Thursday, 25 May 2017

Asia shares race to two-year high as Fed signals no rush to tighten

Asian shares scaled two-year highs on Thursday while the dollar and U.S. bond yields slipped after the U.S. Federal Reserve signaled a cautious approach to future rate hikes and the reduction of its $4.5 trillion of bond holdings.

European shares are also expected to gain, with spread-betters looking to higher openings of 0.3 percent in Germany's DAX .GDAX and France's CAC .FCHI and 0.2 percent in Britain's FTSE .FTSE.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced 1.0 percent, hitting its highest level since May 2015, and bringing its gains so far this year to about 17 percent.

The gains were led by South Korean shares, which rose 1.0 percent to record highs. Hong Kong's Hang Seng .HSI gained 0.8 percent to its highest level since July 2015 while Taiwanese shares hit 17-year highs

In Japan, Nikkei .N225 gained 0.5 percent.

Minutes from the Fed's last policy meeting showed policymakers agreed they should hold off on raising interest rates until it was clear a recent U.S. economic slowdown was temporary, though most said a hike was coming soon.

"Their views seem to have changed considerably. In the past, they had said the slowdown was transitory," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The minutes also showed that policymakers favored a gradual reduction in its massive balance sheet.

Fed staff proposed that the central bank set a cap on the amount of bonds that would be allowed to run off each month, initially setting it at a low level and raising it every three months.

Following the minutes, the 10-year U.S. Treasuries yield  fell to 2.255 percent from Wednesday's high of 2.297 percent.

Fed funds rate futures are pricing in about a 75 percent chance that the Fed will raise rates next month, moving down from more than 80 percent earlier this week .

The specter of a slower pace of policy tightening underpinned share prices, with the S&P 500 .SPX closing at a record high.

In the currency market, the euro EUR= traded up 0.1 percent in Asia at $1.1225, having bounced back from Wednesday's low of $1.1168 and coming within sight of $1.1268, its 6 1/2-month high set on Tuesday.

The dollar stood at 111.63 yen, slipping from one-week highs of 112.13 touched on Wednesday.

Those moves have pulled the dollar's index against a basket of six major currencies down to 97.028, near Monday's 6-1/2-month low of 96.797.

The Chinese yuan  strengthened, hitting its highest level in almost two months, on buying by major state-owned banks in what some traders thought was a show of strength a day after Moody's downgraded the country's credit rating.

Mainland Chinese shares .SSEC, which were briefly unsettled by Moody's downgrade of its rating on China on Wednesday, bounced back 1.6 percent.

"Credit downgrade wasn't a surprise after all given the delay in structural reforms such as liberalization of capital moves. The Chinese economy looks set to grow more than six percent, so there's no reason to be that pessimistic either," said Shuji Shirota, head of macro economic strategy group at HSBC in Tokyo.

The Canadian dollar strengthened to a five-week high of C$1.3402 per U.S. dollar after the Bank of Canada was more upbeat about the economy than some investors had expected.

Oil prices flirted with five-week highs as investors expect oil producing countries to extend output cuts at their meeting in Vienna later in the day.

Benchmark Brent crude oil rose 49 cents a barrel, or 0.9 percent, to $54.45. U.S. light crude was up 46 cents, or 0.9 percent, at $51.82.

Both benchmarks have gained more than 16 percent from their May lows below $50 a barrel, rebounding on a consensus that OPEC and other producers will maintain strict limits on production in an attempt to drain persistent global oversupply.

Elsewhere, digital currency bitcoin  hit a fresh record high, having surged 170 percent in about two months from its March low.

Demand for crypto-assets soared with the creation of new tokens to raise funding for start-ups using blockchain technology.

Reference: Hideyuki Sano

Banks' bond trading roars back in first-quarter but FX lags

Bond trading revenue at the world's top banks rebounded sharply in the first three months of the year as strong activity in credit and interest rate products eclipsed the lowest currency trading volume in over a decade, a survey showed on Wednesday.

The period saw Donald Trump sworn in as U.S. president and an initial surge of investor optimism that his promises to cut taxes, boost spending and deregulate the banking sector would lift growth and boost asset markets.

With the Federal Reserve raising U.S. interest rates too, trading revenue at the top U.S. and European banks from fixed income, currency and commodities (FICC) totalled $21.4 billion, according to industry analytics firm Coalition.

That was up 19 percent from $17.9 billion in the same period last year, a particularly weak quarter, which helped make the January-March period this year look relatively strong.

"The first quarter of last year was the worst quarter since 2008. If you compare against Q1 2014 and 2015, we're still significantly below these levels," said George Kuznetsov, head of research at Coalition.

The increase in FICC revenue was driven by a 15 percent rise in G10 rates trading to $7.5 billion, a 65 percent rise in credit to $4.7 billion and an 82 percent jump in securitisation activity to $3.4 billion.

But G10 foreign exchange trading revenue slumped by a quarter to $1.8 billion, the lowest since 2006, depressed by the historic low level of market volatility which traditionally crimps activity in global macro trading, Kuznetzov said.

The FICC rebound follows years of post-crisis decline, as banks have had to adjust to reforms compelling them to hold more capital and liquidity and reduce the amount of bonds they can hold on their books. This has resulted in a continuous reduction of staff, and the exit from some business lines altogether.

Front office headcount fell 3 percent to 52,900, with staffing levels still affected by the cuts made by some of the surveyed banks in the first half of last year.

"Despite these relatively healthy FICC revenues we haven’t seen any significant increase in headcount. Given that Q2 is expected to be relatively poor, we don’t expect that to happen any time soon either," Kuznetsov said.

Equities trading revenue fell 8 percent to $10.8 billion, led by an 18 percent slide in cash trading to $2.3 billion. That was particularly "alarming" given the strong performance of stock markets in general and equity capital market  activity, Kuznetsov said.

The 12 banks in the survey were: Bank of America, Merrill Lynch, Barclays, BNP Paribas, Citi Bank, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC , JP Morgan, Morgan Stanley, Societe Generale and UBS.

Reference: Jamie McGeever

Wednesday, 24 May 2017

Dollar firm after bounce from lows, yuan slips on China downgrade

The dollar held firm on Wednesday, having rebounded from 6-1/2-month lows against its major peers helped by a rise in U.S. Treasury yields, while the yuan eased after Moody's cut its sovereign rating on China due to concerns over the country's soaring debt.

The dollar index held steady against a basket of six currencies at 97.321 after bouncing 0.4 percent the previous day.

It managed to pull away from the 96.797 level plumbed on Monday, its lowest since Nov. 9, when concerns over U.S. politics stemming from the Trump election campaign's suspected links with Russia took a toll on the greenback.

The dollar was boosted as U.S. debt prices fell, with the benchmark 10-year Treasury note yield climbing 3 basis points overnight and putting some distance between the one-month trough reached last week in a bond-buying flight to safety.

"The rise in Treasury yields is supporting the dollar. It appears that speculative buying of Treasuries has run its course, with Trump concerns and geopolitical risks no longer fresh news," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The dollar was firm at 111.795 yen after a bounce to 111.995 yen, its highest in a week.

The U.S. currency also managed to halt its slide against the euro, which had enjoyed a bull run this month on factors including an ebb in French political concerns, upbeat euro zone data, and a widening German-U.S. government debt yield spread.

The euro was little changed at $1.1191, nudged away from a 6-1/2-month high of $1.1268 scaled the previous day.

Investors are now turning their focus towards the Federal Reserve's monetary policy stance. Minutes of the Fed's latest policy-setting meeting are set for publication at 2 p.m. eastern time (1800 GMT) on Wednesday.

The market already expects the Fed to raise interest rates in June, but given the greenback's recent weakness, dollar bulls are expected to welcome any hawkish hints by the central bank.


Moody's Investors Services on Wednesday downgraded China's long-term local and foreign currency issuer ratings by one notch to A1 from Aa3, citing expectations that the financial strength of the world's second-biggest economy would erode in the coming years.

China's offshore yuan slipped in knee-jerk reaction but the overall response was limited. The yuan fell to 6.8901 per dollar, down by 0.1 percent, before pulling back to 6.8841 for a loss of about 0.05 percent.

The Australian dollar, sometimes used as a proxy of China-related trades, eased slightly but reaction to the downgrade was also relatively subdued. The Aussie was down 0.15 percent at $0.7466.

"Currencies are reacting quite calmly, as China is still seen to have enough reserve strength for further fiscal spending," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Elsewhere, the Canadian dollar stood steady at C$1.3518 per dollar after touching C$1.3457 overnight, its strongest in a month.

A rise in crude oil prices lifted the Canadian dollar. The focus is now on the OPEC meeting in Vienna on Thursday to see whether a deal to prolong output cuts can be struck.

The pound was nearly flat at $1.2965, with the market awaiting further developments in Britain's suspended election campaign after the suicide bombing in Manchester.

Reference: Shinichi Saoshiro

Wall St. set to open higher ahead Trump's budget plan

U.S. stocks looked set to open higher on Tuesday, shrugging off a deadly bomb blast in Britain and ahead of U.S. President Donald Trump's first full budget plan that is aimed at slashing government spending and trimming the deficit.

Trump is set to propose a raft of politically sensitive cuts, including to healthcare and food assistance programs for the poor, with the aim of chopping government spending by $3.6 trillion and balancing the budget over the next decade.

The plan also includes selling off half the country's huge oil stockpile, a proposal that weighed on crude oil prices as it threatened a future glut even as OPEC and its allies cut output to try and tighten the market.

Congress holds the federal purse strings and often ignores presidential budgets, which are proposals and may not take effect in its current form.

"In the U.S. all eyes are on Trump's budget proposal. The budget will not pass in its current state but people will keep an eye on any sort of indication of corporate tax reform as well as infrastructure spending," said Nadia Lovell, US Equity Strategist at J.P. Morgan Private Bank in New York.

U.S. futures slipped slightly on Monday evening, before recovering, on news of the suicide attack that killed at least 22 people and wounded 59 at a pop concert in the English city of Manchester.

European stocks edged up after a sluggish start on Tuesday, with the region's shares made gains as the latest economic data made for some encouraging reading.

"Numbers are coming in off the Eurozone so that helped prop the European markets up a bit and that's seeding into the U.S.," said Lovell.

Dow e-minis were up 46 points, or 0.22 percent, with 28,878 contracts changing hands at 8:30 a.m. ET.

S&P 500 e-minis  were up 3.75 points, or 0.16 percent, with 183,854 contracts traded.

Nasdaq 100 e-minis were up 14.25 points, or 0.25 percent, on volume of 32,564 contracts.

Wall Street closed higher on Monday boosted by technology shares and by defense companies, which gained after the United States and Saudi Arabia signed a $110 billion arms deal.

The deal was struck during Trump's visit to Saudi Arabia over the weekend, a trip the White House hopes will shift focus away from domestic controversies such as the president's firing of the former Federal Bureau of Investigation chief and probes into his administration's possible links to Russia.

"Much of Trump "reflation" trade has been unwound and in order for the S&P to move beyond 2,400 we need to see something on the policy front, without that any movement beyond 2,400 will be difficult to sustain," Lovell added.

Among stocks, shares of Toll Brothers rose 3.8 percent to $39.49 after the luxury homebuilder reported a 40 percent rise in quarterly profit.

U.S.-listed shares of Nokia were up 6.6 percent at $6.62 after the company settled a patent dispute with Apple. Apple was 0.4 percent higher at $154.60.

Autozone fell 7.7 percent to $608.65 after the company's quarterly results came in below expectations.

Reference: Tanya Agrawal

Tuesday, 23 May 2017

Pound sags versus yen, euro at six-month highs

The pound slipped against the yen after a suspected terrorist attack at a concert in Britain's city of Manchester, while the euro hovered near a six-month high against the dollar on Tuesday after German Chancellor Angela Merkel said the currency was "too weak."

Sterling was down 0.2 percent at 144.36 yen after weakening to as much as 144.06.

It was little changed against the dollar at $1.2992 and a touch lower at 86.60 pence per euro.

Police said an explosion at the end of a concert by U.S. singer Ariana Grande in the English city of Manchester on Monday killed at least 19 people and injured more than 50.

Two U.S. officials said a suicide bomber was suspected, while Prime Minister Theresa May said the incident was being treated as a terrorist attack.

The safe-haven yen advanced against major peers like the dollar and euro but its gains were modest.

The dollar was down 0.2 percent at 111.100 yen after a dip to 110.860 and the euro slid 0.2 percent to 124.860 yen.

"The yen may have been bought in reaction to the blast, but the incident is unlikely to have lasting impact on the broader scheme of things," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"Even prior to the incident, market sentiment has not been particularly 'risk on' for a while, with relatively low U.S. yields limiting the dollar's attraction."

The euro was 0.1 percent higher at $1.1247 after touching $1.1264 overnight, its highest since Nov. 9.

Merkel said on Monday that the common currency is weak due to the European Central Bank's monetary policy, pointing out that this helped explain Germany's relatively high trade surplus.

The chancellor's comments provided fresh momentum to the euro, which has been on a bullish footing since the French presidential elections earlier this month. Upbeat euro zone data and a widening spread between the 10-year German and U.S. government bond yields have also supported the currency.

"While the ebb in French political risk and prospects of a ECB policy shift have helped the euro, the biggest support factor still remains the recent weakening of the dollar in wake of 'Russiagate,'" said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"Merkel's comments was extra fuel for the euro...that said, a weaker dollar is not necessarily a bad thing for Trump."

The dollar index lost 0.1 percent to 96.882.

Antipodean currencies benefited from the dollar's broader weakness.

The Australian dollar rose 0.1 percent to $0.7489 and the New Zealand dollar nudged up 0.2 percent to a one-month high of $0.7010.

Reference: Shinichi Saoshiro

Weaker sterling gives FTSE edge over Europe, Micro Focus dips

The pound's retreat below $1.30 helped Britain's main share index outperform European benchmarks on Monday, while individual broker updates sent some stocks lower.

Sterling fell after two polls on the weekend showed Prime Minister Theresa May's ruling Conservative party losing ground after parts of its election manifesto came under fire. The pound had risen in the last month as some expected a landslide win would allow for smoother exit negotiations with the European Union.

Along with strength in commodities stocks, the weaker pound propelled the mainly foreign-earning FTSE 100 to a 0.4 percent gain, holding near record high levels hit last week, and easily outperforming the Euro zone STOXX 600 which fell 0.2 percent.

Strong metals prices helped miners Anglo American, Fresnillo, Antofagasta and Rio Tinto up to the top of the index, gaining 1 to 1.3 percent.

While merger activity drove European shares, broker updates fuelled the biggest moves among British stocks.

Micro Focus fell 3.1 percent, the top FTSE faller after Credit Suisse research into legacy technology led them to downgrade the firm.

The bank's survey of 100 CIOs found the industry was moving away from COBOL, a programming language widely used in business and finance, and the base for some Micro Focus tools and products.

"Just as investors finally seem to have accepted management's view that legacy assets are sticky, we think the risks to this model are starting to materialise," said analysts at the Swiss bank.

Testing company Intertek jumped to a record high after Kepler Cheuvreux upgraded it to a 'buy' in a note predicting an inflection in the cycle for the sector.

"Strategic initiatives are delivering quick results, allowing Intertek to free up cash that CEO André Lacroix has promised to redeploy into earnings-accretive acquisitions," analysts added.

Paddy Power Betfair gained 1.9 percent after Credit Suisse upgraded it to neutral, assessing companies' exposure to regulatory risks from the UK government's review of gambling machines.

Analysts said the outlook for 2018 looked better for PPB, flagging Australia as 'the key regulatory threat'.

Among mid-caps, Cairn Energy benefited from a target price upgrade from Macquarie.

"We recommend buying the shares ahead of share price appreciation associated with Senegal progress and commencement of cash flow generation in the UK North Sea," analysts said.

Paysafe fell 3 percent after anonymous short-seller outfit Spotlight Research targeted the company again, with two new reports.

The firm's shares had plummeted 40 percent in December after an initial report from the short seller. They've since recovered and hit an 11-year high on Friday.

Miners Ferrexpo and Kaz Minerals underpinned a 0.3 percent gain on the mid-cap index as well.

Reference: Helen Reid

Monday, 22 May 2017

Asian stocks post biggest rise in a month; dollar weak

Asian stocks posted their biggest daily rise in a month on Monday following modest gains in U.S. shares, though the greenback came under renewed pressure as Washington's political turmoil undermines confidence in U.S. economic policy.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.9 percent on Monday helped by gains in Australia and Hong Kong stocks despite fresh curbs unveiled by regulators on the property markets in the latter.

"This won't have much impact on the market as buyers will continue to focus on the primary market rather than the secondary market where these measures will be more acutely felt," said Alex Wong, a fund manager at Ample Capital Ltd in Hong Kong, with about $130 million under management.

The bounce in Asian stocks was the best performance since April. 25 and has notched up gains of more than 17 percent for the MSCI emerging stocks index compared to 8 percent for the world index even as some investors grew wary of the outlook.

"At current market valuations, we advise investors to adopt an active approach by stock picking across sectors and rotating to quality laggards," Carl Berrisford, an analyst at UBS Wealth Management wrote in note, citing valuations nearing their peak.

U.S. stocks ended up on Friday but closed below their session highs on renewed concerns about Donald Trump's presidency, following two new media reports of possible coordination between Russia and Trump's election campaign.

Stock index futures were mildly higher in Asia.

"The escalation of the investigation into Russia's involvement in the recent U.S. election threatens to take resources, time, and attention away from the economic agenda, which had already begun meeting some scepticism," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, wrote in a note.

In foreign exchange markets, the dollar fell to its lowest levels in six months on Friday against a trade-weighted basket of its peers at 97.080 and was trading just a shade above that on Monday.

The dollar was trading at 111.40 after falling nearly 2 percent last week while the euro inched down 0.2 percent to $1.11880 after rising to a six-month high of $1.1212 on Friday.

Net long positioning on the euro rose to its highest in more than three years in the week ended May 16, according to calculations by Reuters and Commodity Futures Trading Commission data issued on Friday.

Recent economic improvement in the euro zone has raised market expectations the European Central Bank will tone down its dovish language at its next Governing Council meeting next month.

Signs from the government bond markets did not bode well for the greenback either. U.S. bond yields have gently drifted lower in recent days cutting the yield premium U.S. Treasuries earn against other bond markets such as German or Japanese debt.

Oil clung on to Friday's gains trading around $50.80 per barrel.

Reference: Saikat Chatterjee