Thursday, 23 March 2017

Dollar edges up from four-month low versus yen, Trump's healthcare bill in focus

The dollar edged up from four-month lows against the yen on Thursday, but gains were capped by U.S. President Donald Trump's struggle to push through a healthcare bill.

The U.S. currency has struggled this week as growing doubts over Trump's ability to push through with economic and tax policies triggered broad risk aversion and buffeted equities.

U.S. Treasury yields declined in turn, eroding the dollar's interest allure.

Financial markets' immediate focus is on whether Trump can gather enough support at a vote later in the day to pass a bill to rollback Obamacare, one of his key campaign pledges.

Trump's plan faces resistance from some conservative Republicans who view it as too similar to Obamacare, and from moderates concerned it will hurt some voters.

"The vote on Obamacare is a litmus test for Trump. If he can't push through the bill (on Obamacare), it would further damage stocks. It also raises the risk of his other policies, like tax cuts, being delayed," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"So today's vote is of main importance to the currency market."

The dollar was up 0.15 percent at 111.350 yen, enjoying a bit of respite after sliding to a four-month low of 110.735 on Wednesday, when it fell for the seventh straight session.

With global equities buffeted by risk aversion this week -Wall Street on Tuesday suffered its worst day since Trump's election - the dollar has struggled notably against the yen, often sought by investors due to its perceived safe-haven status in times of market tumult.

Its safe-haven status was also seen helping the yen as Tokyo dealt with a political scandal involving Prime Minister Shinzo Abe, facing questions about his ties to a nationalist school involved in a murky land deal.

"If the situation over the prime minister's dealings with the school remains unresolved, the yen could gain further against the dollar," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The euro was little changed at $1.0792 EUR= after advancing to a seven-week high of $1.0825 overnight.

The common currency has been supported this week on growing expectations of a tightening in European Central Bank monetary policy this year, and on bets that the anti-euro candidate Marine Le Pen will be defeated in the French presidential elections.

The dollar index against a basket of major currencies was up 0.1 percent to 99.751 .DXY after its descent to a seven-week trough of 99.547 the previous day.

The pound was effectively flat at $1.2482 and in reach of a one-month high of $1.2507 scaled on Wednesday.

Sterling briefly dipped on Wednesday following what the police described as a "marauding terrorist attack" in London, but it recovered when there were no reports of other separate incidents.

The Australian dollar was down 0.3 percent at $0.7657.

The Aussie has lost about 0.6 percent this week, after a stellar 2 percent gain last week, as investors sought safe havens such as the yen, bonds and gold.

Also working against the Aussie was a steep fall in the price of iron ore - the country's top export earner.


S&P, Nasdaq rise as investors seek bargains after steep drop

The S&P and the Nasdaq reversed course to climb higher in afternoon trading on Wednesday, as investors sought bargains a day after the major indexes posted their biggest one-day loss since before the election.

Apple was up about 1 percent and provided the biggest boost to the three major indexes.

However, the Dow was lower, weighed down by a 6.3 percent fall in Nike after the world's largest footwear maker missed quarterly revenue estimates.

"What we're seeing today is buyers being opportunistic and trying to gain entry into the overall market," said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.

"That's why we're seeing tech and industrials stocks, which last a lot on Tuesday, lead today."

Still, the market remained cautious ahead of the first major legislative test of Donald Trump's presidency.

Investors are closely watching the outcome of the healthcare bill, which Republican party leaders are aiming to move in the House as early as Thursday, as a signal to how Trump can push forward his tax cuts and simpler regulation agenda.

Trump has been trying to rally Republican lawmakers behind the plan, which will dismantle Obamacare.

Some investors fear that if the healthcare reform act runs into trouble or takes longer-than-expected to pass, then Trump's tax reform policies may face setbacks.

"The market was giving Trump somewhat of a talk-the-talk leeway," said Ryan Larson, head of U.S. equity trading at RBC Global Asset Management in Chicago.

"It was supportive of what the administration was talking about. We're starting to get into a phase where that grace period is coming to an end and what the market wants to see more walk-the-talk as opposed to talk-the-talk."

Oil prices touched four-month lows after data showed U.S. crude inventories rising faster than expected.

The S&P 500 has run up about 10 percent since the election in November, spurred mainly by Trump's agenda of tax cuts and infrastructure spending, but valuations have emerged as a concern.

The benchmark index is trading at about 18 times forward earnings estimates against the long-term average of 15, according to Thomson Reuters data.

At 12:21 p.m. ET (1621 GMT) the Dow Jones Industrial Average .DJI was down 30.94 points, or 0.15 percent, at 20,637.07, the S&P 500 .SPX was up 1.46 points, or 0.06 percent, at 2,345.48.

The Nasdaq Composite .IXIC was up 12.81 points, or 0.22 percent, at 5,806.64.

Five of the 11 major S&P sectors were higher, with the technology index's  0.58 percent gain leading the advancers.

The financial sector .SPSY, which suffered its worst daily drop since June on Tuesday, was down 0.22 percent. Bank of America and Wells Fargo  were down about 0.7 percent.

Gold prices rose to a three-week high and the dollar index .DXY, which measures the greenback against a basket of currencies, had touched its lowest level since early February.

Sears Holdings slumped 16.5 percent to $7.60 after the retailer warned on Tuesday about its ability to continue as a going concern after years of losses and declining sales.

Declining issues outnumbered advancers on the NYSE by 1,656 to 1,174. On the Nasdaq, 1,794 issues fell and 947 advanced.

The S&P 500 index showed 10 new 52-week highs and 14 new lows, while the Nasdaq recorded 14 new highs and 69 new lows.

Reference: Tanya Agrawal

Wednesday, 22 March 2017

Euro tops $1.08 after French presidential debate

The euro rose above $1.08 for the first time in six weeks on Tuesday as centrist Emmanuel Macron's performance in a TV debate fuelled expectations he would win the French presidency ahead of far-right rival Marine Le Pen in May.

After four days of trading focused chiefly on expectations for U.S. interest rates and the Trump administration's attitude to trade and a stronger dollar, the euro's gains also sent the dollar index to a six-week low.

A cautious line from Federal Reserve speakers since it raised rates last week has added to signs the Trump team will have to take its time in delivering a promised fiscal boost to the economy.

There has also been an easing of some of the perceived political risks to the euro from populists such as Le Pen, who wants to take France out of the single currency, and speculation the European Central Bank will rein in its ultra-loose monetary policy later this year.

A snap opinion poll after Monday's debate showed Macron, a former economy minister who has never run for public office before, was seen as the most convincing among the top five contenders for the French presidency.

"The euro has been helped by Macron's performance definitely," said Stephen Gallo, head of European FX strategy at Bank of Montreal in London.

"I still want to buy dollars but not here. I think there will be a push higher in euro dollar in the very short run, before we would look for levels to be selling."

The euro rose 0.6 percent to $1.0808 by 1134 GMT. That pushed the index used to measure the dollar's broader strength below 100 for the first time since early February.

The euro was also 0.7 percent higher against the yen.

Sterling, a target for investors this year due to nerves over the UK economy's performance in the face of its planned departure from the European Union, jumped almost 1 percent after higher than expected inflation data.

Signs price rises are beginning to outstrip wage gains bodes ill for household budgets and consumer spending but also fuel expectations that the Bank of England may be forced to raise interest rates to support the pound.

The Bank's meeting last week shocked markets by showing one outgoing policymaker already switching to vote for higher rates and others on the verge of following if inflation and inflation expectations continue to rise.

"With the BoE now indicating it could raise rates much sooner than markets were expecting ... future downside for the pound now looks far more limited, especially as it's the pound's depreciation that has generated much of the inflationary pressures," said Oanda market analyst Craig Erlam.

Sterling rose almost 1 percent to a three-week high of $1.2474 in morning trade in London. It inched up 0.2 percent to 86.73 pence per euro.

Reference: Patrick Graham

Sterling hits three-week high as UK inflation passes BoE target

Sterling jumped almost 1 percent to its highest level in three weeks on Tuesday, after data showed British inflation in February above the Bank of England's 2 percent target for the first time since the end of 2013.

Consumer prices rose by a stronger-than-expected 2.3 percent in annual terms, beating expectations of a 2.1 percent rise, and up sharply from 1.8 percent in January, the Office for National Statistics said.

Strong consumer spending was behind the UK economy's surprising resilience in the months immediately following Britain's unexpected vote last June to leave the European Union.

However, a plunge in the pound, which has wiped almost a fifth off its value against the dollar since the vote, has driven a rise in domestic inflation. A recent run of consumer data has shown that is beginning to weigh, with Britons less ready to spend on non-essential items.

Sterling, which had already been trading up 0.4 percent at $1.2416 before the data, rose to a high of $1.2472 - its highest since Feb. 27 - after it, up 0.9 percent on the day.

It also hit a two-day high of 86.55 pence per euro.

"The way the market is treating the data is obviously quite conventionally at the moment - that higher inflation implies greater risk of a rate hike ... and that's being taken as an immediate positive for sterling," said RBC Capital Markets currency strategist Adam Cole.

"Longer term I'm not sure that that is a particularly robust relationship when inflation is rising but wages aren't, and the net effect will be to squeeze real incomes and clamp down on consumer spending as a result."

Britain's unemployment rate fell unexpectedly to its lowest in more than a decade in the three months to January, but pay growth - an indicator the BoE is watching closely as it considers its monetary policy - worsened, in an unpromising sign for the economy ahead of its divorce with the EU.

The BoE surprised markets last week when one of its policymakers voted to lift interest rates, in a break with the consensus of keeping rates at a record low.

Some other members of the Bank's monetary policy committee also gave a hawkish tilt to the Bank's rhetoric, saying it would not take much for them to follow suit if inflation continued to shoot up.

"The print at 2.3 percent this morning...(leads) us to believe a rate hike to curb inflation could be on the table sooner than first-thought," said Alex Lydall, head of dealing at Foenix Partners in London.

Reference: Ritvik Carvalho

Tuesday, 21 March 2017

Asian shares at 21-month highs, dollar soft on Fed views

Asian shares hit 21-month highs on Tuesday while the dollar and U.S. bond yields were on the backfoot on the prospect of a less hawkish than previously expected Federal Reserve policy trajectory.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.3 percent in its eighth consecutive day of gains with tech-heavy Seoul and Taipei shares hitting two-year highs while Hong Kong's Hang Seng scaled 1-1/2-year highs.

European shares are expected to open slightly higher, with spread-betters seeing a rise of up to 0.1 percent in Britain's FTSE, Germany's DAX and France's CAC.

Japan's Nikkei dropped 0.3 percent, weighed by financial stocks, which were hurt by lower U.S. yields and exporter stocks, which fell on the yen's gains against the dollar.

While Asian shares have been supported by signs of strong global economic growth, concerns about protectionism cast a shadow after financial leaders of the world's biggest economies dropped a pledge to keep global trade free and open, acquiescing to an increasingly protectionist United States.

Wall Street shares drifted lower on Monday as investors worried that President Donald Trump's plan to cut taxes and boost the economy could take longer than earlier expected.

"Any fiscal spending by the Trump administration will not come until August at earliest and probably much later. So any economic benefit of that will show up only next year," said a senior trader at a European bank.

"So the markets are gradually pricing that in, winding back their initial rally after the elections."

Although Trump promised in early February to deliver a "phenomenal" tax plan within a few weeks, no such details have been released yet, with many investors now waiting for detailed budget plan expected in mid-May.

In addition, sentiment was hurt after Federal Bureau of Investigation Director James Comey confirmed for the first time that the bureau is investigating possible ties between Trump's campaign and Russia.

"U.S. stocks valuations are getting really expensive, so I expect the market to be capped for now. That also means Japanese shares are unlikely to gain further," said Tatsushi Maeno, senior strategist at Okasan Asset Management.

Expectations that the Federal Reserve will have to step up rate hikes to counter inflationary pressure from Trump's stimulus are also waning after the Fed dropped no hints of an acceleration in credit tightening last week.

Chicago Federal Reserve President Charles Evans, in one of the first official comments after the Fed raised rates as expected last week, reiterated that message on Monday.

He said that two more interest rate hikes this year were likely, disappointing investors who had anticipated rates to be increased more quickly. Evans's comments helped to bring down the 10-year U.S. Treasuries yield to 2.461 percent, its lowest level in two weeks. It last stood at 2.479 percent.

Lower yields undermined the greenback's allure, softening the dollar to three-week lows near 112.26 yen in early Asian trade.

The euro ticked up to $1.0758, near Friday's six-week high of $1.07825, maintaining its gains made last week after a election defeat for Dutch far-right leader Geert Wilders, which eased broader fears of a populist drift in European politics.

In France, centrist Emmanuel Macron solidified his status as front-runner in the presidential election in a televised debate on Monday.

"At the moment, worries about the election have subsided a bit after the Dutch elections. But I expect the market to become more nervous near the election, given last year's experiences (with Brexit and the U.S. elections)," said Kazushige Kaida, head of foreign exchange at State Street.


Low UK rates probably hurt productivity, BoE's Haldane says
Best-paid former BHS executives gain most from Green's pension deal - UK lawmakers
The dollar's index against a basket of six major currencies stood at 100.24, after hitting a six-week low of 100.02 on Monday.

The spectre of slower U.S. rate hikes has been helping high-yielding currencies.

The Australian dollar traded at $0.7706, after hitting a 4-1/2-month high of $0.7748 on Monday. It has risen 2.0 percent since the Fed's policy meeting last week.

The South African rand has gained 4.0 percent since then to a near 1-1/2-year high while the Brazilian real rose 3.2 percent.

Oil prices rose in Asia on expectations that an OPEC-led production cut to prop up the market could be extended.

Prices for front-month Brent crude futures, the international benchmark for oil, gained 0.4 percent to $51.84 per barrel.

OPEC members increasingly favour extending the output curb beyond June to balance the market, sources within the group said, although they added that this would require non-OPEC members such as Russia to also step up their efforts.

Reference: Hideyuki Sano

Fed on track to raise U.S. rates twice more this year: Evans

The Federal Reserve is on track to raise interest rates twice more this year after a policy tightening last week, and it could be more or less aggressive depending on inflation and fiscal policies from the Trump administration, a Fed rate-setter said on Monday.

The public comments from Chicago Fed President Charles Evans were among the first since the U.S. central bank lifted its policy rate a notch last week, as expected. It also forecast roughly two more moves in 2017 in a nod to low unemployment and some inflation pressures.

"Three is entirely possible," Evans, speaking on Fox Business Network TV, said of hikes in 2017. "As I gain more confidence in the outlook I could support three total this year. If inflation began to pick up, that would certainly solidify (that expectation). It could be three, it could be two, it could be four if things really pick up."

Asked about U.S. President Donald Trump's promise to boost the economy to a 4 percent growth rate, from about 2 percent in the last few years, Evans said: "Four percent would be really an outsized number."

While that level of growth could be reached "in any given year," he said it was hard to imagine given the economy is already doing well, the labor market is "very strong," and sectors like automobile sales are at all-time highs.

Evans, who is a voter on the Fed's policy-setting committee this year and supported last week's move, also echoed a comment from Fed Chair Janet Yellen on Wednesday that suggested the central bank could try to push inflation, now at 1.7 percent, above a 2-percent target.

"There is room to get inflation up to 2 percent and in fact going beyond 2 percent a little bit to make sure we get there, and that it's a symmetric inflation objective, so that's ok," Evans said.

Reference: Jonathan Spicer

Monday, 20 March 2017

Asia stocks mixed, dollar slips as Fed continues to weigh

Asian stocks were mixed on Monday in thin trade, following Wall Street's declines and the G20's decision to drop a pledge to avoid trade protectionism, while the Federal Reserve's less hawkish-than-expected comments continued to weigh on the dollar.

European stocks are set for a subdued start, with financial spreadbetter IG Markets expecting Britain's FTSE 100 to open little changed and Germany's DAX to open 0.3 percent lower.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.3 percent.

Hong Kong's Hang Seng climbed 0.7 percent. Chinese shares were mixed with the CSI 300 down 0.1 percent while the Shanghai Composite added 0.1 percent.

Australian shares closed down 0.36 percent. South Korea ended the day 0.35 percent lower. Japan is closed for a holiday.

The MSCI emerging markets index added 0.4 percent to hit its highest level in more than two years on Monday.

Investor sentiment towards emerging markets, while cooling, remains positive. Emerging market equity funds had their sixth straight week of inflows in the week ending March 15, but the pace slowed. They had net inflows of $215 million, compared with nearly $1 billion the previous week, according to Thomson Reuters data.

On Friday, Wall Street was flat to negative, dragged lower by bank shares that fell along with Treasury yields.

Financial leaders from the world's biggest economies reiterated their warnings against competitive devaluations and disorderly foreign exchange markets at the meeting in the German town of Baden-Baden over the weekend.

But they failed to agree on a commitment to keep international trade free and open, highlighting a global shift towards protectionism.

On Sunday, German Chancellor Angela Merkel and Japan's Prime Minister Shinzo Abe defended free trade, calling for a trade deal to be reached quickly between Japan and the European Union and distancing themselves from protectionist rhetoric coming from the Trump administration.

"Essentially (the G20 outcome was) a result of the U.S. protectionist stance, something Trump has been very clear on and the market is well aware of this," said James Woods, global investment analyst at Rivkin Securities in Sydney.

"Importantly we saw other leaders such as Shinzo Abe and Angela Merkel come out publicly supporting free trade, and for now the protectionist stance remains constrained to the U.S. It would be more concerning if this began spreading to other countries."

The dollar didn't react to the statements from the meeting, hovering close to its near-three-week low touched on Friday. It traded almost 0.2 percent lower at 112.54 yen, its fourth straight day of declines after the Fed reiterated plans for three rate hikes this year, fewer than the four markets were expecting.

The dollar index, which tracks the greenback against a basket of six trade-weighted peers, slipped 0.1 percent to 100.17, after earlier touching a 5 1/2-week low.

Markets are focussed on a raft of speeches by Federal Reserve officials this week, including Chicago's Charles Evans on Tuesday and Friday, Chair Janet Yellen on Thursday, Dallas's Robert Kaplan and Minneapolis's Neel Kashkari on Friday and New York's William Dudley on Saturday.

The euro climbed 0.2 percent to $1.0763, riding investor relief over the Netherlands election defeat of anti-European Union candidate Geert Wilders that boosted it to a near-six-week peak on Friday.

Attention now turns to the French election, with the first Presidential debate set to take place on Monday. Opinion polls show independent centrist Emmanuel Macron would lead far-right leader Marine Le Pen by a hair in first-round voting, before beating her in the run-off.

In commodities, oil prices continued their downward trend as OPEC supplies remained steady despite touted cuts and rising U.S. drilling contributed to concerns about a supply glut.

U.S. crude dropped almost 1 percent to $48.32 a barrel.

Global benchmark Brent fell 0.6 percent to $51.41.

The weaker dollar boosted gold, which rose 0.5 percent at $1,234.54 an ounce, after touching a two-week high earlier in the session.

Reference: Nichola Saminather