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

Monday, 16 July 2018

U.S. stock futures flat as drop in oil prices trims earnings enthusiasm

(Reuters) - U.S. stock index futures were trading flat on Monday as a strong report from Bank of America reinforced expectations of a strong earnings season, but a drop in crude oil priced capped some early gains.

Shares of Bank of America (BAC.N) rose 0.9 percent in premarket trading after the second-largest U.S. lender’s quarterly profit beat analysts expectations on lower expenses and growth in loans and deposits.

This follows mixed earnings reports from three of its Wall Street peers on Friday, which dragged down bank stocks but could not stop the S&P 500 .SPX from closing at its highest level in more than five months.

The markets have been expecting a strong second-quarter earnings, which for S&P 500 companies is expected to have surged around 21 percent, according to Thomson Reuters.

Of the 27 S&P 500 companies that have reported earnings through Friday, 85.2 percent have topped earnings expectations.

Most of the earnings growth is expected to be from energy companies. But their stocks were off to a lower start on Monday after oil prices slipped as concerns about supply disruptions eased, Libyan ports reopened and traders eyed potential supply increases by Russia and other oil producers.

Exxon (XOM.N) dropped 0.7 percent and Chevron (CVX.N) dipped 0.8 percent, the biggest decliners among the Dow components in premarket trading.

At 7:31 a.m. ET, Dow e-minis were up 6 points, or 0.02 percent. S&P 500 e-minis were down 1.5 points, or 0.05 percent and Nasdaq 100 e-minis remained unchanged.

On the macro front, data at 8.30 a.m. ET is expected to show U.S. retail sales rose 0.5 percent in June, after a 0.8 percent gain in May. Excluding autos, retail sales likely increased 0.4 percent.

Investors will also focus on the summit between U.S. President Donald Trump and Russia’s Vladimir Putin, where they are expected to discuss the prospect of extending a nuclear disarmament treaty and the war in Syria.

The Kremlin said it did not expect much from the meeting, but hoped it would be a “first step” to resolving a crisis in ties.

“Russia and U.S. meeting is important because the United States’s relationship with its European allies is already at an all-time low,” Naeem Aslam, chief market analyst at Think Markets said in a note.

“If Trump and Putin’s relation improves further, it would bring more friction between the U.S. and the European Union.”

Among stocks, Arconic (ARNC.N) jumped 12.4 percent after brokerage Jefferies initiated coverage with a “buy” rating.

Netflix (NFLX.O) was up 0.2 percent ahead of its earnings report, expected after markets close. (AMZN.O) also gained 0.2 percent as its ‘Prime Day’ shopping event kicked off.

Reference: Amy Caren Daniel

Asian shares fall on soft China data, trade war fears

SHANGHAI (Reuters) - Asian shares fell on Monday as new data showed China’s economy slowed slightly in the second quarter, compounded by fears of a full-scale Sino-U.S. trade war looming over markets.

Official data showed China’s economy grew 6.7 percent in the second quarter of 2018, cooling from the 6.8 percent growth registered in each of the previous three quarters.

While the GDP figures were in line with market expectations, the new data also showed slower-than-expected growth in China’s industrial output, pointing to slowing momentum and prompting some analysts to call for stronger government measures to support growth.

Taken together, the data show an economy continuing to slow under the influence of a multi-year crackdown on excessive financial risk, even as trade war headwinds gather.

But Jim McCafferty, head of equity research, Asia ex-Japan at Nomura, said China’s underlying economic data “appears to be quite robust”.

“I would be incredulous if China’s GDP growth could continue at the level it’s been historically. So I think there’s always been an anticipation of some gradual slowdown, but the slowdown of the growth rate is probably less than the market really wants to believe,” he said.

He said concerns over the trade war were dragging down markets, with investors spooked by the ratcheting up of trade war tensions.

“That’s why I think markets are nervous, because there’s no precedent for this type of behaviour,” he said.

After briefly moving higher on early gains in China’s share markets, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.3 percent.

The Shanghai Composite Index .SSEC and the blue-chip CSI300 index .CSI300 fell 0.5 percent.

Hong Kong's Hang Seng index .HSI was down less than 0.1 percent, but the China Enterprises Index .HSCE took a bigger hit, falling 0.6 percent.

Australian shares were down 0.3 percent, and Seoul's Kospi .KS11 lost 0.1 percent. Shares in Taiwan were mostly flat.

Japan’s markets are closed for a holiday.

The soft China data undermined a boost to sentiment from Friday’s gains on Wall Street, which were underpinned by strong profits from industrial and energy firms and helped offset investor concerns over the U.S.-China trade war.

U.S. stock futures touched a fresh five-month high on Monday. S&P500 e-mini futures ESc1, the world’s most liquid equity index futures, rose 0.2 percent in early Asian trade to hit their highest level since Feb. 2.

Around 0335 GMT, S&P500 e-mini futures were up 0.1 percent at 2806.25.

The dollar rose 0.1 percent against the yen to 112.48 JPY=.

The euro EUR= was flat on the day at $1.1681, and the dollar index .DXY, which tracks the greenback against a basket of six major rivals, was also flat at 94.740.

Major currencies have been in a holding pattern in recent days thanks in part to a lull in China-U.S. trade skirmishing. Investors had also been awaiting the China data, and are still looking to June U.S. retail sales figures, to gauge the state of global growth.

The U.S. Federal Reserve reiterated on Friday in its semi-annual Monetary Policy Report to the U.S. Congress that it expected “further gradual increases” in interest rates due to “solid” economic growth.

ANZ analysts said in a note Monday that the Fed’s report “yielded few surprises,” but noted that trade tensions continue to weigh on commodity markets and U.S. consumer confidence.

U.S. crude dipped 0.5 percent at $70.69 a barrel, weighed by easing concerns about supply disruptions that had pushed prices higher. Brent crude was 0.5 percent lower at $74.895 per barrel.

A rising dollar drove gold prices to seven-month lows on Friday, but spot gold XAU= was up 0.2 percent on Monday, trading at $1243.46 per ounce.

Reporting by Andrew Galbraith