Friday, 29 July 2016
The safe-haven yen jumped against the dollar on Friday after the Bank of Japan's modest monetary policy easing disappointed investors who had been hoping for more radical stimulus measures.
The dollar last traded at 103.46 yen JPY=, down 1.7 percent. The dollar initially rose to 105.75 yen right after the BOJ's announcement but later tumbled to a 2-1/2 week low of 102.705 yen.
The BOJ announced a modest increase in purchases of ETFs, but maintained its base money target at 80 trillion yen ($775 billion) as well as the pace of purchases for other assets including Japanese government bonds.
The BOJ also kept negative interest rates unchanged at minus 0.1 percent.
"The BOJ clearly disappointed by merely expanding on its ETF purchases, leaving the annual pace of its monetary base increase and policy rate unchanged," said Heng Koon How, senior FX investment strategist for Credit Suisse.
"We can continue to expect elevated volatility and possible short-term risk of yen strength back towards possibly 100."
Trading conditions in the dollar versus the yen had been very illiquid going into the BOJ's announcement, with the bid to ask spread widening to 0.40 yen at one point, although they later narrowed back to around 0.02 yen or so as trading conditions normalized.
The market reaction to the BOJ's decision was exacerbated by a recent build up in expectations for the central bank to unveil significant monetary easing, in lockstep with the government's plans for increased fiscal spending.
"There had been pretty strong hopes for combined measures. There is strong appreciation pressure on the yen now that such hopes have dissipated," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
The euro slid 1.6 percent to 114.69 yen EURJPY=R, while the Australian dollar shed 1.5 percent to 77.93 yen
On Wednesday, the Japanese government unveiled a surprisingly large 28 trillion yen ($267.58 billion) stimulus package, firmly placing the stimulus ball in the central bank's court.
Sources told Reuters on Thursday that the government package contains direct fiscal spending of only 7 trillion yen, which is likely to disappoint investors hoping for bigger outlays given the large headline figure.
The dollar index, which measures the U.S. unit against six major peers, was down 0.4 percent at 96.384 .DXY and set a 2-week low at 96.216.
Investors will await the U.S. government's initial reading on second quarter gross domestic product later on Friday. The economy was expected to expand at an annualized 1.8 percent, the Atlanta Federal Reserve's GDP Now forecast model showed on Thursday.
Against the dollar, the euro edged up 0.1 percent to $1.1083 EUR=.
Reference: Masayuki Kitano
Asian shares slipped after touching a near one-year peak on Friday, while Japanese stocks tumbled and the yen strengthened as the Bank of Japan's fresh stimulus measures disappointed markets.
The BOJ modestly increased purchases of exchange-traded funds, but maintained its base money target at 80 trillion yen ($775 billion) and the pace of purchases of other assets, including Japanese government bonds.
The central bank also held at 0.1 percent the interest it charges to a portion of excess reserves financial institutions leave with the central bank.
Japan's Nikkei .N225, which swung between gains and losses right after the announcement, was last trading down 1.5 percent. The index, which touched a seven-week high last week, was on track for a 2.4 percent weekly drop, shrinking gains for July to 4.2 percent.
The dollar weakened 1.9 percent to 103.27 yen, its biggest one-day decline since June 24, after the UK's decision to leave the European Union.
Before the BOJ's decision, many investors warned of a big chance of disappointment because markets have long expected more stimulus, making it difficult for BOJ Governor Haruhiko Kuroda to spring a surprise.
"The BOJ did not live up to expectations," said Norio Miyagawa, senior economist at Mizuho Securities in Tokyo. "Increasing ETF purchases makes no contribution to achieving 2 percent inflation. The BOJ won't admit it, but it has reached the limits of quantitative easing and negative rates."
MSCI's broadest index of Asia-Pacific shares outside Japan pulled back 0.3 percent after hitting the highest level since Aug. 11, leaving it on track for gains of 1 percent for the week, and 5.5 percent for the month.
Wall Street shares remained near all-time highs, with tech heavyweights Alphabet and Amazon rising after the bell as their earnings beat expectations.
The stronger yen also weighted on the dollar index .DXY, which slipped 0.4 percent to 96.364, putting it on track for a slide of 0.6 percent for the week, but a gain of 0.2 percent for the month.
European shares .FTEU3 fell on Thursday, as markets awaited the release of the stress test results on European banks on Friday night.
The euro stood little changed at $1.1084 EUR=. It is up almost 1 percent this week, but poised for a 0.2 percent loss in July.
Elsewhere in markets, oil prices fell to three-month lows, with U.S. benchmark now down more than 20 percent from this year's peak on growing worries that the world might be pumping more crude than needed.
U.S. crude futures fell to as low as $40.95 per barrel and were last down 0.2 percent at $41.08. It's set for a drop of 7 percent for the week and 14.9 percent in July.
International benchmark Brent crude futures dropped 0.1 percent to $42.65. It is down 6.7 percent this week and 14 percent this month.
Reference: HIDEYUKI SANO
Thursday, 28 July 2016
The Federal Reserve left interest rates unchanged on Wednesday but said near-term risks to the U.S. economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year.
The U.S. central bank said the economy had expanded at a moderate rate and job gains were strong in June. It added that household spending also had been "growing strongly," and pointed to an increase in labour utilization.
While Fed policymakers said they continued to closely monitor inflation data and global economic and financial developments, they indicated less worry about possible shocks that could push the economy off course.
"Near-term risks to the economic outlook have diminished," the Fed's policy-setting committee said in its statement following a two-day meeting in which it left its benchmark overnight interest rate in a range of 0.25 percent to 0.50 percent.
The Fed noted, however, that inflation expectations were on balance little changed in recent months, and gave no firm indication of whether it would raise rates at its next policy meeting in September.
Most Fed policymakers had urged caution in raising rates until there was concrete progress in moving inflation towards the central bank's 2 percent target
"It's a little bit more hawkish, but not much," said Walter Todd, chief investment officer at Greenwood Capital Associates in South Carolina.
The Fed's preferred inflation rate currently stands at 1.6 percent and has been below target for more than four years.
U.S. Treasury prices pared gains after the Fed's decision, while the U.S. dollar briefly strengthened against the euro and yen. U.S. stocks extended declines before later reversing course to trade largely flat in the session.
Federal funds futures implied traders still see roughly even odds of a rate increase at the Fed's December meeting and about a 20 percent chance of such a move in September, a bit lower than before the decision, according to CME's FedWatch Group.
The policy-setting committee will also meet at the beginning of November, but a rate hike at that time is generally seen as unlikely because it would occur a week before the U.S. presidential election.
A Reuters poll of economists suggested the Fed is most likely to wait until December to raise rates.
"There wasn't any tip that the Fed will raise rates in September," said Mike Materasso, co-chair of Franklin Templeton's fixed income policy committee in New York. "A rate increase is warranted this year, most likely at the end of the year, but a lot has to do with a benign world arena."
Kansas City Fed President Esther George was the only policymaker to dissent at this week's meeting. She has favoured raising rates at three of the last four meetings.
FOCUS ON DATA, YELLEN
The Fed has held steady on rates since December, when it raised them for the first time in nearly a decade and signalled another four rate increases were in the offing for 2016.
That was scaled back to two hikes this year after central bank policymakers issued new projections in which they also lowered their longer-term growth estimates for the U.S. economy.
A global economic slowdown, financial market volatility and uncertainty over the impact of Britain's June vote to leave the European Union have repeatedly forced the Fed to delay another rate increase.
The U.S. economy, however, has suffered little initial impact from the so-called 'Brexit' vote. A string of better-than-expected economic data recently as well as an easing in financial conditions also have calmed nerves.
Fed officials will now turn their attention to this Friday's first initial estimate of U.S. gross domestic product for the second quarter, which is expected to show a healthy rebound from the previous quarter.
The economy likely expanded at a 2.3 percent annualised rate during the second quarter, according to the Atlanta Federal Reserve's latest forecast.
The closely-watched U.S. monthly employment report will be issued on Aug. 5, followed three weeks later by a speech from Fed Chair Janet Yellen at the annual central banking conference in Jackson Hole, Wyoming.
Fed policymakers have used the conference to give major steers on central bank policy.
Reference: Lindsay Dunsmuir
Asian stocks edged up on Thursday after the Federal Reserve provided an positive assessment of the world's largest economy and lifted risk sentiment.
The dollar fell, however, as some in the currency market had hoped the Fed would give a clearer indication that it could raise rates within the year.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent after briefly climbing to its highest level since August 2015.
Australian shares rose 0.4 percent and Shanghai .SSEC gained 0.3 percent, trimming some of the heavy 1.9 percent loss suffered the previous day.
News that Chinese regulators are planning a tough clampdown on wealth management products to curb risks to the country's banking system had weighed heavily on Chinese stocks, but investors are still wading through the details.
Japan's Nikkei fell 0.7 percent, hurt by a stronger yen and nerves before the Bank of Japan's monetary policy decision on Friday.
"The best-case scenario for the market is that the BOJ decides to increase government debt purchases without cutting interest rates further into negative territory," said Hikaru Sato, a senior technical analyst at Daiwa Securities in Tokyo.
"But the BOJ can't save face if it does not cut rates into negative territory after it introduced the negative interest rate policy (in January), so we need to brace for such possibility, too."
Wall Street shares ended little changed overnight following the Fed's policy decision to leave interest rates unchanged.
The Fed did say, however, that near-term risks to the U.S. economic outlook had diminished, opening the door for a potential near-term hike in the eyes of many.
But the Fed also noted that inflation expectations were on balance little changed in recent months, and gave no firm indication of whether it would raise rates at its next policy meeting in September.
"While a number of investment banks have increased their internal probability models for a September hike, the interest rate markets have gone the other way and priced out the prospect. The reverberations of this re-pricing can be seen in weakness in the USD and a bold rally in gold," wrote Chris Weston, chief market strategist at IG in Melbourne.
The Fed's latest policy statement spurred traders to favor longer-dated U.S. Treasuries over shorter-dated issues, pushing the yields on 10-year notes US10YT=RR and 30-year bonds US30YT=RR to 1-1/2-week lows as prices rose. [US/]
Spot gold XAU= hovered near a two-week high of $1,342.18 an ounce touched overnight when it gained 1.4 percent. Higher interest rates tend to diminish the appeal of non-yielding gold.
The dollar index .DXY slipped to a nine-day low of 96.545, pulling back sharply from a 4-1/2-month high of 97.569 scaled early in the week.
The euro, which gained 0.7 percent overnight, edged up to a nine-day high of $1.1075 EUR=.
The dollar was down 0.3 percent at 105.11 yen JPY=, with caution over potential monetary easing by the BOJ limiting the greenback's losses.
Against the broadly weaker U.S. currency, the Australian dollar was up 0.2 percent at $0.7510 AUD=D4 and sterling was steady at $1.3218 GBP=D4.
U.S. crude CLc1 rose 0.4 percent to $42.10 a barrel on bargain hunting after sliding to a three-month low of $41.68 on Wednesday after news U.S. crude and gasoline stocks had surged, reflecting weak demand during the peak summer driving season. [O/R]
Brent crude LCOc1 gained 0.3 percent to $43.61 a barrel.
Reference: Shinichi Saoshiro
Wednesday, 27 July 2016
Signs of a larger than previously expected fiscal stimulus plan for Japan had the yen back on the defensive on Wednesday, as investors bet the Bank of Japan (BOJ) would match that with a new bout of money-printing aimed at weakening its currency.
Yen volatility has neared record highs in the past month on speculation, repeatedly denied by officials, that the BOJ will take the next step in eight years of emergency policymaking by handing money directly to the government with no strings attached.
The latest volley was a report by the Wall Street Journal, again denied by the Ministry of Finance, that Japan was considering issuing 40-year and 50-year bonds. If the central bank was to buy and hold such debt, it would be another step towards outright financing of spending.
Added to Prime Minister Shinzo Abe's promise of a stimulus package of more than $265 billion to reflate the flagging economy, that was enough to send the yen 1 percent lower.
"We have had a lot of volatility driven by the different reports this morning," Commerzbank currency strategist Thu Lan Nguyen said.
"The moves show that the bigger issue for the market is how this programme is going to be financed. So far it looks like the Bank of Japan is not ready to do something new and that leaves the potential for more downside for the dollar before the meeting on Friday."
After falling more than 1 percent in Asian trading, the Ministry of Finance's denial on the bond issue helped the yen recover some ground in morning trade in London. By 1050 GMT, it was down 0.8 percent at 105.51 per dollar. JPY=
The day's big set piece is the U.S. Federal Reserve's statement on policy, due after European markets close and widely expected to sound a more positive note on the economy that may bolster expectations for a rise in U.S. interest rates this year.
In light of that, the dollar has assembled five weeks of gains against the basket of currencies that defines its broader strength .DXY.
It rose 0.1 percent on Wednesday to stand within sight of a four-month high hit at the end of last week.
"Some acknowledgement of the improved economic backdrop is likely in the statement and the market will go on slowly raising the odds of a 2016 rate hike," Societe Generale strategist Kit Juckes said in a morning note.
"The dollar will go on getting support as the whole treasury curve edges higher (and) the euro is getting stuck below $1.10."
The euro EUR= inched up to $1.0996.
After a very brief blip higher, sterling was 1/3 to 1/2 a percent lower against the dollar GBP= and euro Dealers say there is still consistent selling interest whenever the pound gains.
Some said the appointment of French former EU internal markets Commissioner Michel Barnier as chief Brexit negotiator bodes ill for the interests of efforts to shore up London's position as Europe's main financial centre in the talks.
($1 = 105.4700 yen)
Reference: PATRICK GRAHAM
The Japanese yen hit two-week highs against the euro and more than one-week highs against the U.S. dollar on Tuesday as traders dialled back expectations of how much new stimulus authorities will inject into Japan's ailing economy.
Most economists surveyed by Reuters expect the Bank of Japan to expand its asset purchases and cut rates further below zero at its two-day meeting that ends on Friday.
The government is also compiling a spending package that some sources have said could be worth up to 20 trillion yen. Direct fiscal stimulus may be much lower, however, with a Nikkei report on Tuesday citing a figure of around 6 trillion yen over the next few years.
“The market came into yesterday very optimistic both on fiscal and monetary moves,” said Steven Englander, global head of foreign exchange strategy at Citigroup in New York. But, “the headlines coming out have thrown a lot of cold water on the view that they are going to do something aggressive.”
The yen gained 1.7 percent against the dollar to 103.995 , its lowest since July 14, before recovering to trade at 104.28, still down 1.38 percent on the day. The euro fell to 114.465 yen , its lowest since July 12, before climbing to 114.71, still down 1.36 percent.
Comments by Japan's finance minister, Taro Aso, also raised concerns that the government will not work as closely with the BOJ as investors had hoped to implement new stimulus.
"We are also seeing not much pressure from the Japanese government on the BOJ to ease. All this is helping the yen," said Yujiro Goto, currency strategist at Nomura.
The Federal Reserve, meanwhile, is expected to leave interest rates unchanged when it concludes its two-day meeting on Wednesday, though investors will be looking for any signs that the U.S. central bank might be more likely to hike rates in coming months.
Improving economic data has increased expectations that the Fed will raise rates in December, after traders had entirely priced out the possibility of a rate hike this year.
The dollar index, which tracks the currency against a basket of six major rivals, was down 0.20 percent at 97.287 .
Sterling also fell after Bank of England policymaker Martin Weale said he had dropped his opposition to policy easing and now favoured immediate stimulus.
The pound fell to $1.3133 against the dollar.
Reference: KAREN BRETTELL
Tuesday, 26 July 2016
The U.S. Federal Reserve is expected to keep interest rates unchanged this week, deferring any possible increase until September or December, as policymakers hold out for more evidence of a pickup in inflation.
Central to the debate at the Fed's July 26-27 policy meeting will be how to reconcile upbeat U.S. economic data, highlighted by strong job gains in June, with a global growth slowdown and other headwinds threatening the inflation trajectory.
For San Francisco Fed President John Williams, one of the 17 members participating in the central bank's rate-setting deliberations, all that is needed is a bit more confidence that inflation is indeed headed towards the Fed's 2 percent target.
The inflation measure the Fed prefers to track is currently at 1.6 percent.
With monthly job gains well above the level needed to prevent an uptick in unemployment, and no signs of a rise in productivity, some Fed policymakers are likely to argue for a quick increase in rates to avoid a surge in inflation.
"That is the danger – and you can be sure that the hawks are going to be arguing that," said Alan Blinder, a Princeton University professor and a former Fed vice chairman. "I have a hunch that they will talking in July about September."
Other policymakers, like influential New York Fed President William Dudley, have signalled they would rather wait for more tangible signs of a rise in inflation before pulling the trigger on a rate increase.
"There's not a lot of reason to raise rates until inflation goes up," said Kevin Logan, chief U.S. economist at HSBC in New York.
The U.S. central bank is scheduled to issue its latest policy statement at 2 p.m. EDT (1800 GMT) on Wednesday.
The Fed raised its benchmark overnight interest rate in December for the first time in nearly a decade, and signalled four rate hikes were coming in 2016 as it moved to "normalise" the ultra-stimulative monetary policy adopted in response to the 2007-2009 financial crisis.
But headwinds in the global economy, financial market volatility and uncertainty over the impact of Britain's decision to leave the European Union forced it to delay a rate hike and scale back the number of projected hikes to two for the year.
Still, absent a shock to markets or a reversal in U.S. economic data, even dovish policymakers like Dudley have signalled that their cautious approach to normalizing monetary policy likely allows for at least one rate hike this year.
After Wednesday, the Fed has three more policy meetings scheduled this year - in September, November and December. A November rate hike is seen as highly unlikely, as that meeting comes one week before the U.S. presidential election.
Economists polled by Reuters expect the Fed to hold rates steady until after the election.
"Rate normalization has fallen down the Fed priority list and will remain there until the dust is well settled on the financial markets and the economy," Jefferies economists predicted in a note last week.
Reference: Ann Saphir
The dollar weakened against the yen on Monday ahead of the U.S. Federal Reserve's meeting on Tuesday and Wednesday, and a Bank of Japan meeting on Friday.
The dollar had gained against major currencies in recent weeks as better-than-expected economic data revived expectations that the Fed would raise interest rates again this year.
Japanese and European central banks, by contrast, are seen as adopting more stimulative policies to stave off deflation and generate growth.
The Bank of Japan may, however, underwhelm investors this week as it faces dwindling options to reboot the country's economy, analysts said.
"The risk is that the market's disappointed in one fashion or another with the BOJ," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "Expectations are strong enough that if they don't do anything, the yen's going to strengthen."
The greenback weakened 0.24 percent to 105.81 yen JPY= on Monday. The yen briefly erased gains after Nikkei reported that Japan would double net fiscal spending to 6 trillion yen.
Bank of Japan Governor Haruhiko Kuroda said on Saturday he would ease policy further, if necessary, to achieve its 2 percent inflation goal.
Kuroda also shrugged off speculation that the BoJ would directly underwrite government debt, which is prohibited by law.
The Fed is seen as unlikely to raise interest rates on Wednesday, though investors will be looking for any signs that the U.S. central bank might be more likely to hike rates in coming months.
Improving economic data has increased expectations that the Fed will raise rates in December, after traders had entirely priced out the possibility of a rate hike this year.
Fed fund futures on Monday indicate traders see a 56 percent chance of a rate hike in December, up from 48 percent on Friday.
Any indication that the Fed may hike sooner than that could rattle investors.
"I would not expect them to close the door on a September rate hike because it's data dependant and the data's been stronger than expected," Chandler said. "That could inject extra volatility in the markets."
European bank stress tests on Friday also will be a focus, with investors concerned about potential capital shortfalls at Italian and Portuguese banks.
Italian lender Monte dei Paschi di Siena dropped 8.3 percent on Monday on concerns over an expected rights issue ahead of the test results.
Reference: KAREN BRETTELL
Monday, 25 July 2016
Asian shares held near nine-month highs on Monday as assurance from policymakers on the need to boost growth quelled worries over the impact of Britain's Brexit vote while the dollar, buoyed by solid U.S. economic data, stayed firm.
Policymakers from the Group of 20 countries agreed at the weekend to work to support global growth and better share the benefits of trade, in a meeting dominated by the impact of Britain's exit from Europe and fears of rising protectionism.
European shares are expected to rise, with spread-betters looking to gains of up to 0.3 percent in Germany's DAX .GDAXI and France's CAC .FCHI and a 0.1 percent rise for Britain's FTSE
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 percent, sitting just 0.3 percent below a nine-month peak hit on Thursday.
Japan's Nikkei .N225 was flat. The Bank of Japan is widely expected to ease policy further at a policy review ending on Friday while Japanese Prime Minister Shinzo Abe has ordered fiscal stimulus.
"Markets are calming down after the initial shock from Brexit," said Masayuki Kichikawa, chief strategist at Sumitomo Mitsui Asset Management.
Following Brexit, investors expect more stimulus from central banks in coming months.
As European and Japanese bond yields have plunged deeper into negative territory, investors are rushing to U.S assets, where bond yields are higher and the economic prospects look better.
U.S. stock prices marked four straight weeks of gains last week, with the S&P 500 .SPX setting record highs, supported by renewed strength in the tech and telecom sectors and a stronger-than-expected report on manufacturing.
"At the moment, U.S. markets are attracting global funds. Globally there remain risks, such as European financial institutions or the Chinese yuan," said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank in Tokyo.
"We have to see if investors are ready to diversify to other markets than the U.S. in coming weeks," he added.
The strength of U.S. economic data in recent weeks has revived speculation that the Federal Reserve may raise interest rates around the end of year.
Though the Fed is expected to keep policy unchanged at a two-day meeting starting on Tuesday, investors will be parsing its statement for clues on policy direction.
Dollar interest rates futures, which had priced out any chance of a rate hike this year in the days that followed the UK referendum, are now pricing in about a 40 percent chance of a 0.25 percentage point increase by the end of the year.
That is boosting the relative attraction of the dollar in the currency market.
The dollar's index against a basket of six major currencies hit a 4-1/2-month high of 97.543 on Friday and stood at 97.443 in early Monday trade.
As the dollar gains, the euro EUR= has been put on the back foot, trading at $1.0965. The single currency hit a one-month low of $1.09555 on Friday.
The British pound is also under pressure after surveys on Friday showed business activity had wilted in the wake of the Brexit vote, trading at $1.3141, near last week's low of $1.3065.
The yen traded at 106.46 per dollar JPY=, off last week's six-week low of 107.49.
The yen showed limited response to comments from Bank of Japan Governor Haruhiko Kuroda on the sidelines of the G20 meeting.
Kuroda said he would ease policy further if necessary to achieve its 2 percent inflation goal, but also said there was no discussion on "helicopter money" - a radical policy of expanding fiscal stimulus financed by printing money.
Oil prices hovered near 2-1/2-month lows after having lost about 4 percent last week on renewed worries about a global crude glut.
Brent crude futures traded at $45.66 per barrel, down 0.1 percent and near Friday's low of $45.17, its lowest since May 11.
Reference: HIDEYUKI SANO
The world's biggest economies will work to support global growth and better share the benefits of trade, policymakers said on Sunday after a meeting dominated by the impact of Britain's exit from Europe and fears of rising protectionism.
Philip Hammond, Britain's new Chancellor, said the uncertainty about Brexit would begin to abate once Britain laid out a vision for a future relationship with Europe, which could become clearer later this year.
But there could be volatility in financial markets throughout the negotiations in the years ahead, Hammond said after the meeting of finance ministers and central bankers from the Group of 20 (G20) major economies in China's southwestern city of Chengdu.
"What will start to reduce uncertainty is when we are able to set out more clearly the kind of arrangement we envisage going forward with the European Union," Hammond told reporters.
"If our European Union partners respond to such a vision positively - obviously it will be subject to negotiation - so that there is a sense perhaps later this year that we are all on the same page in terms of where we expect to be going. I think that will send a reassuring signal to the business community and to markets."
A communique issued by the G20 ministers at the end of the two-day meeting said Brexit, which dominated discussions, had added to uncertainty in the global economy where growth was "weaker than desirable". It added that members, however, were "well positioned to proactively address the potential economic and financial consequences".
"In light of recent developments, we reiterate our determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth."
The International Monetary Fund this week cut its global growth forecasts because of the Brexit vote.
Whereas monetary policy figured prominently in previous meetings of G20 financial officials, Bank of France Governor Francois Villeroy de Galhau said there was very little debate this time and discussions focussed instead on growth.
That was echoed by others.
There was broad consensus that the global economy needed more growth, U.S. Treasury Secretary Jack Lew told reporters, while Chinese Finance Minister Lou Jiwei said it had been easier to forge consensus because the global recovery remained weak.
The spectre of protectionism, highlighted not only by Brexit but also by U.S. Republican presidential candidate Donald Trump's "America First" rhetoric and talk of pulling out of trade agreements, was also a focus for the policymakers.
"Not only Brexit but various risks of low growth remain, and there was a lot of debate on the need of monitoring developments including terrorism, geopolitical risks and refugees," said a Japanese finance ministry official. "A lot of concerns were voiced over spreading measures for protectionism."
In the communique, the G20 underscored "the role of open trade policies and a strong and secure global trading system in promoting inclusive global economic growth, and we will make further efforts to revitalise global trade and lift investment".
It recognised problems wrought by industrial overcapacity, particularly the steel sector, which had a negative impact on trade and workers. Overcapacity was a "global issue which requires collective responses".
"We also recognise that subsidies and other types of support from governments or government-sponsored institutions can cause market distortions and contribute to global excess capacity and therefore require attention," the communique said.
Persistent concerns about the potential for competitive currency devaluations were discussed, and the agreement to refrain from them was in the communique but did not appear to figure as prominently as in the ministers' February meeting in Shanghai.
"If you ask me whether a weakening yuan is a good thing for China, I cannot say so," he told reporters. "Whether up or down, a rapid yuan movement is undesirable. "This is our stance. The world too does not hope that only the yuan weakens, as it doesn't do just good to the Chinese economy. It may boost exports but it also raises import costs for China."
So-called "helicopter money" was not discussed, said Bank of Japan Governor Haruhiko Kuroda, who has repeatedly said helicopter money was not under consideration.
"This G20 meeting did not discuss things seen as helicopter money, or even the word helicopter money at all," he said.
Japanese markets have risen this month on speculation that authorities, battling to revive an economy dogged by decades of anaemic inflation, will resort to using helicopter money, possibly issuing perpetual bonds to underwrite public debt.
Reference: Jan Strupczewski
Friday, 22 July 2016
Asian stocks dipped on Friday after weak corporate results halted Wall Street's record run overnight, while the yen held to large gains made after the Bank of Japan governor downplayed the need for "helicopter money" stimulus.
European markets are also likely to open lower, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 .FTSE to open down 0.2 percent, and Germany's DAX .GDAXI and France's CAC 40 .FCHI to start the day 0.4 percent lower.
MSCI's broadest index of Asia-Pacific shares outside Japan asi was down 0.4 percent. It remained close to its nine-month high seen on Thursday, and is headed for a fractional 0.1 percent gain on the week, ahead of the Group of 20 finance officials' meeting in Chengdu, China, this weekend.
China's CSI 300 index .CSI300 and the Shanghai Composite .SSEC both slipped about 0.5 percent. The CSI 300 is poised for a loss of 1.1 percent for the week, and the Shanghai Composite 1 percent.
New Zealand .NZ50 shares continued their record-setting trend, climbing 0.2 percent to hit a fresh all-time high on Thursday. They're headed for a 2.2 percent gain for the week.
Shares in Taiwan .TWII, Indonesia .JKSE and Thailand .SETI all closed at their highest levels in at least a year on Thursday.Australia ended at the highest point since Aug. 6, 2015, and Hong Kong .HSI set a 2016 high. All were trading lower on Friday, but set to end the week higher.
Japan's Nikkei .N225 closed down 1.1 percent, dragged down by the yen's 1 percent rally on Thursday. The index is still up 0.8 percent in a week in which it touched an eight-week high thanks to an initially weaker yen and hopes of fiscal and monetary stimulus.
In a BBC interview, recorded mid-June but broadcast on Thursday, BOJ Governor Haruhiko Kuroda ruled out the idea of using "helicopter money" - directly underwriting the budget deficit - to combat deflation.
"Pretty much everything is on the table when it comes to the next BOJ monetary policy decision on 29 July. Everything, that is, except for outright helicopter money," Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong, wrote in a note on Friday. "The case for more easing is evident, and markets are expecting swift and determined action."
Japan is likely to miss its deficit-cutting target in 2018 because the government has delayed a sales tax hike by more than two years, public broadcaster NHK said on Friday, citing an unidentified source.
The dollar was down 0.1 percent at 105.68 yen JPY= after coming off its peak of 107.49, its highest in six weeks, the previous day.
The dollar index was also flat at 96.948 .DXY, compared with its four-month peak of 97.323 scaled on Wednesday.
The euro was steady at $1.1020 EUR=. The common currency had briefly risen to $1.1060 on Thursday after European Central Bank President Mario Draghi noted that growth and inflation were moving along the path projected in June.
As widely anticipated, the ECB stood pat on monetary policy on Thursday. But, despite Draghi's statement that more evidence was needed before any decision, the bank kept the door open to more policy stimulus, citing "great" uncertainty and risks to the region's economic outlook.
The Chinese yuan rose against the dollar for a fourth straight day, on track for its biggest weekly gain since April, with traders suspecting state-owned banks of supporting the currency.
The People's Bank of China set the midpoint rate at 6.6669 per dollar, 0.3 percent firmer than the previous fix of 6.6872. The spot yuan opened at 6.6715 per dollar and strengthened to 6.6692, compared with the previous close of 6.6765.
The Dow Jones Industrial Average .DJI on Thursday snapped a nine-day winning streak, during which it hit consecutive record highs, because of disappointing results from Intel and key transportation companies.
In commodities, crude futures resumed declines after a brief spell higher, extending big falls overnight. Data pointed to record U.S. stockpiles of gasoline and other oil products, when Iraqi crude exports are on the rise, heightening supply glut concerns.
Brent crude reversed earlier gains to fall 0.3 percent to $46.07 a barrel after tumbling about two percent on Thursday. It is headed for a 3.3 percent drop for the week.
U.S. crude fell 0.6 percent to $44.49 a barrel, poised for a 3.2 percent fall in a week in which they touched a two-month low.
The pull back in stocks and dollar gave gold a boost. Spot gold XAU= jumped 1.2 percent overnight, but inched down 0.4 percent to $1,325.24 an ounce. Thursday's gains helped shrink losses for the week to 1 percent.
Reference: Shinichi Saoshiro
The European Central Bank kept its interest rates and forward guidance unchanged as expected on Thursday but will likely use a news conference to address a growing list of obstacles that again threaten to derail its efforts to lift growth and inflation.
Italy's bank troubles, Britain's decision to leave the European Union and difficulty in finding enough bonds to buy in its asset purchase programme may all require some action, dashing ECB chief Mario Draghi's hopes that the bank was done after years of extraordinary stimulus measures.
Not keen on hasty moves, Draghi is likely to manoeuvre through on Thursday with verbal action, highlighting the increased risks and opening the door to changes as soon as September, when the bank releases fresh economic forecasts.
The trick will be to sound dovish enough to signal readiness to act but without committing or overly inflating market expectations that could ultimately lead to disappointment, even if the bank provides more stimulus.
The ECB kept its deposit rate at minus 0.4 percent and the main refinancing rate at 0.00 percent, both record lows, as it seeks to cut borrowing costs for firms and force banks to lend money out rather than park cash with it.
It also left unchanged its guidance that rates would stay at present or lower levels for an extended period, and well beyond its asset purchase horizon.
Regarding those purchases, the bank repeated that its 80 billion euro (£66.8 billion) per month programme would run until March 2017 or beyond if necessary, until it sees an upward adjustment of inflation toward its target.
Markets' attention now turns to Draghi's 1330 London time news conference where he will detail the economic outlook.
"Draghi will likely nurse market concerns about the ECB’s monetary policy by using a dovish tone and possibly pointing to further action later this year," Florian Hense, an economist at Berenberg, said. "For the ECB it is important to keep its options open."
The ECB is buying 1.74 trillion euros ($1.91 trillion) worth of assets to cut borrowing costs, induce spending, lift growth and ultimately raise inflation, which has been stuck either side of zero for the past two years.
Brexit may be the biggest single problem, threatening to thwart a modest investment and consumption-led recovery. But the ECB simply does not have enough information to work with.
Early post-Brexit data, such as Germany's ZEW sentiment indicator and euro zone consumer confidence figures, suggest a significant drop in confidence. But such surveys are prone to sharp swings and the ECB would need a larger body of evidence before acting.
Indeed, while analysts polled by Reuters cut their 2017 euro zone growth forecasts to 1.3 percent from 1.6 percent, they left their inflation projection unchanged at 1.3 percent, a mixed reading for the ECB, which targets inflation at just below 2 percent.
Draghi is expected to argue that Brexit is a political problem, requiring governments, not the central bank to act, a call that is likely to fall on deaf ears, much like his repeated pleas for structural reforms that could lift potential growth.
"The ECB's room for manoeuvre on policy is constrained by the political nature of the Brexit shock and the side-effects of further easing," Deutsche Bank said in a note. "In that case, the sooner the ECB acts the better."
With interest rates deep in negative territory and asset buys running at 80 billion euros per month, the ECB is indeed running short on tools, raising the threshold for any further move if the bank is to preserve some firepower for any future shock.
But some policy changes are still likely in the coming months because the ECB is running out of qualified assets to buy, particularly Germany government debt, as yields fall below its deposit rate, a self-imposed limit for its buys.
Though German yields have risen sharply over the past week, still around 55 percent of bonds trade below the deposit rate, making them ineligible for ECB purchases.
The dilemma will be whether to tweak the scheme, making just technical changes, or enact a broader but more controversial shift that could fundamentally alter the nature of the ECB's quantitative easing.
"Technical problems can be solved but they underline the limits of what can be achieved by using solely monetary policy, something Draghi is very much aware of and one of the reasons why he constantly calls for a more growth-friendly fiscal policy," financial services group Nordea said.
Analysts polled by Reuters see mostly technical changes for now, including purchases of bonds yielding less than the deposit rate and buying a bigger portion of bonds without collective action clauses.
More fundamental changes may still come later, especially as the vast majority of analysts expect the asset buys to be extended beyond their current scheduled end next March and technical tweaks may not be enough to accommodate a major extension.
Italian banks, weighed down by about a 360 billion euro bad debt and falling share prices, are also likely to be on Draghi's agenda.
The Italian government is in talks with the EU to allow state aid to the troubled lenders but wants to shield household investors, a contentious proposal that would test the EU's bail-in rules.
Though the ECB has no direct say in the matter, it still has a vested interest as it is the sector's main supervisor and banks are the main transmitters of its monetary policy.
The ECB has also argued that European rules leave room for state aid, referring to provisions which allow for shielding private investors from losses to preserve financial stability.
Reference: BALAZS KORANYI
Thursday, 21 July 2016
Asian stocks climbed to nine-month highs on Thursday, helped by a recovery in global oil prices, while the dollar strengthened against the safe-haven yen on resurgent expectations of a U.S. interest rate hike this year.
European shares are expected to buck the trend and open lower before a European Central Bank meeting later in the day at which the ECB is expected to keep rates on hold.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent, its highest level since October 2015 after earnings overnight helped push both the Dow Jones Industrial Average .DJI and the S&P 500 .SPX to record highs. It has gained 10 percent over the last month.
Leading regional gainers was Japan's Nikkei stock index .N225, which rose 1 percent, aided by a weaker currency and growing expectations of fresh government stimulus.
Several media such as Mainichi Shimbun and Kyodo News Agency reported that the Japanese government is to compile a stimulus package of at least 20 trillion yen to help the economy emerge from deflation and fend off possible adverse effects of Brexit.
"What the market wants now is both fiscal and monetary policy and such expectations are getting higher," said Hikaru Sato, a senior technical analyst at Daiwa Securities.
Portfolio inflows to emerging market assets rose to the highest level in nearly three years last week, according to the latest survey by the Institute of International Finance.
Malaysian stocks .KLSE led the region's losers with a 0.4 percent decline following news the U.S. Justice Department filed lawsuits linked to scandal-ridden state fund 1MDB.
In currency markets, higher U.S. Treasury yields, particularly shorter-dated bonds, supported the dollar. Market expectations of a U.S. Federal Reserve rate hike this year dropped significantly after Britain's vote to leave the European Union but have since picked up again as market anxieties receded.
The two-year Treasury yield was 0.71 percent compared with 0.53 percent at the start of the month.
The dollar rose 0.2 percent to 107 yen JPY= after climbing as high as 107.460 earlier, its highest since June 7 and returning to levels seen before markets were roiled by Britain's vote last month to exit the European Union.
The dollar index, which tracks the greenback against a basket of six rival currencies, hit a peak of 97.323 .DXY on Wednesday, its highest level since March 10. It was last at 96.99, broadly steady. The euro edged higher to $1.1032 EUR= after notching a near one-month low of $1.0980 overnight. The European Central Bank will meet later in the session, and is expected to hold policy steady while perhaps addressing a scarcity of bonds for its 1.7 trillion euro stimulus programme. "The weakness of the euro provides automatic stimulus to the economy, which means the ECB can afford to wait," wrote Kathy Lien, managing director of FX strategy for BK Asset Management.
"So the potential for an initial short squeeze is high if the central bank stands pat and the outlook thereafter will depend on how strong of a message the ECB sends," she said.
Looking ahead, financial leaders from the world's biggest economies will meet in China this weekend, with Brexit fallout and dwindling policy options to boost global growth expected to dominate talks.
Crude oil extended gains in the Asian session. Brent crude LCOc1 was slightly higher in Asian trading at $47.35 a barrel, after settling up 1 percent, while U.S. crude CLc1 edged 0.4 percent higher at $45.86 after adding 0.7 percent overnight. Spot gold XAU= edged down 0.1 percent to $1,314.08 an ounce after plumbing three-week lows on Wednesday.
Reference: Lisa Twaronite
Forecast-beating earnings in the tech sector lifted European shares on Wednesday and the dollar strengthened on growing expectations the U.S. Federal Reserve may raise interest rates before the end of the year.
Oil prices edged up before U.S. data that may signal whether a supply glut in the top consuming country was easing, while the stronger dollar weighed on commodity prices.
Wall Street looked set to open higher, according to index futures.
The pan-European STOXX 600 share index rose 0.9 percent, led by the technology sector after SAP Europe's largest software group, and ASML Holding, a supplier to semiconductor makers, reported quarterly results that beat forecasts.
The tech sector has been in focus this week since Japan's Softbank (9984.T) agreed to buy Britain's chip designer ARM (ARM.L) for $32 billion.
The STOXX 600 technology index .SX8P was up 2.5 percent on the day and nearly 10 percent since the start of last week, heading for its biggest two-week gain in more than seven years.
"So far, European earnings have been better than expected, with investors focusing on company guidance to form a view on the market's likely direction," Christian Stocker, equity strategist at UniCredit in Munich, said.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.3 percent, having reached its highest in almost nine months last week.
Shares rose in Hong Kong, Australia, India and much of Southeast Asia, but retreated in South Korea and China.
Japan's Nikkei .N225 fell 0.3 percent, on track for its first decline in seven days.
Investors' risk appetite, which has recovered rapidly from the Brexit shock in late June, received a sobering reminder after the International Monetary Fund cut its global growth forecasts for the next two years on Tuesday, citing uncertainty over Britain's looming exit from the European Union.
However, strong U.S. housing starts data on Tuesday, which led investors to assign a greater probability to the Fed raining interest rates this year, lifted the dollar to a four-month high against a basket of its peers. The dollar index .DXY hit its highest since March 10 before pulling back to stand up 0.1 percent on the day.
The euro EUR= fell 0.1 percent to $1.1004, while the yen JPY= weakened 0.5 percent to 106.62 per dollar.
"The dollar is now being supported by rising U.S. rate expectations. The likelihood of a Fed rate hike before the end of the year that is being priced in by the markets has almost returned to the levels seen before the EU referendum," said Thu Lan Nguyen, currency strategist at Commerzbank.
Sterling, meanwhile, recovered all its earlier losses against the U.S. currency after a Bank of England survey showed no clear evidence of a slowdown in economic activity since the Brexit vote.
The pound, which fell 1 percent on Tuesday, rose a full cent to $1.3186 after the survey was published. It was last at $1.3180 up 0.5 percent on the day.
Oil prices edged up before the latest weekly U.S. crude inventory numbers. Brent crude the international benchmark, was up 22 cents a barrel at $46.88.
The price of copper, the worst-performing commodity so far this year, fell as the stronger dollar prompted investors to take profits on earlier gains. London copper fell 0.8 percent to $4,946.50.
Gold XAU= also fell and last stood at about $1,326 an ounce, down 0.5 percent on the day.
In debt markets, German 10-year government bond yields held steady at minus 0.09 percent.
Germany sold 3.4 billion euros of new five-year bonds at a record low yield at auction of minus 0.51 percent. The bonds carried a zero percent coupon and drew investor bids worth less than the amount on offer.
Reference: NIGEL STEPHENSON
Wednesday, 20 July 2016
Profit taking weighed on Asian stocks on Wednesday after a record run on Wall Street showed signs of petering out, while the dollar hovered near a four-month high against a basket of currencies following upbeat U.S. data.
Investors' risk appetite, which has recovered rapidly from the Brexit shock late in June, received a sobering reminder after the International Monetary Fund cut its global growth forecasts for the next two years on Tuesday, citing uncertainty over Britain's looming exit from the European Union.
Spreadbetters also saw a subdued start for European stocks, forecasting a slightly higher open for Britain's FTSE .FTSE, a marginally lower start for Germany's DAX .GDAXI and France's CAC .FCHI to open flat.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent, having reached its highest in almost nine months last week.
Shares rose in Hong Kong, Australia, India and much of Southeast Asia, but retreated in South Korea and China.
Japan's Nikkei .N225 fell 0.3 percent, on track for its first decline in seven days.
"Although the market is taking a break from a long rally amid a lack of fresh catalysts to buy, investors may chase the market higher depending on central bank events next week," said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.
The S&P 500 .SPX pulled back from record highs on Tuesday, while the Dow .DJI edged up for an eighth straight day of gains, as investors pondered mixed earnings reports and a gloomier global outlook. [.N]
The dollar index stood at 97.054 .DXY, after touching a four-month peak of 97.158. Tuesday's stronger-than-expected June U.S. housing starts data has given the dollar a lift.
"The U.S. dollar is proving to be a big winner in a period when central banks around the world are talking about easing," wrote Kathy Lien, managing director of FX strategy for BK Asset Management.
"That leaves the Federal Reserve and the Bank of Canada as the lone soldiers standing ground on steady policy. We haven't seen significant strength in the Canadian dollar, partly because oil prices have been falling but the U.S. dollar is seeing nice momentum."
The dollar traded at 106.055 yen JPY= after touching a one-month high of 106.53 overnight. Expectations that the Bank of Japan would ease monetary policy later this month have weighed on the yen.
The euro was steady at $1.1016 EUR= after slipping to a three-week trough of $1.1000.
The Australian dollar was nearly flat at $0.7503 AUD=D4 after falling 1.1 percent on Tuesday, when it was dragged down by a New Zealand dollar weakened by growing speculation that the country's central bank it will cut rates in August.
Fed funds futures rates show investors see almost a 50/50 chance that the U.S. central bank will raise interest rates by its December meeting, according to CME Group's FedWatch tool, compared with less than 20 percent a few weeks ago.
Geopolitical risks also loomed as a factor for markets. The Turkish lira came under renewed pressure and fell to its lowest level since last September amid reports of a widening purge in Turkey after an abortive coup last week.
According to a BofA Merrill Lynch fund managers' survey, investors saw geopolitical risk as the biggest risk to financial market stability, followed by risks of protectionism.
Crude oil prices bounced modestly after falling more than 1 percent on Tuesday, when a rallying dollar and a global fuel glut offset forecasts for lower U.S. crude stockpiles. Brent was up 0.3 percent at $46.81 a barrel.
Profit taking nudged nickel CMNI3 away from a 10-month high reached overnight amid persistent concerns over a Philippines mining crackdown. Zinc edged up to a 14-month peak on worries over falling mine output.
Reference: SHINICHI SAOSHIRO
Asian shares slipped on Tuesday as a downturn in crude oil curbed enthusiasm from fresh record highs on Wall Street, prompting investors to take profits on recent market gains.
The subdued mood was expected to extend into European trading, with financial bookmakers at CMC Markets calling Britain's FTSE 100 .FTSE to open 16 points lower, Germany's DAX .GDAXI to open down 32 points, while France's CAC .FCHI was seen down 15 points.
MSCI's broadest index of Asia-Pacific shares outside Japan . was down 0.3 percent, off session lows but still moving away from a nine-month high touched last week which put it into technically overbought territory.
China's yuan steadied against the dollar, a day after slipping below the psychologically important 6.7 level for the first time in more than five years. Still, traders expect downward pressure on the currency to persist.
China stocks were lower, with the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen down 0.7 percent and the Shanghai Composite Index .SSEC down 0.6 percent.
On Monday, the Dow Jones industrial average .DJI and the S&P 500 .SPX both hit new peaks on hopes that declining U.S. corporate earnings are turning around.
"It's hard to maintain consistent optimism when markets attain such high levels, and some profit-taking is natural," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank in Tokyo, who noted that weaker oil prices were taking their toll on related sectors.
Pressure remained on crude oil prices after they settled down more than 1 percent on Monday, as rising stockpiles of crude and refined fuel intensified fears of another major supply glut. [O/R]
Brent crude was 0.2 percent lower at $46.86 a barrel, after shedding 1.4 percent on Monday. U.S. crude was also down 0.2 percent at $45.13, after dropping 1.6 percent overnight, with investors mixed on oil's near-term direction.
"Prices are a bit softer in the Asian trading period - traders and investors are torn which way prices are going to break. It's a knife edge between optimism and pessimism," said Ben Le Brun, market analyst at Sydney's OptionsExpress.
Japan's Nikkei stock index .N225 ended up 1.4 percent, as markets reopened after a public holiday on Monday and responded to a weaker yen.
In the previous week, the benchmark index had gained 9.2 percent to notch its biggest weekly gain since December 2009, helped by Wall Street as well as expectations that the Bank of Japan will deliver further stimulus as early as its next policy meeting later this month.
Japanese policymakers won't go as far as funding government spending through direct debt monetization, but might pursue a mix of aggressive fiscal and monetary expansion to battle deflation, according to sources familiar with the matter.
A failed coup in Turkey had dented risk sentiment and bolstered the perceived safe-haven yen before it ran its course. On Monday, Turkey purged its police force after rounding up thousands of soldiers and called for the United States to hand over a cleric that the Turkish government accuses of being behind the takeover attempt.
The dollar took a step back after climbing to more than three-week highs against the yen. It was last down 0.1 percent at 106.09 yen JPY=, after rising as high as 106.33 earlier in the session, its highest since June 24.
The euro EUR= was steady against the dollar at$1.1074.
The European Central Bank will hold a regular policy meeting on Thursday, its last one before an eight-week summer break. It is not expected to take any additional easing steps.
Instead, ECB President Mario Draghi is likely to appeal to governments to do more to bolster the euro zone economy in the wake of Britain's vote last month to exit the European Union.
Some bond traders believe the ECB might address scarcity of bonds it can buy under its 1.7 trillion euro stimulus program, with more than a half of German bonds now ineligible.
The dollar index .DXY, which gauges the greenback against a basket of currencies, edged slightly higher to 96.584.
Spot gold was slightly down at $1,327.70 an ounce, after dropping as much as 1 percent on Monday.
Reference: Keith Wallis
Tuesday, 19 July 2016
The dollar sagged against the yen on Tuesday as investors took profit after its recent rally, while the kiwi was dented by bets New Zealand's central bank could cut interest rates next month.
The New Zealand dollar was one of the big movers in Asian trade, with the kiwi falling sharply after the Reserve Bank of New Zealand stepped up efforts to impose fresh curbs on a hot housing market - a move seen as raising the chance of a rate cut.
The kiwi hit a three-week low of $0.7014, and was last trading at $0.7033, down 1.2 percent on the day.
The U.S. dollar retreated after hitting a 3-1/2-week high of 106.33 yen at one point on Tuesday, marking a gain of more than 6 percent from its July 8 low of 99.99 yen.
The greenback rallied from that trough as the yen buckled under growing expectations of monetary easing by the Bank of Japan, a broad recovery in risk appetite and speculation about M&A-related yen-selling.
Some investors are now booking profits in the dollar, following its hefty gains versus the yen, said a trader for a Japanese bank in Singapore.
"There seems to be some sporadic profit-taking by overseas (non-Japanese) players," the trader said.
The dollar eased 0.4 percent to 105.79 yen JPY=, after hitting 106.33 yen, the greenback's highest level since June 24.
The greenback now faces resistance at the 55-day moving average of 106.33 yen, but a break of that level could prompt traders to test its June 24 high of 106.875.
Speculators have been betting that the Bank of Japan will further ease policy at its July 28-29 meeting, as the government prepares new fiscal stimulus to boost the economy.
Traders are also unwinding their safe-haven bids in the yen as the initial shocks from last month's vote by Britain to leave the European Union ebb, with U.S. shares hitting record highs partly because Brexit has helped to quash expectations of near-term rate increases by the U.S. Federal Reserve.
Some traders were also expecting yen selling from Softbank (9984.T), which will buy Britain's most valuable technology company ARM for $32 billion in cash.
The British pound last stood at 140.08 yen, down 0.5 percent on the day. Sterling has recovered nearly 9 percent from the 3-1/2-year low of 129.05 yen hit in the wake of Britain's EU referendum.
Against the dollar, the pound eased 0.3 percent to $1.3221
The euro EUR= stood little changed at $1.1077 ahead of the European Central Bank's policy meeting on Thursday.
The dollar index has found reasonable support but lacked momentum to test its four-month high marked last week.
The index stood at 96.547, below its July 11 high of 96.793.
"Although U.S. payrolls data published earlier this month was pretty strong, some U.S. data released after the British referendum shows some weakness. The markets will be looking to upcoming data to see if the strength of the payrolls data will be sustainable," said Shinichiro Kadota, chief FX strategist at Barclays Securities Japan.
Reference: MASAYUKI KITANO
Market ructions caused by Britain's decision to leave the European Union are set to widen the gulf between Wall Street and European investment banks, potentially leaving the continent without its own global champion.
The Brexit vote has pushed shares in Deutsche Bank (DBKGn.DE) and Credit Suisse (CSGN.S) to record lows and triggered a string of analyst downgrades, highlighting expectations that Europe's already-struggling investment banks will be pushed further to the sidelines by their U.S. counterparts.
"In our view, the uncertainty created post Brexit, if it leads to long-term negative impact on profitability, could result in further restructuring in Tier Two investment banks," JPMorgan analysts wrote in a note on July 11, downgrading their estimates for European banks in favour of their U.S. rivals.
Brexit is seen as a negative for banks on both sides of the Atlantic because the uncertainty could subdue deal-making and trading activity. And banks may also face the cost of relocating some London-based businesses and staff to other EU cities.
But European banks will find it tougher as Brexit comes on top of post-financial crisis structural overhauls that their U.S. counterparts have largely completed.
Since Britain's vote to leave the European Union, some headhunters on Wall Street have reported getting more calls from investment bankers at European groups asking about jobs at their U.S rivals.
"People I've been in discussion with since the middle of last year have all of a sudden started saying 'you were right ... I should be more open-minded ... I don't want to be the last guy here to turn the lights off. Is it too late in the year to move?' Gary Goldstein, founder and CEO of executive search firm Whitney Partners in New York, said.
Europe's banks were already on the back foot before the vote, focused on cost-cutting and shoring up capital while more strongly-capitalized U.S banks have been able to go out to win new business.
"We have been getting a number of calls from senior bankers at the European institutions in the U.S.," Kevin P. Mahoney at Bay Street Advisors, LLC, said.
"The concerns range from the European banks' inability to lend, and thus compete on deals going forward, to the quickly eroding value of their stock awards and overall compensation."
Some senior executives, worried about the risks of Wall Street dominating the region, argue that Europe needs its own investment banks to service companies at home and abroad and help to spur economic growth.
"It is in the interests of Europe at large to have a strong, globally relevant bank in Europe," Alasdair Warren, head of corporate and investment banking EMEA at Deutsche Bank told Reuters.
"If the only globally relevant banks of scale are North American, it's not politically or socially good for Europe. But of course, all institutions, irrespective of geography need to be globally competitive."
Barclays' (BARC.L) chief executive Jes Staley said earlier this year that the region risked tipping over into American dominance, which could leave Europe’s capital markets entirely dependent on firms based elsewhere.
European companies could also play a role in supporting their home banks. In a research paper in March, think-tank Bruegel said companies could help to bolster the continent's investment banks.
"We recommend that the big European corporates should cherish the (few) remaining European investment banks, by giving them at least one place in otherwise U.S.- dominated banking syndicates," the paper said.
"That could help to avoid complete dependence on U.S. investment banks."
WALL STREET VS THE REST
In 2007, the eight biggest European banks' FICC (fixed income, currencies and commodities) revenue was $48 billion, compared with the $38 billion generated by the five biggest U.S. banks, according to data from analytics firm Tricumen.
Last year, European banks' revenue was $26 billion while U.S. banks was $43 billion. In eight years, there has been a $22 billion fall in FICC revenue at European banks and a $5 billion increase at U.S. banks. Europe's 26 percent advantage has turned into a 40 percent deficit.
European banks' total fee revenue from bond issuance, equity capital markets and mergers and acquisitions (M&A) fell from $17 billion to $13 billion between 2007 and 2015, while U.S. banks' fees remained unchanged at $23 billion.
"I would expect European banks to lose more market share to the U.S. banks," Darko Kapoor a partner at Tricumen, said.
The Wall Street banks potentially face some big Brexit costs.
The five largest U.S. banks employ around 40,000 people in London, more than in the rest of Europe combined, taking advantage of the EU "passporting" regime that allows them to offer services across the bloc.
If they have to set up new continental European outposts this could be extremely costly.
It could cost 50,000 pounds ($66,215) per person, on average to relocate an employee to the EU, according to consultancy Crossbridge, taking into account the costs of hiring and redundancy, new building, rent and other infrastructure and contingency costs.
U.S. investment banks have 20 percent more EMEA (Europe, Middle East and Africa) staff in Britain than their European counterparts, according to industry analytics firm Coalition.
"Most banks (U.S. and European) have put in place a hiring freeze and are following a "wait and watch" approach. Some banks that had launched restructuring before Brexit are looking at accelerating those programs," Coalition said.
Reference: ANJULI DAVIES
Monday, 18 July 2016
The U.S. dollar gained on the yen in Asia on Monday as investors unwound safe-haven trades in the wake of the failed coup in Turkey, while a giant takeover bid in the tech sector and the promise of central bank stimulus lent support to equities.
The Turkish lira was quoted around 2.9675 after the dollar climbed almost 5 percent late Friday to a six-month peak around 3.0476. Dealers noted liquidity was sparse and a true price would only be found once Turkish markets opened.
Ankara said it was in control of the country and economy and widened a crackdown on suspected supporters of the failed military coup, taking the number of people rounded up from the armed forces and judiciary to 6,000.
The initial reaction of investors to the coup had been to bid up safe havens such as the Japanese yen, but that was quickly unwinding. The dollar was at 105.60 yen JPY= having briefly been as low as 104.63 late Friday, with trade further thinned by a holiday in Japan.
Likewise, the euro had steadied at $1.1067 EUR= after gapping as low as $1.1021 on Friday.
MSCI's broadest index of Asia-Pacific shares outside Japan added 0.1 percent having reached its highest in almost nine months last week. Australia rose 0.4 percent while Shanghai .SSEC was a fraction lower.
Helping sentiment was a Financial Times report that Japan's SoftBank Group Corp (9984.T) had agreed to buy ARM Holdings PLC (ARM.L) for 23.4 billion pounds ($31.04 billion).
The deal, one of the largest in European technology to date, is expected to be announced later on Monday, the newspaper said.
The E-mini futures contract for the S&P 500 was up 0.2 percent ESc1, following on from Friday's upbeat U.S. economic data. The Dow .DJI had ended 0.05 percent firmer, while the S&P 500 and the Nasdaq both lost 0.09 percent.
MORE RATE CUTS TO COME
Prices for U.S. Treasuries were a shade lower with yields on the 10-year note edging up to 1.56 percent
In commodity markets, spot gold XAU= eased to $1,328.16 per ounce.
Oil prices were little changed with Brent crude LCOc1 up 6 cents at $47.68 a barrel, while NYMEX crude fell 6 cents to $45.89.
One mover was the New Zealand dollar which slipped when domestic inflation data showed a surprisingly soft rise of 0.4 percent in the year to June.
The kiwi slid half a U.S. cent to $0.7086 NZD=D4 as the market narrowed the odds on a cut in rates from the Reserve Bank of New Zealand next month.
Investors are also wagering on policy easings from the Bank of England and Bank of Japan in coming weeks, while few see much chance of the Federal Reserve hiking U.S. rates anytime soon.
"We've pencilled in rate cuts over the coming months in Korea, Taiwan, China, Australia, New Zealand, Japan, Indonesia, Malaysia, Thailand, and India," said Frederic Neumann, co-head of Asian economic research at HSBC.
"The global yield compression and the decline in FX volatility thanks to a plateauing U.S. dollar is making it easier for monetary officials across the region to deliver more easing."
Reference: WAYNE COLE
Japanese policymakers, who won't go as far as funding government spending through direct debt monetization, might pursue a mix of aggressive fiscal and monetary expansion to battle deflation, say sources familiar with the matter.
In the past week, Japanese markets have seen hyped-up speculation that the government will resort to using what's called "helicopter money", where a central bank directly finances budget stimulus through programs such as perpetual bonds.
With Prime Minister Shinzo Abe preparing a big spending package to be announced as early as this month, the Bank of Japan will remain under pressure to expand monetary stimulus at its rate review on July 28-29, analysts say.
Government and central bank officials say there is no chance Japan will resort to having the central bank monetize debt to fund government spending, such as by buying perpetual bonds to allow the government to boost spending without paying back debt.
"It's clear the government won't do helicopter money in the strict sense," said a government official with knowledge of deliberations on what action to pursue.
"But it's a different story when you're talking about combining fiscal and monetary expansion. That's possible," said the official, who insisted on anonymity.
Speculation that Japan was considering helicopter money ignited this week after former Federal Reserve Chairman Ben Bernanke met Abe and BOJ Governor Haruhiko Kuroda during a private visit to Tokyo.
Helicopter money was coined by American economist Milton Friedman and gained market prominence when Bernanke cited it in a 2002 speech as a way central banks might finance government budgets directly to fight deflation.
Sources told Reuters that Bernanke told Abe there were "various tools left available" for monetary policy - a view shared by Kuroda. And people close to the governor say he would not hesitate to pull the trigger on further easing if needed to beat deflation.
With prices falling on soft consumption and inflation expectations weakening, the BOJ could justify further stimulus as a necessary step to reach its 2 percent inflation goal.
"It's true good coordination of monetary and fiscal policy is very important for Abenomics," another source said.
But Kuroda, a well-known fiscal hawk, may be reluctant to ease now for fear of markets seeing that as a sign the central bank is monetizing debt, which could weaken its credibility. After the July meeting, the BOJ next reviews policy Sept. 20-21.
MEETING MARKET EXPECTATIONS
Abe's administration is preparing a stimulus package of public works projects, payouts to households and cheap loans for infrastructure projects.
Lawmakers are calling for a package of about 10 trillion yen ($94 billion) partly financed by new bond issuance, making full use of the BOJ's money printing that pushed 10-year yields into negative territory.
The BOJ is now buying roughly 110-120 trillion yen of bonds a year to meet a pledge to expand the balance of its holdings at an annual pace of 80 trillion yen.
While the BOJ says it does not buy bonds in order to finance public debt, some analysts think that acting this month may have a positive effect on markets by showing the central bank and government are coordinating policies.
"Japanese policymakers could meet market expectations for helicopter money by compiling a supplementary budget in autumn and accompanying that with additional monetary easing," said Mari Iwashita, chief market economist at SMBC Friend Securities.
Koichi Hamada, a close Abe aide, said that while he opposes institutionalizing helicopter money, expanding fiscal and monetary stimulus simultaneously as a "one-off" boost could work in stimulating the economy.
"For advocates of helicopter money, it's not impossible to regard that as one variation of helicopter money," he told Reuters on Thursday.
($1 = 105.8600 yen)
Reference: LEIKA KIHARA
Friday, 15 July 2016
Three Federal Reserve policymakers on Thursday expressed the view that there was no hurry to raise U.S. interest rates in the wake of the UK decision to leave the European Union, despite signs that the U.S. economy is near full employment.
Ahead of the next Fed policy meeting on July 26-27, a core group are now happy to keep interest rates unchanged, potentially for months, whereas just last month, most Fed officials signaled they expected to raise rates at least twice this year.
St. Louis Fed President James Bullard, speaking with reporters in St. Louis on Thursday, repeated his position that only a single rate rise is needed for the next couple of years unless some unexpected shock moves the economy to a better or worse state.
"In the aftermath of Brexit people want to wait and see and I'm happy to go with that for now," said Bullard, a voting member of the U.S. central bank's rate-setting committee. "There’s really no rush."
Dallas Fed President Robert Kaplan, also in St. Louis, renewed his call for a "patient, gradual" approach to raising rates.
And earlier on Thursday Atlanta Fed President Dennis Lockhart, at the Global Interdependence Center's Rocky Mountain Economic Summit, said that he wants to be "cautious and patient."
Kaplan says more agreement than not among Fed policymakers
BREXIT VOTE IMPACT UNCERTAIN
Britain's vote on June 23 to exit the European Union sent investors scrambling for safe assets and cast a pall over the world economic growth outlook. Policymakers say it may take years to understand the fallout from Brexit.
Despite U.S. unemployment running at only 4.9 percent, policymakers are also worried about too-low U.S. inflation.
Traders are now betting the Fed will not raise the federal funds rate, currently targeted at 0.25 percent to 0.5 percent, until June of 2017 at the earliest.
Still, not everyone at the Fed has given up on the idea of raising rates.
Kansas City Fed President Esther George on Thursday said she will keep an eye on whether the recent market volatility and flight to safe assets by global investors could hit the U.S. economy but she signaled no retreat from her view, laid out earlier this week, that rates are too low for the strength of the economy.
And despite his dovish comments, Kaplan on Thursday said he worries low rates for too long can create distortions, and said it is "very important" to make the effort to normalize rates.
And even Lockhart, a non-voter this year at the Fed, on Thursday said it was possible the Fed could raise rates once, or even twice, this year, if data allowed it.
Reference: Ann Saphir
Britain's top shares index fell back from an 11-month high on Thursday, after the Bank of England dashed hopes of an interest rate cut, hitting stocks sensitive to sterling strength and housebuilders.
The blue-chip FTSE 100 index was up 0.1 percent at 6,679.27 points by 1149 GMT after briefly turning negative and having hit an 11-month high of 6,743.42 before the Bank of England's decision.
The Bank unexpectedly held its benchmark interest rate steady, with most analysts predicting a cut to a record low of 0.25 percent, which would've been the first cut in more than seven years.
The Bank said it was likely to deliver stimulus in three weeks' time, possibly as a "package of measures" once it has assessed how the June 23 referendum decision to leave the European Union has affected the economy.
"We had a suspicion that they might keep rates on hold. With rates already so low, they only have a limited room for manoeuvre, and I sense that they’re conserving their ammunition in case they need to cut rates further down the line," said Kyri Kangellaris, director at Horizon Stockbroking.
The FTSE 100 was hit by a sharp rise in the pound, with many of its companies earnings revenues abroad and suffering from sterling strength.
The FTSE 250 mid-cap index, whose companies are more exposed to the domestic economy, cut gains to 0.2 percent.
Lower interest rates typically boost stock markets, as they dent returns on bonds and cash and can reduce borrowing costs for companies.
Housebuilding and property stocks, which had been among the hardest hit after the Brexit vote, turned lower, having rallied in anticipation of the decision. Lower rates often encourage consumers to take out loans to buy homes and property.
Berkeley Group was up 0.6 percent, having risen 2 percent before the decision, while Barratt Developments was up 1.5 percent, having been as much as 3 percent higher before the decision.
"A cut is on the way, but not just yet. Clearly, the decision to keep rates on hold is having a bit of an impact on the housebuilding and property stocks that had been rallying earlier this week," said Richard Griffiths, associate director at Berkely Futures, said.
Mining stocks rose on the back of firmer metals prices, with Anglo American up 3.8 percent as JP Morgan upgraded the company to "overweight".
"H1 results are likely to be a positive catalyst for Rio, Anglo and Glencore in our view, and resilient prices have de-risked balance sheets, offering a platform for Anglo and Glencore to execute additional disposals," said JP Morgan's analysts.
The FTSE 100 is up nearly 8 percent so far in 2016, although a slump in sterling following the Brexit vote has meant that the FTSE 100 remains below its pre-Brexit levels in U.S. dollar terms.
Reference: SUDIP KAR-GUPTA
Thursday, 14 July 2016
Sterling surged to two-week highs against the dollar and euro on Thursday while British share prices turned negative, after the Bank of England kept interest rates unchanged, wrong-footing the many investors who had expected a cut.
The Bank said it was likely to deliver stimulus in three weeks' time, possibly as a "package of measures", once it has assessed how Britain's June 23 vote to leave the European Union has affected the economy.
Sterling soared to $1.3480, up more than 2 percent on the day and its strongest since June 30, after the policy decision, having traded at $1.3210 immediately before. But it then pared those gains to trade at $1.3325, still up 1.3 percent on the day.
"They have kept the door open for August. There was an initial kneejerk but $1.35 saw significant resistance," said BMO Capital Markets currency strategist Stephen Gallo.
"If the risk rally continues, we could be back up there tomorrow, but from a three-month perspective $1.35-1.36 is looking like a good place to sell the pound at the moment."
Against the euro, too, sterling gained as much as 2 percent to hit a two-week high of 82.51 pence, before trimming gains to trade at 83.415 pence, around 1.2 percent up on the day. Before the policy announcement the euro had traded at around 84 pence.
The blue chip FTSE 100 and mid-cap FTSE 250 turned lower after the decision, with the FTSE 100 down 0.1 percent having been up 0.8 percent beforehand. Housebuilders such as Berkeley and Barratt Developments turned negative.
British government bond yields rose sharply. The 10-year gilt yield rose around 4 basis points to the day's high of 0.815 percent after the decision, before easing back to 0.80 percent.
Short sterling interest rate futures turned negative, falling around 4 to 6 ticks across the 2016 and 2017 contracts.
German Bund futures hit the day's low of 166.72 , while 10-year German Bund yields were up 3.5 basis points at minus 0.11 percent.
The Bank of England is set to cut interest rates for the first time in more than seven years as it tries to cushion the economy from the shock decision by voters to pull Britain out of the European Union.
Governor Mark Carney sent a clear signal two weeks ago that stimulus was on the way in an attempt to show the economy was in safe hands while the country's political leadership crumbled after the EU vote.
The central bank is expected to halve its benchmark interest rate to a new record low of 0.25 percent when its makes a monthly policy statement at 1100 GMT on Thursday.
Then, at its following meeting in three weeks' time, the BoE is likely to revive its massive bond-buying programme, according to a Reuters poll of economists.
Carney has warned that the financial risks of Brexit were materialising after a slump in the value of the pound and the freezing of some commercial property funds by investment funds.
Data released early on Thursday showed interest among buyers in Britain's housing market tumbled to its lowest level since mid-2008, adding to early signs of the Brexit hit to the economy.
Allan Monks, an economist with J.P. Morgan, said a plunge in yields on British government bonds, pushed down by Carney's signal of swift action, had protected borrowers among businesses and households for now by offsetting a rise in credit spreads.
"The BoE needs to deliver on those expectations to prevent a tightening in funding conditions," Monks said.
The BoE has held its Bank Rate at 0.5 percent since March 2009, when the global financial crisis was hammering Britain. Before the referendum, it was widely expected to raise rates later this year or in early 2017, following the lead of the U.S. Federal Reserve as the economy picked up.
Now the question economists are asking is whether Britain can avoid falling back into recession.
The BoE has little hard evidence so far of how hard the referendum result has hit the economy.
The quicker-than-expected appointment on Wednesday of Theresa May as Britain's new prime minister has helped settle nerves in financial markets and reversed some of the pound's 13 percent slump against the dollar after the referendum.
But surveys and comments from retailers have shown a slide in confidence among consumers who drove Britain's recovery from the 2007-09 financial crisis. Hard data covering the post-referendum period is not expected until late July.
Nonetheless, the Bank has already lowered a capital requirement for banks in the hope of encouraging more lending.
Carney has expressed opposition to following the lead of the European Central Bank and the Bank of Japan by cutting rates below zero. Many economists say the BoE will instead revive its quantitative easing programme of buying bonds to help the economy as it faces the prospect of years of uncertainty about its trading relationship with the EU and the rest of the world.
Reference: WILLIAM SCHOMBERG