Tuesday, 27 June 2017

Dollar hits near five-week high against yen ahead of Yellen comments

The dollar rose on Tuesday to its highest level against the yen in nearly five weeks ahead of comments from Federal Reserve Chair Janet Yellen that are expected to underline her positive view of the U.S. economic outlook.

She is scheduled to take part in a discussion later on Tuesday at London's Royal Academy. A positive view despite a recent batch of weak U.S. economic data would support the Fed's forecast for another rise in policy rates this year.

"Hedge funds are already selling yen this week, and positive comments from Yellen could give them an excuse to sell even more," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The dollar rose to 112.075 yen earlier on Tuesday, its highest level since May 24. It was last at 111.88 yen, up slightly on the day.

U.S. data on Monday gave investors reason to be cautious about buying the dollar. New orders for key U.S.-made capital goods unexpectedly fell in May and shipments also declined, suggesting a loss of momentum in the manufacturing sector halfway through the second quarter.

"Even after the break of the 112 level, the dollar didn't show any strong upward momentum," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

After the weak data raised concerns about falling inflation and lacklustre growth, long-dated U.S. Treasury bond yields dropped to seven-month lows and the yield curve between five-year notes and 30-year bonds narrowed to its flattest level since 2007.

U.S. 10-year Treasury yields were at 2.138 percent in Asian trading, little changed from a U.S. close on Monday of 2.137 percent.

Fed officials have stuck to their hawkish scripts.

San Francisco Fed President John Williams said in Sydney on Monday that a slowdown in U.S. inflation was mainly due to one-off factors and should not prevent further increases in interest rates.

Financial conditions have loosened in the past year despite the Fed raising interest rates three times since December, which is another reason to continue tightening, New York Fed President William Dudley said in remarks published on Monday.

The euro rose 0.1 percent to $1.1188, moving up from its overnight low of $1.1172 reached after dovish comments from European Central Bank President Mario Draghi, which contrasted sharply with those of Fed officials.

In a town-hall with university students in Lisbon, Draghi said super low interest rates create jobs, foster growth and benefit borrowers. He rejected calls to exit super easy monetary policy quickly, arguing premature tightening would lead to a fresh recession and more inequality.

The dollar index, which tracks the greenback against a basket of six major rivals, inched 0.1 percent lower on the day to 97.367.

Reference: Lisa Twaronite

Wall St. boosted by tech stocks, rebound in oil prices

U.S. stocks were higher in early trading on Monday, as technology stocks rose and oil prices climbed from last week's seven-month lows.

Apple's 1.1 percent rise was the biggest boost to all the three major indexes. The S&P tech index's 0.67 percent rise lead the gainers among the 11 major S&P 500 sectors.

Adding to the sentiment was a rise in European shares, driven by Italian banks gaining after a deal to wind up two failed lenders.

Oil edged up for the third straight session but gains were capped by the relentless rise in U.S. supply and bloated global inventories.

The recent drop in oil prices has spurred concerns about low inflation, which stubbornly remains below the Federal Reserve's 2 percent target rate.

The central bank raised rates this month for the second time this year and is expected to raise it again. Futures imply only a 50 percent chance of another rate hike by December.

On Monday, San Francisco Fed President John Williams said the Fed needs to raise rates gradually or the economy runs the risk of overheating.

New York Fed chief William Dudley said recent narrowing of credit spreads, record stock prices and falling bond yields could encourage the Fed to continue tightening U.S. policy.

"The Fed policymakers had been broadly hawkish last week, and most of them anticipate another rate hike in 2017 (most likely in December)," said Hussein Sayed, chief market strategist at FXTM.

"However, fixed-income markets are saying it's over for this year as they don't see inflationary pressures coming anytime soon. It's still too far from December, but oil prices will play a significant role on how interest rates go from here."

At 9:39 a.m. ET (1339 GMT), the Dow Jones Industrial Average .DJI was up 75 points, or 0.35 percent, at 21,469.76, the S&P 500 .SPX was up 8.67 points, or 0.35 percent, at 2,446.97.

The Nasdaq Composite .IXIC was up 36.56 points, or 0.58 percent, at 6,301.81.

Data on Monday showed new orders for key U.S.-made capital goods unexpectedly fell in May, with non-defense orders excluding aircraft - a closely watched proxy for business spending plans - dropping 0.2 percent.

Economists polled by Reuters had expected a rise of 0.3 percent.

Micron  was up 3.5 percent at $32.85 after Cowen & Co increased its price target on the chipmaker's stock.

Arconic fell 7.1 percent to $23.69 after it was found that the specialty metals producer knowingly supplied flammable panels to a distributor for use at Grenfell Tower, London, where 79 people died in a blaze last week.

Advancing issues outnumbered decliners on the NYSE by 1,869 to 677. On the Nasdaq, 1,533 issues rose and 857 fell.

Reference: Tanya Agrawal

Monday, 26 June 2017

Asia stocks edge up on optimism over global growth, dollar soft

Asian shares edged up on Monday on optimism for global growth, while the dollar was on the defensive as a subdued U.S. inflation outlook capped U.S. bond yields and raised questions about the Federal Reserve's plans to tighten policy.

European shares are seen opening little changed. Spread-betters expect Britain's FTSE .FTSE to open 0.1 percent higher and Germany's DAX .GDAXI and France's CAC .FCHI to start almost flat.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ticked up 0.4 percent as tech counters led gains in Korean .KS11 and Taiwanese .TWII shares to record highs and 27-year highs respectively. [

Trading was slow with many markets in the region closed for holidays to celebrate the end of Ramadan.

Japan's Nikkei .N225 rose 0.1 percent.

Mainland Chinese shares rallied, with the CSI300 index .CSI300 rising 1.2 percent to hit its highest level in almost a year and a half, after the MSCI chief said the index provider could raise its weighting of China's mainland-listed 'A' shares.

The prospect of solid global economic growth has kept alive investor optimism for world equities even as some markets, including Wall Street, have slowed from a meteoric run because of high valuations.

Share prices have also been supported by relatively loose monetary policies in the developed world, with the Bank of Japan and the European Central Bank still pumping in funds.

The U.S. Federal Reserve is gradually tightening its policy, but investors think the pace of its tightening will be much slower than policymakers want, given subdued U.S. inflation.

Money market futures FFZ7 FFF8 price in only about 50 percent chance of another rate hike by the end of the year, compared to Fed's own projection of one more rate increase.

That hardly changed after San Francisco Fed President John Williams said the U.S. central bank needs to keep raising rates gradually with the U.S. economy at full employment and inflation set to hit the Fed's two-percent target next year.

The 10-year U.S. Treasuries yield stood at 2.153 percent, not far from seven-month low of 2.103 percent hit mid-June, after news that inflation had undershot expectations for a third straight month.

The 30-year yield hit 7-1/2-month low of 2.710 percent on Friday, making the yield curve the flattest in almost a decade. It last stood at 2.722 percent.

The lower yields have put the dollar on the defensive, though some market players say both Treasury yields and the dollar could rise if U.S. President Donald Trump manages to push his healthcare bill through Congress.

"There will be renewed focus on U.S. healthcare bill. Its passage in the parliament could lead to expectations that the administration will get down to stimulus next," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Republican Senate leader Mitch McConnell has pushed for a vote on the bill before the July 4th Independence Day holiday recess that begins at the end of this week.

Yet he can afford to lose the support of only two Republicans in the face of unanimous Democratic opposition, while five Republican senators have said they will not support the bill in its current form.

The dollar stood at 111.29 yen JPY=, off last week's high of 111.79.

The euro EUR= traded at $1.1194, slowly recovering from its three-week low of $1.1119 touched on Tuesday.

A strong reading in Germany's Ifo business sentiment survey due at 0800 GMT could open the way for a test of $1.1296, its seven-month high hit earlier this month.

The euro was little damaged by the news that Italy began winding up two failed regional banks on Sunday in a deal that could cost the state up to 17 billion euros ($19 billion).

"This won't cause a major financial crisis considering the current strength of the euro zone economy," said Yukio Ishizuki, senior strategist at Daiwa Securities.

Oil prices ticked up after having fallen for five weeks in a row on concerns OPEC-led production cuts have failed to ease a global crude glut stemming in part from increased U.S. oil production.

U.S. energy firms added 11 oil rigs in the week to June 23, bringing the total count up to 758 RIG-OL-USA-BHI, the most since April 2014, according to data from energy services firm Baker Hughes Inc.

Brent crude futures rose 1.1 percent to $46.02 per barrel from seven month lows of $44.35 hit last week.

U.S. West Texas Intermediate crude futures CLc1 fetched $43.47 per barrel, up 1.1 percent on the day and extending gains from their 10-month low of $42.05 set on Wednesday.

"There is some support near $40 in the WTI. People think that U.S. shale development will stop if it falls below $40," said Tatsufumi Okoshi, senior economist at Nomura Securities.

Reference: Hideyuki Sano

Dollar posts steepest loss in three weeks on U.S. rate-hike doubts

The dollar fell against a basket of major currencies on Friday, recording its biggest one-day fall in three weeks, on persistent doubts whether the Federal Reserve would raise interest rates again this year due to softening inflation data.

The greenback also broadly weakened versus commodity-linked currencies, which got a boost as global benchmark Brent futures recovered from a seven-month low.

Sterling rose for a third consecutive day after soon-to-depart Bank of England policymaker Kristin Forbes late on Thursday urged hiking UK rates immediately on fears that the pound's weakness could have a lasting upward effect on inflation.

Trading volume was muted in the absence of major economic data.

"This has been largely a week of consolidation among major currency pairings given the lack of economic data this week," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington.

The dollar index, which tracks the dollar against six major peers fell 0.35 percent at 97.248, retreating further from a one-month peak reached on Tuesday.

The euro was up 0.44 percent at $1.1198, while the greenback slipped nearly 0.1 percent against the yen, to 111.25 yen.

The pound gained 0.4 percent at $1.2725.

The greenback rose earlier this week on comments from New York Fed President William Dudley, who said a tightening labor market would push up wages and cause U.S. inflation to reverse upward toward the Fed's 2 percent goal.

On Friday, St. Louis Fed chief President James Bullard said the central bank should wait on further rate hikes, while Cleveland Fed chief Loretta Mester said recent inflation weakness should not defer another rate rise this year.

Traders, however, were doubtful about another rate increase later this year as recent U.S. data on balance have fallen short of forecast.

On Friday, Markit's flash June reports on U.S. factory and services activity was weaker than expected, while the government said new-home sales rebounded more than expected in May.

"The data need to confirm the Fed's stance for another rate hike this year," Esiner said.

The futures market implied traders saw a 49 percent chance the Fed would raise rates in December CME Group's FedWatch program showed.

Meanwhile, commodity-linked currencies rose with a rebound in crude oil prices. Brent crude futures settled 0.7 percent higher at $45.54 a barrel after hitting their lowest level since November on Thursday.

The Australian dollar  was up 0.5 percent at $0.7575, while the New Zealand dollar was up 0.3 percent at $0.7288.

Reference: Richard Leong

Friday, 23 June 2017

Dollar little changed as low U.S. yields offset solid data

The dollar was flat against a basket of currencies on Thursday as low U.S. bond yields offset in-line data on domestic jobless claims and home prices, keeping it close to the one-month peak it reached earlier this week.

The yen garnered some safe-haven demand on initial weakness on Wall Street and softness in other major stock markets.

The Norwegian crown and the New Zealand dollar were the notable gainers in a quiet trading session after their countries' central banks showed confidence in their economic outlook.

The dollar had strengthened following the Federal Reserve's decision to raise U.S. interest rates last week and leave the door open for another increase by year-end despite a recent softening of inflation.

The bounce faded as doubts crept in as to whether the modest current economic expansion warrants further rate increases and while the Fed plans to shrink its $4.5 trillion balance sheet.

"The market has not bought into the Fed's hawkish rhetoric," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. "The market is dubious about U.S. growth in the second half of the year. That's having a mild negative effect on the dollar."

The U.S. bond market has reflected traders' doubts as the yield curve on Wednesday flattened to levels not seen in nearly a decade.

The yield curve stabilised on Thursday in reaction to reports showing a continually tight labour market and home prices that appreciated in April more than what traders expected.

An index that tracks the dollar against six major currencies was 0.05 percent lower at 97.509. It reached an one-month high of 97.871 on Tuesday.

The euro was 0.1 percent lower at $1.1157, while the dollar was fractionally weaker at 111.35 yen.

The yen was 0.1 percent firmer against the euro at 124.22 yen, with the pan-European STOXX 600 down 0.04 percent.

Among other currencies, the Norwegian crown rose after Norway's central bank lifted its rate forecasts for 2017 and 2018 and said a rate cut was no longer likely.

It was last up 0.55 percent at 8.4826 crowns per dollar and up 0.6 percent at 9.4670 crowns per euro.

Meanwhile, the kiwi rose 0.7 percent to $0.7267 after the Reserve Bank of New Zealand rang several upbeat notes in its outlook for growth and impact of current exchange rates.

Richard Leong 

Australian state slugs the nation's big banks with fresh $280 million tax

An Australian state said on Thursday it would introduce a new tax on the country's five biggest banks amounting to $280 million over four years - a move that comes on the heels of a surprise $4.6 billion federal levy on the same lenders.

South Australia, the country's fifth-largest state by population, announced the tax in its budget to help fund job-creation initiatives.

It said it will impose a 6 basis point tax on 6 percent of the assets being taxed by the federal government, adding that it had derived that percentage as the state accounts for 6 percent of the national economy. The measure will raise A$370 million ($280 million) over the first four years.

"The profits of the big banks are large - in the last year alone the five banks have collectively made profits of about A$30 billion after tax," South Australian Treasurer Tom Koutsantonis said in a statement.

"They can and should contribute more to economic growth and job creation in this state."

Commonwealth Bank of Australia, Westpac Banking Corp, Australia and New Zealand Banking Group, National Australia Bank and Macquarie Group will be subject to the state levy in addition to the federal tax that was passed into law on Monday.

The Australian Bankers Association (ABA), which represents the major banks, did not respond immediately to a request for comment. ABA Chief Executive Anna Bligh said last week that imposing a tax on parts of the banking sector because of its financial success set a "worrying precedent" for other industries.

Australia's banks have come under scrutiny by politicians and the public following a series of scandals involving misleading financial advice, insurance fraud and alleged interest-rate rigging.

Reference: Jamie Freed

Thursday, 22 June 2017

U.S. could ease Volcker Rule, exempt small banks: regulators

U.S. financial regulators could ease rules that keep taxpayer-backed banks out of some risky investments, according to testimony released on Wednesday ahead of a Senate hearing.

Officials from the Federal Reserve and the Office of the Comptroller of the Currency (OCC) said they were looking at ways to simplify the Volcker rule, which prevents banks from making speculative bets with their own money. The possible steps included exempting small banks from having to comply with it.

"In our view, there is room for eliminating or relaxing aspects of the implementing regulation," Fed Governor Jerome Powell said in testimony to be given before the Senate Banking Committee on Thursday.

"The Volcker Rule provides a practical example of how conflicting messages and inconsistent interpretation can exacerbate (the) regulatory burden," said Keith Noreika, the acting Comptroller of the Currency, a leading regulator for national banks.

The Fed and the comptroller's office are among five bank regulators that must agree to any reform of the Volcker Rule, part of the Dodd-Frank law that passed in the wake of the 2008 financial crisis. The Volcker rule also limits relationships between covered banks and hedge funds or private equity funds.

Wall Street and some regulators have said the standard is too constricting, leaving banks vainly trying to separate accounts that may not actually take risky bets and sapping liquidity in some markets because bank dealers are put off from participating.

Backers of the rule say it guards against speculation that could lead to another costly government bank bailout.

The Federal Reserve wrote much of the regulatory language spelling out the Volcker Rule, and the central bank now thinks there is a way to improve the standard, Fed Governor Jerome Powell said.

Noreika and Powell are among a handful of national regulators due to testify about regulatory reform on the banking panel. They said they could envision smaller banks being exempted from the Volcker Rule, named after former Fed Chairman Paul Volcker who led the central bank in the 1980s.

President Donald Trump has favored less restrictive banking rules to boost lending and spur economic growth. But Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), which insures bank assets, warned it could be risky to loosen the rules too much.

"It is important to preserve the gains that have been achieved in restoring financial stability," Gruenberg was due to tell the banking panel.

Gruenberg's term ends in November. Trump has said he intends to nominate James Clinger, a Republican Congressional staffer, to replace Gruenberg.

Reference: Patrick Rucker