Tuesday, 19 March 2019

Asian shares steady as Fed looms, May's Brexit deal in chaos

TOKYO (Reuters) - Asian shares held to tight ranges on Tuesday ahead of a Federal Reserve policy meeting, but were broadly supported near 6-1/2-month highs on expectations the U.S. central bank might strike a dovish tone, while fresh Brexit worries weighed on the pound.

European shares were expected to open slightly lower, with financial spread-betters seeing Britain’s FTSE, France’s CAC and Germany’s DAX ticking down between 0.03 and 0.12 percent each.

MSCI’s broadest index of Asia-Pacific shares outside Japan was virtually flat, easing back from its highest level since Sept. 4 hit earlier in the session.

Japan’s Nikkei average and Australian stocks both dipped 0.1 percent.

In China, the benchmark Shanghai Composite slipped 0.2 percent and the blue-chip CSI 300 fell 0.4 percent, while Hong Kong’s Hang Seng was almost flat.

All three major Wall Street indexes rose overnight, lifted by the bank and tech sectors, with the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite adding between 0.3 and 0.4 percent each.

“Speculators appear to be betting on a rise in stock prices on the back of a dovish Fed. The Fed is unlikely to kill such hopes. Yet there is a risk the Fed could tone down its dovishness,” said Masanari Takada, cross-asset strategist at Nomura Securities.

With global economic growth appearing to slow, traders were focused on the Fed, which kicks off a two-day policy meeting later in the day, for clues about the likely path of U.S. borrowing costs.

Investors will particularly look to see whether policymakers have sufficiently lowered their interest rate forecasts to more closely align their “dot plot”, a diagram showing individual policymakers’ rate views for the next three years.

Also expected is more detail on a plan to stop cutting the Fed’s holdings of nearly $3.8 trillion in bonds.

“A key focus is when the Fed will omit the word ‘patient’ from its statement, as that would be a pre-requisite for a rate hike,” said Toru Yamamoto, chief fixed income strategist at Daiwa Securities.

In currency markets, sterling found some footing after slipping to as low as $1.3183 in the previous session as lawmakers cast doubt on Prime Minister Theresa May’s third attempt to get parliament to back her Brexit deal.

May’s Brexit plans were thrown into further turmoil on Monday when the speaker of parliament ruled that she could not put her divorce deal to a new vote unless it was re-submitted in fundamentally different form.

May has only two days to win approval for her deal to leave the European Union if she wants to go to a summit with the bloc’s leaders on Thursday with something to offer them in return for more time.

Meanwhile, senior diplomats said the European Union leaders could hold off making any final decision on any Brexit delay when they meet in Brussels later this week, depending on what exactly May asks them for.

The dollar index against a basket of six major currencies eased 0.1 percent to 96.450 , hovering close to a two-week low. The index has lost 1.2 percent after hitting a three-month high of 97.710 marked on March 7.

The Japanese yen inched up 0.1 percent to 111.28 yen to the dollar, while the euro was almost flat at $1.1347 .

Oil prices were near 2019 highs, supported by supply cuts led by producer club OPEC. U.S. sanctions against oil producers Iran and Venezuela are also boosting prices, although traders said the market may be capped by rising U.S. output. [O/R]

Global stocks climb to five month high
U.S. West Texas Intermediate (WTI) futures eased 0.1 percent to $59.01 per barrel, close to the 2019 high of $59.23 reached the previous day, while Brent crude futures were little changed at $67.58, also not far from this year’s high of $68.14.

Reporting by Tomo Uetake; Additional reporting by Hideyuki Sano

Dollar weaker on dovish Fed bets, sterling seesaws

TOKYO (Reuters) - The dollar was under pressure on Tuesday, weighed by growing expectations the Federal Reserve would shift to a more accommodative policy stance this week and concerns about slower U.S. economic growth.

The dollar index, which measures the greenback against a basket of six major currencies, was a shade lower at 96.495, hovering close to a two-week low. The index has lost 1.2 percent after hitting a three-month high of 97.710 on March 7.

The dollar has weakened in recent sessions on growing expectations the Fed will strike a dovish tone at its two-day policy meeting due to start later on Tuesday.

Many investors expect the Fed, which has raised rates four times last year, to keep its benchmark overnight interest rate unchanged and stick to its pledge of a “patient” approach to monetary policy.

Masafumi Yamamoto, chief currency strategist at Mizuho Securities, said while the market is expecting more accommodative sentiments from the meeting, equity markets were unlikely to react positively to such a development.

“If the Fed really shows a gloomy outlook for growth and rates, then it’s also a negative for U.S. equities. Then that will be a negative for the dollar,” Yamamoto said.

“There is a high risk that whichever the outcome is, it will push down dollar/yen.”

As the dollar took a breather, other major currencies advanced by default. The yen rose 0.1 percent to 111.27 yen per dollar, extending its gains to a third session.

Sterling also gained, rising 0.1 percent to $1.3268. It had seesawed overnight after the speaker of Britain’s parliament said Prime Minister Theresa May’s Brexit deal could not be voted on again unless a different proposal was submitted.

The Bank of England is expected to leave its interest rate outlook unchanged at a policy meeting on Thursday due to the deep uncertainty over Britain’s decision to leave the European Union.

The euro was down a tad at $1.1335.

Investors’ focus on Tuesday was also on Germany’s ZEW economic index for March, due for release around 1000 GMT.

The German economy, Europe’s largest, barely avoided recession in the final quarter of last year, as the negative impact from global trade disputes and Brexit weighed on a decade of expansion.

Global stocks climb to five month high
“The ZEW expectation index has been improving for four consecutive months,” said Mizuho’s Yamamoto.

“If another month’s improvement is shown, then I think that will be quite positive for the euro.”

Reference: Daniel Leussink

Monday, 18 March 2019

Aussie leads recovery as hopes for accommodative Fed knock the dollar

LONDON (Reuters) - The Australian dollar hit a two-week high and led a recovery against the U.S. currency on Monday as caution about the U.S. economy and expectations for an accommodative Federal Reserve meeting this week kept the greenback on the back foot.

The euro was also a beneficiary from the weaker dollar, adding 0.2 percent to $1.1347.

Markets are expecting the Fed to strike a dovish tone when it meets this week, and bets for an interest rate cut have risen after weaker-than-expected manufacturing data on Friday. U.S. bond yields fell to 10-week lows.

The U.S. currency, measured against a basket of rivals, fell 0.2 percent to 96.408.

The Aussie was the biggest gainer from the greenback’s pullback. The Australian currency added 0.5 percent to $0.7119, a two-week high.

The New Zealand and Canadian dollar also performed well.

“The market is probably expecting some down-shift in the ‘dot plots’ (which currently see two hikes in 2019 and one in 2020), plus some more discussion on the end of quantitative tightening - i.e. stopping its balance sheet reduction. This should maintain a positive environment for risk,” ING analysts said.

“While we do think the dollar can hold its own against the low-yielders ... the current low volatility environment plus decreasing headwinds should be positive for high yield and EM FX in general.”

The Japanese yen was little moved at 111.52 yen, off Friday’s nine-day high of 111.90.

Sterling slipped back to $1.3278 but was not far from last week’s nine-month high of $1.3380, supported by relief that a no-deal Brexit could be averted and an extension to Britain’s departure from the European Union requested.

British asparagus tipped for a crisis as EU seasonal workers stay away
Prime Minister Theresa May is trying to convince lawmakers to back her twice-rejected Brexit withdrawal deal in a possible vote in the British parliament this week, although two government ministers said on Sunday there might not be a vote unless they can be sure of getting the deal approved.

May could hold a third vote on her agreement on Tuesday or Wednesday. Commerzbank analysts said a vote on Tuesday “would constitute a signal that she considers it possible that her deal will be accepted.

“Admittedly, her views were wrong so often in the past that that would not necessarily constitute a strong GBP positive signal, but it should no doubt have a moderately positive effect on the British currency.”

Reporting by Hideyuki Sano and Tokyo Tommy Wilkes


NEW YORK/SAN FRANCISCO (Reuters) - Only two things will really matter when Federal Reserve Chairman Jerome Powell strides to the podium for his press conference on Wednesday after the end of the U.S. central bank’s latest two-day policy meeting: Dots and bonds.

That Powell and his colleagues will leave the Fed’s benchmark overnight interest rate unchanged in a range of 2.25 percent to 2.50 percent and stick to their pledge of a “patient” approach to monetary policy is effectively a given.

The big reveal, though, will be whether policymakers will have sufficiently lowered their interest rate forecasts to more closely align their notorious “dot plot,” a diagram showing individual policymakers’ rate views for the next three years in little blue-shaded circles, with that pledge of patience.

And, just as importantly, what new details will they share on a plan to stop culling the Fed’s holdings of nearly $3.8 trillion in bonds?

“It’s going to be new information for the market to trade whether it’s the Fed’s intention or not,” said Ben Jeffery, a strategist at BMO Capital Markets.

Dissatisfaction with Powell’s remarks in December regarding the balance sheet threw markets for a spin and helped lead to the Fed’s pause on rates a month later. Since then, the Fed chief has explicitly said one of his aims is to avoid “needless market disruptions.”

Traders currently expect there will be no rate hikes this year, and are even building in bets for a rate cut in 2020. Any gap between that view and the Fed’s could send markets lower. So too could a sharp drop in policymakers’ rate-hike expectations, especially if coupled with a softer economic outlook.

Wrong or confusing signals on either the rate forecasts or the Fed’s bond portfolio could upend the market calm the central bank in large part has engineered despite nosediving economic forecasts.

Making Powell’s task even harder: A jumble of economic data, including a sharp slowdown in jobs growth last month that was accompanied by rising wages.

Uncertainty on the outlook for the world economy and global trade as well as a sharp U.S. growth slowdown expected by a range of forecasters mean that markets are on a hair trigger for signals from the Fed.

In January, the Fed pivoted from hiking rates quarterly to pledging patience before making more moves. Powell has also said the central bank could stop shedding bonds this year.

The central bank's last official policy statement here offered no hint about whether rates will rise or fall. The statement from the March 19-20 meeting is likely to do the same.

Asked if they would support rate hikes this year, Fed policymakers have been offering less information.

“Patience is basically saying we’re not going to give a lot of guidance to what we’re expecting down the road because there’s enough uncertainty that we just have to see how things evolve,” Boston Fed President Eric Rosengren told a National Association of Corporate Directors chapter on March 5.

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But guidance is exactly what the Fed offers in its Summary of Economic Projections slated for release alongside the policy statement on Wednesday. That document could show the central bank expecting a rate hike if the economy delivers the strong 2019 growth most policymakers still forecast.

Some Fed officials voiced concern at the Jan. 29-30 policy meeting that the projections could send a misleading statement about what the central bank is doing, according to the records here from that meeting. Powell warned on March 8 here against reading too much into the forecasts.

So far, the Fed’s on-guard and guarded communication has given markets new confidence. A gauge of swings expected in U.S. government bond prices over three months hit its lowest levels in 17 years. Stock markets have reacted as well, with the S&P 500 index up more than 12 percent this year.

With little sign of an inflation pickup, there would seem to be no urgency to raise U.S. borrowing costs, and investors have all but written off the possibility of a hike this year, especially with signs that slowing European and Chinese growth might weigh on the United States.

Meanwhile, the Fed faces pressure to elaborate on piecemeal statements that it will stop cutting bond holdings this year.

The Fed bulked up its books with bank reserves in order to buy trillions of bonds and further stimulate the economy once rates neared zero in the aftermath of the 2008 global financial crisis. To restore policy to normal, the Fed began shrinking its balance sheet in late 2017 by not replacing as many bonds when they mature.

Now, with the central bank ending that process, Fed policymakers face a number of questions. Some, for instance, have said they would not want the balance sheet policies, which might tighten financial conditions, to work at cross-purposes with the more cautious rate policy.

New York Fed President John Williams told Reuters earlier this month that “there is no clear answer” to exactly how large the balance sheet needs to be. Investors will be looking for answers as soon as this week. Powell is likely to be pressed on the subject at his press conference on Wednesday.

Cliff Corso, executive chairman at investment manager Insight North America LLC, said markets are looking for “confirmation and comfort” about their assumptions about the size and composition of the Fed’s assets. “Any deviations around that might create a little bit of volatility,” he said.

Reporting by Trevor Hunnicutt in New York and Ann Saphir in San Francisco

Asia shares, bonds count on Fed to be accommodative

SYDNEY (Reuters) - Asian shares pulled ahead on Monday while bonds were in demand globally on mounting speculation the U.S. Federal Reserve will sound decidedly dovish at its policy meeting this week.

Japan’s Nikkei advanced 0.59 percent, and MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6 percent.

Shanghai blue chips climbed 1.6 percent and spread betters pointed to modest opening gains for the major European bourses. One focus will be shares in Deutsche Bank and Commerzbank after the banks confirmed they were in merger talks.

E-Mini futures for the S&P 500 dithered either side of flat. The S&P 500 boasted its best weekly gain since the end of November last week, while the Nasdaq had its best week so far this year.[.N]

There is much talk Fed policymakers will lower their interest rate forecasts, or “dot plots”, to show little or no further tightening this year.

Also expected is more detail on a plan to stop cutting the Fed’s holdings of nearly $3.8 trillion in bonds. The two-day meeting ends with a news conference on Wednesday.

As a result, yields on three and five-year Treasuries are dead in line with the effective Fed funds rate, while futures imply a better-than-even chance of a rate cut by year end.

“Long-term bond yields remain noticeably lower across a wide range of countries,” said Alan Oster, group chief economist at National Australia Bank.

“Markets are pricing in little or no chance of a rate hike by the major central banks this year, outside of the Bank of England. The Fed is indicating that it will be patient and we don’t expect any rate hikes this year.”

Data on Friday showed U.S. manufacturing output fell for a second straight month in February and factory activity in New York state hit nearly a two-year low this month, further evidence of a sharp slowdown in economic growth early in the first quarter.

A marked decline in Treasury yields has dragged on the dollar, leaving it at 111.53 yen from a top of 111.89 on Friday. Against a basket of currencies, the dollar was pinned at 96.498 having shed 0.7 percent last week.

The euro was holding at $1.1333, well up from the recent trough of $1.1174 which was hit when the European Central Bank took a dovish turn of its own.

Sterling was steady at $1.3289 as markets await some clarity on where the Brexit drama was heading.

British Prime Minister Theresa May’s government is scrambling to get support in parliament for her Brexit deal.

May has only three days to win approval for her deal to leave the European Union if she wants to go to a summit with the bloc’s leaders on Thursday with something to offer them in return for more time.

“Most Brexit permutations look moderately GBP positive for the week but long-term challenges were underscored by the BCC forecasting a cut to business investment by the most in 10 years,” said from Sue Trinh, RBC Capital Markets’ head of Asia FX strategy.

The British Chambers of Commerce (BCC) forecast a 1 percent drop in investment over 2019.

In commodity markets, spot gold eased slightly to $1,298.81 per ounce.

Oil prices were just off their highest for the year so far. U.S. crude was last down 26 cents at $58.26 a barrel, while Brent crude futures lost 16 cents to $67.00.

Reference: Wayne Cole

Friday, 15 March 2019

Sterling headed for best week since January after Brexit votes

LONDON (Reuters) - The British pound was unchanged on Friday at the end of its best week since January, as investors waited for next week’s parliamentary vote on Prime Minister Theresa May’s deal to exit the European Union.

Sterling has rallied this week - it is up 1.7 percent against the dollar - after British lawmakers voted against leaving the EU without a deal and backed a delay to the March 29 exit date.

The vote against a no-deal Brexit was non-binding, but investors believe Britain will now avert a disorderly Brexit that would severely damage its economy.

May has said she will hold another vote next week on her deal, although lawmakers have already rejected it twice. She hopes to use the threat of a longer delay to Brexit to persuade eurosceptics in her party to back her.

“The market has already shifted significantly to price out a no-deal Brexit,” said BNP Paribas economists. The bank’s analysis shows short sterling positioning has been unwound to +10 from -33 at the beginning of the year. A -50 would mark the biggest short position possible, +50 the largest long.

The bank also noted that the probability of a rate increase this year had risen to 50 percent from 24 percent in February, according to money markets.

“As this suggests markets may be vulnerable to any downside surprises, we do not yet see attractive risk/reward to enter structural long GBP or bearish UK rates outright positions,” BNP Paribas analysts wrote.

China industrial output growth falls to 17-yr low, more support steps expected
The pound, which has traded between $1.2945 and $1.3380 this week, was unchanged on Friday at $1.3240. It was also little changed against the euro, losing 0.1 percent to 85.50 pence per euro.

Uncertainty remains for sterling. All 27 EU member states must agree to a request for a Brexit extension, and it remains unclear when and on what terms Britain will leave.

“Despite the increased risks facing rebel Conservative MPs, we doubt that sufficient numbers will fall back into line to pass her deal given entrenched hard line opposition,” MUFG analysts wrote on Friday.

Reporting by Tommy Wilkes

Global stocks rise on renewed trade hopes, set for best week since January

LONDON (Reuters) - Global stocks rose on Friday after a report that U.S.-China trade talks were making progress and a vote by UK lawmakers to delay the British exit from the European Union.

European stocks markets opened higher, with the pan-European STOXX 600 index reaching its highest since October. S&P 500 futures also gained, indicating stocks would open higher on Wall Street.

Chinese Vice Premier Liu He spoke by telephone with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lightizer, and the two sides made substantive progress on trade, the news agency Xinhua reported.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside of Japan gained over half a percent.

MSCI’s All-Country World Index, which tracks shares in 47 countries, was up 1 percent on the day and was set for its best week since early January.

The Shanghai Composite Index added 1 percent and Japan’s Nikkei climbed 0.8 percent.

South Korea’s KOSPI rose nearly 1 percent. The index had risen as much as 1.2 percent but gave up some gains following reports that North Korea might suspend nuclear talks with the United States.

Comments from Chinese Premier Li Keqiang also helped sentiment. His remarks suggested Beijing is ready to roll out more forceful stimulus to bolster China’s economy.

China has so far promised billions in tax cuts and infrastructure spending, as weakening domestic demand and the trade war with the United States curbs economic growth.

“China and Europe had been two of the key areas of concern at the start of 2019 and even though there is still much uncertainty, targeted fiscal stimulus in China (VAT cut April 1) and potentially some clarity emerging on Brexit over coming weeks could improve sentiment,” strategists at ING Bank wrote in a note to clients.

European stocks rose to a five-month high after Britain’s parliamentary vote on Brexit. The pound was flat on the day at $1.3243.

“We view the overall outcome of this week’s votes ... as positive for UK assets,” strategists at BNP Paribas wrote in a research note. “Indeed, the pound has risen by 2 percent on the week. Yet, while most of the routes ahead now look net positive, we still expect a bumpy path.”

Elsewhere in currencies, the dollar index slipped 0.2 percent to 96.619 after rising 0.25 percent on Thursday to recover from a nine-day trough of 96.385.

China industrial output growth falls to 17-yr low, more support steps expected
The U.S. currency was flat at 111.70 yen. It had dipped to 111.49 yen after the Bank of Japan’s left interest rates unchanged.

The central bank offered a bleaker assessment of exports and output, as global demand waned. Observers said, that it may be too early to expect the BOJ to ease policy further.

The euro edged up 0.1 percent to $1.1315 after slipping 0.2 percent overnight.

Oil prices rose as investors focused on global production cuts and supply disruptions in Venezuela. U.S. crude futures rose 0.2 percent to $58.74 per barrel, holding close to Thursday’s four-month peak of $58.74. Brent was 0.25 percent higher at $67.39.

Reporting by Ritvik Carvalho