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Thursday, 26 April 2018

Asia stocks supported by Wall St., but China drags


TOKYO (Reuters) - Asian stocks were supported on Thursday by robust corporate earnings that helped Wall Street quell concerns about the surge in U.S. bond yields. However, sagging Chinese shares limited the upside potential of the market.

Spreadbetters expected European stocks to open higher off the back of firm U.S. stocks, pointing to a rise in Britain’s FTSE of 0.1 percent, an increase in Germany’s DAX of 0.4 percent and in France’s CAC of 0.4 percent.

The dollar hovered near 3-1/2-month highs against a basket of currencies, supported by the rise in U.S. long-term debt yields to a four-year peak.

South Korea’s KOSPI climbed 1.3 percent, with tech shares buoyed by news of a record quarterly profit from Samsung Electronics.

The region’s other gainers included Japan’s Nikkei, which rose 0.5 percent and Thai and Malaysian stocks.

MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.15 percent, as weaker Chinese stocks weighed on the market.

The benchmark Shanghai Composite Index fell 0.9 percent and the blue-chip CSI300 index dropped 1.4 percent as tech shares came under pressure following news that U.S. prosecutors have been investigating if China’s Huawei violated U.S. sanctions on Iran.

The Dow Jones Industrial Average rose 0.25 percent on Wednesday, ending five consecutive sessions of losses, and the S&P 500 gained 0.18 percent on optimism over a spate of upbeat earnings that managed to offset jitters about rising U.S. bond yields.

The rise in the 10-year U.S. Treasury yield to a four-year peak above 3 percent had weighed on stocks amid concerns higher costs to borrow could dampen corporate profits.

Nonetheless, the broader equity market reaction to the latest jump in U.S. yields appeared to be more measured compared to February, when a similar spike in rates sent stocks tumbling.

“The equity markets slid sharply in January and March in response to the rise in Treasury yields. But the Federal Reserve signaled in March that its rate hikes would be gradual,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“Expectations toward U.S. rate hikes being gradual are enabling equities to take the current yield rise in stride.”

The 10-year yield rose to 3.035 percent on Wednesday, its highest since January 2014. The yield has climbed on expectations of a steady U.S. economic expansion, accelerating inflation and concerns about increasing debt supply. It last stood at 3.031 percent.

U.S. yields have dragged up their European counterparts, with 10-year German bund reaching a six-week high of 0.655 percent and its British Gilt equivalent setting a nine-week peak of 1.57 percent this week.


The rise in borrowing rates has also supported the dollar. The dollar index of a basket of six major currencies was steady in Asia at 91.157 and within reach of 91.261, its highest since Jan 12 scaled on Wednesday.

The dollar has risen without pause through much of the past week, in part helped by an easing of concerns over a U.S.-China trade dispute.

The euro fetched $1.2175 after sliding to a 1-1/2-month low of $1.2160.

The immediate focus for euro traders is the European Central Bank monetary policy decision due at 1145 GMT. The ECB is widely expected to keep policy unchanged but its comments will be followed closely for any hints of when it might scale back its massive monetary stimulus.

“We expect no changes to the ECB’s setting of monetary conditions or its guidance. Some people in the market will be disappointed by that, but ECB President (Mario) Draghi has been starkly clear about the Governing Council’s position,” wrote Carl Weinberg, chief international economist at High Frequency Economics.

“Conditions prerequisite for a change in the central bank’s stance have not been met.”

The dollar was little changed at 109.340 yen after going as high as 109.490, its strongest since Feb. 8.

Crude oil prices were up amid the prospect of fresh sanctions on Iran and concerns about output from Venezuela.

Brent crude added 0.7 percent to $74.50 a barrel and U.S. crude futures were 0.55 percent higher at $68.42 a barrel.

Higher U.S. yields and a stronger dollar weighed on gold, with spot prices slipping to a five-week low of $1,318.51 an ounce overnight.

Reporting by Shinichi Saoshiro

Technology stocks hit as Wall Street turns lower


(Reuters) - U.S. stock indexes swung between gains and losses on Wednesday, as Boeing’s jump after upbeat results and outlook was negated by declines in technology stocks and rising U.S. bond yields.

Shares of the world’s biggest planemaker rose 2.8 percent after its profit jumped by more than half in the first quarter and the company raised its full-year forecasts for cash flow and earnings.

After Caterpillar spooked investors by warning about higher material costs on Tuesday, Boeing executives, on a post-earnings call noted that it was not seeing a material effect from raw material costs.

“With earnings reports that are coming out, the focus is on the forward guidance for where the interest rate environment is going,” said William Norris, chief investment officer at CIBC Bank USA.

“Investors are seeing a lot more cross-currents impacting the markets ... we knew that earnings were going to be very good and people are looking beyond the first quarter.”

The yield on 10-year U.S. Treasury notes, the benchmark for global interest rates, held above 3 percent after crossing the level for the first time in four years on Tuesday, stoking concerns about higher borrowing rates for companies.


Twitter, initially up 10 percent after a strong set of quarterly results, flipped to a 3 percent fall on the day. Scandal-hit Facebook which is set to report after market on Wednesday, was down 0.14 percent.

The CBOE Volatility index, a gauge of short-term stock market volatility jumped to more than 1-week high to 18.69 points.

At 11:28 a.m. ET, the Dow Jones industrial average was down 32.58 points, or 0.14 percent, at 23,991.55, the S&P 500 was down 1.31 points, or 0.05 percent, at 2,633.25 and the Nasdaq Composite was up 12.49 points, or 0.18 percent, at 7,019.84.

Reuters data shows that analysts are now estimating 22 percent profit growth in the first quarter among the S&P 500 companies, compared with 18.6 percent at the start of the earnings season.

Comcast rose 3.7 percent

Reference: Sruthi Shankar

Dollar edges up as U.S. yields poke above 3 percent to four-year highs


TOKYO (Reuters) - The dollar inched up on Wednesday, approaching its recent four-month high as the U.S. 10-year bond yield poked above 3 percent to hit its highest level since early 2014.

The dollar index against a basket of six major currencies rose 0.1 percent to 90.844. It had climbed overnight to 91.016, highest since Jan. 12, before a slide in Wall Street stocks tempered investor risk appetite and slowed the greenback’s rally against its peers, notably the yen.

The greenback had risen without pause through much of the past week as U.S.-China trade conflict woes receded and allowed the market to turn its attention back to dollar-supportive fundamentals, notably the surge by U.S. yields.

“Revived expectations that the U.S. economy would perform well thanks to tax cuts and increased fiscal spending are supporting the dollar,” said Shin Kadota, senior strategist at Barclays in Tokyo.

“Yields rose and equities slipped before but the situation is a little different, as expectations towards the U.S. economy are now stronger,” Kadota said.

Tuesday’s data on U.S. consumer confidence and new home sales, both stronger in April, bolstered the case that the world’s biggest economy will continue to grow in the coming quarters.

The U.S. currency was 0.1 percent higher at 108.900 yen. It pulled back from a 2-1/2-month high of 109.200 set the previous day when the S&P 500 and the Dow posted their biggest declines since April 6.

While the weakening by equities was supportive for the yen, often sought when stocks fall due to its perceived safe-haven status, analysts said the dollar was still likely headed for further gains in the longer-term.

“At first glance, the situation is similar to February, when U.S. yields rose sharply and equities tumbled. But the difference this time is that the response by equities is more measured, and yen demand stemming from ‘risk off’ is not nearly as strong,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“The market’s attention is firmly back on interest rate differentials and this is likely to keep supporting the dollar going forward.”


The spreads between U.S. yields and those of its European and Japanese counterparts have widened significantly amid diverging monetary policy expectations.

This week the gap between U.S. and German 10-year government bond yields has hit its widest in 29 years and the U.S.-Japanese 10-year yield spread reached its broadest in nearly 11 years.

The 10-year Treasury yield extended its overnight rise and touched the four-year peak of 3.009 percent, reflecting the durability of the U.S. economic expansion. Accelerating inflation and concerns about increasing debt supply have also driven yields higher.

Wall Street dropped sharply on Tuesday as warnings by bellwether companies of higher costs stemming from the surge in yields reverberated.

The pound was effectively flat at $1.3981. It plumbed a one-month low of $1.3919 on Tuesday before rebounding 0.3 percent, seen to have been supported in part by news about a possible takeover of British pharmaceutical company Shire Plc by Japanese drugmaker Takeda Pharmaceutical Co.

The Australian dollar shed 0.2 percent to $0.7586 and in close reach of a four-month trough of $0.7576 plumbed the previous day.

The New Zealand dollar extended losses and dipped to $0.7102, its weakest since Jan. 4.

The kiwi, on track for its seventh session of losses, has slumped 2 percent this month.

The currency has faced pressure from a resurgent dollar and also by increasing expectations that the Reserve Bank of New Zealand would hold off from raising rates through 2018 after data last week showed the country’s inflation nearing the bottom of the central bank’s target.

Reporting by Shinichi Saoshiro

Wednesday, 25 April 2018

Sterling stuck near five-week lows as dollar bounces on yield rise


LONDON (Reuters) - Sterling fell against the dollar on Wednesday as the U.S. currency strengthened on the back of rising Treasury yields, while traders remained cautious ahead of British first-quarter economic growth numbers due on Friday.

The release will be the last key data issued before the Bank of England’s Monetary Policy Committee meeting early next month, and markets are split over whether the central bank will raise interest rates.

Governor Mark Carney dented confidence that a rate hike would happen when he said last week that Britain’s economic data was “mixed” and that there were several other MPC meetings later this year.

That sent sterling plummeting from post-Brexit vote highs and left it down for the month of April.

The pound did snap its losing streak and rise on Tuesday and overnight on news of a potentially positive M&A deal.

But with the dollar rebounding on Wednesday as the 10-year Treasury yield topped 3 percent, investors sold the pound.

“The price action today reflects more dollar strength than sterling weakness,” said Morten Helt, an FX strategist at Danske Bank, noting that the British currency had held up better against the euro in recent trading.

Helt said that, despite Carney’s comments, he still expected the BoE to hike rates as it followed the U.S. Federal Reserve in tightening policy and as it looked at the potential for a strong labour market to put upward pressure on inflation.


“We will have to see a very weak print (of GDP data on Friday) to delay a rate hike. We still believe in a rate hike and see sterling supported in the next few weeks.”

The pound fell 0.3 percent to $1.3938 (0.9996 pounds) as the dollar gained across most major currencies, and sterling was left close to a five-week low of $1.3919.

Sterling remains more than four cents off its post-Brexit vote highs of $1.4377 hit last week.

Some of those watching the market said the currency could fall further if more investors began to doubt a May rate hike.

“Slowing UK inflation and a cautious Mark Carney have forced investors to scale back expectations of a May rate hike. The pound, which remains extremely sensitive to monetary policy speculation, could depreciate further based on these factors,” said Lukman Otunuga, an analyst at FXTM.

Against the euro, which some analysts say is currently a better gauge, given that there has been considerable dollar-specific news this week, sterling gained 0.2 percent to 87.380 pence per euro.

Reporting by Tommy Wilkes

After Carney surprise, chance of May BoE rate hike down but not out


LONDON (Reuters) - Bank of England Governor Mark Carney surprised investors last week when he hinted that interest rates might not go up next month - but economists say it would be wrong to rule out an increase.

‘Forward guidance’ about central bank policy intentions was Carney’s signature policy when he arrived at the BoE from Canada in 2013. Yet even now, as he nears the end of his British sojourn, financial markets are still trying to figure him out.

“The Bank of England has been behaving like the Grand Old Duke of York,” said Lena Komileva, managing director of G+ Economics, likening Carney to the commander mocked in a British nursery rhyme for leading troops pointlessly up and down a hill.

Since the second half of last year, the BoE has warned that Britain’s economy is at risk of persistent inflation even as the approach of its exit from the European Union causes growth to lag that of other rich nations.

The BoE raised rates in November for the first time since 2007, and in February Carney and his fellow rate-setters said interest rates might need to rise slightly faster than the bank judged that markets were expecting.

In March, two members of the BoE’s Monetary Policy Committee voted for a rate rise and economists were confident an MPC majority would back a rise to 0.75 percent in May.

This all changed on Thursday when Carney alluded to “mixed data”, differences of opinion on the MPC and the possibility of rate rises later in the year in a BBC interview.

Sterling tumbled by more than a cent, short-dated bond yields recorded their biggest fall this year, and financial markets chopped the odds on a May rate rise to less than 40 percent from 65 percent before, according to Thomson Reuters calculations.

PREVIOUS JOLTS
Investors should not lose track of the bigger picture, said Mike Amey, a fund manager at PIMCO, the world’s largest bond investor, as market pricing of the chance of a May move crept back up to around 50 percent.

“Whether they hike in May or not is an open question,” Amey said. “But we think the underlying momentum in the economy is holding up quite well, and therefore that in due course we will see higher rates than are currently priced in for the next couple of years.”

PIMCO expects BoE rates to rise once or twice both this year and next - compared with the single rate rises in November 2018 and August 2019 factored in by markets.

April purchasing managers’ surveys from British businesses will probably be more important for the BoE’s May decision than the weather-affected preliminary first-quarter gross domestic product figures on Friday, Amey added.

Overall, the economy has held up better than most economists expected after the June 2016 Brexit vote, despite lagging the global rebound. And the high inflation that hit consumer demand last year is slowing as sterling recoups some of its losses.


Unemployment has fallen to a 43-year low of 4.2 percent, and a record proportion of Britons are in work.

Komileva said she saw little case to delay a rate rise.

“If the Bank were to miss May, it would create serious questions about ... what it would take for them to move again,” Komileva said.

The BoE’s signals on rates felt more arbitrary than those of the U.S. Federal Reserve or the European Central Bank, she said.

Fed policymakers make individual projections for rates while ECB President Mario Draghi regularly offers hints on policy.

This is not the first time markets have been jolted by Carney. In 2013 the BoE linked policy to the jobless rate, only for unemployment to fall far faster than policymakers forecast. And in mid-2014 and mid-2015 Carney suggested rates might rise sooner than markets expected - only to backtrack both times.

Just two months ago, Carney had said he felt he could stop giving hints on rates because markets understood the BoE’s thinking well enough to draw their own conclusions.

After that, Brexit worries eased as Britain secured an outline Brexit transition deal until the end of 2020, and economists said signs of economic weakness were the result of freak snow storms, adding to the sense that another rate hike was coming.

WAITING FOR WAGES?
The missing piece of the picture for the BoE is wage growth, the key factor for inflation pressure. At an annual 2.8 percent, wage growth is roughly in line with BoE expectations but remains weak by historic standards, especially given low unemployment.

Former BoE policymaker David Blanchflower thinks the central bank should hold off raising rates and look harder at the number of people in part-time work but who want to work longer hours, suggesting wages are unlikely to pick up sharply.

The BoE might feel it has more time to see if wages rise after a bigger-than-expected fall in inflation in March. Furthermore, sterling’s recent recovery should curb inflation pressures.

Even Michael Saunders - who voted for a rate rise last month and looks set to do so again - has said the muted response of wages to the fall in unemployment defied simple formulae.

For now, economists are still trying to gauge whether Carney’s comments were a warning that rates are unlikely to rise in May.

Alan Clarke at Scotiabank, who has dropped his forecast of a May rate rise, said they were probably intended to stop MPC members feeling they were committed to a hike next month.

Komileva said they might have the effect of dissuading wavering MPC members from backing a rate rise for fear of wrong-footing markets again.

But HSBC economists Simon Wells and Elizabeth Martins - who for now are holding with their view of a May rate rise - said they would take the comments with a grain of salt.

“Not reacting to every word the BoE utters has been a good strategy recently. We stick to this.”

Reference: David Milliken

Asian shares rattled by rising U.S. yields, cost worries


TOKYO (Reuters) - Asian shares fell on Wednesday as a rise in U.S. bond yields above 3 percent and warnings from bellwether U.S. companies of higher costs drove fears that a boom in corporate earnings may be near its peak.


MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.3 percent, hitting their weakest in almost three weeks, with tech-heavy Taiwan shares .TWII slipping to two-month lows on worries about slowing semi-conductor demand. Japan's Nikkei dropped 0.2 percent.

European shares are expected to fall, with spread-betters calling a 0.7 to 0.9 percent drop in Britain's FTSE, Germany's Dax and France's Cac.

S&P E-mini futures ESc1 slipped 0.2 percent. Wall Street shares skidded overnight, with the S&P 500 .SPX slumping 1.34 percent, the most in two-and-a-half weeks.

Industrial heavyweight Caterpillar beat earnings estimates due to strong global demand but its shares tumbled 6.2 percent after management said first-quarter earnings would be the “high water mark” for the year and warned of increasing steel prices.

“We’ve seen quite a lot of companies announcing above-estimate earnings and their shares falling sharply,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Fujito noted major financial shares such as Goldman Sachs and Citigroup as well as Google parent Alphabet, the first major tech firm to report earnings, have followed a similar pattern.

Corporate earnings are in solid shape, with analysts estimating 21.1 percent growth in the Jan-March quarter among U.S. S&P500 firms, according to Thomson Reuters data. A similar trend is expected globally.

“If shares are falling when corporate earnings are rising 20 percent and the economy is growing at 3 percent, the market is in trouble. The market reaction so far feels as if we are starting to see an end of its long rally since 2009. Investors could be thinking that the best time will be soon behind us,” he said.


Creeping gains in U.S. Treasury yields are fuelling fears that portfolio managers may move money into safer fixed-income securities at the expense of riskier assets like stocks and emerging markets.

The 10-year yield, a benchmark for global borrowing costs, has been driven steadily higher by a combination of concerns over inflation, growing debt supply, and rising Federal Reserve borrowing costs.

The 10-year U.S. Treasuries yield rose to as high as 3.009 percent. A break of its January 2014 high of 3.041 percent could turn investors even more bearish.

Fed Funds rate futures prices have been constantly falling this month, pricing in a considerable chance of three more rate hikes by the end of this year.

The impact is already reverberating in many emerging markets, with JPMorgan’s emerging market bond index  hitting a two-month low.

In Indonesia, a market with one of the largest exposures to foreign portfolio holdings, the authorities have been intervening heavily to put a floor under the rupiah, which has been flirted with two-year lows.

The Indian rupee hit a 13-month low.

“Higher yields are no doubt having a negative impact on emerging markets. We are likely to see outflows from emerging market bonds,” said Takahiko Sasaki, market economist at Mizuho Bank.

The dollar also gained a tad against major currencies.

The euro stood at $1.2226 EUR=, not far from Tuesday's low of $1.2182, a low last seen on March 1.

The dollar traded at 108.87 yen JPY= after having jumped to a 2-1/2-month high of 109.20 yen on Tuesday.

The Australian dollar fell 0.4 percent to a four-month low of $0.7572.

Against a basket of major currencies, the dollar index edged up 0.2 percent.

Oil prices were stable, but were below the more than three-year highs reached the previous session as rising U.S. fuel inventories and production weighed on an otherwise bullish market.

Brent fetched $73.86 a barrel, little changed on the day. On Tuesday it rose to $75.47, its highest since November 2014. West Texas Intermediate  crude traded flat at $67.68.

Reorting by Hideyuki Sano

Tuesday, 24 April 2018

Dollar, euro hold after U.S. 10-year yield hits 3 percent


NEW YORK (Reuters) - The U.S. dollar and euro were largely unchanged on Tuesday morning as the 10-year Treasury yield broke through the psychologically significant barrier of 3 percent.

The dollar index hit a three-month high of 90.985 against a basket of six currencies in morning trade, though the big gains on rising U.S. government bond yields mostly occurred yesterday.

“Yesterday was a big day in terms of Treasury yields impacting currencies. Today, the 10-year did claw its way up to 3 percent to no big effect as far as currencies are concerned,” said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.

Greenback gains on Tuesday drove the euro down slightly past the two-month low hit yesterday, on growing concerns that firmer U.S. Treasury yields would reduce incremental demand for the region’s bonds and stocks at a time when hedge funds have amassed record long bets in the single currency.


But after Monday’s sizeable fall, the euro looked buoyant on Tuesday, remaining well above the annual low reached in early January.

“Today we stalled at key levels, most obviously vis-à-vis the euro, which looks relatively resilient,” said Ruskin.

The U.S. 10-year Treasury yield rose above 3 percent on Tuesday for the first time in more than four years as investors reduced their U.S. bond holdings on worries about rising inflation and growing government debt supply. The 10-year reached a top of 3.003 percent, above yesterday’s close at 2.973 percent.

Some lingering worries that European Central Bank policymakers may signal a more cautious stance at a policy meeting on Thursday also pulled the single currency lower.

“We think the euro’s weakness may be overdone as despite the U.S. Treasury yield spike theme reverberating in the markets over the last 24 hours, the U.S. economy is very much in the late stages of its economic cycle and a cautious ECB meeting is baked into markets,” said Christin Tuxen, an FX strategist at Danske Bank in Copenhagen.

The single currency EUR= stabilized around $1.22 on Tuesday after having plumbed to a low of $1.2185 in the Asian session, its lowest since March 1. It has fallen 3 percent from a 2018 high above $1.2550 in mid-February.

The dollar set a 2-and-a-1/2 month high of 109.17 yen JPY= and was holding near those levels.

The rise in U.S. bond yields has dented emerging market currencies and bond markets, including those in Asia.

Higher U.S. yields can put pressure on the currencies of emerging market countries that run current account deficits such as Indonesia and India, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

A stronger dollar also intensified pressure on some commodity-linked currencies such as the Australian dollar AUD= which tumbled 0.4 percent to 0.7577 per dollar, its lowest since Dec. 13.

Reporting by Kate Duguid and Saikat Chatterjee