Friday, 30 December 2016
Asian stocks looked set to end 2016 on an upbeat note, with the benchmark headed for its first annual gain in three years, while the dollar reversed earlier losses and oil was poised to record its biggest gains in seven years.
European stocks are set for a more subdued start, with financial spreadbetter IG Markets expecting Britain's FTSE 100 to open marginally lower, France's CAC 40 to start the day fractionally higher, and Germany's DAX to climb about 0.1 percent on the open.
MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.5 percent on Friday, diverging from Wall Street, which posted slight declines overnight.
Europe's STOXX 600 index also closed lower as appetite for risk remained subdued ahead of the new year.
In a year marked by major political shocks, including Brexit in June and the unexpected election of Donald Trump as U.S. president in November, Asia Pacific ex-Japan stocks are poised to record a 3.8 percent gain.
Despite the modest figure -- the Dow Jones Industrial Average, in contrast, is up a whopping 14 percent -- 2016 had the Asia-Pacific index's best performance in four years.
China's CSI 300 index added about 0.1 percent in its first session of gains this week. But mainland stocks are poised to be this year's worst performers in the Asia Pacific with declines of about 12 percent.
Hong Kong's Hang Seng rose 1 percent, its biggest one-day rally in 5 1/2 weeks, helping the index eke out a 0.6 percent gain for the year.
Thailand, after an almost 20 percent surge, is set to be the region's best-performing major market, followed by Indonesia, which has soared 16 percent. Along with China, Malaysia, down 3.4 percent, and the Philippines, down 1.5 percent, were the only other markets poised to post losses for the year.
Japan's Nikkei closed down 0.2 percent on Friday, erasing most of this year's meagre gains and ending 2016 up only 0.4 percent. While this is its fifth straight year of increases, it is also its worst performance in the time, with the index slammed by the safe-haven yen's 21 percent surge from the start of 2016 to its peak after the Brexit vote.
The Japanese currency has fallen more than 15 percent since that peak -- with most of the losses since November driven by a surge in the dollar, reflecting exuberance over Trump's anticipated stimulatory policies -- but is still set for a 3 percent gain versus the dollar this year.
"2016 has been a year of changes and these changes have hardly been slight," Jingyi Pan, market strategist at IG in Singapore, wrote in a note. "A preference for safe haven assets to tide through the year-end have set in, with gold and yen taking off."
The dollar, which earlier fell to the lowest in more than two weeks, climbed 0.1 percent to 116.74 yen, recording gains of 10.7 percent against the yen since its pre-election close.
The dollar index, which tracks the greenback against a basket of six major global peers, dropped 0.25 percent to 102.41 on Friday, following a 0.6 percent slide on Thursday, but is poised to end 2016 3.8 percent higher.
The euro jumped as much as 2 percent early on Friday, its biggest intraday gain since Nov. 8, before settling back down to trade 0.3 percent higher at $1.0525.
"It's a really thin market today, and suddenly, offers disappeared and short-term players pushed the euro higher and took out stops. That's all," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
The common currency is still down 3 percent for the year.
The Chinese yuan is on track to record its biggest annual loss since 1994. The dollar has strengthened 7 percent versus the Chinese currency this year, as China's efforts to shore up its currency by selling the greenback have been undercut by worries about slowing Chinese economic growth and expectations for faster U.S. expansion.
U.S. bond yields, which had been climbing since the U.S. election on expectations of higher interest rates, have reversed course over the past two weeks as investors have sought shelter from risk. They were little changed at 2.4774 percent on Friday, lingering near a two-week low touched overnight.
Gold touched a two-week high on Friday, basking in its safe haven status amid the broad pull-back in risk.
Spot gold edged up 0.3 percent to $1,161.50 an ounce, building on Thursday's 1.4 percent surge. It is headed for a 9.5 percent jump this year, snapping a three-year losing streak.
Oil prices inched up as optimism over a deal to curb outputs that is set to take effect at the start of the new year offset an unexpected increase in U.S. inventories.
U.S. crude added 0.4 percent to $53.99 a barrel on Friday, after losing 0.5 percent on the U.S. stock rise. It is on track for a 47 percent surge this year, its best annual performance since 2009, recovering all of its 2015 losses.
Brent crude added 1.8 percent to $57.16, despite a paltry 0.1 percent loss on Thursday. It is headed for an eye-watering 53 percent gain this year, within a hair of where it was at the start of 2015.
Reference: Nichola Saminather
U.S. stock index futures were little changed on Thursday, a day after the S&P 500 index turned in its biggest fall in two months, putting a damper on a post-election rally.
Trading volumes are expected to remain light. But traders will be keeping an eye on jobless claims, which likely fell to 264,000 last week. The data is due at 8:30 a.m. ET
U.S. equities had been enjoying a rally since the presidential election in November on bets that Donald Trump would introduce tax cuts, deregulation and higher infrastructure spending that would spur economic growth.
The near two-month rally has seen the three main Wall Street indexes rack up double-digit percentage gains, but has left some market participants nervous about a potential correction.
The S&P 500 index suffered its biggest one-day percentage drop on Wednesday, following weak housing data and losses in the technology sector. The down day also led the Dow away from its pursuit of 20,000.
The dollar index .DXY fell 0.4 percent on Thursday, after seeing its best rise this month.
U.S. crude prices were off 0.4 percent after data showed a surprise increase in U.S. inventories.
Nvidia's shares fell nearly 3 percent to $106.06 in heavy premarket trading, setting the stock up for a second straight day of losses after short-seller Citron Research tweeted that the chipmaker's stock could fall to $90 in 2017.
Shares of Advanced Micro Devices, Nvidia's rival, were off 2.6 percent.
Cempra dropped 14.75 percent to $5.20 after the drug developer said the U.S. Food and Drug Administration rejected its antibiotic to treat pneumonia.
Futures snapshot at 6:58 a.m. ET:
* Dow e-minis 1YMc1 were down 8 points, or 0.04 percent, with 13,981 contracts changing hands.
* S&P 500 e-minis ESc1 were up 0.25 points, or 0.01 percent, with 61,004 contracts traded.
* Nasdaq 100 e-minis NQc1 were down 2.25 points, or 0.05 percent, on volume of 11,087 contracts.
Reference: Yashaswini Swamynathan
Thursday, 29 December 2016
The dollar sagged against the yen on Thursday, weighed down by U.S. yields slipping to two-week lows and an ebb in risk appetite that favoured the safe-haven Japanese currency.
The dollar was down 0.4 percent at 116.800 yen JPY=, having come down from a high of 117.815 touched overnight.
Treasury yields fell in the wake of weaker-than-expected U.S. pending home sales data and a robust debt auction. [US/]
The greenback also felt pressure from the safe-haven yen, which provided a home for funds retreating from the region's riskier assets.
The euro was given breathing space as the dollar weakened against its Japanese peer. The common currency was up 0.2 percent at $1.0437 EUR= after falling to as low as $1.0372 the previous day.
"The dollar looks like it has run its course against the yen for now. But against the euro, the dollar still has room to gain as the pair is now trying to catch up to the widening between U.S. and German yields," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
The spread between the 10-year U.S. Treasuryand German bund yields is the widest on record stretching back to 1990.
The spread has been increasing recently on the divergence between European and U.S. central bank policy and outlooks for growth and inflation.
The common currency already hit a near 14-year low of $1.0352 last week and analysts expect it to eventually reach parity with the dollar next year. The euro has fallen 3.8 percent this year.
The dollar index was down 0.2 percent at 103.080 .DXY, but still in reach of a 14-year high of 103.650 struck last week. The index has gained 4.4 percent this year, the bulk of the rise taking place after the U.S. elections early in November.
The index has climbed on expectations that Donald Trump's incoming administration will boost U.S. growth through fiscal stimulus, which could be accompanied by monetary tightening and higher yields.
Against the yen, the dollar was en route for a loss of nearly 3 percent in 2016, although it has rallied more than 10 percent since Trump's election victory.
"While the market collectively may not be focusing on the story, dollar strength could become a domestic political issue in 2017 should it persist," wrote strategists at BNY Mellon.
"Should the dollar make substantial gains from here, particularly against the yen, it will be interesting to see how president-elect Trump responds given his previous comment."
Trump earlier in the year had criticised Japan, along with China and Mexico, saying Tokyo has deliberately lowered the yen's value against the dollar.
Sterling was up 0.1 percent at $1.2239. The pound was still in reach of a two-month low of $1.2201 set overnight amid fresh uncertainty over Britain's Brexit negotiations.
The currency, dogged by Britain's mid-year decision to leave the European Union, hit a three-decade trough below $1.1500 in October and was on track to lose 17 percent in 2016.
The Australian dollar was up 0.25 percent at $0.7195 The Aussie was headed for a decline of 1.2 percent on the year against a broadly stronger dollar.
The New Zealand dollar fared a little better, having risen 1.4 percent this year. While the kiwi lost steam towards the year's end against the rampant dollar, it benefited from New Zealand's sound economic growth and relatively higher interest rates.
Reference: Shinichi Saoshiro
Expectations U.S. inflation and growth will outstrip the rest of the developed world's prodded the dollar higher across the board on Wednesday, knocking half a cent off the euro and driving sterling to a two-month low.
Further gains for the greenback are one of the big consensus plays for financial investors going into 2017, although there have been signs of more doubt in recent weeks, with analysts beginning to wonder how much further appreciation a Donald Trump White House will tolerate.
After a mixed morning in Europe, by 1150 the dollar was up 0.6 percent at $1.0399 per euro and 0.3 percent at 117.78 yen. Sterling also fell as much as half a percent to reach $1.2222, its lowest since Nov. 2, before steadying.
"Our case is that there’s probably a bit more room for (the dollar) to run," said Dominic Bunning, a strategist with HSBC in London.
"And if it does, (the market will look at) how long before the combination of higher rates and a stronger dollar start to weigh on the U.S. economy and tighten financial conditions enough that it slows the economy."
Some analysts pointed to the rise in the European Central Bank's estimates of how much additional capital will be needed to prop up Italian bank Monte dei Paschi di Siena as another source of euro weakness.
With little evidence of much speculative money at work in reduced holiday volumes, Bunning said there was likely to be steady pressure on the pound from Britain's large current account deficit - seen as an important weakness as the government heads into negotiations on its EU exit.
"In a world where you have a current account deficit that is 5 or 5.5 percent of GDP ... the pressure on the currency will continue to weaken it if there isn’t capital to finance that deficit," he said.
Trump's concern over the rate of the Chinese yuan is well known, but BNY Mellon strategist Simon Derrick also points to similar comments he made earlier this year on Japan's drive to weaken the yen.
"While the market collectively may not be focusing on the story, dollar strength could become a domestic political issue in 2017 should it persist," Derrick said.
"Should the dollar make substantial gains from here, particularly against the yen, it will be interesting to see how president-elect Trump responds given his previous comment."
The dollar has gained 16 percent against the yen from lows hit on U.S. election night in November.
Reference: Patrick Graham and Jemima Kelly
Wednesday, 28 December 2016
Asia stocks followed Wall Street higher on Wednesday, while the dollar firmed against the yen following the release of upbeat U.S. economic data overnight.
Crude oil prices held large gains on expectations of supply tightening once oil-producing nations implement a scheduled output cut.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.5 percent.
Australian stocks rode a rise in commodities to gain 1 percent. Indonesian shares added 1.9 percent while Shanghai shed 0.3 percent. Japan's Nikkei rose 0.1 percent.
U.S. stocks had gained slightly on Tuesday, supported by upbeat consumer and housing data, with gains in technology shares lifting the Nasdaq Composite to a record close.
The dollar was 0.1 percent higher at 117.600 yen. It was lifted after previous day's data showed U.S. consumer confidence hitting its highest level in more than 15 years in December, in addition to robust housing numbers.
"Until data starts to turn negative or the headlines suggest that (U.S. president-elect) Trump's stimulus programme could fall short of expectations, the dips in the dollar will be shallow with the currency aiming for new highs," wrote Kathy Lien, managing director of FX strategy for BK Asset Management.
"But at the first sign of bad news there could be massive correction in what is quickly becoming a crowded long dollar trade," Lien added.
The dollar index was steady at 102.930. The euro inched up 0.2 percent to $1.0474 and sterling recovered most of the previous day's losses to stand 0.2 percent higher at $1.2286.
U.S. Treasury yields rose on Tuesday to one-week highs in response to the strong domestic data which reinforced hopes for a series of monetary tightening by the Federal Reserve next year.
In commodities, U.S. crude was a touch lower at $53.84 a barrel after an overnight surge of 1.7 percent.
Oil has rallied into the year-end, albeit in thin trade, with support from expectations of tighter supply once the first output cut deal between OPEC and non-OPEC producers in 15 years takes effect on Sunday.
Firmer oil prices and upbeat U.S. data helped support the wider commodity market. Copper on the London Metal Exchange was up 1.6 percent at $5,565 per tonne as trading resumed after the Christmas holidays.
Shanghai zinc and nickel prices were also pulled higher.
"There is strong positive sentiment on the outlook for these industrial metals going into 2017, and that's what we're seeing today," said a Perth-based commodities trader. "Let's see if this carries in to the main LME session later on."
Iron ore on the Dalian Commodity Exchange extended gains after breaking a 9-day slump the previous day. It was last up 3.5 percent at 569.0 yuan ($81.82) per tonne.
The raw material has risen about 170 percent this year, boosted by expectations of Chinese stimulus. It has also benefited from hopes that the incoming Trump Administration will increase infrastructure spending.
Reference: Shinichi Saoshiro
Wall Street opened slightly higher on Tuesday, with the Dow Jones Industrial Average resuming its march toward 20,000 and the Nasdaq hitting a record, helped by gains in technology shares.
Energy stocks also rose, supported by oil prices. U.S. crude was up 0.94 percent at $53.52, while Brent crude inched toward $56 as a deal to limit supply comes into effect on Sunday.
The Dow Jones industrial average .DJI marked its seventh straight week of gains on Friday, feeding on optimism that President-elect Donald Trump's plans for deregulation and infrastructure spending would bolster the economy.
"The first day of trading in the final week of 2016 is not likely to reverse form last week's trading sessions," Peter Cardillo, chief market economist at First Standard Financial wrote in a note.
Global markets made small gains on data that showed Chinese industry racked up its strongest profit growth in three months in November, suggesting the world's second-largest economy was improving.
Ten of the 11 major S&P 500 sectors were higher, with technology and energy stocks giving the broader index its biggest boost.
At 9:36 a.m. ET, the Dow Jones was up 29.42 points, or 0.15 percent, at 19,963.23. The index was just 13 points away from the psychological milestone of 20,000 last Tuesday.
The S&P 500 .SPX was up 5.49 points, or 0.24 percent, at 2,269.28.
The Nasdaq Composite .IXIC was up 15.38 points, or 0.28 percent, at 5,478.07, after hitting a record high of 5,509.56.
Apple was up 0.62 percent at $117.24 and was the top stock on the three main Wall Street indexes.
Biogen shares rose 2 percent to $293.28 after the U.S. Food and Drug Administration on Friday approved its drug to treat spinal muscular atrophy, the leading genetic cause of death in infants.
Ionis Pharma, which discovered the drug licensed to Biogen, was up 5.5 percent at $56.36.
Seattle Genetics Inc plunged 14 percent after four people died in trials testing its experimental cancer drug, prompting the FDA to impose a clinical hold on the company's early-stage trials.
Advancing issues outnumbered decliners on the NYSE by 1,697 to 894. On the Nasdaq, 1,353 issues rose and 920 fell.
The S&P 500 index showed 16 new 52-week highs and one new low, while the Nasdaq recorded 53 new highs and six new lows.
Reference: Yashaswini Swamynathan
Tuesday, 27 December 2016
Traditional measures of volatility at historic lows and Wall Street stocks at new record highs went hand-in-hand in 2016 with traders fretting about bouts of wild stock-price swings and currency flash-crashes.
The past year has been nothing if not paradoxical for financial markets - a landscape that will probably persist in 2017.
The proliferation of automated trading and passive investing, extreme levels of speculative positioning in an increasingly regulated broking world suggest investors should brace for periodic turbulence even if markets are mostly calm.
While the measures of future or implied price volatility look remarkably subdued, they are disguising a minefield in individual securities and currencies, and - during particular periods - micro market storms that may become magnified as U.S. interest rates rise and other central banks step back from years of anaesthetising money-printing.
An analysis of intraday volatility across major equity, bond and currency markets shows that episodes of sudden, extreme market volatility has become more commonplace in the last two years, even though implied volatility has been contained.
With the world's biggest investment banks shrinking market-making activities and balance sheets to comply with post-crisis regulations, the scope for sudden market shocks is rising.
"Trades often move in bigger size, quicker, and in blocks," said Charlie Bristow, co-head of rates trading at JP Morgan. "The speed at which order book depth can go from high to low is a new phenomenon, and it won't go away if volatility remains where it is."
Officials at the Bank for International Settlements have said that the VIX index is no longer the default barometer of investor sentiment and risk appetite - that's now the dollar - and that bouts of extreme volatility will be more commonplace.
Not much of a concern, Claudio Borio, head of the BIS' monetary and economic department, says, along as such bouts pose no threat to institutions' stability or market functioning.
GET ME BLOCKS
Part of the issue is that markets are now driven by lightening quick, complex, computerised trading programmes at the big banks and investment funds. Many of these algorithmic models pick up the same 'buy' and 'sell' signals, magnifying price swings.
These conditions triggered the "flash crash" in sterling on Oct. 7, which the BIS is investigating with input from the Bank of England.
The pound dived and rebounded by about 10 percent in a few minutes in early Asian trading that day, an unprecedented swing for a major currency at an hour when the market is at its lowest ebb.
Market participants generally agree that algorithmic machine trading that makes up much of the global currency market played a role, while some have speculated the initial move may have come from electronic news gathering software or other parameters used in trading programmes.
"We have moved towards more transparent and more automated markets. What that means is that when something happens, firstly everyone knows about it and, secondly, it tends to happen very quickly," said Vlad Khandros, global head of market structure and liquidity strategy at UBS.
In equities, the surge in the use of exchange-traded funds which provide investors access to markets at a much lower cost than traditional actively-managed portfolios has significantly altered trading.
Roughly 10 percent of a full-day's average trading volume across U.S. exchanges now happens at the close, UBS estimates, nearly double levels seen a few years ago, as ETFs are benchmarked to closing prices.
Institutional investors who buy and sell in large quantities are getting increasingly averse to trading intra-day on traditional exchanges when volumes are light.
"What we keep hearing from clients is 'get me blocks'," said UBS' Khandros, referring to large transactions that brokers help facilitate.
This creates a self-fulfilling cycle of higher trading volumes concentrated in smaller windows on any given day leaving markets prone to sudden swings when no large investor is around to step in.
Yet the speed of the market recovery from the Brexit and U.S. election votes set a record since 2004, according to Bank of America Merrill Lynch.
There will be no shortage of similar risk events next year. Germany and France hold general elections, with the populist far right in both countries expected to gain ground.
The lack of visibility on what Donald Trump's presidency holds could be doubly unnerving given that the Fed is expected to continue raising interest rates.
Wall Street is at a record high, the dollar a 14-year peak, and speculators bets against 10-year U.S. Treasuries on the Chicago futures exchange are near record levels.
According to Deutsche Bank, world stocks have added $3 trillion in value since Trump's victory and the value of world bonds has slumped by the same.
Yet all signs point to markets being more fragile than the low level of aggregate volatility suggests.
Higher rates, a shift to fiscal stimulus and changing political winds all mark big shifts from the post-2008 investment world and will likely require a significant adjustment in approach.
"Volatility can no longer be put back into the central bank box," BAML analysts wrote.
Reference: Jamie McGeever and Vikram Subhedar
Asian stocks were mostly higher on Tuesday, in thin trade and with little to guide them as most major markets were closed on Monday for Christmas holidays, while the dollar reclaimed its losses from Monday.
Financial spreadbetter IG Markets is predicting a flat start for Germany's DAX .GDAXI and France's CAC 40 .FCHI, with Britain closed for a holiday in lieu of Christmas.
MSCI's broadest index of Asia-Pacific shares outside Japan was marginally higher, with Australia, New Zealand and Hong Kong closed.
Japan's Nikkei .N225 closed little changed.
"It is the time of the year when markets trade with hushed tones," Jingyi Pan, market strategist at IG, wrote in a note. "The magnitude of moves could remain capped with thin market trades expected to remain the case."
China's CSI 300 index .CSI300 was down 0.1 percent and the Shanghai Composite .SSEC slipped almost 0.2 percent, despite positive data released on Tuesday.
The mainland's industrial sector profit rose 14.5 percent in November from a year earlier, suggesting the economy was improving, but policymakers noted growth was too dependent on a rebound in the prices for oil products and iron and steel.
Southeast Asian stocks were up, with markets including Indonesia and the Philippines posting gains of as much as 1 percent.
On Friday, Wall Street closed slightly higher in thin trade.
The 10-year U.S. Treasury yield extended gains by almost 1 percent on Tuesday, more than recovering Monday's losses.
The previous session's declines came after data on Friday showed U.S. consumer spending increased modestly in November as household income failed to rise for the first time in nine months. The data suggested the economy slowed in the fourth quarter after growing briskly in the prior period.
Still the slowdown in growth is likely to be temporary, with the labour market near full employment, house prices rising and the stock market rallying close to record highs. Consumer confidence, in addition, is at its highest level since July 2007.
European stocks were little changed on Friday, although banks rose after Deutsche Bank (DBKGn.DE) and Credit Suisse (CSGN.S) settled investigations into U.S. mortgage securities sales, while Italy's government approved a bailout for Monte dei Paschi bank.
"Shares are overbought and due for a bit of profit-taking but moves toward a resolution of bank woes are helping in Europe, global economic data is mostly good and the period around Christmas/New Year is normally positive for shares," Shane Oliver, head of investment strategy at AMP Capital in Sydney, wrote in a note.
The bounce in U.S. yields boosted the dollar, which also recovered Monday's losses with a 0.2 percent gain to 117.37 yen on Tuesday.
The yen retreated after data on Tuesday showed Japan's ion's core consumer prices posted the ninth straight month of annual declines in November, and household spending fell.
The dollar index .DXY, which tracks the greenback against a basket of six global peers, was little changed at 103.01, about 0.6 percent below the highest level since December 2002 hit a week ago.
The euro EUR=EBS was steady at $1.0449 on Tuesday.
In commodities, oil prices were steady, as markets took a wait-and-see approach to output cuts by both OPEC and non-OPEC producers that are due to start in less than a week.
U.S. crude added 0.1 percent to $53.10 a barrel. Global benchmark Brent slipped 0.1 percent to $55.10.
Spot gold XAU= rose 0.5 percent to $1,139.42 an ounce, although the stronger dollar capped gains.
Reference: Nichola Saminather
Monday, 26 December 2016
The year-end stocks rally on the heels of the election of Donald Trump as U.S. president was built on expectations of reduced regulations, big tax cuts and a large fiscal stimulus.
Now signs are emerging from the Trump camp that harsher trade policies that could jeopardize the honeymoon are likely in the offing, and investors would be well advised to give those prospects more weight when gauging how much further an already pricey market has to run.
By naming China hawk Peter Navarro as head of a newly formed White House National Trade Council, the incoming administration is signaling Trump's campaign promises to revisit trade deals and even impose a tax on all imports are very much alive.
Among the policies favored by Navarro and Trump's pick for commerce secretary, Wilbur Ross, who has the president-elect's ear on a range of economic issues, is a so-called border adjustment tax that is also included in House Speaker Paul Ryan's "Better Way" tax-reform blueprint.
If implemented, economists at Deutsche Bank estimate the tax could send inflation far above the Federal Reserve's 2 percent target and drive a 15 percent surge in the dollar.
Analysts calculate that, all else being equal, a 5 percent increase in the dollar translates into about a 3 percent negative earnings revision for the S&P 500 .SPX and a half-point drag on gross domestic product growth. The dollar index .DXY has already gained more than 5 percent since the U.S. election.
Harsher trade policies may not cause a full economic slowdown, "but I'd expect a localized recession in manufacturing and smaller gains in factory employment as well," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
He said the border tax could trigger retaliation, pouring uncertainty into the market.
"Even if the drafters of the legislation have pure intentions, other countries could use this as a pretext for propping up or subsidizing their own favorite industries."
TOP ECONOMY RISK
Stocks have rallied broadly since Nov. 8, with the S&P 500 advancing by 5.7 percent and the Dow Jones Industrial Average .DJI surging nearly 9 percent to brush up against the 20,000 mark. Some sectors, such as banks .SPXBK, have shot up nearly 25 percent in the post-election run.
U.S. equities have gotten substantially pricier from a valuation vantage as well. The forward price-to-earnings ratio on the S&P 500 has risen by a full point since Election Day, from 16.6 to 17.6, Thomson Reuters data shows. That makes stocks about 17 percent more expensive, relative to their earnings potential, than their long-term average multiple of around 15.
Small caps have gotten pricier still. The forward multiple on the Russell 2000 has risen to 26 from 22 on Nov. 8, up 18 percent, while the index price has climbed 14 percent.
S&P 500 earnings are expected to rise 12.5 percent next year, according to Thomson Reuters Proprietary Research estimates. Anything that impedes companies from achieving that target, such as a bump from a trade spat or further dollar appreciation in anticipation of new trade barriers, would undermine equity valuations.
In the latest Reuters poll of U.S. primary dealers, economists at Wall Street’s top banks cited Trump’s evolving trade policies over other factors, such as fiscal policy, a strong dollar and higher interest rates, as the greatest risk to the near-term economic outlook.
The idea of a tax on imports "should alarm people," according to Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.
"If we do have a trade war that's going to be a major negative" for stocks, he said, adding that the upward momentum in equities, alongside the lack of participation due to the upcoming holidays, have so far prevented a repricing but "we could cap the rally here, that could very well happen."
O'Rourke said technology, a sector that represents the globalization trade, would be among the hardest hit by taxing imports.
Deutsche Bank's auto sector equities analyst estimated the border tax could slam other industries that rely on global supply chains, with the cost of a new car, for instance, jumping by as much as 10 percent.
Reference: Rodrigo Campos
The dollar dipped against the yen on Monday, edging lower down after U.S. Treasury yields dipped on mixed economic data.
Trading was subdued with many key markets shut on Monday for the Christmas holidays.
The greenback was down 0.2 percent at 117.300 yen JPY=. The euro was steady at $1.0457 EUR=.
Currencies took stock of the U.S. debt market, which saw the benchmark 10-year note yield end lower on Friday.
The yield pulled back from 27-month peaks scaled mid-month following Friday's release of U.S. economic indicators that included strong housing and consumer confidence data but also numbers that pointed to slower household income.
"The currency market is likely to lack incentives as major markets in Asia, Europe and North America will be closed. That said, dollar/yen risks drifting below 117 on caution toward the Trump administration's protectionist policies," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
U.S. President-elect Donald Trump last week named economist Peter Navarro, known as a China hawk, to head a newly formed White House National Trade Council.
The Australian dollar was flat at $0.7178 AUD=D4 after dipping to $0.7160 on Friday, its lowest since May, following a media report saying Chinese President Xi Jinping was open to growth China's economy falling below 6.5 percent.
Reference: Shinichi Saoshiro
Saturday, 24 December 2016
The total value of all bitcoins in circulation hit a record high above $14 billion (11.33 billion pound) on Thursday, as the web-based digital currency jumped 5 percent on the day to its highest levels in three years after more than doubling in price this year.
The price of one bitcoin reached $875 on the Europe-based Bitstamp exchange BTC=BTSP, its strongest level since January 2014, putting the cryptocurrency on track for its best daily performance in six months.
That compared with levels around $435 at the start of the year, with many experts linking bitcoin's rise with the steady depreciation of the Chinese yuan, which has slid almost 7 percent this year CNY=CFXS.
Data shows the majority of bitcoin trading is done in China, so any increase in demand from there tends to have a significant impact on the price.
Bitcoin is a web-based "cryptocurrency" that can move money across the globe quickly and anonymously with no need for a central authority. That makes it attractive to those wanting to get around capital controls, such as China's.
The digital currency is still some way off the peaks it scaled in late 2013, when it traded as high as $1,163 on the Bitstamp exchange.
But because more bitcoins continue to be added to the system, currently at a rate of 12.5 every 10 minutes, its total value - or "market cap" - on Thursday surpassed the 2013 peak of around $14.01 billion. That puts its total value at around the same as that of an average FTSE 100 company.
Charles Hayter, founder of data analysis website Cryptocompare, said bitcoin had been helped higher by demonetisation in India, and by global political uncertainty.
"If that trend continues, bitcoin is a good thematic play on the fracturing of our global norms as a flight to safety," he said.
Reference: Jemima Kelly
Friday, 23 December 2016
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One of the biggest challenges facing traders is the choice of a broker. There is a wide variety and many various kinds of services—so this is not a simple decision. The choice you make will influence your profits as well as the success you have in your career.
After perusing the earlier articles in this section, you should better understand the actual role of a broker and the different types that you have to choose from. However, it is important to check out all of the brokers that you are interested in through the Broker reviews that Tradingfo offers.
One of the most effective ways to give a trading platform and a broker's services a dry run is to set up a demo account with that broker. These accounts are free, and they show you the commission structure, the practices of the broker, and the services available.
The majority of brokers even offer fictitious money in demo accounts to give you some practice. These accounts pose you no risk, and the process is just the same as when you are working with a real account.
This article shows you the different elements to consider when selecting a broker for your investments.
Is the broker licensed by such relevant oversight organizations as the SEC, FSA or CNMV?. This will ensure that your broker does not commit fraudulent transactions and stays within the rules.
Check if the broker is regulated under financial authorities, such as the FSA or FCA.
Ask if the broker you are considering stores your money in an account separate from the main company account. This is the best practice, and it is what most reputable brokers do. This way, if the broker ends up bankrupt or has to close his doors, your trading money is safe in its own account.
Check if the broker holds your funds in a segregated account.
Examine the structure of costs with your broker. Common costs include commission costs, commission structure, fees for inactivity and the overnight rate of interest. Commission costs will slowly bring your account downward. All brokers have commission structures, so make sure that yours are as reasonable as possible.
Costs and commissions vary from one broker to the next. Check which commission structure the broker uses.
Some brokers offer margin accounts, while others only offer cash accounts. Margin accounts allow you to borrow with an investment, so find out the amount of leverage your potential broker offers, and see if his offering matches what you need for your investments.
Check what type of leverage and margin the broker offers.
Spread – Some brokers offer a fixed spread, while others offer a variable one. Find out the overall spreads for the products that you are interested in. The majority of brokers market the lowest spreads they are able to offer. The lower the spread, the higher your chance of profiting from a particular trade.
Find out the overall spreads for the products that you are interested in.
Some brokers take the opposite their client's position, while others put a client trade right on the exchange. Find out which one your broker does.
Find out which type of broker it is—such as MM, STP or ECN—to find out what business model the broker uses.
Requirements for Deposit
Each broker has a different rule for this, so you'll want to know what your potential broker requires. Some require $20,000, while others don't require any minimums at all. You may find that commission structure is more costly with a lower minimum, so make sure to keep both of those factors in mind.
Find out what the required minimum deposit is for the broker to be in line with your investment needs.
Will the broker credit your account when companies release their dividends? When you are looking at stocks, this is an important question. The majority of brokers do offer dividend payout, and you are entitled to dividends in some cases, even if you don't actually own physical stock. Some traders look at payouts when they’re putting their whole strategies together, so make sure that you find out about this.
Find out if the broker pays dividends when you are holding stocks.
Withdrawals and Deposits
If you’re facing a margin call, you will need to know how long it will take for a deposit to register in your account. Also, you might need money from your brokerage account, so find out the withdrawal process as well.
Find out how much time deposits and withdrawals take.
You need a broker who responds quickly to your needs. This is a good reason to set up a demo account, because it gives you a chance to use the entire organization. Review the contact information for the customer service desk, as well as the hours when you can call in. If you find that your Internet goes down when you are sitting in a big position, you will need it resolved quickly. You can look at this by calling your broker or sending a quick email.
Contact the broker to test their customer service practices.
Types of Brokers
Retail investors have access to four different types of brokers.
Full-service brokers – These are brokerage firms that give you a whole suite of financial services, including market analysis, trading tools and investment advice. They help traders find profitable opportunities in the market. These are the most expensive brokers, but you also get the most in terms of services.
Full-service brokers offer complete financial packages. However, this is the most expensive type of broker.
Discount Service Brokers – These brokers also manage client trades, but they offer fewer services than a discount service broker does. This type of broker can save you 92% in comparison to a full-service broker.
Deep-discount brokers also manage client trades but offer fewer services and are a cheaper alternative than full-service and discount service brokers.
Online Discount Broker – This sort of broker allows you to handle all of your services online, giving you complete control over your positions.
Online discount brokers give you complete control over your investments and are the least expensive option for your investments.
Types of Accounts
As stated previously, you can have either a cash account or a margin account.
Cash account – Some brokers will require cash accounts in order for their customers to trade. They require the customer to pay—in full and on the established day—the full amount of the transaction costs. These accounts are usually required for Full-Service Brokers and Discount Service Brokers.
Discount Service Brokers – This is the most active type of account, allowing clients to borrow money from the broker to gain leverage on their trades or transactions. You will usually find Margin accounts in Online Discount Brokers. Trading on margin is risky as it allows you to trade expensive products with high amounts of leverage.
This overview gives you a look at the various criteria you should have in mind when selecting a broker. The choices you make will influence your ability to make profits off your trades. The more experience you have with trading, the less assistance you are likely to need from your broker. Make sure that you give your investments the very best chance by choosing a combination of service, commission and security.
Reference: Jack Maverick
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Sterling fell to a two-week low against the euro on Thursday after a survey of British consumers showing a gloomy view of the economy's prospects next year kept it on the defensive against a perky single currency.
It was sterling's fourth consecutive daily fall against the euro, its longest losing streak since August, as it got caught in the slipstream of the single currency's recovery from a 14-year low against the greenback this week.
Weakness against the euro also kept the pound anchored near a one-month low against the dollar in quiet trading ahead of the Christmas holiday period.
A big jump in households' appetite to make major purchases helped market research company GfK's monthly consumer sentiment index inch up to -7 in December from -8 in November, but this concealed a deterioration in consumers' outlook for 2017.
Expectations for the year to come are now the weakest since just after June's vote to leave the European Union, and before that they were last lower in April 2013, when the economy had suffered a period of sluggish growth.
"Both the economic and financial situation expected by consumers over the next 12 months has deteriorated, and hints that confidence will slide more clearly in the first half of 2017," JP Morgan economist Allan Monks said.
By 0900 GMT sterling was down 0.3 percent at 84.65 pence, edging further away from five-month highs of 83.05 pence touched this month.
The euro was higher against the dollar at $1.0450, up a cent from Tuesday's 14-year low of $1.0350.
Sterling slipped 0.1 percent against the dollar to $1.2341, drifting back towards Tuesday's one-month low of $1.2311.
Sterling has for the past six months been less sensitive than usual to economic data, driven more by concerns over Britain's departure from the EU. Any signs that a hard Brexit, in which Britain loses access to the single market, is on the cards have tended to drive down the currency, with signs to the contrary giving it a boost.
Reference: Jamie McGeever
Thursday, 22 December 2016
Why Should You Keep a Trading Journal?
A trading journal is a record of all your trading activity. Many traders do not keep a trading journal and this may have some negative consequences.
Here are a few reasons why you should keep a trading journal.
There have been occasions when brokers have tried to shortchange traders. A trader on a particular platform had a peculiar case. He opened a trade and forgot it for a number of months as he had to travel on an assignment. When he came back to his trade, he had made tens of thousands of dollars on it. He took a snapshot of the screen and closed the trade in profit. Hours later, the unscrupulous broker scrubbed that trade from his trading history, and removed the profit from his account. His snapshot, taken as part of his trading journal, decided the case in his favour when the matter went to the regulators.
A trading journal with such records can be the difference between you protecting your profits or losing them.
2) Measuring Your Trade Performance
A trading journal will show you at a glance if your trading is progressively getting better, worse or simply stagnant. The trading journal in such instances will be your performance database. You can tell which strategy is working for you, which currency pairs you have more proficiency in, what works for you and what doesn’t. You may also use it for your own historical studies of the market. Knowing why you lost at a trade is a new trade half won. This is what a trading journal can do for you.
3) Future Planning
Every trader enters the forex market to make money. But many do not have an idea as to how much money they want to make and how they intend to achieve their target. This is where the trading journal comes in. Your journal will tell you how to structure your trades using minimal risk so that you can achieve set profit targets. You will know those strategies which deliver good rewards per trade at minimal risk.
4) Psychological Reinforcement
The value of psychological reinforcement in any human venture cannot be ignored. When the temptation to act out some degree of confusion in forex comes, you can look at your trading journal and this may help you stick to the plan. Your written visions keep you in track so you do not step out of line.
How to Keep a Trading Journal
You may have several trading journals if:
1. You have several trading accounts.
2. You use several trading strategies.
3. You have different money goals (short term and long term income expectations).
Keeping journals for each trading account, strategy and financial goal provides a means of comparison at a glance. In addition to writing your vision, money goals, plans and strategies, you should also keep visual evidence of your trading activity so you avoid the kind of unpleasant surprises painted in the first paragraph of this article.
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The dollar eased from 14-year highs on Wednesday, giving back some of the gains chalked up since Donald Trump's U.S. election victory, while concerns over banks pulled European shares lower.
Wall Street also looked set to open lower, according to index futures, after the Dow Jones industrial average climbed to within 25 points of the 20,000 mark on Tuesday.
A widespread conviction that Trump's policies will boost the U.S. economy has powered the dollar and Treasury yields since the Nov. 8 election pushed U.S. stocks to record highs.
Some investors seemed ready to cash in the gains in thin pre-Christmas trade, driving a 0.4 percent fall in the dollar index .DXY, which measures the greenback against a basket of major currencies. This had risen 5 percent this year and reached a 14-year peak on Tuesday.
U.S. 10-year Treasury yields, which hit their highest in more than two years last week after the Federal Reserve raised interest rates and forecast more hikes than most investors had expected, fell 1.3 basis point to 2.56 percent .
Benchmark 10-year yields have risen almost 80 bps since early November.
The euro, which touched a 14-year low on Tuesday, rose 0.4 percent to $1.0430 while the yen Jgained 0.6 percent to 117.10 per dollar.
Many analysts still see the dollar rising further, possibly to parity with the euro.
"The euro is in a fight between short-covering pressure and political angst. Economics doesn't come into it at all. If Dow 20,000 is just a number but a magnet all the same, euro parity with the dollar will be every bit as magnetic," said Kit Juckes at Societe Generale.
"We'll get there and get over-excited before too long."
The Swedish crown rose 0.7 percent, its biggest one day rise in six months to a two-month high of 9.6350 to the euro after the Riksbank kept interest rates on hold and expanded its asset-buying program.
European shares fell. The pan-European STOXX 600 index dipped 0.4 percent, having hit an 11-month high on Tuesday, led lower by banking shares .
Italy's Monte dei Paschi di Siena, which must raise 5 billion euros by the end of the month to avoid state intervention, was once again in focus. Its shares dropped 17 percent at one point, before briefly turning positive after lawmakers approved a 20 billion euro plan to prop up the country's weak banks.
Spanish lenders also fell after the European Court of Justice overturned a Spanish court ruling that limited the banks' liabilities for so-called floor clauses in mortgage contracts.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS inched up 0.1 percent after a string of losses. Tokyo's Nikkei share average .N225 also fell, pulling back from earlier one-year highs to close down 0.3 percent.
In euro zone debt markets, German 10-year government bond yields fell 1 bps to 0.25 percent. Among lower-rated bonds, Spanish 10-year yields fell to five-week lows and Italian equivalents also fell on concerns over banks.
The premium over Spain that Italy would pay to borrow in bond markets briefly topped 50 bps for the first time since just after a Dec. 4 referendum on constitutional reform triggered Italian premier Matteo Renzi's resignation.
Oil prices rose on expectations of a fall in U.S. crude inventories. Brent crude, the international benchmark, rose 0.2 percent to $55.55 a barrel.
Gold edged up 0.3 percent to $1,134 an ounce as the dollar slipped.
"With what we're seeing in the dollar at the moment, there is no real driver to push gold lower," ABN Amro analyst Georgette Boele said.
Reference: Nigel Stephenson
Wednesday, 21 December 2016
The U.S. dollar held near 14-year peaks on Wednesday as global yield spreads shifted inexorably in its favour, while early weakness in the yen saw Japanese shares touch a one-year top.
Profit-taking set in as a slow pre-Christmas session dragged on and the Nikkei eased 0.2 percent .N225 in late trade. Spread betters pointed to a small opening loss for European exchanges after shares there hit an 11-month high on Tuesday.
Australia's main index finished at its best level in 17 months after Wall Street racked up more records.
The dollar has been revelling in its rapidly widening yield premium, with the Federal Reserve set on a tightening course even as its peers in Europe and Japan act to keep their short-term rates deep in negative territory.
"It is now clear that the U.S. dollar does have more yield fuel and we would not try to pick even an interim high," said Sean Callow, a senior forex analyst at Westpac.
"Dollar strength should keep pressure on G10 and Asian FX into the new year."
The dollar index, which measures it against a basket of currencies, stood at 103.110 having reached 103.65 .DXY, its highest since December 2002.
The U.S. currency eased a touch on the yen to 117.64 JPY=, but remained in easy reach of the recent peak at 118.66. The euro was a fraction firmer at $1.0409.
On Wall Street, the Dow had ended Tuesday just 25 points shy of the magical 20,000 barrier helped by a 1.68 percent gain in Goldman Sachs (GS.N).
Stocks have been on a tear since the Nov. 8 presidential election, with the Dow up 9 percent and the S&P 500 6 percent on bets that President-elect Donald Trump's plans for deregulation and infrastructure spending might boost profits and growth.
The Dow .DJI rose 0.46 percent on Tuesday, while the S&P 500 .SPX gained 0.36 percent and the Nasdaq .IXIC 0.49 percent. Eight of the 11 major S&P sectors rose, led by a 1.23 percent jump in the financial index .SPSY.
After the bell, Nike rose 3 percent on a strong quarterly report from the sports apparel seller.
Emerging markets have not been nearly as thrilled by Trump's win, as the threat of tariffs has stirred fears of a trade war while rising U.S. yields have attracted funds away.
Benchmark 10-year U.S yields have climbed almost 80 basis points since early November to reach 2.57 percent.
Data from the Institute for International Finance showed non-resident investors had pulled $23 billion from emerging market portfolios since early October.
Chinese markets have also been unsettled by Beijing's move to heighten supervision of shadow banking activities and on talk it may tighten liquidity to crimp the outflow of capital.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS inched up 0.3 percent on Wednesday, but that followed a string of losses.
In commodity markets, oil prices crept higher for a fourth session on expectations data due later in the day would show a U.S. crude inventory draw.
U.S. crude futures CLc1 were up 19 cents at $53.49 a barrel, while benchmark Brent crude futures added 15 cents to $55.50.
Gold held at $1,135.40 an ounce as a firm U.S. dollar kept it near last week's 10-1/2-month low of $1,122.35.
Reference: Wayne Cole
U.S. stock index futures were slightly higher on Tuesday in light trading as investors appeared to have shrugged off Monday's geopolitical incidents but stayed away from making big bets before the holiday season.
Wall Street extended a recent rally on Monday but finished the session short of earlier highs as risk aversion set in following deadly attacks in Germany and the killing of Russian ambassador to Turkey in Ankara.
"2016 is ending with tragic incidents in Turkey and Germany, but investors have become so fast in digesting bad news, and this explains the resilience in financial markets," said Hussein Sayed, chief market strategist at FXTM.
U.S. stocks have been on a tear since the Nov. 8 presidential election, with the S&P rising nearly 6 percent on bets that President-elect Donald Trump's plans for deregulation and infrastructure spending will boost the economy.
The Dow Jones industrial average is less than 1 percent away from 20,000, a level it has never breached.
Still, there are concerns that the rally may have gone too far too soon as uncertainty around Trump's policies remain.
Oil prices edged higher on forecasts of a steep draw in U.S. crude oil stocks that could indicate a global oversupply is starting to shrink. [O/R]
The dollar index .DXY bounced back towards 14-year highs, a day after Federal Reserve Chair Janet Yellen said the U.S. labor market had improved to its strongest in almost a decade, suggesting wage growth is picking up.
Biogen shares fell 0.5 percent to $277.31 in premarket trading, a day after the U.S. drug maker said it had appointed its chief commercial officer as chief executive officer, ending a five-month search.
General Mills fell 4.8 percent to $60.00 after the Cheerios cereal-maker's quarterly profit missed expectations.
Nvidia was up 1.9 percent at $103.60 after brokerages Goldman Sachs and Mizuho raised their price targets on the chipmaker's stock.
Advanced Micro Devices was up 2.3 percent at $11.20 after Mizuho raised upgraded the stock to "buy".
Dow e-minis 1YMc1 were up 29 points, or 0.15 percent, with 12,189 contracts changing hands.
S&P 500 e-minis ESc1 were up 4 points, or 0.18 percent, with 49,098 contracts traded.
Nasdaq 100 e-minis NQc1 were up 5.75 points, or 0.12 percent, on volume of 9,593 contracts.
Reference: Tanya Agrawal
Tuesday, 20 December 2016
A British hedge fund group on Monday laid out its wishlist for Brexit negotiations, with continued access to European Union investors and workers among its goals to limit the damage a UK exit from the bloc could have on the industry.
The comments came as UK hedge funds lobby the British government to ensure the country's exit from the single market does not end their so-called "passporting rights" to sell services freely across the European Union.
"The UK industry should continue to be able to access investors and provide investment management services to clients in the EU following Brexit," the Alternative Investment Management Association (AIMA), a global hedge fund industry association, said in a statement.
After Britain voted to leave the EU on June 23 AIMA said it was in the clear interest of its UK members to have access to EU markets and it would be heavily involved in Brexit negotiations.
"The UK industry should continue to be able to access skilled workers from the EU and beyond following Brexit," the group said, adding that about 20 percent of the UK hedge fund industry workforce was comprised of non-UK European Economic Area nationals.
AIMA said UK firms should be able to manage EU-based funds or accounts even after Brexit and the UK had to retain the flexibility to set its own domestic and international-facing regulatory regime.
"The relationship between the UK and the EU for financial services should be based on an overarching international agreement based on equivalence and reciprocal non-discriminatory access", the industry body said.
Appropriate transitional arrangements should be in place while this relationship is finalised, it added.
In July, the European Securities and Markets Authority (ESMA) said hedge funds from the United States, Singapore and Hong Kong should be allowed to market themselves in the European Union.
ESMA's recommendation to the EU's executive European Commission for endorsement was a taste of what Britain's financial services sector might face after it leaves the bloc.
The yen edged down on Tuesday after the Bank of Japan held policy steady, shedding some gains made following killings in Germany and Turkey, while regional stocks were mixed after Federal Reserve Chair Janet Yellen's upbeat comments.
European stocks were also poised to open mixed, with financial spreadbetter CMC Markets predicting Britain's FTSE 100 .FTSE and Germany's DAX .GDAXI will open little changed, and France's CAC 40 .FCHI will start the day about 0.2 percent lower.
The BOJ maintained its pledge to guide short-term rates at minus 0.1 percent and the 10-year government bond yield around zero percent, while offering a more upbeat view of the economy than in its Nov. 1 assessment.
Stating that the economy continues to recover moderately as a trend, the central bank signaled its conviction that a generally weak yen and a rebound in overseas demand will lift prospects for a solid recovery.
The U.S. dollar advanced 0.6 percent to 117.89 yen, after closing 0.7 percent lower on Monday.
The greenback has risen 12 percent versus the yen since Donald Trump's surprise election victory, on his promises of increased fiscal stimulus.
Trump formally won the U.S. presidency on Monday after receiving more than the 270 Electoral College votes required to be elected.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed earlier gains to trade down 0.2 percent. Volumes were low in some markets ahead of year-end holidays.
Japan's Nikkei .N225, flat before the BOJ decision, ended the day up 0.5 percent.
"There was no particular surprise from the policy meeting, but investors are happy that the economy's fundamentals are finally rising after the BOJ expressed an upbeat view of the economy," said Takuya Takahashi, a strategist at Daiwa Securities.
China's CSI 300 index .CSI300 slid 0.6 percent, as Beijing's move to tighten supervision of shadow banking activities and persistent liquidity concerns restrained risk appetite. Hong Kong .HSI stocks dropped 0.5 percent.
Wall Street ended higher on Monday, albeit below the session's highs, as optimism over Yellen's comments about the U.S. labor market offset some of the risk aversion following the deaths in Germany and Turkey, and a shooting attack in a mosque in Switzerland.
"Yellen painted a very positive picture in her commentary overnight," said James Woods, global investment strategist at Rivkin Securities in Sydney.
"The (Federal Open Market Committee) has done a fantastic job preparing the market for this second and subsequent hikes. Importantly they have continued to stress that the FOMC remains data dependent, only hiking when the underlying fundamentals of the economy support this."
Still, markets were rattled after a truck plowed into a crowded Christmas market in central Berlin Monday evening, killing 12 people and injuring 48 others.
Berlin police said on Twitter on Tuesday that investigators assume the truck was driven into the crowd intentionally in a suspected terrorist attack, and that a Polish man found dead in the truck was not controlling it.
The euro EUR=EBS, which slid 0.5 percent to $1.0401 on Monday, extended losses to trade 0.15 percent lower at $1.03855 on Tuesday.
Pressure also came on the euro after the Russian ambassador to Turkey, Andrei Karlov, was shot and killed at an art gallery in Ankara, the capital.
The Turkish lira recovered 0.3 percent to 3.5196 per dollar on Tuesday after falling 0.7 percent on Monday. The rouble was steady at 61.8926 per dollar. It slumped to as low as 62.0907 per dollar on Monday but recovered to end the day up 0.3 percent at 61.8475.
In Switzerland, a man stormed into a Zurich mosque on Monday evening and opened fire on people praying, injuring three, Swiss police said.
The safe haven Swiss franc remained resilient, holding steady at 1.068 per euro, following a 0.4 percent gain on Monday.
The dollar index .DXY, which tracks the greenback against a basket of six global peers, climbed 0.2 percent to 103.37 on Tuesday, extending Monday's 0.2 percent gain after Yellen's upbeat labor market assessment.
Gold XAU, which rose 0.4 percent on Monday, pulled back 0.3 percent to $1,135.06 an ounce, as the prospect of further U.S. rate hikes outweighed geopolitical concerns.
Oil prices also eased as traders began to unwind positions in the run-up to the holiday season.
U.S. crude slid 0.4 percent to $51.91 per barrel.
Global benchmark Brent slipped 0.2 percent to $54.81.
Reference: Nichola Saminather