Thursday, 19 July 2018

Investors bet on long-term dollar strength after Fed comments; greenback rises

LONDON (Reuters) - The dollar rose on Thursday after upbeat comments on the U.S. economy by the Federal Reserve’s chairman reinforced expectations by investors of the currency’s long-term strength.

Jerome Powell did not alter expectations of U.S. monetary policy in his addresses to Congress on Tuesday and Wednesday, but traders saw his remarks as signifying that authorities were comfortable with the dollar’s near 6 percent rise against its rivals in the last three months.

That represents a shift in the stance laid out by Treasury Secretary Steven Mnuchin, who in highly unusual remarks in January said a lower dollar was “good for us”.

A weaker dollar would help American exporters compete abroad but it may undermine its status as the world’s top reserve currency.

On Wednesday, Powell said he believed the United States was on course for years more of steady growth, and carefully played down the risks to the U.S. economy of an escalating trade conflict.

The dollar index versus a basket of six major currencies on Thursday rose 0.3 percent to 95.344, nearing a 12-month high of 95.531 scaled on June 28.

The euro was down 0.3 percent at $1.1610. It brushed a 16-day low on Wednesday of $1.1602.

Meanwhile, the widening trade rift between China and the United States knocked the yuan to a one-year low in both the onshore and offshore markets.

“The Fed Chair does not appear to be overly concerned about the flatter yield curve and the central bank is signalling further interest rate increases. We see limited potential for a near-term turnaround in dollar strength,” said Chris Turner, head of currency strategy at ING in London.

Though concerns remain the U.S. economy may be nearing a peak as evident from a flattening yield curve, the widening rate differentials between the United States and other major markets have lifted the dollar.

The two-year Treasury yield stood near 2.624 percent, its highest since August 2008 scaled on Wednesday.

“With the Fed poised to hike further, currency market focus is shifting back towards the spread between the U.S. two-year yield — which is now well over 2 percent — and those of other countries, like Japan,” said Takuya Kanda, general manager at Gaitame.Com Research Institute.

The Fed has been ahead of its peers in tightening monetary policy and is expected to have raised rates a total of four times in 2018 to tackle rising inflationary pressures.

With U.S. rates continuing to rise and most other major central banks taking only tentative steps towards monetary normalization, many analysts expect more dollar upside. RBC is forecasting a year-end euro/dollar of $1.12.

Against the Japanese yen, the dollar was down 0.1 percent at 112.925 yen. The dollar on Wednesday rallied to as high as 113.14 against the yen, its strongest since January 9.

China’s Ministry of Commerce said on Wednesday it would have to take further measures to compensate for losses caused by U.S. tariffs on steel and aluminium

U.S. President Donald Trump’s top economic advisor, Larry Kudlow, also said on Wednesday that he believed Chinese President Xi Jinping has blocked progress on a deal to end duelling U.S. and Chinese tariffs.

Amid the simmering trade tensions, the Chinese yuan extended losses to touch a one-year low of 6.779 per dollar in offshore trading.

The Australian dollar gained on a stronger-than-expected local June employment data.

Sterling remained frail, hit the previous day by weak inflation data. Ongoing political turmoil related to Britain’s plans to leave the European Union has also served as a lingering drag on the pound.

The pound traded at $1.3023, after hitting a 10-month low of $1.3010 on Wednesday.

Reference: Tom Finn

Wednesday, 18 July 2018

Sterling skids to $1.30 as inflation, Brexit cast August rate rise doubt

LONDON (Reuters) - Sterling slid to 10-month lows against the dollar on Wednesday after data showed British inflation failed to rise as expected, a day after Brexit-linked political turmoil had sent the currency hurtling lower.

Annual consumer price inflation held steady in June at 2.4 percent - the bottom end of forecasts in a Reuters poll of economists who had expected to see the first increase this year, to 2.6 percent.

Market expectations for a 25 basis point August interest rate rise by the Bank of England fell back to 69 percent from close to 80 percent earlier this week.

The pound was already down before the inflation data on a rallying dollar and worries about British Prime Minister Theresa May’s ability to push through her Brexit plans after she only narrowly won a crucial parliamentary vote on Tuesday.

May threatened rebel lawmakers in her Conservative Party with a general election this summer if they defeated her Brexit plans on customs.

Trading at $1.3080 before the inflation numbers, sterling fell further to a low of $1.3010, its weakest since September 5.

Against the euro the pound dropped 0.3 percent to 89.20 pence.

“BoE hike expectations will be pared back no doubt for August, especially given recent political uncertainty. Even with a net vote in favour of a hike, we are likely to see a one and done,” Neil Jones, head of FX hedge fund sales at Mizuho Bank said.

Britain’s FTSE extended gains to touch a session high after the data. British government bond futures surged by more than 30 ticks after the data and 10-year gilt yields dropped to their lowest since May 31.

May survived a crucial parliamentary vote on part of her Brexit proposals on Tuesday, but the vote was the latest in which May’s authority has been challenged and deep divisions within her own government laid bare.

She also saw off an attempt by pro-European Union rebels in her own party require the government to try to negotiate a customs union arrangement with the EU if, by Jan. 21, 2019, it had failed to negotiate a frictionless free trade deal with the bloc.

Markets and many investors want to see Britain retain close trade ties with the EU, possibly through a customs union, after Britain leaves the bloc in March 2019.

The political turmoil caused the pound to suffer its biggest one-day fall in more than two months. A dollar rally following bullish comments from Federal Reserve Chairman Jerome Powell also hurt sterling.

“It is becoming more obvious by the day that May is finding it increasingly difficult to gain a majority in parliament for ‘her’ Brexit plan,” Commerzbank analysts said.

Sterling tumbled two cents in the space of hours on Wednesday before the parliamentary vote.

Reporting by Tommy Reggiori Wilkes

Dollar's advance puts squeeze on gold, Brexit and BoE blues sink sterling

LONDON (Reuters) - The world’s major stock markets were mostly firmer on Wednesday as a bullish outlook from the head of the U.S. central bank buoyed the dollar, lifted bond yields and sent safe-haven gold to a one-year trough.

Wall Street’s jump back above the 2,600 points mark overnight was also keeping Europe’s spirits up as Europe reached mid-morning.

London's FTSE .FTSE made 0.5 percent as the pound GBP=D3 continued to suffer the Brexit blues, while Germany's Dax .GDAXI climbed to a one-month high on hopes the European Union and United States could cut a deal on car tariffs.

In Asia, Japan's Nikkei .N225 had also hit a one-month top as a weakening yen promised to fatten exporters' profits.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added as much as 0.1 percent and Australia 0.6 percent. Shanghai blue chips .CSI300 started firm only to flag as China's yuan lost ground to the advancing dollar.

Federal Reserve Chairman Jerome Powell stuck with an upbeat assessment on the U.S. economy while downplaying the impact of global trade risks on the outlook for rate rises.

“It basically means another rate hike in September and most likely another one after that in December,” said Rabobank market economist Stefan Koopman.

“He couldn’t stay away obviously from the potential threats of protectionism, but he is still waiting to see how everything pans out so he wasn’t really concerned about it - and that is giving the market another boost.”

BofA Merrill Lynch’s latest fund manager survey showed a trade war remained the biggest threat cited by no less than 60 percent of respondents.

For now, U.S. companies seem to be profiting mightily from tax cuts as the earnings season shifts into top gear. Analysts now see second-quarter S&P 500 earnings growth of 21.2 percent, up from 20.7 percent on July 1.

Of the 39 companies in the index that have reported so far, 84.6 percent have come in ahead of street expectations. The Dow .DJI ended Tuesday up 0.22 percent, while the S&P 500 .SPX gained 0.40 percent and the Nasdaq .IXIC 0.63 percent.

Wall Street futures prices pointed to fractional gains later with results from Morgan Stanley (MS.N), ebay (EBAY.O) and IBM(IBM.N) all coming up.

“The S&P has finally broken to the upside through 2,800 out of the range that has confined it for most of this year, and this could now be the start of a grind higher in global equities over the next few weeks,” wrote analysts at JPMorgan in a note.

Next stop is the all-time top of 2,872 from January.

Powell’s support for more rate hikes sent two-year Treasury yields to the highest in nearly a decade and lifted the dollar broadly.

Against a basket of currencies, the dollar was up at 95.251 .DXY, after jumping 0.46 percent overnight. It also climbed to its highest since January against the yen at 113.07 JPY=.

The euro slipped further to $1.1634 EUR=, after weakening 0.4 percent on Tuesday.

The pound suffered another bout of the blues after British Prime Minister Theresa May only just cleared the latest parliamentary hurdle to her leaving plans and national inflation data came in weaker than expected.

Wednesday’s edition of the Times reported May threatened rebel lawmakers in her own party with a general election if they defeated the bill.

Bank of England Governor Mark Carney warned a no-deal Brexit would have “big” economic consequences and force a review of plans to raise interest rates.

Sterling was last huddled at 10-month low of $1.3035 GBP=D3, after sliding 0.9 percent on Tuesday.

The rising U.S. dollar coupled with the prospect of higher U.S. interest rates also spelled trouble for gold, which crashed through major chart support to hit a one-year low.

Spot gold XAU= was hovering at $1,224.92 per ounce, having fallen to $1,223.78. The steadily less-precious metal is down more than 5 percent for the year.

Oil prices also eased after an industry group reported an unexpected increase in U.S. crude inventories. Brent fell 70 cents to $71.40 a barrel, while U.S. crude was quoted down 54 cents at $67.55 a barrel.

Reporting by Marc Jones in London and Wayne Cole in Sydney

Tuesday, 17 July 2018

Dollar slips ahead of Fed testimony

LONDON (Reuters) - The dollar edged down on Tuesday ahead of congressional testimony by Federal Reserve Chairman Jerome Powell which traders will scrutinise for clues on the pace of U.S. interest rate rises and risks emanating from trade conflicts.

Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee at 1400 GMT on Tuesday.

He is expected to deliver an upbeat message on the outlook for growth and reaffirm the Fed’s gradual monetary tightening policy but could face tough questions on the central bank’s independence and how it would deal with an escalation in the global trade war.

“The escalating trade conflict is becoming an increasingly realistic downside risk that could weigh on sentiment and capital spending,” said Societe Generale analyst Guy Stear.

“It is questionable how much longer the top central banker will be able to and will want to remain so reserved in view of increasing tensions.”

At 0745 GMT the dollar traded down 0.2 percent at 94.37 against a basket of six major currencies, paring small gains booked during early morning trade.

The U.S. currency traded flat against the yen to 112.27 yen, after having approached earlier in the session a six-month high of 112.80 yen reached on July 13.

The dollar’s gains have this year been capped by worries over the intensifying trade dispute between the United States and China, although the concerns have not derailed the greenback’s solid performance so far.

The International Monetary Fund had warned on Monday that escalating and sustained trade conflicts following U.S. tariff action threaten to derail economic recovery and depress medium-term growth prospects.

Analysts are uncertain how the Fed would react if the conflict over trade with China deteriorates: either with aggressive rate hikes due to the inflationary effect of the import tariffs or with a pause in the hiking cycle due to growth dampening.

“[If the trade war worsens] I would expect that the U.S. dollar would initially appreciate as the result of a flight into safe havens, with it probably benefiting even more in case of aggressive rate hikes,” said Thu Lan Nguyen, an FX strategist at Commerzbank AG in Frankfurt.

Other major currency pairs on Tuesday stuck to tight ranges.

The euro and British pound rose modestly against the greenback. The single currency added 0.2 percent to $1.1738 after weakening half a percent last week while the pound was up 0.1 percent at $1.3255.

The Australian dollar edged up 0.1 percent to $0.7428. The currency is down more than 5 percent since the start of the year because of a divergence in the interest rate outlook of the U.S. Federal Reserve and Australia’s central bank which is seen keeping policy steady for some while yet.

The New Zealand dollar, meanwhile, gained 0.8 percent to $0.6839, its highest level since hitting 0.6835 per dollar on July 11. Annual Core inflation in New Zealand accelerated for the third straight quarter and recorded the largest increase since 2011.

Reference: Tom Finn

Dollar pares gains before Fed chairman's testimony

TOKYO (Reuters) - The dollar pared gains against its major peers on Tuesday, edging lower as investors awaited Federal Reserve Chairman Jerome Powell’s first congressional testimony for any clues on the pace of U.S. interest rate rises.

Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee at 1400 GMT on Tuesday, followed by a testimony at the same time on Wednesday to the House of Representatives Financial Services Committee.

“It seems that the markets are focusing on whether or not the trade war between the U.S. and China may affect the outlook for the Fed’s tightening,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“Powell, who is Republican and close to the Trump administration, will not stress much about the negative side of the U.S.-China trade war,” said Yamamoto, who expects dollar-yen to gradually strengthen to 115.

Powell is likely to reaffirm the Fed’s gradual monetary tightening policy in his testimony, although any suggestion of caution on trade could put a dent in the market’s appetite for risk.

On Tuesday, the dollar traded basically flat at 94.51 against a basket of six major currencies, paring small gains booked during early morning trade.

The U.S. currency strengthened 0.1 percent against the yen to 112.4 yen, ticking up to a six-month high of 112.80 yen reached on July 13. Japanese markets reopened after a holiday on Monday.

The dollar’s gains have this year been capped by worries over the intensifying trade dispute between the United States and China, although the concerns have not derailed the greenback’s solid performance so far.

The International Monetary Fund had warned on Monday that escalating and sustained trade conflicts following U.S. tariff actions threaten to derail economic recovery and depress medium-term growth prospects.

“Back in the 1980s or 1990s, when Japan had trade conflicts with the U.S. in the automotive and the semiconductor space... the U.S. made huge downward pressure on the U.S. dollar,” said Osamu Takashima, head of G10 FX strategy, Japan at Citigroup Global Markets Japan.

“This time, the relations between China and the U.S. is probably more complicated,” he said.

On Tuesday, the Australian dollar traded nearly flat, edging 0.02 percent lower to $0.7419.

The New Zealand dollar gained 0.8 percent to $0.6833, its highest level since hitting 0.6835 per dollar on July 11.

The euro and British pound were also barely changed against the greenback. The single currency added 0.01 percent to $1.17125, while the pound was up 0.04 percent at $1.3242.

“It seems that the dollar-yen is kind of immune to the Chinese risk at the moment,” said Mizuho Securities’ Yamamoto.

But “there is a risk that if the Shanghai Composite Index remains weak and the renminbi keeps depreciating, it will cap the Australian dollar’s top side,” he said.

Reference: Daniel Leussink

Asia stocks sag on oil's slide, dollar dips before Fed testimony

TOKYO (Reuters) - Asian stocks were mostly lower on Tuesday, with a sharp decline in crude oil prices weighing on energy shares, while the dollar dipped ahead of Federal Reserve Chairman Jerome Powell’s first U.S. congressional testimony.

Spreadbetters expected European stocks to open slightly higher, with Britain’s FTSE, Germany’s DAX and France’s CAC each gaining about 0.1 percent.

Overnight on Wall Street, the Dow edged up 0.2 percent but the S&P 500 lost 0.1 percent as energy shares were hit by the drop in oil that offset a jump in financials.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.3 percent lower following two sessions of gains.

Chinese shares extended losses after dropping the previous day on soft economic data. The Shanghai Composite Index fell 1.1 percent, as did Hong Kong’s Hang Seng.

Australian stocks fell 0.5 percent and South Korea’s KOSPI was flat. Japan’s Nikkei rose 0.8 percent, supported by exporters’ gains.

“Crude has been rising steadily so some kind of adjustment was due. From this context the impact on the broader economy, inflation and therefore the stock markets should be limited,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

Crude prices slumped more than 4 percent on Monday, with Brent futures reaching a three-month low of $71.52 a barrel, as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers.

Concerns over China’s second-quarter economic growth also weighed on oil prices. The country’s economy expanded at a slower pace as Beijing’s efforts to contain debt hurt activity, while June factory output growth weakened to a two-year low.

But Brent has gained about 7.5 percent in 2018, during which it poked above $80 a barrel in May to a 3-1/2-year high, as supply has been kept in check while a relatively strong global economy has supported demand.

“The stock markets have been quite steady recently, and this shows that investors are starting to look beyond the U.S. midterm elections, which by then President (Donald) Trump’s posturing is expected to have peaked out,” said Monji of Daiwa SB Investments.

In currencies, the dollar index inched down 0.05 percent against a basket of six major currencies to 94.474 .

The index shed 0.25 percent on Monday, nudging away from a two-week high of 95.241 scaled on Friday ahead of Fed Chairman Powell’s testimony.

Powell will testify on the economy and monetary policy before the U.S. Senate Banking Committee on Tuesday, followed by an appearance on Wednesday at the House of Representatives Financial Services Committee.

He is likely to reiterate the Fed’s stance towards gradual monetary policy tightening, and market focus will be on his views on recent trade tensions.

“In short, we expect the chairman to signal optimism on growth and inflation, consistent with continued ‘gradual’ tightening,” wrote Jim O’Sullivan, chief economist at High Frequency Economics.

“He will undoubtedly acknowledge some downside risks associated with the administration’s trade warmongering, but he will likely try to avoid sounding critical of the administration.”

The euro rose 0.05 percent to $1.1719 after adding 0.25 percent overnight.

The dollar pared the previous day’s losses and gained 0.1 percent to 112.39 yen, crawling back towards a six-month peak of 112.80 touched last week.

The Australian dollar dipped 0.2 percent to $0.7405 .

Treasury yields remained buoyant after rising overnight when strong U.S. domestic retail sales supported the view of solid economic growth in the second quarter.

The two-year Treasury yield was at 2.602 percent and in reach of a decade-high of 2.611 percent scaled on Monday.

Brent crude was last up 0.5 percent at $72.20 and U.S. crude futures stood little changed at $68.07 a barrel after sliding more than 4 percent on Monday.

Copper on the London Metal Exchange was up 1.1 percent at $6,255 a tonne amid low stockpiles. The industrial metal had sunk to a one-year low of $6,081 last week when trade war fears buffeted the broader markets.

Reference: Shinichi Saoshiro

Monday, 16 July 2018

U.S. stock futures flat as drop in oil prices trims earnings enthusiasm

(Reuters) - U.S. stock index futures were trading flat on Monday as a strong report from Bank of America reinforced expectations of a strong earnings season, but a drop in crude oil priced capped some early gains.

Shares of Bank of America (BAC.N) rose 0.9 percent in premarket trading after the second-largest U.S. lender’s quarterly profit beat analysts expectations on lower expenses and growth in loans and deposits.

This follows mixed earnings reports from three of its Wall Street peers on Friday, which dragged down bank stocks but could not stop the S&P 500 .SPX from closing at its highest level in more than five months.

The markets have been expecting a strong second-quarter earnings, which for S&P 500 companies is expected to have surged around 21 percent, according to Thomson Reuters.

Of the 27 S&P 500 companies that have reported earnings through Friday, 85.2 percent have topped earnings expectations.

Most of the earnings growth is expected to be from energy companies. But their stocks were off to a lower start on Monday after oil prices slipped as concerns about supply disruptions eased, Libyan ports reopened and traders eyed potential supply increases by Russia and other oil producers.

Exxon (XOM.N) dropped 0.7 percent and Chevron (CVX.N) dipped 0.8 percent, the biggest decliners among the Dow components in premarket trading.

At 7:31 a.m. ET, Dow e-minis were up 6 points, or 0.02 percent. S&P 500 e-minis were down 1.5 points, or 0.05 percent and Nasdaq 100 e-minis remained unchanged.

On the macro front, data at 8.30 a.m. ET is expected to show U.S. retail sales rose 0.5 percent in June, after a 0.8 percent gain in May. Excluding autos, retail sales likely increased 0.4 percent.

Investors will also focus on the summit between U.S. President Donald Trump and Russia’s Vladimir Putin, where they are expected to discuss the prospect of extending a nuclear disarmament treaty and the war in Syria.

The Kremlin said it did not expect much from the meeting, but hoped it would be a “first step” to resolving a crisis in ties.

“Russia and U.S. meeting is important because the United States’s relationship with its European allies is already at an all-time low,” Naeem Aslam, chief market analyst at Think Markets said in a note.

“If Trump and Putin’s relation improves further, it would bring more friction between the U.S. and the European Union.”

Among stocks, Arconic (ARNC.N) jumped 12.4 percent after brokerage Jefferies initiated coverage with a “buy” rating.

Netflix (NFLX.O) was up 0.2 percent ahead of its earnings report, expected after markets close. (AMZN.O) also gained 0.2 percent as its ‘Prime Day’ shopping event kicked off.

Reference: Amy Caren Daniel

Asian shares fall on soft China data, trade war fears

SHANGHAI (Reuters) - Asian shares fell on Monday as new data showed China’s economy slowed slightly in the second quarter, compounded by fears of a full-scale Sino-U.S. trade war looming over markets.

Official data showed China’s economy grew 6.7 percent in the second quarter of 2018, cooling from the 6.8 percent growth registered in each of the previous three quarters.

While the GDP figures were in line with market expectations, the new data also showed slower-than-expected growth in China’s industrial output, pointing to slowing momentum and prompting some analysts to call for stronger government measures to support growth.

Taken together, the data show an economy continuing to slow under the influence of a multi-year crackdown on excessive financial risk, even as trade war headwinds gather.

But Jim McCafferty, head of equity research, Asia ex-Japan at Nomura, said China’s underlying economic data “appears to be quite robust”.

“I would be incredulous if China’s GDP growth could continue at the level it’s been historically. So I think there’s always been an anticipation of some gradual slowdown, but the slowdown of the growth rate is probably less than the market really wants to believe,” he said.

He said concerns over the trade war were dragging down markets, with investors spooked by the ratcheting up of trade war tensions.

“That’s why I think markets are nervous, because there’s no precedent for this type of behaviour,” he said.

After briefly moving higher on early gains in China’s share markets, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.3 percent.

The Shanghai Composite Index .SSEC and the blue-chip CSI300 index .CSI300 fell 0.5 percent.

Hong Kong's Hang Seng index .HSI was down less than 0.1 percent, but the China Enterprises Index .HSCE took a bigger hit, falling 0.6 percent.

Australian shares were down 0.3 percent, and Seoul's Kospi .KS11 lost 0.1 percent. Shares in Taiwan were mostly flat.

Japan’s markets are closed for a holiday.

The soft China data undermined a boost to sentiment from Friday’s gains on Wall Street, which were underpinned by strong profits from industrial and energy firms and helped offset investor concerns over the U.S.-China trade war.

U.S. stock futures touched a fresh five-month high on Monday. S&P500 e-mini futures ESc1, the world’s most liquid equity index futures, rose 0.2 percent in early Asian trade to hit their highest level since Feb. 2.

Around 0335 GMT, S&P500 e-mini futures were up 0.1 percent at 2806.25.

The dollar rose 0.1 percent against the yen to 112.48 JPY=.

The euro EUR= was flat on the day at $1.1681, and the dollar index .DXY, which tracks the greenback against a basket of six major rivals, was also flat at 94.740.

Major currencies have been in a holding pattern in recent days thanks in part to a lull in China-U.S. trade skirmishing. Investors had also been awaiting the China data, and are still looking to June U.S. retail sales figures, to gauge the state of global growth.

The U.S. Federal Reserve reiterated on Friday in its semi-annual Monetary Policy Report to the U.S. Congress that it expected “further gradual increases” in interest rates due to “solid” economic growth.

ANZ analysts said in a note Monday that the Fed’s report “yielded few surprises,” but noted that trade tensions continue to weigh on commodity markets and U.S. consumer confidence.

U.S. crude dipped 0.5 percent at $70.69 a barrel, weighed by easing concerns about supply disruptions that had pushed prices higher. Brent crude was 0.5 percent lower at $74.895 per barrel.

A rising dollar drove gold prices to seven-month lows on Friday, but spot gold XAU= was up 0.2 percent on Monday, trading at $1243.46 per ounce.

Reporting by Andrew Galbraith

Dollar pauses near six-month top ahead of big economic indicators

SYDNEY (Reuters) - Major currencies held around recent ranges on Monday thanks to a lull in China-U.S. trade skirmishing and as investors await key data from the world’s two biggest economies to determine whether global growth is running out of puff.

The dollar paused at 112.39 yen, not far from a six-month top of 112.79 set on Friday.

The index that tracks the dollar against six other major the currencies was barely changed at 94.750.

The dollar index went as high as 95.241 last week but quickly reversed gains after latest trade figures from China suggested the threat of tariffs had not had a significant impact as yet.

Worries about the economic hit to China’s exports from stiff U.S. tariffs had sent the yuan crashing against the dollar in offshore markets. It was last at 6.7050 from an 11-month trough of 6.7326 touched on July 3.

Traders are now looking to second-quarter gross domestic product (GDP) data from China and June retail sales from the United States.

“Our economists think China’s second-quarter GDP and June activity data released today will hold up better,” JPMorgan analysts said in a note.

Analysts polled by Reuters expect the Chinese economy to expand an annual 6.7 percent from 6.8 percent a year ago.

“U.S. June retail sales and industrial production are also released today and tomorrow, and together with the Chinese data should provide reassurance that global growth remains resilient for now,” the analysts added.

“After sustained derating, and with second-quarter earnings another potential upside catalyst, the scene is set for very bearish current sentiment to improve. That could allow a sustained rally until we near the next round of escalation of trade tensions towards the end of August.”

U.S. President Donald Trump’s summit with his Russian counterpart in Helsinki later this week will also be closely watched.

Federal Reserve chief Jerome Powell will make a semiannual appearance before Congress later this week. Ahead of the meeting, the central bank released its accompanying policy report which showed U.S. economic growth and the Fed expecting to keep raising rates gradually.

The U.S. economy, which is on its second longest expansion on record, has not yet suffered from the ongoing trade row with China.

Elsewhere, the euro was subdued, but held above a nine-day trough of $1.1610 touched last week. It was last down 0.1 percent at 1.1677.

The pound was a shade lower at $1.1322 from last week’s low of $1.3101.

The tone for the two currencies will be set by eurozone inflation data this week and ongoing Brexit discussions with British Prime Minister Theresa May battling for her political survival.

On Monday, British lawmakers vote on amendments to legislation on the government’s post-Brexit customs regime. Leading eurosceptics are set to vote in favour of amendments that May opposes and back their own proposals to toughen up her exit plan.

While May is not expected to be defeated on the amendments, a high number of votes in favour of altering the customs bill by members of her party could further undermine her negotiating strategy.

Reporting by Swati Pandey

EU markets watchdog intervenes in share trading ahead of Brexit

LONDON (Reuters) - The European Union’s markets watchdog has proposed measures to stop share trading platforms based outside the bloc having an unfair advantage over EU rivals as Britain readies for Brexit.

The European Securities and Markets Authority (ESMA) said on Friday it wanted to make sure that minimum “tick sizes” or monetary increments for non-EU shares traded in the European Union are in line with tick sizes in their home market to avoid unfair competition.

Britain is home to the EU’s main pan-EU trading platforms like Cboe Europe (CBOE.O) and London Stock Exchange’s (LSE.L) Turquoise. Both, however, have applied for EU licences to open EU hubs before the United Kingdom leaves the bloc next March.

ESMA wants to make sure that such hubs and platforms already based in EU countries excluding Britain are not at a disadvantage to trading venues based in London or elsewhere by having to offer less attractive tick sizes.

“The number of third country instruments is likely to increase as a consequence of the UK’s withdrawal from the EU,” ESMA said in its consultation paper on Friday.

“While it remains difficult to accurately assess the number of shares that might become third country instruments post-Brexit, due to current uncertainties, under ESMA’s current estimation roughly 18 percent of the shares currently reported into FIRDS have their most liquid trading venue located in the UK.”

FIRDS refers to ESMA’s database on shares being traded on authorised platforms.

Currently up to 10,000 financial instruments, including shares, traded in the EU may qualify as third country, meaning their most liquid market is outside the bloc.

“If we considered shares that are currently available for trading not only on a UK trading venue but also in another EU jurisdiction, this represents around 1,900 potentially affected shares.”

“These specific cases where EU trading venues might be subject to minimum tick sizes larger than those applicable on non-EU venues may have the unintended result of putting EU trading venues at a competitive disadvantage,” ESMA Chair Steven Maijoor said in a statement.

“This might result in scarcer and shallower liquidity being available on EU trading venues which can be detrimental to those trading on those venues. This timely consultation looks to address these cases and contributes to orderly financial markets.”

The public consultation ends in September and ESMA will then send a final proposal to the European Commission, the EU’s executive body, for endorsement.

Reporting by Huw Jones

Friday, 13 July 2018

Global stocks rally before earnings, trade war jolt boosts dollar

LONDON (Reuters) - World stocks rose for a second consecutive week on Friday as investors prepared for an expected run of strong earnings in the United States, although fears about the U.S.-China trade conflict kept gains in check and pushed the dollar higher.

Expectations of a bumper U.S. earnings season and news that China’s overall global export growth beat expectations led European shares up on Friday with industrials and technology sending the pan-European STOXX 600 up 0.2 percent.

Markets appeared broadly risk-friendly as a weakening safe-haven yen helped lift Japan's Nikkei stock index .N225 two percent. That followed the S&P500 hitting four-month highs on Wall Street overnight.

Yet fears about the impact of an escalating U.S.-China trade war continue to cloud the outlook.

Chinese trade data showed its trade surplus with the United States swelling to a record in June and some fear that could further inflame a trade dispute with Washington.

“The record surplus with the U.S. will inevitably get top billing... China’s exporters have been front-loading exports to beat the imposition of tariffs, implying a relatively sharp drop in coming months,” ADM Investor Services market strategist Mark Otswald said.

With investors braced for the impact of tit-for-tat tariffs, one of China's main indexes edged lower and China’s yuan headed for its fifth straight week of losses.

While China has vowed to retaliate to the proposed new U.S. tariffs - 10 percent on $200 billion of Chinese goods - the lack of a specific response to date has sparked global relief.

On Friday, S&P500 e-mini futures ESc1 rose to a five-month high on expectations of solid earnings growth among U.S. firms despite the trade war concern.

Offering some reassurance to investors spooked by trade war fears, U.S. Treasury Secretary Steven Mnuchin said on Thursday the U.S. and China could reopen trade talks if Beijing was serious about structural reforms of its business practices.

“Some have suggested that Chinese officials are easing back their rhetoric with the intention of going back to the negotiation table, perhaps in light of increased concerns about economic impacts,” ANZ analysts wrote in a note on Friday.

The options available to Beijing include boycotting American goods, selling off U.S. Treasury holdings or sharply devaluing the yuan.

In commodity markets, oil prices have had a wild week with both the main benchmarks suffering heavy losses as traders focused on the return of Libyan oil to the market.

Oil prices fell on Friday, with Brent crude dropping 35 cents to $74.10 a barrel and heading for a weekly fall of nearly 4 percent.

A warning on spare capacity by the International Energy Agency (IEA) helped Brent recoup some losses on Thursday.

Copper eased about half a percent on Friday and was poised for a fifth straight weekly fall, its longest decline since 2015, on concerns about weaker demand in face of the U.S.-China trade dispute.

The dollar, which has been a safe haven amid global uncertainty over trade, touched 112.775 against the yen JPY=, its highest level in six months, boosted by expectations of higher U.S. inflation.

The greenback was the strongest major currency this week and the dollar index .DXY, which tracks the currency against a basket of six major rivals, was up 0.4 percent at 95.9223. The euro was 0.4 percent weaker at $1.1621.

Sterling fell half a percent to a 1-1/2 week low on Friday as a resurgent dollar and comments by U.S. President Donald Trump that a possible U.S.-British trade deal was probably dead sapped demand for the pound.

There was plenty of pain for emerging market stocks and currencies, including the biggest weekly loss for Turkey’s lira since the height of the financial crisis a decade ago.

The lira has lost 22 percent of its value against dollar this year, reflecting investor concern about monetary policy and economic management by Turkish President Tayyip Erdogan, who appointed his son-in-law as finance minister this week.

Reference: Tom Finn

Sterling skids as Trump says trade deal hopes are probably dead

LONDON (Reuters) - Sterling fell half a percent to a 1-1/2 week low on Friday as a resurgent dollar and comments by President Donald Trump that a possible U.S.-British trade deal was probably dead sapped demand for the pound.

In early London trading, sterling GBP=D3 fell to $1.3131, its lowest since July. 3.

Trump, who is visiting Britain, said Prime Minister Theresa May’s newly-announced Brexit blueprint had probably killed hopes of a trade deal.

“Sterling looks to be still a buy on dips around 1.30 levels but with all this news on the political front, investors are wary of taking aggressive positions until some clarity emerges,” said Georgette Boele, a senior FX strategist at ABN Amro Bank in Amsterdam.

Trump’s comments follow a series of resignations from May’s government over her strategy and also complaints from financial firms over its provisions for the sector after Britain leaves the European Union in March.

May’s government outlined its proposals to retain the closest possible trade ties with the bloc, although there was one major shift — the government abandoned plans for close ties for Britain’s huge financial services industry.

Markets are concerned that the EU will demand more concessions from Britain before agreeing to a Brexit deal, spelling months of more political uncertainty.

Against the euro, the British currency EURGBP=D3 weakened a quarter of a percent to 88.56 pence.

ING strategists said the much-awaited Brexit white paper published on Thursday hasn’t quite solved the UK’s future trading relationship, and markets will be waiting to see if the EU can work with latest proposals.

Such concerns will also dog investors who have been betting the Bank of England will raise interest rates as early as August, following some recent positive signs such as monthly economic growth data and upbeat comments from Governor Mark Carney.

“This short-term uncertainty will keep the Bank of England wedged between a rock and hard Brexit place,” ING said in a daily client note.

Reporting by Saikat Chatterjee

Thursday, 12 July 2018

Sterling edges lower as Brexit overhang dogs investors

LONDON (Reuters) - The pound edged down from $1.33 on Wednesday as investors tried to gauge whether the resignation of two ministers over Prime Minister Theresa May’s Brexit plans would affect an expected interest rate hike this summer.

The currency’s weakness was limited, however, as investors were wary of taking large bets before more clarity on the Brexit negotiations emerged.

British trade minister Liam Fox said on Wednesday he did not believe Britain’s new Brexit strategy would inhibit its ability to agree trade deals with countries around the world, after two cabinet colleagues resigned over the policy.

“Sterling is in a consolidation phase at these levels as markets await more clarity on the Brexit negotiations front,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

Tentative signs of a recovery in Britain’s economy after a sluggish spell have lifted expectations of an August interest rate hike to more than 60 percent from less than 50 percent two weeks ago.

The resignations of Foreign Secretary Boris Johnson and Brexit minister David Davis on Monday rattled May’s grip and stirred talk of a leadership challenge less than nine months before Britain is due to depart the EU. Sterling tumbled more than a cent.

Even if May is safe, the big question for markets is whether EU leaders will go along with her Brexit plans as a new round of negotiations begins later this month.

Markets had welcomed May’s official blueprint - outlined on Friday - because they believe it makes a softer Brexit, in which Britain retains close trade ties with the European Union after its exit next year, more likely.

On Wednesday the currency regained its poise, and moves were mostly muted.

Sterling rose to as high as $1.3285 - roughly where it was on Friday before the resignations - before a rallying dollar knocked it back to $1.3236, down 0.2 percent on the day.

Against the euro, sterling extended gains, spurred on by weakness in the common currency though it retraced later.

The pound was flat at 88.35 pence per euro.

Traders are also preparing for more British economic data that, if better than forecast, may heighten expectations of a Bank of England interest rate rise.

Sources told Reuters that some policymakers said an increase was possible as early as July 2019, while others ruled out a move until autumn next year.

Reporting by Tom Finn

Dollar holds firm against yen, major peers on strong U.S. inflation

TOKYO (Reuters) - The dollar rose to a six-month high against the yen and steadied against other major peers on Thursday after U.S. inflation data reaffirmed expectations that the Federal Reserve will hike interest rates two more times this year.

While financial markets remained vexed by fears of a full-scale Sino-U.S. trade war, investors’ focus was drawn to the slightly stronger-than-expected producer price reading which boosted confidence in the world’s top economy.

The dollar firmed 0.3 percent to 112.29 yen JPY= after rising as much as 1.3 percent in U.S. trade on Wednesday, breaching the 112-barrier for the first time since Jan. 10.

The dollar’s index against a basket of six major currencies edged up towards a one-week high of 94.769 reached overnight, trading at 94.753.

Investors were looking U.S. consumer inflation data due at 8:30 a.m. local time (1230 GMT) for further clues on when and how fast the Fed will raise interest rates.

“The consumer inflation reading could be strong as oil prices have been high, which could lead to more support for the dollar,” said Minori Uchida, chief currency strategist at MUFG Bank.

“But oil prices have already started to come down, and I don’t think long-term interest rates will rise that much. That means I don’t think support for the dollar won’t really continue even if the dollar is bought at first,” he said.

The biggest annual increase in 6-1/2 years in June U.S. producer prices, thanks to gains in the cost of services and motor vehicles, set the scene for an upside surprise in the consumer price index numbers.

As the dollar held firm, the euro EUR= lacked momentum, trading at $1.1675, edging further off a 3-1/2-week high off $1.17905 touched on Monday.

On Wednesday, nervousness in broader currency markets over an escalation in the U.S.-China trade war was slightly more contained than in equity markets, where there were hefty falls globally after Washington threatened 10 percent tariffs on $200 billion worth of Chinese imports.

“If the U.S. levies tariffs on $200 billion worth of Chinese imports, China can’t levy tariffs on a similar amount, but it is likely there will be some kind of sanctions,” said Kazushige Kaida, head of foreign exchange at State Street Bank.

“If that continues to escalate, not only the U.S. will be hit on a macro-economic level, but China’s macro-economy, and countries with macro-economic ties to China, will be impacted as well.”

The Canadian dollar weakened against the dollar as broad-based gains for the greenback offset an interest rate hike and the prospect of further tightening by the Bank of Canada.

The Canadian dollar CAD=D4 was nearly flat in Asia on Thursday at C$1.3210 per U.S. unit, after having fallen about 0.75 percent the previous day.

The Turkish lira hit a record low of 4.9767 lira per dollar earlier on Thursday before bouncing back slightly to 4.8998 per dollar as the currency was roiled by worries about economic management under a new presidential system.

Reference: Daniel Leussink

Stocks, commodities recover after latest trade war jolt

TOKYO (Reuters) - Stocks and commodities recovered slightly on Thursday as markets tried to consolidate from the previous session’s steep losses when fears of an escalation in the U.S.-China trade war jolted investor sentiment.

Spreadbetters expected European stocks to open higher, with Britain’s FTSE gaining 0.3 percent, Germany’s DAX adding 0.35 percent and France’s CAC 0.4 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6 percent.

The index slumped 1 percent on Wednesday along with a slide in global equities after U.S. President Donald Trump’s threat to imposing tariffs on another $200 billion of Chinese goods deepened the trade row between the world’s two largest economies.

Hong Kong’s Hang Seng rose 1.0 percent and the Shanghai Composite Index bounced 2.2 percent.

Australian stocks rose 1 percent, South Korea’s KOSPI added 0.6 percent and Japan’s Nikkei gained 1.3 percent.

“The markets had some time to digest the latest trade war developments and are poised to begin consolidating,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

“It has become a pattern of reacting to each new development and hoping that trade strains ease in the next few months through negotiations,” he said.

Focus turned to what the next steps in the tit-for-tat trade conflict might be. China has accused the United States of bullying and warned it could hit back, although the form of retaliation was not clear.

“The retaliatory options available to China include boycotting American goods, sharply devaluing the yuan, and selling off U.S. Treasury holdings,” Xiao Minjie, senior economist at SMBC Nikko Securities in Tokyo, wrote in a note.

“But we believe none of these moves are realistic or productive... the wisest move in our view is for China to accelerate the opening of its market rather than continue to trade blows with the United States.”

China’s yuan strengthened 0.3 percent versus the dollar, partially recovering from a big slide the previous day and pulling back from 11-month lows brushed last week.

The yuan firmed after the currency’s Thursday midpoint, set by the People’s Bank of China, was not as weak as the market braced for.

“It shows the central bank intends to stabilize the market and calm investors. One-way speculation on the yuan’s depreciation is not in Chinese authorities’ interests,” said Qi Gao, Asia FX strategist at Scotiabank in Singapore.

The dollar was buoyant, supported by mounting trade tensions and Wednesday’s strong U.S. inflation data.

The dollar index against a basket of six major currencies was steady at 94.700 after gaining 0.6 percent overnight.

Against the yen, which usually strengthens in times of political tension and market turmoil, the greenback stretched its overnight rally and rose to 112.385 yen, its highest since January.

“The dollar has managed to gain even against the yen due to ongoing trade concerns, with commodity-linked currencies having slid along with the downturn in commodities and providing a broad lift for the dollar,” said Ichikawa of Sumitomo Mitsui Asset Management.

Commodity-linked currencies such as the Australian dollar suffered deep losses on Wednesday. The Aussie crawled up 0.2 percent to $0.7383 after dropping 1.2 percent overnight.

The Canadian dollar was a shade higher at C$1.3201 per dollar following a loss of 0.75 percent the previous day.

The euro was little changed at $1.1680 after shedding 0.6 percent on Wednesday.

In commodities, Brent crude futures rose 1.5 percent to $74.52 a barrel after tanking 6.9 percent overnight, the biggest one-day percentage drop since February 2016 as trade tensions threatened to hurt oil demand and news that Libya would reopen its ports raised expectations of growing supply.

Copper on the London Metal Exchange rose 0.8 percent to $6,194.00 a tonne. The industrial metal sank nearly 3 percent on Wednesday, plumbing a one-year low of $6,081.00.

Reporting by Shinichi Saoshiro

Sterling edges down as traders eye BoE speech

LONDON (Reuters) - The pound edged down from $1.33 on Wednesday as investors tried to gauge if the resignation of two ministers over Prime Minister Theresa May’s Brexit plans would affect an expected interest rate hike this summer.

The currency’s gains were muted, however, as traders prepared for a speech by Bank of England Governor Mark Carney hoping to understand how recent political turmoil over Brexit would impact the central bank’s plans for monetary tightening.

“The biggest initial risk to the pound from a period of heightened political uncertainty is a one-off dovish BoE re-pricing in markets,” said ING FX strategist Viraj Patel.

Carney is unlikely to comment explicitly on UK politics but traders said they would be watching for any signs of a subtle shift from upbeat comments he made last week.

Tentative signs of a recovery in Britain’s economy after a sluggish spell have lifted expectations of an August interest rate hike to more than 60 percent from less than 50 percent two weeks ago.

The resignations of Foreign Secretary Boris Johnson and Brexit minister David Davis on Monday rattled May’s grip and stirred talk of a leadership challenge less than nine months before Britain is due to depart the EU. Sterling tumbled more than a cent.

Even if May is safe, the big question for markets is whether EU leaders will go along with her Brexit plans as a new round of negotiations begins later this month.

Markets had welcomed May’s official Brexit plans - outlined on Friday - because they believe it makes a softer Brexit, in which Britain retains close trade ties with the European Union after its exit next year, more likely.

On Wednesday the currency regained its poise, and moves were mostly muted.

Sterling rose to as high as $1.3285 - roughly where it was on Friday before the resignations - before a rallying dollar knocked it back to $1.3248, down 0.2 percent on the day.

Against the euro, sterling extended gains, spurred on by weakness in the common currency. The pound stood 0.2 percent stronger at 88.35 pence per euro.

Traders are also preparing for more British economic data that, if better than forecast, may heighten expectations of a Bank of England interest rate rise.

Reference: reuters

Wednesday, 11 July 2018

Yuan, Aussie hit as U.S. threatens more tariffs on China

TOKYO (Reuters) - The dollar rose near an 11-month high against the Chinese yuan and the Australian dollar tumbled after the U.S. said it would slap tariffs on an extra $200 billion of imports from China, sharply escalating tensions between the world’s two biggest economies.

The news threw U.S.-China trade war worries back into the spotlight just days after Washington imposed 25 percent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of U.S. exports to China.

The offshore Chinese yuan fell as low as 6.6918 per dolla, down more than 0.5 percent from late U.S. levels and edging near its 11-month low of 6.7344 touched on July 3.

The Australian dollar AUD=D4 slipped 0.6 percent to $0.7417 from this week's high of $0.7484, which was its highest levels in more than three weeks.

The news also prompted knee-jerk selling of riskier assets against less vulnerable currencies.

The dollar traded at 110.91 yen after dropping to around 110.80 JPY= in early Asian trade from around 111.25 in late U.S. trade. It had hit a seven-week high of 111.355 yen earlier on Tuesday.

The Aussie slumped 0.6 percent against the yen, changing hands at 82.30 yen.

The yen tends to be bought at times of economic and political stress because Japan’s status as the world’s largest credit nation suggests any repatriation by Japanese investors were likely to exceed those from Japan by foreign investors.

“With the announcement from the U.S on the Chinese tariffs, the reaction on the policy side from China will be the key event to watch in the coming days,” said Shinichiro Kadota, senior FX strategist for Barclays in Tokyo.

“If China does react with further escalation in tariffs, the U.S. equity market as well as the dollar-yen or Australian dollar could face further downward pressures,” he said.

U.S. Trade Representative Robert Lighthizer said the United States would impose tariffs of 10 percent on additional Chinese imports worth $200 billion.

The Trump administration released a wide-ranging list of Chinese goods it wants to hit with tariffs, including hundreds of food products as well as tobacco, coal, chemicals and tires, dog and cat food, and consumer electronics including television components.

Administration officials said a two-month process would allow the public to comment on the proposed tariffs before the list is finalised.

The move came after U.S. President Donald Trump said last week the United States may ultimately impose tariffs on more than $500 billion worth of Chinese goods - roughly the total amount of U.S. imports from China last year.

“Because Trump talked about the $500 billion figure, it was not a complete surprise. Yet markets will inevitably react to these types of news headlines,” said Kyosuke Suzuki, director of forex at Societe Generale.

“Since the new tariffs won’t be in place for two months, markets could soon calm down, although we will have to see how share markets, especially Chinese shares, will react to this,” he said.

The euro EUR= lost 0.1 percent against the dollar, edging down to $1.1729. The British pound also shed 0.1 percent to trade at $1.3265 GBP=D4.

The dollar index, which measures the greenback against a basket of six major currencies .DXY, was up 0.1 percent to 94.214, moving off a nearly one-month low around 93.71 hit on Monday.

Reference: Hideyuki Sano, Daniel Leussink

Stock markets roiled as U.S. ups ante in trade conflict

TOKYO (Reuters) - A sell-off in Chinese markets knocked Asian stocks on Wednesday as U.S. threats of tariffs on an additional $200 billion worth of Chinese goods pushed the world’s two biggest economies ever closer to a full-scale trade war.

Washington proposed the extra tariffs after efforts to negotiate a solution to the dispute failed to reach an agreement, senior administration officials said on Tuesday.

The United States had just imposed tariffs on $34 billion worth of Chinese goods on Friday, drawing immediate retaliatory duties from Beijing on U.S. imports in the first shots of a heated trade war. U.S. President Donald Trump had warned then that his country may ultimately impose tariffs on more than $500 billion worth of Chinese imports - roughly the total amount of U.S. imports from China last year.

“With no early end appearing to be in sight for the escalating ‘tit-for-tat’ world trade frictions and rising trade protectionism, global trade wars have become one of the key downside risks to world growth and trade in the second half of 2018 and for 2019,” wrote Rajiv Biswas, Asia Pacific chief economist at IHS Markit.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1 percent. The index had gained for the past two sessions, having enjoyed a lull from the trade war fears that lashed global markets last week.

Spreadbetters expected the Asian gloom to extend to European stocks, with Britain’s FTSE tipped to open down 0.45 percent, Germany’s DAX 0.6 percent and France’s CAC 0.5 percent.

Hong Kong’s Hang Seng slid 1.5 percent and the Shanghai Composite Index dropped 1.8 percent.

S&P 500 and Dow futures were down 0.7 percent and 0.75 percent, respectively, pointing to a lower open for Wall Street later in the day.

South Korea’s KOSPI lost 0.55 percent and Japan’s Nikkei fell 1 percent.

“The markets still remain sensitive to the trade-related theme, which is something investors have to take into account for the long term,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management in Tokyo.

“At the same time, the trade dispute can easily be blamed for a variety of ills. But it could mask over factors that could also weigh on equities in the longer run, such as tighter monetary policies led by the United States.”

Investors worry a full-blown Sino-U.S. trade conflict could hurt global exports, investment and growth.

The yen, often sought in times of political tensions and market turmoil, gained against a number of peers.

The dollar traded at 111.02 yen, pulled back from a near two-month peak of 111.355.

The euro fell 0.2 percent to 130.175 yen and the Australian dollar lost 0.7 percent to 82.24 yen.

The Aussie, considered a liquid proxy for China-related trades, fell 0.7 percent against the dollar to $0.7408.

China’s yuan lost 0.45 percent against the dollar and back toward an 11-month low plumbed last week.

The 10-year Treasury note yield fell 3 basis points to 2.84 percent, pulling back sharply from a one-week peak of 2.875 percent scaled the previous day.

Oil prices declined after the United States said it would consider requests from some countries to be exempted from sanctions it will put into effect in November that prevents Iran from exporting oil.

Brent crude futures lost 0.8 percent to $78.22 a barrel. Oil had risen the previous day, supported by a larger-than expected U.S. stock draw and supply concerns in Norway and Libya.

Industrial metals sank with the trade war threatening global growth.

Copper on the London Metal Exchange (LME) sank roughly 3 percent to brush $6,092.50 per ton, lowest since July 2017, before pulling back a little to $6,165.00.

LME zinc fell as much as 4.8 percent to $2,503 per ton, its lowest since June 2017.

Reporting by Shinichi Saoshiro

Tuesday, 10 July 2018

British pound frail after key eurosceptic ministers quit

TOKYO (Reuters) - The British pound was frail on Tuesday after the departure of two key eurosceptic ministers raised worries about a “hard Brexit” while the yen retreated against the dollar as investors bid up riskier assets.

Sterling stood at $1.3248 GBP=D4, having fallen to as low as $1.3189 on Monday, after Prime Minister Theresa May's foreign minister and Brexit negotiator quit in protest at her plans to keep close trade ties with the European Union.

The currency regained some ground after several Conservative lawmakers said May is likely safe from a leadership challenge despite the resignation of Boris Johnson and Brexit minister David Davis.

Still, after two years of wrangling, their departures shatter May’s own proclamation of cabinet unity last Friday in what she believed was an agreement on Britain’s biggest foreign and trading policy shift in almost half a century.

Simon Derrick, London-based chief currency strategist at BNY Mellon, said the next few weeks could prove decisive, noting that financial markets have a poor track record of pricing in UK political risks, not to mention the 2016 Brexit referendum.

“Current thinking is that May would win a party confidence vote. However, there is a risk that were May to make further compromises in the negotiations with Brussels, more hard line Conservative MPs might be theoretically prepared to abstain or even vote against her in a no confidence vote in Parliament,” he said.

Markets still expect it is likely the Bank of England (BOE) will hike rates at its next policy meeting on Aug. 2, but analysts said a full-blown political crisis could dent those expectations.

“Uncertainty is conquering the market at the moment regarding the possibility of a rate hike in August,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

“If there were some negative comments about a possible rate hike from BOE officials ahead of the August (Monetary Policy Committee meeting), then we will see a big fall in sterling,” he said.

Against the euro, the pound hit a four-month low of 89.025 pence per euro on Monday, and last stood at 88.68 EURGBP=D3.

The dollar’s index against a basket of six major currencies .DXY, =USD fell to as low as 93.711 on Monday, its lowest since mid-June, and last stood at 94.098.

The dollar was not helped by Friday’s data showing U.S. wage growth remained tame despite a tight labor market.

That kept the euro firm, trading at $1.1751 EUR=, not far from three-week highs of $1.17905 touched on Monday.

The common currency strengthened to one-month high of 1.16565 Swiss franc EURCHF= on Monday. Against the yen, it traded at 130.515 yen EURJPY=, retreating slightly after hitting a seven-week high of 130.57 yen.

The Japanese currency weakened against the dollar as investors appeared to be putting aside concerns of the trade conflict between the U.S. and China for now.

The dollar changed hands at 111.045 yen JPY=, above the 111-yen handle for the first time since last Tuesday.

The Chinese yuan tacked on 0.1 percent in offshore trade to 6.6114 against the dollar.

“It seems the market has digested the potential negative outcome stemming from the U.S.-China trade war, although I am not sure the market has really priced in the worst scenario,” said Mizuho Securities’ Yamamoto.

The Australian dollar AUD=D4 inched up 0.2 percent to $0.7479, extending its recovery from $0.7311 touched on Monday last week.

Turkey's lira on Tuesday made up some of the previous day's losses, trading 0.8 percent higher at $4.6954.

The currency had hit as low as $4.7506 after President Tayyip Erdogan on Monday named his son-in-law as Treasury and Finance minister in the new cabinet.

Reference: Hideyuki Sano, Daniel Leussink

Asia shares ease as trade war fears return, pound bewildered by politics

Sino-U.S. trade war recast their long shadow over investor sentiment, while several high-profile resignations from Britain’s government kept sterling on the defensive.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.1 percent after earlier rising more than 0.5 percent. The index had gained 1.3 percent on Monday.

The losses were led by China, with Shanghai blue chips .CSI300 off 0.4 percent. The index added 2.8 percent on Monday for the biggest daily jump since August 2016.

Japan's Nikkei .N225 climbed about 0.7 percent and South Korea .KS11 0.3 percent.

E-mini futures for the S&P 500 firmed 0.1 percent while spreadbetters pointed to a firm start for Europe, with FTSE futures up 0.1 percent.

Investors have been on edge recently with the United States and China slapping levies on each other’s exports, spurring fears of a global growth slowdown and hurting stocks and commodities.

On Friday, both China and the United States slapped tit-for-tat tariffs on $34 billion worth of each other’s goods, stirring fears of a prolonged dispute. The row has rattled Chinese financial markets, with the yuan suffering its worst monthly loss on record in June.

Despite the overhanging concerns about trade, market attention is expected to turn to other developments, at least for the near-term.

“Many investors are looking ahead to second-quarter earnings season, which begins in earnest see how the trade threat is affecting companies,” said James McGlew, Perth-based analyst at stockbroking firm Argonaut.

Both the Dow and S&P 500 boasted their biggest gains in more than a month overnight, as bank shares jumped ahead of earnings reports later this week. The S&P banks index posted its sharpest rise since March 26.

The story in currency markets was all about political capers in London.

Prime Minister Theresa May’s foreign minister and Brexit negotiator quit on Monday in protest at her plans to keep close trade ties with the European Union after Britain leaves the bloc, stirring rebellion in her party’s ranks.

Foreign Secretary Boris Johnson stepped down just hours after Brexit minister David Davis’s resignation, emboldening some in her Conservative Party to mull a plot to unseat her.

The uncertainty saw sterling sink as deep as $1.3189 at one stage before bouncing somewhat to $1.3254 GBP=D3. It was last down 0.2 percent at $1.3230.

Markets still think it likely the Bank of England will hike rates in August, and that a full-blown political crisis could be averted.

“It’s a big splash with some ripples,” said Kerry Craig, Global Market Strategist at JPMorgan Asset Management in Sydney.

“It’s a big event but the global ramifications are actually quite muted. We could see further resignations come through but I don’t think that will lead to a change in government,” Craig added.

“What really is illustrated by this how difficult it is for a country to leave the EU, really setting a precedent for any country that is looking to isolate itself from the European Union.”

The pound’s pain was a boon for the U.S. dollar which rallied broadly on expectations the Federal Reserve will keep raising its interest rates.

Against a basket of currencies, the dollar bounced to 94.201 .DXY from a low of 93.713. The dollar also edged up to 111.16 yen JPY=, from a trough of 110.30.

The euro EUR= was back at $1.1739, having run into profit-taking at a three-week peak of $1.1790 overnight.

In commodity markets, oil gained on supply disruptions in Canada and Libya and ahead of looming sanctions on Iran.

U.S. crude added 39 cents to $74.23, while Brent rose 37 cents to $78.44 a barrel.

Spot gold XAU= was flat at $1,257.01.

Reporting by Wayne Cole and Swati Pandey

FTSE inches up after Brexit minister resigns

MILAN (Reuters) - The UK’s top share index inched higher on Monday after the resignation of Brexit minister David Davis had little immediate effect on Prime Minister Theresa May’s hold on power, fuelling talk that a soft Brexit was more likely.

The FTSE was up 0.15 percent by 0841 GMT, joining a bounce in global equity markets, which continued to benefit from Friday's strong U.S. jobs report. The index was on track for its third straight day of gains.

Davis, who resigned to protest at May’s strategy for leaving the European Union, said on Monday said he would not encourage his colleagues to try to oust May and did not want to see her replaced.

“Investors believe she will keep hold of the reins”, London Capital Group analyst Jasper Lawler said.

Analyst said Davis’s resignation should make it easier for May to implement a softer Brexit, under which Britain retains a close trading relationship with the EU, although caution over possible new challenges to her leadership remained.

Top gainer on the FTSE on Monday was Just Eat (JE.L), up 2.3 percent after RBC upgraded the stock to top pick.

“Amidst an increasingly competitive landscape, we believe Just Eat is well positioned owing to its market leading positions and strong customer loyalty,” they said in a note.

Materials stocks provided the biggest boost to the FTSE with mining company BHP (BLT.L) up 1.9 percent after Reuters reported that BP was set to buy its U.S. onshore shale oil and gas assets after on offer worth more than $10 billion. BP (BP.L) fell 0.9 percent.

Other mining stocks also rose as copper prices rebounded from one-year lows.

Mid-caps precious metal miner Centamin, however, fell 6.6 percent after second-quarter gold production fell, disappointing investor expectations.

Jefferies said Centamin will need a significant pick-up in the second half to hit the mid point of its full-year gold production guidance.

Inmarsat (ISA.L) rose 2.4 percent, shrugging off news that U.S. satellite group EchoStar (SATS.O) does not intend to make an offer for the British peer, which had rejected its $3.2 billion takeover approach.

Traders cited hopes for another suitor and possible short covering.

Reporting by Danilo Masoni

Monday, 9 July 2018

Sterling rallies, shrugs off Brexit minister resignation

LONDON (Reuters) - Sterling rose in early European trading on Monday, hitting its highest level since June 14, as traders shrugged off the resignation of the UK Brexit minister, believing that a recently announced plan by the prime minister makes a “soft Brexit” likely.

The British currency gained 0.2 percent to $1.3321 after earlier reaching $1.3328 before news of the resignation caused a temporary dip. Against the euro, sterling remained steady at 88.38 pence per euro.

David Davis resigned overnight as Brexit minister because he was not willing to be “a reluctant conscript” to Prime Minister Theresa May’s plans.

Analysts said the market was pleased by May’s plan for Brexit announced on Friday, which they believe makes a “soft” Brexit where Britain retains a close trading relationship with the European Union more likely.

TOKYO (Reuters) - The Bank of Japan maintained its upbeat economic assessment for all nine regions of the country on Monday and its governor voiced confidence that inflation will head toward his 2 percent target, suggesting that monetary policy will be on hold for the time being.

In a quarterly report on regional conditions, the central bank said all areas were either recovering or expanding thanks to robust overseas demand, a tightening job market and improving private consumption.

“Japan’s economy is expected to continue expanding moderately,” BOJ Governor Haruhiko Kuroda said in a speech at the quarterly meeting of regional branch managers.

Kuroda also reiterated the BOJ will maintain its ultra-loose policy until inflation hits its 2 percent target.

The BOJ revised up its assessment on capital expenditure for three of the nine regions, saying many companies have ramped up spending on plant and equipment to streamline operations as they struggle to hire employees in a tight job market.

“The overall view is that a positive mechanism remains in place in Japan’s economy,” a BOJ official said in a briefing on the report.

But some firms pointed to risks such as rising costs from labor shortages and the impact of escalating trade frictions between the United States and China, the official said.

Heavy rain in western Japan recently also could have an impact on plant operations and goods distribution, though the overall effect on the economy was still unknown, the official added.

Rescuers dug through mud and rubble on Monday, racing to find survivors after torrential rains unleashed floods and landslides that killed more than 100 people, with dozens missing.

More than five years of heavy money printing have helped reflate the economy but failed to fire up inflation, which remains well below the BOJ’s ambitious target.

Under a yield curve control policy adopted in 2016, the BOJ currently pledges to guide short-term rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

The BOJ’s regional report is among factors the central bank will scrutinize at its next rate review on July 30-31.

Japan’s government forecast last week that the economy will grow faster than private-sector projections in fiscal 2019, with exports, consumption and capital spending expected to offset the hit from a planned sales tax hike next year.

Reporting by Leika Kihara and Tommy Reggiori Wilkes

Asia rallies on U.S. jobs relief, pound pinched by politics

SYDNEY (Reuters) - Asian shares rallied on Monday as favorable U.S. jobs data whetted risk appetites, while sterling wobbled after the shock resignation of two UK ministers over Brexit threatened the survival of Prime Minister Theresa May.

The pound peeled off around a third of a U.S. cent to $1.3290 GBP=D3 as news broke British Brexit Secretary David Davis and Brexit Minister Steven Baker had resigned.

The move came just two days after a meeting at May’s Chequers country residence supposedly sealed a cabinet deal on Brexit and underlines the deep divisions in her ruling Conservative Party over the departure from the EU.

“The outlook for the pound had brightened in recent weeks,” said Westpac senior currency analyst Sean Callow, seeing a chance this could turn out positive for the currency.

“If the U.K. government presses ahead with this plan despite the unexpected resignation of “hard Brexit” officials and with the US dollar losing momentum, sterling should be able make a run at $1.35 multi-day.”

Sentiment in other markets was mostly positive after Friday’s U.S. payrolls report showed tame wages and more people looking for work.

“The combination of rising employment and increased labor force participation suggests healthy but not tightening labor market conditions in June, something that will allow the Fed to continue to hike rates at a gradual pace,” said Kevin Cummins, a senior U.S. economist at RBS.

The balanced report helped Wall Street into the black and Japan's Nikkei .N225 followed with gains of 1.2 percent. E-Mini futures for the S&P 500 ESc1 firmed 0.3 percent and European bourses FFIc1 were set to open higher.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS climbed 1.3 percent, on top of 0.7 percent rally on Friday when the launch of U.S. tariffs on Chinese imports came and went without too many fireworks.

“While trade tensions fan concerns about the future, incoming data show a soaring U.S. economy, a healthy labor market, and some rebound in Europe and Japan,” said Barclays economist Michael Gapen.

“For now, overall policies and financial conditions still support growth and investment,” he added. “A sharper-than-expected China slowdown from a domestic credit crunch and external trade tensions could be the main risk to global growth.”

Chinese shares managed to rally on Monday with the Shangahi blue chip index .CSI300 up 2.2 percent after hitting its lowest in almost 18 months last week.

China’s securities regulator said on Sunday it plans to ease restrictions on foreign investment in stock listed on the Shanghai or Shenzhen exchanges to attract more foreign capital and support the economy.

The focus this week would be on Chinese data for June covering inflation, new loans and international trade. The United States also releases inflation figures, while the Bank of Canada might well hike rates on Wednesday.

In currency markets, the U.S. dollar was mostly softer following the jobs report, with sterling being an outlier.

Against a basket of currencies the dollar had pulled back to 93.853 .DXY, from a top of 94.486 on Friday. The euro held its gains at $1.1767 EUR=, while the dollar was flat on the yen at 110.44.

In commodity markets, oil prices pushed higher as the dollar eased. U.S. crude futuresgained 35 cents to $74.15 a barrel, while Brent rose 52 cents to $77.63 a barrel.

Gold was 0.5 percent firmer at $1,260.20 an ounce XAU=.


Friday, 6 July 2018

Sterling braces for May's crunch Brexit meeting

LONDON (Reuters) - Sterling inched higher on Friday before a long-awaited meeting where Prime Minister Theresa May will try to convince her ministers to back her policy document on Britain’s future relationship with the European Union.

The meeting, which is set to run into the evening at Chequers, May’s country residence, is a last-ditch appeal to ministers to put Brexit divisions behind them and move forward.

The perceived lack of progress in talks with Brussels over Britain’s exit from the EU in March, 2019, has weighed on the pound this year. Combined with signs of economic weakness, it has pushed the currency to near seven-month lows.

Traders expect volatility in the pound to jump once details of an agreement - or a lack of one - become clear late on Friday.

The risk for May is that a number of ministers might quit if they consider her plan to be a “soft Brexit”, or one that is too similar to Britain’s current relationship with the EU. On the other hand, many analysts expect Brussels will reject her plan.

The first details of May’s new plan for close customs ties with the EU - a “facilitated customs arrangement” - won mixed reviews, with one Brexit campaigner saying it could leave the country out of Europe, but still run by Europe.

“Pound volatility overnight still appears low given the potential for this to spark a period of domestic political uncertainty in the UK,” MUFG strategist Derek Halpenny said. “There is a high risk of some sharper volatility at the start of next week and this risk still appears under-priced.”

The pound rose 0.2 percent to $1.3247 against the dollar in early Friday trading. It traded flat versus the euro at 88.415 pence.

“Reports that pro-Brexit cabinet ministers will ‘behave’ over the coming months is a minor win for the currency,” said Viraj Patel, an analyst at ING who is bullishness on sterling.

“However, for Brexit risks to fully dissipate, the response from EU officials to the UK government’s Brexit plan is what truly matters for pound markets.”

Reference: Tommy Wilkes

China warns U.S. is 'opening fire' on the world with tariff threats

BEIJING (Reuters) - The United States is “opening fire” on the world with its threatened tariffs, China warned on Thursday, saying no one wants a trade war but it will respond the instant U.S. measures go into effect, as Beijing ramped up the rhetoric in the heated dispute.

The Trump administration’s tariffs on $34 billion of Chinese imports are due to go into effect at 0401 GMT on Friday, which is just after midday in Beijing.

U.S. President Donald Trump has threatened to escalate the trade conflict with tariffs on as much as $450 billion worth of Chinese goods if China retaliates, with the row roiling financial markets including stocks, currencies and the global trade of commodities from soybeans to coal.

China has said it will not “fire the first shot”, but its customs agency made clear on Thursday that Chinese tariffs on U.S. goods would take effect immediately after U.S. duties on Chinese goods kick in.

Speaking at a weekly news conference, Commerce Ministry spokesman Gao Feng warned the proposed U.S. tariffs would hit international supply chains, including foreign companies in the world’s second-largest economy.

“If the U.S. implements tariffs, they will actually be adding tariffs on companies from all countries, including Chinese and U.S. companies,” Gao said.

“U.S. measures are essentially attacking global supply and value chains. To put it simply, the U.S. is opening fire on the entire world, including itself,” he said.

“China will not bow down in the face of threats and blackmail and will not falter from its determination to defend free trade and the multilateral system.”

Asked whether U.S. companies would be targeted with “qualitative measures” in China in a trade war, Gao said the government would protect the legal rights of all foreign companies in the country.

“We will continue to assess the potential impact of the U.S.-initiated trade war on companies and will help companies mitigate possible shocks.”

Gao said China’s foreign trade was expected to continue on a stable path in the second half of the year, though investors fear a full-blown Sino-U.S. trade war would deal a body blow to Chinese exports and its economy.

Foreign companies accounted for $20 billion, or 59 percent, of the $34 billion of exports from China that will be subject to new U.S. tariffs, with U.S. firms accounting for a significant part of that 59 percent, Gao said.

Speaking at a separate briefing, Chinese Foreign Ministry spokesman Lu Kang sidestepped a question on whether there had been efforts to initiate new talks with the United States.

“We of course don’t want to fight a trade war, but if any country’s legitimate interests are harmed, then of course that country has the right to firmly protect their own interests,” Lu said.

However, Guo Shuqing, head of China’s banking and insurance regulator, said in a statement that the trade war would not affect China’s own reforms and opening up, and that it was confident going forward.

“In the past 40 years, the development of China’s society and economy has encountered many difficulties and problems, but as long as we uphold the leadership of the Communist Party and reform and opening up, we can surmount all challenges,” Guo said in a statement.

“The progress of China’s economy cannot be reversed by any force.”

China’s plans to impose tariffs on hundreds of U.S. goods targets some top U.S. exports, including soybeans, sorghum and cotton, threatening U.S farmers in states that backed Trump, such as Texas and Iowa.

Chinese buying of soybeans has already ground almost to a halt ahead of the duties.

In the latest sign that the risk of penalties is hitting trade, a vessel carrying U.S. coal and heading for China was diverted on Wednesday to Singapore.

U.S. carmaker Ford Motor Co said on Thursday it has no plans currently to hike retail prices of its imported Ford and Lincoln models in China, despite steep additional tariffs on imported U.S. vehicles set to come into play on Friday.

Ford said it encouraged Washington and Beijing to resolve their issues over trade and that it would “continue to monitor the situation as it evolves”.

The World Trade Organisation warned on Wednesday that trade barriers being erected by major economies could jeopardise the global economic recovery, with their effects already starting to show.

Adding to the tensions, a Chinese court this week temporarily barred Micron Technology Inc from selling its main semiconductor products in the world’s biggest memory chip market, citing violation of patents held by Taiwan’s United Microelectronics Corp (UMC).

Beijing has made the semiconductor sector a key priority under its “Made in China 2025” strategy, which has shifted up a gear after a U.S. ban on sales to Chinese phone maker ZTE Corp underscored China’s lack of domestic chips.

Chinese stocks slipped on Thursday and the yuan steadied from earlier losses as a targeted cut of reserve requirements for banks took effect amid the heightened trade tensions.

China’s central bank moved to calm jittery markets on Tuesday after the yuan hit its lowest level in almost a year.

Both Chinese and U.S. business sources in China said there appeared to be little hope that the tariffs could be averted.

“I’m afraid not, for now,” said Tu Xinquan, a trade expert at Beijing’s University of International Business and Economics, who has advised the Chinese government.

A U.S. industry source said: “There is a 99 percent chance that tariffs go into force on Friday.”

“Frankly, I don’t know what action China could take at the moment that would allow the U.S. to not impose tariffs,” the U.S. source said, adding that there was no evidence the two governments had any substantive engagement at the moment that could lead to the shelving of duties.

A senior Western diplomat told Reuters that there was no sign of any talks at the moment between the two countries, even via back channels.

The industry source said China had been unable to address the Trump administration’s concerns about Chinese trade policies in at least five key areas, including forced technology transfers, Chinese industrial overcapacity, government subsidies, SOE reform, and Beijing’s restrictions in the cloud computing industry.

Reporting by Elias Glenn and Christian Shepherd