Thursday, 19 July 2018

Wall Street lower on weak earnings, escalating trade tensions

(Reuters) - U.S. stock indexes were trading lower on Thursday, as a batch of weak quarterly reports dampened a robust earnings season and trade tensions rose on news the European Union may retaliate if United States slaps tariffs on EU cars.

EU Trade Commissioner Cecilia Malmstrom said she hoped a mission to Washington would ease the trade dispute that started after the United States imposed tariffs on EU steel and aluminum on June 1, with President Donald Trump threatening to extend them to cars and auto parts.

“Today’s theme is trade war, as the EU is going to retaliate against car tariffs and that is going to weigh,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“The market is probably going to be defensive even though we are getting good news on the economy and as earnings continue to pour in.”

Concerns about the impact of tariffs have been rising among manufacturers in every one of the Federal Reserve’s 12 districts, a central bank report released on Wednesday showed.

However, White House trade adviser Peter Navarro on CNBC downplayed tariff-related concerns, saying President Trump’s trade strategy with China, which includes levying new tariffs, is not as disruptive as many describe.

The Consumer Staples sector dropped 0.9 percent, the most among the 11 main S&P sectors.

The losses on the sector were led by a 6.3 percent drop in shares of cigarette maker Philip Morris after the company lowered full-year profit forecast. Rival Altria (MO.N) dropped 3.3 percent.

EBay (EBAY.O) sank 9.6 percent, the most on the benchmark S&P 500 and the Nasdaq, after reporting underwhelming results and forecast.

The biggest drag on the Dow Jones Industrial Index was Travelers Cos (TRV.N), which fell 3.3 percent after the insurer missed quarterly profit estimates due to higher catastrophe losses from storms in several U.S. regions.

AmEx (AXP.N) fell 2.8 percent after the credit card company said expenses rose due to higher spending on its rewards program.

At 9:50 a.m. EDT the Dow Jones Industrial Average .DJI was down 96.18 points, or 0.38 percent, at 25,103.11, the S&P 500 .SPX was down 9.76 points, or 0.35 percent, at 2,805.86 and the Nasdaq Composite .IXIC was down 22.60 points, or 0.29 percent, at 7,831.84.

IBM (IBM.N) was a bright spot, up 4 percent after its results topped estimates due to growth in higher-margin businesses including cybersecurity and cloud computing.

Comcast (CMCSA.O) gained 3.4 percent after it dropped pursuit of a group of media assets owned by Twenty-First Century Fox Inc (FOXA.O).

Declining issues outnumbered advancers for a 1.46-to-1 ratio on the NYSE and for a 1.61-to-1 ratio on the Nasdaq.

The S&P index recorded 12 new 52-week highs and one new lows, while the Nasdaq recorded 41 new highs and 14 new lows.

Reporting by Amy Caren Daniel

Investors bet on long-term dollar strength after Fed comments; greenback rises

LONDON (Reuters) - The dollar rose on Thursday after upbeat comments on the U.S. economy by the Federal Reserve’s chairman reinforced expectations by investors of the currency’s long-term strength.

Jerome Powell did not alter expectations of U.S. monetary policy in his addresses to Congress on Tuesday and Wednesday, but traders saw his remarks as signifying that authorities were comfortable with the dollar’s near 6 percent rise against its rivals in the last three months.

That represents a shift in the stance laid out by Treasury Secretary Steven Mnuchin, who in highly unusual remarks in January said a lower dollar was “good for us”.

A weaker dollar would help American exporters compete abroad but it may undermine its status as the world’s top reserve currency.

On Wednesday, Powell said he believed the United States was on course for years more of steady growth, and carefully played down the risks to the U.S. economy of an escalating trade conflict.

The dollar index versus a basket of six major currencies on Thursday rose 0.3 percent to 95.344, nearing a 12-month high of 95.531 scaled on June 28.

The euro was down 0.3 percent at $1.1610. It brushed a 16-day low on Wednesday of $1.1602.

Meanwhile, the widening trade rift between China and the United States knocked the yuan to a one-year low in both the onshore and offshore markets.

“The Fed Chair does not appear to be overly concerned about the flatter yield curve and the central bank is signalling further interest rate increases. We see limited potential for a near-term turnaround in dollar strength,” said Chris Turner, head of currency strategy at ING in London.

Though concerns remain the U.S. economy may be nearing a peak as evident from a flattening yield curve, the widening rate differentials between the United States and other major markets have lifted the dollar.

The two-year Treasury yield stood near 2.624 percent, its highest since August 2008 scaled on Wednesday.

“With the Fed poised to hike further, currency market focus is shifting back towards the spread between the U.S. two-year yield — which is now well over 2 percent — and those of other countries, like Japan,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

The Fed has been ahead of its peers in tightening monetary policy and is expected to have raised rates a total of four times in 2018 to tackle rising inflationary pressures.

With U.S. rates continuing to rise and most other major central banks taking only tentative steps towards monetary normalization, many analysts expect more dollar upside. RBC is forecasting a year-end euro/dollar of $1.12.

Against the Japanese yen, the dollar was down 0.1 percent at 112.925 yen. The dollar on Wednesday rallied to as high as 113.14 against the yen, its strongest since January 9.

China’s Ministry of Commerce said on Wednesday it would have to take further measures to compensate for losses caused by U.S. tariffs on steel and aluminium

U.S. President Donald Trump’s top economic advisor, Larry Kudlow, also said on Wednesday that he believed Chinese President Xi Jinping has blocked progress on a deal to end duelling U.S. and Chinese tariffs.

Amid the simmering trade tensions, the Chinese yuan extended losses to touch a one-year low of 6.779 per dollar in offshore trading.

The Australian dollar gained on a stronger-than-expected local June employment data.

Sterling remained frail, hit the previous day by weak inflation data. Ongoing political turmoil related to Britain’s plans to leave the European Union has also served as a lingering drag on the pound.

The pound traded at $1.3023, after hitting a 10-month low of $1.3010 on Wednesday.

Reference: Tom Finn

Wednesday, 18 July 2018

Sterling skids to $1.30 as inflation, Brexit cast August rate rise doubt

LONDON (Reuters) - Sterling slid to 10-month lows against the dollar on Wednesday after data showed British inflation failed to rise as expected, a day after Brexit-linked political turmoil had sent the currency hurtling lower.

Annual consumer price inflation held steady in June at 2.4 percent - the bottom end of forecasts in a Reuters poll of economists who had expected to see the first increase this year, to 2.6 percent.

Market expectations for a 25 basis point August interest rate rise by the Bank of England fell back to 69 percent from close to 80 percent earlier this week.

The pound was already down before the inflation data on a rallying dollar and worries about British Prime Minister Theresa May’s ability to push through her Brexit plans after she only narrowly won a crucial parliamentary vote on Tuesday.

May threatened rebel lawmakers in her Conservative Party with a general election this summer if they defeated her Brexit plans on customs.

Trading at $1.3080 before the inflation numbers, sterling fell further to a low of $1.3010, its weakest since September 5.

Against the euro the pound dropped 0.3 percent to 89.20 pence.

“BoE hike expectations will be pared back no doubt for August, especially given recent political uncertainty. Even with a net vote in favour of a hike, we are likely to see a one and done,” Neil Jones, head of FX hedge fund sales at Mizuho Bank said.

Britain’s FTSE extended gains to touch a session high after the data. British government bond futures surged by more than 30 ticks after the data and 10-year gilt yields dropped to their lowest since May 31.

May survived a crucial parliamentary vote on part of her Brexit proposals on Tuesday, but the vote was the latest in which May’s authority has been challenged and deep divisions within her own government laid bare.

She also saw off an attempt by pro-European Union rebels in her own party require the government to try to negotiate a customs union arrangement with the EU if, by Jan. 21, 2019, it had failed to negotiate a frictionless free trade deal with the bloc.

Markets and many investors want to see Britain retain close trade ties with the EU, possibly through a customs union, after Britain leaves the bloc in March 2019.

The political turmoil caused the pound to suffer its biggest one-day fall in more than two months. A dollar rally following bullish comments from Federal Reserve Chairman Jerome Powell also hurt sterling.

“It is becoming more obvious by the day that May is finding it increasingly difficult to gain a majority in parliament for ‘her’ Brexit plan,” Commerzbank analysts said.

Sterling tumbled two cents in the space of hours on Wednesday before the parliamentary vote.

Reporting by Tommy Reggiori Wilkes

Dollar's advance puts squeeze on gold, Brexit and BoE blues sink sterling

LONDON (Reuters) - The world’s major stock markets were mostly firmer on Wednesday as a bullish outlook from the head of the U.S. central bank buoyed the dollar, lifted bond yields and sent safe-haven gold to a one-year trough.

Wall Street’s jump back above the 2,600 points mark overnight was also keeping Europe’s spirits up as Europe reached mid-morning.

London's FTSE .FTSE made 0.5 percent as the pound GBP=D3 continued to suffer the Brexit blues, while Germany's Dax .GDAXI climbed to a one-month high on hopes the European Union and United States could cut a deal on car tariffs.

In Asia, Japan's Nikkei .N225 had also hit a one-month top as a weakening yen promised to fatten exporters' profits.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added as much as 0.1 percent and Australia 0.6 percent. Shanghai blue chips .CSI300 started firm only to flag as China's yuan lost ground to the advancing dollar.

Federal Reserve Chairman Jerome Powell stuck with an upbeat assessment on the U.S. economy while downplaying the impact of global trade risks on the outlook for rate rises.

“It basically means another rate hike in September and most likely another one after that in December,” said Rabobank market economist Stefan Koopman.

“He couldn’t stay away obviously from the potential threats of protectionism, but he is still waiting to see how everything pans out so he wasn’t really concerned about it - and that is giving the market another boost.”

BofA Merrill Lynch’s latest fund manager survey showed a trade war remained the biggest threat cited by no less than 60 percent of respondents.

For now, U.S. companies seem to be profiting mightily from tax cuts as the earnings season shifts into top gear. Analysts now see second-quarter S&P 500 earnings growth of 21.2 percent, up from 20.7 percent on July 1.

Of the 39 companies in the index that have reported so far, 84.6 percent have come in ahead of street expectations. The Dow .DJI ended Tuesday up 0.22 percent, while the S&P 500 .SPX gained 0.40 percent and the Nasdaq .IXIC 0.63 percent.

Wall Street futures prices pointed to fractional gains later with results from Morgan Stanley (MS.N), ebay (EBAY.O) and IBM(IBM.N) all coming up.

“The S&P has finally broken to the upside through 2,800 out of the range that has confined it for most of this year, and this could now be the start of a grind higher in global equities over the next few weeks,” wrote analysts at JPMorgan in a note.

Next stop is the all-time top of 2,872 from January.

Powell’s support for more rate hikes sent two-year Treasury yields to the highest in nearly a decade and lifted the dollar broadly.

Against a basket of currencies, the dollar was up at 95.251 .DXY, after jumping 0.46 percent overnight. It also climbed to its highest since January against the yen at 113.07 JPY=.

The euro slipped further to $1.1634 EUR=, after weakening 0.4 percent on Tuesday.

The pound suffered another bout of the blues after British Prime Minister Theresa May only just cleared the latest parliamentary hurdle to her leaving plans and national inflation data came in weaker than expected.

Wednesday’s edition of the Times reported May threatened rebel lawmakers in her own party with a general election if they defeated the bill.

Bank of England Governor Mark Carney warned a no-deal Brexit would have “big” economic consequences and force a review of plans to raise interest rates.

Sterling was last huddled at 10-month low of $1.3035 GBP=D3, after sliding 0.9 percent on Tuesday.

The rising U.S. dollar coupled with the prospect of higher U.S. interest rates also spelled trouble for gold, which crashed through major chart support to hit a one-year low.

Spot gold XAU= was hovering at $1,224.92 per ounce, having fallen to $1,223.78. The steadily less-precious metal is down more than 5 percent for the year.

Oil prices also eased after an industry group reported an unexpected increase in U.S. crude inventories. Brent fell 70 cents to $71.40 a barrel, while U.S. crude was quoted down 54 cents at $67.55 a barrel.

Reporting by Marc Jones in London and Wayne Cole in Sydney

Tuesday, 17 July 2018

Dollar slips ahead of Fed testimony

LONDON (Reuters) - The dollar edged down on Tuesday ahead of congressional testimony by Federal Reserve Chairman Jerome Powell which traders will scrutinise for clues on the pace of U.S. interest rate rises and risks emanating from trade conflicts.

Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee at 1400 GMT on Tuesday.

He is expected to deliver an upbeat message on the outlook for growth and reaffirm the Fed’s gradual monetary tightening policy but could face tough questions on the central bank’s independence and how it would deal with an escalation in the global trade war.

“The escalating trade conflict is becoming an increasingly realistic downside risk that could weigh on sentiment and capital spending,” said Societe Generale analyst Guy Stear.

“It is questionable how much longer the top central banker will be able to and will want to remain so reserved in view of increasing tensions.”

At 0745 GMT the dollar traded down 0.2 percent at 94.37 against a basket of six major currencies, paring small gains booked during early morning trade.

The U.S. currency traded flat against the yen to 112.27 yen, after having approached earlier in the session a six-month high of 112.80 yen reached on July 13.

The dollar’s gains have this year been capped by worries over the intensifying trade dispute between the United States and China, although the concerns have not derailed the greenback’s solid performance so far.

The International Monetary Fund had warned on Monday that escalating and sustained trade conflicts following U.S. tariff action threaten to derail economic recovery and depress medium-term growth prospects.

Analysts are uncertain how the Fed would react if the conflict over trade with China deteriorates: either with aggressive rate hikes due to the inflationary effect of the import tariffs or with a pause in the hiking cycle due to growth dampening.

“[If the trade war worsens] I would expect that the U.S. dollar would initially appreciate as the result of a flight into safe havens, with it probably benefiting even more in case of aggressive rate hikes,” said Thu Lan Nguyen, an FX strategist at Commerzbank AG in Frankfurt.

Other major currency pairs on Tuesday stuck to tight ranges.

The euro and British pound rose modestly against the greenback. The single currency added 0.2 percent to $1.1738 after weakening half a percent last week while the pound was up 0.1 percent at $1.3255.

The Australian dollar edged up 0.1 percent to $0.7428. The currency is down more than 5 percent since the start of the year because of a divergence in the interest rate outlook of the U.S. Federal Reserve and Australia’s central bank which is seen keeping policy steady for some while yet.

The New Zealand dollar, meanwhile, gained 0.8 percent to $0.6839, its highest level since hitting 0.6835 per dollar on July 11. Annual Core inflation in New Zealand accelerated for the third straight quarter and recorded the largest increase since 2011.

Reference: Tom Finn

Dollar pares gains before Fed chairman's testimony

TOKYO (Reuters) - The dollar pared gains against its major peers on Tuesday, edging lower as investors awaited Federal Reserve Chairman Jerome Powell’s first congressional testimony for any clues on the pace of U.S. interest rate rises.

Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee at 1400 GMT on Tuesday, followed by a testimony at the same time on Wednesday to the House of Representatives Financial Services Committee.

“It seems that the markets are focusing on whether or not the trade war between the U.S. and China may affect the outlook for the Fed’s tightening,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“Powell, who is Republican and close to the Trump administration, will not stress much about the negative side of the U.S.-China trade war,” said Yamamoto, who expects dollar-yen to gradually strengthen to 115.

Powell is likely to reaffirm the Fed’s gradual monetary tightening policy in his testimony, although any suggestion of caution on trade could put a dent in the market’s appetite for risk.

On Tuesday, the dollar traded basically flat at 94.51 against a basket of six major currencies, paring small gains booked during early morning trade.

The U.S. currency strengthened 0.1 percent against the yen to 112.4 yen, ticking up to a six-month high of 112.80 yen reached on July 13. Japanese markets reopened after a holiday on Monday.

The dollar’s gains have this year been capped by worries over the intensifying trade dispute between the United States and China, although the concerns have not derailed the greenback’s solid performance so far.

The International Monetary Fund had warned on Monday that escalating and sustained trade conflicts following U.S. tariff actions threaten to derail economic recovery and depress medium-term growth prospects.

“Back in the 1980s or 1990s, when Japan had trade conflicts with the U.S. in the automotive and the semiconductor space... the U.S. made huge downward pressure on the U.S. dollar,” said Osamu Takashima, head of G10 FX strategy, Japan at Citigroup Global Markets Japan.

“This time, the relations between China and the U.S. is probably more complicated,” he said.

On Tuesday, the Australian dollar traded nearly flat, edging 0.02 percent lower to $0.7419.

The New Zealand dollar gained 0.8 percent to $0.6833, its highest level since hitting 0.6835 per dollar on July 11.

The euro and British pound were also barely changed against the greenback. The single currency added 0.01 percent to $1.17125, while the pound was up 0.04 percent at $1.3242.

“It seems that the dollar-yen is kind of immune to the Chinese risk at the moment,” said Mizuho Securities’ Yamamoto.

But “there is a risk that if the Shanghai Composite Index remains weak and the renminbi keeps depreciating, it will cap the Australian dollar’s top side,” he said.

Reference: Daniel Leussink

Asia stocks sag on oil's slide, dollar dips before Fed testimony

TOKYO (Reuters) - Asian stocks were mostly lower on Tuesday, with a sharp decline in crude oil prices weighing on energy shares, while the dollar dipped ahead of Federal Reserve Chairman Jerome Powell’s first U.S. congressional testimony.

Spreadbetters expected European stocks to open slightly higher, with Britain’s FTSE, Germany’s DAX and France’s CAC each gaining about 0.1 percent.

Overnight on Wall Street, the Dow edged up 0.2 percent but the S&P 500 lost 0.1 percent as energy shares were hit by the drop in oil that offset a jump in financials.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.3 percent lower following two sessions of gains.

Chinese shares extended losses after dropping the previous day on soft economic data. The Shanghai Composite Index fell 1.1 percent, as did Hong Kong’s Hang Seng.

Australian stocks fell 0.5 percent and South Korea’s KOSPI was flat. Japan’s Nikkei rose 0.8 percent, supported by exporters’ gains.

“Crude has been rising steadily so some kind of adjustment was due. From this context the impact on the broader economy, inflation and therefore the stock markets should be limited,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

Crude prices slumped more than 4 percent on Monday, with Brent futures reaching a three-month low of $71.52 a barrel, as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers.

Concerns over China’s second-quarter economic growth also weighed on oil prices. The country’s economy expanded at a slower pace as Beijing’s efforts to contain debt hurt activity, while June factory output growth weakened to a two-year low.

But Brent has gained about 7.5 percent in 2018, during which it poked above $80 a barrel in May to a 3-1/2-year high, as supply has been kept in check while a relatively strong global economy has supported demand.

“The stock markets have been quite steady recently, and this shows that investors are starting to look beyond the U.S. midterm elections, which by then President (Donald) Trump’s posturing is expected to have peaked out,” said Monji of Daiwa SB Investments.

In currencies, the dollar index inched down 0.05 percent against a basket of six major currencies to 94.474 .

The index shed 0.25 percent on Monday, nudging away from a two-week high of 95.241 scaled on Friday ahead of Fed Chairman Powell’s testimony.

Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee on Tuesday, followed by an appearance on Wednesday at the House of Representatives Financial Services Committee.

He is likely to reiterate the Fed’s stance towards gradual monetary policy tightening, and market focus will be on his views on recent trade tensions.

“In short, we expect the chairman to signal optimism on growth and inflation, consistent with continued ‘gradual’ tightening,” wrote Jim O’Sullivan, chief economist at High Frequency Economics.

“He will undoubtedly acknowledge some downside risks associated with the administration’s trade warmongering, but he will likely try to avoid sounding critical of the administration.”

The euro rose 0.05 percent to $1.1719 after adding 0.25 percent overnight.

The dollar pared the previous day’s losses and gained 0.1 percent to 112.39 yen, crawling back towards a six-month peak of 112.80 touched last week.

The Australian dollar dipped 0.2 percent to $0.7405 .

Treasury yields remained buoyant after rising overnight when strong U.S. domestic retail sales supported the view of solid economic growth in the second quarter.

The two-year Treasury yield was at 2.602 percent and in reach of a decade-high of 2.611 percent scaled on Monday.

Brent crude was last up 0.5 percent at $72.20 and U.S. crude futures stood little changed at $68.07 a barrel after sliding more than 4 percent on Monday.

Copper on the London Metal Exchange was up 1.1 percent at $6,255 a tonne amid low stockpiles. The industrial metal had sunk to a one-year low of $6,081 last week when trade war fears buffeted the broader markets.

Reference: Shinichi Saoshiro