Friday, 19 January 2018

Dollar hurt by U.S. shutdown fears, Treasury yields at highest since 2014

LONDON (Reuters) - The dollar wallowed near three-year lows on Friday as heightened fears of a U.S. government shutdown unnerved investors, while U.S. Treasury yields continued an upward march to hit their highest levels since September 2014.

Legislation to stave off an imminent federal government shutdown encountered obstacles in the Senate late on Thursday, despite the passage of a month-long funding bill by the House of Representatives hours earlier.

Without the injection of new money, no matter how temporary, scores of federal agencies will be forced to shut starting at midnight on Friday, when existing funds expire.

The dollar index, which measures the greenback’s value against other major currencies, was down 0.3 percent at 90.230 and close to three-year lows hit this week.

It has already lost 2 percent in the early days of 2018.

“The fear of the U.S. government shutdown has made investors nervous,” said Naeem Aslam, chief market analyst at Think Markets UK. “There is a strong possibility that the U.S. government shutdown may become a reality.”

Market players said worries of a shutdown may have also weighed on sentiment in bond markets, which remain under pressure from expectations that strong economic data globally will encourage the U.S. Federal Reserve to press ahead with monetary tightening.

U.S. 10-year Treasury yields hit their highest level in more than three years at 2.642 percent on Friday, and were set for their biggest weekly rise in a month.

“It’s a continuation of the trend and expectations for a normalization of monetary policy,” said Chris Scicluna, head of economic research at Daiwa Capital Markets, referring to rising U.S. bond yields.

In Europe, equity markets opened firmer with the exception of London's blue-chip FTSE stock index .FTSE. Germany's Dax index was 0.5 percent higher on the day .DAX and France's benchmark index was up 0.1 percent .FCHI.

The MSCI world equity index .MIWD00000PUS, which tracks shares in 47 countries, touched fresh record highs bouyed by gains in Asia.

Optimism over the global economic growth outlook and improved corporate earnings have helped share markets rally at the start of 2018. Supporting economic confidence was data on Thursday that showed China’s growth in 2017 accelerated for the first time in seven years.

China stocks ended at fresh two-year highs on Friday, with the Shanghai index .SSEC posting its fifth straight week of gains. Japan's Nikkei .N225 closed up 0.2 percent.

The euro rose 0.4 percent to $1.2280 EUR= after hitting a three-year peak above $1.2300 earlier this week on expectations that the European Central Bank would take steps towards winding back on stimulus measures to normalize monetary policy.

The euro’s rally was tempered later as some ECB officials voiced worries about the currency’s strength.

China's yuan meanwhile breached the psychologically important 6.4 dollar level for the first time in more than two years the day after Beijing said annual growth was 6.8 percent in October-December, slightly above forecasts.

Oil prices meanwhile fell more than 1 percent as a bounce-back in U.S. production outweighed ongoing declines in crude inventories.

Brent crude futures were at $68.63 a barrel, down 1.03 percent on the day. On Monday, they hit their highest since December 2014 at $70.37.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were also 1 percent lower, trading at $63.28 a barrel.

Gold prices XAU= rose, supported by a weaker dollar amid worries about a possible U.S. government shutdown, but the metal was still on track for its first weekly drop in six weeks.

Reference: Dhara Ranasinghe

Thursday, 18 January 2018

Strong China data cranks up pressure on bond markets

LONDON (Reuters) - The first acceleration by China’s giant economy in seven years kept stocks near record highs on Thursday, but added to growing pressure on bond markets as U.S. Treasury yields - the benchmark for global borrowing costs - cranked to a 10-month high.

Underlining the momentum of the world economic expansion into the back end of last year, both Chinese fourth quarter growth of 6.8 percent and December industrial output growth of 6.2 percent were ahead of expectations.

Most Asian bourses were closing when the data landed but had briefly set a new all-time record after the U.S. bluechip Dow Jones Industrial had closed above 26,000 points for the first time.

China's yuan finished strongly to hit its highest since December 2015. Europe's main FTSE, Dax and CAC40 markets then ticked higher too[.EU], though moves were choppy in the cross currents of both a rising euro and bond yields.

After a week of trying, the 10-year U.S. Treasury yield passed 2.6 percent to hit its highest since March 2017 It drove European counterparts up too with Germany’s 10-year bond yield, the region’s benchmark, near a 5-1/2 month top at 0.52 percent.

With such encouraging data coming though, “the likelihood we have higher inflation in the big economies is well over 50 percent, so that is the next turning point for the markets,” said SEB investment management’s global head of asset allocation Hans Peterson.

He added it raised two big questions. How will central banks respond? And will the rise in bond yields happen at such a pace that it impacts optimism around assets like equities?

“We are going to change the regime probably within the next 2-3 months,” he said. “Will it be accompanied by rising producer prices? If so then we can live with higher bond yields, otherwise it is a problem for us.”

The break higher in U.S. yields also lifted the dollar off a three-year low hit earlier in the day in Asia.

Ahead of U.S. trading though, the euro was regaining traction and last stood at $1.2245 EUR=, up 0.5 percent on the day but well below a peak of $1.2323 set on Wednesday, the euro's strongest level since December 2014.

Top ECB policymakers were speaking in Frankfurt. Some may have been caught off guard by the speed of the euro’s appreciation, said Lee Jin Yang, macro research analyst for Aberdeen Standard Investments in Singapore.

“Maybe they are trying to manage volatility or slow down the rise,” Lee said referring to Austria’s Ewald Nowotny who told reporters on Wednesday that the euro’s recent strength against the dollar was “not helpful.”

Wall Street was expected to tick fractionally higher when it resumes in New York with traders there bracing for another deluge of company fourth quarter results as well as some closely followed housing market data.

Elsewhere, the Canadian dollar eased about 0.1 percent to C$1.2450 CAD=D3, having see-sawed after the Bank of Canada raised interest rates but sounded a cautious tone on the future of the North American Free Trade Agreement (NAFTA).

Emerging markets were digesting a number of key interest rate meetings including Turkey which kept its rates on hold having seen last year’s 18 percent slump in the lira versus the euro drive inflation back into double digits.

South Africa's central bank was due next at 1300 GMT. After being sickly for much of 2017, a sounder political backdrop has seen the rand surge. ZAR= It is one of the best performing currencies in the world so far this year, fuelling talk of a possible rate cut.

“The South Africa meeting is the big show today. People are in it, they want to like it they want to own it,” said UBP’s EM macro and FX strategist Koon Chow. “So any dovishness or a cut would be another trigger for another leg higher.”

The rising U.S. bond could cause turbulence for EM debt markets, however. As well as the gains for benchmark Treasuries, The two-year yield hovered at a nine-year high of just over 2 percent.

“In emerging markets we are trained like dogs,” Chow said about the rising yields. “When we hear that bell ring we want to just run,”

In commodities, crude oil prices rose earlier on data showing a decline in U.S. crude inventories and as rebels in Nigeria threatened to attack the country’s petroleum infrastructure, before trimming their gains.

U.S. crude futures were 10 cents higher at $64.07 a barrel have hit a three-year high of $64.89 on Tuesday.

Spot gold XAU= was steady at $1,333 an ounce, with the dollar’s bounce pulling it back from a four-month high of $1,344.43 set on Monday.

Reporting by Marc Jones

Asia stocks touch record highs after Wall St surge, dollar edges back

TOKYO (Reuters) - Asian stocks struck record highs on Thursday, with a rally by Wall Street supporting bullish investor sentiment, while the dollar pulled back from three-year lows as comments by European Central Bank officials tempered the euro’s recent rally.

Spreadbetters expect Britain's FTSE to open 0.1 percent lower, Germany's DAX to start 0.3 percent higher and France's CAC opening up 0.2 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.2 percent higher after rising as much as 0.4 percent to a fresh record peak.

South Korea's KOSPI  was effectively flat. Japan's Nikkei .N225 reached its highest level since late 1991 earlier before ending down 0.4 percent.

Shanghai shares .SSEC rose 0.9 percent, buoyed by data showing China's economy grew 6.8 percent in the October-December quarter from a year earlier, the same rate as the previous quarter and slightly better than most economists had expected.

U.S. stocks jumped on Wednesday and the Dow closed above 26,000 for the first time as investors' expectations for higher earnings lifted stocks across sectors.

Optimism over prospects for sustained strong global growth and improved corporate earnings have helped share markets rally at the start of 2018.

“Events related to North Korea pose potential risks, but there are very few factors holding equities back at the moment,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“And bullish U.S. stocks, higher Treasury yields and signs of the euro’s recent surge running its course are all dollar-supportive factors,” Ishikawa said.

The dollar index against a basket of six major currencies was 0.3 percent higher at 90.793 after pulling back overnight from a three-year low of 90.279 set earlier in the week.

The euro was traded at $1.2203 EUR=, slipping from a three-year peak above $1.2300 after some ECB officials voiced worries about the currency's strength. The common currency had advanced this month on expectations that the central bank would take steps towards winding back on stimulus measures to normalise monetary policy.

The dollar was flat at 111.270 yen JPY= after surging 0.75 percent overnight, when it bounced from a four-month low of 110.190.

The two-year Treasury yield hovered near a nine-year high of 2.051 percent reached on Wednesday on expectations the Federal Reserve will continue to tighten monetary policy this year.

In commodities, crude oil prices rose earlier on data showing a decline in U.S. crude inventories and as rebels in Nigeria threatened to attack the country’s petroleum infrastructure, before trimming their gains.

U.S. crude futures were 2 cents higher at $63.99 a barrel. On Tuesday, they hit a three-year high of $64.89.

Many analysts warned that the recent oil price rally could lose momentum.

“We reckon that the upside is now limited for oil prices. U.S. shale oil output will increase by a good 111,000 barrels per day (bpd) next month to 10 million bpd, and will rise to about 11 million bpd by the end of next year,” said Fawad Razaqzada, market analyst at

“This would put the U.S. on par with Saudi Arabia and Russia’s output,” Razaqzada said.

Spot gold XAU= was down 0.1 percent at $1,327.56 an ounce, with the dollar’s bounce pulling it back from a four-month high of $1,344.43 set on Monday.

Reporting by Shinichi Saoshiro

Wednesday, 17 January 2018

Sterling pauses after rally as traders watch Brexit developments

LONDON (Reuters) - Sterling edged lower against the dollar on Wednesday after a rally as traders took profits and awaited the latest developments in negotiations over Britain’s departure from the European Union.

The pound has in recent days reached its highest levels since the vote to leave the European Union in June 2016, with the better-than-expected economic performance of the British economy and hopes that Britain will soon agree a transition deal with Brussels supporting sterling.

“I expect the political noise to move the pound on a short-term basis. But will it change the overall [positive] direction of the last 12 months? I don’t think so,” said Michael Hewson, chief analyst at CMC Markets, who remains bullish on the pound.

Hewson said the only event that could send sterling sharply lower was if talks with the EU broke down completely, which he said did not look likely as Brussels looked more amenable to negotiating with Britain.

The president of the EU Commission, Jean-Claude Juncker, said on Thursday Britain was welcome to rejoin the trading bloc after it has left next year.

In London, the European Union (Withdrawal) Bill is set to complete its first journey through parliament’s lower house some time after 1900 GMT, a milestone on the long road towards cementing the legal foundations of Brexit.

The pound was down marginally against the dollar at $1.3778 after hitting a high overnight of $1.3836. Data on Tuesday showing a slight fall in December inflation in Britain checked the pound’s rally.

Against the euro, which has gained broadly in recent days on expectations the European Central Bank would soon move to rein in monetary policy, the pound was up 0.2 percent at 88.7 pence.

“The talks about the transition period are due to start in late January, the negotiations on future trade relations following an EU summit at the end of March. Until a reversal of the plans is in sight EUR-GBP will continue to trade in a narrow range,” Commerzbank analysts wrote in a note.

Later, the euro fell on Wednesday after rocketing to a fresh three-year high in early trades above the $1.23 line as some investors ramped up bullish bets about the currency though some concerns from policymakers this week damped broader optimism.

Overall dollar weakness and growing optimism about the outlook of the European economy in 2018 has lent fresh legs to the euro’s rally after it gained more than 10 percent last year.

But the speed of the rise in the opening days of 2018 -- up more than 3 percent in the last two weeks -- has invited some comments from ECB officials this week, highlighting some growing concerns, according to analysts.

In an interview to an Italian daily la Repubblica, Vitor Constancio, the vice president of the European Central Bank, said he did not rule out that monetary policy would still continue to be “very accommodating for a long time”.

On Tuesday, Jens Weidmann, Germany’s representative on the ECB’s policymaking body said it would be “appropriate” for the European Central Bank to stop its bond purchases, due to run at least until September.

“The ECB is playing the good cop and the bad cop in terms of their comments over the euro but there is no doubt the currency’s rally has sowed the seeds of uncertainty in the ids of ECB policymakers,” said Viraj Patel, an FX strategist at ING in London.

The single currency rose to a session high of $1.2323 against the dollar in Asian trading before falling 0.2 percent to stand at $1.2238.

For euro bulls, these are key levels for a couple of reasons. Unlike 2017’ summer, when positioning wasn’t as stretched and valuations still reasonably attractive, current levels are not as supportive for the single currency.

Latest positioning data showed that net long euro positions are at a record high while both ECB and IMF valuation metrics show the euro is only about 6-7 percent currently compared to more than 12 percent before the French elections last year.

Morgan Stanley strategists said in a daily note that as long as inflation expectations are met and growth remains strong, the euro’s strength will be tolerated by the ECB.

Elsewhere, Canada’s central bank is widely expected to raise interest rates by 25 basis points and take the benchmark borrowing cost to 1.25 percent. Analyst expect the BoC to raise rates as many as three times in 2018.

The Australian dollar rose 0.1 percent to $0.7970 and the New Zealand dollar dipped 0.1 percent to $0.7260.

Reference: Reuters

Stocks pull back from record highs, set for second day of losses in new year

LONDON (Reuters) - World shares pulled back from record highs on Wednesday, set for only their second day of losses in the new year as lower commodity prices and a string of downbeat updates from companies dampened the mood in global markets.

European bourses opened lower, mirroring moves in Asia and Wall Street overnight, as earnings updates from companies weighed. The pan European STOXX 600 index was down 0.2 percent, but still close to a 2-1/2 year high hit earlier this month.

Asian equities stepped back from a record high as the region's resource shares were knocked by falling oil and commodity prices. Oil prices have retreated from the $70 a barrel mark hit last week, while metals such as aluminum and copper and nickel all fell on Wednesday. Japan's Nikkei .N225 fell 0.4 percent from its 26-year peak reached the previous day.

The losses across regions weighed on the MSCI world equity index, pulling it lower 0.1 percent and setting it up for only its second decline from the start of the year.

World shares have rallied in 2018 on prospects of continued strong global growth and improving earnings in the United states and elsewhere, with many analysts expecting an extension of the bull run in equities.

Earlier overnight, Wall Street paused its rally, hit by a 1.2 percent fall in energy stocks, as well as weakness in General Electric.

“There wasn’t any immediate catalyst for yesterday’s sharp sell down apart from some weakness in commodity markets, but U.S. markets’ inability to hold onto these sorts of gains might suggest that we could be due some sort of pullback, after the strong start to this year,” said Michael Hewson, chief market analyst at CMC Markets in London.

The Cboe volatility index .VIX, which measures investors’ expectation on price swings in U.S. shares, rose to a one-month closing high of 11.66 from near record low levels seen earlier this month.

The 2-year U.S. Treasury yield hit its highest level since late 2008, at 2.0390 percent.

In currencies, the euro fell after rocketing to a fresh three-year high in early trades, above the $1.23 mark.

Overall dollar weakness and growing optimism about the outlook of the European economy in 2018 has lent fresh legs to the euro’s rally after it gained more than 10 percent last year.

But the speed of the rise in the opening days of 2018 -- up more than 3 percent in the last two weeks -- has invited some comments from ECB officials this week, highlighting some growing concerns, according to analysts.

“The ECB is playing the good cop and the bad cop in terms of their comments over the euro but there is no doubt the currency’s rally has sowed the seeds of uncertainty in the ids of ECB policymakers,” said Viraj Patel, an FX strategist at ING in London.

The Canadian dollar traded at C$1.2452 per dollar CAD=D4, off its three-month high of C$1.2355 hit on Jan 5.

The Bank of Canada is seen as likely to raise its benchmark interest rate by 25 basis points to 1.25 percent later in the day, with analysts expecting three hikes this year.

Against a basket of currencies, the U.S. dollar was up 0.3 percent, but not far from its lowest level since early 2015.

Gold traded 0.3 percent lower at $1,335.8 per ounce XAU=, near Monday’s four-month peak of $1,344.7.

Bitcoin extended its sharp tumble of the past 24 hours, skidding more than seven percent on Wednesday as investors were spooked by fears regulators might clamp down on the digital currency.

The price of the world's biggest and best known cryptocurrency fell to as low as $10,567 on the Luxembourg-based Bitstamp exchange.

Oil prices pulled back from three-year highs as traders booked profits but healthy demand underpinned prices, which have been driven up by oil production curbs in OPEC nations and Russia, and demand amid healthy economic growth.

U.S. crude futures lasttraded at $63.61 per barrel, down 0.2 percent.

Global benchmark Brent crude futures fetched $68.97 a barrel, down 0.3 percent.

Reporting by Ritvik Carvalho

Investors extend bets on stocks climbing into 2019 - BAML survey

LONDON (Reuters) - Investors have raised their stock allocations to two-year highs and cut cash positions to five-year lows, with a majority expecting the equity bull run to continue into 2019, a survey by Bank of America Merrill Lynch (BAML) showed on Tuesday.

The global survey, which covers 183 participants with $526 billion under management, was conducted from Jan. 5 to 11, when world stocks recorded their strongest start to a year since 2010.

In the bank’s previous survey, the majority of respondents expected equity markets to peak in the second quarter of 2018. That forecast has now been pushed back to 2019 or beyond.

“Investors continue to favour equities,” said Michael Hartnett, chief investment strategist at BAML. “By the end of Q1, we expect peak positioning to combine with peak profits and policy to create a spike in volatility.”

Investor allocations to stocks jumped to a two-year high of a net 55 percent overweight, while bond allocations fell to a four-year low of a net 67 percent underweight.

BAML noted that investors were at their most overweight equities versus government bonds since August 2014.

The average cash balance also fell to 4.4 percent, a five-year low, from 4.7 percent in December.

The upbeat mood was reflected in investors’ outlook for corporates, with profit expectations climbing 10 percentage points to 44 percent in January.

Inflation and/or a crash in global bond markets was cited as the biggest tail risk, chosen by 36 percent of respondents, while 19 percent opted for a policy mistake by the U.S. Federal Reserve or European Central Bank.

A net 11 percent of investors surveyed expected the U.S. yield curve to flatten in 2018, the highest level in over two years, the bank noted. A net 9 percent of investors also thought that fiscal policy was too easy, the highest since 2011.

In terms of regional appetite, the eurozone remained in favour with the equity allocation holding at a net 45 percent overweight. The emerging market equity allocation also climbed to a net 41 percent overweight, from 34 percent in December.

But pessimism towards UK equities continued as Brexit uncertainty continued to weigh, with a net 36 percent underweight, back near its post global financial crisis era lows.

“The UK remains the consensus short amongst fund managers,” BAML said.

Reporting by Claire Milhench

Tuesday, 16 January 2018

Sterling steadies ahead of UK inflation data

LONDON (Reuters) - The British pound paused on Tuesday after a recent rally against the dollar, as traders waited for an update on British inflation that is expected to show price rises falling slightly from a near-six-year high.

Sterling has jumped in recent days, trading up into its highest levels since the British vote to leave the European Union in June 2016 against the dollar. Hopes that some members of the EU are ready to allow Britain to remain closer to the trading bloc after its departure have helped the pound trade higher, as has broad dollar weakness.

The pound was flat at $1.3785 by 0909 GMT, with traders focused on the consumer price inflation data released at 0930 GMT. Analysts forecast that will show a rise of 3 percent in December on a year earlier, down slightly from a near six ear high of 3.1 percent in November.

“Inflation is likely to remain stickier than usual for the next couple of months as the January effect of higher rail fares also bleeds through into the numbers. It should then start to soften towards the end of Q1 assuming the pound stays at its current levels,” said Michael Hewson, London-based chief analyst at CMC Markets.

Against a broadly weaker euro, sterling edged up 0.2 percent to 88.77 pence.

(Reuters) - Wall Street’s main indexes rose sharply on Tuesday, with the Dow hitting the 26,000 mark for the first time, as the fourth-quarter earnings season kicked into high gear.

UnitedHealth rose 2.2 percent after the largest U.S. health insurer reported results that beat analysts’ estimates and raised its full-year profit forecast.

Citigroup Inc jumped 1.4 percent after the lender reported profit that topped Wall Street expectations as strength in consumer businesses made up for lower revenue from bond and currency trading.

Hopes of strong quarterly earnings, supported by steep cut in corporate taxes, and solid global economic growth have bolstered Wall Street’s optimism in the start to 2018.

“Not only is the U.S. coming off a strong quarter, but the new tax reform measures are continuing to provide a boost, with investors keen to hear more about what impact this will have on future earnings,” said Craig Erlam, senior market analyst at online foreign exchange broker Oanda.

More than three quarters of the 26 S&P 500 companies that have reported so far have topped profit estimates, according to Thomson Reuters.

At 9:41 a.m. ET, the Dow Jones Industrial Average was up 225.34 points, or 0.87 percent, at 26,028.53, helping it record its fastest 1000-point rise. It ended above 25,000 on Jan. 4.

The S&P 500 was up 18.09 points, or 0.65 percent, at 2,804.33 and the Nasdaq Composite was up 62.08 points, or 0.85 percent, at 7,323.14.

General Motors rose 2.7 percent after the company said it expected earnings in 2018 to be largely flat, compared with 2017, but that profits should pick up pace in 2019.

General Electric shares fell 3.7 percent after the industrial conglomerate said it would record a $6.2 billion charge in the fourth quarter as part of an ongoing review of its finance arm’s insurance portfolio.

The S&P energy index fell 0.3 percent as oil prices pulled back from recent highs, with Brent crude dipping 1.07 percent to $69.51 per barrel.

Nine of the 11 major S&P sectors were higher, led by a 1.44 percent rise in the real estate index and 0.92 percent gains in the technology index.

Amazon rose more than 2 percent, extending gains from last week when data showed U.S. holiday spending surged to 12-year high, prompting price target hikes.

Bitcoin tumbled 18 percent to a four-week trough close to $11,000, after reports that a ban on trading of cryptocurrencies in South Korea was still an option. Shares of cryptocurrency-related companies were all down. Marathon Patent, Riot BlockChain, Xunlei and fell between 7.7 percent and 11 percent.

Advancing issues outnumbered decliners on the NYSE by 2,037 to 687. On the Nasdaq, 1,958 issues rose and 673 fell.

Reference: Reuters Staff