Thursday, 31 May 2018

Sterling rises from six-month lows as markets settle

LONDON (Reuters) - Sterling recovered on Wednesday from the previous day’s six-month low, as currencies stabilised after Italy’s political crisis sent shockwaves through global financial markets this week.

The British currency edged 0.1 percent higher at $1.3293 after falling to its lowest levels since Nov. 20 on Tuesday. But it weakened against the euro by half a percent, to 87.46 pence, thanks to a broad-based euro bounce.

Hopes that Italy could avoid a new election helped European markets recover from one of their worst sell-offs in years on Wednesday, though markets remained wary.

Data last week showed sterling were still vulnerable to any weak economic data, with markets pricing in about one interest rate increase through 2018.

May’s purchasing-manager index will offer some clues on how the economy is faring. A Reuters poll forecast the index would show growth moderated in April.

With monetary policy makers turning more cautious and data-dependent after a subdued first quarter, the PMI releases over the next two weeks deserve particular attention, Goldman Sachs strategists said in a note.

Currency derivatives tied to the outlook for sterling were trading near their lowest levels in nearly three months.

Risk reversals for sterling, a gauge of demand for options on a currency rising or falling, are holding near their lowest levels since early March, indicating that investors are looking to protect downside portfolio risk.

On a trade-weighted basis, sterling was trading at 78.73, not far from a two-month low of 78.53 hit earlier this month.

Reporting by Saikat Chatterjee

Asian stocks rebound, euro pulls off lows as anxiety over Italy recedes

TOKYO (Reuters) - Asian stocks rebounded from a two-month trough on Thursday and the euro enjoyed a respite after sinking to its lowest in 10 months as the political turmoil in Italy that roiled global financial markets showed signs of easing.

Spreadbetters expected European stocks to open slightly higher, with Britain's FTSE edging up 0.05 percent, Germany's DAX  adding 0.1 percent and France's CAC  rising 0.05 percent.

Hong Kong's Hang Seng rose 0.75 percent and the Shanghai Composite Index .SSEC gained 1.4 percent after news that growth in China's vast manufacturing sector accelerated strongly and well above forecasts in May to an eight-month high.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.6 percent after slumping on Wednesday to its weakest since early April.

South Korea's KOSPI added 0.5 percent and Japan's Nikkei advanced 0.8 percent.

Overnight, the Dow rose 1.25 percent and the S&P 500 climbed 1.27 percent.

Global stocks were battered, safe-haven government prices rose sharply, and the euro tumbled earlier in the week after Italy’s two anti-establishment parties scrapped plans to form a coalition.

That raised the prospect of a new general election, stoking fears such a vote would effectively be a referendum on Italy’s euro membership.

A degree of calm, however, returned with the two anti-establishment parties renewing efforts to form a coalition government rather than force Italy into holding elections for the second time this year.

“Experience shows that these ‘crises’ tend to settle down for long periods once the initial adjustment of market expectations has been effected,” Carl Weinberg, chief international economist at High Frequency Economics, wrote in a note to clients.

A successful auction of five- and 10-year government bonds also assuaged concerns about Italy’s ability to finance itself after the turbulence in its debt market sparked the biggest one-day spike in two-year bond yields in 26 years. Bond yields rise as prices fall.

“The financial markets have been able to assess and digest the situation in Italy over the past few days and it is now time for a bit of a reprieve from the turbulence,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The reprieve will allow the markets to return their focus back on fundamentals, such as Friday’s U.S. non-farm jobs report.”

The euro stood little changed at $1.1664 EUR= after rallying 1 percent the previous day. The currency had sunk to $1.1510 on Tuesday, its lowest since late July 2017.

The dollar index against a basket of six major currencies dipped 0.1 percent to 94.055 after surging to a near seven-month peak of 95.025 on Tuesday.

The U.S. currency traded at 108.780 yen JPY=, off a low of 108.115 brushed on Tuesday when risk aversion in the broader markets increased investor demand for yen, which is often sought in times of market unrest.

The dollar received some support as signs of an easing in Italy’s political crisis pulled U.S. Treasury yields up from multi-week lows.

The 10-year Treasury note yield stood at 2.849 percent after declining on Tuesday to 2.759 percent, its lowest since April 11.

Crude oil prices eased after rallying overnight.

U.S. crude futures fell 0.18 percent to $68.09 a barrel after gaining 2.2 percent on Wednesday when Russia’s central bank expressed caution on plans to boost oil supply.Prices fell to a six-week low of $65.80 a barrel on Tuesday amid concerns that Saudi Arabia and Russia might increase their output.

Brent crude lost 0.35 percent to $77.23 a barrel after jumping 2.8 percent on Wednesday.

Reporting by Shinichi Saoshiro

Wednesday, 30 May 2018

World stocks fall for sixth day but Italy, euro in mini-bounce

LONDON (Reuters) - Italy’s political crisis and renewed trade war fears sent world stocks lower for the sixth day in a row, though hopes that Italy could avoid a new election helped European markets stage a mini-bounce from one of their worst selloffs in years.

Investors have in recent days scurried for assets such as U.S. and German bonds or the Japanese yen, spooked by the possibility that Italy, the third-biggest euro zone economy, could deliver a bigger boost to eurosceptic parties in a snap election that sources said could be held by end-July.

An election at this point would also be a de facto referendum on Italy’s euro membership, evoking memories of the 2011-2012 euro debt crisis and carrying huge implications for the single currency, whatever its outcome.

However, reports that the two anti-establishment parties were again renewing efforts to form a government rather than force the country back to the polls, helped Milan-listed equities snap a five-day losing streak.

Similarly, short-dated Italian bond yields - a sensitive gauge of political risk - fell almost half a percent from half-decade highs after suffering their worst day in nearly 26 years on Tuesday.

A pan-European equity index was flat on the day after falling almost 4 percent in the past five days.

Barclays investment strategist Hao Ran Wee said that while risks from Italy for world markets had certainly risen, there were significant hurdles for the country to sharply increase spending or exit the euro zone.

“It’s questionable how credible Italy’s threat of leaving the EU actually is, if push comes to shove ... As a result, we think the repeat of a 2012-style euro crisis remains a small possibility,” Wee said, adding he remained optimistic on euro zone economic growth and regional equity markets.

Japan’s biggest private life insurance firm, Nippon Life, which holds some 4.8 trillion yen ($44.21 billion) worth of euro zone bonds, also said it had no plans for now to buy or sell its Italian debt holdings.

Equity futures signalled a stronger open on Wall Street, after Tuesday's harsh session which saw all three U.S. indexes lose between 0.5-1.2 percent, led by financial sector stocks.

Asian markets however remained under pressure, with an index of non-Japanese Asian stocks .MIAPJ00000PUS, hurt also by news that the United States was pressing ahead with tariffs and restrictions on investments by Chinese companies. Beijing meanwhile said it was ready to fight back if Washington ignited a trade war.

Japan's Nikkei sold off 1.5 percent to a six-week low while Shanghai shares .SSEC also dropped 1.4 percent. Trade-sensitive emerging equities fell 1.2 percent to 5-1/2-month lows.

“Overall, this (U.S.) move puts a trade war scenario back on the agenda,” Rabobank analysts told clients.

Emerging markets are also suffering from the dollar's renewed surge since mid-April, with Indonesia raising interest rates for the second time in two weeks to support the rupiah currency.

The politics and fears of an economic hit across the euro zone has driven investors into U.S. Treasuries and German Bunds pushing yields 15-20 basis points lower They have also fuelled a sharp rise in the yen and Swiss franc, especially against the euro.

The euro attempted to bounce off 10-month lows against the dollar rising 0.5 percent to $1.160, while against the Swiss franc and yen it firmed around 0.3 percent.

“The risk to the euro is predominantly political in the near term,” Alvin Tan, a currency strategist at Societe Generale, said, adding the euro would likely stay capped at $1.15 or $1.16 until the Italian political crisis was resolved.

U.S. 10-year Treasury yields rose 6.5 basis points to 2.83 percent while German yields rose around 5 basis points.

Oil prices meanwhile struggled as expectations grew that Saudi Arabia and Russia would pump more oil to counter potential supply shortfalls from Venezuela and Iran, even as U.S. output has surged in recent years.

Brent futures traded around $75.50 per barrel, well off recent 3-1/2-year highs above $80.

Reporting by Sujata Rao

Sterling falls to lowest against dollar since November

LONDON (Reuters) - The pound fell to a six-month low against a rallying dollar on Tuesday, while it held its own against a euro dragged down by concerns about a deepening political crisis in Italy.

Sterling has slumped against the dollar since mid-April as expectations of a Bank of England interest rate rise recede and the economy shows signs of prolonged weakness.

Renewed concerns about whether Britain can secure the Brexit deal it wants have also impacted the currency.

Against the dollar, the pound slid as much as 0.7 percent to $1.3205, its weakest since mid-November. The British currency, previously one of the best performers in 2018, is now down more than 2 percent versus the dollar so far this year.

“We can ascribe a lot of it (pound weakness) to the U.S. dollar but I think sterling has been on the back foot independently,” said Jane Foley, an FX strategist at Rabobank, citing relatively downbeat UK retail sales and inflation data published last week.

Investors are only pricing in a one-in-three chance of the Bank of England raising borrowing costs in August, the next time it updates its economic forecasts.

“There is nothing in there to restore confidence in the BoE’s ability to raise rates,” Foley said.

David Madden, an analyst at CMC Markets, said the pound remained “in its downward trend” and pointed to $1.32 as a key target.

Versus the euro, sterling has performed much better, and at GMT 1515 on Tuesday traded up 0.3 percent at 87.12 pence per euro.

Worries about divisions within the British government about whether it wants to remain in a customs union with the European Union after it leaves the EU in March 2019 have undermined sentiment towards the pound ahead of an EU summit in June.

However, the euro’s rapid descent - caused by investors buying into dollars and concerns about political uncertainty in Italy - have underpinned the pound and it remains up versus the single currency in 2018.

Reporting by Tommy Wilkes and Tom Finn

Euro stuck near 10-month lows as Italy's political crisis deepens

LONDON (Reuters) - The euro bounced higher on Wednesday but remained stuck near 10-month lows against the dollar as concerns about a deepening political crisis in Italy kept a lid on any rebound.

The failure to form a new government in the euro zone’s third-largest economy has raised the likelihood of an early election that some market players fear will become a de facto referendum on the single currency and Italy’s role in the European Union.

Sources close to some of Italy’s main parties said there was now a chance that President Sergio Mattarella could dissolve parliament in the coming days and send Italians back to the polls as early as July 29.

After major moves on Tuesday, when a massive sell-off in Italian debt markets rippled into currency markets, the foreign exchanges began European hours on a quieter note, with the dollar edging back slightly from its 2018 highs.

Italian government bond yields settled below multi-month highs after Tuesday’s market turmoil.

The euro, which plunged to a 10-month low of $1.1510 on Tuesday as Italian worries added to bearish sentiment around the single currency, rallied 0.3 percent to $1.1573 EUR= on Wednesday.

It has fallen more than 4 percent this month and most analysts remain cautious on its outlook.

“The risk to the euro is predominantly political in the near term,” said Alvin Tan, an FX strategist at Societe Generale, adding that the bank is confident that the euro is capped at $1.15 or $1.16 until the Italian political crisis is resolved.

The euro had dropped 1 percent against the safe-haven Swiss franc on Tuesday, its biggest daily fall since September, but it recovered half a percent to 1.1493 francs EURCHF= as some calm returned to markets.

It is down more than 4 percent this month, the biggest monthly decline since January 2015, when the Swiss central bank suddenly scrapped its floor for the euro against the Swiss currency.

Against the yen, the euro rose to 126.03 yen after hitting an 11-month low of 124.62 yen overnight, from about 131 yen a little more than a week ago.

“‘Don’t try to catch a falling knife’ is the phrase I heard very often today,” said Bart Wakabayashi, Tokyo branch manager at State Street Bank. “For the time being, we will just have to see how things develop.”

The dollar slipped by 0.2 percent against a basket of currencies to 94.631 but steaded against the yen. It had hit a five-week low of 108.115 yen the previous day as the risk-averse mood boosted the Japanese currency.

Investors are also wary of an escalation in trade frictions between the United States and China after the White House said that it still holds the threat of imposing tariffs on $50 billion of imports from China.

Washington said it will use it unless Beijing addresses the issue of theft of American intellectual property.

U.S. bond yields have fallen over the past couple of days, undermining the dollar’s yield attraction and a key reason for the currency’s rapid turnaround in the last month.

Reporting by Hideyuki Sano and Tommy Wilkes

Tuesday, 29 May 2018

Trump giving Japan's Abe a hard time on trade despite close ties

TOKYO (Reuters) - Tariffs on steel, threats of car import levies and intense pressure for a two-way economic deal: despite warm personal ties, U.S. President Donald Trump is giving Japanese Prime Minister Shinzo Abe a decidedly tough time on trade.

Trump has also withdrawn from a multilateral Trans-Pacific Partnership (TPP) promoted by Abe as a counterweight to China, abandoned a climate change accord backed by Tokyo and is pursuing talks with North Korean leader Kim Jong Un notwithstanding Abe’s warnings about past mistakes.

Since Trump was elected, the two leaders have met nine times, shared burgers, played golf three times and spoken nearly two-dozen times by phone. In their latest telephone chat overnight, Abe and Trump agreed to meet again before a U.S.-North Korea summit that could take place next month.

“I think he has penetrated Trump’s mind to a certain degree, but that is different from his pet agenda on trade,” said Keio University professor Toshihiro Nakayama.

“Prime Minister Abe and his team expected a bit more because of the personal chemistry. That was a bit of wishful thinking - look at Macron,” Nakayama added.

Like Abe, French President Emmanuel Macron has developed a strong personal relationship with Trump yet has clashed with him over issues including Iran, climate change and trade.

Trump’s administration decided last week to begin a national security investigation into auto imports that could lead to new U.S. tariffs similar to those already imposed on imported steel and aluminum. Motor vehicles make up about 30 percent of Japanese exports to the United States.

The auto probe follows an April agreement by Trump and Abe to set up a new framework to discuss “free, fair and reciprocal” trade that will be led by U.S. Trade Representative Robert Lighthizer and Japanese Economy Minister Toshimitsu Motegi.

Trump has made clear he prefers a bilateral deal to cut a U.S. trade deficit with Japan that hit 615.7 billion yen ($5.64 billion) last month. However, Abe’s administration insists multilateral pacts are still the best bet.

“FFR is not a negotiation or scoping exercise for a bilateral FTA (Free Trade Agreement),” a Japanese official, speaking on condition of anonymity, told Reuters. “We see it in a broader context.”

Behind Japan’s resistance to a bilateral FTA is in part the fear of pressure to open up its agriculture sector. The farm lobby is an important base for Abe’s ruling party.

For now, Japan is working from a familiar playbook with a strategy combining highlighting past and planned purchases of U.S. goods and investments, possible moves sanctioned by the World Trade Organization (WTO) and expanding a web of trade pacts that Tokyo hopes will eventually lure Washington back to the multilateral order.

Japan has notified the WTO it reserves the right to take counter-measures against the U.S. tariffs on steel and aluminum totaling $440 million, the amount of added duties the U.S. tariffs would impose on its exports of those products.

“We have the right but not the obligation to do it,” the Japanese official said, adding any steps against future tariffs on Japanese car exports would also be WTO-consistent.

As they’ve done since Trump was elected, Japanese officials are highlighting how much Japanese carmakers and other firms contribute to the U.S. economy.

As of 2016, Japan says its companies have invested a cumulative $421 billion in the United State, creating more than 850,000 jobs.

A rise in energy imports is also expected to help trim the bilateral trade imbalance.

Japan received its first shipment of liquefied natural gas last week from Dominion Energy Inc’s newly completed Cove Point, Maryland export plant, the beginning of a jump in imports from the United States.

“The balance will tilt toward the United States. Whether it is big enough is open to question but at least things will be happening in the eyes of the president,” the Japanese official said.

Japanese officials deny they are foot-dragging on trade negotiations, but some experts said playing for time could be useful. “It’s not Japan that needs a bilateral FTA. It’s the United States,” said former Japanese trade negotiator Yorizumi Watanabe.

“Japan can take the approach of wait-and-see.”

“The president is, as you know, a man of action and expects us to get results quickly,” U.S. ambassador to Japan William Hagerty said earlier this month. “I think Mr. Abe understands that.”

Reporting by Linda Sieg

Fed's Bullard: difficult for U.S. to raise rates far beyond other cenbanks

TOKYO (Reuters) - The U.S. Federal Reserve will have difficulty raising interest rates significantly beyond the settings of its Japanese and European counterparts, which are still pursuing accommodative policy, St. Louis Fed President James Bullard said on Tuesday.

Bullard, who has previously flagged the need for a caution in raising rates, told reporters on the sidelines of a seminar in Tokyo on Tuesday the Fed had enough tools and policy options to respond if the U.S. economy falls into a recession.

He said in a speech earlier in the day that U.S. interest rates may have already hit the “neutral” level that neither encourages nor discourages economic activity.

“It is hard for U.S. rates to get too far out of line with the global rate situation, and obviously both the (Bank of Japan) and the (European Central Bank) are continuing very accommodative policies,” Bullard told reporters.

“Is it constraining? It is in the sense that there is a global equilibrium of rates and if you get too far out of line things have to happen, exchange rates have to move, and other things have to happen.”

Bullard said he did not want to prejudge the Fed’s next meeting in June, but he reiterated his view that the Fed does not need to raise interest rates further because inflation expectations are low.

The Fed held interest rates steady in a target range of between 1.50 percent and 1.75 percent on May 2.

The U.S. central bank is expected to raise rates in June, and continue a gradual series of increases until perhaps the middle of next year.

In prepared remarks, Bullard repeated his views that inflation expectations remain a bit below the Fed’s 2 percent inflation target, and that interest rates worldwide are being held down by longer term economic and demographic trends.

There are “a few reasons for caution” in further rate increases, said Bullard, who has argued before that the Fed should halt its rate raising cycle until it is clear that economic growth and inflation have moved into a higher gear.

If the current policy rate is at neutral, “it may not be necessary to change the policy rate” in order to keep the economy close to or at the Fed’s goal, Bullard said.

Holding off on further rate increases, he said, would help improve market-based measures of inflation expectations and make the Fed’s commitment to meeting its inflation target more credible. It would also lower risks that short term interest rates might rise above long-term ones, an “inversion” of the yield curve that has often preceded a recession.

When asked whether the BOJ should change its 2 percent inflation target, Bullard said he saw no need for a change because 2 percent inflation has become a global standard for price targeting.

He added that a central bank that changed its inflation target from 2 percent effectively commits itself to a significant change in its currency level, due to the consequent shift in interest rate expectations.

Reporting by Howard Schneider and Stanley White

Deepening Italian crisis batters European markets

LONDON (Reuters) - A deepening political crisis in Italy provoked a second day of heavy selling on European financial markets, with the euro cut to a 6-1/2 month low, stocks punished and short-term borrowing costs surging for the government in Rome.

Investors fear that repeat elections - which now seem inevitable in the euro zone’s third largest economy - may become a de facto referendum on Italian membership of the currency bloc and the country’s role in the European Union.

Short-dated Italian bond yields — one of the most sensitive gauges of political risk — soared as much as 80 basis pointsto their highest since late 2013 as investors’ anxiety deepened.

The euro dropped below the $1.16 line for the first time in 6-1/2 months, down 0.3 percent on the day. Against the Swiss franc, it fell by a similar margin at 1.1528 francs.

Stocks in Milan slid 2.6 percent on the main index after a 2.1 percent fall on Monday. Bank shares slumped another 5 percent, having lost 4 percent in the previous session, bruised by the sell-off in government bonds, a core part of Italian banks' portfolios.

"It is just a slide and as the slide continues, you ask where is the end," said Saxo Bank's head of FX strategy John Hardy. He added that there was a risk of global contagion, with the benchmark U.S. S&P 500 stocks index  also close to breaching some key support levels.

Hardy recalled a promise made in 2012 by European Central Bank President Mario Draghi to keep the euro intact.

“If this continues for another couple of sessions I think you will have to see some official (European) response. A ‘whatever it takes’ kind of moment,” he said.

Adding to the uncertainty, Spanish Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Friday.

Spain's bond-yield spread with Germany was also at its widest in seven months at 122 bps Madrid's IBEX bourse .IBEX was down almost 2 percent.

Asia flinched too. Japan's Nikkei slipped 0.6 percent. Chinese shares were in the red, too, with the blue-chip index down 0.6 percent and Hong Kong's Hang Seng index off 0.7 percent.

E-Mini futures for the S&P500 ESc1 also gave up early gains to be down 0.5 percent. Meanwhile, the dollar was up against almost all major currencies except the safe-haven Japanese yen.

The U.S. currency is heading for its best month in 1-1/2 years .DXY - a move that is hurting many emerging market countries that borrow in dollars.

“This should keep the risk trades pressured to the downside,” Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

Away from Europe, the focus was also on the on-again, off-again U.S.-North Korean summit and the U.S.-China trade relationship.

An aide to North Korean leader Kim Jong Un arrived in Singapore on Monday night, Japanese public broadcaster NHK reported, and the White House said a “pre-advance” team was travelling to the city to meet the North Koreans.

The reports indicate that planning for the summit, initially scheduled for June 12, is moving ahead after President Donald Trump called it off last week. A day later, Trump said he had reconsidered, and officials from both countries were meeting to work out details.

In another sign that investors were flocking to safer bets, the euro hit a 11-month low versus the yen and fresh 6-1/2 low against the Swiss franc.

Elsewhere in bonds, U.S. 10-year Treasury yields were at six-week lows at 2.883 percent after a U.S. holiday on Monday. Yields move inversely to price.

Analysts are awaiting U.S. inflation data later in the week which could provide clues to future interest rate rises ahead of the Federal Reserve policy meeting next month.

Oil prices remained under pressure from expectations that Saudi Arabia and Russia would pump more crude, even as U.S. oil output rises.

U.S. crude futures tumbled to six-week lows and looked set for a fifth straight day of declines. The July contract was last down 1.6 percent at $66.81 a barrel.

Brent crude futures edged up 0.3 percent after dropping to $74.49 per barrel on Monday, their lowest in about three weeks. They were last at $75.53.

Spot gold XAU was barely changed at $1,298.01 an ounce.

Reference: Marc Jones

Monday, 28 May 2018

Euro crawls off six-and-a-half month lows, Italy tries to allay investor concerns

TOKYO (Reuters) - The euro crawled off a 6-1/2-month low against the dollar on Monday, catching its breath after Italy’s president tried to allay investor worries about political unrest in the country, although the prospect of a near-term election capped gains.

The euro was 0.45 percent higher at $1.1703 after falling on Friday to $1.1646, its lowest since mid-November, losing more than 1 percent on the week.

The common currency was up 0.45 percent at 128.065 yen after sinking on Friday to an 11-month low of 127.165.

The euro was seen to have received a mild lift after Italian President Sergio Mattarella on Sunday rejected Paolo Savona, a vocal critic of the single currency, as the economy minister. The two populist parties attempting to form a coalition in Italy had pushed for Savona to be appointed to the pivotal role.

But the euro’s bounce was limited as an early election in Italy looked inevitable as the far-right League and anti-establishment 5-Star Movement abandoned plans to forge an alliance after their choice of economy minister was vetoed.

“The League and 5-Star Movement parties could expand their influence even further if a re-election is called, and Italian politics will remain unstable,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

“The euro zone also faces low inflation and slowing growth, limiting the euro’s rise and leaving it vulnerable to fresh downside risks.”

Adding to the unrest in Europe, Spain’s prime minister, Mariano Rajoy, was threatened with no-confidence motions and demands for a snap election.

“The euro has managed to bounce, going through a bit of a consolidation. But fundamentally, it is still a ‘sell’ for the currency,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“Euro zone economic fundamentals are the trunk and the region’s political woes are the protruding branches, and both are facing headwinds right now.”

Data last week showed German PMI data fell to a 20-month low in May indicating that economic momentum in Europe’s biggest economy was faltering and European Central Bank minutes of its April meeting showed policymakers were worried about a more pronounced slowdown in the eurozone and political uncertainty in Italy.

The dollar index against a basket of six major currencies dipped 0.2 percent to 93.988 after rising to 94.248 on Friday, its highest since Nov. 14.

The greenback was up 0.05 percent at 109.400 yen after going as high as 109.830 on a slight ebb in risk aversion after U.S. President Donald Trump said on Sunday a U.S. team had arrived in North Korea to prepare for a proposed summit between him and North Korean leader Kim Jong Un.

Trump had initially pulled out of the summit last week, which had sapped broader investor risk appetite and helped push the dollar to a two-week trough of 108.955 yen on Thursday.

The Australian dollar, which is sensitive to shifts in risk sentiment, gained 0.25 percent to $0.7569 after shedding 0.4 percent on Friday.

The New Zealand dollar advanced 0.4 percent to $0.6945 after losing 0.2 percent on Friday.

The Canadian dollar extended Friday’s losses to touch C$1.2992 per dollar, its weakest since May 8.

The loonie had retreated roughly 0.8 percent on Friday as crude oil prices tumbled.

Reference: Shinichi Saoshiro

Oil sinks while stocks gain on North Korea, euro shaken by Italy

TOKYO (Reuters) - U.S. oil futures sank to six-week lows on Monday on expectations that major producers may raise output, while Asian stocks and U.S. share futures gained on signs the United States and North Korea were still working towards holding a summit.

The euro bounced back from a 6-1/2-month low after the Italian president rejected a eurosceptic as a key economy minister.

But his move was seen as triggering a possible constitutional crisis and opening the prospect of fresh elections, keeping the single currency fragile.

Oil prices extended their decline from last week on growing expectations that major oil producers may ease their 17-month-old production cuts.

A return to the oil production levels that were in place in October 2016, the baseline for the current deal to cut output, is one of the options for easing curbs, Russia’s energy minister said on Saturday.

His comments came after the energy ministers of Russia and Saudi Arabia met to review the terms of global oil supply, ahead of a key OPEC meeting in Vienna next month.

Brent crude futures dropped as much as 2.6 percent to $74.49 per barrel, their lowest level in about three weeks. They last stood at $75.00, down 1.8 percent.

U.S. crude futures dropped to six-week low of $65.80 per barrel, shedding 3.1 percent and is on course to post its fifth day of decline.

U.S. S&P500 mini futures rose 0.5 percent, but market holidays in the world’s two biggest financial centers — London and New York — could make trading slow and illiquid for the day.

German and French stock futures were up 0.4 percent.

South Korea’s KOSPI rose 0.8 percent, buoyed by stocks which are seen as benefiting from a further thawing in tensions with Pyongyang.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 percent. Japan’s Nikkei rose 0.1 percent.

President Donald Trump said on Sunday a U.S. team had arrived in North Korea to prepare for a proposed summit between him and North Korean leader Kim Jong Un, which Trump pulled out of last week before reconsidering.

“While we can’t say for sure how much they can agree, both sides seem to want to make progress,” said Nobuhiko Kuramochi, chief strategist at Mizuho Securities.

Mizuho sees a 10 percent chance that the summit, so far planned on June 12, will not take place, a 20 percent chance of a deal leading to a peace treaty struck at the meeting and a 70 percent likelihood of the summit leading to more talks without producing immediate deals on denuclearisation, he said.

In the currency market, the euro bounced back 0.6 percent to $1.1720 after having a touched a 6-1/2-month low of $1.1646 on Friday.

Italian president Sergio Mattarella rejected a eurosceptic pick for the key economy ministry by the two anti-establishment parties aiming to form a coalition government, the 5-Star Movement and the League.

While his decision allayed immediate concerns of having a eurosceptic minister in the euro zone’s third-largest economy, his move created bigger uncertainties as 5-Star leader Luigi Di Maio, whose party won the most seats at an inconclusive March 4 vote, demanded that parliament impeach Mattarella.

The 10-year Italian bond yield has risen 67 basis points, or 0.67 percentage point, so far this month, on course to make its biggest monthly rise since late 2011.

Its yield spread over benchmark German Bunds rose above 200 basis points for the first time in over a year.

“If the Italian debt prices fall further, people will have to do more hedging, say by selling the euro and so on. The issue will be the biggest focus for markets this week,”

While no one thinks the country will default, people need to make hedging when they face sharp price moves,” said Takafumi Yamawaki, head of currency and fixed income research at J.P. Morgan Securities in Tokyo.

Investors are also increasingly wary of Spain, where Prime Minister Mariano Rajoy is facing growing pressure to resign over a graft case involving his party.

The spread of the Spanish-German debt yields rose to about 105 basis points, the highest since January.

“The euro is being bought back in the near term but it looks capped at around $1.17. But we haven’t seen the kind of panic we saw before the French presidential election last year. I’d bet the euro will slip gradually than fall sharply,” said Kyosuke Suzuki, director of forex at Societe Generale.

The dollar rose 0.2 percent against the yen in early Monday trade to 109.58 yen, extending its recovery from Thursday’s 108.955 on optimism over the upcoming U.S.-North Korea summit.

Elsewhere, bitcoin traded at $7,330, falling below its 365-day moving average, which stood around $7,370.

Reference: Hideyuki Sano

Friday, 25 May 2018

Wall Street slips as oil slump drags energy stocks

(Reuters) - The S&P 500 index and the Dow Jones Industrial Average were slightly lower on Friday as a steep drop in oil prices pressured energy stocks.

Crude oil prices declined more than 2.5 percent, or about $2 per barrel, after Saudi Arabia and Russia said they were ready to ease supply curbs that have pushed prices to their highest since 2014.

The S&P energy index slid 2.8 percent, on track for its biggest one-day percentage decline since Feb. 8. All the 31 components of the index were in the red.

Shares of Exxon and Chevron both fell more than 2 percent, while service firms Schlumberger, Halliburton and producers Occidental Petroleum and ConocoPhillips were down between 3 percent and 4.2 percent.

“With the long weekend ahead low volume should be expected, paving the way for a range-bound trading session,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

Markets are closed on Monday for the Memorial Day holiday.

The main indexes ended only slightly lower on Thursday after recovering from what market participants said was a knee-jerk reaction to President Donald Trump cancelling a meeting with North Korea’s Kim Jong Un.

However, Trump on Friday raised the possibility that the summit could still take place on June 12 as originally planned.

At 9:52 a.m. ET, the Dow Jones Industrial Average was down 72.70 points, or 0.29 percent, at 24,739.06, the S&P 500 .SPX was down 7.82 points, or 0.29 percent, at 2,719.94 and the Nasdaq Composite was up 6.15 points, or 0.08 percent, at 7,430.58.

Six of the 11 major S&P sectors were down.

A surge in shares of Foot Locker boosted the consumer discretionary index. Foot Locker jumped 9.9 percent following a better-than-expected quarterly profit, lifting shares in Nike which has a partnership with the footwear retailer.

Among decliners, apparel retailer Gap plunged 11.2percent after quarterly same-store sales missed estimates.

Autodesk fell 3.4 percent after the AutoCAD owner forecast second-quarter profit below expectations.

Declining issues outnumbered advancers for a 1.52-to-1 ratio on the NYSE and for a 1.09-to-1 ratio on the Nasdaq.

The S&P index recorded nine new 52-week highs and no new lows, while the Nasdaq recorded 42 new highs and 11 new lows.

Reporting by Medha Singh

Thursday, 24 May 2018

Dollar loses steam on Fed minutes, Trump's tariff warning; euro pressured

TOKYO (Reuters) - The dollar lost momentum on Thursday after the double-whammy of dovish-looking minutes of the Federal Reserve’s last policy meeting and the threat by U.S. President Donald Trump of imposing new tariffs on imported cars.

The euro was hampered by concerns over an economic slowdown in the currency bloc and political risks in Italy, staying near a six-month low against the dollar and a nine-month nadir versus the yen.

Measured against a basket of six major currencies, the dollar stepped back to 98.865 from its five-month high of 94.195 hit just before the release of the Fed’s minutes.

While most policymakers thought it likely another interest rate increase would be warranted - in line with market expectations - the minutes showed the Fed would tolerate inflation rising above its goal for a time.

“The minutes suggested the Fed is not in a hurry to raise interest rates. The U.S. stock markets seem to like that they were not too hawkish,” said Ayako Sera, market economist at Sumitomo Mitsui Trust bank.

Moreover, the minutes also showed the board members generally agreed to make a small adjustment in its policy implementation by raising the interest rates on its excess reserves by 20 basis points, rather than by a widely anticipated 25 basis points.

Their discussion, while highly technical, came as a surprise to market players and helped bring down short-term U.S. interest rates and bond yields.

“This means the effective interest rates in the future have shifted five basis points lower over a long period of time. In other words, we could even say the Fed today cut rates by five basis points,” said Toru Yamamoto, chief fixed income strategist at Daiwa Securities.

The dollar’s fall accelerated as Trump appeared to have opened a new front in the trade war by considering new tariffs, this time on cars, just days after Washington agreed with China to put “on hold” its plan to impose tariffs on $150 billion worth Chinese goods.

Against the yen, the dollar shed as much as 0.6 percent to 109.45 yen, a day after it had fallen 0.73 percent, its biggest fall in nearly three months. It last stood at 109.61 yen, down 0.4 percent on the day.

The safe-haven Swiss franc also ticked up 0.2 percent to 0.9943 franc to the dollar, helped by investors’ cautious mood. It hit a three-week high of 0.9894 per dollar on Wednesday.

The euro bounced back slightly to $1.1705 after hitting a six-month low of $1.1676 on Wednesday but the common currency was held back by economic and political worries in Europe.

IHS Markit’s Euro Zone Composite Flash Purchasing Managers’ Index (PMI), considered a good guide to the euro zone’s economic health, sank in May to an 18-month low, suggesting the continent’s strong growth last year has lost steam.

Investors were unnerved by political developments in Italy, where the coalition government proposed by the anti-establishment 5-Star and far-right League could tap eurosceptic economist Paolo Savona as economy minister.

The Italian debt yields have jumped in the past couple of weeks, with the 10-year government bond yield rising more than 50 basis points.

The common currency was soft against the yen, hitting a nine-month low of 128.24 yen on Wednesday.

“I think there is risk of further downward revision in the European economic outlook. Earlier this year, people thought the European Central Bank, the Bank of England and the Federal Reserve will all raise interest rates. But now the ECB has clearly dropped out,” said Kazushige Kaida, head of forex at State Street Bank and Trust in Tokyo.

The British pound also licked its wounds at $1.3374, after hitting a five-month low of $1.3305 following weak UK inflation data.

Reporting by Hideyuki Sano

Asia share markets hit by U.S. auto tariff threat, dollar pulls back

SHANGHAI (Reuters) - Asian shares fell on Thursday after the U.S. government launched a national security probe into auto imports that could lead to new tariffs, and President Donald Trump’s comments indicated fresh setbacks in U.S.-China trade talks.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was 0.1 percent higher, but Japan's Nikkei stock index .N225 fell 1.2 percent as auto shares slumped. South Korea's KOSPI lost 0.3 percent.

A broad MSCI index of automobile and auto components firms .MIWO0AC00PUS was down 0.9 percent. Tokyo’s SE TOPIX transportation equipment index was 2.6 percent lower.

The U.S. Commerce Department said on Wednesday that it would launch a national security investigation into car and truck imports under Section 232 of the Trade Expansion Act of 1962, a move that could lead to tariffs like those imposed on steel and aluminium in March.

Adding to market jitters, Trump on Wednesday called for “a different structure” in any trade deal with China, fuelling uncertainty over the negotiations.

On Thursday, China’s Commerce Ministry said it had not pledged to cut China’s trade surplus with the U.S. by a certain figure, and that it hopes the U.S. implements measures promised during trade negotiations as soon as possible.

China's blue chip CSI 300 index .CSI300 was 0.1 percent lower.

Prompting further uncertainty, Trump on Wednesday cast doubt on plans for an unprecedented summit with North Korean leader Kim Jong Un, saying he would know next week whether the meeting would take place.

“There’s a lot of noise around Donald Trump, China-U.S. trade, the auto imports now, and then the Korean summit, and all these things are just weighing on investors at the moment,” said Shane Oliver, chief economist & head of investment strategy, AMP Capital, Sydney.

“I think we probably would have seen a decent day in Asian markets were it not for these ongoing geopolitical worries because the minutes from the Fed’s last meeting were relatively benign.”

While the minutes from the Federal Reserve’s May 1-2 meeting indicated that policymakers expect another interest rate increase would be warranted “soon” if the U.S. economic outlook remains intact, they helped to ease market concerns that the Fed would accelerate the pace of interest rate increases.

The two-year Treasury note yield, which rises with traders’ expectations of higher Fed fund rates, was at 2.5121 percent after touching 2.5970 on Wednesday.

The yield on benchmark 10-year Treasury notes fell back below the 3-percent threshold to 2.9825 percent, compared with its U.S. close of 3.003 percent on Wednesday.

Analysts said that market uncertainty was prompting a clear flight to safety across financial markets.

The dollar was down 0.6 percent against the yen to 109.44 JPY=.

“With Trump’s unpredictable behaviour leaving investors on edge, the Japanese yen has scope to appreciate further in the short term,” said Lukman Otunuga, an analyst at FXTM. “However, a strengthening dollar on the back of heightened U.S. rate hike expectations could limit the yen’s upside gains.”

The euro EUR= was up 0.1 percent on the day at $1.1709. The dollar index, which tracks the greenback against a basket of six major rivals, was 0.2 percent lower at 93.839.

Concerns over trade, talks and tariffs overpowered indications of strong economic performance in two of the region’s major economies.

Confidence among Japanese manufacturers saw its first rise in fourth months, and service-sector sentiment rose to a record high in the latest Reuters Tankan poll, underscoring expectations that the Japanese economy will return to growth in the second quarter.

In South Korea, Finance Minister Kim Dong-yeon said the economy is on track for annual growth of 3 percent despite concerning indicators such as high youth unemployment.

The Bank of Korea held interest rates steady for a sixth straight month on Thursday, with inflation seen remaining below target and amid concerns a U.S.-China trade war would hurt regional economies.

In commodities markets, U.S. crude was down 0.2 percent at $71.68 a barrel. Oil prices fell on Wednesday after an unexpected rise in U.S. crude and gasoline inventories.

Brent futures were 0.3 percent lower at $79.53 a barrel, continuing to move lower after rising above $80 for the first time since November 2014 last week.

The most-traded iron ore futures on the Dalian Commodity Exchange rose for the first time in six sessions on Thursday, gaining 0.3 percent.

Weak commodity prices continued to put pressure on Australian shares , which were 0.2 percent lower, extending losses into a sixth consecutive session. New Zealand's benchmark S&P/NZX 50 index was 0.7 percent higher.

Gold was slightly higher. Spot gold XAU= was traded at $1,294.11 per ounce.

Reference: Andrew Galbraith

Dollar surge raises hopes for volatile FX

LONDON (Reuters) - The U.S. dollar’s unexpected surge over the past month is encouraging currency traders to pray for a return of lucrative but long-dormant price volatility on the main foreign exchanges, although early signs on that are strangely subdued.

Extra volatility - how much markets fluctuate up or down - opens up pricing gaps and anomalies that give traders more opportunities to make money, brokers more volume, and seeds greater demand for hedging services from multinational companies and cross-border investors.

But recent years have seen big currency swings evaporate as record-low interest rates converged towards zero and central bank money-printing weakened the cues exchange rates take from monetary policy trends and economic divergence.

That in turn has hammered profits at hedge funds and banks’ FX trading divisions, though some are asking whether the dollar’s blistering 5 percent rally since mid-April will mark a turn for vol, as known in market parlance.

“FX is back to life. We will have to wait through a few more months of low volatility but the time will come and it is getting more attractive,” said Andreas Koenig, head of global FX at Amundi Asset Management.

So far there is little sign of this. Markets broadly look at two gauges of currency volatility — a daily swing in actual spot prices and an implied gauge derived from options markets on what traders expect volatility to be.

Three-month implied volatility in the euro has completely unwound its February surge and is heading back below 6, levels not seen since 2014, while actual currency market swings remain comparatively elevated.

Realised moves in the euro remain elevated with daily volatility creeping up to around 5.5 and nearly doubling from the start of the year, a function of the dollar’s rally that has taken currency markets by surprise.

And there lies the rub. Despite the dollar’s rise, which has drawn comparisons with earlier cycles of a surging dollar and increased volatility in early 2015 and late 2016, traders remain sceptical this move signals the return to more volatile markets.

“It doesn’t feel at this stage like the beginning of a larger structural move higher,” said Richard Bibbey, HSBC’s global head of FX cash trading, while adding that quiet currency markets were a “cyclical” rather than structural issue.

There are many in the market who say the recent dollar spike may be temporary, because it has been caused by speculators unwinding record bets against the greenback rather than a structural shift in the global economy. What about volatility in other asset classes? U.S. Treasury bond volatility .MERMOVE is back towards record lows. In contrast, the S&P 500's volatility in the first 90 trading days of 2018 was the highest start to a year since 2009, while price swings of crude oil and metals are far higher than for the dollar.

Even major events in the $5 trillion-a-day foreign exchange markets, still the world’s biggest, in the last three years including the Brexit referendum and the removal of the cap on the Swiss franc, have failed to inject meaningful volatility.

Broader FX volatility indicators also remain subdued - Deutsche Bank’s Currencies Volatility Index  has ticked higher but remains near January’s record lows, thanks to the anaesthetising effect on markets from unconventional easing pursued by global central banks.

JP Morgan said the world’s top three central banks pumped in a record $2 trillion last year as part of its policy support to markets. This year, injections are set to drop to a quarter of that amount, followed by net withdrawals from 2019.

“Implied currency market volatility has dropped as traders are comfortable collecting premiums from selling options in the knowledge that central banks will provide a backstop to markets,” said Neil Mellor, a senior strategist at BNY Mellon. “That may be changing.”

Rock-bottom volatility has seen revenues from trading currencies at the 12 biggest banks fall last year to a decade low of $7 billion, industry analytics firm Coalition says. At its peak in 2008, revenues were double those levels.

Bank forex trading desk heads say investor activity has retreated in recent weeks after a first-quarter bump. Cash currency trading volumes were down 30 percent in April compared with January this year, one head of trading at a U.S. bank in London said on the condition of anonymity.

In comparison, FX trading volumes surged in the first quarter, according to data from various sources, including Thomson Reuters and EBS.

As volatility has subsided, so has the ability of large speculators to profit from betting on currency moves. Hedge funds trading currencies have made 1 percent each year since 2013 - just a quarter of the average of overall hedge fund returns of 4.15 percent, according to Hedge Fund Research.

Even big investors who would have taken a punt on the yen or euro a decade ago now avoid direct currency investments, seeing them only as an asset class to hedge against, said Bob Michele, JP Morgan Asset Management’s fixed income chief investment officer.

“Because these are low-volatility markets you might sit on stuff a long period of time and the valuations never change. It’s effectively wasted capital,” Michele said. “We don’t see a lot of business coming into our FX group.”

What markets really need is a shake up in the consensus view of a long cycle of benign economic conditions consisting of synchronised growth, limited inflation risks and a slow tightening of monetary policy for volatility to return.

Others see a return of volatility as a matter of time as interest rate differentials between the U.S. and the rest of the developed world widen further.

“The question is: have currencies returned to focus on interest rates? I am not sure we are confident of that yet, but there is a very clear interest rate advantage in holding dollars,” said James Binny, global head of currency at State Street Global Advisors.

Reference: Tommy Wilkes, Saikat Chatterjee

Wednesday, 23 May 2018

Sterling tumbles after weak UK inflation

LONDON (Reuters) - Sterling slid on Wednesday to a new five-month low after weaker-than-expected UK inflation dented the prospect of the Bank of England (BoE) raising interest rates this year.

The pound had been one of the best-performing currencies in 2018 but it has given up all its gains for the year following a broad rally in the dollar and signs Britain’s economy is slowing.

Data on Wednesday showed annual consumer price inflation cooled to 2.4 percent, its weakest increase in over a year.

That sent sterling tumbling to $1.3305, its lowest since Dec. 15..

Investors priced in a one-in-three chance of the BoE raising borrowing costs in August — the next time it updates its economic forecasts — down from 50/50 earlier this week.

At 1500 GMT the pound was down 0.7 percent to $1.3341 and headed for its biggest daily loss in three weeks.

“All bets are off for an interest rate rise this year,” Fexco Corporate Payments head of dealing David Lamb said.

“If the UK economy continues to stagnate as it did in the first quarter of 2018, the window for raising rates will remain closed,” he said.

Risks around the sort of relationship Britain can agree with the EU for after their divorce have influenced the pound this week.

Britain’s foreign minister Boris Johnson on Tuesday said the country must ditch EU tariff rules as quickly as possible and run its own trade policy, Bloomberg reported.

But the biggest reason for sterling’s fall has been a drastic shift in market expectations for interest rate rises from the Bank of England because of economic weakness.

Consistently weak economic growth figures in early 2018, partly blamed on bad weather, have called into question whether the BoE will tighten monetary policy to curb inflation at all this year.

“It is starting to appear the weaker CPI is more structural and not just because of the bad weather,” Mizuho head of FX hedge fund sales Neil Jones said.

“Brexit uncertainty continues to weigh and may indeed put the BoE on hold throughout the summer and beyond,” he said.

UK gross domestic product figures due out on Friday will also be scoured for clues on monetary policy.

Reporting by Tom Finn

Asian shares pressured as Trump tempers Sino-U.S. trade optimism

TOKYO (Reuters) - Asian shares were mostly weaker on Wednesday with investors cautious after U.S. President Donald Trump tempered optimism over progress made in trade talks between the world's two largest economic powers.MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was down 0.3 percent, while Japan's Nikkei lost 1.2 percent to end at a 1-1/2-week low and the Shanghai Composite Index retreated 1.1 percent.

European stock futures suggest major European share indexes .FTSE .GDAXI .FCHI will open about 0.5 percent lower.

On Wall Street, the S&P 500  shed 0.31 percent overnight, losing steam after hitting a two-month high.

Trump said on Tuesday he was not pleased with recent trade talks between the United States and China, souring the improved market sentiment following weekend comments from U.S. Treasury Secretary Steven Mnuchin that the “trade war” is “on hold”.

His remarks followed Beijing’s announcement that it would cut import tariffs for automobiles and car parts.

Trump also floated a plan to fine ZTE Corp and shake up its management as his administration considered rolling back more severe penalties.

“The market probably became overly optimistic on Monday. The reality is the talks are still continuing as they haven’t made headway on various issues, including intellectual property,” said Norihiro Fujito, senior investment analyst at Mitsubishi UFJ Morgan Stanley Securities.

Further weighing on prices of risk assets, Trump also said there was a “substantial chance” his summit with North Korean leader Kim Jong Un will not take place as planned on June 12 amid concerns that Kim is resistant to giving up his nuclear weapons.

“There are many uncertainties in the air, we still don’t know whether U.S.-North Korea summit is possible and scandals continued to drag Prime Minister (Shinzo) Abe’s popularity,” said Yasuo Sakuma at Libra Investments.

Investors fret Abe’s long-running cronyism scandal could attract more attention as the Ministry of Finance is due to release related documents on Thursday.

“Many investors are sitting on the sidelines. Personally, I haven’t done much trading over the past week, after the earnings season. The current price levels are not really attractive. I’m waiting for a 5 percent correction.”

The cautious mood helped to underpin bonds. The 10-year U.S. Treasuries yield stood at 3.050 percent, off Monday’s near seven-year high of 3.128 percent.

As lower U.S. yields sap the appetite for the dollar, the euro traded at $1.1765 EUR=, hovering above Monday's five-month low of $1.1717.

Against the yen the dollar slipped 0.4 percent to 110.49 JPY= from Monday's four-month high of 111.395.

The biggest mover in the currency market was the Turkish lira, which fell more than two percent early on Wednesday to a record low of 4.8450 after rating agencies sounded the alarm on Tuesday over plans by President Tayyip Erdogan to tighten his grip on monetary policy.

The lira has fallen around 15 percent so far this month.

In commodities, oil prices held firm near 3-1/2-year highs on potential supply concerns surrounding Venezuela and Iran.

U.S. West Texas Intermediate crude futures traded little changed at $71.95 a barrel, a 0.4 percent loss. They touched $72.83 a barrel, the highest since November 2014, on Tuesday.

Wall Street slides on trade talk uncertainty
Brent futures were 0.6 percent lower at $79.11 a barrel. Last week, the global benchmark topped $80 for the first time since November 2014.

Bitcoin dropped below $8,000 to five-week lows, entering a downtrend channel on technical charts. The cryptocurrency last traded at $7,913, down 0.9 percent on the day.

Reporting by Hideyuki Sano and Tomo Uetake

Dollar edges up ahead of Fed minutes

SINGAPORE (Reuters) - The dollar edged higher versus a basket of currencies on Wednesday, with investors awaiting the minutes of the Federal Reserve’s last policy meeting for hints on the pace of further U.S. monetary tightening.

The dollar index, which measures the currency against a basket of six major peers, rose 0.1 percent to 93.681. On Monday, the index set a five-month high of 94.058.

The increase marked a gain of more than 5 percent from mid-April and was driven by generally upbeat U.S. economic data and expectations the Fed would raise interest rates at least two more times this year.

The yen gained broadly on Wednesday, as investors sought safer assets amid economic concerns after U.S. President Donald Trump tempered optimism over progress made so far in trade talks between the world’s two largest economies. Trump said on Tuesday he was not pleased with recent trade talks between the United States and China.

Further weighing on the prices of riskier assets, Trump also said there was a “substantial chance” his summit with North Korean leader Kim Jong Un will not take place as planned on June 12 amid concerns that Kim is resisting giving up his nuclear weapons.

Against the yen, the dollar fell 0.3 percent to 110.53 yen JPY=, pulling away from a four-month high of 111.395 yen set on Monday.

The safe-haven yen also rose against other currency crosses and surged against the Turkish lira, amid talk of Japanese retail investors selling the lira as stop-loss levels were hit.

The yen tends to rise in times of market turbulence since Japan is the world’s largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis. Investors are now looking to the release on Wednesday of the Fed’s minutes from its most recent meeting, when it kept interest rates steady.

In its post-meeting statement issued in early May, the Fed also said inflation had “moved close” to its target and that “on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term.”

“We hope to have a bit more clarity on the inflation outlook from the Fed. The second dimension is basically how tolerant the Fed (policymakers) are of a possible inflation overshoot above 2 percent,” said Heng Koon How, head of markets strategy for UOB in Singapore.

The euro EUR= fell 0.1 percent to $1.1762, edging back in the direction of a six-month low of $1.1717 set on Monday.

In emerging markets, the Turkish lira also sold off more after rating agencies sounded the alarm on Tuesday about plans by President Tayyip Erdogan to tighten his grip on monetary policy.

The lira tumbled to a record low of 4.8450 per U.S. dollar in early Asian trade on Wednesday.

After paring some losses, the lira stood at 4.7700 per dollar, still down roughly 2 percent on the day.

Against the yen, the lira tumbled 2.3 percent to 23.1873 yen.

Reporting by Masayuki Kitano

Tuesday, 22 May 2018

Bank of England rate comments lift sterling to one-week high versus euro

LONDON (Reuters) - Sterling rallied to a one-week high against a broadly firm euro on Tuesday after a top central bank official struck an upbeat note on the outlook for future interest rate increases.

Bank of England policymaker Gertjan Vlieghe told the Treasury Committee in Britain's parliament that policy rates are set to rise 25 to 50 basis points every year over a three-year forecast period, a comment interpreted by currency markets as supportive for the British currency.

“His comments are helping sterling but it is important to remember that everything policymakers say today is conditional on the incoming data and that needs to be kept in mind to correctly assess the policy outlook,” Viraj Patel, an FX strategist at ING Bank in London, said.

Against the dollar, sterling extended gains and rose 0.4 percent to the day’s highs at $1.3492. It climbed 0.2 percent to a one-week high against the euro at 87.60 pence.

Interest rate markets were broadly unchanged by the relatively optimistic comments, with the probability of another quarter point rate hike holding at around 90 percent by the end of the year, the same levels as earlier this week.

Gains were capped before important data on the British economy due out this week, including inflation on Wednesday and the gross domestic product figure on Friday.

These will be scrutinised by investors to gauge whether the BoE might tighten monetary policy as early as August.

Tuesday’s rise in the pound came after concerns over the risks in the post-divorce relationship Britain negotiates with the European Union weighed heavily on the currency last week.

Adding to the uncertainty, lawmakers from Prime Minister Theresa May’s governing Conservative Party is reported to be bracing itself for a snap autumn parliamentary election amid fears that the Brexit deadlock will become insurmountable.

But the biggest reason for sterling’s recent fall has been a drastic shift in expectations of when the BoE will raise rates.

“Until a solution emerges on the Brexit front, a rate hike is the only things that could support sterling temporarily,” Commerzbank strategists said in a note.

“Without it, sterling remains unattractive.”

Reporting by Saikat Chatterjee

Dollar falls from five-month highs, this week's focus on Fed minutes

SINGAPORE (Reuters) - The dollar traded below a five-month high against a basket of currencies on Tuesday, catching its breath after a broad rally inspired by rising U.S. bond yields and relief at an easing of U.S.-China trade tensions.

The dollar’s index against a basket of six major currencies last traded at 93.564, down from a five-month high of 94.058 set on Monday.

The greenback’s surge to that Monday peak had marked a gain of 5.4 percent in about a month, compared to a mid-April trough of 89.229, which was its lowest since late March.

A pull-back in U.S. 10-year Treasury yields from seven-year highs set last week has probably prompted traders to book some profits on their bullish dollar bets, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

“We came a long ultimately we are going to get profit-taking,” Innes said.

He noted that while the dollar’s near-term outlook still looks positive, one factor worth watching was whether business sentiment and the economic outlook in developed countries other than the United States would start to improve.

Optimism about synchronous global economic growth had been one of the factors that had weighed on the dollar earlier this year.

Over the past month, however, the dollar has been bolstered by generally solid U.S. economic data that has backed the Federal Reserve’s monetary policy tightening stance this year, as well as rising U.S. bond yields that bolstered the greenback’s yield appeal.

The prospect of a resolution to the U.S.-China trade tensions has further added to the dollar’s shine.

The U.S. 10-year Treasury yield last stood at 3.0523 percent , down from Friday’s near seven-year high of 3.128 percent.

Against the yen, the dollar eased 0.1 percent to 110.89 yen, down from Monday’s four-month high of 111.395 yen.

There was talk of dollar-selling interest among Japanese exporters at levels around 111.00 yen. Market participants also cited dollar-selling by short-term players during Tuesday’s Asian trade.

Analysts at Maybank said they favoured being long the dollar against the yen for now. “Dips in U.S. Treasury yields could be temporary and a rebound could widen yield differentials between U.S. Treasuries and Japanese government bonds and lift the dollar against the yen,” the Maybank analysts said in a research note.

They added that U.S. 10-year Treasury yields may have limited room to fall for now, with the market awaiting the minutes of the U.S. Federal Reserve’s last policy meeting due to be released on Wednesday. The euro eased 0.1 percent to $1.1784, but remained above Monday’s low of $1.1717, the common currency’s lowest level since around mid-November.

The euro has been affected by concerns over political uncertainty in Italy. This week will bring about a further test for determined euro bulls with the release of “flash” PMI data for May on Wednesday, and markets waiting to see whether the first-quarter slowdown in Europe spilled over to later months.

Reporting by Masayuki Kitano

Asian shares stumble as dollar strengthens, oil surges

SYDNEY (Reuters) - Asian shares skidded on Tuesday as a strong dollar sapped demand for emerging market assets while surging oil prices stoked concerns about a flare-up in inflation and faster U.S. interest rate increases.

Japan’s Nikkei was mostly flat while Australian shares fell 0.9 percent. Chinese shares opened in the red with the blue-chip CSI300 off 0.7 percent.

Liquidity was relatively thin due to holidays in South Korea and Hong Kong.

MSCI’s broadest index of Asia-Pacific shares outside Japan was just a shade higher at 568.4 points, but well below an all-time peak of 617.12 hit in January.

“We are seeing U.S. dollar strength and that is causing money to flow out from emerging markets to the U.S. There is some sort of risk aversion going on,” said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

“People are cautious about taking exposure in emerging markets.”

Those concerns offset the boost to sentiment from overnight gains on Wall Street over the apparent reconciliation between the United States and China over import duties.

Analysts said investors in the region were worried about the growth outlook, with the U.S. Federal Reserve staying on its policy tightening path.

“Stocks have rallied several times on the belief that trade tensions were easing, only to fall back down as investors took the opposite view,” said James McGlew, executive director of stockbroking at Perth-based Argonaut.

“While the global economy remains robust and first-quarter earnings have been strong, stock markets have mostly traded sideways this year because many investors have started to fear that the pace of the expansion has already peaked.”

The MSCI ex-Japan index is flat so far this year after a super-charged 33.5 percent gain in 2017.

JPMorgan’s Shigemi said investors will now turn their focus to the next Fed meeting on June 13 where it is widely expected to raise rates for a second time this year.

A total of three hikes is almost fully priced-in by the market for 2018 although some investors expect the Fed to be more aggressive.

It was the fear of higher inflation and thus faster Fed rate rises that caused a bond market rout earlier this year, sending yields sharply higher and triggering a share market sell-off.

The dollar hovered near five-month highs against a basket of currencies, boosted by the U.S.-China trade optimism.

The dollar index was last down 0.1 percent at 93.56 from Monday’s top of 94.058.

The euro held at $1.1782, within spitting distance of a more than six-month trough of $1.1715 touched on Monday amid continued political uncertainty in Italy.

Italy’s far-right League and the 5-Star Movement agreed on a candidate to lead their planned coalition government and to implement spending plans seen by some investors as threatening the sustainability of the country’s debt pile.

The Japanese yen steadied near four-month lows at 110.99 per dollar, while sterling eased slightly to $1.3428 ahead of key data that could determine whether the Bank of England raises rates in 2018.

Elsewhere, oil prices soared to their highest since 2014 after Venezuela’s presidential election heightened worries that the country’s oil output could fall further.

The market is also weighing the possibility of additional U.S. sanctions on the country.

U.S. crude added 24 to $72.48 per barrel and Brent rose 17 cents to $79.33.

The combination of higher oil and conciliatory actions on the US-China trade front boosted the Australian dollar, a liquid proxy for risk, to a one-month peak.

As the dollar strengthened, gold prices eased to stay near the lowest since late December at $1,290.5.

Reference: Swati Pandey

Monday, 21 May 2018

Energy may give further impetus to U.S. small-cap stocks

NEW YORK (Reuters) - U.S. small-cap stocks look poised to extend a breakout rally, especially if oil prices advance deeper into levels last seen in 2014 to drive further gains in the small energy companies that have provided leadership in recent week, analysts and investors said.

The Russell 2000 index of small capitalization stocks closed at a record high for a third day in a row on Friday and registered its third week of gains, sharply outperforming large-cap stocks on Wall Street, with all three major indexes posting losses for the week.

The Russell is up 11.1 percent since its Feb. 8 low for the year, while the S&P 500 is up just 5.1 percent since that date.

The S&P 600 small-cap index is also at a record high. Energy shares within the S&P 600 have led recent gains, thanks to a jump in oil prices, which analysts said should boost earnings forecasts for the sector.

The outperformance of small-cap stocks has been driven partly by the December U.S. tax overhaul. The legislation included steep corporate tax cuts that particularly benefited smaller-cap companies, which had been paying higher rates than large-cap companies overall.

Recent trade tensions have also lifted shares of small caps, whose business is largely domestic, along with stronger U.S. economic growth.

Some of those benefits have been reflected in small-cap earnings growth, which has outpaced growth of larger names. First-quarter profit growth for Russell 2000 companies is estimated at 33.8 percent, while earnings for the S&P 500 companies increased 26.2 percent from a year ago, according to Thomson Reuters data.

The S&P 600 energy index is up 31.3 percent for the quarter so far, the best-performing group, followed by health care, up 12.2 percent.

U.S. crude futures edged lower on Friday but remained above $71 a barrel and registered a third straight week of gains, lifted by falling Venezuelan production, strong global demand and looming U.S. sanctions on Iran.

“Even though (energy stocks have) had a good run, estimates will be climbing because analysts are raising their oil forecasts. So even though the stocks go up, they can still look cheap because the earnings estimate is going to go up as fast as the stock,” said Steve DeSanctis, equity strategist at Jefferies in New York, which has been overweight energy since January.

J. Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Illinois, said he has been buying shares of small-cap energy service providers.

“Some of the smaller energy service providers got banged up so badly when oil went down,” he said. “But the ones who survived have a real opportunity to grow and take market share now that oil is at $70 a barrel.”

Several investors also said they favored financials within the small-cap space, particularly regional banks, which have risen sharply this year compared with bigger banks. The S&P 500 bank index is down 0.3 percent year to date, compared with a 6.2 percent gain in the KBW regional banking index.

The prospect of regulations being reduced further for some smaller banks has been a positive.

Regulations have “been a big headwind in the last couple of years,” said Anthony Saglimbene, global market strategist at Ameriprise Financial in Troy, Michigan. “Easing regulation would benefit small-cap banks.”

The health care group has benefited from merger activity, including Zoetis Inc’s announcement this week to buy Abaxis Inc .

Health care has been the best-performing sector within the S&P 600 so far this year, up 26.8 percent.

Reporting by Caroline Valetkevitch

Sterling down half percent versus resurgent dollar to approach five-month low

LONDON (Reuters) - Sterling fell to its lowest in nearly five months on Monday as the dollar surged and investors prepared for data that could determine whether the Bank of England raises interest rates this year.

A broad rally by the dollar and dwindling expectations that interest rates will rise have caused what had been one of the best-performing major currencies to give up all its 2018 gains.

Sterling slumped half a percent to $1.3392 , its lowest since Dec. 28, as the dollar soared on reports that the United States was putting its trade war with China “on hold”.

Important data on the British economy, including inflation figures on Wednesday and gross domestic product on Friday, will be scrutinised by investors to gauge whether the BoE might tighten monetary policy as early as August.

“Markets have lost faith and conviction over BoE policy tightening, we now place a strong emphasis on UK data to guide market policy expectations,” said ING FX analyst Viraj Patel. “Buckle up, it’s going to be a bumpy ride for the pound this week.”

Risks around the sort of post-divorce relationship Britain can agree with the EU weighed on the pound last week. But the biggest reason for sterling’s fall has been a drastic shift in market expectations of when the BoE will raise rates.

Recent weak economic data mean markets are now not even pricing in a full 25-basis-point hike by the end of 2018. They had expected two 25 bp rises this year.

Concerns over Brexit also continue to dog the pound.

Scottish First Minister Nicola Sturgeon said on Sunday she would consider another vote on independence for Scotland when the British government offers some certainty over Brexit.

Adding to the political uncertainty, lawmakers from Prime Minister Theresa May’s governing Conservative Party reportedly are bracing themselves for a snap autumn parliamentary election amid fears that the Brexit deadlock will become insurmountable.

Analysts at CMC Markets and Commerzbank, in notes to clients, predicted the pound would fall toward the $1.3300 level in the short term.

But Stephen Gallo, European head of FX strategy at BMO Financial Group, said that forthcoming data would show underlying strength in Britain’s economy and the pound would rebound to $1.38 in the next three months.

Reporting by Tom Finn

Stocks rally after Mnuchin says Sino-U.S. trade war "on hold"

TOKYO (Reuters) - Stocks rose on Monday as U.S. Treasury Secretary Steven Mnuchin declared the U.S. trade war with China “on hold” following an agreement to drop their tariff threats that had roiled global markets this year.

U.S. S&P mini futures ESc1 rose 0.60 percent in Asian trade on Monday.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced 0.55 percent in early trade, led by strong gains in greater China. Hong Kong's Hang Seng was up 1.0 percent, Taiwanese shares 1.1 percent and mainland shares 0.4 percent.

Japan's Nikkei gained 0.4 percent.

Mnuchin and U.S. President Donald Trump’s top economic adviser, Larry Kudlow, said the agreement reached by Chinese and American negotiators on Saturday set up a framework for addressing trade imbalances in the future.

“The weekend talk appears to have made progress. While they still need to work out details of a wider trade deal, it is positive for markets that they struck a truce,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

As safe-haven demand for debt fell, U.S. bond prices were under pressure, keeping their yields not far from last week’s peaks.

The 10-year Treasuries yield stood at 3.065 percent, near a seven-year high of 3.128 percent hit on Friday.

“Recent data suggests the U.S. economy is very strong, hardly slowing down in Jan-Mar. The world economy slowed in that quarter but it appears to be rebounding. And recent rises in oil prices are likely to lift inflation expectations further,” said Tomoaki Shishido, senior fixed income analyst at Nomura Securities.

“We expect more selling until the next Fed’s meeting in June,” he said.

In the currency market, higher U.S. yields helped to strengthen the dollar against a wide range of currencies.

The euro dipped 0.1 percent to $1.1756 EUR=, hovering above Friday's five-month low of $1.1750.

The common currency was also hit after two anti-establishment parties pledged to increase spending in a deal to form a new coalition government.

The dollar maintained an uptrend against the yen, rising 0.20 percent to fetch 110.97 yen, JPY=, close to Friday's four-month high of 111.085.

Oil prices held firm near 3-1/2-year highs also on easing trade tensions between the world’s two biggest economies.

The market is keeping an eye on Venezuela, where President Nicolas Maduro appeared to be set for re-election, an outcome that could trigger additional sanctions from the United States and more censure from the European Union and Latin America.

Oil prices have been supported by plummeting Venezuelan production, in addition to a solid global demand and supply concerns stemming from tensions in the Middle East.

U.S. crude futures rose 0.8 percent $71.83 per barrel, near last week’s 3 1/2-year high of $72.30 while Brent crude futures notched up 0.8 percent to $79.10 per barrel. It had risen to $80.50 last week, its highest since November 2014.

Reporting by Hideyuki Sano

Friday, 18 May 2018

Asia stocks steady as markets eye U.S.-China trade talks, dollar elevated

TOKYO (Reuters) - Asian stocks were steady on Friday amid caution over developments in U.S.-China trade negotiations, while the dollar perched near a five-month peak after the benchmark U.S. Treasury yield hit its highest in seven years.

Spreadbetters expected European stocks to open mixed, with Britain’s FTSE dipping 0.1 percent, Germany’s DAX rising 0.13 percent and France’s CAC little changed.

MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed. The index was headed for a 1 percent loss this week.

Hong Kong’s Hang Seng rose 0.17 percent and Shanghai climbed 0.3 percent as some investors bet Beijing and Washington will reach a deal in the latest round of trade talks.

Japan’s Nikkei rose 0.35 percent, South Korea’s KOSPI was up 0.3 percent and Australian stocks dipped 0.2 percent.

Wall Street ended slightly lower on Thursday as investors grappled with U.S.-China trade tensions after U.S. President Donald Trump said that China “has become very spoiled on trade”.

But helping ease some of the tension, Beijing has offered Trump a package of proposed purchases of American goods and other measures aimed at reducing the U.S. trade deficit with China by some $200 billion a year, U.S. officials familiar with the proposal said.

A second round of talks between senior Trump administration officials and their Chinese counterparts started on Thursday, focused on cutting China’s U.S. trade surplus and improving intellectual property protections.

“President Trump does not do the actual trade negotiations, which are done by officials from both sides,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.

“China should be well accustomed to Trump’s ways by now. Judging from how the talks are proceeding so far, there is a greater chance of the negotiations ending in some sort of a compromise instead of falling through, and such an outcome would bode well for risk sentiment,” he said.

In currencies, the dollar index against a basket of six major currencies was steady at 93.471 after rising to a five-month peak of 93.632 on Thursday.

The index has gained about 1 percent this week, buoyed by the surge in U.S. Treasury yields, with the 10-year U.S. Treasury note yield hitting a seven-year peak of 3.128 percent.

The euro was up 0.1 percent at $1.1805, but not far off a five-month trough of $1.1763 brushed on Wednesday. The currency has fallen nearly 1.2 percent this week, largely pressured by Italian political uncertainty.

Reports this week that Italian populist parties likely to form the country’s next government may ask the European Central Bank for debt forgiveness have raised concerns about Italy abandoning fiscal discipline.

The dollar extended an overnight rally and rose to 111.005 yen, its highest since late January. The greenback has gained about 1.4 percent against its Japanese peer this week.

Emerging market currencies have also lost ground against the dollar this week as the rise in U.S. yields showed little signs of slowing.

The Turkish lira fell to a record low against the dollar this week, the Brazilian real plumbed a two-year low while Mexico’s peso has shed more than 5 percent this month.

A retreat by Indonesia’s rupiah to a 2-1/2-year low prompted the central bank to tighten monetary policy on Thursday for the first time since 2014 to support the currency.

“Perhaps the most unnerving aspect of the recent rupiah weakness has been the sheer speed in which the currency markets have turned against some emerging market countries,” wrote Sean Darby, chief global equity strategist at Jefferies.

“However, policy credibility is the most important tool and the fact that the Indonesian central bank has begun to tighten ought to alleviate some of the FX pressures.”

In commodities, Brent crude oil futures were 16 cents higher at $79.46 a barrel after rising to $80.50 on Thursday, their highest since November 2014.

Brent has risen 3 percent this week and is headed for a sixth week of gains.

A rapid slide in oil supply from Venezuela, concern that U.S. sanctions will disrupt exports from Iran, and falling global inventories have all combined to push oil prices up nearly 20 percent in 2018.

Inflation concerns, strong U.S. economic indicators and worries over increasing debt supply have pushed Treasury yields higher this week.

Reporting by Shinichi Saoshiro