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Tuesday, 19 February 2019

Currencies - Yen weakens as BOJ flags easing risks, euro trims earlier gains


TOKYO (Reuters) - The dollar inched up against the yen on Tuesday after Japan’s central bank governor raised the possibility of further policy easing, while the euro’s latest bounce faded as the focus shifted back to economic challenges in the bloc.

The greenback rose to 110.615 yen from a low of 110.45 hit earlier in the session.

Bank of Japan Governor Haruhiko Kuroda, speaking at the Japanese parliament, said the central bank was ready to ramp up stimulus if sharp yen rises hurt the economy and derail the path towards achieving its 2 percent inflation target.


The dollar index versus a basket of six major currencies was nearly flat at 96.914 after ending the previous session unchanged. U.S. financial markets were closed on Monday for the Presidents’ Day holiday.

The euro was down 0.15 percent at $1.1297. It edged up 0.16 percent overnight, pulling away from a three-month low of $1.1234.

The single currency had been buoyed by improved investor sentiment as expectations increased for an easing of the U.S.-China trade conflict after both sides reported progress in talks.


The dollar, the world’s most liquid currency, has tended to perform well during bouts of investor nervousness.

“The euro’s latest bounce was not based a positive incentive specific to the currency and the market will likely return to pricing in the potential negatives. The euro will remain on a shaky footing,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

“There is still some way to go before potential negatives are factored into the euro ahead of the March 7 ECB meeting.”

ECB policymakers will next meet on March 7, when the bank’s staff are expected to slash growth and inflation projections as the euro zone suffers its biggest slowdown in half a decade.

Euro zone bond yields, notably those of German bunds, have declined amid the cloudy European economic outlook and weighed on the common currency.

The Federal Reserve’s recent shift to a dovish tilt was expected to affect ECB monetary policy.

“If the Fed were to lower interest rates, it would be natural to assume that the ECB would follow suit. The German 10-year yield will likely fall into the negative if expectations for a rate cut by the ECB increases,” said Makoto Noji, chief currency and foreign bond strategist at SMBC Nikko Securities.

The 10-year German bund yield yielded 0.110 percent on Monday after brushing 0.077 percent on Feb. 8, its lowest since October 2016, following sharp cuts to the European Commission’s euro area economic growth forecasts.

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The Australian dollar was down 0.2 percent at $0.7113 following the release of the Reserve Bank of Australia’s (RBA) policy meeting minutes on Tuesday.

The minutes of RBA’s first policy meeting of the year in February showed that the central bank saw “significant uncertainties” in the economy as the once high-flying property market nosedives, a major reason rate cuts might be back on the table.

RBA Governor Philip Governor Lowe on Feb. 6 had opened the door to a possible rate cut by acknowledging growing economic risks, in a remarkable shift from its long-standing tightening bias that sent the Aussie tumbling.

Reference:  Shinichi Saoshiro

Kuroda flags BOJ's readiness to ease further, yen slips


TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda said on Tuesday the central bank was ready to ramp up stimulus if sharp yen rises hurt the economy and derail the path towards achieving its 2 percent inflation target.

The dollar received a mild lift versus the yen after Kuroda’s comments, which come at a time when many central banks - including the U.S. Federal Reserve - have turned cautious in the face of rising global economic risks.

But the BOJ chief said the central bank would carefully weigh the benefits and costs of any further policy easing, suggesting that the hurdle for topping up stimulus would be high given how financial institutions’ profits have been hurt by years of near-zero interest rates.

“If (currency moves) are having an impact on the economy and prices, and if we consider it necessary to achieve our price target, we’ll consider easing policy,” he said.

Kuroda repeated that possible easing tools the BOJ could deploy included cutting short- and long-term interest rates, expanding asset buying or accelerating the pace of money printing.

“Whatever we do, however, we need to carefully balance the benefits and the costs of the step such as the impact on financial intermediation and market functioning.”

Kuroda made the remarks in response to a question by an opposition lawmaker on whether the BOJ had the necessary tools to boost stimulus to counter the pressure from a sharp yen rise.

Japanese government bond prices turned higher and the dollar rose briefly on the comments. The greenback last stood little changed at 110.655 yen after hitting 110.45 earlier in the day.


The BOJ faces a dilemma. Years of heavy money printing has dried up market liquidity and hurt commercial banks’ profits, stoking concern over the rising risks of prolonged easing.

And yet, subdued inflation has left the BOJ well behind its U.S. and European counterparts in dialling back crisis-mode policies, leaving it with little ammunition to battle an abrupt yen spike that could derail an export-driven economic recovery.

Fears of a global slowdown has added to the BOJ’s headaches and shifted the market’s attention away from the likelihood of a future exit from easy-policy, especially as many major central banks have shifted their position over recent months towards an accommodative stance.

Kuroda said the BOJ had no plans now to stop or review its purchases of exchange-traded funds (ETF), despite growing criticism from market players that the central bank’s huge presence was distorting the market.

But he added the BOJ will scrutinise the most appropriate means to balance the pros and cons of its policy.

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“We will continue our ETF buying while taking into account market moves and the impact on financial institutions, as well as economic and price developments,” Kuroda said.

Under a policy dubbed yield curve control (YCC), the BOJ guides short-term rate at minus 0.1 percent and long-term rates around zero percent. It also buys government bonds and risky assets like ETFs as part of its massive stimulus programme.

Reporting by Leika Kihara

Monday, 18 February 2019

Euro gains as U.S.-China trade-talk optimism boosts sentiment


LONDON (Reuters) - The euro rallied and riskier currencies like the Australian dollar strengthened on Monday as optimism over a breakthrough in U.S.-China trade war talks encouraged investors.

The euro has been stuck in a trading range against the dollar for several months as growing weakness in the euro zone economy offset dwindling expectations the Federal Reserve will raise U.S. interest rates again this year.

But after dropping to a three-month low on Friday, the euro has recovered, helped by improved investor sentiment as hopes rose for an end to the U.S.-China trade conflict after both sides reported progress in talks.

The dollar, the world’s most liquid currency, tends to perform well during bouts of investor nervousness.

“Generally the mood is still quite positive on the outlook for trade,” said Adam Cole, a currencies analyst at RBC Capital Markets, adding that he thought the “risk-on” mood would continue.

“If anything we would be running with it. You have a background of quite decent growth and a Fed that is putting rates on hold.”



However, he said a better way to play the Fed’s pausing of rate increases was in dollar/yen, as more Japanese investors choose not to hedge purchases of dollar-denominated assets which already earn a decent yield after 2018’s U.S. rate rise.

Cole sees dollar/yen rising to 120 yen per dollar by the end of 2019 from current levels of 110.55.

The euro ticked 0.3 percent higher to $1.1328, while the dollar index, which measures the U.S. unit against a basket of rivals, slipped 0.2 percent to 96.687 in a quiet session with U.S. markets closed for a holiday on Monday.

Despite Monday’s gains, traders are betting on a weaker euro in the coming months. They expect the European Central Bank to maintain its easy monetary policy against a backdrop of slow growth, tepid inflation and political uncertainty.

Commerzbank analysts said the single currency also remained vulnerable to any flare-up in a U.S.-European trade dispute.

“There would be very little to report on the euro positive side if this conflict were to escalate. The smallest economic disruptions would no doubt be damaging for the euro in the light of the fragile state of the euro zone economy,” they wrote.


The Australian dollar, considered a barometer of global risk sentiment, rose 0.2 percent to $0.7154.

Sterling gained 0.3 percent to $1.2918, up from last week’s one-month lows as investors awaited the outcome of talks between Britain and the European Union, with London trying to convince Brussels to tweak its withdrawal agreement.

Emerging market currencies were mixed.

Reference: Tommy Wilkes

Nikkei reaches 2-month peak, boosted by U.S.-China trade talks


TOKYO, Feb 18 (Reuters) - Japan’s Nikkei share average advanced to a two-month peak on Monday, with investor risk appetite lifted by growing expectations that the latest Sino-U.S. talks would ease trade tensions between the two economic superpowers.

The Nikkei ended the day up 1.82 percent at 21,281.85 after brushing 21,306.36, its highest since Dec. 18.

The Tokyo market got a boost after Wall Street surged on Friday as the United States and China reported progress in five days of negotiations in Beijing last week. The two countries will resume talks this week in Washington.

“The market is in the process of gradually pricing in the possibility of the March 1 U.S.-China trade negotiation deadline being extended, led by bids from short-term participants,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.


“Political risks still remain a threat, and each development in Washington has to be gauged carefully.”

U.S. President Donald Trump on Friday declared a national emergency in a bid to fund his promised wall at the U.S.-Mexico border.

Companies that derive a large portion of their sales in China advanced. Industrial machinery maker Komatsu Ltd added 3.1 percent, robot maker Fanuc Ltd rose 2.9 percent and Hitachi Construction Machinery Co jumped 4.6 percent.

Tyre maker Bridgestone Corp gained 4.9 percent after the company said it will buy back up to 200 billion yen ($1.81 billion), or 7.6 percent, of its outstanding stock through Dec. 23.

Restaurant chain operator Hotland Co rose 5.2 percent after the company forecast its 2019 operating profit would jump by 88.2 percent to 1.62 billion yen.

Energy-related shares gained as crude prices advanced to three-month highs. Refiners Showa Shell Sekiyu and Idemitsu Kosan Co rose 5.2 percent and 5.8 percent, respectively. Petroleum and natural gas developer Inpex Corp advanced 3.6 percent.


Apartment construction and leasing company Leopalace 21 Corp tumbled 10.2 percent, falling for the sixth consecutive session. Leopalace shares have shed roughly 60 percent in value during the past six sessions, with the company being charged with construction code violations and posting losses related to repair costs.

All 33 subsectors of the Tokyo Stock Exchange (TSE) were in positive territory, led by oil and coal and rubber products.

Reference:  Shinichi Saoshiro

Asia shares bounce on trade talk, stimulus wagers


SYDNEY (Reuters) - Asian share markets bounced broadly on Monday as investors dared to hope for both progress at Sino-U.S. trade talks in Washington this week and more policy stimulus from major central banks.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.9 percent, largely recovering from a sharp fall last Friday.

Japan’s Nikkei climbed 1.8 percent to its highest level of the year so far, while Shanghai blue chips rallied 2.1 percent.

E-Mini futures for the S&P 500 were flat as trade was thinned by a holiday in U.S. markets, while spreadbetters pointed to a firmer opening for European bourses.

The Dow and the Nasdaq had boasted their eighth consecutive weekly gains on wagers the United States and China would hammer out an agreement resolving their protracted trade war.

The two sides will resume negotiations this week, with U.S. President Donald Trump saying he may extend a March 1 deadline for a deal. Both reported progress in five days of talks in Beijing last week.

“That does not rule out a setback or two between now and the start of March,” said analysts at CBA in a note.


“Even so, we still think that both sides have good reasons to want to get to an agreement. And, so motivated, it makes an agreement more likely than not.”

There are also growing expectations of more reflationary policies from some of the world’s more powerful central banks.

The need for stimulus was highlighted on Monday by data showing a sharp slide in Singapore exports and a big drop in foreign orders for Japanese machinery goods.

Beijing is already taking action with China’s banks making the most new loans on record in January in an attempt to jumpstart sluggish investment.

Minutes of the Federal Reserve’s last policy meeting are due on Wednesday and should provide more guidance on the likelihood or not for rate hikes this year. There is also talk the bank will keep a much larger balance sheet than previously planned.

“Given the range of speakers since the January meeting who support “patience,” the Fed minutes should reiterate a dovish message overall,” said analysts at TD Securities in a note.

A roll call of Fed officials are speaking at various events this week including a round table on Friday covering the future of its balance sheet.


EYEING THE ECB
The European Central Bank’s Olli Rehn told a German newspaper on Sunday that recent data point to a weakening euro zone economy and interest rates would remain at the current level until monetary policy goals have been met.

That came amid much speculation the ECB would launch another round of Targeted Long-Term Refinancing Operations (TLTRO) to support bank lending.

The risk of an easy ECB saw the euro touch a three-month low on Friday before then bouncing on dovish comments from Fed officials.

The single currency edged up 0.2 percent on Monday to $1.1312, though that was still well within the $1.1213/1.1570 trading range that has held since mid-October.

The dollar was steady on the yen at 110.53, having backed away from a two-month top of 111.12.

Sterling was a shade firmer at $1.2913 ahead of Brexit talks between British Prime Minister Theresa May and European Commission President Jean-Claude Juncker this week.

All of which left the dollar down at 96.765 on a basket of currencies and away from last week’s top of 97.368.

In commodity markets, the drift in the dollar helped spot gold firm 0.2 percent to $1,323.56 per ounce.

Oil prices reached their highest for the year so far, buoyed by OPEC-led supply cuts and U.S. sanctions on Iran and Venezuela.

U.S. crude was last up 25 cents at $55.84 a barrel, while Brent crude futures rose 5 cents to $66.30.

Reference: Wayne Cole

Friday, 15 February 2019

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Just for fun.

Mnuchin says U.S. had 'productive' trade meetings with China


BEIJING (Reuters) - Top U.S. and Chinese trade negotiators had “productive meetings”, U.S. Treasury Secretary Steven Mnuchin said in a tweet on Friday, as the world’s largest economies wound down two days of high-level talks to resolve their bruising trade war.

Mnuchin did not elaborate on the discussions he and U.S. Trade Representative Robert Lighthizer had with Chinese Vice Premier Liu He, a top economic advisor to President Xi Jinping, who the two U.S. officials met later on Friday in Beijing.

The U.S. delegation had a banquet with Chinese counterparts at a Beijing hotel on Thursday night, a person with knowledge of the meetings said. But neither country had offered details on how the two sides might de-escalate a tariff war that has roiled financial markets and disrupted manufacturing supply chains.
U.S. duties on $200 billion worth of imports from China are scheduled to rise to 25 percent from 10 percent if no deal is reached by March 1 to address U.S. demands that China curb forced technology transfers and better enforce intellectual property rights.

Although U.S. President Donald Trump said earlier in the week that an extension of the deadline was possible if a “real deal” was close, Larry Kudlow, director of the National Economic Council, said the White House had made no such decision.

Several sources informed about the meetings told Reuters there was little indication negotiators had made major progress on sticking points to pave the way for a potential meeting between Xi and Trump in coming weeks to hammer out a deal.


“Stalemate on the important stuff,” said one of the sources, all of whom requested anonymity because the talks are confidential.

“There’s still a lot of distance between parties on structural and enforcement issues. I wouldn’t quite call it hitting a wall, but it’s not a field of dreams either,” said a second source.

The Financial Times cited sources as saying the two sides were trying to reach a memorandum of understanding to help bring about a leaders meeting.

A third source told Reuters the White House was “irate” over earlier reports that the Trump administration was considering a 60-day extension to the tariff deadline.


Lighthizer and Mnuchin left their Beijing hotel on Friday afternoon without taking questions from reporters.

‘SLEIGHT OF HAND’
Reuters reported earlier that in recent meetings China has pledged to make its industrial subsidy programs compliant with World Trade Organization rules and end those that distort markets, but had offered no details on how it intends to achieve that goal.

The offer has been met with scepticism from U.S. negotiators, in part because China has long refused to disclose its subsidies.
And some in U.S. industry have been unimpressed with the extent of other reported Chinese offers to address U.S. concerns, such as Beijing’s proposal to increase purchases of U.S. semiconductors to $200 billion over six years.

John Neuffer, President and CEO of the Semiconductor Industry Association (SIA), told Reuters that the offer would be “akin to an accounting sleight of hand” and “an attempt to rearrange our supply chains and drive them deeper into China”.

“We are confident U.S. government negotiators will wisely dismiss this offer and continue pushing for meaningful reforms that create a fair and level playing field for U.S. companies doing business in China,” Neuffer said.

The proposal, first reported by the Wall Street Journal, was part of a “recycled” package of goods purchase offers that Beijing first presented in the spring of 2018, a source told Reuters on Thursday.

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Many U.S. lawmakers and business groups have urged Trump in recent weeks not to settle for an agreement based largely on increased Chinese purchases of farm and energy commodities.

Trump has said he did not expect to meet with Xi before March 1, but White House spokeswoman Sarah Sanders has raised the possibility of a meeting between the leaders at the president’s Mar-a-Lago retreat in Florida.

China has long denied Washington’s accusations of trade abuses, and it has retaliated to U.S. tariffs with its own duties on American goods.

Some trade experts say China appears focused on securing a Xi-Trump meeting, in the hope that it would make a near-term deal to limit or reduce tariffs more likely.

Reporting by Michael Martina