Wednesday, 31 May 2017

Investors cash in as profitable month of May ends, sterling slides

Stocks flatlined on Wednesday as investors used the last day of May to protect gains built up in what has been yet another lucrative month, while sterling fell after an opinion poll suggested the ruling Conservatives could lose seats in next week's UK general election.

World stocks are poised to end May up nearly 2 percent, marking the seventh straight monthly increase and the longest monthly winning streak in over a decade.

MSCI's global equity index .MIWD00000PUS held steady on Wednesday, while European stocks edged down 0.1 percent in early trade .FTEU3 following Wall Street's dip on Tuesday .SPX .DJI.

Asian shares drew some support from data that showed activity in China's manufacturing sector grew at the same pace in May as in April, although a sturdy performance from the Japanese yen helped push the Nikkei into the red .N225.

The biggest mover in currencies was sterling, which shed 0.3 percent after a YouGov poll showed the ruling Conservative Party might lose 20 of the 330 seats it holds while the opposition Labour Party could gain nearly 30 seats.

"The return of U.S. and UK markets yesterday (after holidays) saw a little bit of weakness creep in as we head into month end and what has been a positive month for markets, with records broken on an almost daily basis," said Michael Hewson, chief markets analyst at CMC Markets.

"This soft tone looks set to be carried over this morning," he said.

The main pan-European indexes were slightly lower early on Wednesday, Germany's DAX .GDAXI was flat and sterling's weakness helped lift Britain's FTSE 100 .FTSE by 0.2 percent.

U.S. futures pointed to a rise of 0.1 percent on Wall Street.


Activity in China's manufacturing sector grew at the same pace in May as in April, with a headline reading of 51.2, official data showed, in a reassuring sign the world's second-biggest economy is not losing too much steam after a solid first quarter performance.

Analysts had seen a slight slowing to 51.0.

European markets could take their cue later in the day from euro zone inflation data, which are expected to show a sharp slowdown to 1.5 percent in May from 1.9 percent April.

If confirmed, the European Central Bank may be less inclined to signal the start of the process of withdrawing its huge policy stimulus at its meeting next week, analysts said.

The euro was holding steady just under $1.12, while 10-year German bond yields were up a basis point at 0.305 percent.

The dollar was steady against the yen at 110.85 yen , and the 10-year U.S. Treasury yield was up a basis point at 2.227 percent . Two weeks ago it was at 2.41 percent.

Sterling fell as low as $1.2791, near a one-month low of $1.2775 touched on Friday before recovering some ground to $1.2810. It also slipped to 0.8738 pound per euro, near Friday's eight-week low of 0.8750.

New constituency-by-constituency modeling by YouGov showed the ruling Conservative Party might lose 20 seats at the June 8 election while Labour could gain nearly 30 seats, potentially leading to a hung parliament, The Times said.

The news came after a string of opinion polls showed a narrowing lead for prime minister Theresa May's Conservatives, shaking investors' confidence that she would easily win a majority and strengthen her hand in the Brexit negotiations.

"We're getting very negative on sterling again," said George Saravelos, FX strategist at Deutsche Bank.

"If May is unable to deliver a substantially increased majority, her flexibility to negotiate will not have improved. A strong Conservative majority is also only a necessary, not sufficient condition for a smooth Brexit," he said.

In commodities, oil prices remained soft, as concerns lingered about whether the extension of output cuts by OPEC and other producing countries will be enough to support prices.

U.S. crude futures fell 0.9 percent to $49.21 a barrel. Global benchmark Brent  was down 0.8 percent at $51.44 per barrel.

Gold was flat at $1,263 an ounce.

Reference: Jamie McGeever

Asia stocks rise as China factories see steady growth, sterling soft

Asian stocks climbed on Wednesday, capping a fifth consecutive month of gains, as data showed China's factory activity grew at a steady clip this month, bucking expectations of a slowdown.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.2 percent on Wednesday, with Chinese stocks .SSEC .SZSC leading the region higher as investors returned from a long holiday break.

Japan's Nikkei .N225 dipped 0.1 percent.

"The market remains positive and the favorable PMI data reinforces the trend, though investors should be careful of chasing markets higher as liquidity conditions can change quickly," said Alex Wong, a fund manager at Ample Capital Ltd in Hong Kong, with about $130 million under management.

Activity in China's manufacturing sector grew at the same pace in May as in April, with a headline reading of 51.2, official data showed, in a reassuring sign the world's second-biggest economy is not losing too much steam after a solid first quarter performance.

Analysts had seen a slight slowing to 51.0.

Growth in China's steel industry rebounded to the strongest level in a year, supported by an increase in new orders, according to an industry survey, buoying prices of iron ore and steel rebar futures in Shanghai.

In a further vote of confidence, Moody's Investors Services said the improving outlook for global growth in 2017 appeared sustainable as some of the biggest risks to the developed economies seem to have subsided.

Despite signs of improvement in the global economy, investors are wary of chasing markets higher with stock trading volumes on the mainland and Hong Kong trending lower in recent days, signaling diminishing investor confidence.

On a price-to-earnings basis, Hong Kong is now valued in line with its 20-year average while the broader Asia-ex Japan market is above its long term average, indicating Asian stocks aren't cheap any more after a 17 percent rise this year.

In currency markets, the pound fell briefly to $1.2791, near a one-month low of $1.2775 touched on Friday before recovering slightly. It also slipped to 0.8738 pound per euro, near Friday's eight-week low of 0.8750.

New constituency-by-constituency modeling by YouGov showed the Conservative Party might lose 20 of the 330 seats it holds while the opposition Labour Party could gain nearly 30 seats, The Times said.

"The UK election chances will likely see the pound go through a bad case of yo-yo syndrome in the weeks ahead," said Stephen Innnes, senior trader at OANDA.

The news came after a string of opinion polls showed a narrowing lead for May's Conservatives, shaking investors' confidence that May would easily win a majority in a national election on June 8 and potentially fuelling market uncertainty.

The dollar held near two-week lows against the safe-haven yen as investors turned cautious amid political worries in Europe as well as weaker stock and commodity markets after a long U.S. holiday weekend.

The dollar fell to near two-week low of 110.665 yen and last traded at 110.85 yen.

The greenback's weakness was also accentuated after the U.S. Treasury yields resumed their downward trend after a brief spike earlier this month. Ten-year yields were trading at 2.21 percent compared to 2.41 percent, two weeks ago.

In commodities, oil prices remained soft, as concerns lingered about whether the extension of output cuts by OPEC and other producing countries will be enough to support prices.

U.S. crude futures slipped about 0.1 percent to $49.61 a barrel. Global benchmark Brent was flat at $51.84 per barrel.

Gold edged lower to $1,262 an ounce.

Reference: Saikat Chatterjee

Tuesday, 30 May 2017

Dollar, yen gain as European political nerves weigh

A new round of political worries over Greece, Italy and Britain had European currencies on the retreat against the dollar on Tuesday, the resulting bleaker mood on stock markets also pushing the yen broadly higher.

The dollar index, under pressure over the past fortnight from concerns over the Trump administration's difficulties, gained around 0.2 percent in early trade in Europe.

Low inflation readings out of Spain and one German region, as well as European Central Bank chief Mario Draghi's commitment to continued emergency stimulus in a speech on Monday, helped push the euro a quarter percent lower to $1.1135.

At the heart of the moves, however, were signs that elections in Italy may now come as early as September.

"We always knew Italy was going to come back into the market's sights but I think people thought we would have a longer stay of execution," said Rabobank currency strategist Jane Foley.

"It does seem like the market will have to face worries about elections and populism again over the summer. That of course is a drag for the euro."

Italian banks and blue chip shares fell sharply for a second day as U.S. and UK investors returned to their desks after Monday's holiday.

Other major markets were also deeply in the red, with French shares sinking 1 percent, prodding investors towards the traditional security of the yen. The Japanese currency gained around 0.3 percent against the dollar and 0.6 percent against the euro in morning trade in Europe.

After some relief while London was out on Monday, sterling is also back under pressure, teetering on the edge of a fall below $1.28.

Sterling bulls have been unnerved by the shrinking of Prime Minister Theresa May's lead in some polls to as low as 5-6 percentage points, suggesting the landslide she targeted a month ago may now be out of reach.

Analysts worry that will weaken her ability to face down hard line Brexiteers in her Conservative Party. But the prospect of a Labour Party-led government is also creeping onto the agenda.

A left-leaning administration led by Jeremy Corbyn might worry the debt market by borrowing and spending more on public finances, but it could also spell a softer approach to Britain's planned divorce with Europe.

"The main reason for the falls is that (with a smaller majority) there would be more political infighting. Maybe May would have to listen to the more extreme views on Brexit," said Commerzbank strategist Thu Lan Nguyen.

"If there really was a good chance that Labour was going to win, I think this could turn around. At this point does Labour have a smarter Brexit plan? I'm not entirely sure. But at least it would be a softer Brexit."

After recovering some ground on Monday, sterling was just 0.1 percent weaker at $1.2831 by 0740 GMT, up from Friday's three-week low of $1.2775.

Reference: Patrick Graham

FOREX-Sterling steadies after opinion poll pummelling

Britain's pound was the main mover among major currencies on Monday, recovering some ground after weekend polls showed Prime Minister Theresa May is set to win next week's elections even if the scale of victory is in question.

Sterling had its worst day since early February on Friday and fell around 2 cents last week as polls showed May's lead over the opposition Labour Party had shrunk from as much as 20 points last month to as low as 5 in one poll.

More surveys over the weekend confirmed the trend but also showed that May's Conservatives still lead and should win - just potentially not by the landslide she had targetted when calling the election six weeks ago.

With London markets closed for a holiday, the pound rose 0.2 to 0.3 percent in thin trade in Europe, trading at $1.2837 and 87.07 pence per euro respectively.

The dollar, which also struggled last week in the face of receding expectations for a major boost for growth from the Trump administration, was roughly steady at $1.1185 per euro and 111.35 yen.

"A lot of what we are seeing is the after-effects of Friday's news and data releases," said Thu Lan Nguyen, a currency strategist with Commerzbank in Frankfurt.

"We have a little bit of dollar strength following better U.S. data and some hawkish comments from Federal Reserve officials. And we have a little bit of a pound recovery following the latest poll results from the UK."

The dollar index, which tracks the U.S. currency against a basket of six other major currencies, was lower at 97.366 but above last week's nadir of 96.797, its lowest since Nov. 9.

San Francisco Federal Reserve President John Williams said in Singapore on Monday that medium-term trends in U.S. inflation remained "pretty favourable," despite some recent soft consumer price data.

The U.S. economy was at or near the Federal Reserve's goals of full employment and stable prices, Williams said, adding that the U.S. central bank wanted to ensure markets stayed calm as the Fed slowly returned interest-rate policy to normal.

Data on Friday indicated the U.S. economy was expanding, solidifying expectations for a rise in official interest rates next month and adding to the case for the Fed to begin paring its $4.5 trillion balance sheet.

"Friday’s batch of US data is weighing on the euro as it strengthens the case a recent slowdown in US data may in fact have been transitory in nature ," said LMAX Exchange analyst Joel Kruger.

With New York traders not at their desks, reaction was minimal to a speech by European Central Bank chief Mario Draghi, which stressed the need for extraordinary monetary stimulus and prodded euro zone bond yields lower.

Reference: Patrick Graham

Monday, 29 May 2017

Asia stocks drift down from 2-year highs, pound nurses losses

Asian stocks handed back earlier modest gains and drifted lower on Monday, running short of incentives to push past two-year highs with many key markets closed for holidays.

The pound, meanwhile, nursed losses after a poll showed a shrinking lead for Prime Minister Theresa May's party in Britain's upcoming elections. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.2 percent. Taking cues after the S&P 500 .SPX and Nasdaq .IXIC scraped to record closing highs, it had earlier risen towards a two-year peak marked on Thursday.

Japan's Nikkei .N225 edged up 0.1 percent while weaker commodities pushed down Australian shares 0.5 percent. The closure of Chinese, British and U.S. markets on Monday deprived investors of potential catalysts and kept overall trading subdued.

Brushing aside a North Korean missile launch, South Korea's KOSPI .KS11 initially touched an intraday record high before pulling back 0.1 percent. It was on track to snap a six-day winning streak.

Pyongyang fired what appeared to be a short-range ballistic missile early on Monday.

The dollar index against a basket of major currencies was steady at 97.465 .DXY after rising on Friday thanks to upbeat U.S. gross domestic product data.

The index fell to a 6-1/2-month low below 97.00 a week ago on U.S. political concerns centered on President Donald Trump, but have since crept back.

The dollar and U.S. stocks would face downward risks if trouble for the Trump administration becomes a long-term concern, said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

"That said, the possibility of the president actually being impeached remains very low, and any negative pressure on U.S. stocks has been limited so far."

The greenback was steady at 111.290 yen, with the safe-haven Japanese currency showing little reaction to North Korea's missile launch.

"While the North Korean situation remains tense, the market has gotten used to missile launches, with broader volatility also declining," said Shusuke Yamada, senior strategist at Bank of America Merrill Lynch in Tokyo.

"The U.S. markets will also be shut today, and that is curbing incentive and restricting overall movements as well."

The pound was a shade higher at $1.2828 after dropping more than 1 percent on Friday to as low as $1.2775.

Sterling suffered its steepest fall since January on Friday after an opinion poll showed the governing Conservatives' lead over the Labour opposition down to just 5 percentage points with less than two weeks before a general election.

The euro declined 0.1 percent to $1.1165 EUR=. The common currency had soared to a 6-1/2-month high of $1.1268 last week on factors including relief at the French presidential election outcome, but it has failed to make further headway.

South Africa's rand was turbulent after reports President Jacob Zuma defeated a no-confidence motion against him.

The rand went to a two-month high of 12.65 per dollar before pulling back to 12.85.

Crude oil prices slipped, their modest recovery from disappointment over last week's OPEC meeting sputtering out on the back of a relentless rise in U.S. drilling.

Oil suffered a big drop last week after an OPEC-led decision to extend production curbs did not go as far as many investors had hoped.

U.S. crude  was down 0.2 percent at $49.63 a barrel, having slumped to as low as $48.18 on Friday. Brent fell 0.3 percent to $49.63 a barrel.

Spot gold hovered close to a near four-week high of $1,269.50 an ounce hit on Friday, led higher by investors who feared political risks.

Reference: Shinichi Saoshiro

Pound slips as PM May's lead narrows, commodity currencies shaky

Sterling fell on Friday after a poll showed a narrowing lead for British Prime Minister Theresa May over her opposition ahead of elections next month, while weakness in oil prices dragged on commodity-linked currencies.

In a sign that the June 8 election could be more closely contested than previously thought, a YouGov poll published on Thursday showed that the opposition Labour Party had cut the lead of May's Conservatives to five points.

Sterling fell 0.5 percent to $1.2884, pulling further away from its May 18 peak of $1.3048, the pound's strongest level since September last year.

The assumption that a landslide election win for May would strengthen her hand over hard-line Brexiteers in her ruling party and allow her to negotiate a smoother departure from the European Union, had been a source of support for sterling.

That view, however, has been challenged by recent opinion polls that showed a slide in the lead of the Conservatives.

The narrowing lead for May brings in the risk of a "messier Brexit", said Stephen Innes, a senior trader for FX broker OANDA in Singapore.

"I think the pressure is on here. We could see a significant move lower (in sterling) provided these uncertainties in the polls persist," Innes said.

Commodity currencies remained wobbly as oil prices extended falls after tumbling on Thursday, when OPEC and allied producers extended output cuts but disappointed investors betting on longer or larger supply curbs.

The Canadian dollar was last trading at C$1.3488 per U.S. dollar, down from a five-week high of C$1.3388 touched at one point on Thursday.

The Australian dollar fell 0.3 percent to $0.7431, extending its drop after shedding 0.7 percent on Thursday.

With sterling and commodity currencies looking shaky, the U.S. dollar gained a bit of respite.

Against a basket of six major currencies, the dollar held steady at 97.282. For the week, the dollar index was clinging to a slight gain of about 0.1 percent.

The greenback had been weighed down after the Federal Reserve's minutes of the May policy meeting released on Wednesday dialled down on some of the more hawkish policy expectations in the market.

The dollar's underlying trend doesn't look very strong, said Satoshi Okagawa, senior global markets analyst at Sumitomo Mitsui Banking Corporation in Singapore.

Okagawa said that one message from the Fed minutes was that the U.S. central bank is likely to take a gradual and flexible approach to reducing its balance sheet.

"That has helped U.S. yields to settle down and has led to weakness in the dollar," he added.

San Francisco Fed President John Williams told Reuters on Thursday that the Fed would release details of its plans for trimming its balance sheet "in coming months", adding that balance sheet trimming should be gradual, and 'fundamentally' on auto-pilot.

Against the yen, the dollar eased 0.3 percent to 111.51 yen, staying below a one-week high of 112.13 yen touched on Wednesday.

The euro eased 0.1 percent to $1.1200, having backed away from a 6-1/2 month high of $1.1268 set this week.

The common currency has enjoyed a bull run this month on factors including an ebb in French political concerns and upbeat euro zone data.

Reference: Masayuki Kitano

Friday, 26 May 2017

Central banks launch new FX code, aim at universal adoption

Regulators and leading financial firms launched a new code of conduct for global currency trading on Thursday, including measures aimed at forcing its universal adoption by the world's major financial institutions.

Industry players said the code was its last chance to head off full formal regulation of the $5 trillion a day market after a scandal over market manipulation and misuse of client information that saw seven major banks fined around $10 billion at the end of a huge global inquiry in 2015.

Most of the document was published a year ago and the final version's main additions include measures that ask banks and a new generation of electronic traders to provide more details on the algorithms they use and their trading processes.

It also addresses and launches a formal consultation over the controversial "last look" practice that allows banks and other liquidity providers an extra chance to reject trades after receiving requests to execute.

The 75-page document lays out 55 high-level principles - rather than hard rules - for how participants in the world's biggest financial market should conduct business.

While it remains nominally voluntary, Thursday's package of documents also outlined a framework that some of the officials working on the project said should mean all major market players will commit to conforming to the new code.

All of the major central banks involved said they would commit to sticking to the code's guidelines and would demand it of their counterparties in the $5 trillion a day market which is the world's largest.

The industry FX committees run by each of the central banks will also require a formal commitment from the dozens of major institutions who sit on their panels and a new joint Global FX Committee will monitor implementation of the code.

"I would be surprised if a major wholesale market participant did not get behind the Code," said David Puth, the head of settlement bank CLS and chair of the committee of market participants who have funneled banks and other financial firms' input to the code.

"Over the course of the next 12 months, we will look for all wholesale market participants to adopt the principles."

UK regulators, who oversee the world's biggest FX trading center in London, are expected to embed the code in the new senior managers' regime for financial firms.

Deputy Reserve Bank of Australia Governor Guy Debelle, who has led work on the code and an earlier "preamble", said other regulators were likely to follow suite.

"Our (Australian) securities regulator is going to utilize the code as the standard they expect," he said.

"If that happens in the UK, given London's importance for forex, that will add a fair bit of bite to the whole process. In our case, I know that our securities regulator is going to."

The code also provided a list of disclosures that the new generation of algorithmic traders should make, including a clear description of their execution or aggregation strategy, fees, routing and sources of liquidity.

In a separate document, the Global Foreign Exchange Committee gave participants until Sept. 21 to lodge feedback on "last look" and whether the language on it in the code should be altered.

"Some market participants object to the use of last look, arguing that it is not necessary as a risk control mechanism and moreover that it can negatively affect the outcome for the Client," it said.

"Others view last look as beneficial for market liquidity and pricing.

Reference: Patrick Graham

Thursday, 25 May 2017

Asia shares race to two-year high as Fed signals no rush to tighten

Asian shares scaled two-year highs on Thursday while the dollar and U.S. bond yields slipped after the U.S. Federal Reserve signaled a cautious approach to future rate hikes and the reduction of its $4.5 trillion of bond holdings.

European shares are also expected to gain, with spread-betters looking to higher openings of 0.3 percent in Germany's DAX .GDAX and France's CAC .FCHI and 0.2 percent in Britain's FTSE .FTSE.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced 1.0 percent, hitting its highest level since May 2015, and bringing its gains so far this year to about 17 percent.

The gains were led by South Korean shares, which rose 1.0 percent to record highs. Hong Kong's Hang Seng .HSI gained 0.8 percent to its highest level since July 2015 while Taiwanese shares hit 17-year highs

In Japan, Nikkei .N225 gained 0.5 percent.

Minutes from the Fed's last policy meeting showed policymakers agreed they should hold off on raising interest rates until it was clear a recent U.S. economic slowdown was temporary, though most said a hike was coming soon.

"Their views seem to have changed considerably. In the past, they had said the slowdown was transitory," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The minutes also showed that policymakers favored a gradual reduction in its massive balance sheet.

Fed staff proposed that the central bank set a cap on the amount of bonds that would be allowed to run off each month, initially setting it at a low level and raising it every three months.

Following the minutes, the 10-year U.S. Treasuries yield  fell to 2.255 percent from Wednesday's high of 2.297 percent.

Fed funds rate futures are pricing in about a 75 percent chance that the Fed will raise rates next month, moving down from more than 80 percent earlier this week .

The specter of a slower pace of policy tightening underpinned share prices, with the S&P 500 .SPX closing at a record high.

In the currency market, the euro EUR= traded up 0.1 percent in Asia at $1.1225, having bounced back from Wednesday's low of $1.1168 and coming within sight of $1.1268, its 6 1/2-month high set on Tuesday.

The dollar stood at 111.63 yen, slipping from one-week highs of 112.13 touched on Wednesday.

Those moves have pulled the dollar's index against a basket of six major currencies down to 97.028, near Monday's 6-1/2-month low of 96.797.

The Chinese yuan  strengthened, hitting its highest level in almost two months, on buying by major state-owned banks in what some traders thought was a show of strength a day after Moody's downgraded the country's credit rating.

Mainland Chinese shares .SSEC, which were briefly unsettled by Moody's downgrade of its rating on China on Wednesday, bounced back 1.6 percent.

"Credit downgrade wasn't a surprise after all given the delay in structural reforms such as liberalization of capital moves. The Chinese economy looks set to grow more than six percent, so there's no reason to be that pessimistic either," said Shuji Shirota, head of macro economic strategy group at HSBC in Tokyo.

The Canadian dollar strengthened to a five-week high of C$1.3402 per U.S. dollar after the Bank of Canada was more upbeat about the economy than some investors had expected.

Oil prices flirted with five-week highs as investors expect oil producing countries to extend output cuts at their meeting in Vienna later in the day.

Benchmark Brent crude oil rose 49 cents a barrel, or 0.9 percent, to $54.45. U.S. light crude was up 46 cents, or 0.9 percent, at $51.82.

Both benchmarks have gained more than 16 percent from their May lows below $50 a barrel, rebounding on a consensus that OPEC and other producers will maintain strict limits on production in an attempt to drain persistent global oversupply.

Elsewhere, digital currency bitcoin  hit a fresh record high, having surged 170 percent in about two months from its March low.

Demand for crypto-assets soared with the creation of new tokens to raise funding for start-ups using blockchain technology.

Reference: Hideyuki Sano

Banks' bond trading roars back in first-quarter but FX lags

Bond trading revenue at the world's top banks rebounded sharply in the first three months of the year as strong activity in credit and interest rate products eclipsed the lowest currency trading volume in over a decade, a survey showed on Wednesday.

The period saw Donald Trump sworn in as U.S. president and an initial surge of investor optimism that his promises to cut taxes, boost spending and deregulate the banking sector would lift growth and boost asset markets.

With the Federal Reserve raising U.S. interest rates too, trading revenue at the top U.S. and European banks from fixed income, currency and commodities (FICC) totalled $21.4 billion, according to industry analytics firm Coalition.

That was up 19 percent from $17.9 billion in the same period last year, a particularly weak quarter, which helped make the January-March period this year look relatively strong.

"The first quarter of last year was the worst quarter since 2008. If you compare against Q1 2014 and 2015, we're still significantly below these levels," said George Kuznetsov, head of research at Coalition.

The increase in FICC revenue was driven by a 15 percent rise in G10 rates trading to $7.5 billion, a 65 percent rise in credit to $4.7 billion and an 82 percent jump in securitisation activity to $3.4 billion.

But G10 foreign exchange trading revenue slumped by a quarter to $1.8 billion, the lowest since 2006, depressed by the historic low level of market volatility which traditionally crimps activity in global macro trading, Kuznetzov said.

The FICC rebound follows years of post-crisis decline, as banks have had to adjust to reforms compelling them to hold more capital and liquidity and reduce the amount of bonds they can hold on their books. This has resulted in a continuous reduction of staff, and the exit from some business lines altogether.

Front office headcount fell 3 percent to 52,900, with staffing levels still affected by the cuts made by some of the surveyed banks in the first half of last year.

"Despite these relatively healthy FICC revenues we haven’t seen any significant increase in headcount. Given that Q2 is expected to be relatively poor, we don’t expect that to happen any time soon either," Kuznetsov said.

Equities trading revenue fell 8 percent to $10.8 billion, led by an 18 percent slide in cash trading to $2.3 billion. That was particularly "alarming" given the strong performance of stock markets in general and equity capital market  activity, Kuznetsov said.

The 12 banks in the survey were: Bank of America, Merrill Lynch, Barclays, BNP Paribas, Citi Bank, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC , JP Morgan, Morgan Stanley, Societe Generale and UBS.

Reference: Jamie McGeever

Wednesday, 24 May 2017

Dollar firm after bounce from lows, yuan slips on China downgrade

The dollar held firm on Wednesday, having rebounded from 6-1/2-month lows against its major peers helped by a rise in U.S. Treasury yields, while the yuan eased after Moody's cut its sovereign rating on China due to concerns over the country's soaring debt.

The dollar index held steady against a basket of six currencies at 97.321 after bouncing 0.4 percent the previous day.

It managed to pull away from the 96.797 level plumbed on Monday, its lowest since Nov. 9, when concerns over U.S. politics stemming from the Trump election campaign's suspected links with Russia took a toll on the greenback.

The dollar was boosted as U.S. debt prices fell, with the benchmark 10-year Treasury note yield climbing 3 basis points overnight and putting some distance between the one-month trough reached last week in a bond-buying flight to safety.

"The rise in Treasury yields is supporting the dollar. It appears that speculative buying of Treasuries has run its course, with Trump concerns and geopolitical risks no longer fresh news," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The dollar was firm at 111.795 yen after a bounce to 111.995 yen, its highest in a week.

The U.S. currency also managed to halt its slide against the euro, which had enjoyed a bull run this month on factors including an ebb in French political concerns, upbeat euro zone data, and a widening German-U.S. government debt yield spread.

The euro was little changed at $1.1191, nudged away from a 6-1/2-month high of $1.1268 scaled the previous day.

Investors are now turning their focus towards the Federal Reserve's monetary policy stance. Minutes of the Fed's latest policy-setting meeting are set for publication at 2 p.m. eastern time (1800 GMT) on Wednesday.

The market already expects the Fed to raise interest rates in June, but given the greenback's recent weakness, dollar bulls are expected to welcome any hawkish hints by the central bank.


Moody's Investors Services on Wednesday downgraded China's long-term local and foreign currency issuer ratings by one notch to A1 from Aa3, citing expectations that the financial strength of the world's second-biggest economy would erode in the coming years.

China's offshore yuan slipped in knee-jerk reaction but the overall response was limited. The yuan fell to 6.8901 per dollar, down by 0.1 percent, before pulling back to 6.8841 for a loss of about 0.05 percent.

The Australian dollar, sometimes used as a proxy of China-related trades, eased slightly but reaction to the downgrade was also relatively subdued. The Aussie was down 0.15 percent at $0.7466.

"Currencies are reacting quite calmly, as China is still seen to have enough reserve strength for further fiscal spending," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Elsewhere, the Canadian dollar stood steady at C$1.3518 per dollar after touching C$1.3457 overnight, its strongest in a month.

A rise in crude oil prices lifted the Canadian dollar. The focus is now on the OPEC meeting in Vienna on Thursday to see whether a deal to prolong output cuts can be struck.

The pound was nearly flat at $1.2965, with the market awaiting further developments in Britain's suspended election campaign after the suicide bombing in Manchester.

Reference: Shinichi Saoshiro

Wall St. set to open higher ahead Trump's budget plan

U.S. stocks looked set to open higher on Tuesday, shrugging off a deadly bomb blast in Britain and ahead of U.S. President Donald Trump's first full budget plan that is aimed at slashing government spending and trimming the deficit.

Trump is set to propose a raft of politically sensitive cuts, including to healthcare and food assistance programs for the poor, with the aim of chopping government spending by $3.6 trillion and balancing the budget over the next decade.

The plan also includes selling off half the country's huge oil stockpile, a proposal that weighed on crude oil prices as it threatened a future glut even as OPEC and its allies cut output to try and tighten the market.

Congress holds the federal purse strings and often ignores presidential budgets, which are proposals and may not take effect in its current form.

"In the U.S. all eyes are on Trump's budget proposal. The budget will not pass in its current state but people will keep an eye on any sort of indication of corporate tax reform as well as infrastructure spending," said Nadia Lovell, US Equity Strategist at J.P. Morgan Private Bank in New York.

U.S. futures slipped slightly on Monday evening, before recovering, on news of the suicide attack that killed at least 22 people and wounded 59 at a pop concert in the English city of Manchester.

European stocks edged up after a sluggish start on Tuesday, with the region's shares made gains as the latest economic data made for some encouraging reading.

"Numbers are coming in off the Eurozone so that helped prop the European markets up a bit and that's seeding into the U.S.," said Lovell.

Dow e-minis were up 46 points, or 0.22 percent, with 28,878 contracts changing hands at 8:30 a.m. ET.

S&P 500 e-minis  were up 3.75 points, or 0.16 percent, with 183,854 contracts traded.

Nasdaq 100 e-minis were up 14.25 points, or 0.25 percent, on volume of 32,564 contracts.

Wall Street closed higher on Monday boosted by technology shares and by defense companies, which gained after the United States and Saudi Arabia signed a $110 billion arms deal.

The deal was struck during Trump's visit to Saudi Arabia over the weekend, a trip the White House hopes will shift focus away from domestic controversies such as the president's firing of the former Federal Bureau of Investigation chief and probes into his administration's possible links to Russia.

"Much of Trump "reflation" trade has been unwound and in order for the S&P to move beyond 2,400 we need to see something on the policy front, without that any movement beyond 2,400 will be difficult to sustain," Lovell added.

Among stocks, shares of Toll Brothers rose 3.8 percent to $39.49 after the luxury homebuilder reported a 40 percent rise in quarterly profit.

U.S.-listed shares of Nokia were up 6.6 percent at $6.62 after the company settled a patent dispute with Apple. Apple was 0.4 percent higher at $154.60.

Autozone fell 7.7 percent to $608.65 after the company's quarterly results came in below expectations.

Reference: Tanya Agrawal

Tuesday, 23 May 2017

Pound sags versus yen, euro at six-month highs

The pound slipped against the yen after a suspected terrorist attack at a concert in Britain's city of Manchester, while the euro hovered near a six-month high against the dollar on Tuesday after German Chancellor Angela Merkel said the currency was "too weak."

Sterling was down 0.2 percent at 144.36 yen after weakening to as much as 144.06.

It was little changed against the dollar at $1.2992 and a touch lower at 86.60 pence per euro.

Police said an explosion at the end of a concert by U.S. singer Ariana Grande in the English city of Manchester on Monday killed at least 19 people and injured more than 50.

Two U.S. officials said a suicide bomber was suspected, while Prime Minister Theresa May said the incident was being treated as a terrorist attack.

The safe-haven yen advanced against major peers like the dollar and euro but its gains were modest.

The dollar was down 0.2 percent at 111.100 yen after a dip to 110.860 and the euro slid 0.2 percent to 124.860 yen.

"The yen may have been bought in reaction to the blast, but the incident is unlikely to have lasting impact on the broader scheme of things," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"Even prior to the incident, market sentiment has not been particularly 'risk on' for a while, with relatively low U.S. yields limiting the dollar's attraction."

The euro was 0.1 percent higher at $1.1247 after touching $1.1264 overnight, its highest since Nov. 9.

Merkel said on Monday that the common currency is weak due to the European Central Bank's monetary policy, pointing out that this helped explain Germany's relatively high trade surplus.

The chancellor's comments provided fresh momentum to the euro, which has been on a bullish footing since the French presidential elections earlier this month. Upbeat euro zone data and a widening spread between the 10-year German and U.S. government bond yields have also supported the currency.

"While the ebb in French political risk and prospects of a ECB policy shift have helped the euro, the biggest support factor still remains the recent weakening of the dollar in wake of 'Russiagate,'" said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"Merkel's comments was extra fuel for the euro...that said, a weaker dollar is not necessarily a bad thing for Trump."

The dollar index lost 0.1 percent to 96.882.

Antipodean currencies benefited from the dollar's broader weakness.

The Australian dollar rose 0.1 percent to $0.7489 and the New Zealand dollar nudged up 0.2 percent to a one-month high of $0.7010.

Reference: Shinichi Saoshiro

Weaker sterling gives FTSE edge over Europe, Micro Focus dips

The pound's retreat below $1.30 helped Britain's main share index outperform European benchmarks on Monday, while individual broker updates sent some stocks lower.

Sterling fell after two polls on the weekend showed Prime Minister Theresa May's ruling Conservative party losing ground after parts of its election manifesto came under fire. The pound had risen in the last month as some expected a landslide win would allow for smoother exit negotiations with the European Union.

Along with strength in commodities stocks, the weaker pound propelled the mainly foreign-earning FTSE 100 to a 0.4 percent gain, holding near record high levels hit last week, and easily outperforming the Euro zone STOXX 600 which fell 0.2 percent.

Strong metals prices helped miners Anglo American, Fresnillo, Antofagasta and Rio Tinto up to the top of the index, gaining 1 to 1.3 percent.

While merger activity drove European shares, broker updates fuelled the biggest moves among British stocks.

Micro Focus fell 3.1 percent, the top FTSE faller after Credit Suisse research into legacy technology led them to downgrade the firm.

The bank's survey of 100 CIOs found the industry was moving away from COBOL, a programming language widely used in business and finance, and the base for some Micro Focus tools and products.

"Just as investors finally seem to have accepted management's view that legacy assets are sticky, we think the risks to this model are starting to materialise," said analysts at the Swiss bank.

Testing company Intertek jumped to a record high after Kepler Cheuvreux upgraded it to a 'buy' in a note predicting an inflection in the cycle for the sector.

"Strategic initiatives are delivering quick results, allowing Intertek to free up cash that CEO André Lacroix has promised to redeploy into earnings-accretive acquisitions," analysts added.

Paddy Power Betfair gained 1.9 percent after Credit Suisse upgraded it to neutral, assessing companies' exposure to regulatory risks from the UK government's review of gambling machines.

Analysts said the outlook for 2018 looked better for PPB, flagging Australia as 'the key regulatory threat'.

Among mid-caps, Cairn Energy benefited from a target price upgrade from Macquarie.

"We recommend buying the shares ahead of share price appreciation associated with Senegal progress and commencement of cash flow generation in the UK North Sea," analysts said.

Paysafe fell 3 percent after anonymous short-seller outfit Spotlight Research targeted the company again, with two new reports.

The firm's shares had plummeted 40 percent in December after an initial report from the short seller. They've since recovered and hit an 11-year high on Friday.

Miners Ferrexpo and Kaz Minerals underpinned a 0.3 percent gain on the mid-cap index as well.

Reference: Helen Reid

Monday, 22 May 2017

Asian stocks post biggest rise in a month; dollar weak

Asian stocks posted their biggest daily rise in a month on Monday following modest gains in U.S. shares, though the greenback came under renewed pressure as Washington's political turmoil undermines confidence in U.S. economic policy.

MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.9 percent on Monday helped by gains in Australia and Hong Kong stocks despite fresh curbs unveiled by regulators on the property markets in the latter.

"This won't have much impact on the market as buyers will continue to focus on the primary market rather than the secondary market where these measures will be more acutely felt," said Alex Wong, a fund manager at Ample Capital Ltd in Hong Kong, with about $130 million under management.

The bounce in Asian stocks was the best performance since April. 25 and has notched up gains of more than 17 percent for the MSCI emerging stocks index compared to 8 percent for the world index even as some investors grew wary of the outlook.

"At current market valuations, we advise investors to adopt an active approach by stock picking across sectors and rotating to quality laggards," Carl Berrisford, an analyst at UBS Wealth Management wrote in note, citing valuations nearing their peak.

U.S. stocks ended up on Friday but closed below their session highs on renewed concerns about Donald Trump's presidency, following two new media reports of possible coordination between Russia and Trump's election campaign.

Stock index futures were mildly higher in Asia.

"The escalation of the investigation into Russia's involvement in the recent U.S. election threatens to take resources, time, and attention away from the economic agenda, which had already begun meeting some scepticism," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, wrote in a note.

In foreign exchange markets, the dollar fell to its lowest levels in six months on Friday against a trade-weighted basket of its peers at 97.080 and was trading just a shade above that on Monday.

The dollar was trading at 111.40 after falling nearly 2 percent last week while the euro inched down 0.2 percent to $1.11880 after rising to a six-month high of $1.1212 on Friday.

Net long positioning on the euro rose to its highest in more than three years in the week ended May 16, according to calculations by Reuters and Commodity Futures Trading Commission data issued on Friday.

Recent economic improvement in the euro zone has raised market expectations the European Central Bank will tone down its dovish language at its next Governing Council meeting next month.

Signs from the government bond markets did not bode well for the greenback either. U.S. bond yields have gently drifted lower in recent days cutting the yield premium U.S. Treasuries earn against other bond markets such as German or Japanese debt.

Oil clung on to Friday's gains trading around $50.80 per barrel.

Reference: Saikat Chatterjee

Softer dollar may be stock silver lining amid Washington drama

With S&P 500 companies set to notch their strongest quarterly earnings growth in about six years, a weaker U.S. dollar may help keep the profit momentum rolling and support share prices in the weeks to come.

After a dramatic week in Washington that rattled financial markets, one possible silver lining for stock investors was the weaker dollar, which can support earnings of U.S. multinational companies with large foreign operations.

The dollar .DXY weakened 0.5 percent against a basket of currencies on Wednesday following reports that U.S. President Donald Trump tried to interfere with an investigation into his former national security adviser's ties with Russia, revelations that also sparked the S&P 500's .SPX biggest one-day drop in eight months.

The currency was on track for its biggest weekly percentage drop in a year, and so far in 2017 the dollar has pulled back 5 percent, having erased its post-U.S. election gains.

Movements in the dollar can be significant for U.S.-based multinational companies. The stronger the greenback is against other currencies, the less valuable foreign sales become when they are translated back into the U.S. currency for reporting purposes.

"A weaker dollar is arguably good for any company that sells overseas," said Alan Gayle, director of asset allocation at RidgeWorth Investments in Atlanta. "If you’re talking about a silver lining, if you are a large-cap company that has significant overseas sales exposure, then this is an emerging positive."

First-quarter results from U.S. companies have bolstered confidence in equities, with the market reaching record highs earlier this month even as events in Washington threatened Trump's promises of tax cuts, infrastructure spending and reduced regulation that had helped fuel a rally in stocks.

With more than 90 percent of the S&P 500 having reported, first-quarter profits are on pace to rise by 15.2 percent, according to Thomson Reuters .

Second-quarter earnings are expected to rise by 8.5 percent, a figure that could swell depending on currency moves. The dollar has fallen 3.2 percent during the second quarter alone.

Companies with significant global operations have already showed strength as the dollar has weakened in the first quarter.

S&P 500 companies with more than half their revenue from outside the United States have reported a 13.2 percent increase in earnings, when excluding the energy sector. That compares with a 10.6 percent increase for companies with half or more of revenues coming domestically. Energy sector results are skewing overall S&P 500 earnings because of year-ago negative results.

The S&P 500 has climbed 6.5 percent this year while the Russell 2000 , the benchmark for small-cap stocks that tend to be more domestically focused, has climbed only 1 percent.

The weaker dollar "could be a pretty strong tailwind," said David Schiegoleit, managing director of investments at U.S. Bank Private Client Reserve. "The companies that garner most of their revenue from overseas sources, that could be a momentum play if you continue to see a soft dollar."

According to currency risk consulting firm FiREapps, which tracks corporate commentary on currency effects, the impact of currency moves on U.S. companies in the first quarter has been similar to that in the prior two quarters.

But the firm cautioned that the first quarter is historically a period with reduced currency impact, and noted the weaker dollar has created potential for an increase in international earnings.

Ed Yardeni, president of consulting firm Yardeni Research Inc, questioned whether the dollar's fluctuations will significantly increase profits, citing his firm's analysis showing minimal overall negative impact from the currency's strength in recent years.

"In theory, it should be a positive," Yardeni said. "But as a practical matter looking at the past two years, it didn’t really show up as a major drag on earnings, so I’m not sure it’s going to suddenly be a major boost to earnings as it reverses itself.”

The dollar also remains generally above levels where it was during the second quarter of 2016 even as it has softened this year.

Peter Andersen, chief investment officer with Fiduciary Trust Company in Boston, worries over what the weakened dollar reflects about global attitudes on the U.S. economy's health.

"I tend to think when the dollar trades off that it’s more of a sentiment reading," Andersen said. "So that has more concern to me than the positive byproduct of foreign currency translation giving a boost on earnings."

Reference: Lewis Krauskopf

Friday, 19 May 2017

Banks' data shows funds still happy to sell sterling

Sterling has gained strongly in the month since British Prime Minister Theresa May called a national election but reports from major banks this week show big speculative investors and firms still tend to sell the currency whenever it blips higher.

May's surprise decision to hold an election on June 8 drove a squeeze that, according to U.S. futures market data, has now halved net speculative bets against the pound, including the third biggest shift in its favour on record last week. 

But the numbers compiled each week by three of the currency world's biggest banking players - UBS, Citi and Deutsche Bank - paint a more nuanced picture that points again to concerns over Britain's long-term future and the fate of the pound as talks on the country's exit from the European Union get underway.

The Swiss bank's data goes further, showing that in net terms, the pound has been more sold than bought by leveraged speculative players over both the past week and the past four, with only the longer-term institutional investors who sold it aggressively last summer buying back in.

"Sterling was sold versus the dollar as all the client groups, except for asset managers, were net sellers," UBS analysts Maximillian Lin and Haojiang Zhao said in their latest report, sent to clients on Tuesday.

The pound has gained 4 percent since April 18 but has struggled to push past $1.30 and many strategists still tend to put its gains down to investors closing out bets against the pound rather than actively betting on it to rise further.


Deutsche Bank's data on non-commercial flows, which bundles leveraged funds and asset managers, showed the pound was minimally bought last week but far less than a week earlier.

The numbers from Citi, however, show that along with the dollar sterling was the most sold currency in the G10 group of major economies for its clients.

Citi also put leveraged funds as sellers of the pound last week. Over a four-week period, it said companies had been the biggest sellers of the British currency.

Corporate brokers say that company budgets have been battered by the almost 20 percent fall in the value of the pound against the dollar in the second half of last year. Many are still only just coming to terms with the new rates after existing hedges rolled off earlier this year.

Richard de Meo, formerly a senior banker for Barclays and now managing director of brokerage Foenix Partners in London, says that companies have been active in selling the pound in the higher $1.20s.

"I think a lot of people are now budgeted at $1.25-$1.27 so against the dollar these are good levels for people," he said.

"That said, there is a lot more confidence now. A lot of our biggest buyers of dollars are just waiting to see where it goes. They have put on protective trades with stop losses in the 1.20s ... betting on the pound to go higher."

Reference: Patrick Graham

EU looks to build alternative to London for capital market: document

Brexit has forced the European Union to rethink its flagship capital markets union (CMU) project and urgently look for ways to create an alternative financial market to London, according to a draft EU document seen by Reuters on Wednesday.

London is the bloc's biggest financial market by far, but will be outside the EU from 2019, posing a challenge to the CMU project that had already begun to flag before last year's referendum in Britain.

"The CMU reform programme must be updated so that it can meet the challenge of creating a more autonomous capital market for the EU-27 economy," the document written by the European Commission says, referring to the remaining EU member states.

Britain's Prime Minister Theresa May has said she wants a free trade agreement with the EU that would include financial services, but the document suggests the bloc wants instead to replicate London's financial industry as much as it can.

The draft document, due to be discussed by the executive Commission on June 7 ahead of potential publication, said Brexit made it necessary to ensure that businesses remaining in the EU would have access to strong capital markets.

"This calls for stronger actions, more effective supervision and making sure that the benefits of the CMU are felt across the entire EU," it said.

"The City of London has traditionally pooled liquidity and provided risk management services for the rest of the EU. The departure of the UK from the single market reinforces the need and urgency of further developing and integrating EU capital markets."

A "deep re-engineering" of the financial system is necessary and this "implies finding ways to integrate sustainability into the EU's regulatory and financial policy framework", and to broaden the "geographical reach of capital markets".

Separately, the EU executive has already announced it will publish a draft law next month to tighten its grip on the clearing of euro-denominated securities, an activity which London currently dominates.


The draft document sets out a string of proposals to boost the bloc's capital market, especially in areas which London has dominated such as institutional investment, pensions, and stock market listings.

The Commission will propose in the third quarter to strengthen the powers of the EU's European Securities and Markets Authority - a step Britain had long opposed - in order to make the CMU more effective, the document added.

There may be an "EU Small Listed Companies Act" in the second quarter of next year to make the bloc a more attractive location for companies to go public, it said.

The Commission will propose a draft law to ease capital requirements on investment firms in the fourth quarter of 2017, and assess the case for granting licences and "passporting" rights to financial technology firms to operate across the EU, the document said.

The EU executive will also present measures to "support secondary markets" for non-performing or soured loans on the books of banks, blamed for holding them back from lending more to companies.

There may be a draft law too on making it easier to sell mutual and hedge funds products across borders.

The draft document follows a "mid-term" review of the CMU, a project that aims to encourage companies to raise more funds on markets and reduce the continent's heavy reliance on bank loans.

The document, which could be amended before publication, says a draft law to propose a pan-European personal pension product will be published by the end of June.

There will also be a draft law proposing an EU framework for covered bonds in the first quarter of next year.

Reference: Huw Jones

Thursday, 18 May 2017

Asia falls as White House turmoil spoils risk sentiment, dollar bruised

Asian stocks fell on Thursday and the dollar was stuck near six-month lows against a basket of currencies as uncertainty mounted over U.S. President Donald Trump's future following reports that he tried to interfere with a federal investigation.

Spreadbetters expected European stocks to follow suit, forecasting a lower open for Britain's FTSE, Germany's DAX and France's CAC.

MSCI's broadest index of Asia-Pacific shares outside Japan dropped 0.5 percent.

Japan's Nikkei shed 1.4 percent, Australian shares lost 1.1 percent and South Korea's KOSPI declined 0.4 percent. Shanghai and Hong Kong's Hang Seng also fell.

Equities in Asia took cues from Wall Street, where the Dow and S&P 500 both sank about 1.8 percent overnight following reports that Trump tried to influence a federal probe.

The allegations have not only thrown doubt over the future of the pro-growth policies that Trump promised, but they have raised the possibility he could end up leaving the presidency.

A small but growing number of Trump's fellow Republicans called on Wednesday for an independent probe of possible collusion between his 2016 campaign and Russia, and one even mentioned impeachment.

The region's shares showed little reaction to news that former FBI chief Robert Mueller was appointed to investigate alleged Russian interference in the 2016 U.S. election, although the S&P mini futures were a shade higher while the dollar bounced modestly against the safe-haven yen.

The greenback was up 0.4 percent at 111.200 yen after hitting a three-week low of 110.530. It was still down a significant 2 percent on the week.

"The appointment appears to be an attempt at tackling the problem early. While it is a bit of good news, further investigations are needed and it still remains to be seen what those could reveal. As such, the markets are still faced with uncertainty," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo.

In other political developments, trouble mounted for Brazilian President Michel Temer, who was recorded discussing payments to silence testimony by a potential witness in the country's biggest-ever graft probe.

An exchange-traded fund of Brazilian equities was down more about 8 percent in Tokyo, where it is traded.

In currencies, the euro extended its overnight surge to touch $1.1174, its highest since November before pulling back slightly to $1.1142.

"There are two implications from the latest developments in Washington, first being the possibility of congressional procedures reaching an impasse and second is the potential of Trump being forced out," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"But judging by how steeply the dollar has fallen, participants may have already priced in much of the negative news regarding Trump. The dollar could even benefit with the market thinking of post-Trump scenarios."

The dollar index against a basket of major currencies was flat at 97.604, not far from a six-month trough of 99.333 reached the previous day.

The U.S. currency was hurt as Treasury yields declined significantly with allegations against Trump lowering economic stimulus hopes.

The benchmark 10-year Treasury yield was at 2.239 percent after going as low as 2.209 percent overnight, its lowest since April 21.

With Treasury yields falling, the gap between U.S. and German government debt yields reached its narrowest in more than six months on Wednesday, as a tumultuous week in Washington contrasted with a sense of improved political stability in Europe.

In commodities, oil prices dipped after settling at a two-week high overnight. An ongoing effort by OPEC to cut production has partially propped up oil but prices remain under pressure from still plentiful supplies.

Brent crude slipped 0.3 percent to $52.05 a barrel.

Gold hovered near a two-week high thanks to the weaker dollar and the risk aversion gripping the broader markets.

Spot gold hit $1,263.02 an ounce, its highest since May 1.

Reference: Shinichi Saoshiro

Safe-haven currencies soar on Trump uncertainty

The dollar fell to its lowest level against the yen since May 1 and hit a six-month low against the Swiss franc on Wednesday as talk that U.S. President Donald Trump could face the threat of impeachment boosted safe-haven assets.

The dollar index, which tracks the U.S. currency against six peers and had scaled a 14-year peak of 103.82 on Jan. 3, fell 0.4 percent to its lowest level since Nov. 9, surrendering all of its "Trump bump" gains.

News emerged on Tuesday that Trump had asked his now-dismissed FBI chief James Comey to end the agency's investigation into ties between former White House national security adviser Michael Flynn and Russia.

That raised questions about whether Trump tried to interfere with a federal investigation, spurring speculation over the likelihood of an early exit from office for the former businessman.

The dollar fell by as much as 1.35 percent against the yen, blowing through the 112 yen level to 111.57 yen.

The dollar sank 0.5 percent against the Swiss franc, falling to its lowest since Nov. 9.

"It’s really a dollar story right now," said Peter Ng, senior FX trader at Silicon Valley Bank in Santa Clara, California. "Obviously it centres around the drama that’s going on in the White House that’s captivating audiences globally and you can see it’s causing a risk-off sentiment to the market."

While Wednesday's price action showed traders were losing faith in Trump's ability to push through his campaign trail promises of tax reform and fiscal stimulus, there was limited expectation that he would realistically face impeachment.

"Therefore, this (risk-off move) could be a bit short term," said Yujiro Goto, currency strategist with Nomura in London.

Analysts also said the market was losing some faith in the likelihood of the Federal Reserve raising U.S. overnight interest rates at its meeting next month. Higher rates make a country's currency more attractive to investors.

Fed fund futures showed the market was pricing in a 69 percent chance of a June hike, down from a more than 80 percent chance a week ago, according to the CME Group's FedWatch Tool.

The euro climbed above $1.11 overnight and hit $1.1129, its highest level since Nov. 9.

It fell 1 percent against the yen as investors locked in gains after the euro reached a 13-month high of 125.815 on Tuesday.

Reference: Dion Rabouin

Wednesday, 17 May 2017

Dollar pressured by U.S. political turmoil, strong eurozone data

The dollar nursed its losses on Wednesday after taking a hit from solid eurozone economic data, a fall in U.S. yields on heightened turmoil in Washington and downbeat housing data that reduced expectations of a Federal Reserve rate hike next month.

The dollar index, which scaled a 14-year peak of 103.82 on Jan. 3 on hopes for tax reform and stimulus measures from the administration of U.S. President Donald Trump, gave back all of its "Trump bump" and wallowed near its lowest levels since Nov. 9.

The index, which tracks the U.S. currency against a basket of six major rivals, last stood at 97.929, down 0.2 percent on the day.

Pressure on the dollar increased after news that Trump asked his now-dismissed FBI Director James Comey to end the agency's investigation into ties between former White House national security adviser Michael Flynn and Russia, according to a source who has seen a memo written by Comey.

The memo raises questions about whether Trump tried to interfere with a federal investigation at a time when investors were beginning to doubt that his administration would be able to get a divided U.S. Congress to support its promised policy steps.

"Investors need to see if he can carry out all of his original ideas, compromise, and get organised," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

"There are still Japanese institutional investors who want to buy the dollar on dips, but for now, they're standing back to see what happens next, " he added.

The dollar skidded 0.5 percent to one-week lows against its perceived safe-haven Japanese counterpart and last stood at 112.56 yen.

"The political shenanigans in Washington concerning Trump appear to be denting appetite for the U.S. dollar at the moment, but it's run into technical selling as well," said Sue Trinh, head of Asia FX strategy at Royal Bank of Canada in Hong Kong.

"The move in FX looks to be exaggerated by the addition of the systematic selling of the U.S. dollar by technical trading accounts," she said.

U.S. Treasury yields fell after data showing U.S. homebuilding unexpectedly dropped last month, adding to a recent spate of mixed data that has raised doubts about the U.S. monetary policy outlook. Separate data showed U.S. manufacturing production recorded its biggest increase in more than three years in April.

The yield on benchmark 10-year notes fell to a two-week low of 2.291 percent in early Asian trade, down from its U.S. close on Tuesday of 2.327 percent. It last stood at 2.301 percent.

Interest rate futures showed the market was still pricing in a nearly three in four chance that the Fed will implement a June hike, but that was down from over 80 percent a week ago, according to the CME Group's FedWatch Tool.

Investors were pricing in slightly below an even chance for two or more rate increases in 2017, despite central bankers' stated view that they will hike two more times this year.

The euro added 0.1 percent to $1.10965 after earlier touching $1.1098, its highest since November.

Against the resurgent Japanese currency, the euro tumbled 0.4 percent to 124.88, as investors locked in gains following the European currency's move to a 13-month high of 125.815 on Tuesday.

Data on Tuesday showed the euro zone growing at 1.7 percent year-on-year in the first quarter, in line with expectations.

Reference: Reuters Tokyo

Euro surges to six-month high after data; Trump worries hit dollar

The euro surged more than 1 percent against a broadly weaker dollar on Tuesday, nearly touching $1.11 as it rose to its highest level since Donald Trump was elected U.S. president in November.

The dollar fell after the release of weaker-than-expected data on U.S. housing starts, adding to the economic reports that have missed predictions.

While the dollar made a modest recovery after data showed U.S. manufacturing production recording its largest increase in more than three years, investors again soured on the greenback in later trading.

Data released earlier in the day showed the euro zone economy growing 1.7 percent year-on-year in the first quarter, in line with expectations.

Emmanuel Macron's victory in France's presidential election and growing expectations of further European integration, as he seeks deeper ties with Germany, have also helped bolster the euro, analysts said.

The euro jumped widely, touching its highest level since April 2016 against the yen and its highest level since March 31 versus sterling

The dollar's sell-off looked like it had further to go, said Boris Schlossberg, managing director of FX strategy at BK Asset Management, given the potential for further political fallout relating to reports that Trump disclosed highly classified information to Russian officials last week.

"It seems like progressively every single day it gets more and more beyond any sense of normal leadership and ultimately that kind of political volatility does translate into economic volatility," Schlossberg said.

Fears are growing among investors that Trump might not serve out his first term, analysts said. Even if he does, they said, there would be too many political distractions for him to push through his economic stimulus program.

The dollar index .DXY had risen to 14-year highs earlier this year on the view that Trump's plans for tax cuts and infrastructure spending would boost growth and inflation, but it fell on Tuesday to its lowest level since Nov. 9.

Weaker-than-expected U.S. data is causing traders to wonder whether the U.S. Federal Reserve will fail to raise rates at its policy meeting next month.

Investors are still pricing in around a 74 percent chance of a June hike, but that is down from more than 80 percent last week, according to CME Group's FedWatch tool.

Reference:  Dion Rabouin

Tuesday, 16 May 2017

Shock and shrug: U.S. stocks brush off latest round of global threats

Another global shock. Another collective yawn by U.S. stock investors.

Equity investors appeared to largely brush off the latest apparent threat to the world's security: A global cyber attack, which began spreading on Friday that by Monday had infected computers in more than 100 countries. Adding to global jitters, North Korea said it had successfully conducted a mid- to-long-range missile test and would continue such launches "any time, any place."

Yet major U.S. stock indexes moved higher on Monday, with the benchmark S&P 500 .SPX touching a record high, as stocks continued to rally even as many investors worry about unbridled optimism and expensive valuations.

"I am really on pins and needles to be honest with you because there are so many threats to this stability and this complacency which have not yet been priced into the market," Peter Kenny, senior market strategist at Global Markets Advisory Group in New York.

"It is just a question of what straw is going to break the camel’s back and then there is going to be all sorts of reasons that the market should have sold off," Kenny said.

While past cyber attacks may have had limited impact on the market, the WannaCry attack was described as having "unprecedented" global reach at a time people increasingly rely on technology to store their sensitive data. The attack follows hacking incidents during the U.S. and French elections.

"The cyber attack I would have imagined would have created some nervousness and anxiety, and throw in North Korea over the weekend, I'm confused on why the market is doing what it's doing," Ken Polcari, director of the NYSE floor division at O’Neil Securities in New York.

U.S. equities continued to move upward on Monday, a trend that has been firmly in place since the U.S. presidential election in November. Helped by higher oil prices, the benchmark S&P 500 .SPX rose 0.5 percent on Monday and set a new all-time high. In Europe, where the attack took center stage, investors also showed limited concerns. European shares closed higher while the UK’s FTSE 100 .FTSE edged up to end at a record high.

Indeed, the main impact from the attack appeared to be a rush to own shares of cyber security firms, the Purefunds ISE Cyber Security ETF up 3.2 percent, U.S.-listed FireEye Inc up 7.5 percent and Symantec Corp gaining 3.2 percent.

To be sure, market watchers said that cyber threats have typically had limited impact on the market. Nicholas Colas, chief market strategist at Convergex, a global brokerage company based in New York, said for the market to become concerned, an attack would need to be more narrowly targeted, such as hitting a company that consumers depend on such as Apple Inc (AAPL.O) or major banks.

"If you want to get U.S. investors' attention you'd have to shut down major banks' ATM systems," said Colas.

The market's ability to push higher underscored worries about investors being overly complacent and optimistic about the direction of stocks.

The S&P 500 has risen more than 12 percent since the election of President Donald Trump spurred by expectations that his tax cut proposals and planned infrastructure spending will help economic growth. While threats to Trump's plans have rattled investors they have failed to cause any significant pull back in stocks.

The CBOE Volatility Index .VIX, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, last week closed at 9.77, its lowest close since December 1993. On Monday, the VIX fell 0.11 point at 10.29.

"I'd say the market has been overly complacent for quite some time," said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. "There are a lot of people shorting volatility, which means investors are not worried about much of anything right now."

Reference: Caroline Valetkevitch

Sterling eyes $1.30 after significant speculative shift

Sterling rose towards $1.30 again on Monday, with figures showing that speculators have cut bearish bets on the currency by the most in more than a year and the third most on record.

The overwhelmingly negative view on the pound dominating foreign exchange markets since the Brexit referendum in June last year has abated since British prime minister Theresa May called a snap general election a month ago.

Sterling was up around a quarter of a percent by mid-afternoon on Monday to trade at $1.2917, and 85.03 pence per euro .

Many sterling "bears", including big currency trading banks like Deutsche Bank and Bank of America Merrill Lynch, ditched their ultra-gloomy forecasts and the data shows many playing the Chicago futures markets have done the same.

"It may be more to do with lethargy than any optimism. The pound is not moving much, volatility has collapsed, and the election has stopped the bad Brexit headlines ... for now," said Steve Barrow, head of G10 strategy at Standard Bank.

Data late on Friday showed that International Money Market accounts on the Chicago Mercantile Exchange slashed their net short sterling position to 46,798 contracts in the week to Tuesday. That effectively means bets on sterling falling are the smallest since July last year.

The change of 34,566 contracts from the previous week was the third biggest position move in favour of the pound since IMM records began in the mid 1990s.

Net short positions have more than halved from the record 107,117 contracts at the end of March, with the bulk of that reduction coming after May's announcement on April 18 that the country will go to the polls on June 8.

"Capitulation is the driver. Bears are giving up," said Kit Juckes, head of FX strategy at Societe Generale in London.


The latest poll on Monday from Survation showed that May's ruling Conservative Party is on course to win 48 percent of the vote on June 8, with Labour a distant second on 30 percent.

The IMM figures, however, don't take into account any shifts since a relatively pessimistic Bank of England inflation report last Thursday and the flow data kept by the market's biggest banking player, Citi, showed a different picture.

In its weekly report on the flows, Citi said the pound, along with the dollar against the euro, was the most sold of the G10 group of major currencies by speculative leveraged investors last week as it neared $1.30.

The bank's data also showed strong buying of the pound by "real money" - industry jargon for heavyweight longer-term investors like pension funds and insurers.

Governor Mark Carney warned of the downside risks to the UK economy, while saying he and his colleagues are still banking on a "smooth" Brexit - something few analysts in the currency market expect.

JP Morgan analysts trimmed their forecasts for further falls in a monthly note, but also still expected the pound to weaken to $1.26 and 86 pence per euro over the next few months.

"Whereas we are upgrading our ... forecasts by around 3 percent to reflect the reduced tail-risk of a disorderly Brexit in 2019 ... we nevertheless still expect sterling to weaken in absolute terms over a 1-year horizon," they said.

Reference: Jamie McGeever and Patrick Graham

Monday, 15 May 2017

Asia stocks shrug off cyber attack,oil jumps

Asian stocks were resilient on Monday, edging up to a two-year high after shaking off threats posed by a ransomware attack that locked up more than 200,000 computers in over 150 countries, a missile test by North Korea and weak U.S. data.

The yen and gold, which inched up in early trade, pulled back as risk aversion ebbed.

Oil prices jumped after Saudi Arabia’s energy minister and Russia’s oil minister said in a joint briefing that they agreed output cuts need to be extended until March 2018.

U.S. crude added 1 percent to $48.32 a barrel.

Global benchmark Brent was also up 1 percent to $51.37 a barrel.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 percent. It touched its highest level since June 2015 earlier in the session.

MSCI's emerging markets benchmark was 0.2 percent higher, having also touched a two-year high earlier on Monday.

Japan's Nikkei narrowed losses to 0.15 percent.

The weekend cyber attack, which slowed down after a security researcher stumbled on a way to at least temporarily limit the worm's spread, was expected to speed up on Monday when employees returning to work turned on their computers.

But with little evidence of widespread disruption in the region on Monday, investors appeared unalarmed, at least for now.

"We do not know the extent of damage or information that was captured in the attack; it’s likely we’ll hear more details about it today but initial reports suggest it was caught relatively early and limited to older computers," said James Woods, global investment analyst at Rivkin.

North Korea said on Monday it had successfully tested a newly developed mid-to-long range missile on Sunday aimed at verifying the capability to carry a "large scale heavy nuclear warhead." The missile landed in the sea 97 km (60 miles) south of Russia.

South Korea's military said it needs further analysis on the North's claim of technical advancement and that the possibility of the isolated nation mastering missile re-entry technology is low.

The Korean won weakened, with the dollar up 0.25 percent at 1,125.20 won on Monday.

"The Korean won has weakened, which may suggest the test has traders a little on edge,” Rivkin's Woods said.

Chinese shares advanced 0.5 percent, as stronger retail sales and property investment offset weakness in factory output and fixed-asset investment growth.

Chinese retail sales for April beat expectations to rise 10.7 percent from a year ago, while property investment growth accelerated to 9.3 percent in the first four months of 2017 from 9.1 percent in the first quarter.

Factory output growth rose 6.5 percent in April from a year ago, while fixed-asset investment grew 8.9 percent in the first four months of the year, both missing analyst expectations.

Hong Kong shares gained 0.3 percent.

Australian shares shrank early losses to trade flat. South Korea's KOSPI climbed 0.15 percent.

On Friday, the S&P 500 and the Dow Jones Industrial Average closed lower after growth in retail sales and consumer prices missed expectations, and worries deepened over the health of department stores after weak earnings reports.

The dollar was marginally higher at 113.36 yen , following Friday's 0.5 percent loss.

The dollar index, which tracks the greenback against a basket of major trade-weighted peers, was little changed at 99.219.

U.S. Treasury yields dropped to 2.3222 percent. On Friday, they closed at 2.333 percent from Thursday's close of 2.4 percent, their biggest one-day drop in more than three weeks.

The euro was little changed on Monday at $1.093, after jumping 0.7 percent on Friday.

Gold prices added 0.2 percent to $1,230.06 an ounce, extending Friday's 0.3 percent gain, thanks to the weaker dollar.

Reference: Nichola Saminather

G7 financial leaders reiterate FX pledges, vow more cyber cooperation

Financial leaders of seven leading world economies pledged stronger cooperation against cyber crime on Saturday and not to use foreign exchange to gain competitive advantage, but stuck to their cautious wording on trade, their final communique showed.

Finance ministers and central bank governors from the United States, Canada, Japan, France, Germany, Italy and Britain met in the Italian city of Bari to discuss the world economy, combating terrorist funding, cyber security and taxes.

The final communique of the meeting said the seven countries would use all policy tools - fiscal, structural and monetary - to boost economic growth.

It also said the G7 financial leaders would strengthen cooperation to counter cyber threats such as a global online attack which infected tens of thousands of computers in nearly 100 countries on Friday.

The statement said fiscal policy should be used to help job creation while keeping public debt on a sustainable path and monetary policy should help economic activity without fuelling strong inflation.

"We reaffirm our existing G7 exchange rate commitments to market-determined exchange rates and to consult closely in regard to actions in foreign exchange markets," it said.

"We reaffirm our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic policy objectives, using domestic instruments and we will not target exchange rates for competitive purposes," it said, underlining the importance of refraining from competitive devaluations.

But unlike a G7 leaders' communique of 2016, the Bari meeting did not endorse free trade and reject protectionism, reflecting pressure from the United States where President Donald Trump has signaled his scepticism about free trade deals.

The G7 financial leaders repeated a line agreed by the broader Group of 20 in March which said: "We are working to strengthen the contribution of trade to our economies."

As a global cyber attack infected tens of thousands of computers in nearly 100 countries on Friday, the G7 financial leaders said:

"We recognize that cyber incidents represent a growing threat for our economies and that appropriate economy-wide policy responses are needed."

They called for common shared practices to spot quickly any vulnerabilities in the world's financial system and stressed the importance of effective measures to assess cyber security among individual financial firms and at sector level.

Italian finance minister Pier Carlo Padoan told reporters that the discussions, which had been scheduled before Friday's attacks, were "unfortunately very timely."

Reference: Jan Strupczewski