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Friday, 20 October 2017

Stocks stumble after all-time high, kiwi takes a dive


LONDON (Reuters) - World stocks set a fresh record high before stalling in Europe on Thursday, as the longest winning streak for Japanese stocks since 1998 and the first close above 23,000 for Wall Street’s Dow index helped to offset nerves in Spain.

The Nikkei enjoyed its 13th straight daily rise, helping the MSCI index of global stock markets - now up 17.6 percent for the year - add to its long list of record highs.

It wasn’t all one-way traffic, though.

European shares took their biggest tumble in almost two months after a new batch of third-quarter results brought some disappointments, notably from Anglo-Dutch consumer goods titan Unilever, French advertising group Publicis and Germany’s Kion.

They then took another lurch lower as signals emerged from Spain that Madrid was gearing up to invoke a never-before-used clause to re-impose central rule over the restive region of Catalonia.

The euro trimmed gains that had taken it to a three-day high against the dollar, while Spanish bond markets gave up their early morning gains.

“Everyone is watching this with great interest but it just looks like a standoff,” said Saxo Bank FX strategist John Hardy, saying the situation was something of a ‘catch-22’ for Catalonia.

A declaration of independence would see it lose its prized autonomy ,while calling a regional election could mobilise Catalan voters who would prefer to stay part of Spain.

“But the market is not expressing any real fear over this and I think that is justified,” Hardy added.

The other big currency market move came from the New Zealand dollar. It was sent skidding to its lowest since May after the left-leaning Labour Party won the support of the minor nationalist New Zealand First party to form a ruling coalition.

It ended weeks of political guessing games but fanned concerns that the Labour Party’s hardline policies on immigrants and foreign ownership could hurt investor sentiment.

The New Zealand dollar slid as much as 1.4 percent to $0.7047, which as well as the 4-1/2 month low was also the biggest percentage decline since November 2016.

CHINA FOCUS

Among the other headlines, China’s economic growth cooled slightly to 6.8 percent in the third quarter from a year earlier, from the second quarter’s 6.9 percent.

A modest loss of momentum had been expected as the government reins in the heated property market and cracks down on riskier lending.

Other data showed that China’s industrial output rose a stronger-than-expected 6.6 percent in September, while retail sales also outperformed. Property sales fell though for the first time in over two years.

The Chinese yuan and stocks eased, with Shanghai falling 0.4 percent.

“The GDP reading could weigh negatively on both mainland stocks and currency markets as traders may position for further weakness into year-end, suspecting financial curbs will continue to have a negative impact on growth in China,” said Stephen Innes, head of Asia-Pacific trading at OANDA in Singapore.

The dollar index against a basket of six major currencies was broadly steady at 93.340.

The index ended a four-session winning run overnight on lacklustre U.S. data but briefly resumed its climb after the 10-year Treasury yield spiked 4 basis points with safe-haven bond prices falling on better investor risk appetite.

The dollar was little changed at 112.940 yen after climbing 0.6 percent overnight. The euro nudged up 0.15 percent to $1.1802.

The term of current Fed Chair Janet Yellen’s expires in February and investors are keen to see whom U.S. President Donald Trump will pick as her replacement. The White House said Trump would announce his decision in the “coming days”.

In commodities, Brent crude oil futures dropped 1.2 percent to $57.43 a barrel and U.S. WTI dropped 1.5 percent.

Brent had risen to a three-week high of $58.54 a barrel on Wednesday on worries about tensions in Iraq and Iran, but lost steam after a surprising drop in U.S. refining rates and an unexpected build in fuel stocks signalled slower demand in the world’s top oil consumer.

Reporting by Marc Jones

Thursday, 19 October 2017

Dollar firms to two-week high versus yen, bolstered by rising U.S. yields


TOKYO/SINGAPORE (Reuters) - The dollar hit its highest in about two weeks against the yen on Thursday, supported by this week’s rise in U.S. bond yields, with the market’s attention turning to who will next lead the Federal Reserve and this weekend’s Japanese election.

The dollar index, which tracks the U.S. currency against a basket of six major rivals, was slightly higher on the day at 93.389

The dollar rose as high as 113.095 yen JPY= in early Asian trade, its strongest level since Oct. 6. The dollar last changed hands at 112.97 yen, steady from late U.S. trade on Wednesday.

This week’s rise in U.S. bond yields helped lend support to the greenback. The two-year U.S. Treasury yield rose to its highest since November 2008 on Wednesday on the back of expectations for tighter global monetary policy.

The benchmark U.S. 10-year Treasury yield touched a one-week high of 2.352 percent on Wednesday, and last stood at 2.342 percent, having risen six basis points so far this week.

“In order for expectations of tighter U.S. monetary policy to increase, we will need to see more evidence to confirm that U.S. inflation is rising,” said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

The dollar’s rise against the yen was likely to be capped by uncertainty ahead of this weekend’s election in Japan.

Most polls show Japanese Prime Minister Shinzo Abe’s coalition on track to secure a roughly two-thirds majority in Sunday’s general election, ushering in continued political and monetary stability.

“To be sure, the chances of an election surprise in Japan are indeed very small. But investors remember last year’s Brexit vote and the U.S. presidential election, so there is greater uneasiness around elections now,” Ishikawa said.

With the Federal Reserve expected to raise interest rates for the third time this year in December, markets are now looking for clarity on who will lead the U.S. central bank after Fed Chair Janet Yellen’s term expires next February.

President Donald Trump will announce his decision on who will be the chair of the Federal Reserve in the “coming days,” White House spokeswoman Sarah Sanders said on Wednesday.

Trump has an interview scheduled on Thursday with current Chair Yellen. She is one of five candidates Trump is considering for the job.

The dollar has gained a boost this week after Stanford University economist John Taylor emerged as a major candidate for the next Fed chair.

“If it turns out to be Taylor, that is likely to trigger selling of (U.S.) bonds, at least initially,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

The dollar could edge higher against the yen under that scenario, Okagawa added.

Taylor is known as a proponent of a rule-based monetary policy and according to his formula, known as the Taylor rule, the Fed funds rate needs to be much higher than the current target of 1.0-1.25 percent.

Thus there is speculation that the Fed may start raising interest rates at a faster pace, if Taylor becomes the Fed chief.

The euro edged up percent to $1.1799 EUR=.

One focus for the euro is the European Central Bank’s policy meeting coming up nex0.1t week.

France’s central bank governor called on Wednesday for a reduction in the ECB’s bond purchases towards “their possible end” in light of stronger inflation, while saying monetary policy should stay easy.

Easy monetary policy gives euro zone governments a window of opportunity to enact the reforms needed to boost growth once interest rates have to rise, ECB President Mario Draghi said on Wednesday.

The Australian dollar edged higher after Australian jobs data for September came in stronger than expected.

The Australian dollar rose 0.1 percent to $0.7850 AUD=D3, pulling away from Wednesday's intraday low of $0.7819.

Against the yen, the Australian dollar rose to 88.87 yen AUDJPY=R at one point, its highest level since late September.

Economic data from China was largely in line with expectations. The Australian currency is sensitive to China developments because of the two countries’ massive trade relations.

China’s economic growth slowed slightly as expected in the third quarter as the government’s efforts to rein in the property market and debt risks tempered activity in the world’s second-largest economy.

In other data, China’s industrial output rose a stronger-than-expected 6.6 percent in September from a year earlier, while retail sales also outperformed, though investment growth eased more than expected and property sales fell for the first time in more than two years.

Reference: Lisa Twaronite

Wednesday, 18 October 2017

Asia shares camp near peaks, China's Xi talks reform and stability


SYDNEY (Reuters) - Asian shares consolidated recent gains and currencies kept to tight ranges on Wednesday as the opening of China’s Communist Party conference produced more in the way of aspirational politics than concrete policies.

The twice-a-decade congress is expected to cement the power of President Xi Jinping, who kicked off the week-long event with a wide-ranging speech in which he said the market would be allowed to play a decisive role in allocating resources.

Yet he also said the role of the state in the economy had to be strengthened.

SPONSORED

Investors are keen for clear direction on economic and financial market reform over the next five years, but history suggests these events can be light on detail.

China's blue-chip CSI300 index added 0.5 percent in reaction, while Shanghai stocks rose 0.3 percent.

“Market participants are paying much more attention to the party congress this time, as they are watching if any surprise reforms will emerge amid concerns over economic growth,” said Yan Kaiwen, analyst with China Fortune Securities.

On Tuesday, the United States again declined to name China as a currency manipulator although it remained critical of the Chinese government’s economic policies ahead of a planned visit to Beijing by President Donald Trump.

Recent economic data from the Asian giant has been generally upbeat, fuelling a tide of optimism about global growth that has benefited shares across the region.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was steady near their highest since late 2007, while South Korea .KS11 was just off a record top.

Japan's Nikkei .N225 added 0.2 percent and was trying hard to string together a 12th straight session of gains.

An opinion poll by Kyodo showed Japanese Prime Minister Shinzo Abe’s coalition was on track for a roughly two-thirds majority in Sunday’s general election there.

The bullish mood on equities was evident in the latest fund manager survey from BofA Merrill Lynch.

“For the first time in six years, Goldilocks trumps secular stagnation, with a record high 48 percent of investors surveyed expecting above-trend economic growth and below-trend inflation,” the survey found.

BEARISH ON BONDS

Investors were bearish on bonds with 82 percent of those surveyed expecting yields to rise in the next 12 months and a record 85 percent believing bonds were overvalued.

Yields on two-year U.S. Treasury paper have hit their highest since November 2008 amid speculation President Trump could chose a more hawkish leader to replace Federal Reserve Chair Janet Yellen.


The shift upward in yields lifted the dollar to a one-week top against a basket of currencies and nudged it up 0.1 percent on the yen to 112.29

The euro was holding at $1.1765, still some way above the recent low and major chart support at $1.1667.

Dealers were wary ahead of speeches by several policymakers from the European Central Bank due later on Wednesday, which includes President Mario Draghi.

The biggest mover had been Mexico's peso which boasted its biggest rise in over four months after trade ministers from the United States, Canada and Mexico extended the deadline on a contentious round of talks.

On Wall Street, the Dow had ended Tuesday up a slim 0.18 percent having briefly broken above the 23,000-point mark for the first time on Tuesday, while the S&P 500 .SPX gained 0.07 percent and the Nasdaq  dipped 0.01 percent.

Shares in IBM jumped nearly 5 percent after hours as a shift to newer businesses such as cloud and security services helped it beat Wall Street’s quarterly revenue estimates.

In commodity markets, talk of higher U.S. interest rates kept gold pinned down at XAU= $1,284.81 an ounce.

Oil prices got a boost from a drop in U.S. crude inventories and concerns that tensions in the Middle East could disrupt supplies. Brent crude futures LCOc1 firmed 34 cents to $58.22 per barrel, while U.S. crude gained 18 cents to $52.06.

Reference: Wayne Cole

Sterling tumbles as markets digest BoE talk


LONDON (Reuters) - Sterling slipped below $1.32 for the first time in four days on Tuesday after comments by Bank of England policymakers were interpreted by markets as broadly dovish.

The British pound fell half a percent on the day to as low as $1.3192, while ten-year benchmark bond yields fell 3 basis points to 1.31 percent, the lowest since Sept. 19.

“Comments coming out uniformly signalled a dovish and cautious stance among policymakers and indicated a growing debate internally on the path for interest rates forward,” said Neil Jones, Mizuho’s head of currency sales for hedge funds in London.

Members of the Bank of England’s interest-rate-setting committee were speaking to parliament’s Treasury Committee. For highlights, see

Silvana Tenreyro, external member of the monetary policy committee, said the upward pressure on inflation from sterling weakness will start to wane in the coming months.

Earlier on Tuesday, official data showed Britain’s inflation rate hit 3 percent, above the BoE’s 2 percent target but in line with expectations.

Much of the increase however has been caused by the fall in the value of the pound since last year’s Brexit vote which is likely to be a temporary driver of price increases.

Despite the drop in bond yields and sterling, market expectations from futures and swaps were broadly unchanged with interest rate markets still expecting about two rate hikes over the next twelve months.

Britain’s FTSE 100 - whose international focus tends to make it negatively correlated with sterling - rose slightly to a session high, up 0.2 percent.

Sterling was also the biggest mover in the crosses with the British currency declining against the Australian dollar and the Japanese yen.

Reference: Reuters

Tuesday, 17 October 2017

Dollar edges up as Fed leadership speculation sends up U.S. yields


TOKYO (Reuters) - The dollar edged up against its peers on Tuesday, supported by a rise in Treasury yields following a report that U.S. President Donald Trump was favoring a policy hawk as the next head of the Federal Reserve.

Treasury yields bounced from two-week lows and rose after a report on Monday that President Trump was favoring Stanford economist John Taylor, seen as more hawkish than current Chair Janet Yellen, to head the Fed.

“Taylor’s mention came as a surprise as he was lower on the list of rumored Fed chief candidates including (Fed governor Jerome) Powell, (former Fed governor Kevin) Warsh, Yellen and (Trump’s top economic advisor Gary) Cohn,” said Shin Kadota, senior strategist at Barclays in Tokyo.

“However, it is also being reported that Trump will meet Yellen on Thursday. News regarding the Fed chairmanship is in constant flux and the market finds it hard to move significantly in either direction until some clarity is established.”

Trump will meet Yellen on Thursday as part of his search for a new candidate for her position, a source familiar with plans for the meeting said.

The dollar index inched up 0.05 percent against a basket of six major currencies  to 93.365 after rising 0.25 percent overnight.

The index had stooped to a 17-day low of 92.749 on Friday in the wake of disappointing U.S. inflation data.

“The dollar was under pressure as Treasury yields declined last week. But it was allowed to rebound as a stronger Wall Street, good U.S. data, and the report about Taylor all came into place to stop the yield decline,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

The New York Fed’s business conditions index published on Monday showed its highest reading since September 2014.

“The euro likely holds the key to whether the dollar can remain firm. The European Central Bank is now considered less hawkish than the market had initially thought last month, pushing German bund yields lower and in turn favoring the dollar against the euro,” Ishikawa at IG Securities said.

Ten-year bond yields in Germany hit one-month lows overnight, extending moves seen late last week on reports that ECB policymakers broadly agree on extending asset purchases at a lower volume at their Oct. 26 meeting, with views converging on a nine-month extension.

The greenback was 0.1 percent lower at 112.070 yen after rising 0.3 percent overnight, when it pulled away from a three-week low of 111.650.

The euro dipped 0.15 percent to $1.1780 after losing 0.25 percent the previous day.

The Australian dollar was 0.15 percent lower at $0.7840 as its rally last week to a two-week high of $0.7898 on upbeat Chinese data lost momentum.

Sterling slipped 0.1 percent to $1.3241, awaiting Bank of England Governor Mark Carney's comments due later in the session for potential cues.

Reference: Shinichi Saoshiro

Monday, 16 October 2017

China data boosts world stocks and commodities, oil jumps


LONDON (Reuters) - World stocks and commodities rose on Monday, boosted by upbeat Chinese data, while U.S. oil futures jumped to a near six-month high as an escalation in fighting between the Iraqi government and Kurdish forces threatened supply.

Asian shares rallied to a decade high after figures showed China’s producer prices beat market expectations to rise 6.9 percent in September from a year earlier.

Copper hit three-year highs. Prices of iron ore and coke, key ingredients in steel-making, jumped with Dalian iron ore futures, rising 2.5 percent to a 2-1/2 week high while coke for January delivery gained 1.6 percent.

Oil prices also jumped, pushed up as Iraqi forces entered the oil city of Kirkuk, taking territory from Kurdish fighters.

U.S. crude rose 1.3 percent to $52.12 a barrel, not far from $52.85 touched late last month - a level not seen since April. Brent crude climbed 1.5 percent to $58.03 per barrel.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained for a fifth day running to its highest level since late 2007.

Japan's Nikkei climbed for a sixth day to a level not seen since November 1996. Australian shares extended their winning streak to a fourth straight session to rise 0.6 percent, while South Korea's stock index set a new record. Wall Street was set to open higher.

Upbeat data from China came before the Communist Party Congress on Wednesday and third-quarter economic data on Thursday. Figures showed China’s producer prices beat market expectations to rise 6.9 percent in September from a year earlier.

“What has helped risk appetite this morning is that the Chinese inflation data suggests the world’s second biggest economy is doing much better than people expected this time a year ago for 2017,” said Michael Hewson, chief markets analyst at CMC Markets.

“When we’ve got palladium prices at their highest levels since 2001, oil prices edging higher, copper edging higher - it’s not doing anything to undermine the perception that the global economy is actually doing fairly ok.”

The IMF last week upgraded its global economic growth forecast for 2017 by 0.1 percentage points to 3.6 percent, and to 3.7 percent for 2018, from its April and July outlook, driven by a pickup in trade, investment, and consumer confidence.

Forecasts for the euro zone, Japan, China, emerging market Europe and Russia were all revised upwards.

CATALAN UNCERTAINTY

Uncertainty over Catalonia failed to put a significant dent in European stocks, although Spain lagged the broader index.

The pan-European STOXX600 added 0.2 percent, while Spain's IBEX fell 0.7 percent.

The MSCI world equity index, which tracks shares in 47 countries, was up 0.1 percent, fuelled by the earlier gains in Asia and those in Europe.

Catalonia worries also pushed up the yield on Spain’s 10-year government bond. The gap between Spanish and German 10-year borrowing costs widened 2.5 basis points.

Catalan leader Carles Puigdemont failed on Monday to clarify whether he had declared independence from Spain last week, paving the way for the central government to take control of the wealthy region.

“Further gains in Asia and the relentless march higher in US equities have provided the impetus for European equity markets to push forward – despite Carles Puigdemont’s failure to provide a Yes or No response to whether Catalonia has declared independence,” said Rebecca O‘Keeffe, head of investment at Interactive Investor.

In Austria, conservative Sebastian Kurz is on track to become the next leader after Sunday’s election. He is seen as likely to seek a coalition with the resurgent far right because his party is far short of a majority.

The developments threaten to disrupt a move by German Chancellor Angela Merkel and French President Emmanuel Macron to draw up a roadmap to deeper European Union integration.

The euro took a knock for the third straight day on the uncertainty, falling 0.2 percent to $1.1801.

The dollar index, which measures the greenback against a basket of currencies, was 0.1 percent higher at 93.172 .DXY.

Gold was up 0.1 percent at $1,305.37 per ounce.

Reference: Ritvik Carvalho

Euro falters after biggest weekly rise in month as ECB eyed


LONDON (Reuters) - The euro edged lower on Monday after posting its biggest weekly loss in a month though prices clung to well worn trading ranges before a central bank meeting next week where policymakers are set to unveil a plan to roll back its record stimulus policies.

With political uncertainty in the form of Catalonia’s bid for independence and Austria’s election outcome having a very muted impact on the currency relative to the bond markets, investors moved to the sidelines to focus on economic data.

“It is all over to the ECB now and Catalonia and Austria are being discounted as local problems rather than regional concerns,” said Thulan Nguyen, a currency strategist at Commerzbank in Frankfurt.

The single currency fell 0.1 percent to $1.1814 but was hemmed in a tight 0.3 percent range. It rose 0.8 percent last week, its biggest weekly rise in a month, according to Thomson Reuters data.

Catalan authorities must drop a bid for independence by Thursday, the Spanish government said, moving closer to imposing direct rule over the region after its leader missed an initial deadline to back down.

Despite a raft of euro negative news in recent weeks, the euro has remained broadly stable against the dollar and even chalked up gains against sterling and other currencies, indicating some buying from institutional investors.

Long euro positions rose for a third consecutive week to more than $14.47 billion, its biggest in more than five years, according to Commodity Futures Trading Commission data released last week.

“ECB expectations will be the main driver and we see the overall trajectory of the euro higher, though there may be some consolidation after the heavy buying in recent weeks,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

But the euro’s losses have been limited thanks to a broadly muted dollar as subdued inflation data raised expectations the U.S. Federal Reserve will not strike an overtly hawkish tone at its policy meeting at the end of the month.

Although U.S. consumer prices rose the most in eight months in September, as gasoline prices soared in the wake of hurricane-related refinery disruptions, underlying inflation remained muted.

The dollar index was flat at 93.11, lacking momentum after falling last week.

Reference: Saikat Chatterjee

Global policymakers grapple with half-baked recovery short of wage growth


WASHINGTON (Reuters) - International Monetary Fund members gave lukewarm endorsement to a strengthening global economy but conceded they were not out of the woods as they grappled with subdued inflation, low potential growth and an uneven recovery that clouded the outlook.

With central banks left with less firepower and some seeking to exit crisis-mode stimulus measures, the IMF members also renewed calls for fiscal policy and structural reforms to carry more of the burden in solidifying the recovery, now that the worst days of the economic storm had passed.

“Structural reforms that were difficult to do in hard times would be much easier in better times because the outlook is stronger,” IMF Managing Director Christine Lagarde told reporters on Saturday.

“It’s when the sun is shining that you need to fix the roof. That message was received 100 percent (by the policymakers).”

A communique from the IMF’s steering body, the International Monetary and Financial Committee (IMFC), said a global economic upswing, driven by a pickup in investment, trade and factory output, was brightening the outlook.

But it warned policymakers against complacency, saying that the recovery was “not yet complete” with inflation below target and potential growth weak in many countries.

Financial leaders attending the meeting also warned that while economies had improved in many countries there were people who had been left behind.

“We’re still an economy with our head in the oven and our feet in the freezer. So for the people with their feet in the freezer, that doesn’t resonate with them if you say everything’s on track,” said Bank of Canada Governor Stephen Poloz.

PATIENCE NEEDED

The optimism on global growth was overshadowed by tensions on trade, which was in full show in contentious talks to renew the North American Free Trade Agreement (NAFTA) held during the IMF’s autumn meetings.

The communique made no mention of trade, though Lagarde sought to offer a bright note by saying it was “perfectly legitimate” to renew long-standing trade agreements to respond to a changing world.

“Trade is a very powerful engine of growth, innovation, competition and productivity ... Hopefully if it is well done, it can be a win-win for all countries in those negotiations,” she said, when asked about the NAFTA talks.


The communique said member countries agreed to work together to reduce “excessive global imbalances,” and to look more carefully at potential side-effects that prolonged low interest rates could have on asset prices and economic activity.

Policymakers also had less to cheer on inflation and wages, which remain weak despite a strengthening recovery that prompted the IMF to upgrade its global growth forecast.

Bank of Japan Governor Haruhiko Kuroda said that while subdued price and wage growth has become a common phenomenon in advanced economies, it was ”only a question of time“ for them to accelerate as the economy gathers momentum.”

European Central Bank head Mario Draghi said the key was patience.

“The bottom line in terms of policy is that we are confident that as the conditions will continue to improve, the inflation rate will gradually converge in a self-sustained manner,” he said.

“But together with our confidence, we should also be patient because it’s going to take time.”

Reference: Leika Kihara

Friday, 13 October 2017

Sterling jumps on report UK might be offered two-year Brexit transition


LONDON (Reuters) - Sterling jumped by more than a cent to reach an eight-day high against the dollar on Thursday, with analysts citing a report in Germany’s Handelsblatt newspaper that the European Union could offer Britain a two-year transitional Brexit deal.

The pound had earlier tumbled after the EU’s chief Brexit negotiator Michel Barnier told reporters that talks around Britain’s divorce payment had become deadlocked, hitting as low as $1.3122.

But it jumped after the report to as high as $1.3292 , up more than 0.4 percent on the day.

Against the euro, sterling strengthened to a three-day high of 89.15 pence, having earlier traded at its weakest in four weeks.

Handelsblatt said Barnier wanted to offer Britain the chance to stay in the EU’s single market and customs union for a two-year transition if London agreed to settle its financial obligations with the EU and sign a divorce agreement.

Handelsblatt, citing EU diplomats, said Britain would also have to meet all the obligations of EU membership during the transition and Barnier was expected to make the proposal during a meeting of EU ambassadors on Friday.

“None of this is new news but, seeing today’s unjustified sell-off, met with unjustified reversal & potential,” ING currency strategist Viraj Patel wrote on Twitter.

Britain’s government has said it will cease to be a member of the single market after its scheduled departure from the EU in March 2019 as it would not agree to continue to allow automatic free movement of EU workers into the country.

Reference: Jemima Kelly

Thursday, 12 October 2017

Asia stocks reach 10-year peak on global equity surge, dollar sags


TOKYO (Reuters) - Asian stocks reached a 10-year high on Thursday, riding the bull run in global equity markets, while the dollar sagged after the Federal Reserve showed a more guarded view towards inflation.

Spreadbetters expected a mixed start for European stocks, forecasting Britain's FTSE to open down 0.05 percent, Germany's DAX . to start 0.03 percent higher France's CAC  to open flat.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.55 percent and at its highest since December 2007.

Japan's Nikkei .N225 was up 0.4 percent after brushing 20,994.40, its highest since November 1996. South Korea's KOSPI .KS11 added 0.55 percent to mark a fresh record peak and Hong Kong's Hang Seng .HSI scaled a decade-high.

Asia took cues from Wall Street, where major indexes rose to yet another set of record closing highs overnight following a report that a market-friendly candidate was being pushed as successor to Janet Yellen at the helm of the Fed. [.N]

Broader investor risk sentiment has improved this week after Catalonia dialled back plans to break away from Spain, with MSCI’s 47-country world stocks index .MIWD00000PUS reaching a record high.

Global equities now appear to be taking geopolitical developments such as the secessionist push in Spain and tensions on the Korean peninsula in their stride, to reach those record tops.

“Fundamentally, the global economy is in decent shape. Corporate sentiment is also sound as evidenced by strong data like the Chinese PMI, U.S. ISM and Japanese tankan. All these factors are leading to the rise in global stocks,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“Financial markets will remain wary of geopolitical headlines. But barring actual military conflicts, negative responses by equities are expected to be short-lived.”

The dollar index against a basket of six major currencies slipped to a two-week low of 92.821  following the release of the minutes from the Fed’s last policy meeting on Sept. 19-20.

Fed policymakers had a prolonged debate about the prospects of a pickup in inflation and the path of future interest rate rises if it did not, the minutes showed.

While this did little to cool expectations for the Fed to raise interest rates in December, it did make the central bank appear slightly less hawkish than it seemed right after the September policy meeting when it signalled the year-end monetary tightening.

The dollar was particularly weak against the euro as relief over Catalonia stopping short of a formal declaration of independence supported the common currency.

The euro rose to $1.1879 EUR=, its highest since Sept. 25 and on track for a fifth straight day of gains.

The dollar was little changed at 112.360 yen JPY=, having bounced back from a two-week trough below 112.000 plumbed earlier this week.

The U.S. currency was seen to have found support after a media survey showed that Japanese Prime Minister Shinzo Abe’s ruling party could come close to keeping its two-thirds “super” majority in an Oct. 22 lower house election.

Such an electoral outcome would suggest a continuation of Abe’s reflationary economic policies, said Heng Koon How, head of markets strategy for United Overseas Bank in Singapore.

“It means that the Bank of Japan’s quantitative easing will continue, that will keep the yen on balance weak and so it supports dollar/yen,” Heng said.

The Mexican peso stood firm at 18.688 pesos per dollar It had gained 0.7 percent overnight to pull away from a five-month low of 18.852, although the currency was seen coming under renewed pressure if the ongoing North American Free Trade Agreement (NAFTA) talks run aground.

The United States, Mexico and Canada have negotiated this week to reform NAFTA. There are concerns that U.S. President Donald Trump could opt to withdraw from the pact if his demands for more favourable treatment are not met.

In the mean time the Canadian dollar gained against the broadly weaker dollar. It extended overnight gains to reach C$1.2440 per dollar, its strongest in two weeks.

In commodities, oil prices eased as U.S. fuel inventories rose despite efforts by OPEC to cut production and tighten the market.

Brent crude futures LCOc1 were down 0.55 percent at $56.63 per barrel and poised to end a three-day winning streak.

Spot gold edged up to a 15-day high of $1,295.45 an ounce, supported by a weaker dollar.

Reference: Shinichi Saoshiro

Dollar slips after Fed minutes, eyes on U.S. inflation data


SINGAPORE (Reuters) - The dollar hit a two-week low versus a basket of currencies on Thursday after minutes from the U.S. Federal Reserve’s latest meeting suggested some central bankers are still concerned about persistently low inflation.

The dollar index, which measures the greenback’s value against a basket of six major currencies, touched 92.827, its lowest level since Sept. 26. It was last down 0.2 percent at 92.854.

The Fed minutes on Wednesday showed many policymakers still felt that another rate increase this year “was likely to be warranted” but several noted that additional tightening was dependent on upcoming inflation data.

“Many participants expressed concern that the low inflation readings this year might reflect... the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted,” the Fed said in its minutes.

“The FOMC minutes indicated that the board was still profoundly divided about the slow pick up in prices,” Stephen Innes, head of trading in Asia-Pacific at Oanda, said in a note.

“As always, the Fed will continue to watch the data as we move into December,” he wrote.

U.S. producer price data on Thursday and consumer price data on Friday will be the next focus, after U.S. jobs figures last week showed a rise in wages that boosted expectations that inflation is picking up.

The dollar slipped 0.1 percent against the yen to 112.38 yen, but remained above Wednesday’s intraday low of 112.08 yen.

Analysts said the dollar had found some support against the yen on Wednesday, after a survey published by the Nikkei business daily showed that Japanese Prime Minister Shinzo Abe’s ruling bloc could come close to keeping its two-thirds “super” majority in an Oct. 22 lower house election.

The Nikkei poll suggested that Abe could solidify his grip on power, defying some predictions that the ruling bloc may suffer substantial losses in the election.

Such an electoral outcome would suggest a continuation of Abe’s reflationary economic policies, said Heng Koon How, head of markets strategy for United Overseas Bank in Singapore.

“It means that the Bank of Japan’s quantitative easing will continue, that will keep the yen on balance weak and so it supports dollar/yen,” Heng said.

Since the global economy remains on solid footing and investor risk sentiment has been holding up, the dollar’s downside against the yen appears limited, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

The dollar will probably find some support around 111.80 yen, near the 200-day moving average, he added.

The yen is a low-yielding currency that is often used to fund investments in higher-yielding currencies and assets, especially when the economic outlook is benign and market volatility is subdued.

The euro touched its highest in more than two weeks at $1.1878, and was last up 0.1 percent on the day at $1.1874.

The euro has risen this week, after Catalonia stopped short of formally declaring independence from Spain. The single currency was also supported by expectations that the European Central Bank would announce at its policy meeting later this month that it would wind back its 2.3 trillion euro bond-buying programme.

Reference: Masayuki Kitano

Dollar wavers amid doubts over Trump's tax plans, euro hits 12-day high


TOKYO (Reuters) - Speculation that President Donald Trump’s tax overhaul plan would stall kept the dollar below a recent 10-week peak against major currencies on Wednesday, and the euro held near a 12-day high as political tensions over Catalonia receded slightly.

The euro was flat at $1.1808 after touching $1.1828, its highest since Sept. 29, thanks partly to upbeat euro zone economic indicators that have helped it rally from a seven-week low of $1.1669 on Friday.

The euro’s rally strengthened after Catalan leader Carles Puigdemont on Tuesday proclaimed the region’s independence from Spain but said the effects would be postponed to allow for talks, averting an immediate crisis.

“That Puidgemont has suggested making time for talks is supporting the euro. The main scenario is likely to involve the Spanish central government award some concessions to Catalonia to defuse the situation,” said Daisuke Karakama, chief market economist at Mizuho Bank.

Strong economic data out of Germany boosted confidence in the euro, as robust industrial output numbers posted on Monday were followed by figures on Tuesday showing exports surged in August.

“The Catalonia issue is likely to fade away as a market theme and speculators will find it harder to sell the euro in turn,” said Yukio Izhizuki, senior currency strategist at Daiwa Securities.

“The dollar is also looking heavy against the euro due to uncertainty over U.S. tax issues. Squabbles surrounding Trump’s efforts come as no surprise, but it is still not helping the dollar.”

President Trump’s public feud with Tennessee Senator Bob Corker, an influential fellow Republican, has raised concern that his push for a tax-code overhaul could be harmed.

The dollar was effectively unchanged at 112.470 yen after slipping to as low as 111.990 overnight.

Stronger than expected U.S. wages had helped the greenback rise to a three-month high of 113.440 yen on Friday, but the latest flare up in tensions with North Korea reduced the gains.

The dollar index against a basket of six major currencies was steady at 93.282 on Wednesday, having come back from a 10-week peak of 94.267 on Friday.

Investors were awaiting the release of minutes of the September Federal Reserve policy meeting later in the session. The Fed had signaled at the meeting that it may raise interest rates for a third time this year even with inflation staying below its 2 percent goal.

But with the Fed funds futures almost fully pricing in the likelihood of a rate hike in December and the recent spike in Treasury yields losing momentum, analysts said fresh factors could be needed for the dollar to renew its advance.

The Australian dollar was steady at $0.7781 after rising to $0.7810 earlier on an upbeat domestic consumer confidence reading.

The New Zealand dollar was 0.1 percent higher at $0.7077 after a brief foray to $0.7099. The kiwi remained in reach of a four-month low of $0.7052 struck on Monday after a final vote count in the country’s tight general election failed to identify a clear winner.

A wait and see mood prevailed as small party that holds the balance of power is holding a fourth day of talks aimed at forming a government in New Zealand, having delayed a decision on which party it would back.

The pound was nearly flat at $1.3202. Sterling had risen 0.5 percent overnight after stronger-than-expected British industry data cemented expectations that the Bank of England would raise rates for the first time in more than a decade next month.

Reference: Shinichi Saoshiro

Wednesday, 11 October 2017

Asian shares hit decade highs, dollar struggles at two-week trough


SYDNEY (Reuters) - Asian shares jumped to the highest in a decade on Wednesday as Wall Street scaled all-time highs, while the dollar loitered around two-week lows on worries President Donald Trump’s tax plan could stall.

The three major Wall Street indices set record highs on Tuesday, with Dow .DJI up 0.3 percent, the S&P 500 .SPX adding 0.2 percent and the Nasdaq inching 0.1 percent higher.

In currency markets, the dollar held around a two-week trough as U.S. President Donald Trump’s escalating war of words with Senator Bob Corker raised concerns about the administration’s ability to pass promised reforms.

The dollar index steadied at 93.314 against a basket of currencies, around the lowest level since Sept. 29.

FED MINUTES

The greenback was also under pressure amid ongoing uncertainty over the next Federal Reserve Chairman, with the predictions market site, PredictIt, favouring Fed governor Jerome Powell as the most likely candidate.

While Powell is regarded as more hawkish than incumbent Janet Yellen, whose term expires in February, analysts say he might be less aggressive in winding back stimulus than Kevin Warsh, another possible candidate for the role.

Investors will keep an eye on the minutes of the Fed’s September meeting due later in the day, which might help bolster views of a December rate hike.

But Dallas Federal Reserve Bank President Robert Kaplan, who votes this year on Fed policy, said earlier in the day he wants to see more signs of upward inflation before raising interest rates again.

The euro EUR= held around $1.1818, not far from Tuesday's high of $1.1825, after Catalonian President Carles Puigdemont suspended plans to leave Spain and called for talks with Madrid to discuss the region's future.

The gesture tempered fears of immediate unrest in a major euro zone economy and cheered investors. Madrid's IBEX 35 Index futures  added 1.75 percent, after the cash IBEX stock index closed down 0.9 percent on Tuesday.

In commodities, U.S. crude  rose 19 cents to $51.11 per barrel and Brent added 13 cents to $56.74 on signs of tighter near-term supply.

Gold prices hovered around their highest in two weeks, with spot gold XAU= at $1,289.06 an ounce.

Reference: Swati Pandey

Is the Fed wary of sub-2 percent Treasury yields?



LONDON (Reuters) - As the Bank of Japan explicitly targets zero percent 10-year government bond yields, a case could be made that U.S. Federal Reserve is more quietly nudging long-term Treasury yields up from 2 percent.

It’s clearly not official policy and policymakers would be quick to dismiss any targeting outside of the Fed’s constitutional mandates. But timing of Fed guidance and market behaviour this year indicates a distinct reluctance at the central bank to seeing 10-year Treasury yields slip back below prevailing inflation rates.

The 10-year yield, the U.S. and global benchmark, has not dipped below 2 percent this year - although it came very close last month - and every time a slide towards or a break below that threshold has looked on the cards it has snapped back some 20 basis points or more.

Curiously, each one of those spikes has coincided with a welter of hawkish commentary in some form or other from Fed officials talking up the outlook for U.S. growth and inflation, or downplaying asset bubbles and financial instability risks.


It goes without saying that there has been no direct or even indirect Fed intervention in the bond market to steer the 10-year yield higher. But it’s safe to say Fed officials are more comfortable with it moving up, further away from 2 percent than falling back towards 2 percent.

“I don’t think they have an explicit target but they probably believe that 2 percent is very low given how tight the labor market is,” said Torsten Slok, managing director and chief international economist at Deutsche Bank in New York.

“Financial markets are overheating and gradually increasing long rates would be a good tool to try to slowly tighten financial conditions and thereby prolong the current economic expansion,” he said.

The Fed has raised rates a quarter of a percentage point four times since December 2015. Almost a decade on from the onslaught of the financial crisis, it will begin reducing its QE-inflated balance sheet later this year.

To say the Fed is proceeding cautiously is an understatement. Rate rises have been moderate in size and gradual in pace, and the balance sheet unwind is coming after a full three years of being kept steady at a record $4.2 trillion.

Yet the Fed is still tightening. Its vision of policy “normalization” won’t include a depressed or falling 10-year yield. Policymakers have downplayed the persistently flat yield curve, arguing that it doesn’t have the predictive powers of economic slowdown or recession it once had.

It’s in this light that the ebb and flow of the 10-year yield this year set against Fed commentary is illuminating.

GOTTA GET A MESSAGE TO YOU

On Jan 18, with the yield down more than 30 basis points over the preceding month at 2.31 percent, Fed chair Janet Yellen gave a speech to the Commonwealth Club of California in San Francisco.

“Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road - either too much inflation, financial instability, or both,” she said.

Less than a week later, the 10-year yield was up at 2.55 percent.

The next month the yield was on the slide again, revisiting 2.31 percent on Feb. 24 before bouncing all the way up to 2.62 percent over the following three weeks.

No fewer than four Fed officials delivered upbeat comments on the U.S. economy between Feb. 20-22, suggesting that rates would soon go up again. They were duly raised on March 15.

On April 18, the 10-year yield was at its lowest point of the year around 2.17 percent. Between April 18-20 four Fed officials, including deputy governor Stanley Fischer, talked of the need to unwind the Fed’s balance sheet, the benefits of raising rates and the dangers of waiting too long to do so.

Barely two months later the yield was even lower, bottoming out at 2.10 percent on June 14. That very day the Fed raised rates, citing continued economic and labour market strength, and announced it would begin cutting its holdings of bonds and other securities this year.

In her news conference, Yellen struck an upbeat note on the economy, said the recent weakness in inflation was transitory and noted that the QE unwind could start “relatively soon”. The yield rose 30 basis points over the next month.

Most recently, on Sept. 8, the benchmark Treasury yield was 2.02 percent and the yield curve close to its flattest in a decade. A break below 2 percent seemed likely.

That same day New York Fed President William Dudley, one of the most influential Fed officials, said the yield curve wasn’t too flat and that inflation and wage growth were poised to rise. Lags in policy means the Fed should still act even with inflation below its 2 percent target, he added.

It may be coincidence, but the 10-year yield then rose nearly 40 basis points, hitting a five-month high of 2.40 percent last Friday.

Another rate hike this year is a nailed on certainty, if market pricing is to be believed, and the Fed will soon begin shrinking its balance sheet. The two-year yield is its highest in nine years, meaning the yield curve remains extremely flat.

This is not good for banks, who make money by borrowing at lower, short-dated rates and lending at higher, longer-term rates. Should the 10-year yield lurch lower again towards 2 percent, don’t be surprised if Fed officials start talking up the economy and rates again.

The opinions expressed here are those of the author, a columnist for Reuters.

Reference: Jamie McGeever

Tuesday, 10 October 2017

Euro bounces to one-week highs on hawkish comments


LONDON (Reuters) - The euro hopped to a one-week high on Tuesday as investors added positions on hawkish overnight comments by a policymaker that reaffirmed bets the euro zone economy’s outlook remains robust.

The currency’s rise this year has lost some momentum in recent days as political concerns - notably Spain’s Catalan crisis - have grown pushing the euro down against the dollar more than 3 percent over the last month.

But on Tuesday, it bounced nearly 0.4 percent to $1.1789, its highest since Oct. 2, after overnight comments from Sabine Lautenschlaeger, a member of the European Central Bank executive board, calling for the ECB to roll back asset purchases in 2018.

“Her hawkish comments also appear supportive for the euro but the political overhang has taken the air out of the euro balloon, and this ongoing political uncertainty will most certainly cap any near-term rallies,” said Stephen Innes, head of Asia-Pacific trading at OANDA.

Also helping sentiment was strong data from Germany. Industrial output posted its biggest monthly rise in more than six years in August, data showed on Monday. Data from France and Britain are due later in the day.

The dollar ran into some profit taking on Tuesday with the currency dropping a fifth of a percent against a trade-weighted basket of its rivals.

The index was last at 93.47, down 0.2 percent on the day but still in reach of a 10-week high of 94.267 scaled on Friday when surprisingly stronger U.S. September wages data enhanced already high expectations that the Fed would hike rates for a third time in 2017.

“The market will be keeping a side glance on North Korea, but much of the latest tension could have been priced in on Friday when the dollar slipped,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

“Still, the dollar is well supported and not an easy currency to sell at the moment after Friday’s data showed that U.S. wages are improving steadily.”

Reporting by Saikat Chatterjee

Sterling bounces back after May hints at reshuffle


LONDON (Reuters) - Britain’s pound rose almost 1 percent on Monday, rebounding from its biggest weekly drop in a year, after British Prime Minister Theresa May said she would resist challenges to her leadership.

May hinted at the weekend that she may be considering a cabinet reshuffle to reassert her authority, raising questions over the fate of foreign minister and Brexit campaigner Boris Johnson, who has been accused of undermining her.

Sterling rose 0.9 percent to $1.3180 -- recovering from the 2.5 percent it lost last week -- and was the biggest gainer among major currencies against a broadly muted dollar.

It also rose 0.8 percent to 89.08 pence per euro.

The pound has become more sensitive to political noise in recent months and some strategists said Johnson’s departure, if it happens, could increase the chances of a “soft Brexit”, which might be positive for sterling in the short term.

“If Boris Johnson was to leave or be demoted as the weekend press is suggesting, that would be showing May’s leadership and that her vision of Brexit is the one that will be going forward and that markets should be aligned to,” said Viraj Patel, an FX strategist at ING Bank in London.

Speculative investors, meanwhile, turned more positive on the pound in the week to Oct. 3 than at any time since September 2014, according to data from the Commodity Futures Trading Commission.

Patel said this long positioning was the result of heightened expectations the Bank of England will raise interest rates soon.

May is expected to give British lawmakers a bullish prognosis for negotiations over the exit from the European Union on Monday, but will tell them that it is up to Brussels to make the next move.

But investors remain wary as to whether May will succeed in advancing towards a transition deal.

“The EU’s lack of willingness to begin talks over a new special relationship highlights the need for the UK government to prepare more intensively for a no deal scenario even if it is not the desired outcome,” warned currency analyst Lee Hardman in a note for MUFG.

Last week’s losses had dragged down sterling from a June 2016 high of above $1.3650 hit in late September and erased all its gains sustained after the BoE signalled in mid-September an interest rate increase was likely in the coming months.

On a trade-weighted basis, sterling fell on Friday to its lowest since mid-September.

Adding to sterling’s woes have been weak economic data releases pointing to tepid growth in Britain’s economy.

Figures on Friday showed British economic productivity fell at its joint-fastest annual rate since 2013 in the 12 months after the country voted to leave the European Union.

Reference: Fanny Potkin

Monday, 9 October 2017

Dollar trades below 12-week high vs. yen as North Korea fears weigh


SINGAPORE (Reuters) - The dollar held steady against the yen on Monday, having retreated from 12-week highs set last week, due to renewed focus on geopolitical risks amid concerns that North Korea may be preparing another missile test.

North Korea is preparing to test a long-range missile, which it believes can reach the west coast of the United States, a Russian lawmaker who had returned from a visit to Pyongyang was quoted by Russia’s RIA news agency as saying on Friday.

The renewed focus on geopolitical tensions helped lend support to the safe haven yen, and helped pull the dollar down from its post-U.S. jobs data highs.

On Friday, the dollar was already in retreat due to profit-taking, when the North Korea-related headlines reached the market, exacerbating the greenback’s drop, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

“Asia is going to really sit back and just see how this is going to play out, keep on the headline watch,” Innes said. “This market’s very, very jumpy.”

The dollar last traded at 112.56 yen, steady on the day. On Friday, the dollar had reached a peak of 113.44 yen, its highest level since July 14.

Trading was thinner than usual, with Tokyo markets closed on Monday for a public holiday.

Since Japan is the world’s largest net creditor nation, traders assume Japanese repatriation from foreign countries will eclipse foreign investors’ selling of Japanese assets during times of heightened economic uncertainty. This means the yen has continued to behave as a safe-haven currency despite Japan’s geographical proximity to North Korea.

The dollar index, which measures the greenback against a basket of six major currencies, eased 0.1 percent to 93.709. On Friday, it had scaled a high of 94.267, its strongest in more than two months.

The wage data from the U.S. September labor market report was seen as a sign of potentially improving inflation and gave the dollar a lift, as it bolstered expectations for the Federal Reserve to raise interest rates again in December.

The Turkish lira tumbled amid fresh signs of fraying diplomatic relations between Turkey and the United States.

The lira took a hit following news that the U.S. mission in Turkey and subsequently the Turkish mission in Washington mutually scaled back visa services after a U.S. consulate employee was arrested in Turkey.

The U.S. dollar surged 3.2 percent against the Turkish lira to 3.7325. That put the lira on track for its worst daily performance since July 2016.

The lira, however, remains above its year-to-date low near 3.9415, said Mingze Wu, FX trader of global payments for financial services provider INTL FCStone Ltd in Singapore.

“This latest political development, though surprising, is still far from drastic... We will need to see more escalation from this point to have a continued weakening of the lira,” he added.

The New Zealand dollar touched a four-month low after a final vote count in the country’s tight general election released over the weekend failed to identify a clear winner.

The New Zealand dollar slipped to as low as $0.7052, its lowest level since May 30. The kiwi was last trading at $0.7075, down 0.2 percent on the day.

“There’s still a lot of political uncertainty around the make-up of the next government. That political risk premium is being attached to the kiwi and I think that’s going to keep it under some pressure in the short-term,” said Peter Dragicevich, G10 FX strategist for Nomura in Singapore.

The euro edged up 0.1 percent to $1.1745, having pulled up from Friday’s low of $1.1669, its lowest level since Aug. 17.

Reference: Masayuki Kitano

Dollar hits 10-week highs, U.S. yields jump on strong wages data



LONDON (Reuters) - The dollar rose to its strongest in 10 weeks on Friday and short-dated U.S. Treasury yields climbed to a nine-year high, after data showing the largest gain in U.S. wages since December 2016 bolstered bets on an interest rate hike by year-end.

U.S. two-year yields hit their highest since October 2008 at 1.52 percent, as U.S. bonds led a sell-off in world bond markets.

The dollar index - which measures the greenback against a basket of major currencies - climbed to 94.267, its highest since late July .

Though the headline payrolls figure showed a fall in U.S. employment in September for the first time in seven years, investors reckoned this was a temporary effect from Hurricanes Harvey and Irma, which left displaced workers temporarily unemployed and delayed hiring.


“The headline number was much worse than the consensus forecast but doesn’t matter,” said ThinkMarkets analyst Naeem Aslam.

“The wage number was positive and traders have paid a lot of attention to this number because this shows that job market slack is fading.”

Wall Street looked set to open slightly lower, as markets bet on a faster pace of monetary tightening.

In Europe, German 10-year government bond yields edged upwards after the labor market data, hitting a session high of 0.49 percent, up 3 basis points on the day. Most other euro zone bond yields also rose after the release of the data.

Spanish stocks .IBEX and bond prices, which had rallied on Thursday, were sent tumbling back again as a Catalonian official said the region's parliament would meet on Monday in defiance of a ruling by Spain's constitutional court.

Sterling slipped to its lowest against the dollar in a month on Friday as it headed for its worst week in a year, amid growing worries over Theresa May’s future as British prime minister, as well as over the health of the economy.

The pound fell to as low as $1.3060 in morning trade in London, its weakest since Sept. 7 and down almost half a percent on the day.

Against the euro, it slipped 0.3 percent to a three-week low of 89.94 pence.

May reinforced markets’ doubts about her ability to govern effectively - and see off any leadership bids from rivals in her Cabinet - in a poorly-received keynote speech at the annual Conservative party conference on Wednesday.

Purchasing managers index (PMI) surveys this week pointed to tepid growth in Britain’s economy.

Reporting by Jemima Kelly

Friday, 6 October 2017

Asia up on economic optimism before U.S. jobs report, dollar buoyant


TOKYO (Reuters) - Asian stocks rose on Friday and the dollar hit a seven-week peak, riding on economic optimism ahead of a U.S. job report later in the day.

Spreadbetters expected Britain's FTSE to open 0.2 percent higher, Germany's DAX to edge up 0.07 percent and France's CAC  to open down 0.2 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.3 percent, poised for a 1.6 percent gain on the week.

Japan's Nikkei .N225 climbed 0.3 percent after setting a new two-year high, Australian stocks rose 0.9 percent and South Korea's KOSPI  advanced 0.9 percent.

The S&P 500  posted its sixth straight record high close on Thursday, its longest run since 1997, as investors cheered increased prospects for a tax overhaul with Congress moving closer to agreement on a budget resolution.

“We have the very first step where Congress passed the budget details, so you’re one step nearer to tax reform,” said Heng Koon How, head of markets strategy for United Overseas Bank in Singapore.

Data on Thursday showed the number of Americans filing for unemployment benefits fell more than expected, the trade deficit narrowing, and evidence of strong orders for core capital goods.

The latest boost in U.S. economic optimism lifted Treasury yields and helped take the dollar index against a basket of major currencies to the seven-week high.

U.S. data this week has been solid on the whole, with investor focus now turned to the closely-watched nonfarm payrolls report due at 1230 GMT.

Of key interest to the financial markets was how hurricanes Harvey and Irma may have affected the labour market in September.

“The hurricanes have made employment conditions difficult to pin down and market reaction could be limited regardless of how strong or weak the outcome is,” said Shin Kadota, senior strategist at Barclays in Tokyo.

Economists expect 90,000 new U.S. jobs were created in September, down from 156,000 in August, according to a Reuters poll.

“If the results are strong, it would enhance expectations for the Fed to raise interest rates in December. But whether expectations for rate hikes beyond December could be raised is another matter, with the Fed keeping a cautious stance on prices and with (Chair Janet) Yellen’s term ending in February,” Kadota at Barclays said.

Interest rate futures traders are now pricing in an 86 percent likelihood of a December rate hike, up from 78 percent a week ago, according to the CME Group’s FedWatch Tool.

The dollar index was 0.1 percent higher at 94.057 after rising to 94.112, its highest since Aug. 16.

The euro extended the previous day's losses, falling to a two-month low of $1.1686. It was on track to end 1 percent lower on the week.

The dollar added 0.15 percent to 112.990 yen to edge towards a two-month peak of 113.260 scaled last week.

The pound was particularly vulnerable against the bullish dollar after a poorly-received keynote speech by British Prime Minister Theresa May deepened market doubts about her ability to govern effectively.

Sterling retreated to a one-month low of $1.3073 after sliding 1 percent overnight.

The Australian dollar was down 0.5 percent at $0.7753 after falling to as low as $0.7743, its weakest since mid-July. The Aussie slid following media reports that Reserver Bank of Australia board member Ian Harper had said he is not ruling out an interest rate cut.

Falling bond prices pushed up the 10-year U.S. Treasury yield  to 2.353 percent, nudging it back towards a three-month high of 2.371 set on Monday. The yield had momentarily dropped to 2.300 percent mid-week.

In commodities, Brent crude was down 0.1 percent at $56.94 a barrel.

The futures contract had surged 2.1 percent overnight on signs Saudi Arabia and Russia would limit production through next year, although caution towards a tropical storm heading for the Gulf of Mexico cut short the advance.

Reference: Shinichi Saoshiro

Wall Street rally on pause, but more gains seen in 2018: Reuters poll


NEW YORK (Reuters) - A more than eight-year bull market on Wall Street will simmer for the rest of 2017 before picking up again next year, said strategists in a Reuters poll who were optimistic about corporate profits but concerned about slow tax reform progress.

The benchmark S&P 500 .SPX is likely to finish this year at 2,525, about 13 percent above 2016's end, but 0.4 percent down from Tuesday's close of 2,534.58, based on the median forecast of 47 strategists polled by Reuters.

After strong third-quarter gains fueled in part by U.S. President Donald Trump’s recent proposals for the biggest federal tax overhaul in three decades, the index is trading at a record, already above the median forecast from a June Reuters poll of 2,460.

The median S&P 500 forecast in the poll for end-2018 was 2,675.

“The economy and earnings are pretty good, and they’re the building blocks. That’s what’s given us the good year-to-date (gains) and could continue to cause those of us who think stocks are OK but not great to be too cautious,” said Robert Doll, chief equity strategist at Nuveen Asset Management in Princeton, New Jersey. He has a 2,550 year-end target for the S&P 500.

Recent hurricanes in the United States curbed some consumer spending in August but accounted somewhat for a surge in a measure of U.S. manufacturing activity to a near 13-1/2-year high in September.

Other data showed new orders for U.S.-made capital goods increased more than expected in August.

How long the bull run lasts will depend also on the Federal Reserve, whose accommodative monetary policy has helped fuel the market’s rally in recent years, and whether the U.S. economy can keep growing as the Fed hikes U.S. interest rates further.

Last month the Fed signaled it expects one more rate hike by the end of the year but said it was closely watching inflation. If inflation stays low, that could mean a less aggressive Fed, analysts said.

Investors also face the prospect of a new Fed chief early next year. Chair Janet Yellen, whose term expires in February, is among several under consideration for the job.

While investors have cheered Trump’s proposed tax reform, the plan is only in its early stages, and already has prompted criticism, including that it could add trillions of dollars to the deficit.

“There are a lot of details that need to be worked out,” said Scott Wren, senior global equity strategist at Wells Fargo Investment Institute in St. Louis, Missouri. Wells Fargo has a 2017 target of 2,350 for the S&P 500 and a 2018 target of 2,500.

Republicans so far have been unable to produce any major legislative successes since Trump took office in January, despite controlling the White House and both Houses of Congress.

Strategists expect companies’ profit growth to help justify lofty valuations and sustain gains in stocks. Analysts forecast a year-over-year earnings gain of 11.5 percent for the S&P 500 in 2017 and growth of another 11.1 percent in 2018, Thomson Reuters data shows.

The S&P 500 is trading at about 18 times expected earnings over the next year, well above its long-term average of about 15.

Among sectors, technology remains a favorite pick for many strategists. The S&P 500 technology index has far outpaced gains in the broader market, and as of Tuesday was up about 26 percent for the year so far.

Many strategists in the poll said they expected the market’s recent lack of volatility to continue for at least the near term. They largely id not see the CBOE Volatility index rising to historically normal levels for at least another three to six months.

The poll also showed the Dow Jones Industrial Average ending 2017 at 23,000, slightly above Tuesday's close of 22,641.67. The index is forecast to end 2018 24,420.

Reference: Caroline Valetkevitch

Thursday, 5 October 2017

Dollar inches up on upbeat U.S. data but sagging yields cap gains


TOKYO (Reuters) - The dollar inched up against a basket of its peers on Thursday after data shed more positive light on the U.S. economy, although sagging Treasury yields tempered the greenback’s gains.

The dollar index against a group of six major currencies was 0.05 percent higher at 93.500.

It had declined 0.1 percent the previous day as speculation that the next head of the Federal Reserve could be a less hawkish candidate than expected knocked it off seven-week highs.

The greenback managed to crawl back after Wednesday’s data showed U.S. service sector growth hit is fastest in 12 years in September and private employers added more jobs than forecast despite Hurricane Harvey and Irma.

The gains, however, were kept in check with Treasury yields having pulled back from three-month peaks.

“The dollar has not been able to take full advantage of the latest series of strong U.S. data as Treasury yields have come down from their peaks,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

The dollar index had scaled the seven-week peak of 93.920 on Tuesday, when the 10-year Treasury yield hit the three-month high of 2.371 percent after strong U.S. manufacturing data hardened expectations for the Fed to raise interest rates by year-end.

The 10-year Treasury yield last stood at 2.328 percent.

“It appears that the market has mostly priced in dollar-positive factors, like better indications for the U.S. economy, tax-related issues and the likelihood of policy tightening by the Fed,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Improving U.S. data along with the prospect of U.S. tax cuts and the likelihood that the Fed will raise interest rates in December have boosted the U.S. currency in recent weeks.

“This leaves the dollar less responsive to positive factors, although it could show a relatively big reaction to negative surprises,” Murata at Brown Brothers Harriman said.

The euro was a shade lower at $1.1757 EUR= after gaining about 0.1 percent overnight.

The immediate focus was on the minutes of the European Central Bank’s (ECB) September policy meeting due later in the global day.

The ECB signaled at the meeting that while it could announce a plan this month for a gradual exit from its very easy monetary policy, it was in no hurry to end it.

The central bank also mentioned the potentially negative aspects of a strong euro at the September policy meeting so the markets will look closely at the minutes to gauge what was discussed about the currency.

After touching 112.920 yen early in the day the dollar was effectively flat at 112.740  after slipping to as low as 112.320 on Wednesday.

The Australian dollar was down 0.4 percent at $0.7832 AUD=D4 after data showed the country's retailers suffered their worst sales decline since early 2013 in August.

The Aussie moved back toward $0.7785, a near three-month low plumbed on Tuesday after the Reserve Bank of Australia cautioned that a higher currency would be a drag on the economy and inflation.

Reference: Shinichi Saoshiro

Hong Kong, Japanese stocks boost Asia on optimism over global growth


SYDNEY (Reuters) - Japanese and Hong Kong shares led Asian stocks higher on Wednesday, supported by optimism about global growth and as the Chinese central bank’s weekend move to free up liquidity boosted mainland financial stocks.

Japan's Nikkei climbed to a more than two-year peak while Hong Kong's Hang Seng Index .HSI rose to a level not seen since May 2015. The Philippines Stock Exchange .PSI added 0.7 percent to a record high.

Across Asia this week, trade has been generally subdued and volumes thin with China and South Korea closed for week-long holidays, while analysts cautioned against reading too much into index moves.

However, world equities have been underpinned by upbeat global data, including strong manufacturing activity across much of Asia, Europe and the United States, largely reflecting a broad export boom.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.3 percent to extend four straight days of gains.

“Global growth is on the up,” said Greg McKenna, Sydney-based chief market strategist at AxiTrader. “That’s a positive for stocks even before we add in the stimulatory impact of possible tax cuts or infrastructure spending in the United States.”

China - the world’s No.2 economy - has held up remarkably well this year, thanks to a construction-boom and surge in exports.

The Chinese central bank on Saturday cheered investors by cutting the amount of cash that some banks must hold as reserves for the first time since February 2016.

Analysts say the move by the People’s Bank of China should support banks’ net interest margins and profit growth in 2018.

Predictably, financials lifted the Hong Kong China Enterprises Index .HSCE, which soared to the highest since August 2015. China Construction Bank and Industrial and Commercial Bank of China were among top gainers.

Asia already had a strong tailwind from buoyant U.S. shares, with the three major stock indices on Wall Street closing at record highs on Tuesday.

Car sales in the world’s biggest economy grew at the fastest pace in 12 years as Americans rushed to replace cars lost to hurricanes in Texas and Florida in recent weeks.

The car-buying spree will boost new and used auto sales through at least November, according to industry consultants.

That will hoist retail sales, adding to the country’s gross domestic product and more than offsetting the drag from damage done by the hurricanes, analysts said.

Britain's top share index FTSE 100 .FTSE is set to open steady, according to spreadbetters, with futures a touch softer ahead of cash market open.

FED MUSICAL CHAIR

In currencies, the dollar eased 0.2 percent on the yen JPY= to 112.61. The dollar index , which tracks the greenback against a basket of six major currencies, slipped 0.18 percent to 93.405.

The foreign exchange market is at a crossroad with uncertainty over the likely successor of Federal Reserve Chair Janet Yellen whose term ends in February. Fed Governor Jerome Powell has joined the race for the job alongside his predecessor Kevin Warsh.

“The market is still seeing Warsh as a favourite but the odds for Powell have improved. Powell is perceived as being a relatively dovish choice compared to Warsh,” said Ray Attrill, Sydney-based global co-head of forex strategy at National Australia Bank.

As a result, Treasury yields headed lower to 2.3120 percent from a near three-month peak of 2.3710.

Elsewhere, investors remained cautious over Catalonia’s vote to separate from Spain with the region’s secessionist leader saying he would declare independence “in a matter of days”.

“The Constitutional Court is likely to challenge and rule against such a motion,” analysts at Citi wrote in a note.

“If the Catalan government ignores the ruling, then Madrid is likely to trigger article 155 of the Constitution to strip out Catalonia’s autonomy and to call for regional elections.”

Catalans had come out in hordes to vote for independence on Sunday in a referendum that was declared illegal by Spain’s central government.

In commodities, U.S. crude dipped 0.75 percent at $50.04 a barrel on caution that a rally that lasted for most of the third quarter would not extend through the last three months of the year. Brent crude fell to $55.62 per barrel.

Reference: Swati Pandey

Wednesday, 4 October 2017

Dollar rally stalls as market ponders Trump's Fed choice


TOKYO (Reuters) - The dollar stepped back from a 1-1/2-month high against a basket of currencies on Wednesday on speculation that U.S. President Donald Trump’s choice for the next Fed chair could be a less hawkish candidate than some had expected.

U.S. Treasury Secretary Steven Mnuchin favours Fed Governor Jerome Powell over former governor Kevin Warsh, Politico reported. Both Warsh and Powell were interviewed at the White House last week.

While both are seen as serious candidates to replace current Chair Janet Yellen when her term expires in February next year, Powell is seen as more dovish than Warsh, who has criticised the Fed’s bond-buying programme in the past.

The dollar had rallied earlier this week on speculation that Warsh might be the leading candidate to replace Yellen, and got an extra boost from strong U.S. data.

A more hawkish Fed candidate would likely prompt investors to bet on more aggressive normalization of monetary policy, to the dollar’s benefit.

“The next head of the Fed is a longer-term focus for the forex markets,” said Keiko Ninomiya, senior FX market analyst at SMBC Trust Bank in Tokyo. “In the shorter term, investors are wary ahead of U.S. employment data later this week,” she said.

The dollar index, which tracks the greenback against a basket of six major rivals, slipped 0.2 percent to 93.433, off a six-week high of 93.92 touched on Tuesday following strong U.S. manufacturing figures.

“The dollar has gained recently on expectations of a Fed rate hike in December and hopes of tax cuts, but the markets have finished pricing in all the positive news,” said Shinichiro Kadota, senior rates and FX strategist at Barclays.

“A December rate hike is already factored in while we have to see whether any tax deal will come through,” he added.

Dollar money market futures were pricing in about a 70 percent chance of a rate hike by December.

The euro traded at $1.1764, up 0.2 percent on the day and off Tuesday’s 1 1/2-month low of $1.16955.

The common currency has been also dogged by concerns over political and social turmoil in Catalonia.

Spain’s King Felipe VI on Tuesday accused Catalan secessionist leaders of shattering democratic principles and dividing Catalan society while Catalonia’s leader, Carles Puigdemont, said the region will declare independence in a matter of days.

The dollar’s rally against the yen has also stalled, with the U.S. currency unable to clear resistance around 113.25 yen in the past week. The dollar dipped 0.2 percent to 112.64 yen.

Uncertainties ahead of Japan’s general election on Oct. 22, where Prime Minister Shinzo Abe faces a challenge from a new party formed by a popular Tokyo Governor Yuriko Koike, also clouded the outlook for the currency pair.

The British pound edged 0.2 percent higher to $1.3259, but was still down 1.0 percent so far this week.

It dropped to $1.3222 overnight, its lowest in almost three weeks, after data showing a surprise contraction in the construction sector stoked worries about economic uncertainty surrounding Britain’s exit from the European Union.

Adding to a sense of uncertainty, Brexit minister David Davis said on Tuesday that Britain is ready to walk away with no deal, and that officials were “contingency planning” to make sure all scenarios were covered.

The Australian dollar bounced back slightly from Tuesday’s three-month low after the central bank cautioned that a higher currency would drag on the economy and inflation.

The Aussie fetched $0.7856, up 0.2 percent on the day and off Tuesday’s low of $0.7785.

Reference: Hideyuki Sano

Dollar softens against euro before heavy data week


NEW YORK (Reuters) - The dollar was slightly weaker against the euro on Tuesday as investors squared positions after a three week greenback rally, and before three days of heavy data culminating in Friday’s employment report for September.

Stronger U.S. data along with the prospect of U.S. tax cuts and the likelihood of a further interest rate hike in December have boosted the U.S. currency in recent weeks.

“We have seen three consecutive weeks of rallies in the broader dollar index so I do think that markets are squaring up a little bit ahead of a pretty heavy data calendar,” said Mark McCormick, North American head of FX strategy at TD Securities in Toronto.

The euro was last up 0.20 percent against the dollar at $1.17583.

The euro was partially supported by large option expiries on Tuesday that put a floor under the single currency. About $4 billion worth of currency options was expiring between the 1.1750 to 1.18 levels on Tuesday.

Traders and investors were also looking to add bets on possible divergence between the monetary policy outlooks in the United States and Europe, with expectations growing that the European Central Bank will adopt a more cautious stance.

“I don’t think the market is pricing how cautious they are likely to continue to be and that will be reiterated by (European Central Bank chief) Mario Draghi on Wednesday,” said Martin Arnold, a macro-strategist at ETF Securities in London.

The unexpected outcome of the German election on Sept. 24 and Sunday’s violence-marred independence referendum in the Spanish region of Catalonia has also put the brakes on euro-bullish trades, with markets increasingly looking for the single currency to test the July lows of around $1.15.

The dollar made further gains the yen and is expected to continue to strengthen against the Japanese currency after eroding its downtrend that had been in place since January this year, said Commerzbank.

Technical analyst Karen Jones said in a report on Tuesday that the dollar is now likely to strengthen to around 114.38 – 115.04 yen, from 112.80 yen currently.

Reference: Saikat Chatterjee

Tuesday, 3 October 2017

Wall Street hits another record high; Ford, GM higher


(Reuters) - All the three U.S. stock indexes touched fresh record highs on Tuesday, driven by gains in Ford Motor (F.N) and General Motors (GM.N) after the carmakers reported strong monthly sales data.

The rise in Ford and General Motors helped lift the S&P 500 Consumer Discretionary.

Analysts had forecast September auto sales to be the highest in 2017, largely due to Americans in hurricane-ravaged cities replacing their damaged vehicles.

However, the market traded in a narrow range as investors awaited the upcoming earnings from big names to help justify the lofty valuations.

Third-quarter earnings for S&P 500 companies are expected to increase 6.2 percent from a year earlier, according to Thomson Reuters research, after rising a better-than-expected 12.3 percent in the second quarter.

U.S. stocks started the fourth quarter on a strong note on Monday after factory data pointed to underlying strength in the economy.

The encouraging data helped world shares touch their latest record highs on Tuesday, while lifting the dollar to its loftiest in 1-1/2 months.

“This year has been one of the strongest year ever, not from a percent gain standpoint, but from a lack of the correction or lack of a pullback,” said Adam Sarhan, chief executive of 50 Park Investments in New York.

“So to me, the market is cautiously optimistic.”

Investors are also watching out for progress on President Donald Trump’s tax reform plan, which calls for lowering corporate tax to 20 percent.

Billionaire investor Warren Buffett told CNBC on Tuesday that the odds of getting a tax plan passed are higher than what most people expect, but expressed uncertainty over the reforms.

Seven of the 11 major S&P indexes were higher on Tuesday, led by technology.

At 9:45 a.m. ET, the Dow Jones industrial average .DJI was up 28.34 points, or 0.13 percent, at 22,585.94, while the S&P 500 .SPX was up 0.23 points, or 0.01 percent, at 2,529.35.

The Nasdaq Composite .IXIC was up 5.61 points, or 0.09 percent, at 6,522.33.

Shares in Tesla Inc were down 2 percent after the luxury electric vehicle maker said its planned ramp-up for the new Model 3 mass-market sedan faced production bottlenecks.

Lennar Corp’s shares rose about 2 percent following a higher-than-expected quarterly profit from the No.2 U.S. homebuilder. Tile Shop Holding’s shares plunged 30 percent after the natural stone retailer scrapped its 2017 forecast.

Declining issues outnumbered advancers on the NYSE by 1,278 to 1,265. On the Nasdaq, 1,314 issues rose and 1,069 fell.

Reference: Ankur Banerjee