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Sunday, 10 December 2017

After bitcoin’s wild week, traders brace for futures launch


NEW YORK (Reuters) - The newest way to bet on bitcoin will arrive on Sunday, when futures of the cryptocurrency that has taken Wall Street by a storm begin trading.

The first bitcoin future trades are set to kick off at 6 p.m. EST (2300 GMT) on CBOE Global Markets Inc’s CBOE Futures Exchange.

This has given an extra kick to the cryptocurrency’s scorching run this year. Bitcoin’s price soared so far this month, but it has made sharp moves in both directions in recent days, falling by almost a fifth on Friday after surging more than 40 percent in the previous 48 hours.

On Sunday, bitcoin was up about 3 percent at $15,000 on the Luxembourg-based Bitstamp exchange. On the Gemini Exchange, it was at $15,650.

Bitcoin fans appear excited about the prospect of an exchange-listed and regulated product and the ability to bet on its price swings without having to sign up for a digital wallet. Others, however, caution that risks remain for investors and possibly even the clearing organizations underpinning the trades.

The futures are cash-settled contracts based on the auction price of bitcoin in U.S. dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss.

“The pretty sharp rise we have seen in bitcoin in just the last couple of weeks has probably been driven by optimism ahead of the futures launch,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

“You are going to open up the market to a whole lot of people who aren’t currently in bitcoin,” Frederick said.

The futures are an alternative to a largely unregulated spot market underpinned by cryptocurrency exchanges that have been plagued by cybersecurity and fraud issues.

The launch has so far received a mixed reception from big U.S. banks and brokerages, though.

Interactive Brokers Group Inc plans to offer its customers access to the first bitcoin futures when trading goes live but will bar clients from assuming short positions and has margin requirements of at least 50 percent.

Several online brokerages, including Charles Schwab Corp and TD Ameritrade Holding Corp, will not allow trading of the new futures immediately.

JPMorgan Chase & Co, Citigroup Inc and other large U.S. banks will not immediately clear bitcoin trades for clients, the Financial Times reported on Friday.

Goldman Sachs Group Inc said on Thursday it was planning to clear such trades for certain clients.

VOLATILITY DAMPENER

Bitcoin’s manic run-up this year has boosted volatility far in excess of other asset classes. The futures trading may help dampen some of the sharp moves, analysts said.

“Hypothetically, volatility over the long run should drop after institutions get involved,” said Ophir Gottlieb, chief executive officer of Los Angeles-based Capital Market Laboratories. “But there may not be an immediate impact, say in the first month.”

Placing futures on an underlying spot market can lend more order to spot trading in the long run by helping to determine the proper price of a security and by allowing investors to express both bullish and bearish biases, said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago.

Analysts warn, however, against trying to predict how the futures will perform, given that bitcoin is unlike any other asset.

“This is completely unknown territory,” said Charles Schwab’s Frederick.

Bitcoin’s meteoric price rise has raised worries that it could collapse soon, although analysts have little concern that this could hurt broader financial markets because the cryptocurrency lacks correlation with other risky assets and is held and traded largely outside the banking sector.

However, there are still fears of inaccurate pricing and systemic risk to clearing houses, should prices move sharply and clients fail to meet margin calls. Brokers have called for more safeguards to protect against bitcoin’s high volatility.

For a factbox on the launch of bitcoin futures contracts, see:

The risk that investors might manipulate the underlying spot market to benefit in the futures market is another big concern.

“Large equity indexes show some volatility around cash settlements, and those are in highly liquid, highly regulated venues,” said Steve Sosnick, chief options strategist at Interactive Brokers in Greenwich, Connecticut.

“Compare that to cash settlement in bitcoin, and there is a lot more uncertainty on how that would play out.”

Reporting by Saqib Iqbal Ahmed

Friday, 8 December 2017

Sterling rises, euro edges down as Brexit deal may be near


TOKYO (Reuters) - Sterling rose while the euro edged down on Friday, as traders waited to see if British Prime Minister Theresa May has finally clinched an elusive deal with Irish and EU officials on how they would run their post-Brexit Irish land border.

The U.S. dollar was higher against a basket of currencies, on track for a weekly gain, as the passage of a bill to temporarily extend U.S. government funding raised investors’ optimism that a tax reform bill would also pass.

The leader of the Northern Irish party which props up May’s government negotiated through the early hours about the post-Brexit Irish land border, a source in the party told Reuters on Friday.

An agreement would remove the last obstacle for opening free-trade talks with the European Union. May is likely to meet European Union chief executive Jean-Claude Juncker before dawn (0600 GMT) in Brussels.

The euro inched down 0.1 percent to $1.1761 EUR=, around its lowest levels since Nov. 22. It was on track to shed 1.1 percent for the week, but is still up nearly 12 percent so far in 2017.

Sterling was up 0.3 percent at $1.3512 GBP=, pulling away from its overnight low of $1.3320.

Forex traders were also awaiting the closely watched U.S. non-farm payrolls report later in the day, which is expected to show 200,000 new jobs were created in November, according to a Reuters poll.

The dollar index, which gauges the greenback against a basket of six major rivals, was slightly higher on the day at 93.830, up 1 percent for the week. But it was still down 8.2 percent for the year, a period plagued by U.S. policy uncertainty.

Removing one major stumbling block for the dollar, the U.S. Congress on Thursday passed legislation to temporarily fund the government through Dec. 22, beating a Friday midnight deadline. The bill will be sent to President Donald Trump to sign.

U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.

“The market action this week has mostly been drawing cues from Washington,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

“But from an economic perspective, as we start to look at the real economy, we will get one of the first ‘clean reads’ on employment,” he said, referring to a jobs report in which the impact of the year’s hurricanes is no longer a factor.

The number of Americans filing for unemployment benefits unexpectedly fell last week to 236,000, data showed on Thursday.

Fed funds futures prices show that investors expect the U.S. central bank to hike rates at its Dec. 12-13 meeting, with investors now focused on how many more hikes to expect in 2018.

“Speculators may think today is a good day to have dollar long positions, and buy the dollar on dips, ahead of the U.S. employment data, and with the Fed expected to hike next week,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

Against its Japanese counterpart, the dollar was 0.3 percent higher at 113.38 yen, trading at its highest levels since mid-November and up 1 percent for the week. It was still down 3.2 percent for the year.

Investors had a muted reaction to upbeat Japanese economic readings on Friday, including revised data that showed the economy grew an annualized 2.5 percent, twice as fast as originally estimated in the third quarter, thanks to big gains in capital expenditure.

But regional sentiment got a lift from stronger-than-expected Chinese trade data showing exports surged 12.3 percent in November from a year earlier, more than double the forecast, while imports climbed almost 18 percent.

Bitcoin was down 9.8 percent on the Bitstamp exchange at $14,965.00, after notching a record high of $16,666.66. It was up more than 30 percent for the week, as investors debated about whether the cryptocurrency was in a bubble that was about to burst.

Reporting by Lisa Twaronite

Thursday, 7 December 2017

Dollar hits two-week high on U.S. tax reform optimism, world shares climb


LONDON (Reuters) - The dollar rose to its highest level in two weeks on Thursday over optimism the United States would successfully push through tax reforms, while world shares rebounded after two straight days of losses.

The U.S. currency slipped against the safe-haven Japanese yen on Wednesday after U.S. President Donald Trump said he would recognise Jerusalem as the capital of Israel - a move that imperiled Middle East peace efforts and provoked widespread condemnation.

But amidst a broader climb in global stocks on Thursday, the greenback rose 0.3 percent against the yen to trade at 112.60 yen, and hit a two-week high against a basket of peers.

The MSCI World Index, which tracks shares in 47 countries, was up 0.1 percent.

Underpinning some of the dollar’s gains analysts said was some cautious optimism on progress over U.S. tax reforms.

U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.

“The dollar is fighting back a little bit but there’s still some caution, as it could still be a few weeks until we know the outcome of the tax reform bill,” said Rabobank currency strategist Jane Foley, in London.

“The yen will be sensitive if geopolitical tensions rise again, and I think there’s an inevitability to that, so I don’t think there’s going to be too much upside for dollar/yen in this environment,” she added.

Upbeat U.S. private-sector employment data released on Wednesday also provided some support to the dollar. But strategists said the currency would trade in narrow ranges until the release of the closely watched non-farm payrolls report on Friday.

Bitcoin soared to a record high of more than $14,500, up almost 7 percent on the day and continuing a staggering surge from less than $1,000 at the beginning of the year.

European stock markets appeared to take their cues from a general recovery in tech stocks overnight in Asia and Wall Street.

The pan-European STOXX 600 was up 0.2 percent with tech stocks initially up 0.5 percent. Financials, industrials and healthcare shares also added points to the index.

“We have seen some aggressive moves in Asia, whereas Europe seems to be a bit more subdued,” said David Madden, analyst at CMC Markets in London.

“It’s almost like European markets look for an excuse to selloff but it takes them a lot to be convinced to actually push higher.”

Shares in the energy sector, which weighed on shares earlier in Wall Street and Asia, rose in Europe, as oil prices recovered from a big fall on Wednesday.

U.S. West Texas Intermediate crude futures traded at $56.13 per barrel in European trade, up 0.3 percent on the day.

Brent futures gained 0.4 percent to $61.45 per barrel.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.2 percent as some technology bellwethers rebounded, with Tencent rising over 3 percent and Alibaba more than 2 percent.

In Japan, the Nikkei jumped 1.5 percent, recouping much of its 2.0 percent loss the previous day, which was its biggest fall since late March.

The price of copper, seen as a barometer of global economic health because of its extensive industrial use, also fell sharply earlier this week, raising worries about the world growth outlook.

Copper traded at $6,576 a tonne, up 0.5 percent on the day and above a two-month low of $6,507.5 touched on Tuesday.

Reporting by Ritvik Carvalho

Dollar inches up, shakes off weakness vs yen, Bitcoin briefly tops $14,000


TOKYO (Reuters) - The dollar edged up against peers on Thursday, shaking off earlier losses versus the yen, supported by signs that investors’ risk appetites were improving again and by optimism on U.S. tax reforms.

The greenback was 0.1 percent higher at 112.380 yen after dropping by 0.25 percent overnight.

The dollar had slipped against the yen after President Donald Trump on Wednesday recognised Jerusalem as the capital of Israel, imperilling Middle East peace efforts and upsetting Washington’s friends and foes alike.

“The impact of the ‘risk off’ moves that weakened the dollar against the yen stemming from the Middle East developments appears to have been limited. It likely served as a pretext for speculators to cover some yen shorts,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“We could still see participants try to sell the dollar on upcoming ‘risk off’ events. But the dollar is positioned to absorb much of the selling pressure, with many players poised to buy on dips,” he said.

Dollar/yen on Thursday rose in line with a surge in Tokyo shares, which had slumped the previous day on Middle East concerns.

But considering the Nikkei’s gains - the index was up more than 1 percent- the dollar’s rise versus the yen appeared limited, some observers noted.

"The decoupling that has begun taking place between equities and currencies is one of the key market themes of 2017," said Daisuke Karakama, chief market economist at Mizuho Bank.

The U.S. currency rose to a two-week high against a basket of six major currencies as optimism towards U.S. lawmakers’ making progress on tax legislation grew. Upbeat U.S. private-sector employment data released on Wednesday also provided support.

U.S. Senate Republicans agreed to talks with the House of Representatives on sweeping tax legislation on Wednesday, amid early signs that lawmakers could bridge their differences and agree on a final bill ahead of a self-imposed Dec. 22 deadline.

The dollar index was little changed at 93.543 after rising to 93.650 overnight, its highest since Nov. 22.

The euro was steady at $1.1803 after slipping 0.25 percent overnight, when it hit a two-week low of $1.1780.

Bitcoin briefly soared to a record high of $14,095.00, continuing its surge from below $1,000 at the beginning of the year, despite questions about the cryptocurrency’s real value and worries about a dangerous bubble.

Later, Bitcoin was down 0.25 percent at $13,590.01 at the Luxembourg-based Bitstamp exchange.

The Canadian dollar nursed deep losses suffered overnight after the Bank of Canada held interest rates steady and showed enough caution to dampen expectations for a hike early next year.

The loonie was effectively flat at C$0.9895 per dollar after retreating 0.8 percent the previous day.

The Australian dollar, hit the previous day by weaker than expected local gross domestic product numbers, extended losses against the buoyant dollar.

The Aussie was 0.2 percent lower at $0.7548.

The New Zealand dollar held up for a while after showed that housing prices in the country jumped 6.4 percent in November.

But the kiwi last traded at $0.6859, down 0.3 percent on the day.

Sterling was down 0.1 percent at $1.3383 after touching a one-week low of $1.3358 overnight amid growing concerns that a Brexit deal may be unlikely before next week’s key EU summit. The immediate focus for the pound was on British Prime Minister Theresa May, who is expected to propose suggestions to Brexit negotiators to try to break an impasse on the issue of the Irish border.

Reporting by Shinichi Saoshiro

Wednesday, 6 December 2017

Brexit deadlock fears push sterling to 1-week lows


LONDON (Reuters) - Sterling fell to a one-week low in volatile trading on Wednesday after the Sun newspaper’s political editor said on Twitter that a Brexit deal is unlikely this week.

The Sun’s political editor Tom Newton Dunn, citing a source in the Democratic Unionist Party, said there would be no Brexit deal done this week and hopes are fading fast in London that Prime Minister Theresa May will go back to Brussels on Thursday.

The Northern Irish party that props up May’s minority Conservative government rejected this week a proposal on the post-Brexit border with Ireland that could have helped move forward negations on Britain’s exit from the European Union.

Market bets on sterling had shifted considerably in recent weeks towards betting on a breakthrough in Brexit negotiations with sterling rising to more than a two-month high last Friday.

Though the tentative deal was rejected on Monday, some market strategists such as Nomura believe there is a 70 percent probability of a breakthrough in talks, though some traders say the latest headlines reduce those expectations even further.

“This political ping-pong battle is really hurting investor sentiment towards sterling,” said Neil Jones, Mizuho’s head of currency sales for hedge funds in London.

Failure could mean a delay until February, adding to the risk of businesses scaling back investment plans in Britain as uncertainty clouds the outlook beyond Brexit in March 2019.

The British pound which was already down on the day, extended its drop to stand 0.6 percent weaker at $1.3358 on the day. Against the euro, sterling was down half a percent on the day at 88.33 pence.

High-frequency indicators of market positioning and options market hedging have also shifted markedly in recent weeks to show some optimism emerging on sterling, with the British currency hitting a two-month high last week.

But reflecting the growing pessimism about a conclusive breakthrough in talks before a crucial EU summit next week, some traders reported a pickup in activity in selling short-dated calls on sterling around the 2017 highs of $1.3653, hit in mid-September.

Reference: Saikat Chatterjee

Bitcoin dips below $11,000 after setting another record high


LONDON (Reuters) - Bitcoin dipped back under $11,000 (8,169.93 pounds)on Monday, coming off a record high just shy of $11,800 it hit on Sunday after a surge from less than $1,000 at the start of the year.

The cryptocurrency, which trades 24 hours a day and seven days a week, climbed as high as $11,799.99 on the Luxembourg-based Bitstamp exchange at around 2100 GMT on Sunday.

It was not clear what caused the move higher over the weekend other than new investors joining the upstart market, with so-called wallet-providers reporting record numbers of sign-ups over the past week.

Analysts said Friday’s announcement by the main U.S. derivatives regulator that it would allow CME Group Inc and CBOE Global Markets to list bitcoin futures contracts had turned sentiment positive after a choppy week.

“The price rises are triggered by continued media interest driven by the expectation of futures trading on CME,” Charles Hayter, founder of data analysis website Cryptocompare, said.

By 1310 GMT on Monday, bitcoin had slipped back to around $10,919, down 2 percent on the day but still up more than 100 percent over the past three weeks. Sunday’s high marked a 1,121 percent increase since the start of the year.

Think Markets analyst Naeem Aslam said reports Britain wants to increase regulation of bitcoin and other digital currencies by expanding the reach of European Union anti-money-laundering rules that force traders to disclose their identities and report suspicious activity, had knocked bitcoin off its highs.

But others said greater regulatory scrutiny would help.

“If anything, regulation will only increase bitcoin’s rate of growth as regulation lends credibility and engenders trust,” Nicholas Gregory, CEO of London-based cryptocurrency firm CommerceBlock, said.

Sunday’s record high for bitcoin came as Venezuelan President Nicolas Maduro announced the launch of the “petro”, which he said would be a cryptocurrency backed by oil reserves, to shore up a collapsed economy.

Opposition leaders said the digital currency would need congressional approval and some cast doubt on whether it would ever see the light of day in the midst of turmoil.

Reporting by Jemima Kelly

Tuesday, 5 December 2017

Dollar steadies after Monday's bounce; sterling crumbles


LONDON (Reuters) - The dollar steadied on Tuesday after posting its biggest daily rise in a week in the previous session as caution set in before the U.S. tax bill becomes reality, with sterling leading early losers.

“With regards to the dollar, everything is already there in the price and we need to see further movement on the tax bill or strong data to push it higher,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

The Senate must now reconcile its version of the bill with legislation passed by the House of Representatives.

Against a basket of six major currencies, the dollar edged 0.1 percent higher at 93.278 after gaining about 0.3 percent the previous day, its biggest daily rise since Nov.

Sterling dipped more than half a percent GBP=D3 in early trades as disappointment over a Brexit deal prompted investors to cut their long bets. The British currency fell 0.8 percent to $1.3375, extending its decline from Asia.

Prime Minister Theresa May failed to clinch a deal on Monday to open talks on post-Brexit free trade with the European Union after a tentative deal with Dublin to keep EU rules in Northern Ireland angered her allies in Belfast.

Commerzbank strategists said Monday’s volatility in sterling showed how difficult the Brexit negotiations remain.

“As soon as the second round of the negotiations starts, which will be dealing with the trade agreement, things are going to heat up further as every single one of the 27 EU countries had the right to veto the agreement and can therefore block any progress,” they said.

The Australian dollar led early gainers after the The Australian dollar was 0.6 percent higher at $0.7639 AUD=D4 after data showed strong retail sales in October after months of lukewarm demand.

Reporting by Saikat Chatterjee

Asian shares down as tech blues offset U.S. tax cut optimism


TOKYO (Reuters) - Asian shares dipped slightly on Tuesday as investors’ rotation out of technology shares took a toll on some of the region’s tech heavyweights although hopes of a major tax cut in the United States underpinned risk sentiment.

European shares are seen steady, with spread-betters picking Britain's FTSE .FTSE and Germany's DAX to be almost flat and France's CAC to edge 0.1 percent lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.2 percent, driven by a fall in technology shares such as Tencent and Alibaba.

Japan's Nikkei slipped 0.4 percent, with semi-conductor related shares leading losses while mainland China's start-up board dropped almost 3 percent to its lowest level in four months.

“I would say the market is hitting a speed bump after a strong rally so far this year,” said Yukino Yamada, senior strategist at Daiwa Securities.

While MSCI’s ex-Japan Asia-Pacific index flirted with last month’s low, it was still up almost 30 percent so far this year, and is on course to mark its best year since 2010.

On Wall Street, the benchmark S&P 500 finished lower on Monday after setting a record intraday high earlier as the technology sector, which has led the market's record-setting rally this year, tumbled 1.9 percent.

The tech index hit a five-week low and was down 4.3 percent from its record peak hit a week ago though it still remained the best performer of the year with year-to-date gains of 33 percent.

Investors switched to banks and retailers, which are seen benefiting from the expected corporate tax cuts.

President Donald Trump’s goal of slashing taxes on businesses cleared an important hurdle at the weekend when the U.S. Senate narrowly approved the Republican’s tax overhaul plan.

The S&P 500 banks index  surged 2.3 percent while battered department store shares also jumped.

“Some high-tech shares’ valuations are getting stretched. For the entire market to keep rallying, we needed a sector rotation,” said Nobuyuki Kashihara, head of research at Asset Management One.

“On the whole, the world’s shares are supported by a synchronized growth in the global economy,” he added.

U.S. tax cut optimism supported the dollar, particularly against the yen.

Yet, concerns about the ongoing investigation into contacts between Trump’s election campaign and Russia sapped some of the market’s enthusiasm.

The dollar fetched 112.48 yen JPY=, little changed in Asia after a brief foray to 113.09 on Monday, which was its highest level in more than two weeks.

The euro EUR= was steadier at $1.1875, sitting comfortably in its familiar trading range between $1.1810-1.1960, as the common currency was helped by hopes the two major German parties will form a grand coalition.

The British pound GBP=D4 stood at $1.3475, off last week's two-month high of $1.3550, after European Commission President Jean-Claude Juncker and British Prime Minister Theresa May failed to reach an agreement on a divorce deal.

The Australian dollar gained as much as 0.8 percent to a three-week high of $0.7654 AUD=D4 following strong economic data and a relaxed tone from the country's central bank on the level of the local currency.

Bitcoin  ticked down 0.5 percent to $11,558, still hovering near its record high of $11,800 set on Sunday.

Oil gained slightly after falling more than 1 percent on Monday, buoyed by expectations of a drop in U.S. crude stockpiles and after last week’s deal between OPEC and other crude producers to extend output curbs

U.S. West Texas Intermediate futures CLc1 traded at $57.55 per barrel, up 0.1 percent for the day.

International benchmark Brent futures LCOc1 inched up 0.1 percent to $62.52 a barrel.

Reference: Hideyuki Sano

Dollar holds modest gains, rise slows with next phase in tax saga awaited


TOKYO (Reuters) - The dollar held on to modest gains against its peers on Tuesday, with its rise made at the week’s start slowing as the market awaited the next phase of the U.S. tax reform saga for cues.

The dollar was a shade higher at 112.500 yen.

The greenback had climbed to a 2-1/2-week high of 113.090 the previous day, boosted by the U.S. Senate’s approval of the U.S. tax bill over the weekend.

But it was unable to remain above the 113.000 yen threshold. The Senate must now reconcile its version of the bill with legislation passed by the House of Representatives, a process that could face a few speed bumps along the way.

“A large portion of the enthusiasm for the tax bill passing the Senate had already been factored in when (Republican Senator John) McCain gave his endorsement last week,” said Shin Kadota, senior strategist at Barclays in Tokyo, explaining the dollar’s loss of momentum.

“The upcoming negotiations on the bill between the Senate and the House are likely to decide the dollar’s direction this week.”

The euro was steady at $1.1867 after losing 0.3 percent overnight.

The dollar index against a basket of six major currencies was little changed at 93.113 after gaining about 0.3 percent the previous day.

The pound was little changed at $1.3474 after wide swings the previous day.

Sterling initially spiked to $1.3538 on Monday on hopes that divorce talks between Britain and the European Union would make headway. But it slumped to $1.3415 after European Commission President Jean-Claude Juncker and British Prime Minister Theresa May failed to reach an agreement.

The Australian dollar nudged up 0.1 percent to $0.7603.

The Aussie awaited the Reserve Bank of Australia’s interest rate decision later in the session. Analysts polled by Reuters expected the RBA to keep its cash rate at a record low of 1.5 percent.

The New Zealand dollar climbed 0.1 percent to $0.6866 after dropping 0.4 percent on Monday.

Reporting by Shinichi Saoshiro

Monday, 4 December 2017

Tax deal sends dollar surging, preps U.S. stocks for strong day


LONDON (Reuters) - The dollar jumped on Monday versus the currencies of other developed and emerging nations while Treasury yields rose and Wall Street was primed for a another record-setting day after the U.S. Senates voted to approve a wide-ranging tax overhaul.

European stocks opened higher, with French, German and British markets up 0.9 to 1.4 percent, anticipating a strong New York session - futures for the Dow Jones, S&P 500 and Nasdaq indexes rallied as much as 0.9 percent

Markets are reacting to the Senate’s approval on Saturday for the biggest tax law change since the 1980s, taking President Donald Trump closer to his goal of slashing taxes for businesses.

“With this tax deal, markets could pick up speed into the end of the year. It looks like the ingredients for a year-end rally are there,” said Angelo Meda, head of equities at asset manager Banor SIM in Milan, predicting equity gains of 3 to 4 percent.

Tax cut hopes have been a significant tailwind this year for U.S. stocks, although the move is expected to add to the country’s $20 trillion national debt and increase the chances of more aggressive near-term rate rises in the world’s largest economy.

Those expectations pushed the dollar up as much as 0.4 percent against a basket of currencies while Treasury yields rose across the curve.

Two-year yields matched Friday’s nine-year high , indicating that bonds are already anticipating the debt increase.

“This environment should question whether the market is being too conservative in only pricing 50 basis points of (U.S. Federal Reserve) tightening next year,” analysts at ING Bank told clients.

“Loose fiscal and tight monetary policy should be sending the dollar firmer.”

For the time being, the dollar gave up some early gains against the euro and sterling, which traded around 0.3 percent lower to the dollar EUR= GBP=. Many warn of risks ahead, especially a U.S. government shutdown, should this Friday's deadline to authorize new borrowing pass without a deal.

World stocks rose just 0.18 percent .MIWD000PUS, though they stayed off recent record highs, following a shaky start in Asia caused by early selling in technology shares.

While Japanese shares closed half a percent lower most other Asian markets managed to end in the black. Emerging equities rose 0.5 percent

EXIT EUROPE

In Europe, German bond prices tracked Treasuries lower, with 10-year Bund yields up around four basis points and rising off almost three-month lows hit Friday.

But the focus was on Britain, with 10-year UK government bond yields up around 6 basis points as Prime Minister Theresa May headed for a crunch meeting with European Union officials to break a deadlock in Brexit talks.

EU officials have expressed optimism a deal on the main issues will be struck on Monday, even though members of May’s party have urged her to walk away unless there is progress.

Hopes of a deal pushed sterling recently to six-month highs against its trading partners’ currencies =GBP, but it slipped on Monday against the firmer dollar and was flat to the euro, giving up tentative early gains EURGBP=.

Shares in British mid-sized firms were up 0.7 percent.

“If a green light is provided today for talks to move on to future relations, including a timely transition arrangement, it would open the door for further pound gains in the near-term,” MUFG analysts wrote, warning that the reverse was likely, should talks break down.

Emerging currencies were mostly weaker against the dollar, with Turkish markets hit by data showing inflation at almost 13 percent, the highest since 2003.

On commodities, Brent crude futures slipped 0.7 percent, LCOc1 pressured by signs of increasing supply from U.S. shale producers. Copper prices firmed, after data last week showed China’s economy in good shape.

Reporting by Sujata Rao

Sterling slips against dollar, rises vs euro before Brexit summit


LONDON (Reuters) - Sterling slipped against a stronger dollar on Monday but edged up against the euro, with investors focused on a summit in Brussels, where British Prime Minister Theresa May hopes to break a deadlock in Brexit talks with a new divorce offer.

Over lunch with European Commission President Jean-Claude Juncker and European Union Brexit negotiator Michel Barnier, May will try to persuade them to start discussions on a new trade pact and a two-year transitional deal.

EU officials and diplomats say they are increasingly optimistic a deal can be struck, and so are investors: a Reuters poll last week found economist believe the chance of a disorderly Brexit has declined over the past month.

Such optimism drove sterling to six-month highs on a trade-weighted basis last week and to its highest in two months against the dollar at $1.3550.

And speculators bought back into the pound in the week up to last Tuesday, data showed on Friday, with positioning moving into positive territory - reflecting more bets that sterling will strengthen than that they will fall - for the first time since October

“Strong signals could emerge later today as to whether EU negotiators are recommending to EU leaders that Brexit negotiations should move to Phase II ... We think sterling can outperform, but prefer gains versus the euro or yen,” said ING currency strategist Chris Turner.

Sterling slipped to $1.3442 on Monday, down 0.3 percent on the day. Against the euro, it was 0.1 percent stronger at 88.27 pence.

Traders were also focused on the latest activity data from the construction sector, due at 0930 GMT.

Reference: Jemima Kelly

Sunday, 3 December 2017

Dollar slumps on report ex-adviser Flynn to testify against Trump


NEW YORK (Reuters) - The greenback slipped against a basket of currencies on Friday after ABC News reported that Michael Flynn, a former adviser to U.S. President Donald Trump, said he was prepared to testify that Trump directed him to make contact with the Russians when he was a presidential candidate.

The dollar index, which measures the greenback against six rival currencies, was down 0.15 percent at 92.903.

Growing optimism that U.S. Senate Republicans would be able to pass a tax overhaul bill had sent the index as high as 93.248, but the index reversed course sharply on the Flynn headlines.

Reuters could not immediately verify the ABC News report.

“To the extent that this headline further ensnares this administration into this investigation or suggests a widening of the Special Counsel’s probe, I think that it is certainly a key concern for global investors and that’s why we are seeing the dollar come off,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Meanwhile, U.S. Senate Republicans said they had gathered the votes needed to pass a sweeping tax overhaul, after last-minute negotiations to ease some senators’ concerns about the bill’s impact on the federal deficit, healthcare and property taxes.

A final vote on the bill was expected later on Friday.

The dollar has grown very sensitive to the prospect of the passage of the tax bill in recent weeks and any perceived hurdles have been a source of anxiety for dollar bulls.

The euro remained slightly weaker against the dollar, despite data that showed global manufacturing expanded at the fastest pace in years last month and the second-fastest for two decades in the euro zone, driven by robust demand.

The single currency was down 0.09 percent to $1.1891.

“The euro has had generally a good week, and it’s almost a dynamic of buy the rumour, sell the fact,” said Mazen Issa, senior FX strategist at TD Securities in New York.

Sterling slipped from a two-month high against the dollar, getting only a temporary boost from better-than-expected UK manufacturing data, as investors fretted about Britain reaching a deal with the European Union over the Irish border.

The Canadian dollar posted its biggest gain in about 20 months against its U.S. counterpart after stronger-than-expected domestic jobs data fuelled expectations for further Bank of Canada interest rate hikes early next year.

Reference: Reuters

Friday, 1 December 2017

Sterling tops $1.35 on Brexit deal hopes, dollar weakness


LONDON (Reuters) - Sterling topped $1.35 on Thursday, hitting a two-month peak, as hopes grew of a deal between Britain and the European Union at a summit next month.

The dollar’s weakness in late New York trading exacerbating the pound’s gains.

“The dollar has been whacked across the board and cable has been benefiting from that, but sterling was already strengthening on speculation that the UK is close to an agreement on the Irish border,” said Adam Cole, chief currency strategist at RBC Capital Markets.

The dollar retreated from the session highs of 93.505 against a trade-weighted basket of its rivals on Thursday and was trading at 92.875.

EU leaders are preparing to offer a two-year Brexit transition deal as early as January after negotiators were close to a deal over the Northern Ireland border, The Times newspaper said on Thursday, citing EU sources.

Avoiding a so-called “hard border” on the island of Ireland that many fear could disrupt the peace in Northern Ireland is the last major hurdle before talks can move to negotiations on Britain’s future trade relationship with the bloc.

Sterling extended a 3-day rally to its highest level since Sept. 25 to $1.3549 taking its gains since late Tuesday to more than 2.5 percent.

“The news triggered a lot of stops that pushed the currency higher. This would be tremendously bullish for sterling,” said ACLS Global strategist Marshall Gittler.

Brexit supporters accused Prime Minister Theresa May on Wednesday of being far too weak with the European Union after reports that she is ready to pay what Brussels is demanding to settle the divorce bill to leave the bloc.

But investors have welcomed the higher offer from May, with many fearing a “disorderly Brexit” - one without a deal - could spook financial markets, sow legal chaos and harm the British and EU economies by disrupting trade ties and cross-border supply chains.

“A key short-term downside risk appears to be abating,” wrote UBS macro strategist Lefteris Farmakis, in a research note on Thursday.

“Now the prospect for a fairly long and smooth transitional period has emerged. Should a transition deal be confirmed, downside risks for the currency will be firmly pushed back in time. And equally, the alleviation of imminent tail risks should support sterling, at least in the short term.”hit a three-week high of 87.76 pence.

Those gains helped pull up the Bank of England’s trade-weighted sterling index, which tracks the British pound’s effective exchange rate, to 78.8, its highest since May 19.

Reporting by Jemima Kelly

Thursday, 30 November 2017

Global stocks set to clock up another record


LONDON (Reuters) - Unlucky for some? Despite another overnight Wall St wobble involving a rotation from high-flying tech stocks to financials, the world’s broadest equity gauge – the MSCI all-country index – is on course to finish November with its 13th straight monthly gain – the longest such winning streak in the index’s 30-year history.

Whether Wednesday’s more than 1 percent drop in the tech-heavy Nasdaq and pullback in the much celebrated FAANGs – Facebook, Apple, Amazon, Netflix and Google parent Alphabet – marks some sort of high watermark remains to be seen, though the tendency to rotate to other sectors is testament to the strength of the underlying economic numbers coming through nearly everywhere across the developed world.

Yet again, numbers on Wednesday showed euro zone business and consumer confidence hitting their highest since the turn of the millennium, U.S. third-quarter GDP was revised higher to 3.3 percent annualised and Chinese November business surveys released earlier showed sentiment gauges accelerating beyond forecasts.

Is this sort of growth finally generating some inflation that will make the central banks sit up and take notice? Germany’s higher-than expected inflation November inflation certainly spooked the world’s fixed income markets.

Perhaps supporting this week’s switch to financials – that started after Federal Reserve chair nominee Powell delivered a relatively soft line on financial regulation on Tuesday - sovereign bond markets have snarled up on the German inflation news and the steady drumbeat of economic surprises elsewhere and appear to be finally taking notice of the sort of global expansion the equity markets have been feeding off all year.

Ten-year German bund and 10-year Treasury yields staged their biggest one-day jump in about three weeks, with the U.S. 2-10 year yield curve actually steepening back above 60 basis points. Overall euro zone flash inflation numbers are due for release later. But the underlying global bias is toward monetary tightening. The South Korean central bank hiked interest rates on Wednesday for the first time in six years.

The constellation of the tech shakeout and bond and yield curve shifts stateside, which have supported the dollar broadly this week, saw Asia bourses slip lower early on Thursday. HK and Seoul indices were down more than 1 percent, with Shanghai in the red too. HK-listed Tencent fell 2 percent. Japan’s Nikkei outperformed and closed higher as dollar yen jumped  back above $112. 

Positive soundings about a breakthrough in the Brexit negotiations next month at the EU summit on Dec 13-14 continued to lift the pound, which has risen to just shy of $1.35 for the first time since September. Sterling has also firmed to a three-week high against the euro.

A deal on the financial settlement between the UK and the EU looks to be in the offing as the British government accedes to Brussels' demands and newspaper reports on Thursday also said there may be movement on the other thorny issue of what happens with the Irish border after Brexit.

The unfathomable rise of Bitcoin, which rocketed to more than $11,000 on Wednesday, has turned into wild swings – traversing $1,000 up and down over 12 hours periods. It was last back down to $10,200, with no particular news or driver behind it either way.

Brent crude oil was slightly firmer as OPEC ministers meet today in Vienna.

Reference: Reuters

ECB tells banks to embrace instant payments to beat Bitcoin


ROME (Reuters) - Banks should speed up the introduction of instant payments, whereby money is received immediately and around the clock, to counter the allure of digital currencies such as Bitcoin, a European Central Bank director said on Thursday.

With Bitcoin zooming past $11,000, cryptocurrencies - which can be used for instant electronic payments - have gained prominence in the financial debate and some central banks such as Sweden’s are even considering the introduction of their own version of them.

Yves Mersch, a member of the ECB’s executive board, was dismissive of these digital tokens but he urged commercial banks to provide an alternative.

“Banks need to implement instant payments as soon as possible and provide an alternative narrative to the ongoing public debate on the alleged innovation brought by virtual currency schemes,” he told an event in Rome.

While their adoption by retailers is still low, private digital currencies are a source of worry for central bankers because they threaten their control of the banking system and money supply, which could undermine the monetary policies they use to manage inflation.

This is why some central banks such as Sweden’s Riksbank and the Bank of England are looking at the merits of introducing their own digital currency.

Mersch said the ECB would “experiment with cash on different digital technologies” but did not see scope for “adventurous applications” of such technology.

“We shall also experiment with cash on different digital technologies,” Mersch said. “Other adventurous applications of a more disruptive nature are simply not robust enough.”

His comments were echoed by Bundesbank board member Carl-Ludwig Thiele, who said in Berlin that a digital currency such as Sweden’s proposed eKrona could not be introduced in Germany, where cash payments are still prevalent.

“The issue of digital central bank money is in our view not a realistic option for the foreseeable future,” Thiele said at an event.

Reporting By Giselda Vagnoni

Yellen: Recovery 'increasingly broad based' in both U.S. and worldwide


WASHINGTON (Reuters) - A strengthening U.S. economy will warrant continued interest rate increases, Fed chair Janet Yellen said on Wednesday in remarks prepared for delivery to Congress, but she did not comment on the timing of when the next one might occur.

“The economic expansion is increasingly broad based across sectors as well as across much of the global economy,” Yellen said in remarks released ahead of her appearance later on Wednesday morning before the Joint Economic Committee.

With weak inflation likely to prove “transitory,” she said “we continue to expect that gradual increases in the federal funds rate will be appropriate.”

She did not in her prepared remarks comment on a possible December rate increase, expected by investors. Minutes of the most recent Fed meeting said “many participants” felt a rate increase would likely be warranted “in the near term.”

In what may be one of her last public appearances before leaving the Fed chair, Yellen said the economy’s momentum continues.

Job growth averaging 170,000 positions per month is enough to continue to absorb new and sidelined workers into the economy, and growth ticked up to a 3 percent annual rate over the last two quarters.

On a day after the stock market hit new records, Yellen said that while asset values were “high by historical standards, overall vulnerabilities in the financial sector appear moderate.”

Reference: Howard Schneider

Wednesday, 29 November 2017

Pound up as Britain coughs up, Bitcoin rockets


LONDON (Reuters) - Signs of progress with U.S. tax cuts and Europe’s Brexit negotiations brought fresh highs for world stocks on Wednesday, while bitcoin topped $10,000 in a frenzy for cryptocurrencies.

Britain's pound was also in focus, rising to $1.34 GBP= for the first time since October on reports that Britain has offered as much as 50 billion euros ($59.2 billion) -- most of what the European Union wants -- to settle a Brexit "divorce bill".

Sterling's strength did push London's FTSE  into the red, but elsewhere the mood was almost exclusively upbeat, particularly in bank stocks after the soon-to-be head of the Federal Reserve said some regulations could be scaled back.

Germany’s DAX, France’s CAC, Milan and Madrid were all up between 0.6 and 1.3 percent and MSCI’s all-country world index .MIWD00000PUS was at yet another record peak after all four major Wall Street indexes notched up new highs on Tuesday.

They were expected to be in consolidation mode when U.S. trading resumes. Revised Q3 GDP figures and inflation data will be vying for attention with the ongoing tug-of-war over Donald Trump’s tax cut plans.

“It seems to me markets are still trading on the theory that the glass is half full,” said fund manager Hermes’ chief economist Neil Williams.

Asian share markets had not quite as jubilant, checked by caution over the latest missile test by North Korea and concerns at recent softness in Chinese shares.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS barely budged from where it started the day, while China's blue chip index .CSI300 ended flat having slipped as much as 1 percent at one point.

Among the better performers, Japan's Nikkei .N225 added 0.5 percent, while Australia's main index rose 0.45 percent.

The prospects for a U.S. tax cut seemed to improve after Senate Republicans rammed forward their bill in a partisan committee vote that set up a full vote by the Senate as soon as Thursday, although details of the measure remained unsettled.

But Republican leaders conceded that they have yet to round up the votes needed for passage in the Senate, where they hold a narrow 52-48 majority.

Some analysts, however, did warn of the risks of unintended consequences if the package was passed.

“Tax cuts will mainly boost the demand side of the economy at a time when the economy has little spare capacity,” said Jeremy Lawson, chief economist at Standard Life Investments.

“For that reason, the package will primarily bring forward activity with most of the stimulus eventually offset by the Federal Reserve lifting interest rates more quickly.”

Fed chair nominee Jerome Powell, in his Senate confirmation hearing on Tuesday, said the case for a December rate hike was coming together.

BUBBLY BITCOIN

Powell also hinted at a lighter touch for bank regulation, saying current rules were already tough enough.

The S&P financial sector  soared 2.6 percent in reaction, its biggest daily gain since March 1. That helped the Dow climb 1.09 percent, while the S&P 500 rose 0.99 percent and the Nasdaq added 0.49 percent.

Adding to the bullish mood was data showing U.S. consumer confidence surged to a near 17-year high in November, while home prices rose sharply in September, which should underpin consumer spending.

Euro zone government bond yields edged higher meanwhile as the first instalments of German state inflation data pointed to another uptick for Europe’s largest economy, which should bolster the ECB’s move to wind down its stimulus.

“In recent months we have seen core inflation dropping, and that has been identified by the ECB as a key measure,” said ING strategist Martin van Vliet.

It all helped the euro reassert its recent dominance over the dollar. The euro climbed as far as $1.1882 EUR= and against a basket of currencies the dollar at 93.241 .DXY and not far off a two-month trough touched on Monday.

Reference: Marc Jones

Pound slips as Brexit border worries weigh


LONDON (Reuters) - The pound slipped from a two-month high on Tuesday, having failed to push above $1.34 against the dollar as Brexit-related doubts began to re-exert their grip on the UK currency.

Sterling was back below $1.33 and flat against the euro and the yen at 0.8989 pence per euro and 148 yen respectively, as markets headed towards mid-morning.

There had been a brief flurry of interest as the Bank of England said UK banks could handle a bad Brexit in its annual health check on lenders, though there were more than enough difficult questions to offset any enthusiasm.

A deal on the Northern Ireland-Irish border - a key part of Brexit talks which were hoping to see a breakthrough next month - has become trickier as the Irish government has been pushed to the brink of collapse.

The country’s opposition party propping up the minority government has said the deputy prime minister’s refusal to quit over handling of problems in the police force would force the country to the polls next month.

A motion of no confidence in the minister in question, Frances Fitzgerald, is due at 2000 GMT on Tuesday unless she quits. But Irish national broadcaster RTE cited a minister as saying Fitzgerald had decided to step down.

“The EU has given the UK government a deadline of next Monday to come up with a plan on the Irish border, so that seems to be the main sticking point now,” said Societe Generale FX strategist Alvin Tan.

Whatever happens with Fitzgerald, if the deadlock between London, Dublin and Brussels over the already complex and politically sensitive border issue does keep Brexit negotiations stalled, that could spell trouble for the pound.

“In that situation, I wouldn’t be surprised if we see cable (sterling vs dollar testing the August low of $1.30 again and euro/sterling re-testing of the 93 level again,” Tan added, although he also said it could be a buying opportunity.

Sterling was buying $1.3295 as midday approached, down 0.2 percent on day. It is just about clinging on to a monthly rise against the greenback though it has seen is nearly 2 percent drop against the euro in November.

As well the Bank of England saying that UK banks could handle a “disorderly” Brexit on Tuesday, for the first time since it started its stress test exercises in 2014, all avoided bills for more capital.

Responding to a question about whether there were signs that Britain’s large current account deficit was unsettling investors, BoE Governor Mark Carney said foreign capital flows were continuing to come to Britain though a disorderly Brexit would most likely hit the economy and sterling.

“Our job is to maintain monetary and financial stability in whatever scenario, and with that bedrock one can expect that you build off that bedrock to continue to see foreign inflows as we should,” Carney said.

Reporting by Marc Jones

Tuesday, 28 November 2017

Wall Street set to grind higher, Powell hearing on deck


(Reuters) - The benchmark S&P 500 index was set to open at a record on Tuesday, gaining momentum from a positive tone in Europe, and putting aside any nerves over a U.S. tax bill and confirmation hearing for Federal Reserve chair nominee Jerome Powell.

The Senate Banking Committee will hold the hearing at 9:45 a.m. ET (1445 GMT) to confirm Powell’s nomination as head of the U.S. central bank.

In prepared remarks for the hearing, Powell defended the Fed’s use of broad crisis-fighting powers, placing himself as an extension of the line followed by current Chair Janet Yellen and her predecessor Ben Bernanke.

Analysts see little impact on the stock market.

“Some of his comments were already published and he is basically going to follow the present monetary policy,” said Peter Cardillo, chief market economist at First Standard Financial in New York.

“The tax code is really what’s on the minds of the investors right now,” Cardillo said.

The U.S. tax plan faces potential opposition from two Republican lawmakers who could prevent the sweeping legislation from reaching the Senate floor.

President Donald Trump was due to lobby Republicans at their weekly policy luncheon in the U.S. Capitol, with the Senate poised for a possible vote on the bill as early as Thursday.

Wall Street’s major indexes ended flat on Monday as gains for Amazon, following a slew of online promotions and discounts on Cyber Monday, countered losses for energy company shares.

Oil suffered losses for a second day on uncertainty over the outcome of a key OPEC meeting this week, where the members will decide on the production policy for next year.

At 9:03 a.m. ET, Dow e-minis were up 59 points, or 0.25 percent, with 27,639 contracts changing hands.

S&P 500 e-minis were up 3.75 points, or 0.14 percent, with 174,385 contracts traded.

Nasdaq 100 e-minis were up 9.5 points, or 0.15 percent, on volume of 30,131 contracts.

Shares of Rockwell Automation slipped 2 percent after bigger rival Emerson Electric withdrew its offer to buy the company. Emerson’s shares were up 1.2 percent.

Buffalo Wild Wings rose about 7 percent as Roark Capital Group, owner of restaurant chain Arby‘s, announced it had agreed to buy the company for about $2.4 billion.

The Conference Board’s consumer confidence index, due at 10:00 a.m. ET, is expected to have decreased to 124 in November from 125.9 in October, when it hit a near 17-year high.

Reporting by Sruthi Shankar and Rama Venkat Raman

Asian shares retreat from decade peak on China anxiety


SYDNEY (Reuters) - Asian shares drifted away from decade highs on Tuesday as Chinese stocks stumbled for a second straight session, while the dollar inched higher on optimism about a tax reform in the world’s biggest economy.

Investor confidence in China has been dented by rising bond yields as Beijing stepped up its crackdown on shadow banking and other risky forms of financing. Higher borrowing costs threaten to squeeze corporate profits.

The dour mood looks set to ripple across global markets with both FTSE futures and S&P E-mini futures edging lower.

Chinese shares pared some of the early losses with the CSI 300 index down 0.3 percent following a heavy sell-off on Monday. Shanghai's SSE Composite index was off 0.1 percent in volatile trading.

The CSI300 index has jumped 22 percent in 2017 so far, with the gains concentrated in a handful of large index-weighted stocks.

“The aspect of poor breadth and participation was actually the point for Chinese authorities who have been concerned with the equity market continually heading higher on very low participation,” said Chris Weston, Melbourne-based chief strategist at IG Markets.

“The question is whether further downside in Chinese mainland equities continues in the session ahead and will there be a spillover into Hong Kong and potentially even Japan, Korea and Australia?”


Most of Asia was in the red, with Hong Kong's China Enterprises Index leading the losses. South Korea's KOSPI and Thailand shares managed to eke out small gains.

MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 0.2 percent from last week’s high of 570.21 points.

The index has been on an uptrend most of this year, posting a monthly loss only once in 2017. It was on track to end November in the black.

Wall Street had been mixed on Monday, with the S&P 500 off a touch, the Nasdaq losing 0.1 percent and the Dow .DJI up 0.1 percent.

FLAT CURVE

The dollar inched up on the yen to 111.20 JPY=, but was still within spitting distance of a recent 2-1/2-month low, as bulls fret about potential delays in U.S. tax cuts.

The euro EUR= was steady at $1.1903, within reach of a two-month high.

The dollar got a brief boost overnight when President Donald Trump tweeted that the tax cut bill was “coming along very well”.

The tweet came after a meeting with Senate Republican tax-writers on Monday ahead of a crucial vote on the Senate floor that could come as early as Thursday.

Separately, the U.S. Senate Banking Committee holds a hearing on Tuesday to confirm the nomination of Jerome Powell at the helm of the Federal Reserve. If confirmed, Powell will have to balance tightening policy against still sluggish wages and inflation.

The bond market is concerned the Fed will hike rates too far, keeping inflation too low and ultimately slowing the economy.

That has been a major force in the remarkable pace of curve flattening in recent weeks. The 2s/10s yield curve is only 58 basis points from inverting - a classic signal that recession is just around the corner.

In commodity markets, U.S. light crude was off 36 cents at $57.75, having fallen more than a dollar overnight. Brent crude slipped 38 cents to $63.60, but not far from a near 2-1/2 year peak of $64.65 touched earlier this month.

Spot gold XAU= inched lower to $1,294.12.

Reporting by Swati Pandey

Sunday, 26 November 2017

'Stealth hedging' shows investors not so complacent



NEW YORK (Reuters) - With the U.S. stock market at a record high and daily stock gyrations near multi-decade lows, some investors have raised concerns about the lack of fear in the market, but U.S. equity options market data suggests investors are far from complacent.

Positioning in options on S&P 500 index and CBOE Volatility Index shows investors have been gradually adding to hedges over the last few months.

“We didn’t see it on our desk and no one seems to care much about hedging but somehow it’s happening,” said Jim Strugger, derivatives strategist MKM Partners in New York.

“It’s sort of under the surface, more like stealth hedging,” he said.

The S&P 500 index has climbed 16 percent this year and is on pace for its eighth straight month of gains, the longest such streak since just before the 2007-2009 financial crisis.

The CBOE Volatility Index, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, closed at a record low earlier this month.

Some investors warn that heightened reliance on strategies that profit from continued calm in stocks, and months of frustration over hedges that have gone to waste while the market powered on, have left the market extremely vulnerable to a shock.


The options market, however, suggests that investors are not as vulnerable to a sell-off in stocks as the anemic level of the VIX would suggest, analysts said.

For instance, for the S&P 500 index options, there are 2.1 puts open for each open call contract, close to the most defensive this measure has been over the last five years, according to options analytics firm Trade Alert data.

An index call option gives the holder the right to buy the value of an underlying index at a fixed level in the future. A put conveys the opposite right and is usually used to protect against declines in the index.

While some of put activity may be due to investors selling puts to generate income, brisk put volume suggests renewed interest in protective positions, analysts said.

“More often than not, even in the world we live in where volatility is so attractive to sell, you can make a fair assumption that people are buying options,” said MKM’s Strugger.

VIX options also show similarly elevated positioning in out-of-the-money VIX calls - contracts that are not profitable yet would reap gains if volatility spikes.

“When open interest on VIX out-of-the-money calls is really high, I would tend to think that the market is more aggressively hedged,” said Aashish Vyas, director of portfolio strategy at Durango, Colorado-based Swan Global Investments.

“To me, that matters more than the absolute level of the VIX,” he said.

While the data does not suggest that the market is gearing up for an immediate crash, as would be suggested if the VIX were to shoot up, it does imply that investors would not be taken by surprise if volatility starts to trend up in coming months.

“I don’t think the market is complacent,” said Joe Tigay, chief trading officer at Equity Armor Investments in Chicago.

“People have downside protection,” he said.

A recent blog post by New York Federal Reserve researchers showed that even as the overall level of volatility priced into options of varying tenure has dropped, investors are still pricing in a lot more volatility in longer dated options than in near-term contracts.

That is a departure from the pre-crisis period when investors demanded relatively similar returns for taking on one-year and one-month volatility risk, essentially betting that the state of calm would persist into the future, the researchers said.

They added that the shift in the pricing of risk, despite the low level of the VIX, showed that investors may not be so complacent after all.

Reporting by Saqib Iqbal

Thursday, 23 November 2017

Euro rises for third day on growth bets


LONDON (Reuters) - The euro climbed for a third consecutive day on Thursday as a flurry of European business surveys pointed to a strengthening growth outlook for the region.

Surveys covering both the services and manufacturing industries in Europe outshone even the most optimistic forecasters in Reuters polls -- indicating growth is broad-based - with factories having the second-best month in the index’s history.

“There is a general trend of euro-positive sentiment going through the markets and that is keeping the euro firmly supported and the ECB minutes were along expected lines,” said Commerzbank currency strategist Esther Reichelt in Frankfurt.

The minutes of the European Central Bank for its October meeting didn’t yield anything new, with policymakers broadly agreeing last month on extending its asset purchase scheme.

The single currency EUR=EBS was up 0.2 percent on the day at $1.1847 against the dollar and not far from a one-month high of $1.1862 set last week.

It also chalked up steady gains against the Swiss franc EURCHF= and the British pound respectively.

Meanwhile the dollar nursed losses after posting its biggest loss in five months on Wednesday as investors trimmed bets on the outlook for U.S. interest rate hikes next year, based on minutes from the Federal Reserve’s latest policy meeting.

With Chinese stocks down between 2-3 percent in Asian trade, low yielding currencies such as the Japanese yen and the Swiss franc remain firmly supported against the greenback as investors shied away from taking positions in a holiday-shortened week.

The minutes, however, also highlighted concern among some of the members over the inflation outlook, with the emphasis placed on economic data in determining the timing of future rate rises.

The dollar edged 0.1 percent lower against a broad trade-weighted basket of currencies on Thursday to 93.15 after falling 0.8 percent in the previous session, its biggest daily percentage fall since June.

Chinese shares took a sharp hit in the Asian session with mainland indexes down between 2-3 percent, exacerbating investor caution and dampening risk appetite.

Trading conditions were thinner than usual on Thursday, with Japanese financial markets shut for a public holiday. U.S. markets will be closed for the Thanksgiving holiday.

Reflecting the growing uncertainty about the future outlook for U.S. interest rates, an overnight rally in June futures contracts FFM8 meant that markets were pricing in a U.S. Fed funds target rate of 1.58 percent by then, implying only 2 more rate hikes, below market consensus.

Reporting by Saikat Chatterjee

Dollar dumped, bonds buoyant on Fed inflation caution




SYDNEY (Reuters) - The dollar was on the defensive Thursday after suffering its worst drubbing in five months while bonds celebrated a comeback on speculation the Federal Reserve might not tighten U.S. policy as aggressively as previously thought.

Moves in Asian share markets were mostly minor with Japanese markets closed for a holiday and the United States off for Thanksgiving. Spreadbetters pointed to a slightly easier opening for the major European bourses.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eked out a fresh 10-year peak with a rise of 0.15 percent, as did Hong Kong's main index

The dollar’s rout came after minutes of the Fed’s last meeting showed “many participants” were concerned inflation would stay below the bank’s 2 percent target for longer than expected.

That echoed comments from Fed Chair Janet Yellen that she was uncertain about the outlook for inflation and led markets to pare back pricing for more hikes next year.

While a move in December to between 1.25 and 1.5 percent is still almost fully priced in, Fed fund futures  rallied to show rates at just 1.75 percent by the end of next year.

“The US dollar was already staggering into Thanksgiving when the FOMC minutes gave it another shove,” said Sean Callow, a senior currency analyst at Westpac. “The FOMC seems to be increasingly uneasy about ”ongoing softness“ in inflation.”

“Investors can be forgiven for wondering why they should buy more U.S. dollars if we are heading into a ”Powell pause“ in the first half of 2018,” he added, referring to newly appointed Fed Chair Jerome Powell.

BONDS RALLY BROADLY

Against a basket of currencies, the dollar was huddled at 93.184 .DXY, having shed 0.75 percent overnight.

The euro was enjoying the view at $1.1834 EUR= after climbing from $1.1731 on Wednesday. The dollar also crumbled to 111.27 yen JPY=, near its lowest since Sept. 20. The overnight move was the largest single-day fall against the yen since May.

The Fed’s dovish turn helped break the inexorable sell off in short-term U.S. Treasuries, with yields on the two-year note falling almost five basis points to 1.727 percent. That was the sharpest daily drop since early September.

The rally spilled over into Asia, where Australian 10-year bond yields fell to their lowest since June and dealers expected European bonds to follow as well.

Wall Street had been an oasis of calm in comparison with the Dow off 0.27 percent, while the S&P 500 lost 0.08 percent and the Nasdaq  added 0.07 percent.

Verizon and AT&T rose 2.0 percent and 1.6 percent respectively on bets they will benefit from the U.S. government’s plan to rescind net neutrality rules put in place by the Obama administration.

Commodities were buoyed by the dive in the dollar, with gold up at $1,290.02 an ounce XAU= having added 0.9 percent overnight.

Oil prices paused after hitting their highest in more than two years after the shutdown of one of the largest crude pipelines from Canada cut supply to the United States.

U.S. crude futures eased back 12 cents to $57.90 a barrel, after jumping 2 percent on Wednesday to ground last trod in mid-2015. Brent crude dipped 18 cents to $63.14 a barrel.

Reference: Wayne Cole

Wednesday, 22 November 2017

Sterling seismograph eerily calm on EU summit



LONDON (Reuters) - For a currency that has seen some of its biggest ever one-day moves on the back of Brexit, there is a peculiar calm in sterling hedging prices surrounding December’s critical European Union summit.

For many, the Dec. 13-14 get-together marks a critical juncture in the process of Britain leaving the bloc, with some market analysts seeing it as a potential make-or-break moment for the pound.

At stake is whether Prime Minister Theresa May can satisfy other EU leaders that Britain has made enough commitments on issues like a final settlement bill and the Irish border to quickly start trade negotiations next year as the clock ticks down. Otherwise, the risk of economically-damaging ‘no deal’ Brexit rises dramatically.

Yet, even with so much at stake, options markets that reflect expected volatility around next month’s event and data on speculative sterling positioning appear largely neutral.

In fact, one-month implied volatility in sterling against the U.S. dollar is currently less than its 8.6 percent average of the past 20 years.

Traders still think the pound will be more volatile than other major currencies such as the euro and Swiss franc, though, and say the indication of calm is more reflective of the subdued price action of the most recent period, rather than of what could be in store.

“Sterling volatility has tended to remain higher even as FX volatility has declined, which suggests markets have a greater capacity to discount negative headlines,” said Timothy Graf, head of macro strategy at State Street Global Markets.



Implied volatility for sterling for one month against the dollar is higher than three-month rates and stands at a chunky 8 percent. Sterling volatility against currencies such as the Japanese yen and the Australian dollar is even higher.

In comparison, three-month implied volatility for the euro against the dollar stands at a relatively tame 6 percent EUR3MO= while overall stock market volatility is within touching distance of a record low of 9 percent hit this month.

One factor making traders wary of translating signals from derivatives into trades in the cash market is that the former have thrown up some conflicting signals in recent weeks.

For example, three-month ‘risk reversals’ on sterling, which shows the relative pricing of puts and calls on the pound, consistently indicated a bias to further sterling weakness throughout the year even as the pound gained ground against the dollar. It is up 10 percent to date in 2017.

“As a result, betting on sterling via the options markets has been a bit of a money losing trade this year,” said a trader at a global macro hedge fund in London.

Still, that hasn’t stopped directional bets and the cost of buying sterling puts - options to sell - remain more expensive than calls - options to buy - and show some traders at least are assuming the outcome of the EU summit will be sterling negative.

Underlying structural factors for sterling have also worsened markedly in recent months, such as a widening current account deficit, prompting some money managers to call for the British pound to be traded like an emerging market currency at a Reuters Investment Summit last week.


GHOSTS OF BREXIT PAST

With few if any precedents for an event like Brexit to guide traders through the next month, large investors are harking back to trading patterns leading up to the referendum vote last year.

“The problem for investors is there are no historical references to form an expectation on something such as Brexit with a long agenda of negotiations leading up to it,” Pascal Blanque, who oversees 1.4 trillion euros at Europe’s largest asset manager Amundi told the Reuters Global Investment Summit.

As a result, some traders are taking recourse in the options markets, although expiries around the summit are less about taking directional bets and more about guarding against spikes in volatility.

What’s more, the one-month options that surround the crucial EU summit also capture key central bank policy decisions in both the United States and Britain.

“It is very difficult for investors to take a directional view given the mixed messages from politicians on the negotiation progress, therefore long volatility positions such as straddles are a good choice over outright cash bets,” said Jordan Rochester, an FX strategist at Nomura in London.

As a result, speculative bets on sterling are broadly flat, unlike before the Brexit vote, while institutional investors such as pension funds and sovereign wealth funds are broadly underweight the British currency in their portfolios.

With expectations for a major breakthrough in policy talks low, buying so-called “option straddles” which involves simultaneously selling and buying currency derivatives on either side of the summit have gained popularity.

A survey by Nomura showed that only 31 percent of its clients expected a Brexit transition deal to be agreed by January 2018, although a majority still think Brexit will go ahead.

But unlike the sharp run-up in volatility gauges in May-June last year, implied volatility on sterling remains a fraction of what it was in the final days before the Brexit vote suggesting some market participants are toning down their expectations for next month’s summit.

"Unlike the hard binary event Brexit vote last June, this is a summit and so markets are not getting too worried about this," said SSGM's Graf.


Reporting by Saikat Chatterjee

Dollar treads water, capped by sagging long-term U.S. yields


TOKYO (Reuters) - The dollar treaded water against its peers on Wednesday, capped as U.S. Treasury yields failed to rise despite increasing investor risk appetite in broader financial markets.

The dollar index against a basket of six major currencies was little changed at 93.941.

The index fell back from a one-week high of 94.165 overnight after a rally triggered earlier this week by a sagging euro stalled as long-term U.S. Treasury yields continued inching lower.

The greenback was a shade lower at 112.280 yen, after slipping overnight from a high of 112.705.

“The dollar should be getting more of a lift against the yen in this ‘risk on’ environment. But what is taking precedence is the adjustment of positions before the Thanksgiving and year-end holidays by participants, resulting in the covering of yen shorts,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Wall Street shares rose yet again to record highs on Tuesday, while Japan’s Nikkei climbed back towards 26-year peaks.


The ongoing flattening of the Treasury yield curve, which has capped long-term yields, is a further drag on the dollar, Daiwa’s Ishizuki said.

The U.S. yield curve flattened to its lowest in a decade on Tuesday, as investors price in the expectation that the Federal Reserve will continue to raise rates while the Treasury is seen increasing short-dated debt issuance. At the same time low inflation and global demand for yield has supported longer-dated debt.

Another factor seen supporting the Japanese yen on a broader level was its recent gains against the euro.

The common currency slumped against its peers at the start of the week as German Chancellor Angela Merkel’s failure to form a three-way “Jamaica coalition” government clouded the country’s political outlook.

“Cross yen pairs recently enjoyed a good run higher. Of these pairs, euro/yen holds a dominant position,” said Koji Fukaya, president at FPG Securities in Tokyo.

“Selling of the euro against the yen gathered momentum as traditional profit-taking before Thanksgiving was joined by market participants dissolving euro longs on the German political news.”

The euro was last 0.2 percent lower at 131.790 yen, having gone as low as 131.160 on Monday to its weakest since mid-September.

The currency market showed little response to comments by Fed Chair Janet Yellen, who said late on Tuesday the central bank is “reasonably close” to its goals and should keep gradually raising U.S. interest rates to avoid the dual pitfalls of letting inflation drift below target for too long and driving unemployment down too far.

Next in focus was the minutes of the Oct. 31-Nov. 1 Fed policy meeting minutes due later in the session, to be evaluated for any new indications that an interest rate hike is likely in December.

The euro was steady at $1.1737 after crawling away from a one-week low of $1.1712 brushed overnight on the political impasse in Germany.

The Australian dollar was 0.1 percent lower at $0.7568 after slipping to a five-month trough of $0.7532 overnight on dovish-sounding Reserve Bank of Australia policy meeting minutes.

The New Zealand dollar was steady at $0.6829 after digesting a surprise increase in October domestic milk production. New Zealand is a top dairy exporter and factors that are considered negative for milk prices tend to hurt the kiwi.

Reporting by Shinichi Saoshiro

Dollar near highs as German political impasse pressures euro


TOKYO (Reuters) - The dollar gave back some of its gains in Asian trading on Tuesday but stuck close to a one-week high against a basket of currencies as a German political deadlock continued to pressure the euro.

The dollar index, which tracks the greenback against a basket of six major rival currencies, dipped 0.1 percent to 94.029, but was still within sight of its overnight peak of 94.104, its highest since Nov. 14.

The euro edged up 0.1 percent to $1.1739, nursing losses after dropping to $1.1722 in the previous session after German coalition government talks collapsed.

German Chancellor Angela Merkel, whose conservative bloc lost seats in September’s election, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

Merkel said she would prefer a new election to ruling with a minority, but Germany’s president told the parties they owed it to voters to try to form a government.

“It was primarily a euro weakness story, based on the failure to form a coalition government in Germany,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

“Stepping back from the daily activities, the big mountain that we’re still looking to traverse is still tax reform -- what form, and on what timeline,” Northey said.

U.S. Republicans are not expected to push major tax cuts through Congress this year, according to a majority of economists in a Reuters poll, who were also sceptical that tax reform would provide a significant boost to the economy.

Trading was expected to be relatively thin this week ahead of the U.S. Thanksgiving holiday on Thursday, which is also a national holiday in Japan.

The calendar is relatively sparse ahead of the holiday, with Federal Reserve Chair Janet Yellen scheduled to give a speech later on Tuesday. Minutes from the Fed’s November meeting will be released on Wednesday.

Against the yen, the dollar was slightly lower on the day at 112.59 , holding above its overnight low of 111.89 yen, which was its lowest since mid-October.

The euro was steady on the day against the yen at 132.15 yen, after skidding as low as 131.16 on Monday, its lowest since Sept. 15.

“Ahead of this week’s holidays, it would not have been unusual for the dollar to have fallen on position adjustments as investors pared their dollar-long positions, in case there was some dollar-negative news while they were away,” said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

“But due largely to the euro’s moves, the dollar is holding up,” she said.

The Australian dollar was down 0.2 percent at $0.7536, after falling as low as $0.7529 earlier, its deepest nadir since mid-June.

Minutes of the Reserve Bank of Australia’s (RBA) Nov. 7 policy meeting showed it harboured “considerable uncertainty” about how quickly wages growth and inflation might pick up.

After that meeting, the RBA trimmed its forecasts for core inflation to below its long-term 2-3 percent target band for another two years.

Bitcoin slipped nearly 4 percent on Tuesday after notching a fresh record high of $8,253.

Reporting by Lisa Twaronite

Tuesday, 21 November 2017

Asia stocks hit 10-year high on global growth optimism, dollar strong


TOKYO (Reuters) - Asian stocks rose to a 10-year high on Tuesday as investors took heart from further evidence of strength in the global economy, while the dollar hovered near a one-week high against its peers thanks to higher U.S. yields and a floundering euro.

European markets were expected to be somewhat more subdued in early trade, with financial spreadbetters expecting Britain's FTSE .FTSE to open 0.05 percent higher and Germany's DAX and France's CAC to open unchanged.

Gains on Wall Street overnight helped MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rise 0.8 percent to a fresh decade-high.

Japan's Nikkei .N225 advanced 0.7 percent, while South Korea's KOSPI  rose 0.1 percent and Australian stocks climbed 0.3 percent. Shanghai .SSEC added 0.5 percent and Hong Kong's Hang Seng was 1.3 percent higher.

Equity markets have enjoyed strong support this year thanks to rising corporate earnings on the back of an improving global economy.

That confidence was again on display overnight, with upbeat data in Germany helping the benchmark DAX brush off worries over the collapse of German coalition government talks.

German data showed strong industrial activity, while the Conference Board’s leading economic index for the United States rose 1.2 percent in October, double the rate economists polled by Reuters had expected.

Wall Street was led up by telecom and tech shares, with the Dow .DJI edging back towards record highs scaled two weeks ago. [.N]

In currencies, the dollar index against a basket of six major currencies stood near a one-week peak of 94.104 .DXY touched overnight.

The greenback was boosted by rising bond yields, with the two-year U.S. Treasury yield touching a nine-year high of 1.755 percent overnight.

The yield has risen as investors priced in more interest rate hikes by the Federal Reserve, while the Treasury is expected to increase debt issuance with a focus on short- and intermediate-dated maturities.

"The two-year yield appears to have risen too high now, as the Fed is only likely to hike rates twice at most next year considering current trends in U.S. wages and prices," said Makoto Noji, senior strategist at SMBC Nikko Securities.

The dollar was also lifted as the euro has been weakened by political risks arising from German Chancellor Angela Merkel’s failure to form a three-way coalition government, thrusting Europe’s biggest economy into a political crisis.

Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

“So another grey cloud has formed over euroland for investors to worry about. The euro may slide more in the days ahead unless a solution to Germany’s government can be found, fast,” wrote Carl Weinberg, chief economist at High Frequency Economics.

The euro inched up 0.1 percent to $1.1745 EUR= but remained near a six-day low of $1.1722 touched on Monday. A week ago, the common currency had rallied to a one-month high of $1.1862 on robust German growth data.

The dollar was steady at 112.545 yen JPY=, having bounced from a one-month low of 111.890 set overnight.

The Australian and New Zealand dollars were both slightly lower at $0.7543 AUD=D4 and $0.6804, respectively.

Oil prices were little changed as expectations of an extended OPEC-led production cut were cancelled out by rising U.S. output.

Brent crude futures were at $62.30 per barrel, 8 cents above their last close. U.S. crude were 3 cents higher at $56.45 per barrel.

Spot gold XAU= crawled up 0.25 percent to $1,279.76 per ounce after sliding more than 1 percent overnight on the dollar’s bounce.

Reporting by Shinichi Saoshiro