Friday, 16 November 2018

China's U-turn on market curbs brings back the speculators

SHANGHAI (Reuters) - Speculators are staging a forceful comeback in China’s stock market, bidding up shares in loss-making companies as regulators ease rules around trading, fundraising and backdoor listings to prop up struggling bourses.

In a bid to stop the kind of market meltdown China saw in 2015-16, authorities are urging funds to invest in cash-strapped companies and encouraging others to do mergers and acquisitions (M&As).

The measures mark a reversal of the more restrictive curbs introduced two to three years ago, which were designed to prevent a repeat of the boom-and-bust cycle that triggered the last major rout.

The relaxations, however, have resulted in an immediate surge in speculative bets on possible acquisition targets and trading in small-cap shares.

For some, the moves simply clear unnecessary regulatory interference that inhibits robust and open capital markets. But for others, the new policies are a dangerous “Faustian Bargain” that delivers short-term stability at the expense of sustainable valuations.

“Currently, all the emergency measures are deals with the devil,” said Yuan Yuwei, partner at Water Wisdom Asset Management. Imploring speculators to rescue the market could set the stage for trouble, he added.

Over the past year, speculators have largely laid low due to a relentless crackdown on market manipulation and insider trading.

However, a pledge by China’s top securities regulator on Oct. 19 to boost market confidence through a series of measures has prompted a rapid return of the punters.

An index tracking so-called “Special Treatment”, or ST, stocks - loss-making companies that involve high risks or are candidates for possible delisting - has surged over 30 percent since Oct 19.

That compares with a mere 3 percent rise in the CSI300 index .CSI300, whose blue-chip constituents were market darlings last year.

Money is also pouring into companies that speculators think might become acquisition targets for backdoor listings, dubbed “shell companies”.

One company that appears to have benefited is Hengli Industrial Development Group Co (000622.SZ), whose share price tripled over the past three weeks as investors bet on a possible acquisition.

Speculators have ignored repeated warnings by the automotive air conditioner maker, who said the price surge defied fundamentals.

Based on current profitability and valuation, investors buying the stock would need to wait 2,800 years to recoup investment through dividend payments. An investor relations official at Hengli declined to comment, saying the company had no undisclosed information.

Speculators have also piled into Changsheng Bio-technology (002680.SZ), the company at the center of a nationwide vaccine safety scandal that faces the risk of delisting.

A “special treatment” stock, Changsheng rose the maximum 5 percent on Thursday for the sixth consecutive session, despite the Shenzhen Stock Exchange flagging risks to investors. Changsheng could not be reached for a comment.

Between 2013 and 2015, lax regulation contributed to a boom in M&As and private share placements, which led to reckless expansion, overpriced deals, bubbly stock prices and mountains of inflated goodwill sitting on companies’ books.

Regulators probe Snap over IPO disclosures
Following the crash of 2015-16, the China Securities Regulatory Commission tightened scrutiny of share sales and M&As to prevent the rapid buildup of speculative positions.

The regulator’s moves in recent weeks, however, reverse these curbs. On Oct. 19, the CSRC said it had initiated fast-track approvals for M&A deals. The next day, it said it would support backdoor listings by companies whose applications for initial public offerings (IPO) are rejected.

And last week, the CSRC revised regulations to allow listed firms to issue additional shares more frequently, and for broader use.

Easier fundraising enables indebted firms to pay debts and expedite M&As. Also fuelling investment flows are expectations the central bank will loosen the monetary spigot by cutting interest rates.

However, Yuan, of Water Wisdom, said that relaxing rules to prop up companies that might otherwise fail is a concession to interest groups and a sign the government has been “kidnapped by populism”.

Shen Weizhen, a fund manager at LC Securities, said the moves skewed market behavior.

“If buying garbage companies can make a lot of money ... who would be interested in blue-chips any more?”

The CSRC did not respond to Reuters’ request for comment for this story.

For now, market authorities appear more worried about falling share prices than a new speculative bubble.

The Shanghai Stock Exchange said on Nov. 2 that it would seek to avoid interfering with trading, and vowed to largely refrain from restrictive measures such as suspending trading accounts. CSRC said on Oct. 30 it would reduce “unnecessary intervention” in the market.Retail investor Wu Beicheng said he welcomed what he saw as “corrective” measures by the government.

“Speculation is the lubricant of the market,” he said. “Without speculation, the market would be lifeless.”

Reporting by Samuel Shen and John Ruwitch

Parliament will vote down May's Brexit deal, Davis says

LONDON (Reuters) - The British parliament will vote down Prime Minister Theresa May’s draft Brexit deal so she will have to go back to the European Union for a different deal, one of her former Brexit minister said on Friday.

“The policy we have to deal with is going to be rejected I think by the House of Commons. Then the prime minister has to come up with an alternative,” David Davis said.

He declined to speak about his views on May’s future, saying that as he was outside the United Kingdom it was not correct to comment.

Reporting by Guy Faulconbridge

LONDON (Reuters) - Sterling tumbled on Thursday after a series of resignations rocked British Prime Minister Theresa May’s government and threw into doubt her long-awaited Brexit agreement just hours after it was unveiled.

The pound slumped nearly 2 percent against the dollar and euro and was set for its biggest daily drop this year after Brexit minister Dominic Raab resigned to protest at the draft deal with the European Union. Three other ministers followed suit.

Fears that May’s hard-fought Brexit deal could collapse sent British financial markets into gyrations not seen since the sell-off following the June 2016 referendum on EU membership.

British stocks sank. Shares in state-owned lender RBS (RBS.L) fell 9.1 percent in their worst one-day loss since the 2016 vote.

British gilt yields also plunged with the 5-year yield on track for the biggest one-day decline since August 2016 when the Bank of England unleashed a round of stimulus after the Brexit vote.

The darkening outlook for Britain’s economy was also reflected in the money markets, where investors have all but priced out a rate hike by the Bank of England next year.

The cost of insuring exposure to Britain’s sovereign debt through credit default swaps  rose to its highest level in almost two years.

Traders fear May’s leadership is now in serious jeopardy.

“What concerns us is how many ministers seeing this news will be pondering if it is better to get their resignations in now rather than wait,” said Nomura strategist Jordan Rochester.

“If more ministers go, it becomes very difficult for Theresa May to hold her position.”

Sterling trimmed some of its losses when May vowed in a press conference on Thursday to fight for her draft divorce deal with the EU.

“Am I going to see this through? Yes,” May told reporters at her Downing Street office.

She said on Wednesday she had won over her divided cabinet after a five-hour meeting but Thursday’s wave of resignations fueled a sell-off, suggesting rising fear in the markets about a “no-deal” Brexit.

Outcomes now range from a “hard Brexit” to a general election and a second referendum.

In volatile trading, the pound GBP=D3 sank 1.9 percent to $1.2730, its biggest daily drop this year. At 1750 GMT sterling was down 1.7 percent against the euro at 88.85 pence.

Markets had priced in some opposition to the draft deal negotiated by May but the latest round of resignations unleashed fresh volatility in UK assets. That sent investors to the relative safety of government debt.

British financial regulators contacted major banks asking for feedback on market conditions because of sharp falls in the pound, sources said.

The prime minister showed little sign of backing down but senior eurosceptic lawmaker Jacob Rees-Mogg said a number of letters of no confidence in May had been submitted to party officials.

Sterling slips; markets await Brexit deal decision
Concerns about a leadership challenge were reflected in the foreign exchange derivatives markets, where three- and six-month gauges of expected volatility in the British currency spiked to their highest levels in two years. Extreme short-dated volatility indicators also jumped.

Britain is now more likely to either stay in the European Union or crash chaotically out of the bloc - a “no deal” Brexit - than depart under the terms presented by May, analysts from U.S. bank Citi said.

“Over the next few days the very real prospect of a hard Brexit will likely ensure that the pound remains vulnerable,” said Jane Foley, an FX strategist at Rabobank.

“Any turn of events in Westminster that appears to increase the risk of a general election would likely compound the vulnerability of the pound.”

Reporting by Saikat Chatterjee

Brexit-sensitive stocks battered on deal backlash, exporters gain

LONDON (Reuters) - British stocks slid on Thursday with RBS and housebuilders sharply down after Brexit minister Dominic Raab quit in a blow to Prime Minister Theresa May’s efforts to win backing for her draft deal to exit the EU.

Housebuilders, retailers and banks all fell, dragging the FTSE 250 .FTMC index down 1.5 percent by 1350 GMT, while the exporter-heavy FTSE 100 .FTSE managed to hold flat, supported by a plunge in the value of sterling against the euro and the dollar.

The resignations of Raab and the work and pensions minister Esther McVey in protest at May’s draft deal for leaving the European Union pushed sterling down 1.7 percent against the dollar.

Traders say uncertainty has increased, with outcomes ranging from a second referendum, a “hard” Brexit and a general election.

Shares in state-owned lender RBS (RBS.L) sank 9.1 percent, set for their worst one-day loss since the June 2016 Brexit vote selloff, as shareholders priced in a higher risk of a general election.

The Labour party has pledged in its manifesto to break up the lender.

Lloyds (LLOY.L) shares also fell 5.7 percent while Barclays fell 4.6 percent as domestic banks were knocked by the heightened political uncertainty.

Housebuilders Persimmon and Taylor Wimpey fell 9.5 and 9.1 percent, and Berkeley Group lost 7.1 percent. All three were set for their worst day since the 2016 Brexit vote caused housebuilder stocks to crumble.

Peer Barratt sank 8.4 percent, while mid-cap housebuilder Bovis Homes fell 10 percent, and Redrow and Crest Nicholson dropped by 8 percent and 6.8 percent respectively.

The FTSE 350 index of housebuilder stocks  was down 2.7 percent and was set for its biggest daily loss in a month.

Retailers were also hit, with Marks & Spencer (MKS.L) down 4.9 percent and Next (NXT.L) down 5.9 percent.

“There is a high risk that parliament fails to pass the withdrawal deal in December,” said David Page, senior economist for the UK and U.S. at AXA Investment Managers.

“Uncertainty over the coming months is going to be high and the prospect of a disorderly exit in March is rising,” he added.

Royal Mail (RMG.L) shares made a U-turn from their positive open, trading down 6.9 percent by 1320 GMT after first-half profit dropped about 25 percent as costs weighed.

Sterling slips; markets await Brexit deal decision
Shares in contractor Capita (CPI.L) sank 10 percent, the worst FTSE 250 performer, after the Financial Times reported it is in danger of losing a British public health service (NHS) contract after failing to send letters with cervical screening dates or test results.

A source later told Reuters the contract, which it said is currently loss-making, was not being withdrawn.

Asset manager Intermediate Capital Group (ICP.L) was a rare gainer on the mid-caps index, up 6.5 percent after its results showed a 17 percent increase in first-half assets thanks to strong inflows of new money from clients.

The FTSE 100’s multinational exporters Unilever (ULVR.L), Diageo (DGE.L), Reckitt Benckiser (RB.L), British American Tobacco (BATS.L), and Imperial Brands (IMB.L) were up by 0.8 to 2.9 percent as they gained from the weaker pound.

Strong mining stocks also helped limit losses, with Randgold Resources (RRS.L), Rio Tinto (RIO.L), Glencore (GLEN.L), and BHP Billiton (BLT.L) rising 1.8 to 4.9 percent on hopes of a rapprochement between the U.S. and China on trade.

Reporting by Helen Reid

Thursday, 15 November 2018

Asia stocks lifted by China-U.S. trade hopes; oil resumes retreat

TOKYO (Reuters) - Asian stocks rose on Thursday, cheered by a bounce in Chinese equities on signs China and the United States may be taking steps to de-escalate their bitter trade dispute, while oil prices resumed their retreat on fears of oversupply.

A cautious start is expected in Europe, however. Spreadbetters see Britain's FTSE .FTSE opening flat, Germany's DAX .GDAXI slipping 0.25 percent and France's CAC .FCHI losing 0.2 percent.

U.S. government sources told Reuters on Wednesday that China had sent a response to U.S. demands for trade reform but gave no further details, raising hopes the two sides could resume negotiations to end their trade war.

U.S. oil futures fell 0.3 percent to $56.08 a barrel, after a slight bounce overnight that followed 12 straight losing sessions. Brent was down 0.1 percent at $66.04.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.7 percent. The index had fallen the previous day as the sharp slide in oil prices heightened anxiety about the outlook for broad demand and global growth.

Shanghai Composite Index .SSEC gained 0.9 percent, while Hong Kong's Hang Seng .HSI rose 0.8 percent.

Traders have cautiously welcomed news in recent days that Washington and Beijing have resumed informal discussions ahead of a meeting between presidents Donald Trump and Xi Jinping late this month. Few market watchers expect a trade agreement at that meeting but hopes are growing that they may agree on a de-escalation while the two sides pursue more detailed talks.

Elsewhere, Australian stocks inched up 0.05 percent and Japan's Nikkei .N225 shed 0.2 percent.

“While it’s difficult to pin-point a specific event for the risk-off move, recent themes appear to be keeping markets cautious include oil’s recent plummet, Apple’s fall, U.S. political gridlock, China’s slowing growth, tightening liquidity, a hawkish Fed, earnings peak, Italian jitters, and Brexit uncertainty,” wrote economists at ANZ.

The S&P 500 .SPX fell for a fifth straight day overnight as financial stocks were hit by fears that banking industry regulations would tighten once the Democratic Party takes control of the House of Representatives.

U.S. equities were also pressured by concerns that earnings growth might be peaking, trade tensions and a slowing global economy - factors that had triggered a rout in riskier assets in October.

“If U.S. stocks are to bounce back, economic indicators will be key,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

“Immediate focus will be on today’s U.S. retail sales data, which will provide a view of how private consumption -the main component of economic growth- is faring.”

U.S. retail sales for October will be released at 1330 GMT.

In currencies, the pound and euro kept gains made after British Prime Minister May’s cabinet backed her draft Brexit deal. May now has to gain the support of parliament, though it is unclear whether she has enough votes to clinch approval.

The pound was 0.2 percent higher at $1.3010 GBP=D4.

Sterling slips; markets await Brexit deal decision
The euro also added 0.2 percent, to $1.1334 EUR=.

The single currency’s upside was limited by uncertainty on how European Union officials would react to Italy’s latest fiscal proposal after they rejected a version of it last month for violation of certain EU rules.

Italy on Wednesday re-submitted its draft 2019 budget to the European Commission with the same growth and deficit assumptions as a draft rejected for breaking European Union rules, stepping up its showdown with the EU over its fiscal policy.

Reference: Shinichi Saoshiro

BoE rate hike in 2019 now unlikely, money markets suggest

LONDON (Reuters) - Money markets no longer expect the Bank of England to hike interest rates in 2019, as investors slashed their bets on monetary tightening after Dominic Raab resigned on Thursday as Britain’s Brexit minister.

Investors now price in a 25 basis point rate hike from the BoE in 2020, having priced out such a move for next year. Money markets had previously priced in one hike - from current levels of 0.75 percent - before December 2019.

Raab resigned on Thursday in protest at Prime Minister Theresa May’s Brexit deal, throwing her government into political turmoil. The re-pricing in money markets came as sterling fell sharply and British government bond yields tumbled.

Reporting by Tommy Reggiori Wilkes

LONDON (Reuters) - Sterling slipped on Thursday after a volatile overnight session as UK Prime Minister Theresa May faces an uphill task to get parliament to approve her draft European Union divorce deal.

The British pound ended higher on Wednesday after May said she had won over her divided cabinet following a five-hour meeting, which includes some senior Brexiteers.

But in a sign of just how hard the vote in the British parliament might be, Shailesh Vara, who backed EU membership in the 2016 referendum, quit on Thursday as a junior minister in May’s government.

Those concerns were reflected in the foreign exchange derivatives markets where three and six-month gauges of expected volatility in the British currency remained firm while extreme short-dated volatility indicators edged lower.

British government bonds were also a beneficiary of the greater uncertainty on the progress of the Brexit deal with gilt yields falling four to five basis points across the board.

“PM May is not out of the woods yet and the price action suggests FX markets are cautious about the outcome,” said John Marley at FX risk management specialist, Smart Currency Business.

In the currency markets, the pound edged 0.1 percent lower at $1.2961.

Sterling slips; markets await Brexit deal decision
While the currency has been extremely volatile this week — realised price swings this week alone has averaged about 12 percent annualised on a daily basis, twice that of end October, prices have stayed within broad ranges.

Though a Brexit endgame is still some way away and risks have intensified, Goldman Sachs strategists said in an overnight note their base case scenario is that the Parliament will ratify a withdrawal deal by then.

Against the euro, the British pound fell half a percent to 87.56 pence.

Reporting by Saikat Chatterjee

Euro, pound firm after draft Brexit deal; yen strengthens

SINGAPORE (Reuters) - The dollar weakened on Thursday against the pound and euro, which rose after Britain’s prime minister won cabinet approval for her draft Brexit plan, but gains were capped by concerns over whether that plan will win parliamentary approval.

Prime Minister Theresa May won the backing of her senior ministers for a European Union divorce deal on Wednesday, pushing the euro and sterling up 0.8 percent and 1.2 percent against the dollar, respectively, from their intraday lows hit on Monday.

The draft divorce deal with the European Union struck on Tuesday would allow the United Kingdom to leave the EU with a deal that avoids a chaotic “hard Brexit” departure. But EU chief negotiator Michel Barnier cautioned that the road to ensuring a smooth UK exit was still long and potentially difficult.

The dollar index, a gauge of the currency’s performance against six major peers, ticked up slightly to 96.87, but remained off a 16-month high hit on Monday.

The recent correction in the dollar index has been due to rallies in the euro and sterling, which together constitute around 70 percent of the weight in the index.

Despite their outperformance over the dollar on Thursday, analysts still see firm support for the safe haven greenback amid broader concerns about Brexit and global trade tensions.

Sterling gained 0.06 percent versus the dollar, changing hands at $1.3002.

“Getting the draft approved by the parliament will be extremely challenging and that’s why we are seeing sterling gains capped at 1.3,” said Ray Attrill, head of currency strategy at National Australia Bank.

He said the dollar’s fundamentals remain strong, backed by a robust U.S. economy and rising wage pressures which will keep the Federal Reserve on track for further rate rises.

“A rate hike in December is fully priced in and the next lift-off in rates will most likely be in March next year, which is likely to support the dollar,” said Attrill.

The euro firmed 0.15 percent to trade at $1.1328.

However, further gains will most likely be muted as traders are unwilling to place bullish bets after Italy re-submitted its draft 2019 budget to the European Commission. It had the same growth and deficit assumptions as a draft rejected for breaking European Union rules, stepping up its showdown with the EU over its fiscal policy.

Against the Japanese yen, the dollar lost 0.13 percent to trade at 113.47. The yen had gained in the previous two sessions versus the dollar. But investors think the dollar still remains the more favoured flight-to-safety currency over the yen and Swiss franc.

Sterling slips; markets await Brexit deal decision
Adam Cole, chief currency strategist at RBC, thinks a major factor supporting dollar/yen is the emergence of a ready buyers on dips in the form of domestic investors buying unhedged U.S. bonds and taking hedges off existing holdings.

The Australian dollar gained 0.55 percent to trade at $0.7275 on the back of stronger than expected job data on Thursday.

Reporting by Vatsal Srivastava

Wednesday, 14 November 2018

European shares recover after U.S. tech rout; dollar gains

LONDON (Reuters) - European shares recovered on Tuesday after feeling the strain of a tech rout on Wall Street, while political risks in Europe helped the dollar as investors dumped riskier assets.

Fears of a peak in corporate earnings growth, softening global demand and rising interest rates in the United States have put investors on edge in the past month.

So has the Sino-U.S. trade war and the twin risks from Brexit and Italy’s budget row with the European Union. Volatility is on the rise again.

Monday’s equity sell-off in the U.S. was led by tech stocks, and Apple and Amazon were the major culprits, with the latter’s stock slumping over 5 percent.

But fears about a long-term slump in technology stocks faded on Monday as investors turned to efforts to wind down the Sino-U.S. tariff war. The pan-European STOXX 600 gained 0.5 percent by 0930 GMT.

Markets in Asia also recouped some losses after a report that China’s top trade negotiator was preparing to visit the United States before a meeting between the leaders of the world’s two largest economies.

The Shanghai composite index .SSEC rose 0.9 percent but Japan's Nikkei .N225 lost more than 2 percent.

“Though there have been some efforts to resolve the (trade war) tensions in recent days, in my opinion, things are likely to get worse before they get better,” said Sergio Ermotti, CEO UBS.

Some reckon that U.S. President Donald Trump will turn up the heat over trade. His administration is broadening its trade battle with a plan to use export controls, indictments and other tools to counter alleged Chinese the theft of intellectual property, the Wall Street Journal reported.

Riskier assets including Asian equities have been hurt by rising U.S. interest rates. The Federal Reserve is expected to tighten policy further in December.

In Europe, sterling jumped half a percent to as high as $1.2917 GBP=D3 after a British cabinet office minister said a Brexit agreement with the EU was still possible in the next 24 o 48 hours.

A growing rift over Italy's budget has hit the euro recently but the currency drifted up from a 16-month low to $1.1234 EUR=EBS, up 0.1 percent.

The Italian government faces a Tuesday deadline to submit a revised budget to the EU. Its refusal so far to cut the draft deficit sets the stage for a collision with Brussels.

The political malaise in Europe continued to aid the dollar .DXY against a basket of currencies. At 0900GMT it was flat at 97.6. It had hit 97.70 on Monday, its highest since June 2017.

Saudi Arabia says need for 1 mln bpd cut in oil
“King dollar has staged a return,” said Valentin Marinov, head of G10 FX strategy at Credit Agricole. “After the Fed’s hawkish policy outlook last week, investors are pretty happy to reload on long dollar positions. The European currencies look most vulnerable.”

Oil prices hovered near multi-month lows after declining for a record 11th consecutive session as Trump said he hoped there would be no oil output reductions.

U.S. crude skidded 83 cents to $59.1 a barrel. Brent crude futures fell 74 cents to $69.38.

Saudi Arabia’s energy minister jolted Brent crude futures around 2 percent higher on Monday with comments that Riyadh could reduce supply to world markets by 500,000 barrels per day in December.

Spot gold XAU= was 0.2 percent firmer at $1,203.58 per ounce.

Reference: Tom Finn

Tuesday, 13 November 2018

Vodafone lifts FTSE as trade optimism buoys markets

MILAN (Reuters) - The UK’s top share index rose on Tuesday helped by a rally in Vodafone (VOD.L) shares after the mobile operator announced further cost cuts and plans to lift cash flow.

Banks and commodity stocks fell sharply on Friday as Britain's top share index extended losses into a sixth straight trading day, roiled by a global debt crisis and unmoved by U.S. jobs data easing fears of another economic recession. London's blue chip index closed down 146.15 points, or 2.7 percent at 5,246.99, as investors continued to pile funds into safer havens such as bonds, gold and the Swiss franc.

The FTSE 100 .FTSE index rose 0.2 percent by 1018 GMT, moving in line with other European equity markets which found support in hopes of progress in the U.S.-China trade dispute.

The broader pan-European STOXX 600 was up 0.3 percent.

Vodafone shares rose 6.8 percent to the top of the FTSE 100 after its new CEO Nick Read said he would reduce operating costs by 1.2 billion euros by 2021 and review its tower assets to drive higher returns.

The group showed it was operating generally in line with analysts forecasts and said it would freeze the dividend until it reduced its debt pile, easing worries over a possible cut.

“The reason why the share price is up today is upgraded guidance for free cash flow... Essentially it is the pot of money that is used to pay back debt and pay the dividend,” said Helal Miah, analyst at The Share Centre.

“Having a bigger pot of money raises hopes that the dividend isn’t going to be cut,” he said.

Gains in banks also helped drive the FTSE 100 higher with shares in HSBC (HSBA.L) and Lloyds (LLOY.L) trading up 0.7 and 0.6 percent respectively, while a fall in oil stocks on falling crude prices weighed.

Elsewhere the focus was still on earning updates.

Credit data company Experian (EXPN.L) said it expected full-year organic revenue to come in at the top end of its previous forecast, driven mainly by strength in its North American business. That sent its shares up 4.5 percent.

Turnaround specialist Melrose (MRON.L) rose more than 4 percent after the said trading was in line with 2018 expectations.

Among mid-caps, BTG (BTG.L) gained 8.8 percent after the healthcare service provider announced better-than-expected revenues and a positive outlook, while FirstGroup (FGP.L) also rose 8.8 percent after the transport group appointed a new finance chief and posted first-half results boosted by strong demand for bus travel across the United States and Britain.

Some updates, however, disappointed. Housebuilder Taylor Wimpey (TW.L) fell 2.1 percent after a mixed trading statement.

U.S. equity traders to get biggest bonuses this year
“Trading through the second half has been strong with sales rates around 8 percent ahead of the prior year. However, operating from a lower number of sites combined with a more cautious outlook for next year sees us trim our full-year 2019 volume expectations,” said Peel Hunt analysts in a note.

Mid-cap discounter B&M (BMEB.L) tumbled 7.6 percent as underlying sales growth at the main B&M stores slowed in the second quarter.

Reporting by Danilo Masoni

Brexit deal possible in next 24-48 hours, May's deputy says

LONDON (Reuters) - Britain and the European Union are near touching distance of a Brexit deal which could be clinched in the next 24 to 48 hours, Prime Minister Theresa May’s de facto deputy said on Tuesday.

“We’re not quite there yet,” Cabinet Office Minister David Lidington told BBC radio. “We are almost within touching distance now. The PM has said it can’t be a deal at any price.”

Asked if he was saying it was possible there could be a deal in the next 24 or 48 hours, he said: “Still possible but not at all definite, I think pretty much sums it up. Cautiously optimistic.”

While officials choreograph the biggest divorce deal in EU history, it remains unclear whether May can get a deal passed by parliament where opponents have warned she is betraying Brexit by signing up the United Kingdom to EU subjugation.

Sterling jumped half a percent to as high as $1.2917 GBP=D3 on Lidington's comments.

The EU wants to get agreement on a draft deal by the end of Wednesday at the latest if there is to be a summit this month to approve it. Some EU diplomats said they didn’t have high hopes of a breakthrough this week.

The EU and the United Kingdom need an agreement to keep trade flowing between the world’s biggest trading bloc and the fifth largest national economy.

But May has struggled to untangle nearly 46 years of membership without damaging trade or upsetting the lawmakers who will ultimately decide the fate of any deal she can secure.

With under five months until Britain leaves the EU, the so-called Northern Irish backstop is the main outstanding issue.

It is an insurance policy to avoid a return to controls on the border between the British province of Northern Ireland and EU member Ireland if a future trading relationship is not agreed in time.

Asked if the UK could be trapped in a backstop against its will, Lidington said: “The prime minister has said again and again, if the backstop were ever to be used - we don’t want it to be used - ... it’s clearly got to be something that would be temporary and not indefinite.”

But the intricacies of any deal, hammered out in late night sessions at the European Commission’s modernist Berlaymont building in Brussels, are unlikely to change the growing opposition to May.

Trump honors WWI soldiers a day after rain debacle
By seeking to leave the EU while preserving the closest possible ties, May’s compromise plan has upset Brexiteers, pro-Europeans, Scottish nationalists, the Northern Irish party that props up her government, and some of her own ministers.

Brexit Secretary Dominic Raab said on Tuesday he was confident of progress in talks, though he gave no further details.

Lidington, who voted to stay in the EU in the 2016 referendum, declined to say whether the proposed deal would make the United Kingdom wealthier or poorer, saying that the people had decided to leave the EU.

Asked whether Britain would have to start preparing in earnest for a “no-deal” Brexit if an agreement were not clinched by the end of Wednesday, as newspapers have reported, he said: “I’m not going to ascribe days to particular actions.”

“The end of Wednesday is important but what we’ve been doing in government in the two years since the referendum is to take forward contingency planning against all eventualities,” he said. “We both hope and expect a deal will be negotiated.”

Reference: Michael Holden, Guy Faulconbridge

Asian shares pare losses on U.S.-China trade optimism, oil slides

SYDNEY (Reuters) - Asian shares pared losses on Tuesday as hopes for a de-escalation of the Sino-U.S. tariff war drew support from reports that China’s top trade negotiator was preparing to visit the United States ahead of a meeting between the two countries’ leaders.

The South China Morning Post reported, citing sources from both sides, that Liu He may visit Washington as part of the preparations for the talks between U.S. President Donald Trump and his Chinese counterpart Xi Jinping on the sidelines of the G20 summit in Argentina later this month.

“This news is being perceived as a positive outcome,” said Rodrigo Catril, markets strategist at National Australia Bank. “So, we have seen a broad improvement in sentiment across markets.”

“This is good news but there is still some caution. We obviously need more detail on it. This should also be taken in the context of new retaliatory measures that the U.S. is considering against China.”

Earlier, the Wall Street Journal reported, citing sources, the Trump administration is broadening its China trade battle beyond tariffs with a plan to use export controls, indictments and other tools to counter the theft of intellectual property.

The Australian dollar AUD=D4 which is often played as a liquid proxy to China, jumped 0.6 percent to $0.7214 in late afternoon trading.

Chinese shares reversed earlier losses to be in the positive territory. The blue-chip index .CSI300 was last up 0.1 percent.

That helped lift MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS off the day’s low. It was still down 0.5 percent after skidding 1.7 percent at one point.

Fears of a likely peak in corporate earnings growth, softening global demand and faster rate hikes in the United States have put global investors on edge over the past month, prompting them to take money off the table before year end.

Japan's Nikkei .N225 dived over 2 percent, led by losses in electric machinery makers and suppliers of Apple's (AAPL.O) iPhone parts after three suppliers issued warnings on results, sending tech-heavy Nasdaq .IXIC slumping over 2 percent.

The grim outlook triggered a steep selloff in Asian tech firms, with shares in Japan Display (6740.T) plummeting over 11 percent while Murata Manufacturing (6981.T) and TDK Corp (6762.T) dived as much as 8.9 percent and 8.4 percent respectively.

Taiwanese suppliers of the iPhone such as Genius (3406.TW), Pegatron (4938.TW) and Hon Hai (2317.TW) were also deep in red.

“Market participants are gradually thinking that this technology stocks boom is going to end before long,” said Yoshinori Shigemi, Japan-based global market strategist at JPMorgan Asset Management.

“We are suggesting our clients to shift from any technology stocks to quality names, stocks with high return-on-equity and low leverage,” Shigemi said without naming any shares.

The Asia ex-Japan index is now down nearly 17 percent this year, after a solid 33.5 percent gain in 2017, with October the worst month since mid-2015.

Investor sentiment has also been dented by the deepening trade battle between the United States and China, with Asian emerging markets suffering their largest monthly foreign outflows last month since August 2011, according to Khoon Goh, Singapore-based head of Asia research for ANZ Banking Group.

Funds returned over the early part of November on hopes that U.S.-China tensions would ease, Goh added, with the focus on this month’s Trump-Xi meeting.

“The outcome of the meeting will have an important influence on portfolio flows in Asia into the end of the year,” Goh added.

Saudi Arabia says need for 1 mln bpd cut in oil
Risk assets including Asian equities have also been hurt by rising U.S. interest rates. The Federal Reserve is expected to tighten policy further in December.

In Europe, fears that Britain could crash out of the European Union without a Brexit deal and a growing rift over Italy’s budget hit the euro and the pound, pushing the dollar’s index .DXY to 97.693 against a basket of currencies, a level not seen since mid 2017. It was last flat at 97.5.

The euro EUR= was slightly firmer at $1.1240 after breaking below important chart support of $1.13.

The Italian government is facing a Tuesday deadline for it to submit a revised budget to the EU.

Sterling GBP= fell to $1.2825 as three straight sessions of losses took it to the lowest since Nov.1. There were still considerable unresolved issues with the EU over Brexit, British Prime Minister Theresa May said on Monday.

It was last up 0.2 percent at $1.2875.

Oil prices hovered near multi-month lows after declining for a record 11th consecutive session amid softening demand and as Trump said he hoped there would be no oil output reductions.

U.S. crude skidded 78 cents to $59.15 a barrel. Brent crude futures fell 68 cents to $69.44.

Spot gold XAU= was 0.3 percent firmer at $1,204.3 per ounce.

Reporting by Swati Pande

Monday, 12 November 2018

Dollar nears 16-month high, sterling hit by Brexit uncertainty

The Fed has reaffirmed its plan to raise interest rates by 25 basis points in December, followed by two more potential rate hikes by mid-2019 on the back of an upbeat economy and rising wage pressures.

The greenback has also benefited from a broader move away from riskier assets due to U.S.-Sino trade tensions, China’s economic slowdown, Brexit uncertainty, and the standoff between Rome and the European Union over Italy’s plan for a big-spending budget and wide fiscal deficit.

The dollar index against other major currencies edged up 0.1 percent on Monday to 97.02, just below its 16-month high of 97.2 hit on Oct. 31. The dollar index has strengthened four weeks in row, gaining 0.4 percent last week.

“The dollar index was firm all last week, bouncing back after the (U.S.) mid-term election results. Looking ahead, moves will be driven by the developments around the Italian budget and Brexit politics,” said Sim Moh Siong, currency strategist at Bank of Singapore.

The dollar gained 0.1 percent on the Japanese yen which quoted at 113.98 on Monday, near a 6-week low of 114.08. The dollar has been preferred over the yen because of the diverging monetary policies of the Fed and the Bank of Japan.

While the Fed is on track to raise interest rates, the BOJ is expected to keep its monetary policy ultra-loose in the face of slow growth and inflation.

The widening interest rate differential between U.S. and Japanese bonds has made the dollar a more attractive bet than the yen, which is often used as a funding currency for carry trades.

The British pound lost 0.25 percent to $1.2941 amid increasingly fraught tensions within British Prime Minister Theresa May’s government over whether she can produce an orderly exit plan from the European Union.

With less than five months before Britain is due to leave the EU on March 29, negotiations are still stuck over a backup plan for the land border between British-ruled Northern Ireland and EU member Ireland, should they fail to clinch a long-term deal.

Four British ministers who back remaining in the European Union are on the verge of quitting Theresa May’s government over Brexit, the Sunday Times reported, adding to the political uncertainty.

“Eventually, the EU and May will come to a deal. Both parties want to conclude the deal, but the only risk is whether May will still be prime minister. I expect sterling to remain choppy in its recent wide range,” added Sim Moh Siong.

The euro traded at $1.1329 on Monday, down 0.05 percent. The single currency lost ground versus the dollar in the previous three trading sessions as investor confidence weakened due to the standoff over Italy’s budget.

Alibaba hits record sales on Singles' Day
The European Commission rejected Italy’s 2019 budget last month, saying it flouted a previous commitment to lower the country’s deficit. The EU gave Rome until Tuesday to present a revised version of the budget.

The EU also cut its forecasts for Italian growth last week, adding to investor concerns over Italy’s debts and economic outlook.

The Australian dollar gained 0.1 percent versus the greenback to $0.7232. The Aussie has rallied more than 3 percent in the last two weeks on the back of stronger than expected trade data and a less dovish Reserve Bank of Australia.

Reporting by Vatsal Srivastava

Asia stocks lower amid growth worries; oil rebounds

SHANGHAI (Reuters) - Asian shares drifted lower on Monday as signs of softening demand in China rekindled anxiety about the outlook for world growth, but Saudi Arabia’s plans to cut production helped to halt a slide in oil prices.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.07 percent, trimming earlier losses on a bounce in Chinese shares, but struggling to break into positive territory.Australian shares added 0.13 percent, while Japan’s Nikkei stock index gained 0.11 percent.

A combination of weak factory-gate inflation data in China and low oil prices weighed on global stocks on Friday, dragging MSCI’s gauge of global stocks to its worst day in two weeks. The index was last 0.09 percent lower.

Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets, said there were genuine concerns from an equity market perspective about China’s economic growth in general and its significant debt burden in particular.

“There’s no way the economy can really can get back on a nice recovery path unless they can seriously compress the debt significantly ... all this deleveraging we’ve been talking about hasn’t really delivered any results,” he said.

E-commerce giant Alibaba Group Holding Ltd added to the uncertain outlook in China, recording the slowest-ever annual growth in sales for its annual “Singles’ Day” event,.

Its sales outlook has weakened amid rising trade tensions between China and the United States that have taken a bite out of China’s economy.

An index tracking consumer staples firms in China was 0.95 percent lower, even as the blue-chip CSI300 index rebounded from last week’s string of losses to gain 0.68 percent.

Risk asset markets have been under intense pressure of late as fears of a peak in earnings growth added to anxiety about slowing global trade and investment.

A spike in U.S. bond yields, driven by the Federal Reserve’s commitment to keep raising borrowing costs, has also shaken emerging markets as investors poured money into U.S. dollar assets.

The Dow Jones Industrial Average fell 0.77 percent on Friday, the S&P 500 lost 0.92 percent and the Nasdaq Composite dropped 1.65 percent.

The yield on benchmark U.S. 10-year Treasury bonds closed at 3.189 percent on Friday.

The Wall Street losses came after the Fed held rates steady earlier in the week but stayed on track to tighten policy next month.

The Fed’s stance disappointed some investors who had hoped that October’s rout in equities might have prompted policy makers to take a more cautious approach on interest rates.

“Markets are pricing in a 25bp hike in December, with data flow suggesting pipeline inflation pressures are building,” analysts at ANZ said in a morning note.

Taking some pressure off a sharp drop in oil prices last week, Saudi Arabia’s energy minister said on Sunday that Riyadh plans to reduce its oil supply to world markets by 500,000 barrels per day in December, a global reduction of about 0.5 percent.

That helped to lift oil prices on Monday, with U.S. crude rising 1.08 percent to $60.84 a barrel and Brent crude gaining 1.34 percent to $71.12 per barrel.

However, Saudi Arabia’s supply cut may prove to be a temporary solution to falling prices as global growth slows, with two of the world’s biggest economies - Germany and Japan - expected to report a contraction in output in coming days.

“Supply-side surprises appear to be the main culprit, but concern that global demand is slowing may also be creeping into markets and weighing on risk appetite,” the ANZ analysts said.

In currency markets, the dollar rose 0.18 percent against the yen to 114.03, and the euro was down 0.11 percent on the day at $1.1322.

The dollar index, which tracks the greenback against a basket of six major rivals, was up 0.12 percent at 97.022.

Alibaba hits record sales on Singles' Day
The British pound was off 0.35 percent to fetch $1.2929. Sterling has been under pressure over the past few weeks as investors worried over whether an orderly Brexit deal would be achieved.

Spot gold gained 0.07 percent to $1,210.09 per ounce.

Reporting by Andrew Galbraith

Sunday, 11 November 2018

Strong U.S. economy, weaker stocks boost dollar

NEW YORK (Reuters) - The U.S. dollar rose toward a 16-month high against the euro on Friday as falling equity prices spurred a flight to quality and the U.S. Federal Reserve reaffirmed its monetary tightening stance, citing the strong U.S. economy.

The S&P 500 fell more than 1 percent, with shares of large technology, industrial and material companies taking a hit as weak Chinese data and a slide in oil prices raised concerns about global growth.

Against the backdrop of a multi-billion dollar trade dispute between Washington and Beijing, Chinese data showed producer inflation fell for the fourth straight month in October on cooling domestic demand and manufacturing activity, while car sales fell for a fourth consecutive month.

“(Chinese officials) look distressed - they don’t have the kind of control we’re used to assuming authorities driving an economy at 6-7 percent a year do. That’s putting pressure on the Aussie, Kiwi and feeding into a strong dollar and yen,” said David Gilmore, partner at FX Analytics.

Equities also fell after the Fed on Thursday reaffirmed its plans to hike interest rates in December and beyond.

The greenback had fallen broadly following U.S. congressional elections on Tuesday on expectations that the outcome would make further fiscal stimulus measures unlikely. But the currency bounced back, and on Friday returned to outperforming most major currencies, underpinned by the robust U.S. economy and rising interest rates.

“We’re wary of selling the dollar too soon, because the Fed is still hiking rates into a tightening labour market and trade tensions haven’t gone away,” said Kit Juckes, chief FX Strategist at Societe Generale.

The dollar has benefited as rising U.S.-China trade tensions boosted demand for safe-haven investments, pushing the offshore Chinese yuan toward 7 per dollar and the euro toward $1.13.

In Japan, where interest rates are expected to stay extremely low, the yen is near a five-week low against the dollar, last at 113.75 yen, and has fallen 1.6 percent over the last 10 trading sessions.

The dollar index, which tracks the currency against six major peers, traded as high as 97.01 on Friday, not far from a 16-month peak of 97.2 touched on Oct. 31.

What sanctions? Oil sinks into bear market
The euro last traded at $1.133, down 0.26 percent.

Sterling extended its losses on Friday after Jo Johnson, a junior transport minister, resigned from UK Prime Minister Theresa May’s government, citing her “delusional” Brexit plans, and called for another referendum on Britain’s EU membership. The currency was down 0.54 percent at $1.297 from around $1.304 before the announcement from Johnson.

On Friday afternoon the Mexican peso strengthened by 0.3 percent to 20.13 versus the dollar after the country’s President-elect, Lopez Obrador, said he would make no changes to the legal framework of the financial sector.

Reporting by Kate Duguid and Tom Finn

Friday, 9 November 2018

Dollar rises toward 16-month high after hawkish Fed guidance

LONDON (Reuters) - The dollar rose towards a 16-month high on Friday after the U.S. Federal Reserve kept interest rates steady and reaffirmed its monetary tightening stance, cueing up investors for a rate hike in December.

The greenback fell sharply following U.S. midterm elections on Tuesday on expectations that the outcome of the vote would make further fiscal stimulus measures unlikely.

But the dollar bounced back and on Friday returned to outperforming most major currencies, underpinned by the robust U.S. economy and rising interest rates.

“We’re wary of selling the dollar too soon, because the Fed is still hiking rates into a tightening labor market and trade tensions haven’t gone away,” said Kit Juckes, chief FX Strategist at Societe Generale.

“The U.S.-Chinese wars of words go on, and the idea that a trade deal is almost done and will be rubber-stamped (at the G20) in Buenos Aires seems very optimistic.”

The Fed is widely expected to raise interest rates in December, which would be its fourth hike this year.

Renewed strength in the dollar - which tends to appreciate from trade war tensions by acting as a safe haven - is pushing the Chinese yuan towards 7 per dollar CNH=D3 and has seen the euro slip towards $1.13.

In foreign exchange markets, investor focus is shifting back to the divergence between the monetary policies of the United States and other major economies.

In Japan, where interest rates are seen staying extremely low, the yen JPY=D3 is near a five-week low against the dollar and has fallen 2.2 percent over the last 10 trading sessions.

On Friday, though, the yen reversed course to trade up 0.2 percent at 111.86.

The dollar index .DXY, a gauge of its performance against six major peers, traded at a one-week high at 96.89, not far from a 16-month high of 97.2 brushed on Oct 31.

The euro EUR= traded at $1.1343, losing 0.2 percent after falling sharply on Thursday.

The European Commission forecast that the Italian economy would grow more slowly than Rome thinks in the next two years, leading to much bigger budget deficits than assumed by the government.

Markets surge after U.S. midterms
A standoff between the EU and Rome over the budget deficit and concerns over the bloc’s slowing economic growth have dragged on the euro, which has fallen 4.2 percent versus the dollar over the last six months.

The pound GBP=D3 changed hands at $1.3015, down 0.4 percent.

The British currency has benefited recently from growing investor expectations that Britain is close to reaching a deal with the EU, less than five months before it is due to exit the bloc.

The Australian dollar AUD=D3 lost 0.2 percent to trade at $0.7241. It tends to struggle when sentiment towards China - Australia's largest trade partner - weakens.

Reference: Tom Finn

Asia stocks retreat from one-month high as Fed tempers rally

TOKYO (Reuters) - Asian stocks pulled back from a one-month high on Friday as the Federal Reserve looked set to deliver another interest rate hike next month, paring gains made earlier this week after U.S. midterm elections triggered a global equities rally.

Spreadbetters expected European stocks to follow Asia's lead and open lower, with Britain's FTSE .FTSE losing 0.45 percent, Germany's DAX .GDAXI slipping 0.3 percent and France's CAC .FCHI dipping 0.15 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 1.3 percent and was headed for a loss of more than 1 percent for the week. On Thursday, the index hit its highest level since Oct. 8.

Hong Kong's Hang Seng .HSI lost 2.4 percent and the Shanghai Composite Index .SSEC fell 1.2 percent.

Australian stocks slipped 0.1 percent, South Korea's KOSPI .KS11 edged down 0.05 percent and Japan's Nikkei .N225 shed 1.05 percent.

The Fed held interest rates steady on Thursday but remained on track to continue gradually raising borrowing costs, pointing to healthy economic prospects that were marred only by a dip in the growth of business investment.

The central bank has hiked U.S. interest rates three times this year and is widely expected to do so again next month.

The S&P 500 .SPX lost 0.25 percent and the Nasdaq .IXIC shed 0.53 percent on Thursday after the Fed's statement, and energy stocks were the biggest drag on the S&P as U.S. crude oil prices fell.

Wall Street shares spiked midweek following the U.S. midterm elections, on a relief rally as the vote did not deviate significantly from investor expectations.

“The Fed meeting outcome and its statement did not produce major surprises, but it managed to reinforce views that a rate hike is coming in December and this tempered equities,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The Fed statement came after a steep surge in equities and gave the markets an opportunity to sell into the rally.”

In currency markets, the dollar stood tall after advancing against its peers overnight, buoyed by higher Treasury yields and the Fed’s intent to continue tightening monetary policy.

The dollar traded at 113.925 yen JPY= after brushing a five-week high of 114.09 overnight.

The euro dipped 0.15 percent to $1.1346 EUR= after shedding 0.55 percent the previous day.

The euro’s and yen’s declined helped the dollar index against a basket of six major currencies .DXY gain 0.75 percent on Thursday. It last stood little changed at 96.764.

After the Fed statement, the two-year Treasury yield US2YT=RR rose to 2.977 percent, the highest in 10-1/2 years.

China's yuan slipped to an eight-day low of 6.9497 per dollar in onshore trade, highlighting the diverging monetary policy outlooks for China and the United States.

The U.S.-China trade row also remained in focus.

“Trump’s administration will likely maintain a hawkish stance towards China, even though the Republicans lost the House during the midterm elections,” wrote Raymond Yeung, ANZ’s chief economist for greater China.

Crude oil prices struggled near eight-month lows as investors focused on swelling global crude supply, which is increasing faster than many had expected.

The market took stock of record U.S. crude production and signals from Iraq, Abu Dhabi and Indonesia that output will grow more quickly than expected in 2019.

U.S. crude futures were down 0.08 percent at $60.62 per barrel after falling to $60.40 the previous day, the lowest since March 14.

Markets surge after U.S. midterms
Three-month copper on the London Metal Exchange fell 0.5 percent to $6,122.5 a ton.

Copper fell 2.5 percent this week, poised for its biggest weekly loss since mid-August, pressured by a stronger greenback, which makes it more costly for non-U.S. buyers of dollar-denominated commodities.

Reported by: Shinichi Saoshiro

Dollar supported by hawkish Fed, yen bounces after hitting five-week low

SINGAPORE (Reuters) - The dollar gained versus the euro and sterling on Friday as the U.S. Federal Reserve kept interest rates steady but reaffirmed its monetary tightening stance, setting the stage for a rate hike in December.

In foreign exchange markets, investor focus is now shifting back to the divergence between the monetary policies of the United States and other major economies, such as Japan where interest rates are seen staying extremely low. The yen, as a result, remains near a five-week low against the dollar.

The dollar index .DXY, a gauge of its performance against six major peers, traded at a fresh one-week high at 96.75.

“The Fed looks set to raise rates in December. They have been largely unfazed by the equity market correction in October,” said Ray Attrill, head of currency strategy at NAB.

Attrill added that the dollar strength also follows a weak euro and a jittery sterling over the last few trading sessions.

The Fed has raised its key policy rate three times this year, and the market expects another rate hike in December on the back of a robust U.S. economy, rising inflation and solid jobs growth.

According to the CME group’s FedWatch tool, the likelihood of the Fed raising rates by another 25 basis points in December is 75 percent.

Analysts are also expecting more rate hikes by the Fed next year.

“We anticipate two more hikes in 2019: one in March and one in June,” Kevin Logan, chief U.S. economist at HSBC, said in a note.

The yen JPY= reversed course after hitting a five-week low versus the dollar to trade at 111.86 on Friday.

The dollar has gained 2.24 percent versus the yen over the last 10 trading sessions due to the diverging monetary policies of the Fed and the Bank of Japan.

While the Fed is on track to raise interest rates, the BOJ is expected to keep its ultra loose monetary policy due to low growth and inflation.

The widening interest rate differential between U.S. and Japanese bonds has made the dollar a more attractive bet than the yen, which is often a funding currency for carry trades.

Meanwhile, the euro EUR= traded at $1.1342 on Friday, losing 0.18 percent versus the greenback. The single currency fell 0.54 percent on Thursday as traders reacted to negative news out of Europe.

The European Commission forecast on Thursday that the Italian economy would grow more slowly than Rome thinks in the next two years, leading to much bigger budget deficits than assumed by the new government.

The standoff between the EU and Rome over Italy’s budget deficit and concerns over Europe’s slowing economic growth have dragged the euro which has fallen 4.2 percent versus the dollar over the last six months.

Markets surge after U.S. midterms
The British pound GBP= changed hands at $1.3049 on Friday, trading marginally lower versus the dollar. Sterling has gained 2.3 percent against the dollar in November.

The pound has benefited from growing investor expectations that Britain is close to reaching a deal with the European Union, less than five months before it is due to exit the bloc.

The Australian dollar AUD= lost 0.21 percent to trade at $0.7241 as sentiment was dampened by worries about rising U.S.-Sino trade war tensions. China is Australia's largest trade partner and a weakening of sentiment toward China does not bode well for the Aussie dollar.

Reporting by Vatsal Srivastava

Thursday, 8 November 2018

U.S. political gridlock may create investment opportunity

NEW YORK (Reuters) - Investors hope the split between Republicans and Democrats controlling the U.S. Congress will open up opportunities to pick new winners and losers because some government policies will be harder to predict.

Correlations between stocks and sectors were high in the run-up to Tuesday’s congressional elections, meaning investors have been either dumping or buying all kinds of unrelated stocks at once. Some funds have been damaged in what is a tough market to be a stock picker.

Now, with voters giving Democrats control of the House of Representatives and Republicans retaining their Senate majority, fund managers can take opposite sides of various policy bets.

These might include whether financials will benefit from deregulation even with stricter House oversight, if healthcare will face more policy proposals aimed at restraining costs, and whether military spending will get caught in a tussle between the two parties.

“If we are in a generally volatile environment but one that’s not overly negative, in other words a choppy market as opposed to a bear market, I think that’s an environment where correlations can fall,” said Evan Brown, head of macro asset allocation strategy at UBS AG’s asset management business.

“There’s potential for sector out-performance and under-performance as a result of the election.”

President Donald Trump told reporters on Wednesday that he was willing to work with Democrats on some policy priorities.

Issues that could gather bipartisan support include a package to improve infrastructure, protections against prescription drug price increases and a push to rebalance trade with China.

Stocks rallied on Wednesday, but one Cboe S&P 500 Implied Correlation Index .ICJ was down more than 9 percent and another .JCJ was flat.

Correlations between stocks and sectors bottomed in September but spiked in October. Even more damaging: bonds and stocks moved in tandem, with both down for the month for only the 12th time since the March 2009 dawn of the U.S. bull market.

The October selloff was driven by macroeconomic concerns tied to the U.S. Federal Reserve, tariffs and inflation and hit active fund managers badly. U.S. large-cap active mutual fund managers posted their worst results versus their benchmark since September 2011, according to Bank of America Corp data.

More conflict in policy decisions could mean those factors drive stocks more than macroeconomic developments.

For instance, investors are bidding up sand and gravel suppliers Martin Marietta Materials Inc (MLM.N) and Vulcan Materials Co (VMC.N) on the hope that bipartisan support for infrastructure spending can move forward. But ValueWorks LLC founder Charles Lemonides said he is trimming his stake in the stocks as they begin to reflect too much optimism.

“We think there is a lot of opportunity for people who are willing to do the hard work of investing, which is find individual investments that make sense,” said Lemonides.

Macro forces might be less relevant than assumed in the short run. The meeting expected at the end of the month between Trump and Chinese President Xi Jinping could yield hopeful words but no firm commitments to resolve trade issues.

The U.S. Federal Reserve could raise rates as expected in December while striking a tone that keeps markets calm. Both concerns - trade war and monetary policy tightening - may end up being left until 2019.

So long as markets focus on more parochial issues instead of trade and monetary policy the implications for stocks could be positive going into next year, investors said.

Wall Street surges after midterm vote
Low correlations between stocks typically also mean lower volatility for the market overall. It was such a benign scenario that helped stocks weather the uncertainty of a new Trump administration in 2017.

Of course headlines on trade, monetary policy or an unexpected macro issue could upset the rosy outlook, keeping correlations high. Global earnings and economic growth could peak.

Policymakers, even those in the same party, could be so at odds that they make no policy changes. Republicans who have controlled the White House and Congress since January 2017 surprised investors by failing to replace the Affordable Care Act even though it was a campaign promise.

That makes oddsmaking hard now on a range of issues, from repealing a medical device tax to passing a budget or loosening regulations on banks. Each event could matter at the sector level, but are not likely to determine the course of the market overall. U.S. tariffs in place will start to bite companies and industries, adding new relevance to stock and sector picks.

And the aggressive monetary policy response to the 2007-2009 global financial crisis is wearing off, prompting differences between countries and allowing more defensive shares to gain in the United States, where they had once been eclipsed by technology names.

Liz Ann Sonders, chief investment strategist for Charles Schwab & Co Inc, said a market driven a broader range of stocks could help more people stay invested.

“Diversification has been a hard sell.”

Reporting by Trevor Hunnicutt

Big investors sue 16 banks in U.S. over currency market rigging

NEW YORK (Reuters) - A group of large institutional investors including BlackRock Inc and Allianz SE’s Pacific Investment Management Co has sued 16 major banks, accusing them of rigging prices in the roughly $5.1 trillion-a-day foreign exchange market.

The lawsuit was filed on Wednesday in the U.S. District Court in Manhattan by plaintiffs that decided to “opt out” of similar nationwide litigation that has resulted in $2.31 billion (£1.76 billion) of settlements with 15 of the banks.

Those settlements followed worldwide regulatory probes that have led to more than $10 billion of fines for several banks, and the convictions or indictments of some traders.

The banks being sued are: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, Japan’s MUFG Bank, Royal Bank of Canada, Royal Bank of Scotland, Societe Generale, Standard Chartered and UBS.

Investors typically opt out of litigation when they hope to recover more by suing on their own.

The plaintiffs in Wednesday’s lawsuit accused the banks of violating U.S. antitrust law by conspiring from 2003 to 2013 to rig currency benchmarks including the WM/Reuters Closing Rates for their own benefit by sharing confidential orders and trading positions.

This manipulation was allegedly done through chat rooms with such names as “The Cartel,” “The Mafia” and “The Bandits’ Club,” through tactics with such names as “front running,” “banging the close,” “painting the screen” and “taking out the filth.”

“By colluding to manipulate FX prices, benchmarks, and bid/ask spreads, defendants restrained trade, decreased competition, and artificially increased prices, thereby injuring plaintiffs,” the 221-page complaint said.

Norway’s central bank Norges Bank and the big public pension fund California State Teachers’ Retirement System (CalSTRS) are among the several other named plaintiffs.

Many of the plaintiffs plan to pursue similar litigation in London against many of the bank defendants with respect to trades in Europe, a footnote in the complaint said.

Markets surge after U.S. midterms
Citigroup’s $402 million settlement is the largest in the earlier litigation. Credit Suisse has yet to settle that case. Neither had an immediate comment on Wednesday’s lawsuit.

The law firm Quinn Emanuel Urquhart & Sullivan represents the opt-out investors.

The case is Allianz Global Investors GMBH et al v Bank of America Corp et al, U.S. District Court, Southern District of New York, No. 18-10364.

Reporting by Jonathan Stempel

Dollar rangebound as investors await Fed rate decision, yen trades with weak bias

SINGAPORE (Reuters) - The dollar traded in a narrow range on Thursday as markets settled after U.S. midterm election results came in as expected, leaving investors free to focus on a Federal Reserve’s policy decision later in the global day.

The central bank’s Federal Open Market Committee (FOMC) is expected to maintain the hawkish language seen in recent policy statements, while keeping interest rates unchanged this time.

The Fed has raised rates three times this year as the U.S. economy boomed and inflation started to pick up, and it has signalled a rate rise in December, with two more hikes by mid-2019.

“The dollar is likely to benefit as we still expect the Fed to maintain its hawkish stance. The U.S. economy needs rising rates as wage pressures are building and there is a risk of an overheating of the economy,” said Sim Moh Siong, currency strategist at Bank of Singapore.

The prospect of further Fed tightening helped the dollar recover against the euro and yen, having lost ground after the mid-term elections resulted in a split Congress, with Democrats winning control of the House of Representatives and Republicans cementing their majority in the Senate.

Expectations that the Washington will descend into gridlock has reduced President Donald Trump’s chances of pushing through a fiscal stimulus package.

The dollar index .DXY, a gauge of its value versus six major peers traded at 96.22 on Thursday, gaining 0.23 percent. The dollar strengthened 0.14 versus the yen to trade at 113.66 on Wednesday. The dollar has gained around 1.9 percent over the Japanese currency over the last nine trading sessions due to the diverging monetary policies of the U.S. Fed and the Bank of Japan (BoJ).

While the Fed is on track to raise interest rates the Bank of Japan will press on with ultra loose monetary policy because of low growth and inflation.

The widening interest rate differential between U.S. and Japanese bonds has made the dollar a more attractive bet than the yen, which is often a funding currency for carry trades.

The euro EUR= traded at $1.1429 on Thursday. The single currency had touched an intra-day high of $1.15 on Wednesday, due to dollar weakness rather than any substantial improvement in the euro zone's economic fundamentals.

Markets surge after U.S. midterms
The standoff between the EU and Rome over Italy’s budget deficit and concerns over Europe’s slowing economic growth have handicapped the euro, which has lost 4 percent versus the dollar over the last six months.

Elsewhere in the currency market, the pound traded flat at $1.3124 in early Asian trade after gaining 3.36 percent versus the dollar in the last six trading sessions, as traders bet a Brexit agreement was close.

The New Zealand dollar NZD= traded flat at $0.6776, with little reaction to its central bank keeping rates on hold at 1.75 percent on Thursday.

The Australian dollar AUD= built on its gains of the previous three trading sessions versus the greenback to trade at $0.7283, to gain 0.1 percent versus. The Aussie was cheered by stronger than expected trade data out of China, its largest trade partner.

Reporting by Vatsal Srivastava

Wednesday, 7 November 2018

Firepower for U.S. stocks may lose spark as Democrats gain clout

NEW YORK (Reuters) - The U.S. stock market may be facing the remainder of Donald Trump’s presidential term with the prospect of less juice to supercharge it.

Stock returns have been fueled the past year by Trump’s corporate tax cuts, which have pumped up profits. Yet, any hope of further fiscal stimulus in the form of more tax cuts faded with the results of Tuesday’s congressional elections, with Democrats taking control of the House of Representatives from Trump’s Republican party.

“The return to political gridlock in Washington will likely serve to temper growth expectations, or at least moderate the prospect of additional stimulative fiscal policy,” said Jon Hill, US Rates Strategist at BMO Capital Markets in New York.

The election comes as the market is also losing the low-rate monetary policy that has supported equities during its near decade-long bull run, as the Federal Reserve is raising interest rates to stave off inflation.

Without both fiscal and monetary stimulus, Wall Street performance will depend even more on fundamental factors at a time investors are looking for signs pointing to when the long economic expansion will finally end.

“This is really not a stock market that needs more fiscal stimulus and I think in order for the bull market to continue what it really needs is strong earnings in the face of what is likely to be increasing interest rates,” said Rick Meckler, partner at Cherry Lane Investments, in New Vernon, New Jersey.

Indeed, some investors may see a silver lining in the diminished prospects for more tax cuts, given concerns about the ballooning deficit and even higher interest rates.

“If the Republicans swept today, you would get more fiscal stimulus but that also would likely result in higher interest rates and the Fed moving potentially faster,” said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta. “So beyond the initial positive reaction, my sense is that there would be some offsets from higher interest rates.”

At the same time, the potential for some fiscal stimulus is still alive through an infrastructure spending package, an area where analysts say Trump and Democrats could find common ground and where an agreement could boost stocks, particularly shares in construction and materials companies.

Tuesday’s result of a split Congress, with Republicans keeping control of the Senate, was the most likely scenario projected by polling data and prediction markets ahead of the elections, and had been anticipated by investors.

Immediate market moves to the news may be misleading. Two years ago, stocks futures plunged when it became clear that Trump would win the presidency, only for them to reverse course within hours.

Stock market gains this year may indeed continue - stocks historically have climbed following midterm elections. For the two calendar years following each national U.S. election, the S&P 500 had a mean annual increase of 12 percent under Republican-controlled governments, compared to an increase of 9 percent for Democratic-controlled governments and a 7 percent rise for gridlocked governments.

Yet replicating the lofty returns of Trump’s first half of his term - the stock market is up 29 percent since his election - may prove elusive.

Democratic control of the House makes the prospect of a new tax-cut package, following the recent steep cut in the U.S. corporate tax rate, appear less likely. Trump has been seeking a 10 percent middle-class tax cut while making permanent individual tax cuts from his 2017 tax overhaul.

The change in House control could bring other challenges for the market.

Trump’s favoring of light regulations for banks and other industries has created a climate that investors say has helped stocks. A Democratic-led House could bring greater oversight on industries such as pharmaceuticals and banks.

With fresh oversight power, Democrats could inspect nearly every aspect of Trump’s presidency from his long-elusive tax returns to possible business ties with Russia and conflicts of interest. In the event the House attempts to impeach Trump, history suggests market volatility could spike, at least in the short term, according to OppenheimerFunds.

But, on the positive side for stocks, analysts doubt Democrats would be able to roll back the heart of the market-friendly changes, including the corporate tax cuts.

The Democrats’ victory in the House could also benefit the market, some investors have said, by tempering Trump’s aims such as on international trade.

Any pressure on stocks could be less severe because the stock market already endured a steep pullback in October from record highs, which some investors in part attribute to jitters over uncertainty about the election.

And some investors will be happy just to move on from the elections.

Two years in, Trump holds stock market bragging rights
“It’s one less thing that’s in front of you that you have to worry about,” said Walter Todd, chief investment officer at Greenwood Capital in Greenwood, South Carolina.

Reference: Lewis Krauskopf

Sterling rallies on report of Brexit November timetable

LONDON (Reuters) - Sterling rose for a third consecutive day on Wednesday, buoyed by a BBC report that Britain is preparing for a Brexit agreement by the end of November.

The pound has benefited from growing hope among investors that Britain is close to reaching a deal with the European Union less than five months before it leaves the bloc.

A 3 percent rally in the currency over the last week comes despite unresolved differences over the Irish border.

It is unclear if an agreement on that issue can be reached in time to hold an emergency summit of EU leaders in November to sign off on a deal.

Against the dollar, the pound hit a two-week high of $1.3144. It traded flat against the euro at 87.26 pence.

Opposition within Prime Minister Theresa May’s Conservative party and parliament has made investors wary of betting big on the pound.

“Overall the market is banking quite clearly on a deal but to me things look less optimistic than current GBP levels illustrate,” said Ulrich Leuchtmann, an FX strategist at Commerzbank in Frankfurt. “Time is running out. In view of the current mess I consider sterling at its current level (of $1.31) to be unattractive.”

Headlines on the progress of Brexit talks have made the pound increasingly jumpy. Implied volatility on one-month pound options, a gauge of expected swings in the British currency, is at its highest levels since February.

Some unwinding of short positions has also helped sterling. While net shorts have shrunk slightly from more than two-year highs in September, they remain near historical highs.

The currency has faltered in seven of the 10 months of this year so far, losing as much as 3.6 percent.

Stocks rally peters out as trade, Fed worries dominate
Britain and the EU both wish to keep the border between EU-member Ireland and the UK province of Northern Ireland free of frontier controls after Brexit. This is seen as crucial to the 1998 Good Friday peace accord that ended decades of sectarian bloodshed in Northern Ireland.

The BBC reported on Tuesday that May planned to give a speech on Nov. 19 saying she had delivered on the referendum with a deal which brings the country back together.

But a spokesman at May’s Downing Street office dismissed the report in which the BBC cited a document entitled “Brexit Communications Grid Summary”.

Reference: Reuters

Dollar seesaws as investors assess risks of deadlock after midterms

SINGAPORE (Reuters) - The dollar seesawed versus the euro and yen in a volatile session as traders scanned U.S. midterm election results for early insights into the prospect of Congressional gridlock.

The Democratic Party is expected to win control of the U.S. House of Representatives, with the Republicans seen likely to keep their majority in the Senate.

A split Congress may hurt the dollar temporarily: a Democratic win in one or both chambers is likely to be seen as a repudiation of President Donald Trump and the policies which have boosted corporate growth.

“If Congress is split, with the Democrats controlling the House and Republicans the Senate, the prospect of legislative gridlock that would make it difficult for policies such as the President’s middle class tax cut to pass is negative for the U.S. dollar,” said Kathy Lien, managing director of currency strategy at BK Asset Management in a note.

The dollar index, a gauge of its value versus six major peers, lost 0.2 percent to trade at 96.12.

The greenback has outperformed most of its key rivals this year, benefiting from a robust domestic economy and higher interest rates, with investors focused on whether the mid-terms could disrupt this stellar run.

The dollar is also likely to be supported by minutes of the last Federal Open Market Committee (FOMC) meeting due out on Thursday, in which the Fed is seen likely to reaffirm its intention to lift its policy rate above 3 percent over the next year.

The euro gained marginally to trade at $1.1440 versus the dollar, off its intraday high of $1.1473. The single currency changed hands about 1.1 percent above this year’s trough of $1.1301 reached on Aug. 15.

The dollar lost 0.07 percent against the yen, to trade at 113.33. Earlier in the session, the yen had strengthened to 112.95.

The Australian dollar traded flat at $0.7246.

Stocks rally peters out as trade, Fed worries dominate
The pound was 0.22 percent higher versus the dollar at $1.3124. Earlier in the session sterling hit a three-week high of $1.3142.

Sterling slipped as low as $1.3023 on Tuesday before erasing its losses in volatile trade on growing hopes of a breakthrough Brexit deal.

Reference: Vatsal Srivastava and Daniel Leussink

Tuesday, 6 November 2018

Aussie, NZ dollars to stick to recent ranges near-term as headwinds persist

SYDNEY (Reuters) - Foreign exchange analysts broadly stuck to their predictions for the Australian and New Zealand dollars while expecting a small rebound for the badly battered currencies over a 12-month horizon.

A Reuters survey of 42 analysts saw median predictions for the Aussie at $0.7100 AUD=D3 on a one-month horizon, from $0.7200 in the previous poll and Monday's close of $0.7210.

Analysts marginally trimmed their projections for 3 and 6 months to $0.7200 and $0.7300 while the outlook for 12 months remained unchanged at $0.7500.

Such expectations come amid renewed downward pressure on the Australian currency, which has shed almost 8 percent since the start of the year to hit a 2-1/2 year trough of $0.7021 just last month.

The trade-exposed currency has been used by investors to wager on, or hedge against, tensions in emerging markets and the risks to the Chinese economy from U.S. tariffs.

A sudden surge in U.S. bond yields and hawkish commentary from the Federal Reserve has also driven the U.S. dollar higher more broadly. In contrast, the Reserve Bank of Australia (RBA) has repeatedly stated that its rates will remain at historic lows for some time to come.

Many analysts had long predicted a steep fall in the Aussie but the currency had found support from a run of strong local data and fund flows from carry trades. That was until the spectre of the Sino-U.S. trade war sent it falling to test 70 U.S. cents in recent weeks.

“The long awaited squeeze in the AUD is materializing,” said Daniel Been, head of FX Research at ANZ which has a bearish view on the Aussie.

“The domestic data flow is positive, but this is ...largely priced in. Importantly, the global environment continues to dominate moves, and we see a number of risk events ahead namely U.S.-China tension, Brexit, U.S. mid-term elections, that could take a toll on the Australian dollar.”

ANZ is among only a handful of analysts in the Reuters poll to forecast a fall under $0.7000. It sees the Aussie at $0.6900 in three months and $0.6800 in six.

For the kiwi, analysts staunchly held to their predictions for $0.6600 for one-, three- and six-months out and then a slight uptick to $0.6800 in a year’s time.

The currency was last trading at $0.6658 NZD=D4, above the $0.6481 seen in the previous poll.

The downside risk was perceived as greater, though, with forecasts stretching as low at $0.6081 on a six-month view.

The kiwi has lost about 6 percent of its value so far this year with a run of weaker-than-expected economic data including sagging business confidence weighing on the currency.

The Reserve Bank of New Zealand (RBNZ) has also signaled that the next move in rates could be a cut if economic indicators disappoint.

“The risk that soft New Zealand business confidence translates into weaker activity cannot be fully ignored, and this may encourage the RBNZ to sound more cautious, and undermine New Zealand dollar,” Joseph Capurso, currency strategist at Commonwealth Bank said.

Reference: Swati Pandey

Sterling rallies on hopes for a UK customs deal Brexit agreement

LONDON (Reuters) - The pound rallied on Monday after a report said Britain was nearing a deal for leaving the European Union and that an all-UK customs arrangement would be part of it.

The currency was lifted by the Sunday Times report over the weekend that said an all-UK customs deal will be written into the legally binding agreement governing Britain’s withdrawal from the European Union.

That would mean an Irish “backstop” deal to avoid a hard border between the British province of Northern Ireland and the Irish Republic, is not required, the Times reported. The issue has been the main stumbling bloc to London and Brussels agreeing a deal.

With talks at an impasse five months before Britain exits the European Union, investors are growing anxious and sterling is moving sharply on any news of a possible breakthrough.

The currency has faltered in seven of the 10 months of this year so far, losing as much as 3.6 percent.

At 1600 GMT it traded up half a percent versus the dollar near a 10-day high of $1.3065. Versus the euro it climbed to 87.33 pence, its highest since Oct. 11, trading up 0.4 percent on the day.

“We think EUR/GBP could be embarking on a sustainable bear trend – largely on the back of the deteriorating EUR outlook,” ING’s head of FX strategy Chris Turner said in a client note.

“Any news this week that the EU would hold a Brexit summit in November would be greeted positively,” he added.

The pound relinquished some of its gains after a report by The Sun newspaper said the prospective dates for an emergency summit to seal a deal had been pushed back to Nov. 27 or 28.

The currency also weakened, though only briefly, after a survey showed business activity in Britain’s dominant services sector slowed to a seven-month low last month.

Firms’ expectations for the coming year are the gloomiest since just after the 2016 Brexit vote, the survey said.

The pound enjoyed its best day of the year against the dollar on Thursday.

It was aided by optimism for a Brexit deal and after the Bank of England signalled more interest rate hikes could be on the way if Britain’s exit from the European Union is smooth.

Stocks rally peters out as trade, Fed worries dominate
An agreement with Brussels on the terms of divorce would remove a major uncertainty overshadowing the economy and the BoE as it tries to curb inflation.

The British government and EU officials have this week played down hopes for an imminent Brexit deal, emphasising that while an agreement is close the two sides still have work to do.

British Pound to Rise Regardless of Brexit "Soap Opera" say MBMG Group as Sterling Trades at Multi-Week Highs vs. Euro and U.S. Dollar

Difference between 'no deal' and negotiated Brexit actually marginal

- Pound-to-Euro exchange rate @ 1.444 today, Pound-to-Dollar rate @ 1.3052

Pound Sterling is a "buy on dips" candidate which is undervalued because the market is over-estimating the negative consequences of Brexit, according to Peter Gambles, co-founder and managing partner of advisory service MBMG Group.

Gambles views Brexit as a "soap opera" which is unlikely to result in any meaningful deterioration in the U.K. economy, even in the event of a 'hard Brexit'.

"Frankly, the difference between a soft-Brexit and even a no-deal Brexit is far more marginal than most of the scare stories that you read out there," says Gambles.

"If you look at the really independent analysis, actually Brexit doesn't make that much difference, whatever form it takes it doesn't make much difference," adds the MBMG managing partner, who says he is actively buying the currency on dips.

Reporting by Tom Finn and Joaquin Monfort