Friday, 17 August 2018

Pound holds above $1.27, buoyed by dollar weakness

LONDON (Reuters) - The British pound rose on Friday as the dollar fell across the board and some traders saw an opportunity to buy sterling after data this week pointed to an UK economy holding up relatively well.

Ongoing worries about whether Britain can agree a trade deal with the European Union over the coming months to avoid a sudden and disorderly exit from the bloc continue to keep most investors cautious about any sustained sterling strength.

The pound this week suffered its longest losing streak against the dollar since the height of the financial crisis in 2008, hitting a near 14-month low of $1.2662 on Wednesday, but has since bounced three quarters of a cents higher.

Retail sales data on Thursday showed that the British economy, while far from booming, has some momentum.

British shoppers spent more than expected in July, pointing to a solid start to the third quarter for the economy, although data published earlier in the week showed a disappointing rise in worker wages that has underlined the squeeze on consumers.

“The pound has had a disappointing week despite a raft of data that points to an economy that while not firing on all cylinders is by no means the worst in the G7. Once again it’s been politics that has been weighing on the currency with the increasing talk of a “no deal” Brexit keeping traders on the sidelines,” CMC Markets analyst Michael Hewson.

Sterling rose 0.2 percent to $1.2732, near its day’s high of $1.2749.

Against the euro the pound struggled, losing 0.2 percent to 89.645 pence but still below recent lows of more than 90 pence per euro.

With most UK economic data published this month out of the way, the focus will shift back to Brexit as Britain heads towards several months of crucial negotiations and several EU leaders summits.

Jeremy Hunt, the British foreign minister, warned on Wednesday that the short-term market impact if Britain leaves the EU without a deal would be significant.

Reference: Reuters

Thursday, 16 August 2018

Dollar vaults to year-high as Turkey crisis troubles euro

LONDON (Reuters) - The dollar rose on Wednesday to its highest levels in over a year as the Turkish lira crisis continued to trouble emerging markets feeding demand for the greenback as a safe-haven asset.

Signs the U.S. economy remains robust ahead of an expected interest rate hike by the Federal Reserve next month have helped the dollar outperform other currencies recently.

So has a plunge in the lira which has hurt the euro because of European banks’ exposure to Turkey and driven demand for the dollar and other currencies such as the Swiss franc and the Japanese yen as safe-havens.

The dollar index that tracks the greenback against six currencies, rose above 96.9 for the first time since late June 2017.

“U.S. rates continue on an upward path ... That does provide fundamental support to the dollar in the medium term. We see scope for that move to continue,” said Sunil Krishnan, head of multi-asset funds at Aviva Investors whose team helps to run assets of £108 billion.

Turkey on Wednesday doubled tariffs on some U.S. imports including alcohol, cars and tobacco in retaliation for U.S. moves, but the lira rallied further.

The lira has lost more than 40 percent of its value against the dollar this year, hit by worries over President Tayyip Erdogan’s calls for lower interest rates and his fraying ties with the United States.

On Wednesday, it recovered some ground to trade briefly at 5.7503 to the U.S. dollar, before falling back to 6.1700 at GMT 11:05.

The rebound to below 6.0 against the dollar was driven by a banking watchdog step to limit swap transactions and by hopes of improved EU relations.

Turkey’s finance minister will also seek to reassure international investors in a conference call on Thursday.

Markets are concerned by Erdogan’s influence over the economy and his resistance to interest rate increases to tackle double-digit inflation.

The rally in the dollar prompted selling in both the euro and the British pound.

The single currency drifted down toward $1.13 for the first time since July 2017 and sterling dipped below $1.27 for the first time since June last year.

The euro is under pressure because of the impact of the Turkish lira collapse on euro zone banks with exposure to Turkey and due to concerns about a fiscal spending spree by the Italian government which is involved in a standoff with Brussels.

Some investors are worried that the market turbulence caused by Turkey’s economic meltdown might delay the ECB’s monetary normalisation timetable, said Commerzbank FX analyst Esther Maria Reichelt.

“The attractive rate advantage of U.S. bonds is strengthening demand for the dollar. Combined with doubts over the [monetary] normalisation efforts of the European Central Bank this limits the upside potential in EUR-USD for now,” said Reichelt.

The plunge in the lira has prompted capital outflows from other emerging markets that run hefty current account deficits and rely on foreign capital.

Emerging market currencies continued to reel on Wednesday with the South African rand down 2.5 percent ZAR=, the Russian rouble down one percent RUB= and the Mexican peso 0.8 percent.

Against the yen , the dollar edged down about 0.1 percent to about 111.165 yen.

The pound hit a 13-month low, dropping 0.2 percent to $1.2694 despite data showing Britain’s inflation rate picked up in July for the first time this year.

Reference: Tom Finn

Wednesday, 15 August 2018

Wall St. gains on earnings, recovery in bank stocks

(Reuters) - U.S. stocks rose in a broad rally on Tuesday after four straight days of losses on a strong set of earnings from retailers and as bank stocks rebounded after the Turkish lira snapped a three-week slide.

All 11 major S&P sectors were trading higher, with financials .SPSY rising 0.63 pct.

Shares of U.S. lenders - Citigroup (C.N), JPMorgan (JPM.N), Wells Fargo (WFC.N), Bank of America (BAC.N), Goldman Sachs (GS.N) - rose between 0.20 percent and 1 percent.

The KBW bank index gained 1.02 percent, bouncing back from a 3 percent loss raked in over three sessions as investors fretted about banks’ exposure to Turkey.

The lira recovered after Turkey's central bank moved to ease pressure on the currency, triggering a surge of as much as 7 percent to 6.4 per U.S. dollar.

“In the absence of bad news, markets will move higher,” said Steve Chiavarone, vice president and portfolio manager at Federated Investors in New York.

“The markets that should be moving higher because the fundamentals look really, really good and that is unlikely to change anytime soon.”

Among the encouraging earnings reports was Home Depot (HD.N), whose shares climbed 1 percent after the home improvement retailer beat analysts’ quarterly sales estimates despite signs of a slowdown in the housing market.

The report from Home Depot, a member of Dow Jones Industrial Average .DJI, sent the shares of smaller rival Lowe's (LOW.N) higher by 1.2 percent.

At 12:26 a.m. EDT the Dow Jones Industrial Average .DJI was up 112.79 points, or 0.45 percent, at 25,300.49 and the Nasdaq Composite .IXIC was up 53.20 points, or 0.68 percent, at 7,872.91.

The S&P 500 .SPX was up 18.42 points, or 0.65 percent, at 2,840.35, just 1.1 percent shy of the record levels hit in late January.

Technology shares rose 0.66 percent and was the biggest boost to the benchmark index, led by Microsoft’s (MSFT.O) 1.1 percent rise.

Also lifting the sector was Nvidia (NVDA.O), which gained 2 percent, after the company rolled out its newest generation of chip technology.

Tapestry (TPR.N) jumped 13 percent, the most on the S&P index, after strong sales of its Kate Spade handbags helped the company’s full-year forecast top analysts’ expectations.

Advance Auto Parts (AAP.N) rose 7.7 percent after the company beat quarterly profit estimates and announced a new share buyback program.

The second-quarter earnings season is tapering down. Of the 458 companies in the S&P 500 that have reported so far, 79 percent have beaten analysts’ estimates, according to Thomson Reuters.

Advancing issues outnumbered decliners by a 2.86-to-1 ratio on the NYSE and by a 1.86-to-1 ratio on the Nasdaq.

The S&P index recorded 22 new 52-week highs and three new lows, while the Nasdaq recorded 74 new highs and 61 new lows.

Reporting by Amy Caren Daniel

Monday, 13 August 2018

Sterling stuck near 2018 low on dollar strength, Brexit woes

LONDON (Reuters) - The pound languished near 13-month lows on Monday, as investors bet on continued dollar strength and uncertainty over whether Britain would secure a trade deal with the European Union before it exits the bloc.

Sterling lost 2 percent of its value last week because of growing unease among investors that Britain was headed for a future where it lacked an established relationship with its largest trading partner, the EU.

On Monday, the British currency dropped 0.3 percent to a low of $1.2735, a fraction higher than Friday’s 13-month low.

That move was roughly in line with the dollar’s rise against a basket of major currencies, fuelled by investors rushing into safer assets on fears of market contagion from a dramatic slide in the Turkish lira.

Strong employment or inflation data — both reports are due this week — are unlikely to help the pound significantly, analysts said.

That is because of political uncertainty over Brexit and the fact markets are not pricing in another Bank of England interest rate increase until at least next year.

“The uncertainly of a ‘no-deal Brexit’ is likely to weigh on the pound, and traders could remain cautious until there is more clarity around the UK’s plans post leaving the EU,” said Societe Generale analyst Guy Stear. 

Against the euro, the pound has held up better as demand for dollars has held back the euro.

The pound traded up 0.1 percent to 89.28 pence per euro, above its recent 2018 lows of 90.30 pence.

Sterling has been pushed lower as investors rush to protect themselves from further weakness in the run-up to Britain’s exit from the EU next March. Most investors still expect Britain to secure a trade deal with the EU, but the risk of no deal is rising.

Warnings this month from Bank of England Governor Mark Carney and trade minister Liam Fox, that the prospect of a no-deal Brexit was growing, triggered the recent slide.

Reporting by Tom Finn

Thursday, 2 August 2018

Asian shares slide on fresh trade worries, bonds fragile

TOKYO (Reuters) - Asian stocks tumbled on Thursday as the latest escalation in the Sino-U.S. trade war hit Chinese shares, while global bond markets were rattled by increased borrowing by Washington and Japan’s new tolerance for higher yields.

European shares are expected to fall, with financial spread-betters see Britain’s FTSE, France’s CAC, Germany’s DAX opening 0.4 percent lower.

Japan’s Nikkei declined 1.1 percent while MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1.5 percent, dragged down by a 2.2 percent fall in Chinese H-shares.

The CSI 300 index of China’s A-shares dropped 3.0 percent to 2,741, near its 1 1/2-year low of 2,691 set on July 6. Shares of export-dependent electronics firms fell 4.1 percent.

Hong Kong’s Hang Seng Index fell 2.5 percent to 10-month lows while an index of Chinese start-up firms sank 3.5 percent to its lowest level since January 2015.

“Market sentiment was dampened by renewed trade war fears,” said Zhang Quan, an analyst at Huaan Securities. “But investors need not be overly pessimistic as China is taking steps to hedge the risks from trade frictions with the United States, including monetary and fiscal policy easing.”

The U.S. administration on Wednesday increased pressure on China for trade concessions by proposing a higher 25 percent tariff on $200 billion worth of Chinese imports.

“If it had not been for the sideswipe on trade, markets would have been in much better shape this week. Apple’s earnings were super, helping to quell concerns about high-tech companies,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

“The BOJ’s policy tweaks weren’t much of a tightening, and did little damage,” he added.

MSCI’s gauge of stocks across the globe is down 0.45 percent so far this week, reversing gains from the previous four weeks, with Chinese shares accounting for the bulk of that.

On Wall Street, the S&P 500 lost 0.10 percent on Wednesday, but the Nasdaq Composite added 0.46 percent to extend its recovery from Monday’s three-week low.

While industrial stocks fell 1.3 percent on trade worries, technology shares were boosted by strong earnings from Apple.

The world’s largest company by market capitalization rose 5.9 percent, boosting its value to close to $1 trillion.

The Federal Reserve kept interest rates unchanged on Wednesday, as expected, characterizing the U.S. economy as strong and staying on track to increase borrowing costs in September and likely again in December.

While that surprised nobody, U.S. bond yields rose, with the benchmark 10-year yields breaking above 3 percent to 2-1/2-month highs, after the U.S. Treasury said it would boost borrowing in the bond market in the coming quarter.

Global bond markets were also rattled by sharp rises in Japanese bond yields since the Bank of Japan loosened its grip on long-term yields on Tuesday.

The 10-year Japanese government bond yield rose to a 1-1/2-year high of 0.145 percent. It last stood at 0.120 percent. The BOJ conducted an unplanned buying in 10-year JGBs in the afternoon, curbing rise in the yields.

Worries that higher yields in Japan may prompt Japanese investors to repatriate funds hit European bonds, boosting German and French yields to seven-week highs on Wednesday.

In the foreign exchange market, major currencies were little moved.

The euro changed hands at $1.1650, while the yen stood at 111.56 yen to the dollar.

The British pound was steady at $1.3101 ahead of an expected rate hike by the Bank of England later in the day.

The Chinese yuan held relatively stable at 6.8308, almost flat on the day.

Oil prices climbed a tad after two days of heavy losses on a surprise increase in U.S. crude stockpiles.

Brent crude futures rose 0.3 percent to $72.63 per barrel after a 2.5 percent fall the previous day.

U.S. West Texas Intermediate (WTI) crude futures edged up 0.2 percent to $67.78 a barrel after Wednesday’s 1.6 percent fall.

Reference: Hideyuki Sano

Wednesday, 1 August 2018

Asian shares lose steam as U.S. tariff plan stokes trade fears

SHANGHAI (Reuters) - Asian shares gave up ground on Wednesday, with weak data in the region and fears of an imminent escalation in the tariff war between the United States and China pulling markets lower even as strong earnings out of the U.S. provided some support.

Conflicting signs over the state of U.S.-China trade relations pulled markets in opposite directions. A Bloomberg report on Tuesday said that the United States and China were seeking to resume trade talks to defuse a battle over import tariffs.

However, later reports that the U.S. administration plans to propose tariffs of 25 percent instead of the initially proposed 10 percent on $200 billion of imported Chinese goods injected uncertainty back into financial markets.

A source familiar with the plan said the announcement could come as early as Wednesday.

Chinese shares, the offshore yuan and the Australian dollar all weakened.

A source familiar with the Trump administration’s tariff plans for China told Reuters that an announcement could come as early as Wednesday.

“We maintain our view that negotiated settlement will be the most likely outcome. However, getting to this stage will still lead to marked volatility in the markets as this process will be protracted, with both sides digging their heels to present a better deal to respective constituents,” Everbright Sun Hung Kai analysts said in a note.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.1 percent, erasing earlier gains, while Japan’s Nikkei stock index gained 0.8 percent. S&P E-mini futures were down less than 0.1 percent at 2,815.75 after earlier edging higher.

Spreadbetters in Europe pointed to more mixed trade in Europe, with London’s FTSE set to open 12 points lower, Frankfurt’s DAX 1 point higher and Paris’ CAC down 8 points.

The Taiwan weighted index rose 0.4 percent, with tech shares getting a boost after Apple Inc. beat Wall Street expectations for its quarterly results thanks to robust sales of its top-of-the-line iPhone X. The company’s shares rose 3.4 percent to $196.80 in after-hours trade.

But shares in mainland China dropped, erasing early gains, with trade war fears and a private survey of purchasing managers pointing to a cloudy economic outlook.

The survey showed China’s manufacturing sector grew at its slowest pace in eight months in July, dragged down by declining export orders.

The Shanghai Composite index fell 0.8 percent, while the blue-chip CSI300 index lost 1 percent.

Australia’s manufacturing sector also showed slower activity in July, with the Commonwealth Bank/Markit purchasing managers index at its lowest level in nearly two years.

Australian shares were flat, with some support coming from miners ahead of expected strong results from Rio Tinto later on Wednesday.

Policy meetings at the U.S. Federal Reserve on Wednesday and the Bank of England on Thursday also kept some investors on the sidelines.

Although the U.S. central bank is expected to hold rates unchanged, investors will be looking for any change in the tone of its policy statement.

“Buying sentiment towards the dollar could receive a boost if the central bank strikes a hawkish tone,” Lukman Otunuga, research analyst at FXTM, wrote in a note.

The yield on benchmark 10-year Treasury notes was at 2.9766 percent, compared with its U.S. close of 2.964 percent on Tuesday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 2.6776 percent compared with a U.S. close of 2.669 percent.

The dollar rose 0.1 percent against the yen to 111.96, and gained 0.5 percent to 6.8390 against China’s offshore yuan on news of the Trump administration’s tariff plans. The Australian dollar fell 0.3 percent to $0.7406.

The euro was down 0.1 percent on the day at $1.1676. The dollar index, which tracks the greenback against a basket of six major rivals, gained 0.2 percent to 94.663.

Meanwhile, oil prices fell on industry data showing an unexpected rise in U.S. crude stockpiles. The slump in crude prices comes after their largest monthly decline in two years in July.

U.S. crude dipped 0.4 percent to $68.47 a barrel, while Brent gave up 0.2 percent to $74.04 per barrel.

Spot gold fell 0.3 percent to $1,219.91 per ounce.

Reference: Andrew Galbraith

Tuesday, 31 July 2018

Fed set to hold interest rates steady, remains on track for more hikes

WASHINGTON (Reuters) - The Federal Reserve is expected to keep interest rates unchanged on Wednesday but solid economic growth combined with rising inflation are likely keep it on track for another two hikes this year even as President Donald Trump has ramped up criticism of its push to raise rates.

The U.S. central bank so far this year has increased borrowing costs in March and June, and investors see additional moves in September and December. Policymakers have raised rates seven times since December 2015.

The Fed will announce its decision on Wednesday at 2 p.m. EDT (1800 GMT). No press conference is scheduled and only minor changes are anticipated compared with the Fed’s June policy statement, which emphasized accelerating economic growth, strong business investment and rising inflation.

“They’ve got expectations pretty much where they want them,” said Michael Feroli, an economist with JPMorgan. “They may need to finesse how they word the language on inflation but I think the ultimate message is going to be the same.”

The U.S. economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs, Commerce Department data showed on Friday.

The Fed’s preferred measure of inflation increased at a 2.0 percent pace in the second quarter, the data also showed. Economists expect data later on Tuesday to show prices in June were 2.0 percent higher than a year earlier, matching the gain in May.

That would mean two straight months that inflation has hit the Fed’s 2 percent target rate after undershooting it for six years.

Economic growth has been buoyed by the Trump administration’s package of tax cuts and government spending, and Fed Chairman Jerome Powell has said overall the economy is in a “really good place.”

The unemployment rate stands at 4.0 percent, lower than the level seen sustainable by Fed policymakers.

The central bank is expected to continue to raise rates through 2019 but policymakers are keenly debating when the so-called “neutral rate” - the sweet spot in which monetary policy is neither expansive nor restrictive - will be hit.

Rate setters are closely watching for signs that inflation is accelerating and are expecting economic growth to slow as the fiscal stimulus fades.

They also remain wary of the potential effects of a protracted trade war between the United States and China which could push the cost of goods higher and hurt company investment plans.

The Fed’s policy path will see interest rates peak at much lower levels than in previous economic cycles. Even so, Trump, in a departure from usual practice that presidents do not comment on Fed policy, said he was worried growth would be hit by higher rates.

Administration officials played down the president’s comments, saying he was not seeking to influence the Fed.

On the campaign trail, Trump criticized Powell’s predecessor as Fed chair, Janet Yellen, for keeping interest rates too low.

Trump appointed Powell and Fed governor Randal Quarles, and he has three other nominees to the rate-setting committee awaiting Senate confirmation. Almost all have been seen as mainstream in their attitude to economic policy. Economists say Trump has little influence over Fed policy beyond the personnel changes he has already made.

Trump’s tweets are a far cry from the 1970s when then-President Richard Nixon told the Fed chairman to kick rate setters “in the rump” to keep rates low until after an election. That stoked inflation and eventually strengthened the Fed’s independence, something that has become even more entrenched since.

“Powell is obviously someone who values the Fed’s independence,” said Paul Ashworth, economist with Capital Economics. “I don’t expect them to change tack because of political pressure.”

Reporting by Lindsay Dunsmuir