19 Billion Test Is Coming Straight for China’s Battered Yuan
Offshore-listed Chinese firms will buy FX to pay dividends
Trade dispute has dragged the yuan to weakest level of year
China’s yuan, already battered by the U.S. trade dispute, will soon have a catalyst for further depreciation.
Offshore-listed Chinese companies will sell the yuan to buy foreign currencies and fund their $18.8 billion dividend bill due from June to August, according to Bloomberg calculations. While that’s less than last year’s $19.6 billion, the payments come at a sensitive time: the yuan is near its weakest this year and speculation is mounting it will fall to 7 per dollar, regarded as a key psychological level.
The offshore yuan has already dropped about 2.9% in May, making it one of the world’s worst-performing currencies. The spat with the U.S. has put the yuan under pressure because it is likely to hurt China’s economic growth and narrow its trade surplus, while there’s also the possibility the central bank will weaken the currency to offset the blow from tariffs. The U.S. increased levies on Chinese imports on May 10 and has threatened more.
“The yuan will face seasonal depreciation pressures,” said Tommy Ong, managing director for treasury and markets at DBS Hong Kong Ltd. “But a more important driver for the exchange rate is the trade talks. The currency may weaken towards 7 amid the negotiations, but won’t break that level as that would agitate the U.S.”
The peak for dividend payouts will come in July, when Chinese companies hand out $9.9 billion to shareholders. Pressure on the yuan could build before then as firms buy foreign-exchange to prepare themselves, though they might not need to if they already hold dollar reserves offshore.
Hong Kong-listed banks are among the biggest payers. China Construction Bank Corp. will hand out $4.2 billion in July, and Bank of China Ltd. will pay $2.1 billion, according to Bloomberg calculations based on exchange filings.
Beijing has moved to support the yuan: the People’s Bank of China set its daily reference rate stronger than analysts and traders projected Monday. The offshore yuan was up 0.11% at 6.9417 per dollar as of 5:06 p.m. in Hong Kong, after touching as low as 6.9514 earlier in the day. The onshore rate strengthened 0.08%.
Dollar gains as European concerns hurt euro, sterling
Source: Reuters | 17th May, 2019
NEW YORK (Reuters) - The dollar rose on Friday as concern about next week’s European parliamentary elections dented demand for the euro, while the British pound dropped to a four-month low on worries about Britain’s exit from the European Union.
The dollar has been favoured as a safe-haven currency even as the U.S.-China trade war escalates.
The euro has been hurt this week by Italian Deputy Prime Minister Matteo Salvini’s comments that European Union rules harm his country.
The elections will shake up the continent, leading to a relaxation of budget rules and influencing the choice of the next central bank chief, Salvini said on Friday.
“The market is a little bit concerned about European elections. It seems to be a flow into the dollar as a bastion of last resort,” said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York.
The euro briefly pared losses after the White House said President Donald Trump is delaying a decision for as long as six months on whether to impose tariffs on imported cars and parts to allow for more time for trade talks with the EU and Japan.
Sterling fell to the lowest since Jan. 15 after cross-party Brexit talks collapsed and concern grew about the impact Prime Minister Theresa May’s likely resignation would have on Britain’s exit from the EU.
The offshore Chinese yuan fell to its lowest levels since November after China said the United States must show sincerity if it is to hold meaningful trade talks as Trump dramatically raised the stakes with a potentially devastating blow to Chinese tech giant Huawei Technologies Co Ltd.
The world’s two largest economies are locked in an increasingly acrimonious trade dispute in which they have imposed escalating tariffs on each other’s imports.
“Rhetoric from both sides is getting more heated, making a U.S.-China deal seem a long way off,” Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a report.
“At this point, this means there will be no high-level negotiations between the two until a potential Trump-Xi (Jinping) meeting at the G20 meeting in late June. This means the next round of tariffs will likely come into play, signalling further escalation and making a deal that much harder,” Thin said.
The Australian dollar dropped to its lowest level since Jan. 3 on the escalating trade tensions.
Data on Friday showed U.S. consumer sentiment jumped to a 15-year high in early May on growing confidence over the economy’s outlook, though much of the surge was recorded before the trade war escalation.
It's All Starting to Look Glum for the Australian Dollar
Source: Bloomberg | May 17th, 2019
Nomura recommends shorting the currency amid political risk
AMP Capital sees Australia’s dollar falling to 65 U.S. cents
Australia’s dollar is under siege from an upcoming election, a trade war and a faltering economy.
Nomura Holdings Inc. advocates a short position ahead of Saturday’s general election. QIC Ltd. has advised pension-fund clients to sell the Aussie against the dollar and yen, while AMP Capital Investors is equally pessimistic. The currency has declined around 2.3% this month to under 70 U.S. cents as optimism that trade frictions will be resolved evaporated.
Source: ForeXLive.com |16th May, 2019
MS commentary on the Reserve Bank of Australia and the employment report yesterday.
April labour market report has been strong enough to prevent the RBA from cutting rates before August
However, the issue remains China …
- Mnuchin said he was more cautious about talks with China, saying he has "no plans yet" to go to Beijing and that while he is "hopeful" for a deal, he denied being "confident".
It seems it may require China's labour market or US financial markets to weaken and become a more pressing issue to act as a circuit breaker.
Yep. Keep one eye on the RBA, but keep two on US-China developments.
Pound falls below $1.28 as pressure builds on May to go
LONDON (Reuters) - The pound neared a four-month low on Thursday as Britain’s Prime Minister Theresa May battled to keep her Brexit deal, and her premiership, intact amid growing fears of a disorderly departure from the European Union.
Sterling has weakened more than 1% this month as cross-party Brexit talks have yielded little and left May vulnerable to a leadership challenge.
She will set out a timetable for her departure in early June after the latest attempt to get her Brexit deal approved by parliament, but could face a confidence vote if the deal is voted down.
The prospect of May’s demise is weighing on the pound because some investors think it could push Britain in the direction of a disorderly no-deal Brexit.
“What we’re seeing is the market pricing in a higher probability of an exit without a deal,” Adam Cole, chief currency strategist at RBC Capital Markets, said, noting the growing risk that the bill would fail to pass and May depart before parliament goes into recess in late-July.
“It looks increasingly likely she will be replaced by a pro-Brexit PM with no election, and that automatically increases the chances of a no-deal Brexit.”
Sterling was down for the ninth straight session, touching a three-month low of $1.2794 and slipping 0.2% against the euro to 87.4 pence, the lowest since February 19.
May plans to put to her thrice-rejected Brexit agreement to parliamentary vote but Eurosceptics in her party and its Northern Irish allies, as well as opposition Labour lawmakers, are expected to reject it.
Boris Johnson, Britain’s former foreign minister and a prominent campaigner to leave the EU, said on Thursday he will be standing as a candidate to replace May as Conservative leader, the BBC reported.
Britain’s deadline for leaving the EU is Oct. 31.
May’s failure to reach a compromise on the Brexit deal with Labour has also seen one-month implied sterling volatility rise to a five-week high.
The currency is also being undermined by the global risk-off mood, with tariff tensions between China and the United States threatening to degenerate into a full-scale trade war.
Source: ForeXlive.com | 15th May, 2019
Economists at the investment bank have "a tactically negative view on EUR ahead of the June" European Central Bank meeting.
- US-China trade war to continue as a negative for the euro
- On today's stay of execution on auto tariffs - GS say a delay was their "base case"
- ECB is closer to easing than the Federal Reserve is
- If EM central banks use reserves to defend their currencies, they may need to sell EUR/USD for portfolio rebalancing
- Support from EUR has come from covering of EUR-funded emerging-market carry trades
Sterling hits three-month low as Brexit deadlock saps support for PM May
LONDON (Reuters) - The pound fell sharply on Wednesday on growing expectations that Prime Minister Theresa May will again fail to get her Brexit deal approved and could soon face a leadership challenge.
Sterling has weakened more than 1% this month as deadlocked cross-party talks expose deep political divisions over how, when and even if Brexit should take place.
May plans to put forward her thrice-rejected Brexit deal in the week beginning June 3, to try to secure an agreement before lawmakers go on summer holiday.
But Britain’s opposition Labour Party said it would not ratify the deal if a compromise agreement is not reached with the government.
Those comments fuelled speculation that May will soon be ousted and pressured the pound.
The currency fell more than 0.5% to $1.2827, its lowest since Feb 15, and dropped around 0.4% versus the euro to 87.35 pence.
“Failure to pass the deal [in June] could well see May finally step down, opening the door for a more eurosceptic prime minister and a possible hard Brexit,” said Petr Krpata, an FX strategist at ING in London.
Sterling has fallen for eight consecutive days against the dollar despite mostly solid economic data in Britain in recent months.
A worry for investors is that months of inventory stockpiling by British companies before Brexit will show up this quarter.
China April industrial output up 5.4%, much less than expected, retail sales also falter
BEIJING (Reuters) - Growth in China’s industrial output slowed more than expected to 5.4 percent in April from a 4-1/2 year high in March, reinforcing views Beijing will have to roll out more stimulus measures as a trade war with the United States intensifies.
Analysts polled by Reuters had forecast industrial output would grow 6.5%, slowing from an unexpectedly strong 8.5% in March.
Fixed-asset investment rose 6.1% in January-April from the same period last year, also lagging expectations, the National Bureau of Statistics said on Wednesday.
Analysts had predicted a 6.4% increase, picking up slightly from 6.3% in January-March.
Private-sector fixed-asset investment, which accounts for about 60 percent of overall investment in China, rose 5.5% in the same period, compared with a increase of 6.4% in the first three months of the year.
Retail sales rose 7.2% in April on-year, the slowest pace since May 2003, sharply down from March’s 8.7% and missing a forecast rise of 8.6%.
The United States escalated a tariff war with China on Friday by hiking levies on $200 billion worth of Chinese goods in the midst of last-ditch talks to rescue a trade deal. China retaliated on Monday, though on a smaller scale.
The U.S. move comes as China’s economy was beginning to show tentative signs of improvement after a flurry of support measures, though analysts had cautioned it was too early to call a recovery.
Economists at Citi estimate the U.S. tariff increase could lop 50 basis points off China’s GDP growth, reduce exports by 2.7 percent and cost the country another 2.1 million jobs, though they are optimistic a trade deal will be reached eventually.
Yuan weakest since December as China adds tariffs
NEW YORK (Reuters) - The Chinese yuan dropped to its lowest levels against the U.S. dollar since December on Monday as the trade war between the United States and China escalated, with each country raising tariffs on the other’s goods.
China plans to impose higher tariffs on $60 billion worth of U.S. goods, the finance ministry said on Monday, after the United States announced a tariff hike on $200 billion of Chinese products on Friday.
U.S. President Donald Trump said Beijing “broke the deal” by reneging on earlier commitments made during months of negotiations while China said on Sunday it would not swallow any “bitter fruit” that harmed its interests.
The yuan weakened to 6.92, its lowest level since Dec. 24. China is expected to intervene to stop any plunge through 7 against the dollar.
Rising tensions between the two countries has also increased fears that China may sell its vast holdings of Treasuries as punishment or as a negotiation tactic against the United States.
That hurt the greenback against safe-haven currencies the Japanese yen and Swiss franc. It also briefly weakened against the euro, before retracing the losses.
“They own a sizable chunk of Treasuries and that’s got the market spooked a little bit and has got the dollar trading on the defensive against some of the other major currencies,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
The euro may also benefit against the dollar as the eurozone has a balance of payments surplus, and “in times of trade war surplus currencies tend to do reasonably well,” Rai said.
Investors are also focused on whether Trump will impose tariffs on imported cars and auto parts as talks continue with the European Union and Japan.
Trump received a “Section 232” investigation report in February, widely believed to have concluded that car and auto part imports pose a risk to national security. The president’s 90-day deliberation period is due to end on May 18.
“The market is expecting that the Trump administration will extend that deadline. If there is no indication that they will you could see equities take a bit of a pounding this week,” Rai said.
Sterling also slipped to its lowest levels in two weeks on concerns that the British parliament will fail to reach a cross-party deal on Brexit.
Up to 150 lawmakers from Britain’s opposition Labour party would reject an agreement that did not include a referendum confirming it, shadow Brexit secretary Keir Starmer told the Guardian newspaper.
U.S. president warns China against ‘substantial’ retaliation
President Donald Trump plans to meet his Chinese counterpart Xi Jinping at next month’s G-20 summit, an encounter that could prove pivotal in a deepening divide over trade that is sending stocks tumbling and clouding the outlook for the global economy.
Trump said the U.S. was expecting China to retaliate against American tariffs, but argued that Beijing still wants to make a deal. But he warned Xi’s government not to go too far in responding to U.S. trade actions.
“There can be some retaliation but it can’t be very substantial,” Trump told reporters Monday at the White House during a meeting with Hungarian Prime Minister Viktor Orban.
Leaders of the Group of 20 economies are scheduled to meet June 28-29 in Osaka, Japan. Earlier, Treasury Secretary Steven Mnuchin said talks between the U.S. and China are ongoing, and he’s working on the details of another trip to the Asian nation.
U.S. stocks pared losses following the comments by Mnuchin and Trump. The S&P 500 had been headed for its biggest slide in four months, while Treasuries rallied with the yen on demand for for haven assets.
China announced plans earlier Monday to raise duties on some American imports starting June 1, defying a call from Trump to resist escalating the trade war.
Less than two hours after Trump tweeted a warning that “China should not retaliate -- will only get worse!” the Ministry of Finance in Beijing unveiled the measures on its website. The new rate of 25% will apply to 2,493 U.S. products, with other goods subject to duties ranging from 5% to 20%, it said.
The next salvo was poised to come later Monday, when the Trump administration is expected to provide details of its plans to impose a 25% additional tariff on all remaining imports from China -- some $300 billion in trade.
Higher U.S. tariffs will drive up the Federal Reserve’s preferred measure of underlying inflation, and further escalation could raise consumer prices even more and dent U.S. growth, Goldman Sachs Group Inc. economists said in a research note.
China’s move to hike tariffs came in response to the U.S.’s decision last week to increase levies on $200 billion in Chinese imports to 25% from 10%. Trump on Monday accused China of backing out of a deal that was taking shape with U.S. officials, saying Beijing reneged on an agreement to enshrine a wide range of reforms in Chinese law.
RBNZ's Orr: Yesterday's rate cut gets the RBNZ ahead of the curve
RBNZ's Orr speaks with Radio New Zealand
- Too early to tell if another cut is needed
- Rate cut should boost consumer, business spending
- Rate cut gets RBNZ ahead of the curve.
- Rate cut should ease pressure on the exchange rate
The NZDUSD is moving back below, and away from the April lows at 0.65796. The high in the London and NY session stalled ahead of the close from yesterday at 0.6600 area.
Pound slides to one-week low as Brexit talks falter
LONDON (Reuters) - Sterling slumped on Wednesday on signs that Brexit talks between Britain’s government and the main opposition party may soon collapse.
The pound has been falling as negotiations between the Conservative and Labour Parties lumber on with little success and as concerns grow about a challenge to Prime Minister Theresa May’s leadership.
But a suggestion by broadcaster ITV’s political editor that the talks could be pronounced dead later on Wednesday took sterling down another leg.
The pound dropped below $1.31 for the first time in a week, down 0.6 percent on the day. It also hit a six-day low versus the euro of 86.24 pence, again down 0.6 percent on the day.
Volatility in currency markets is currently very low and in recent weeks investors have also curtailed their bets on big swings in the pound.
The government conceded on Tuesday that Britain would take part in European Parliament elections this month, a poll that could deliver more bruising results to both major parties.
“The announcement that the UK will take part in European elections confirms that cross-party Brexit talks aren’t going anywhere fast. This also refocuses attention on a leadership challenge to May. Favour the pound to “$1.2950,” said ING analysts in a note to clients.
Some analysts attribute sterling’s recent tepid performance to major risks that could yank the currency either way.
“To the upside, the probability of no Brexit via a second referendum and vote to remain... has started to edge up again in recent days. The downside is associated with.. the risk of May being replaced as PM which is rising,” said RBC’s chief currency strategist Adam Cole.
May agreed a withdrawal deal with the EU last year, but it was rejected three times by a deeply divided British parliament. That delayed the exit date, a postponement that has weighed on the pound as investors fret about prolonged political uncertainty.
Sterling has traded in a narrow range of $1.28-$1.31 since Britain pushed its scheduled departure from the European Union back from March until Oct. 31. There is still little clarity about when, how, or even if, Brexit will happen.
Investors have been broadly impervious to tepid economic data recently and even relatively hawkish comments from the Bank of England last week failed to jolt the currency.
A $400 Billion Wave of Japanese Cash May Be Heading Overseas
Maturing Japanese government bonds could be recycled abroad
JPMorgan sees portfolio outflows sending the yen lower
Japanese investors faced the first trading day of a new eraon Tuesday with fresh eyes, but the same old problem -- where to put their money given rock-bottom interest rates.
They are expected to receive 44 trillion yen ($398 billion) in Japanese government bond redemptions in the fiscal year that started last month, according to JPMorgan Chase & Co. strategists Tohru Sasaki and Maoko Ishikawa. With an extended Golden Week holiday out of the way, investors will look to deploy cash overseas, and that should weigh on the currency, they said.
A look at 20-year Japanese government bond number 43 illustrates the dilemma for those who have been holding it in the run-up to its Sept. 20 maturity date. The security has a 2.9 percent coupon -- something scarcely available in Japan’s bond market today, where the Bank of Japan targets 10-year yields at around zero.
While there will doubtless be some recycling of maturing debt by Japanese investors into new JGBs, insurers have been among those looking to diversify abroad -- read more about that here.
Such portfolio outflows may help explain why the yen hasn’t gained much benefit from the Federal Reserve’s dovish pivot this year, at a time when the BOJ has refrained from following suit. It also may feed into the limited moves seen this week as U.S.-China trade tensions flared. While the yen did benefit from a haven bid, its appreciation has been modest.
Japan’s currency was at 110.59 to the dollar as of 10:57 a.m. in London, up only about 0.5 percent from last Friday’s close.
A further breakdown in trade negotiations may become a major risk for JPMorgan’s bearish yen view, but the bank’s strategists see the currency staying under pressure.
“The yen will remain weak unless the trade talks end with a disastrous result for the global economy,” they said. “We continue to think dollar-yen will appreciate to 114s in coming months.”
And Japanese markets reopen today after 10 consecutive days closed for holidays.
2230 GMT Australia - Construction PMI for April
Australian Industry Group Performance of Construction Index
- prior 45.6
This is the last of the 5 PMIs from Australia each month
2330 GMT Australia - weekly consumer confidence
ANZ/Roy Morgan Weekly Consumer Confidence
- prior 117.6
0030 GMT Japan Nikkei/Markit Manufacturing PMI, final, for April
- preliminary and prior here: Japan Nikkei Manufacturing PMI for April, preliminary
0110 GMT Bank of Japan JGB buying operation
- 1-3, 3-5, 10-25, 25+ years remaining until maturity
0130 GMT Australia trade balance for March
- expected AUD 4480m, prior AUD 4801m surpluses
0130 GMT Australia retail sales for March
- expected +0.2% m/m, prior +0.8% (this was a huge beat, as you can see the expected for March is more sedate). I'll have more to come on this separately.
0300 GMT New Zealand - inflation expectations for Q2.
- prior 2.02%
0430 GMT Reserve Bank of Australia decision and statement
US stocks stage big comeback. Still close down but way off the lows
Dow was down -471 points at the lows. Closes down -68 points
The US stocks staged a big comeback after opening at the lows and slowly recovering throughout the day.
The final numbers are showing:
- The S&P index, -13 points or -0.44% at 2932.61. The low was on the open at 2898.21
- The Nasdaq fell -40.70 points or -0.5% at 8123.28. The low reached 7981.85
- The Dow fell -68.10 points or -0.26% at 26436.85. The low reached 26033.95.
Sterling surges to a 1-month high on Brexit deal hopes
LONDON (Reuters) - Sterling surged past $1.3150 on Friday after the leader of Britain’s opposition party said parliament must break the deadlock over Brexit and “get a deal done” to exit the European Union.
It also rallied to a one-month high against the euro as broad dollar weakness prompted investors to cut short positions heading into a long weekend with Britain shut for a local holiday on Monday.
Lee Hardman, MUFG’s currency analyst based in London said “optimism” over a “cross-party deal to break the impasse” had extended the move higher in sterling.
Traders heading into a three-day weekend in London may also be trimming any short positions in the pound in case they are caught out by positive news in the Brexit talks when markets are closed.
Jeremy Corbyn, leader of Britain’s Labour Party, said on Friday that the results of local elections held around the country the previous day should spur lawmakers to find a way to “get a deal done” to leave the EU.
He was quoted by ITV as saying there was now a “huge impetus” on every lawmaker to deliver a deal.
May seasonals: Three currencies that tend to struggle in May
Source: ForeXlive.com |
What are some forex seasonal patterns in May?
Welcome to May. It's the start of the good-weather season in most of the Northern Hemisphere but it's not a good month for every asset.
The oldest adage in stock trading is to "sell in May and go away" but the S&P 500 has been positive in May for six straight years, to the tune of 1.56% in that time.
Here are some currency trades with a better tracker record over the past 10 years.
May has been the worst month for the euro over the past 10 years. It's declined in 10 of the past 12 Mays and the average decline in the past decade has been 1.76% -- easily the worst month for the euro on the calendar.
May is the worst month on the calendar for the Australian dollar over 5, 10 and 30 year periods. The past decade has averaged a 2.33% decline. The big factor for AUD this year is going to be next week's RBA meeting. A cut is now 70% priced in. A move to lower rates would send the Aussie through 0.7000, especially with Powell hinting that a cut isn't in the cards in the US. As you would guess, the kiwi hasn't done much better in May.
The pound has fallen in nine straight years in May and 11 of the past 12. The lone outlier was a 9.47% rise in 2009 which skews the average higher. Even then, the average decline in the month is 1.00%. The pound was the top performer in April despite the Brexit worries and it's heavily beaten down but there isn't exactly a catalyst to buy it.
U.S. factory activity at two-and-half-year low, points to slowing economy
U.S. manufacturing activity slowed to a 2-1/2-year low in April amid a sharp drop in new orders while construction spending unexpectedly fell in March, suggesting economic growth was moderating after surging in the first quarter.
One of the reports from the Institute for Supply Management (ISM) on Wednesday showed businesses increasingly anxious that President Donald Trump’s threats to close the U.S.-Mexico boarder would further disrupt the supply chain. Washington’s trade war with China has created bottlenecks at factories.
The Federal Reserve kept U.S. interest rates unchanged on Wednesday, noting solid economic growth in the first quarter, and also holding out hope that inflation will rise toward the U.S. central bank’s 2 percent target.
“The slowing manufacturing sector needs to be watched carefully as income gains are not strong enough to support solid growth,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The ISM said its index of national factory activity fell to 52.8 in April, the lowest reading since October 2016, from 55.3 in March. A reading above 50 indicates expansion in the manufacturing sector, which accounts for about 12 percent of the U.S. economy.
Fed leaves interest rates unchanged as U.S. economy motors along
WASHINGTON (Reuters) - The Federal Reserve held interest rates steady on Wednesday as policymakers took heart in continued U.S. job gains and economic growth and held out hope that weak inflation will edge higher.
“The labor market remains strong ... economic activity rose at a solid rate” in recent weeks, the U.S. central bank said in a policy statement a day after President Donald Trump called on the Fed to cut rates by a full percentage point and take other steps to stimulate the economy.
Fed policymakers said the economy was in good shape as it stands, with ongoing job and economic growth, and an eventual rise in inflation, still “the most likely outcomes” as the U.S. expansion nears its 10-year mark.
At its two-day meeting, the Fed also trimmed the amount of interest it pays banks on excess reserves to 2.35 percent from 2.40 percent in an effort to ensure its key overnight lending rate, the federal funds rate, remains within the current target band.
The chief concern flagged in the policy statement is the currently “muted” level of inflation, which continues to fall short of the Fed’s 2 percent target. The statement suggested that a recent decline in inflation may be more persistent than expected, and was no longer to be blamed simply on falling energy prices.
The most recent data showed inflation running at around a 1.5 percent annualized rate, which would be a problem if it meant that households and businesses had doubts about the economy’s strength and were less willing to spend and invest.
Between that and a weaker global economy, the Fed reiterated it would be “patient” in deciding on any further changes to its overnight benchmark lending rate, which it left in a range of 2.25 percent to 2.50 percent.
The Fed’s decision triggered a rally in U.S. Treasury securities, particularly in shorter-dated maturities, and in interest rate futures, signaling that investors see a growing probability of a rate cut by year end.The yield on 2-year Treasury notes, which moves in the opposite direction of its price, dropped to the lowest since late March at around 2.21 percent. U.S. stocks edged higher, with the benchmark S&P 500 Index up 0.2 percent on the session, and the dollar weakened against the euro.
FED REMAINS PATIENT
There was no indication in the Fed’s policy statement on Wednesday that either a rate cut or hike is in the offing anytime soon as policymakers weigh ongoing economic growth and low unemployment against the tepid rate of price increases.The Fed raised rates four times in 2018 and, as late as December, had anticipated further rises in borrowing costs this year. Early this year it halted the tightening campaign on concerns about weak data in the United States and abroad.
Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT)
The federal funds rate is the amount banks charge each other for overnight loans, and is the rate the Fed targets as its main way of controlling other borrowing costs in the economy. It neared the upper end of the target range last week, prompting the change in the interest paid on excess reserves.
The policy decision was unanimous, a sign that the Fed remains steady in its pledge to keep interest rates unchanged until incoming economic data provide a compelling reason to do otherwise.
Official jobs data from NZ is only once each quarter. today we got the numbers for January - March 2019.
- Due at 2245GMT
What is expected:
- Unemployment rate: expected is 4.3%, prior was 4.3%
- Employment change q/q: expected 0.5%, prior was 0.1%
- Employment change y/y: expected 2.2%, prior was 2.3%
- Participation rate: expected 70.9%, prior was 70.9%
Also included is data on wage growth:
- Average hourly earnings: expected 0.8%, prior was 1.0%
- Private wages including overtime: expected 0.5%, prior was 0.5%
- Private wages excluding overtime: expected 0.5%, prior was 0.5%
Brief remarks via ASB:
We expect some modest strengthening from the 'soft' Q4 HLFS labour prints, with
- employment growth set to firm,
- the unemployment rate to ease,
- and with measures of labour utilisation to tighten.
However, wage growth is still expected to remain modest, with distributional measures continuing to depict a contained wage inflation backdrop. In our view, wage growth looks like it won't strengthen enough to keep CPI inflation outturns comfortably within the 1-3% inflation target. We expect 50bps of OCR cuts over 2019, with reasonable odds of a 25bp RBNZ cut next week
Even briefer via ANZ:
- The final piece of theRBNZ decision-making puzzle. The market will be eager to glean something from thedata for next week's MPS.
Sterling jumps on reports of progress in Brexit talks
LONDON (Reuters) - Sterling rose above $1.30, hitting a two-week high, on Tuesday after media reports that the tone of Brexit talks between the British government and the main opposition party had improved.
Prime Minister Theresa May is seeking a consensus with Labour to get a Brexit deal approved and wants talks to reach a conclusion by the middle of next week, several British journalists reported on Tuesday.
The pound rose to as high as $1.3049, with broad dollar weakness and end-of month portfolio changes by asset managers cited as possible reasons for the move alongside the Brexit-related optimism.
The British currency had fallen to a two-and-a-half-month low last week as the dollar surged and worries mounted about a deadlock in talks over the terms of Britain’s exit from the European Union.
But the Times newspaper reported on Tuesday that May’s government has made substantive moves in Brexit talks with Labour, citing unidentified Labour sources.
The EU hopes Britain’s two biggest political parties will reach agreement on Brexit this week, possibly including membership in a customs union, the EU’s chief Brexit negotiator said.
May agreed a withdrawal deal with the EU last year, but it was rejected three times by a deeply divided British parliament. That delayed the exit date, a postponement that has weighed on the pound as investors fret about prolonged political uncertainty.
The pound was on track for its biggest daily gain in over a month versus the dollar, rising 0.8 percent to $1.3047 and 0.6 percent to 85.91 pence against the euro.
Sterling traded as low as $1.2851 last week as the dollar surged towards two-year highs, measured against a basket of currencies.
“May is still under pressure to pass her deal; however, we don’t see a breakthrough anytime soon,” Nordea analysts said in a note.
“Instead, we expect May to be ousted over the summer, leading to another extension beyond October 31. This postpones a BoE (Bank of England) hike and should weigh on GBP.”
The Bank of England announces its interest rate decision on Thursday. Traders will search Governor Mark Carney’s comments for signals that the central bank is ready to raise rates to tame inflationary pressures - although few analysts expect an increase before Britain’s departure from the EU is clearer.
Funds Turn Bullish on Worst-Performing Kiwi as Key Job Data Loom
Currency has been pummeled after central bank flagged rate cut
Leveraged funds turned net long for first time in three months
German business sentiment drop hits euro; dollar broadly stronger
NEW YORK (Reuters) - The euro slumped to a 22-month low against the U.S. dollar on Wednesday after a surprise drop in a leading indicator for economic activity in Germany highlighted the divergence between economic data in the United States and the euro zone.
German business morale deteriorated in April, bucking expectations for a small improvement, as trade tensions hurt the industrial engine of Europe’s largest economy.
The euro fell 0.68% to $1.1149, its lowest since June 2017. The common currency was on pace for its worst one-day fall in about seven weeks.
“The broader importance of the German data is that market participants had been hoping that the rebound in Chinese monetary conditions, in lending in China, would help to boost demand for German exports and would lift spirits in the euro zone’s core economies,” said Karl Schamotta, director of foreign exchange strategy and structured products at Cambridge Global Payments.
“We are seeing successive prints that show that Germans are not necessarily turning more positive here,” said Schamotta.
The greenback has fared well in recent weeks supported by upbeat data.
“The dollar is winning the reverse beauty contest,” said Schamotta.
“It’s not necessarily that fundamentals of the U.S. are improving dramatically or anything like that, but in relative terms U.S. markets are looking like attractive places to park capital,” he said.
The dollar index, which measures the U.S. currency versus a basket of six major rivals, was up 0.49% at 98.119, its highest since June 2017.
Investors will watch the release on Friday of U.S. gross domestic product data for the first three months of 2019, for signs of whether the United States remains stronger than other leading economies.
The dollar was 0.38% higher against the Japanese yen, ahead of the conclusion on Thursday of a two-day rate review meeting where the Japanese central bank is widely expected to keep monetary policy steady.
On Wednesday, the Australian dollar fell 1.25% after weaker-than-expected Australian inflation numbers heightened the prospect of an interest rate cut.
Latin American currencies broadly softened against a robust dollar, with the Argentina’s peso slid to its lowest level in more than two weeks.
The pound held at a two-month low weighed down by the strong dollar and fading hopes of a breakthrough in Brexit talks between the British government and the opposition.
The Canadian dollar weakened against its U.S. counterpart to its lowest in nearly four months, as investors raised bets on a Bank of Canada interest rate cut this year after the central bank slashed its economic growth outlook.
AUD - responses to the CPI coming in, banks shift expectations for RBA cut to May
Citi are looking for a Reserve Bank of Australia rate cut in May, with another to follow.
- The bank saying the second cut could well follow the next month, in June.
- Citi had previously been calling the RBA on hold.
- Citing the inflation result … 'should now be little resistance' to further monetary policy stimulus, despite improving China, resilient labour market, household debt at high levels.
RBC also looking for a rate cut in May, with another to follow in August:
- say core inflation is running opposite to RBA forecasts, is 'stubbornly low'
- expect that the sustained sub trend growth paves the way for an eventual softness in the labour market, which will raise the unemployment rate
- RBA tolerance for ongoing undershooting of its target for inflation is 'waning quickly'
JP Morgan - going with May and June with a risk of 'more to come'
- were previously at at July and August
Aussie sinks on soft inflation, dollar near 22-month high on strong U.S. data
TOKYO (Reuters) - The Australian dollar tumbled to a six-week low on Wednesday as soft domestic inflation reinforced prospects of monetary easing, while the U.S. dollar hovered near a 22-month high against its peers on after strong U.S. housing data further eased concerns towards the world’s biggest economy.
The Aussie was down 0.9 percent at $0.7040 after brushing $0.7031, its lowest since March 11.
The antipodean currency tumbled after data on Wednesday showed Australia’s headline consumer price index (CPI) come in flat in the January-March quarter, below forecasts for an 0.2 percent increase and the lowest since early 2016.
The Reserve Bank of Australia (RBA) has recently opened the door towards monetary policy easing, and Wednesday’s weak inflation reading increased views that the central bank would cut the key interest rate from an already record low of 1.5 percent.
“The weak CPI heightens the prospect of RBA cutting rates at its May 7 meeting,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.
“Higher commodity prices usually support the Aussie, but rate cut prospects are outweighing such positive factors,” Sera said.
The Aussie is a commodity-linked currency that is also usually sensitive to shifts in risk sentiment.
Crude oil prices rallied to six-month peaks this week, while the S&P 500 and Nasdaq reached record high closings overnight.
The dollar index versus a basket of six major currencies stood at 97.660 after rising to 97.777 overnight, its highest since June 2017.
U.S. data on Tuesday showing sales of new single-family homes jumped to a near 1-1/2-year high in March added to recent positive readings in retail sales and exports.
The euro , which has the largest weighting within the dollar index, was down 0.15 percent at $1.1212 after shedding 0.25 percent the previous day.
“The European economy looks particularly weak relative to the U.S. economy and this highlights the euro’s weakness,” said Takuya Kanda, general manager at Gaitame.Com Research.
“The United States is now expected to have experienced firm growth in the first quarter, reinforcing the dollar’s strength relative to the euro.”
U.S. first quarter GDP data on Friday could strengthen the case that while the current period of global expansion is in its late stages, the United States is on a firmer footing compared with other leading economies.
The dollar was steady at 111.885 yen after suffering mild losses overnight, weighed down by a decline in long-term Treasury yields.
The Canadian dollar extended overnight losses and slipped to a seven-week low of C$1.3457 per dollar amid expectations that the Bank of Canada (BoC) would forgo language pointing to further interest rate hikes.
Canada’s central bank is expected to hold its benchmark interest rate steady at a policy meeting later on Wednesday. A Reuters poll showed that the central bank is expected to stand pat until the beginning of 2020 at the earliest.
GBPUSD below lower trend line on the hourly
Approaches the 200 day MA
The GBPUSD has moved below a lower channel trend line currently at 1.2989. Stay below keeps the sellers more in control.
ON the downside, the pair is looking toward the 200 day MA at 1.2968 as the next key target. Below that is the 100 day MA at 1.29499 (call it 1.2950).
This is what it looks like on the daily chart. The end of March low came in at 1.2976 and the price low just reached 1.29778. So could early buyers come in despite the fall below the lower channel trend line? Sure. This is tough area to get below and traders thinking Brexit fears should keep the pair contained. This may be a low risk buy area (with caution).
Dollar gains over euro after strong U.S. retail sales
NEW YORK (Reuters) - The U.S. dollar gained on Thursday on strong retail sales data, while the euro was dented by weak manufacturing data in the region.
U.S. retail sales increased by the most in 1-1/2 years in March as households boosted purchases of motor vehicles and a range of other goods, the latest indication that economic growth picked up in the first quarter after a false start.
Other data showed that the number of Americans filing applications for unemployment benefits fell to more than a 49-1/2-year low last week, pointing to sustained strength in the economy.
The picture was less bullish in the Eurozone as data showed that activity in Germany’s manufacturing sector shrank for a fourth straight month in April, while a similar survey from France also painted a bleak picture.
“In the space of several hours we got a timely reminder that the growth leadership is very decisively in favour of the U.S. dollar,” said Richard Franulovich, head of FX strategy at Westpac Banking Corp in New York.
Investors have been looking for signs that global growth is stabilizing after a slowdown.
“Investors are worried about the health of the global economy and the eurozone and the fortunes of the euro are closely tied with that,” said Ricardo Evangelista, a senior analyst at ActivTrades in London.
A week ago, European Central Bank President Mario Draghi raised the prospect of more support for the struggling euro zone economy if its slowdown persist.
A Bearish Warning Sign Is Flashing for the DollarSource: Bloomberg
Put-call pricing signals pessimism building on greenback
Key sentiment gauge goes negative for the first time a year
Hedge funds and money managers have become the most bearish in a year on the dollar’s near-term outlook, according to one of the foreign-exchange market’s most watched gauges of sentiment.
In options markets, protection against a falling greenback is getting more expensive. Risk reversals, an indicator of market bias and option positioning, show investors have begun paying more for puts on the dollar than for calls versus the euro, and its other major peers.
You've reached your free article limit.
Subscribe for unlimited access.
Bloomberg Anywhere clients get free access
Sterling brushes aside sturdy jobs data; volatility drops
LONDON (Reuters) - Expectations for volatility in the British pound plummeted to their lowest levels in more than a year on Tuesday after European Union leaders and the British government last week announced Brexit would be delayed for up to six months.
Sterling implied volatility gauges slipped across the board, extending a recent decline, to their lowest levels since January 2018, as no significant Brexit-related developments were expected this week.
Outside the drop in implied volatility measures in the currency derivatives markets, wider moves in the pound were limited with the British currency broadly steady despite robust jobs data.
Total earnings, including bonuses, rose by an annual 3.5 percent in the three months to February, the Office for National Statistics said, matching the median forecast in a Reuters poll of economists. It was the joint highest rate since mid-2008.
“The encouraging data may fuel some confidence in sterling, however any significant movements will likely be muted as politics remains the key focus and we approach the Easter break,” said Sam Cooper, a vice president at Silicon Valley Bank.
The pound was broadly steady at $1.3089 against the dollar and flat against the euro at 86.36 pence.
Volatility in the pound has collapsed after EU and British lawmakers removed the risk of a no-deal Brexit last week, prompting traders who had hedged their sterling positions to unwind those bets.
But with the possibility of months of uncertainty in Britain as politicians struggle over how - or whether - to leave the EU, investors are broadly staying away from the pound.
RBA to slash its cash rate in half by early next year - Capital Economics: Opinion Piece
The firm argues that the RBA will cut its cash rate to 0.75% as GDP slows
According to a note by the firm's senior economist, Marcel Thieliant, it won't take much for the RBA to start cutting rates based on the April meeting minutes released earlier today. Adding that policymakers appear to be growing increasingly worried about the impact of the housing downturn on the economy and that the central bank is getting less confident in its view that the labour market will continue to strengthen even as the jobless rate dropped to an 8-year low in February.
Thileliant notes that the RBA will cut rates in half to 0.75% i.e. three 25 bps rate cuts, by early next year as economic growth falls well short of a sustainable rate.
There's certainly been growing calls for the RBA to cut rates and the minutes earlier does hint at that direction. However, I reckon the RBA will only begin to envisage such a scenario should labour market data start turning for the worse in the coming months. And we'll be getting the first taste of that this Thursday, so there's your key risk event for the week if you're trading the Australian dollar.
Westpac update the AUD, NZD outlook - eyeing RBNZ, Fed
WPAC have updated their NZD/USD and AUD/NZD thoughts
For the one to three month horizon
- By year end, we expect to see it below 0.6600 if the RBNZ cuts the OCR.
- In addition, we expect the US economy to improve in the second half of 2019, which should support the US dollar.
- Fundamentals (commodity prices and interest rates) argue the cross should be higher (fair value is 1.13), but global risks plus AU political risks have been AUD headwinds.
- That said, AU-NZ yields spreads should move higher over the next month given RBNZ easing risks, lifting the cross to 1.0700+.
Sterling rises above $1.31 with Brexit talks in focus
LONDON (Reuters) - The British pound climbed above $1.31 on Monday, although trading was quiet without any significant Brexit-related developments.
Volatility in the pound has collapsed since European Union leaders and the British government last week announced Brexit would be delayed for up to six months.
That removed the immediate risk of a no-deal Brexit, but it also raised the possibility of months of uncertainty in Britain as politicians struggle over how - or whether - to leave the EU.
British Foreign Secretary Jeremy Hunt said on Monday that talks between the government and the opposition Labour Party to find consensus over a Brexit plan are more constructive than people think.
Goldman Sachs analysts said they believed there was still more upside than downside for the pound so long as the market focused on Brexit negotiations rather than macroeconomic news.
“Another extension to the Article 50 deadline lowers the probability of a quick resolution to the Brexit impasse, but we think the market seems to be taking this too far,” they wrote in a note sent to clients.
“While slow, we see signs of progress in the negotiations, so there remains a meaningful chance that there is some resolution before the May 22 deadline.”
Sterling rose 0.3 percent to $1.3100 by 1520 GMT. Against the euro, the pound was moderately lower at 86.27 pence per euro.
This week will offers more clues as to how the British economy is holding up in the face of prolonged uncertainty. Labour market data is due on Tuesday, inflation numbers for March on Wednesday.
“The UK labour market remains tight which should be reflected in the data on Tuesday,” Sue Trinh, RBC’s head of Asia FX strategy, said in a note.
Yen near this year's lows, franc soft on rising risk appetite
TOKYO (Reuters) - The yen hovered near its lowest level this year on Monday as more signs of stabilisation in the Chinese economy and an upbeat start to the U.S. earnings season prompted investors to abandon the safe-haven currency to seek higher returns elsewhere.
The dollar stood at 112.02 yen, little changed on the day but near Friday’s high of 112.10, which was near its year-to-date peak of 112.135 touched in early March.
The safe-haven Swiss franc has also eased against the euro, which strengthened to 1.1340 franc, recovering its losses made late last month to hit a three-week high on the franc.
The common currency traded at $1.1312, keeping intact its slow recovery from $1.1183 touched on April 2. It rose to as high as $1.1324 on Friday.
Chinese data published on Friday showed exports rebounded sharply and new bank loans increased far more than expected in March.
Although China’s imports remained weak, the data on the whole cemented hopes that the Chinese economy is bottoming out after a soft patch as Beijing has curbed de-leveraging efforts and stepped up support for the economy in recent months.
“It all seems to have started after Friday’s Chinese data,” said Kyosuke Suzuki, director of forex at Societe Generale.
However, further moves in the currency market will be limited for now, he said.
Morgan Stanley Sees Two Big Reasons Low Volatility Won't Last
Low liquidity and market complacency may boost price swings
Strategist Sheets sees risks whether data soften or pick up
A combination of low liquidity and high complacency mean cross-asset volatility won’t stay at historic lows for much longer, according to Morgan Stanley.
“There are still two things that argue against the current levels of volatility being correct or sustainable,” cross-asset strategist Andrew Sheets said in an interview Friday. “The first is that market liquidity is still not great. The second: I’m not sure that the market in its newfound optimism has taken the story to the logical conclusion” about where asset prices are headed, he said.
Yen holds gains on U.S.-Europe trade tension, Brexit summit in focus
TOKYO (Reuters) - The safe-haven yen held most of its recent gains on Wednesday as investor caution prevailed due to fresh global trade tensions and as the International Monetary Fund downgraded its global economic outlook.
Broader sentiment in the market remained subdued as the flare-up between the United States and Europe added to other potential global flashpoints over trade, including ongoing Sino-U.S. tariff negotiations.
“Now, there are battles on two fronts for the U.S.,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank.
“If they’re going to be driving the global economy, it’ll be inherently more difficult if they’re fighting all these trade wars...on multiple fronts,” he said.
The dollar was basically unchanged at 111.17 yen, paring a slight loss earlier. The U.S. unit has fallen almost two-thirds of a percent from a more than three-week high of 111.825 yen brushed on Friday last week.
Against a basket of key rival currencies, the dollar was steady at 97.017, after giving up 0.35 percent overnight.
On Monday, the U.S. Trade Representative proposed a list of European Union products ranging from large commercial aircraft and parts to dairy products and wine on which to slap tariffs as retaliation for European aircraft subsidies.
The IMF on Tuesday slashed its global growth forecasts for 2019 to 3.3 percent, the slowest expansion since 2016 and from its earlier projection of 3.5 percent in January.
The global lender said a sharp downturn could require world leaders to coordinate stimulus measures.
Investors’ immediate focus on Wednesday will be on a European Central Bank meeting and the release of minutes of the Federal Reserve’s last policy meeting.
Ahead of a Brexit summit meeting later on Wednesday, the euro and sterling both were essentially unchanged, trading at $1.1266 and $1.3052, respectively.
European Union leaders will likely grant Prime Minister Theresa May a second delay to Britain’s exit from the EU but they could demand she accepts a much longer extension as France pushed for conditions to limit Britain’s ability to undermine the bloc.
The latest IMF forecasts, together with a pullback in oil prices, put pressure on commodity-linked currencies such as the Australian and Canadian dollars.
The Aussie was essentially unchanged at $0.7128 after coming off a more than two-week high during the previous session. The loonie was flat at $1.3330 after retreating from its strongest since March 21 overnight.
JPMorgan Says Watch These Market Correlations for Warning Signs
Watch credit spreads versus equities, strategist Normand says
Divergence of EM and DM currencies vs dollar is notable
Cross-asset correlations like that between stocks and bond yields, or commodities versus the dollar, can signal major market turning points. But the conventional wisdom isn’t always right, either.
Investors rotating into risky markets express reservations “typically informed by apparent breakdowns in cross-asset correlations,” JPMorgan Chase & Co. said in an April 5 note that studied which relationships will be worth tracking this year.
The bank’s strategists led by John Normand cited “this year’s jolt in stock prices but drop in bond yields (and U.S. curve inversion) or the significant drop in U.S. yields but only modest decline in the trade-weighted USD plus USD strength versus most G-10 pairs.”
The U.S. equities/credit spreads correlation is worth watching, they said. So far this year, stocks have rallied as credit spreads tightened. JPMorgan expects spreads to widen later in the year as stocks continue to gain. The strategists say that if the phenomenon is driven by deal activity it can be downplayed, and it can be tolerated “for a while” if any eventual Federal Reserve rate hikes are slow.
But another catalyst would be a cause for concern. “If the driver is weak corporate earnings, then spread widening is an early-warning sign worth heeding, as in the late 1990s before equities peaked in 2000,” the report said.
While much is being made of the U.S. dollar’s failure to decline, the “worrisome” divergence around the greenback is the difference between performance of developed-market currencies against it versus emerging-market ones. The dollar gaining versus most major currencies and dropping against most EM FX occurs only about 10 percent of the time, according to JPMorgan.
“Strong country-specific influences outside the U.S. need to be in play to justify this anomaly, as they are now with respect to Europe and the Antipodeans,” the strategists said. “But this potential de-correlation within currencies bears watching if non-U.S. conditions change.”
“Strong country-specific influences outside the U.S. need to be in play to justify this anomaly, as they are now with respect to Europe and the Antipodeans,” the strategists said. “But this potential de-correlation within currencies bears watching if non-U.S. conditions change.”
Sectoral and style divergences in the equity market, such as cyclicals and growth stocks underperforming defensives and value while the overall market is rising, could be a concern, they said. But those correlation breakdowns “are also more common than many assume.”
Higher stocks along with lower yields bother many investors, but are actually the most common pattern for the relationship and would be more of a concern if activity data were softening, the report said.
Another area not to be concerned about: oil versus the dollar.
“Oil’s strength this year is consistent with the historical pattern of higher prices running alongside USD weakness,” the strategists wrote. “This is the market where we are most inclined to dismiss any apparent correlation breakdown given how central supply conditions are to the oil outlook and how tenuous the link is between currency moves and producer decisions.”
Sterling to rise 3 percent if Brexit deal looks likely - Reuters poll
LONDON (Reuters) - Sterling will rally 3 percent if the Brexit gridlock is resolved and Britain looks likely to leave the European Union with a deal but the currency will tumble 5 percent if negotiations fail, a Reuters poll found.
The pound tanked after the June 2016 referendum result — as predicted by Reuters polls beforehand — and was trading at around $1.31 on Thursday, far weaker than it was ahead of the vote.
Since the decision to leave, the pound has gyrated wildly on any Brexit news and largely shrugged off economic data, including recent private surveys which suggested Britain’s economy is likely to shrink in coming months.
On Tuesday, British Prime Minister Theresa May said she would seek another Brexit delay to agree an EU divorce deal with the opposition Labour Party leader, a last-ditch gambit to break an impasse over Britain’s departure.
Nearly three years since the United Kingdom voted to leave the EU in a shock referendum result, it is still unclear how, when or even if it will ever quit the European club it joined in 1973.
May secured a Withdrawal Agreement with the EU in November but has failed to get the support of British lawmakers, leaving the country’s road out of the EU unclear.
If that road is smooth and Britain leaves with a deal, sterling will gain around 3 percent, the April 1-4 poll predicted. If the road is blocked and no deal is made, the pound will fall 5 percent.
“Looser fiscal policy and a Brexit deal could lead to higher interest rates and push up the pound,” said Thomas Pugh at Capital Economics.
Another option is that Britain asks for a long delay to Brexit which would prolong the uncertainty. But if it looks like the road out will be extended, the pound will edge up around 1.75 percent, according to the poll.
“Political clouds could be darkening the skies over the outlook for GBP for a long time yet,” said Jane Foley at Rabobank. Foley was the most accurate forecaster for major currencies in Reuters polls last year.
The wider poll of nearly 70 foreign exchange strategists said the pound would be trading at $1.32 in a month, $1.35 in six months and have strengthened to $1.38 in a year, indicating respondents do not expect a disorderly Brexit.
But highlighting the uncertainty, the 12-month forecast range was wide, going from $1.27 to $1.56.
A Reuters poll of economists last month found the vast majority of them saying the two sides would settle eventually on a free-trade deal, as they have in all Reuters polls since late 2016.
That poll also predicted the Bank of England would raise borrowing costs towards the end of this year and then again in the latter half of 2020.
In contrast, the European Central Bank will not be raising interest rates until at least July next year, another Reuters poll predicted, but that differential won’t give the pound any support against the common currency.
Across all four touch points in the forecast horizon — one, three, six and 12 months — one euro was predicted to be worth 85.0 pence. It was valued at around 85.3p on Thursday.
Key economic releases for the week April 8 - 12
What is on tap from a release standpoint next week:
Monday - April 8
- German Trade Balannce
- Canada housing starts/building permits
- US Factory Orders/Durable Goods revision
Tuesday - April 9
- Swiss unemployment
- US JOLTS job openings
- Feds Clarida speaks
Wednesday - April 10
- RBA Asst Gov. Debelle speaks
- BOJ Kuroda speaks
- Australia Westpac consumer sentiment
- UK GDP
- UK Manufacturing Production/Industrial Production
- ECB Interest rate statement and press conference
- US CPI data
- Fed's Quarles speaks
- US 10 year auction
- FOMC Meeting minutes
Thursday - April 11
- China CPI/PPI
- German/France final CPI
- OPEC meeting
- US PPI
- US weekly unemployment claims
- Fed's Clarida speaks
- Fed's Bullard speaks
- FOMC Bowman speaks
- US 30 year auction
Friday - April 12
- NZ Business Manufacturing Index
- RBA Financial Stability Review
- China Trade balance
- EU industrial production
- US Michigan consumer sentiment (preliminary)
- IMF meeting (Friday and Saturday).
Goldman Sees a ‘Big Finish’ for Brexit, Opportunity in the Pound
Britain’s pound presents the biggest opportunity within developed-market currencies with a probable break-the-Brexit logjam moment coming soon, according to Goldman Sachs Group Inc.
“We’re coming to a big finish here,” Zach Pandl, Goldman’s co-head of global foreign exchange and emerging market strategy, said on Bloomberg Television after the U.K. Parliament again rejected all alternatives to Prime Minister Theresa May’s unloved deal to leave the European Union. “We do think we’re making progress despite these failed votes.”
Instead of a prolonged stalemate or a chaotic no-deal scenario, Pandl said a soft Brexit approach, which may include a permanent customs union packaged with a second referendum, could come within the next day or two.
“Sterling is maybe the biggest opportunity among developed market exchange rates today,” Pandl said. The pound slipped 0.4 percent to $1.3050 as of 9:00 a.m. in London, at the weaker end of its recent range.
Parliament rejected a proposal to stay in the EU’s trading arrangement , known as the customs union, by just three votes. It could potentially be voted on again Wednesday.
Separately, Goldman has closed its short recommendation on the U.S. dollar against the Japanese yen, Pandl said.
“We think we’ve seen enough data to indicate that the global industrial cycle at least on the margin is picking up,” Pandl said. “It’s a little bit too risky to be betting on yen appreciation over the short run.”
Gbp retreats as:
'Parliament Fails to Back Any Plan B Options: Brexit Update'
The U.K. Parliament rejected all options in a set of votes on potential alternative blueprints for Brexit on Monday. The government says the legal default will be for the U.K. to leave the European Union in 11 days. Theresa May is still aiming to get her unpopular deal through Parliament and will call a Cabinet meeting on Tuesday to discuss the next steps.
- Parliament rejects all alternative Brexit option
- Click here for the options that were voted on
- Nick Boles resigns from Conservative party because his colleagues won’t compromise
- Cabinet to hold five-hour meeting Tuesday
Dollar lifted by sterling's fall on Brexit deal defeat
Source: Reuters Friday 29th March | 2019
NEW YORK (Reuters) - The U.S. dollar benefited Friday from sterling’s slide after parliament for the third time rejected Prime Minister Theresa May’s proposed deal to pull Britain out of the European Union.
With May losing again - albeit by a smaller margin than the previous two votes - sterling is set to remain under pressure on fears no Brexit deal will be reached before the April 12 deadline.
Moves in the pound were less dramatic on Friday than those following May’s previous parliamentary defeats. Trading of the pound has been scaled back because it has become so difficult to predict amid the constant and sometimes arcane political developments, traders said.
The currency remained well above lows hit in December, in part because “markets have begun to price in a long delay and that’s risk and sterling positive,” said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
The pound fell as much as half a percent to the day’s low of $1.2976, briefly piercing a key market level of the 200-day moving average at $1.2979.
Sterling’s move led the dollar index higher, last up 0.07 percent to 97.274, helping it recover from an earlier drop on the weaker-than-expected report of U.S. inflation data, which added to the conviction that the country’s economy is losing momentum.
U.S. consumer spending barely rose in January and income increased modestly in February. The report from the Commerce Department also showed price pressures muted in January, with a measure of overall inflation posting its smallest annual increase in nearly 2-1/2 years. Consumer spending accounts for more than two-thirds of American economic activity.
With growth slower and inflation benign, Friday’s data bolstered the Fed’s case for ending its three-year monetary tightening campaign.
“It was a soft number,” said Anderson. “It is a relief that there’s no reason for the Fed to have to raise rates.”
The euro on Friday was headed for its worst month since October, weighed down by fears about economic growth and cautious signals from the European Central Bank. Policymakers cut growth forecasts for the euro zone economy earlier this month and launched a new round of cheap loans to its banks.
The euro was a tad lower at $1.122, down 1.43 percent for the month.
NZDUSD has a double bottom at the day's lows today
Price below 100 day MA.
The NZDUSD fell sharply yesterday after the RBNZ surprised the market by switching their bias to lower rates. The price fell below the 100 day MA at 0.6808 - closing below that MA for the first time since March 8th.
Today, the price moved to a new since March 8th at 0.6779 in the Asian session, but rebounded higher. That move did take the price back above the 100 day MA for about 6 hours, before moving back down.
The fall in the London/NY session took the price all the way back to the early day low at 0.6779 and stopped. A double bottom has formed.
We currently trade at 0.6788 - not far off those lows. The 100 day moving average remains a barometer above. Stay below, the sellers are in control.
If the double bottom is broken, there is room to roam. Looking at the daily chart below, the 38.2% of the move up from the October 2018 low comes in at 0.6760. Below that the 200 day MA is at 0.6733, a lower trend line at 0.6720 and the 50% of the move up comes in at 0.6696 (call it 0.6700). All those are doable targets and levels that have been traded in 2019.
Sellers in charge. There is room to roam with the price staying below the 100 day MA..
Dollar bounces vs yen as risk aversion eases, Brexit saga checks pound
TOKYO (Reuters) - The dollar rebounded modestly against the yen on Tuesday as Treasury yields pulled back from 15-month lows as a modicum of calm returned to financial markets gripped by fears of a sharper downturn in the global economy.
The pound stuck to a narrow range with British lawmakers scheduled to vote on a range of Brexit options later in the day.
The dollar edged up 0.15 percent to 110.13 yen and put some distance between a six-week low of 109.70 plumbed the previous day, when fears of a global economic slowdown depressed U.S. yields and boosted investor demand for the yen, a perceived safe haven.
“The dollar has tracked U.S. yields. But the trend may have run its course, with little further downside seemingly remaining for yields,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
“The decline by U.S. equities has also slowed, and this has supported the dollar as it shows that the market’s economic prospects remain reasonably good with the Fed preparing to take a more dovish approach.”
The euro was steady at $1.1316.
The single currency had sunk to a 10-day trough of $1.1273 on Monday, also hit by rising concerns about a slowdown in the euro zone economy but made modest gains overnight after a stronger-than-forecast German business confidence survey.
Sterling was effectively flat at $1.3201 after spending the previous day confined to a narrow range when British lawmakers wrested control of the parliamentary agenda from the government for a day in a highly unusual bid to find a way through the Brexit impasse.
British Lawmakers will now vote on a range of Brexit options later on Wednesday, giving parliament a chance to indicate whether it can agree on a deal with closer ties to the European Union.
The Australian dollar, sensitive to shifts in risk sentiment, was 0.1 percent higher at $0.7118 after gaining 0.45 percent the previous day.
The 10-year U.S. Treasury yield stood at 2.417 percent after declining to 2.377 percent on Monday, its lowest since December 2017.
One by One, Global Bond Markets Are Flashing the Same Warning
t’s ‘very unlikely’ the Fed will raise rates again: Antares
Bond yields in Australia, New Zealand drop to record lows
Wherever you look in developed markets, sovereign bond yields are at their lowest levels in years as traders ratchet up bets that major central banks will be easing.
Yields in Australia and New Zealand dropped to record lows after a closely-watched part of the U.S. curve inverted on Friday as investors wager that the Federal Reserve will need to cut rates. Trading volumes in Treasury futures were double the norm during Asian trading, while Japan’s 10-year yields fell to the lowest since 2016.
“Bond markets globally, along with dovish central banks, have been telling us a slowdown is on the way,” said Jeffrey Halley, senior market analyst at Oanda Corp. in Singapore. “Some parts of the world will be better equipped than others to handle this. The U.S. can at least cut rates and apply monetary tools, while things could be worse for Europe and Japan, where they cannot.”
Treasuries have led a global debt rally amid bets that a rate-cutting cycle is coming. On Friday, the yield on 10-year notes fell below the rate on three-month U.S. bills for the first time since 2007 amid reports showing economic weakness in the U.S., France and Germany.
Money markets are pricing around a 90 percent chance that the Federal Reserve will cut rates by 25 basis points by December, followed by another reduction in September 2020. This comes after the central bank projected no hikes this year at its policy meeting last week.
How Ridiculous Can This Get?
U.K. Ministers Back Theresa May Amid Reports of Ouster Plan
Source: Bloomberg - edited.
Sunday newspapers detail open revolt within U.K. cabinet
Chancellor says removing May won’t help, backs her Brexit deal
Chancellor of the Exchequer Philip Hammond and other cabinet colleagues publicly backed Theresa May on Sunday as several British newspapers said the prime minister is under increasing pressure to stand down over her handling of Brexit.
Speaking on Sky News, Hammond said that removing the prime minister won’t help the U.K., and talk of a new leader is “self-indulgent.” Still, in comments that could harden splits in May’s cabinet, the chancellor refused to rule out holding a second referendum to help break the impasse over her Brexit deal, saying it was a “perfectly coherent proposition.”
On Sunday, Hammond reiterated that it was up to lawmakers to come together to find a way forward if they continue to reject May’s deal, and that the government would give them time to do that in coming days. “One way or another Parliament is going to have the opportunity this week to decide what it is in favor of,” he said on Sky’s “Sophy Ridge on Sunday.”
When presented with a list of possible options, he ruled out a no-deal exit or revoking Article 50 -- which is the formal notification to the EU -- but he was less equivocal about the prospect of a second vote.
Another referendum "deserves to be considered” along with other proposals, he said, but added that he didn’t think there was majority in Parliament for such an outcome.
Theresa May’s Cabinet in Open Revolt, Plotting Overthrow: Times
Source: Bloomberg | originally from The Times.
Will threaten mass resignation Monday if she doesn’t step down
Report follows mass anti-Brexit demonstration in London
Theresa May’s cabinet is in open revolt against the prime minister and wants an interim leader to complete the Brexit process.
According to the Sunday Times, at least six senior ministers want her deputy, David Lidington, to take the job until there’s a formal leadership election. They’ll confront her at a cabinet meeting Monday, and threaten a mass resignation if she doesn’t step down, the report said. Michael Gove, a leading Brexiteer in the 2016 referendum, and Foreign Minister Jeremy Hunt also have some support.
The paper, which spoke to 11 ministers, also noted:
- Hunt isn’t in favor of Lidington because he thinks the deputy will strike a deal with Labour that allows the U.K. to become a permanent customs union member.
- Gove is willing to take on the role and has been putting together a leadership campaign team.
- Home Secretary Sajid Javid would back Lidington if the other candidates step aside; he wouldn’t support Gove or Hunt.
May has grown increasingly isolated in recent months, at home and in Brussels. She has twice tried and failed to steer her EU-approved deal through Parliament, last week’s televised address irked colleagues by pinning the blame for the deadlock on the House of Commons, and her dramatic shift in tone toward embracing a no-deal Brexit has angered the bulk of her Conservative Party lawmakers.
The report comes hours after hundreds of thousands of Britons poured into the streets of London demanding a second public vote. Most of the attendees favor Britain staying in the bloc.
If May were removed, it wouldn’t necessarily trigger a general election. Under the country’s Fixed-Term Parliament Act, the next election is scheduled for May 2022.
Sterling rallies as Britain gets last chance for orderly Brexit
ONDON (Reuters) - Sterling rallied on Friday, helped by a weaker euro and after European Union leaders gave UK Prime Minister Theresa May a two-week reprieve to decide how Britain will leave the European Union.
Disappointing economic survey results in both the euro zone and the United States raised volatility across currency markets on Friday and added to the pound’s gains.
The biggest loser was the euro as investors grew increasingly concerned about the outlook for the global economy.
Sterling had plunged on Thursday in its biggest one-day fall of 2019 as fears mounted that Britain would crash out of the EU on March 29 without a deal.
The EU has said Britain can have a short delay to Brexit, as requested by May, but she must first win parliamentary approval for her withdrawal deal from the bloc.
May has already lost two attempts to secure parliamentary support and with the odds stacked against her for another vote next week, the risk of a no-deal Brexit has risen sharply.
EU leaders have described the two-week extension as a last chance for Britain to secure an orderly Brexit.
“Last night’s move by the EUCO (European Commission) has lowered the immediacy of hard Brexit risk next week,” Nomura FX strategist Jordan Rochester said. “But no deal can still happen if Theresa May were to wish it, either next week or on 12th April.”
The pound was up 0.6 percent at $1.3188, while its gains versus the euro were as high as 1.5 percent to 85.49 pence. The gain was largely on the back of weakness in the single currency following disappointing data out of Germany.
Franklin Templeton said on Friday there was a 30 percent probability of Britain crashing out of the EU without a deal - higher than most bank forecasts of around 10 to 20 percent. On the Betfair exchange, no-deal Brexit odds have dived under 5 percent.
“We’d expect sterling to remain range-bound, with the latest headlines dictating its movement. It should be a similar story for UK government bonds. We’d expect gilts to remain quite well bid until we get more certainty,” said Franklin Templeton’s head of European fixed income, David Zahn.
Currency derivative markets signalled a growing caution for the pound, with one-month risk reversals on sterling versus the euro and the dollar plunging to multi-month highs.
An indicator of how bearish or bullish investors are on the outlook of the currency, so-called risk reversals signal that short-term negative bets on the pound are piling up rapidly despite the broader calm in the spot markets.
One-month risk reversals on the pound versus the euro plunged to their lowest levels since mid-2017. Against the dollar, bearish bets grew to their highest levels since September 2017, according to Refinitiv data.
Pound Plunges as Traders Confront Possibility of No-Deal Brexit
Pound would crash to $1.20 if there’s no deal, survey shows
Gilts rally in bid for safety as lenders, property firms fall
The pound had its worst day in two months as traders suddenly awoke to the prospect of a no-deal Brexit.
Sterling plunged as much 1.5 percent against the dollar Thursday as U.K. Prime Minister Theresa May gambled on getting her plan over the line with just over a week to go before the exit. Cable crumbled after the European Union told May that she can only have a short extension to delay Brexit if Parliament ratifies the divorce deal in a vote she wants to hold next week.
The political turmoil shows no sign of easing despite the looming departure, with French President Emmanuel Macron saying if May’s plan fails to get Parliamentary approval again it would “guide everyone to a hard exit.” The pound could slump about 8 percent from current levels if the U.K. left the European Union without a deal, according to a Bloomberg survey.
Powell Signals Prolonged Fed Pause as Inflation Lags, Risks Loom
Central bank to taper balance-sheet runoff starting in May
Traders lifted the odds of the Fed cutting interest rates
Federal Reserve Chairman Jerome Powell said interest rates could be on hold for “some time” as global risks weigh on the economic outlook and inflation remains muted.
“We don’t see data coming in that suggest that we should move in either direction. They suggest that we should remain patient and let the situation clarify itself over time,” he told a press conference Wednesday after officials slashed their projected interest-rate increases this year to zero from two. “It may be some time before the outlook for jobs and inflation calls clearly for a change in policy.”
Officials also decided to slow the drawdown of the U.S. central bank’s bond holdings starting in May, then end them in September. Together, the moves complete the Fed’s 2019 pivot away from policy tightening and toward a markedly cautious stance -- a sign that policy makers take risks to their outlook seriously even as the domestic economy chugs along.
Financiial markets confirmed the dovish interpretation, with futures traders lifting the probability of the Fed cutting rates this year to almost one-in-two. The 10-year Treasury yield dropped to its lowest level in more than a year, while the dollar was poised for its biggest daily loss since January. Stocks retreated.
Sterling pressured as May tries to agree Brexit extension
LONDON (Reuters) - The pound reversed earlier gains on Tuesday on concerns that Prime Minister Theresa May’s request for postponing Brexit was running into complications with the European Union.
May is asking the EU to delay Brexit by at least three months after her plans for another vote on her twice-defeated divorce deal were thrown into crisis.
Markets are convinced an extension will be granted, but media reports that some EU officials are reluctant to grant an extension simply to gain time weighed on the British currency.
The pound fell from as high as $1.3311 to $1.3260, up slightly on the day. Sterling also dropped versus the euro and by 1455 was 0.1 percent lower at 85.59 pence.
Societe Generale analyst Kit Juckes noted that the betting market is “convinced that there will be an extension, thinks a no-deal exit is highly unlikely and is warming to the idea of a second referendum.
“That’s not out of line with the way sterling has traded in the last 24 hours, though market chatter suggests that an awful lot of people think the risk of a no-deal exit is a good bit higher than the market or the betting public believe,” he said.
The British currency rallied to a 9-month high against the greenback of nearly $1.34 last week, as investors largely priced out a no-deal Brexit scenario.
RBA minutes - 'significant uncertainties' on the economic outlook
Reserve Bank of Australia March 2019 monetary policy meeting minutes
Headlines via Reuters:
- board noted "significant uncertainties" on the economic outlook
- saw scenarios where might be appropriate to eventually raise rates, or cut rates
- scenarios more evenly balanced than they had been last year
- board agreed no strong case for near-term move in rates
- awaiting new information to resolve tension between solid jobs market, soft GDP
- labour market continued to improve, unemployment seen falling to 4.75 pct
- slower consumption in NSW linked to drop in home prices, lower turnover in housing market
- slowdown in home loans mainly due to softer demand, but tighter credit played a part
- saw risk of "marked slowing" in dwelling investment in one to two year's time
- tighter credit constraining demand for off-the-plan, project homes
- conditions in drought-hit farm sector to remain difficult in near term
- A$ had been broadly steady, within narrow range of recent years
- trade tensions a continued source of uncertainty for world outlook
Nothing we didn't already know from this today.
Points 2, 3 and 4 = We dunno what to do and we won't be doing it soon anyway
Point 5, reiterates the Board is watching the labour market (ps. latest Aussie jobs report is due Thursday 0030GMT)
Here is the full text:
Dollar weaker on dovish Fed bets, sterling seesaws
TOKYO (Reuters) - The dollar was under pressure on Tuesday, weighed by growing expectations the Federal Reserve would shift to a more accommodative policy stance this week and concerns about slower U.S. economic growth.
The dollar index, which measures the greenback against a basket of six major currencies, was a shade lower at 96.495, hovering close to a two-week low. The index has lost 1.2 percent after hitting a three-month high of 97.710 on March 7.
The dollar has weakened in recent sessions on growing expectations the Fed will strike a dovish tone at its two-day policy meeting due to start later on Tuesday.
Many investors expect the Fed, which has raised rates four times last year, to keep its benchmark overnight interest rate unchanged and stick to its pledge of a “patient” approach to monetary policy.
As the dollar took a breather, other major currencies advanced by default. The yen rose 0.1 percent to 111.27 yen per dollar, extending its gains to a third session.
Sterling also gained, rising 0.1 percent to $1.3268. It had seesawed overnight after the speaker of Britain’s parliament said Prime Minister Theresa May’s Brexit deal could not be voted on again unless a different proposal was submitted.The Bank of England is expected to leave its interest rate outlook unchanged at a policy meeting on Thursday due to the deep uncertainty over Britain’s decision to leave the European Union.
Pound soars, Asian shares rally after Brexit deal changes
SHANGHAI (Reuters) - The pound jumped and Asian shares rallied on Tuesday after the European Commission agreed to changes in a Brexit deal ahead of a vote in the British parliament on a divorce agreement.
European Commission head Jean-Claude Juncker agreed to additional assurances in an updated Brexit deal with British Prime Minister Theresa May on Monday, but warned UK lawmakers would not get a third chance to endorse it.
Sterling, which had risen ahead of the talks between May and Juncker, extended gains in hopes the changes may be enough to sway rebellious British lawmakers who have threatened to vote down May’s plan again on Tuesday.
The pound was up 0.5 percent, buying $1.3215 and taking its gains over two days to more than 1.5 percent.
A lower likelihood of crashing out of the EU with no Brexit deal could help to inject some bullish sentiment into equity markets by eliminating one of the three major concerns of global investors, alongside trade and slowing global growth, said Greg McKenna, strategist at McKenna Macro.
“Take Brexit off the table and I think some of the real money flows that appear to have turned up late last week are likely to be there again. So I think it helps change the backdrop a little bit,” he said.
UK January GDP +0.5% vs +0.2% m/m expected
Latest monthly GDP data released by ONS - 12 March 2019
- Prior -0.4%
- GDP +0.2% vs +0.2% 3m/3m expected
- Index of services +0.3% vs +0.2% m/m expected
- Prior -0.2%
A solid beat in economic activity to start the year and that's reflected by the factory data below as well. That will at least help out with the doom and gloom rhetoric in the UK economy in light of Brexit uncertainty. Regardless, it's all about Brexit now for the pound so the data here is very much secondary and of no interest to markets.
There's also factory activity data released at the same time are as per below:
- anufacturing production +0.8% vs +0.2% m/m expected
- Prior -0.7%
- Manufacturing production -1.1% vs -1.9% y/y expected
- Prior -2.1%
- Industrial production +0.6% vs +0.2% m/m expected
- Prior -0.5%
- Industrial production -0.9% vs -1.3% y/y expected
- Prior -0.9%
- Construction output +2.8% vs +0.8% m/m expected
- Prior -2.8%
- Construction output +1.8% vs -0.2% y/y expected
- Prior -2.4%
Goldman Cops to Misstep on Dollar Call, Eyes Yen Trade Instead
DXY trade fails amid global soft patch, dovish central banks
Strategists looking for Japanese currency to strengthen
Goldman Sachs Group Inc. was half right about what it expected to happen with a more dovish-sounding Federal Reserve. But that didn’t save its U.S. dollar trade -- so it’s trying a different tactic.
The firm’s recent recommendation to short the U.S. Dollar Index (DXY) hit its stop -- the level at which a trade is halted so losses don’t become too great -- at 97.50 on Thursday, in the aftermath of the European Central Bank meeting. That’s a potential loss of 1.4 percent, Goldman strategists led by Zach Pandl wrote in a note late Friday.
Now, they’re making a more tactical suggestion: to short the dollar versus the Japanese yen.
The DXY trade was opened right after Fed Chair Jay Powell’s speech in early January that appeared to indicate a shift in policy trajectory. That change has played out basically as Goldman expected, yet at the same time, growth in other major economies has surprised to the downside and other central banks have gotten more dovish, the strategists said. The combination kept the dollar relatively higher than it might have otherwise been -- something President Donald Trump has recently been frustrated about.
In hindsight, the Fed view probably would have been better expressed in rates than FX, the strategists added.
“The main beneﬁciary of the current data backdrop seems likely to be the yen,” the Goldman strategists wrote. “We continue to expect dollar weakness, but even if incoming data cooperate this may take time to materialize on DXY (with its high euro weight) due to market pessimism about global growth.”
The Fed “has adopted a patient, wait-and-see approach to considering any alteration in the stance of policy,” Powell said in a speech late Friday that’s consistent with the central bank’s commentary since the start of the year.
However, the DXY, which tracks the general international value of the dollar but is 58 percent weighted to the greenback’s relationship with the euro, reached its highest level in 2019 on Thursday after the ECB cut inflation and growth forecasts and said it was adding accommodation.
Meanwhile, strategists, economists and fund managers have continued to publish positive yen commentary. Even Bank of Japan Governor Haruhiko Kuroda was obliged to comment on the implications of a stronger yen after a number of former BOJ officials warned about its rise. If the heady rally in global stocks that started 2019 is fading, that could boost demand for safe-haven assets like the yen.
Goldman’s new trade recommendation is a tactical short on the U.S. dollar/Japanese yen cross targeting 108, it said in the report. That level was last seen by the pair on Jan. 14, and aligns with economists’ forecasts for year-end compiled by Bloomberg. The cross ended Friday at 111.16, so the dollar would have to drop a relative 3 percent to reach that goal.
GBP/USD Dips to 1.30 as UK Reportedly Rejects the EU’s Latest Brexit Offer
Source: TradingView, FOREX.com
MARCH 8, 2019 1:23 PM
Just hours ago, my colleague Fawad Razaqzada noted that “it was not clear whether any real progress was made by Britain and the European Union in reaching an accord.” While there haven’t been any official statements, much less votes, the EU’s latest offer has reportedly been called a “non-starter” by the DUP and not enough of a change from the previously rejected offers.
We’ll see what this weekend’s wrangling brings ahead of Tuesday’s vote, but the early signs aren’t promising. Forward-looking traders have already started selling GBP/USD, taking the pair down to test the 1.30 handle at the European session close. As the chart below shows, the 61.8% Fibonacci retracement of the most recent rally comes in at 1.2990 and may provide near-term support.
Bullish readers may want to watch for the RSI indicator to break out of its bearish channel before committing too aggressively – note that GBP/USD’s RSI broke out of its channel a day before price eclipsed its corresponding bearish channel back in mid-February.
That said, GBP/USD has “only” corrected 360 pips over the past 8 trading days; to match the late January / early February correction, rates would have to fall approximately another 100 pips toward the 78.6% Fibonacci retracement near 1.2900 over the next 7 trading days.
Source: TradingView, FOREX.com
NZDUSD tests the last MA line at the 200 day MA
Can it hold?
The NZDUSD is taking on some heat as stocks tumble lower. The pair last week fell below its 100 and 200 hour MA. Yesterday the 100 day MA (blue line at 0.67668 today) was breached, failed and then tested.
Today, the 100 day MA has been rebroken and the price has now moved down to test the 200 day MA at 0.67436.
That MA is the last line in the sand as far as moving averages. Stay above keeps the bulls hangin on. Move below and the bearish bias gets even more bearish.
Taking a broader look at the daily chart, the price has been lower in February and January. The 0.67208 level is the February low. The January 22 low reached 0.6706. Both would be the next targets on a break of the 200 day MA. The 50% of the move up from the September 2018 low comes in at 0.6696.
Wall Street falls for fourth day as ECB stokes growth concerns
NEW YORK (Reuters) - Wall Street’s main indexes fell for a fourth consecutive session on Thursday, after Europe’s central bank said it would defer interest rate hikes and offered banks a new round of cheap loans, raising fresh concerns about global economic growth.
The Dow Jones Industrial Average fell 201.72 points, or 0.79 percent, to 25,471.74, the S&P 500 lost 22.53 points, or 0.81 percent, to 2,748.92 and the Nasdaq Composite dropped 84.46 points, or 1.13 percent, to 7,421.46.
ECB pushes out rate hike, offers cheap cash to banks
FRANKFURT (Reuters) - The European Central Bank changed tack on its tightening plan on Thursday, pushing out the timing of its first post-crisis rate hike until 2020 at the earliest and offering banks a new round of cheap loans to help revive the euro zone economy.
The bolder-than-expected move came as the U.S. Federal Reserve and other central banks around the world are also holding back on rate hikes. It underlined how a global trade war, Brexit uncertainty and simmering debt concerns in Italy are taking their toll on economic growth across Europe.
The policy changes cast ECB President Mario Draghi once again as nurturer of confidence in the bloc’s still-fragile economy, only months after the bank announced the end of four years of unprecedented asset purchases, and as Draghi himself prepares to hand over the reins to a successor later this year.
Whereas the bank had previously said rates would remain at their record low levels through the summer, it said it now expected them to stay there “at least through the end of 2019”.
Aussie, kiwi seen defying gravity as rate pressure builds
SYDNEY (Reuters) - Many analysts are keeping the faith with the Australian and New Zealand dollars, projecting moderate gains in coming months even as markets move aggressively to price in the risk of interest rate cuts in both countries.
A Reuters survey of up to 50 analysts saw the median prediction for the Aussie stay at $0.7200 on a three-month horizon, unchanged from the previous poll.
The median forecast was also for $0.7200 in six months and $0.7400 for a year ahead, again unmoved from the prior poll. That looked like a brave call given the Aussie hit a three-month low of $0.7020 on Thursday in the wake of dismal data on economic growth for the December quarter. The marked slowdown combined with sliding home prices and sluggish wages to convince investors the Reserve Bank of Australia (RBA) will have to change course and cut interest rates again.
The futures market has fully priced in a quarter-point cut in the 1.5 percent cash rate for October this year, compared to February 2020 at the start of the week. A further move to 1.0 percent is priced as a 50-50 chance.Yields on three-year government debt, the most liquid of the short-term bonds, have dived 60 basis points since November to stand at 1.59 percent, near their lowest since late 2016 and only just above the cash rate.They are also 90 basis points below yields on comparable U.S. Treasury debt, close to the biggest gap on record and a constant drag on the Aussie.
Robert Thompson, macro rates strategist at RBC Capital Markets, said the sheer speed and scale of the shift means the market may be due for a pause. “A bit of exhaustion may be creeping in, with the Aussie unable to break $0.7020 on the downside,” said Thompson. “We expect this to ultimately reach $0.6600, but it may take a period of consolidation before a further break lower becomes possible.”
The median prediction was also kind to the kiwi, putting it at $0.6800 in three months and six months, and $0.7000 on a one-year view. The three-month view has firmed slightly and the rest unchanged from the previous poll. The currency was at $0.6789 on Thursday having slipped in the past week as investors also narrowed the odds on a cut in New Zealand rates.
Overnight indexed swaps, which track expectations for official rates, have dropped to 1.65 percent for a year ahead, well under the current 1.75 percent cash rate. Yields on two-year bonds had broken down to 1.645 percent, a long way from the November top of 2.02 percent.
The first target is major chart support at $0.6730, said Westpac’s head of NZ market strategy, Imre Speizer. “Longer term, we retain a bearish outlook, targeting $0.6600 by Q2, 2019.”
Loonie Drops to Two-Month Low After Bank of Canada Changes Tone
USD/CAD may test 2018 high of C$1.3665, BBH’s Thin says
BOC holds rates steady, drops assertion they need to rise
The Canadian dollar tumbled to the weakest level since the opening days of 2019, and the nation’s government-bond yields sank, after the Bank of Canada dropped its assertion that interest rates need to rise amid signs of slowing economic growth.
The loonie fell 0.7 percent to C$1.3439 per U.S. dollar, touching the weakest since Jan. 4 and paring its 2019 advance to 1.5 percent. Yields on two-year Canadian government bonds dropped 8 basis points to 1.66 percent, the lowest since December. That drove the spread to similar-maturity Treasuries to 86 basis points, the widest since 2007.
The BOC left its benchmark rate at 1.75 percent Wednesday, as expected, and cited “increased uncertainty about the timing of future rate increases.” Traders have now all but ruled out a rate hike this year and see a 15 percent chance of a cut by July, data compiled by Bloomberg show. A report showing weakening manufacturing on Wednesday magnified the worsening economic outlook.
Pound falls as traders use Brexit doubts to take profits
LONDON (Reuters) - Sterling fell on Tuesday after the opposition Labour party’s finance spokesman was quoted as saying few lawmakers would back Prime Minister Theresa May’s proposed Brexit deal, and there was little sign of a breakthrough in talks with Brussels.
The British currency has dropped this week, reversing some of last week’s surge, as traders book profits and investors turn nervous again about the sort of divorce Britain and the European Union will have and when - or possibly even if - it will occur.
GBP falls further from recent highs vs euro, dollar - tmsnrt.rs/2EPp5JF
Analysts cited comments attributed to Labour’s John McDonnell that few Labour lawmakers would support May’s Brexit proposed deal when it is voted on or by March 12, meaning it could be defeated given her lack of a reliable majority.
The pound was also hurt by media reports that Michel Barnier, the EU’s chief negotiator, and Britain’s attorney general and Brexit minister were unlikely to make significant headway in talks in Brussels over tweaks to the deal demanded by hard-line Brexiteers in May’s Conservative Party.
“It’s an excuse to take some profits,” said Kenneth Broux, an analyst at Societe Generale.
The pound, unchanged earlier in the day, dropped 0.6 percent to a one-week low of $1.3097 before recovering to slightly above $1.31.
It fell half a percent against the euro to 86.47 pence per euro but later rebounded to 86.13 pence.
One of the best-performing major currencies so far in 2019, sterling rose sharply last week as investors bet a no-deal Brexit would be avoided and Britain’s EU exit delayed.
If May fails to get her deal passed in parliament, lawmakers will be given a vote on postponing the EU departure date on March 29 to avoid an economically disruptive no-deal Brexit.
Earlier in the session, sterling was helped by data for the UK’s dominant services sector. The data were still weak and pointing to an economy close to stagnation, but came in slightly better than expected.
Asian Stocks Trade Mixed; Aussie Slips on GDP Data: Markets Wrap
S&P 500 stuck below 2,800 as index dips 0.1% Tuesday
Aussie drops, stocks rise as weak GDP spurs rate-cut wagers
Asian stocks traded mixed Wednesday after their U.S. peers struggled to make headway in the absence of market-moving catalysts. The Australian dollar sank after weak data on the economy spurred traders to raise bets on interest-rate cuts.
Shares in Japan and Korea slipped, while stocks in Australia, Hong Kong and China posted modest gains, after the S&P 500 Index closed little changed. The yield on 10-year Treasuries remained steady amid comments from Federal Reserve Bank of Boston President Eric Rosengren that a pause in lifting rates may last several meeting. The dollar held five days of gains.
Meanwhile, the Aussie dropped as economic growth slowed in the final three months of 2018, missing estimates. Traders lifted wagers that the central bank will need to lower interest rates, and equities rallied as swaps markets now showed a greater than even odds of a cut by September.
Dollar nudges up on hopes for U.S.-China trade deal
NEW YORK (Reuters) - The dollar rose against a basket of major currencies on Monday on traders’ bets that China and the United States are moving closer to a trade deal that would end sparring between the world’s two biggest economies.
The greenback gained for a fourth straight day, bolstered by the rise in U.S. bond yields with benchmark 10-year yields hitting one-month peaks last week.
The gap between benchmark 10-year yields in the United States and Germany has widened to 257 basis points from 240 basis points at the beginning of the year.
The United States and China appeared to be close to a deal that would roll back U.S. tariffs on at least $200 billion worth of Chinese imports, a source briefed on negotiations said on Sunday, but the timing and details for a deal remained unclear.
“It’s less drag on the growth side,” said Mazen Issa, senior FX strategist at TD Securities in New York.
Issa cautioned a U.S.-China trade deal may not be enough to stem slowing business activities in Europe and emerging markets.
The ICE dollar index was up 0.16 percent at 96.678.
The Chinese yuan edged up 0.08 percent to 6.7097 to the dollar in offshore trade, close to last week’s 7 1/2-month high of 6.6737.
The euro was notably weaker against the greenback, falling 0.33 percent at 1.1331.
Some analysts now expect a fresh round of bank funding at a European Central Bank meeting later this week that would boost the dollar.
“With so much dovishness priced before the ECB meeting this week, Draghi will struggle to exceed market expectations and this may help the euro,” said Valentin Marinov, head of G10 FX research at Credit Agricole based in London.
The dollar’s increase was limited in the wake of comments from U.S. President Donald Trump, who on Saturday renewed his criticism of Federal Reserve Chairman Jerome Powell.
Trump blamed the central bank’s current monetary stance for boosting the dollar, which he believes is hurting U.S. exports.
The greenback was hovering near a 10-week high of 112.08 yen reached on Friday. It was last at 111.73 yen, marginally lower on the day.
Speculators increased their bullish dollar bets in mid-February to their highest level in four weeks, Commodity Futures Trading Commission data released on Friday showed.
Pound rises on signs pro-Brexit lawmakers softening demands of May
LONDON (Reuters) - Sterling gained on Monday on signs some pro-Brexit lawmakers were increasingly willing to compromise with Prime Minister Theresa May, increasing the chances the British leader will get her Brexit deal through parliament next week.
Media reports over the weekend also suggested London was softening its demands of the European Union in renegotiating parts of the Brexit withdrawal deal that is deeply unpopular within large parts of May’s own Conservative party.
The Sunday Times said a group of Brexit-supporting lawmakers who previously rejected May’s deal have set out changes they want to see to her agreement in return for her support.
The British parliament is set to vote on May’s deal next week. If it fails to pass, lawmakers will get to vote on whether to delay Brexit, currently set for March 29.
Hopes for a delay to Brexit and bets that no-deal Brexit is a far less likely outcome sent sterling surging last week. The British currency is up 3.7 percent against the dollar so far in 2019 and 4.7 percent versus the euro.
“The nonetheless rising odds of PM May’s deal succeeding (albeit we still think it is a below 50 percent probability event) are now helping GBP,” ING analysts said in a note.
Sterling rose 0.4 percent against the euro to 85.705 pence.
Versus the dollar, the pound added 0.2 percent to $1.3235. Last week sterling hit as high as $1.3351 as investors piled back into the currency in the belief a disorderly no-deal Brexit was far less likely.
While Brexit negotiations dominate the headlines, concerns about a slowdown in the British economy continue to build.
Britain’s construction industry reported the first fall in activity in almost a year last month, with the IHS Markit/CIPS Purchasing Managers’ Index (PMI) falling to 49.5 in February from January’s reading of 50.6. Economists polled by Reuters had expected a reading of 50.3.
Dollar to Defy Angry Trump on Allure of U.S. Yields, Funds Say
Trump will fail in pushing down the dollar: Grant Samuel Funds
QIC says weakness in other developed nations will boost dollar
President Donald Trump may have to work a lot harder if he wants to talk down the dollar.
The U.S. currency is poised to remain strong this year despite Trump’s complaints about its recent gains as Treasuries remain the best option for yield-hungry investors and growth elsewhere is lackluster, according to money managers including Grant Samuel Funds Management Pty and QIC Ltd.
“Trump’s not going to succeed in talking down the dollar just like that,” said Stephen Miller, an adviser at Grant Samuel in Sydney and former head of fixed income at BlackRock Investment Management (Australia). “Where are you going to put your money when major economies like Europe are weak? There’s not much else around, and that will keep the dollar bid.”
The greenback has rallied for the past three quarters as the Federal Reserve has steadily raised interest rates due to robust economic growth, with the top end of its policy range now at 2.50 percent. That compares with European Central Bank’s deposit rate at minus 0.4 percent, and the Bank of Japan’s benchmark at minus 0.1 percent.
Trump on Saturday lashed out at the Fed for causing the dollar to appreciate. “I want a strong dollar but I want a dollar that does great for our country, not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business,” he said in a speech at the Conservative Political Action Conference.
Trump’s comments -- along with speculation of an imminent trade deal between the U.S. and China -- saw the dollar weaken versus most of its peers at the start of trade Monday. The Bloomberg Dollar Spot Index has since erased its losses to be little changed.
Even though the Fed has now paused its rate-hike cycle, U.S. assets remain in demand due to political uncertainties and weak growth in other developed nations, said Stuart Simmons, senior portfolio manager at QIC in Brisbane.
“When U.S. data starts converging with the rest of the world’s, if there’s a recovery in economic data elsewhere, then we’ll likely start to see the dollar weaken,” said Simmons, who helps oversee the equivalent of $60 billion. “For now, Trump’s comments are having less of an influence.”
The ECB is predicted to downgrade its growth outlook when it meets Thursday in Frankfurt, according to Bloomberg Economics.
This is not the first time Trump has sought to talk down the dollar. In January 2018, he said a weaker greenback was “good for us as it relates to trade” while in April, he lambasted Russia and China for playing a “currency devaluation game.”
Trump’s latest comments will be faded by the market, according to Bank of Singapore Ltd.
“They reflect the view the U.S. administration has had for a while, they’re not new,” said Rajeev de Mello, chief investment officer in Singapore. “I’m not convinced this will have a lasting impact on the dollar.”
Sterling rallies above $1.30 on Brexit delay push
LONDON (Reuters) - Sterling leapt to a 10-week high on Wednesday after Britain’s opposition Labour Party said it would back an attempt by lawmakers to prevent a disorderly no-deal Brexit.
The United Kingdom is due to leave the European Union on March 29 but has no approved deal on how the divorce will take place.
Still, the pound is rallying as investors bet that a no-deal Brexit - the worst case scenario for the currency - can be avoided if parliament exerts greater control over the process.
“Overall the view is parliament doesn’t want a hard Brexit and nor does the EU... and if that’s the case I don’t see how it can happen,” said Justin Onuekwusi, a fund manager at Legal & General Investment Management.
“We are neutral on sterling as you have to be quite nimble,” he added.
The risk that sterling will fall against the dollar is at its lowest in more than four months, according to one-month risk reversals, a gauge of market positioning.
In addition, expectations for sterling price swings have diminished in recent sessions.
But sterling is unlikely to continue rallying simply on the basis of a delayed Brexit, said Thu Lan Nguyen, an FX strategist at Commerzbank in Frankfurt.
“Delaying is far from finding a solution... hard-line Brexiteers would never tolerate an indefinite delay of the EU exit,” she said.
Sterling strengthened 0.9 percent against the dollar to $1.3079. It also rose for a third consecutive day versus the euro gaining 0.8 percent to 87.33 pence, it highest since Nov. 14.
The pound was lifted on Tuesday by strong employment data which suggested Britain’s labour market remained robust despite an economic slowdown ahead of Brexit.
“Downside risks remain. If the UK were to leave the EU without a deal we would expect the pound to trade as low as $1.15 against the dollar and to reach parity with the euro,” said Dean Turner, UK Economist at UBS Wealth Management.
If lawmakers back an amendment by lawmaker Yvette Cooper in a vote scheduled next Tuesday that could force Theresa May to ask the EU to delay Britain’s exit from the bloc on March 29.
That would need to be approved by Brussels which could be reluctant to extend the period of uncertainty but has said it is open to a delay in certain circumstances.
Foreign exchange strategists polled by Reuters last week saw the pound gaining more than 8 percent against the U.S. dollar this year - assuming Britain and the EU part ways amicably.
'Doom Loop' of Debt Threatens to Drag Down Australian Dollar
Currency may fall to 66 cents on debt binge, HSBC’s Bloom says
Household debt-to-income ratio has jumped to 189% from 67%
The beleaguered Australian dollar faces a growing threat: an addiction to real estate is creating a debt mountain.
After being the worst-performing developed-nation currency in 2018, the Aussie is set to extend losses this year as rising indebtedness at households and the economy overall make it more likely the Reserve Bank of Australia will cut interest rates, according to both HSBC Holdings Plc and Rabobank. HSBC sees a further 7 percent slide to 66 U.S. cents by year-end, while Rabobank tips 68 cents.
Pound Strengthens on Upbeat Wage Data, Cautious Brexit Optimism
Sterling benefiting from fading risk of hard Brexit: Investec
Parliament taking control of Brexit seen pound-positive: CA
The pound gained for a second day as upbeat U.K. employment data buoyed investor sentiment that was already underpinned by optimism the nation will avoid a no-deal Brexit.
Sterling rose above $1.29 as official data showed wage growth in Britain was the fastest since the financial crisis during the three months through November, while the unemployment rate declined to match the lowest level since 1975. The currency had advanced Monday as U.K. Prime Minister Theresa May told lawmakers she would involve them in the Brexit process.
“All that has happened is that the risks of a super bearish Brexit outcome continue to fade, hence the pound has traded relatively well,” said Russell Silberston, a portfolio manager at Investec Asset Management. “At the moment, all roads are leading to a delay in Brexit if you assume, as we do, that a hard Brexit is off the table.”
The pound gained 0.2 percent to $1.2916, and strengthened 0.2 percent to 87.99 pence per euro. The yield on U.K. 10-year government bonds was little changed at 1.33 percent.
Further moves in sterling may hinge on the outcome of the Jan. 29 parliamentary vote on May’s so-called Plan B for Brexit, according to Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA.
“We have to wait and see whether the amendments pass the house on Jan. 29,” he said. “Evidence that the House can now dictate the course of Brexit, for example a second referendum, could play out as a positive development for the currency.”
U.S. Stocks Fall on Fresh Signs of Trade Tensions & POUND Strengthens on Wage data
Pound strengthen against most currencies after U.K. wage data
Oil declines on concerns over China, global economic growth
U.S. stocks extended the biggest drop in almost three weeks as fresh signs that trade tensions with China will persist sent technology and multinational companies tumbling. Treasuries climbed, oil fell and the yen strengthened.
The Stoxx Europe 600 Index dipped after Switzerland’s UBS Group AG delivered disappointing results. Earlier, shares retreated across Asia after Chinese President Xi Jinping stressed the need to maintain political stability, comments which hinted at growing concern over the country’s slowing economy. News that the U.S. is seeking extradition of a top Huawei executive added to tensions.
Elsewhere, the pound rose after U.K. data showed the jobs market remains resilient and as Labour leader Jeremy Corbyn backed a plan that could open the door to a second Brexit referendum. Oil retreated from a near two-month high in New York. At the World Economic Forum in Davos, billionaire investor Ray Dalio chastised monetary policy makers for an “inappropriate desire” to tighten faster than the capital markets could handle.
Sterling bounces back after Brexit vote fails, dollar dips
NEW YORK (Reuters) - Sterling rebounded from the day’s lows against the U.S. dollar, rallying more than a cent to above $1.28 after British lawmakers voted down Prime Minister Theresa May’s deal to leave the European Union by a crushing margin.
While the outcome may trigger political upheaval that could lead to a disorderly exit from the EU, the British currency rallied on expectations that the scale of the defeat might force lawmakers to pursue other options.
“I think the market’s take on (this defeat) is that it ups the probability of a soft Brexit ultimately evolving after a no-confidence vote,” said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.
Parliament voted 432-202 against May’s deal, the worst defeat for a government in recent British history. Scores of her own lawmakers - both Brexit supporters and detractors - joined forces to vote down the deal.
The pound, which was down as much as 1.2 percent before the outcome of the vote, briefly extended losses to fall 1.5 percent before rebounding sharply to stand down 0.1 percent on the day at $1.286. The U.S. dollar index fell in step with the pound, after rising earlier in the day on data that showed Germany’s economy slowed in 2018.
Against the euro, the pound was up half a percent at 88.7 pence.
The rejection of May’s deal nevertheless bid up the euro, which strengthened to $1.141 after a bruising day, which saw the single currency drop to a five-day low after the German government reported that growth in the country’s economy slowed to 1.5 percent in 2018. That was the slowest rate of GDP growth in Europe’s largest economy in five years.
Analysts said that while the German economic figures were in line with expectations, the gloomy picture added to growing doubts about whether the European Central Bank will raise interest rates at all in 2019.
German GDP grows at weakest rate in 5 years .
The dollar index remained stronger on the day despite a U.S. Labor Department report that producer prices fell in December by the most in more than two years, the latest sign of tame U.S. inflation.
Although the U.S. government shutdown continued, “the impact is still too difficult to measure, especially in foreign exchange terms,” said Shahab Jalinoos, head of foreign exchange strategy at Credit Suisse in New York.
What is the best number of trading instruments to use in forex?
Goldman Says to Bet on Weaker U.S. Dollar After Powell Comments
Stocks Rally on Trade Optimism; Curve Flattens: Markets Wrap
Three- and five-year U.S. Treasury note yield curve inverts
Oil climbs following Saudi-Russian accord, Alberta supply cut
Stocks rallied for a second day after the U.S. and China declared a truce in their trade war, while the euro strengthened and oil rallied. A portion of the U.S. yield curve inverted for the first time in more than a decade.
The Dow, Nasdaq and S&P rallied at the open, before trimming advances, after leaders of the two countries agreed to hold off on new tariffs and intensify trade talks. European and Asian shares closed higher. The difference between three- and five-year Treasury yields dropped below zero, in what could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching.
Major movers in U.S. stocks:
“The very positive reaction from stock means that for the time being, investors have put behind them the concern that the tariff war might escalate,” said Donald Selkin, chief market strategist at Newbridge Securities. “On the other hand, there are issues out there which could cause a cooling off of the current optimism.”
Oil was jolted higher by efforts across the globe to support prices as Saudi Arabia and Russia extended their pact to manage the market and Canada’s largest producing province ordered unprecedented supply cuts. Optimism was dented slightly after Qatar said it was leaving OPEC, just as the group prepares to meet this week.
The truce between President Donald Trump and President Xi Jinping at the Group of 20 summit in Argentina has gone some way in calming investor fears over the state of global growth after a tumultuous period for risk assets. The U.S. had been scheduled to push ahead on Jan. 1 with increased tariffs on $200 billion worth of Chinese goods. Going forward, investors will assess the prospects for an end-of-year equity rally, while oil traders will continue to focus on any OPEC-related headlines to gauge the likely scale of production cuts.
"It’s easy to see the trade deal as a half empty -- that it’s just a postponement and that they’ll work together but that there really isn’t any kind of resolution,” said Jeff Kleintop, chief global investment strategist at Schwab Center for Financial Research. “But I think you can see it as a half glass full. The EU and Japan have joined with U.S. in some WTO complaints in recent months. That adds some weight to U.S. demands on China."
Sterling heads towards two-week lows as Brexit jitters rise
LONDON (Reuters) - The pound fell towards a two-week low on Thursday amid growing concerns about the UK parliament’s vote on Brexit and after the Bank of England warned of risks to the currency if Britain leaves the European Union in a disorderly manner.
Barely four months before Britain is due to leave the EU, Prime Minister Theresa May is struggling to garner support from parliament for the agreement she sealed with EU leaders. Parliament is due to vote on the deal on Dec. 11.
The possibility of a no-deal Brexit sent the pound to a two-week low earlier this week before it retraced some losses and currency analysts say a recovery is unlikely before the parliamentary vote, which will be a key risk event.
“It looks on paper like (parliament) is going to vote against the deal, which will lead us into heightened uncertainty,” said Lee Hardman, an FX strategist at MUFG in London.
Hardman said a resounding defeat for May’s plan in parliament would increase fears that Britain may struggle to pass future Brexit legislation and that the pound could fall by as much as 4 percent.
Adding to the gloomy sentiment, the Bank of England warned on Wednesday that Britain risks a bigger hit to its economy than in the financial crisis if it crashes out of the EU without a deal. It said the pound could then lose a quarter of its value.
The pound was trading down 0.5 percent against the dollar at $1.2760 per dollar. It was down half a percent against the euro at 89.14 pence.
May stepped up her warnings about the risk of a disorderly Brexit on Thursday if parliament rejects her deal.
“The timetable is such that actually some people would need to take some practical steps in relation to no deal if the parliament were to vote down the deal on the 11th of December,” May told a parliamentary committee.
Global Stocks Rebound With Oil; Italy Bonds Rally: Markets Wrap
Dollar weakens with Treasuries, yen as risk appetite returns
Italy’s bonds jump after deficit comment; Greek assets climb
U.S. stock futures advanced alongside shares in Europe and Asia as investors looked more optimistically on the outlook for interest rates and trade in the wake of another miserable week in markets. Treasuries declined, while government bonds in Italy and Greece rallied.
Banks and automakers led the Stoxx Europe 600 Index higher, with nearly all sectors in the green, after stocks rose in most of Asia except for China and Australia. The yen and dollar dipped as investors showed renewed appetite for risk. Italy’s bonds jumped as state officials began studying scenarios for a lower 2019 budget deficit target, while markets climbed in Greece after one of the nation’s banks revealed a plan to deal with troubled loans.
Credit-default swap indexes for both European high-grade and high-yield debt fell in tandem amid the general risk-on mood, with the cost of insuring against default retreating from a two-year high.
Investors will turn their focus this week to Federal Reserve speeches and policy-meeting minutes that may give clues on the 2019 rates outlook, and a key sit-down between Presidents Xi Jinping and Donald Trump ahead of the next scheduled escalation in tariff hikes. After stock markets skidded last week, and with bond traders reducing expectations for the pace of U.S. monetary policy tightening, Fed Chairman Jerome Powell has the opportunity to shed light on prospects for a pause in a speech Wednesday.
“If the Federal Reserve was genuinely worried that the fall in equity markets could cause significant balance-sheet problems, say in the U.S. corporate side, then it could easily step back,” Berenberg Senior Economist Kallum Pickering said in a Bloomberg TV interview. “You don’t have the wage and price inflation that leads the Fed to think, ‘We’re going to have to create some unemployment in order to stabilize the cycle.’”
Elsewhere, the pound advanced after European Union leaders agreed to a Brexit deal with U.K. Prime Minister Theresa May. Bitcoin extended its recent tumble to below $4,000 as cryptocurrencies fell across the board. Brent oil futures climbed from their lowest level in more than a year on Friday, even as concerns of a glut persist.
Terminal subscribers can read our Markets Live blog.
- European Central Bank President Mario Draghi will address the European Parliament’s committee for economic and monetary affairs on Monday.
- Presidents Donald Trump and Xi Jinping plan to meet at the G-20 summit in Argentina that kicks off on Friday.
- Federal Reserve Vice Chairman Richard Clarida speaks in New York on Tuesday and Chairman Jerome Powell addresses the New York Economic Club on Wednesday.
- Thursday sees the release of the minutes from the Federal Open Market Committee’s November meeting.
These are the main moves in markets:
- The Stoxx Europe 600 Index gained 1 percent as of 7:39 a.m. New York time, the highest in more than a week.
- Futures on the S&P 500 Index gained 1.2 percent to the highest in a week on the biggest rise in more than a week.
- Italy’s FTSE MIB Index surged 2.8 percent to the highest in more than two weeks on the largest jump in more than five months.
- The U.K.’s FTSE 100 Index increased 0.8 percent.
- The MSCI All-Country World Index climbed 0.3 percent.
- The Bloomberg Dollar Spot Index dipped 0.1 percent.
- The euro gained 0.2 percent, the largest gain in a week.
- The British pound advanced 0.2 percent to $1.2846.
- The Japanese yen declined 0.2 percent to 113.24 per dollar, the weakest in more than a week.
- The yield on 10-year Treasuries gained three basis points to 3.06 percent, the highest in more than a week on the biggest climb in almost three weeks.
- Italy’s 10-year yield decreased 17 basis points to 3.242 percent, the lowest in almost two months on the largest dip in more than five weeks.
- Germany’s 10-year yield climbed two basis points to 0.36 percent.
- Britain’s 10-year yield increased two basis points to 1.403 percent.
- West Texas Intermediate crude gained 1.5 percent to $51.20 a barrel.
- Brent crude jumped 2.2 percent to $60.07 a barrel, the largest surge in eight weeks.
- Copper increased 0.2 percent to $2.79 a pound.
- Gold climbed 0.2 percent to $1,224.99 an ounce.