Friday, 29 June 2018

8 Basic Forex Market Concepts

An Educational Article

Naturally trends are what allows traders and investors to capture profits. Whether on a short- or long-term time frame, in an overall trending market or a ranging environment, the flow from one price to another is what creates profits and losses. There are four major factors that cause both long-term trends and short-term fluctuations. These factors are governments, international transactions, speculation and expectation, and supply and demand.

Major Market Forces

Learning how these major factors shape trends over the long term can provide insight into why certain trends are developing, why a trend is in place and most importantly how future trends may occur. 

Here are the four major factors:
1. Governments
Governments hold much sway over the free markets. Fiscal and monetary policy have a profound effect on the financial marketplace. By increasing and decreasing interest rates the government and Federal Reserve can effectively slow or attempt to speed up growth within the country. This is called monetary policy. 
If government spending increases or contracts, this is known as fiscal policy, and can be used to help ease unemployment and/or stabilize prices. By altering interest rates and the amount of dollars available on the open market, governments can change how much investment flows into and out of the country. 

2. International Transactions
The flow of funds between countries impacts the strength of a country's economy and its currency. The more money that is leaving a country, the weaker the country's economy and currency. Countries that predominantly export, whether physical goods or services, are continually bringing money into their countries. This money can then be reinvested and can stimulate the financial markets within those countries.

3. Speculation and Expectation
Speculation and expectation are integral parts of the financial system. Where consumers, investors and politicians believe the economy will go in the future impacts how we act today. Expectation of future action is dependent on current acts and shapes both current and future trends. Sentiment indicators are commonly used to gauge how certain groups are feeling about the current economy. Analysis of these indicators as well as other forms of fundamental and technical analysis can create a bias or expectation of future price rates and trend direction. (See Understanding the Consumer Confidence Index to be followed.)

4. Supply and Demand
Supply and demand for products, currencies and other investments creates a push-pull dynamic in prices. Prices and rates change as supply or demand changes. If something is in demand and supply begins to shrink, prices will rise. If supply increases beyond current demand, prices will fall. If supply is relatively stable, prices can fluctuate higher and lower as demand increases or decreases. 

5.      Effect on Short- and Long-Term Trends
With these factors causing both short- and long-term fluctuations in the market, it is important to understand how all these elements come together to create trends. While these major factors are categorically different, they are closely linked to one another. Government mandates impact international transactions, which play a role in speculation, and supply and demand plays a role in each of these other factors.

Government news releases, such as proposed changes in spending or tax policy, as well as Federal Reserve decisions to change or maintain interest rates can have a dramatic effect on long term trends. Lower interest rates and taxes encourage spending and economic growth. This has a tendency to push market prices higher, but the market does not always respond in this way because other factors are also at play. Higher interest rates and taxes, for example, deter spending and result in contraction or a long-term fall in market prices. 

In the short term, these news releases can cause large price swings as traders and investors buy and sell in response to the information. Increased action around these announcements can create short-term trends, while longer term trends develop as investors fully grasp and absorb what the impact of the information means for the markets.

6.     The International Effect
International transactions, balance of payments between countries and economic strength are harder to gauge on a daily basis, but they play a major role in longer-term trends in many markets. The currency markets are a gauge of how well one country's currency and economy is doing relative to others. A high demand for a currency means that currency will rise relative to other currencies.

The value of a country's currency also plays a role in how other markets will do within that country. If a country's currency is weak, this will deter investment into that country, as potential profits will be eroded by the weak currency. Unique features of the forex market may allow larger players to get a jump on smaller ones.

7.      The Participant Effect
The analysis and resultant positions taken by traders and investors based on the information they receive about government policy and international transactions create speculation as to where prices will move. When enough people agree on direction, the market enters into a trend that could sustain itself for many years. 
Trends are also perpetuated by market participants who were wrong in their analysis; being forced to exit their losing trades pushes prices further in the current direction. As more investors climb aboard to profit from a trend, the market becomes saturated and the trend reverses, at least temporarily. 

8.      The S & D Effect
This is where supply and demand enters the picture. Supply and demand affects individuals, companies and the financial markets as a whole. In some markets, such as the commodity markets, supply is determined by a physical product. Supply and demand for oil is constantly changing, adjusting the price a market participant is willing to pay for oil today and in the future. 
As supply dwindles or demand increases, a long-term rise in oil prices can occur as market participants outbid one another to attain a seemingly finite supply of the commodity. Suppliers want a higher price for what they have, and a higher demand pushes the price that buyers are willing to pay higher.

All markets have a similar dynamic. Stocks fluctuate on a short and long-term scale, creating trends. The threat of supply drying up at current prices forces buyers to buy at higher and higher prices, creating large price increases. If a large group of sellers were to enter the market, this would increase the supply of stock available and would likely push prices lower. This occurs on all time frames. 

Reference: Cory Mitchell

Sterling rallies on UK GDP revision, Barnier's Brexit comments

LONDON (Reuters) - The pound rallied sharply on Friday after a better-than-expected revision to Britain’s first quarter economic growth raised expectations of monetary policy tightening later in the year.

Adding to the bounce, the European Union’s chief negotiator Michel Barnier said that EU leaders had made progress in Brexit talks though big differences remained.

The British economy grew 0.2 percent in the January to March quarter, against a preliminary number of 0.1 percent.

The data also showed Britain’s services sector gathered steam in April, raising hopes of a second-quarter pick-up after a sluggish start to 2018 that has stopped the Bank of England raising interest rates so far this year.

“You could argue that the fact the GDP number is stronger plays into the hand of the Bank of England hawks,” said Jane Foley, an analyst at Rabobank.

“That said, it still a weak figure. The room for celebration could be limited unless we get strong data for Q2.”

Market expectations for an August rate rise grew to 60 percent from an earlier 50 percent after Friday’s data release.

With momentum in Britain’s economy still fragile and uncertainty over Britain’s future relationship with the European Union, most traders remain cautious about the prospect of rate hikes and the pound.

The British economy performed relatively poorly in the first quarter after cold weather hit retail demand and the construction industry.

After a bruising week and month for sterling as worries about the lack of progress in Brexit talks and weakness in the British economy hit the currency, the pound rallied to $1.3170 on Friday, up 0.7 percent on the day.

Before the data it was trading at $1.3114, off the 7-1/2 month lows of $1.3050 hit earlier this week.

Against a euro buoyed by European Union leaders agreeing a deal on migration, the pound recovered its earlier losses and traded flat at 88.425 pence per euro.

British gilt futures fell 26 ticks to 122.74 after the data.

The state of Brexit talks should feature high on the agenda of EU leaders on the second day of a summit on Friday but expectations for progress towards an actual post-departure deal have been pushed back to October.

Reporting by Tommy Wilkes

Thursday, 28 June 2018

Dollar near one-year highs on trade concerns, half-year flows

LONDON (Reuters) - The dollar held near one-year highs on Thursday as conflicting signals about developments in the trade row between Washington and its business partners prompted buying of the currency, with support also coming from half-year end rebalancing flows.

Though overnight headlines suggested a more conciliatory approach from Washington, broader risk appetite remained modest in the currency markets, with perceived safe-havens such as the Japanese yen and the Swiss franc firmly supported.

U.S. President Donald Trump said on Wednesday he would use a strengthened national security review process to block Chinese acquisitions of sensitive American technologies, a softer approach than imposing China-specific investment restrictions.

“The latest headlines indicate a slightly softer stance but markets would be wary of reading too much into it for now, which explains the strength of the yen and the franc,” said Thu Lan Nguyen, an analyst at Commerzbank in Frankfurt.

In early London trading, the dollar edged 0.3 percent higher to 95.51 against a basket of its rivals, just below a mid-July 2017 high of 95.529 hit last week.

Though the yen JPY=EBS showed some weakness overnight, it remains firmly below a 2018 high of above 111 yen per dollar hit last month. The Swiss franc, another risk barometer, also remains firmly below 1.16 per euro EURCHF=EBS, a level considered too strong for the central bank’s comfort.

The euro EUR=EBS was on the back foot, with likely weak data and political concerns in Germany weighing. It was down 0.2 percent at $1.1538.

German Chancellor Angela Merkel’s fragile coalition government faces potential collapse as the Christian Social Union (CSU), her Bavarian ally, has threatened to defy her and impose border controls unless their demands to reduce Germany’s immigration burden are met.

There was some confusion about Washington’s trade intentions, with U.S. shares making an about-turn and dropping after White House economic adviser Larry Kudlow told Fox Business Network that Trump’s announced plan did not indicate a softened stance on China.

“The dollar has managed to stay buoyant despite a drop in Treasury yields and risk-off in U.S. stocks due to half year-end flows, which involves U.S. investors buying back the dollar,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“It remains to be seen how long flow-driven bids can support the dollar. Headlines on trade issues will continue to dictate direction once such flows subside.”

Among other major event risks is an EU summit starting on Thursday, from which Brexit-related headlines might sway the pound. In recent days, however, sterling has been moved more by expectations of UK rate changes.

The Australian dollar bounced modestly after sliding the previous day on the U.S.-China trade tensions. The Aussie was up 0.2 percent at $0.7356 AUD=D3 after plumbing a 1-1/2-year trough of $0.7323 on Wednesday.

Reporting by Saikat Chatterjee

The History Of Money And Currency Wars

An Educational Article

Money has played a very important role in every war since its creation. Ancient kings played with the percentages of precious metals in their coins to create more money to raise armies, feudal lords tried to undermine each other's treasuries and counterfeiters have run rampant throughout history. The most famous currency war, however, took place between the British Empire and its colony in America.

Currency Wars

In the 17th century, England was determined to keep control of both the American colonies and the natural resources they controlled. To do this, the English limited the money supply and made it illegal for the colonies to mint coins of their own. Instead, the colonies were forced to trade using English bills of exchange that could only be redeemed for English goods. Colonists were paid for their goods with these same bills, effectively cutting them off from trading with other countries.
In response, the colonies regressed back into a barter system using ammunition, tobacco, nails, pelts and anything else that could be traded. Colonists also gathered whatever foreign currencies they could, the most popular being the large, silver Spanish dollars. These were called pieces of eight because, when you had to make change, you pulled out your knife and hacked it into eight bits. From this, we have the expression of, "two bits", meaning a quarter of a dollar. (To read about money's beginnings, see The History Of Money: From Barter To Banknotes.)

Massachusetts Money

Massachusetts was the first colony to defy the British. In 1652, the state minted its own silver coins, including the pine-tree and oak-tree shillings. It circumvented the British law stating that only the monarch of the British empire could issue coins by dating all their coins 1652 - a period when there was no monarch. In 1690, Massachusetts issued the first paper money as well, calling it bills of credit.
Tensions between America and Britain continued to mount until the Revolutionary War broke out in 1775. The colonial leaders declared independence and created a new currency called "continentals" to finance their side of the war. Unfortunately, each government printed as much as it needed without backing it to any standard or asset, so the continentals experienced rapid inflation and became utter worthlessness. This discouraged the government from using paper money for almost a century.

Aftermath of the Revolution

The chaos from the war left the monetary system in America a complete wreck. Most of the currencies in the newly formed United States of America were useless. The problem wasn't resolved until 13 years later in 1788, when Congress was granted constitutional powers to coin money and regulate its value. Congress established a national monetary system and created the dollar as the main unit of money. There was also a bimetallic standard, meaning that both silver and gold could be valued in dollars and used as money.

It took 50 years to get all the foreign coins and competing state currencies out of circulation, but by the early 1800s, the U.S. was ready to try the paper money experiment again. Bank notes had been in circulation all the while, but because banks issued more notes than they had coin to cover, these notes often traded at less than face value.
In the 1860s, the U.S. created more than $400 million in legal tender to finance the Civil War. These were called greenbacks simply because the backs were printed in green. The government backed this currency and stated that it could be used to pay back public and private debts. The value did, however, fluctuate according to the North's success or failure at certain stages in the war. Confederate dollars, also issued during the 1800s, followed the fate of the confederacy and were worthless by the end of the war.

Aftermath of the Civil War

Following its victory, the U.S. government got the National Bank Act through congress (February 1863). This act established a monetary system whereby national banks issued notes backed by U.S. government bonds. The government then choked out notes from state banks by taxation. The U.S. Treasury then worked to get greenbacks out of circulation so that the national bank notes would become the only currency.
During this period of rebuilding, there was a lot of debate over the bimetallic standard. Some were for using silver to back the dollar, others were for gold. The situation was resolved in 1900 when the Gold Standard Act was passed. This meant that, in theory, you could take your money to Fort Knox and exchange it for the corresponding value in gold. Another innovation brought the Federal Reserve into being in 1913. The Federal Reserve was given the power to steer the economy by controlling money supply and interest rates on loans. 

Gold No More

In 1971, the U.S. dollar moved off the gold standard. The significance of moving away from the standard is that it became possible to create more money than there was gold to back it. Money's value was now decided purely by its purchasing power as dictated by inflation. There is no shortage of people who believe this is going to cause the end - with the dollar going the way of its forefather, the continental. There is a danger of losing the value of the dollar, but now it is backed by the health of the American economy. If the economy takes a nosedive, the value of the U.S. dollar will drop both domestically through inflation, and internationally through currency rates. Fortunately, the implosion of the U.S. economy would plunge the world into a financial dark age, so many other countries and entities are working tirelessly to ensure that never happens. 

Money in the Future

Although the paper bills we carry around now have high-tech watermarks and security threads, the future of money might move towards chips and bitcoin. One day, a chip in your wallet may register purchases just by waving it over a product you want to walk out with - no clerk, no smile, no "hi my name is" badge. Internet systems, such as Paypal, are contenders for the next generation of money as the world becomes more interconnected. 

However, many nations are still worried about cash they can't track or tax, but an internet economy is as inevitable as a free-trading America was. Money has changed a lot since the days of shells and skins, but its main function hasn't changed at all. Regardless of what form it takes, money offers us a medium of exchange for goods and services and allows the economy to grow as transactions can be completed at greater speeds.

Reference: Andrew Beattie

Trade war fears grip stocks, dollar drives higher

LONDON (Reuters) - Pressure on world shares from a U.S.-driven trade dispute mounted on Thursday, as a fast-charging dollar and a jump in oil prices also cranked up the pain in emerging markets.

Europe's bourses inched lower as traders positioned for a potentially fraught meeting of EU leaders, with the mood set overnight by two-year lows for Chinese stocks .SSEC and a six-month low for the yuan.

They, like Wall Street, had been buffeted again after U.S. President Donald Trump and White House economic adviser Larry Kudlow outlined plans to clamp down on Chinese acquisitions of sensitive American technologies.

Asian shares had reached a nine-month trough, while MSCI’s emerging market index - which also includes other hard-hit countries including Mexico, Brazil, Turkey and South Africa - dropped to its weakest in almost a year.

MSCI’s broadest gauge of the world’s stock markets .MIWD00000PUS meanwhile fell to its lowest in almost three months and was on course to post its fourth losing month in the last five.

“If the trade war becomes bigger and bigger and bigger the impact will be very strong,” said London & Capital’s Chief Investment Officer Pau Morilla-Giner.

“You could see tech (stocks) taking a lot of impact... and you could see some big negative numbers on the main indexes,” though he added he did not expect the situation to escalate to a full-blown crisis at this point.

There were other signs too that markets were getting nervous about the economic impact of the dispute.

U.S. Treasury and German Bund yields remained near one-month lows as bond investors sought out the guaranteed returns that stocks cannot offer.

The U.S. 2- to 10-year yield curve, whose flattening can be an early warning indicator of recessions, stayed pinned near the 11-year low of 31 basis points it had hit on Wednesday. A dip in Italian yields ahead of a key bond sale there did though point to some risk appetite returning.

Analysts cited local reports that tax cuts and a citizens’ income would not be introduced next year as another factor boosting Italian government bonds.

“The general tone from the Italian government has been a little bit more conciliatory, which has given markets some comfort that the budget deficit should stay under control,” said DZ Bank analyst Andy Cossor.

A European Union summit scheduled to begin later in the day could prove disruptive to markets, though, as embattled German Chancellor Angela Merkel seeks broader agreement on migration.

Two main forces were playing out in the currency markets.

The trade tensions pushed the dollar - seen as one of the safest investments especially if U.S. interest rates keep rising - to test a one-year high against a basket of other top currencies.

Though the yen JPY=EBS had shown some strength overnight, it remains firmly below a 2018 high of above 111 yen per dollar hit last month. The Swiss franc, another risk barometer, also remains firmly below 1.16 per euro, a level considered too strong for the central bank’s comfort.

In emerging markets, clear signs are emerging that traders think higher oil prices will lead to higher inflation in big oil importing economies, hurting their growth levels.

The Indian rupee hit an all-time low of 69.09 to the dollar during the Asian session, while Indonesia's rupiah IDR= slumped as much as 0.83 percent to touch its weakest since October 2015.

U.S. crude futures had surged 3.16 percent on Wednesday, rising to as much as $73.06 a barrel, the highest since November 2014, on signs of tight supply.

U.S. crude stocks fell nearly 10 million barrels last week while a fall in Canadian exports helped drain supplies of heavy crude across North America.

White House pressure on other countries to stop all imports of Iranian oil is seen as creating a shortage, while a power struggle in Libya has left it unclear whether its internationally recognised government or rebels will handle oil exports.

U.S. crude futures traded back a touch at $72.62 a barrel, while global benchmark Brent was 16 cents lower at $77.46.

“A number of people will be revising higher their assumptions for the loss of Iranian barrels,” Harry Tchilinguirian, strategist at French bank BNP Paribas, told Reuters Global Oil Forum.

“If we assume that OPEC and its allies will deliver a near 1 million barrels per day (bpd) increase in production, most of it will be offset by lower volumes out of Iran.”

Reporting by Marc Jones

Sterling skids to fresh seven-and-a-half month low as Brexit pressures grow

LONDON (Reuters) - The pound fell to its lowest since mid-November on Thursday as investors fretted that the message to come out of a European Union summit will be that there has been no meaningful progress for months in negotiations on a Brexit deal.

The lack of progress, combined with a raft of corporate warnings this week about the hit to Britain’s economy if a deal is not agreed soon, has weighed heavily on sterling and lowered expectations of a Bank of England interest rate rise.

The incoming member of the BoE’s rate-setting team, Jonathan Haskel, replaces a relatively hawkish policymaker and this week he signalled a more dovish tone than some expected. Markets are pricing in an 84 percent chance of a single 25 basis point hike by the end of 2018.

EU leaders gather in Brussels on Thursday for a summit from which the outline of a post-Brexit deal was once expected.

But Brexit has been pushed to the bottom of the agenda and investors are expecting only an update on progress for agreeing an arrangement for the future border between Ireland and Northern Ireland and for the future trading relationship between the EU and Britain.

The British currency slid 0.4 percent to as low as $1.3066 in early European trading, its weakest since Nov. 13.

The latest drop means the pound has tumbled more than 9 percent since a post-Brexit referendum high in April, sent lower in part by a resurgent dollar but also by mounting worries about Britain’s economy less than a year before Britain departs the EU.

Against the euro sterling also fell, 0.2 percent to 88.29 pence per euro. It earlier had weakened to its lowest level since early May.

“We have the EU summit and there is always nervousness around Brexit. There are also concerns about no interest rate hikes. That’s all adding up to the negative sentiment,” said Niels Christensen, a currencies analyst at Nordea in Copenhagen.

Nordea has a 3-month target price of $1.28 and believes further weakness is headed sterling’s way because there will be no rate rise in 2018 and because the talks with the EU over Brexit will reach a crunch point after the summer.

Britain and the EU have given themselves a deal deadline of October.

Other analysts said the market remained relatively unmoved by Brexit worries, however, because traders remained confident a last-minute deal would be reached.

“The market is only going to get really nervous a few days before the deadline. Until then I do not expect any major momentum for the sterling exchange rates from any Brexit news. As a result today’s World Cup match against Belgium is likely to be of more interest to the Brits than the EU summit,” Commerzbank analysts said.

This week has seen some evidence that Brexit uncertainty is already hitting the economy, with a halving in new investment in the British car industry.

Reporting by Tommy Wilkes

Wednesday, 27 June 2018

Asia shares sideswiped by China skid, oil extends gains

SYDNEY (Reuters) - Asian share markets were under stress on Wednesday as further falls in Chinese stocks and the yuan sent ripples across the region, while oil climbed as the United States leaned on allies to stop buying Iranian crude.

Chinese blue chips .CSI300 sank 2.2 percent to be a whisker above 13-month lows as a resolution of Sino-U.S. tensions remained a distant prospect.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS lost another 0.6 percent after touching a two-year trough on Tuesday.

Japan's Nikkei .N225 had been faring better but soon succumbed to risk aversion and fell 0.3 percent.

European shares were expected to open flat, while E-mini futures for the S&P 500 ESc1 were off 0.18 percent.

The fragile mood in Asia overshadowed gains in energy stocks made after news broke that Washington was pushing allies to halt imports of Iranian crude.

U.S. crude added 17 cents to $70.70, having surged 3.6 percent overnight, while Brent  climbed 18 cents to $76.49 a barrel.

The jump in oil boosted the Wall Street energy sector 1.4 percent .SPNY, making it the biggest gainer on the S&P 500.

But the S&P .SPX still only managed to add 0.22 percent overall, while the Dow .DJI rose 0.12 percent and the Nasdaq .IXIC was up 0.39 percent.

Confusion remained the watchword with U.S. trade policy.

The U.S. House of Representatives overwhelmingly passed a bill on Tuesday to tighten foreign investment rules, spurred by bipartisan concerns about Chinese bids to acquire sophisticated U.S. technology.

Yet President Donald Trump also endorsed a measured approach to restricting Chinese investments in U.S. technology companies, saying a strengthened merger security review committee could protect sensitive technologies.

“We remain of the view that a large scale “trade war” remains a low probability though the odds of it happening appear to have increased,” said JPMorgan economist David Hensley.

He noted that the latest tariff threats from the White House would cover more than 30 percent of U.S. imports, equal to almost 5 percent of annual economic output (GDP).

“If all this were to happen, and U.S. trading partners were to retaliate, it would deliver a significant supply shock to the world economy, raising inflation and lowering growth.”

In currency markets, trade-sensitive currencies including the Australian and New Zealand dollars lost ground while the safe-haven yen found demand. The kiwi dollar hit its lowest in seven months at $0.6812 NZD=D4.

The U.S. dollar was broadly steady against a basket of currencies at 94.661, after bouncing from 94.171 on Tuesday. The euro EUR= was back at $1.1650, having run into profit-taking at a top of $1.1720 overnight.

Yet the dollar could not sustain gains on the yen and eased back to 109.85 from an early 110.12 JPY=.

The dollar has been aided in part by recent gains on the Chinese yuan, which has stirred speculation Beijing was allowing its currency to weaken to bolster exports.

The People's Bank of China (PBOC) fixed the yuan midpoint at a six-month low of 6.5569 per dollar on Wednesday. That was down 0.6 percent from the previous fix but actually a little firmer than market expectations.

However, the spot rate continued to slip with the yuan breaking past 6.6600 per dollar for the first time since December.

“The PBOC’s preference might be to allow moderate weakening, pulling back if depreciation pressures started intensifying. But that’s a difficult balance to strike. The chances of a sizeable depreciation have risen,” economists at Capital Economics said in a note.

In commodity markets, gold was seemingly no longer considered a safe haven by investors and hit its lowest in more than six months.

Spot gold XAU= was last at $1,255.93 having hit its weakest since mid-December at $1,253.00.

Reference: Wayne Cole

Sterling falls after incoming Bank of England rate-setter's comments

LONDON (Reuters) - The pound fell versus the dollar on Tuesday after an incoming Bank of England policymaker expressed caution over Britain’s readiness for higher interest rates and uncertainty over the impact of Brexit on the economy.

Sterling fell as much as half a percent as economics professor John Haskel, whose views are relatively unknown and who replaces a policymaker who has called for higher interest rates, spoke to the British parliament’s Treasury Select Committee.

“For me, the ‘depending on Brexit negotiations there may be at least a temporary lull in the economy’ speaks volumes,” said Neil Jones, head of FX hedge fund sales at Mizuho, referring to Haskel’s comments.

Jones said the comments suggested Haskel was more likely to vote to hold interest rates than to raise them, possibly shifting the BoE voting pattern back in favour of the doves.

Sterling had enjoyed a bounce off 7-month lows after a Bank of England meeting last week raised expectations of a rate rise in the coming months. But the rally has proved short-lived.

The pound fell to $1.3208, still above the 7-month low of $1.3102 plumbed last week, before settling at $1.3244, down 0.3 percent on the day.

Sterling also fell to a nine-day low versus the euro of 88.120 pence as Haskel spoke before rising to trade flat.

The pound had been one of the best-performing currencies in 2018, but weak economic data and a surge in the dollar have erased all of its gains for this year. It is headed for its weakest quarter since that of the Brexit referendum in 2016.

The British currency had already been under pressure on Tuesday as concerns about a growing trade conflict between the United States and other major economies limited investors’ appetite for risk.

Sterling traders were also refraining from taking out big positions before a European Union leaders’ summit later this week.

The summit means the focus for much of the trading sessions this week will be on Britain’s efforts to agree a deal with the EU on the shape of the trading relationship after their divorce.

“If the spreading weakness of global equity markets reflects a dawning realisation that the economic cost of a trade dispute is significant, then it should be no surprise that concern is growing about the impact of leaving the single market,” said Kit Juckes, a currencies strategist at Societe Generale.

Juckes said he found it difficult to be cheerful about the outlook for sterling. Rate differentials between Britain and the United States suggested a lower pound and the currency has also failed to capitalise on euro weakness caused by a more dovish European Central Bank.

GDP data for the first quarter on Friday will also give some indication on how Britain’s economy is faring.

Markets see more than a 50 percent likelihood of the BoE raising interest rates in August by 25 basis points and around a 90 percent chance of a rate increase by the end of 2018.

Reporting by Tommy Wilkes

Dollar treads water as trade fears cap bounce from two-week low

TOKYO (Reuters) - The dollar held steady against a basket of currencies on Wednesday, its earlier bounce from two-week lows flagging amid lingering trade conflict concerns.

The dollar index against a basket of six major currencies was steady at 94.652 after gaining 0.4 percent overnight to snap a four-session losing run.

While a modest easing in concerns over an escalating trade row between the United States and its trade partners had lifted the dollar off a two-week trough of 94.171, wariness lingered and capped the dollar.

Underlining investor caution, equity markets in Asia extended losses and slipped across the board on Wednesday.

“The spat is beginning to have an actual impact on corporate behaviour and this is the difference from the earlier stages of the trade row,” said Koji Fukaya, president at FPG Securities in Tokyo.

“The ‘risk off’ trend has started to impact corporations in the developed markets, clouding the outlook for their economies and suppressing dollar demand.”

The dollar was 0.1 percent lower at 109.92 yen, after going as high as 110.23 on Tuesday. The yen is often sought in times of market turmoil and political tensions.

“The dollar lacks guidance from U.S. yields, which have been directionless. Furthermore, it is difficult to gauge whether the Trump administration is poised to become even more conservative towards trade issues or if it wants to ease its stance,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The 10-year U.S. Treasury note yield was unchanged at 2.882 percent. The yield has been confined in June to a 15 basis point range after fluctuating by nearly 40 basis points in May, during which it touched a seven-year high of 3.128 percent.

The euro was a shade higher at $1.1657 after losing 0.5 percent overnight, when a rise in Italian bond yields ahead of debt auctions later this week soured sentiment towards the single currency.

Italy will sell five- and 10-year bonds on Thursday, with the auctions seen as a test of investor appetite for the country’s debt following the political turmoil that gripped Rome last month.

Sterling was effectively flat at $1.3224.

The pound had dropped 0.45 percent on Tuesday after an incoming Bank of England policymaker expressed caution over Britain’s readiness for higher interest rates and uncertainty over the impact of Brexit on the economy.

The trade-sensitive Australian dollar was down 0.25 percent at $0.7371, edging back towards a 13-month low of $0.7345 plumbed last week.

The Chinese yuan slipped to a new six-month low of 6.615 per dollar after the People’s Bank of China (PBOC) lowered the currency’s midpoint for the sixth straight day to its weakest in six months.

The yuan had slumped on Tuesday on expectations that Beijing will let the currency weaken further to soften the impact of trade tariffs imposed by the United States.

Reference: Shinichi Saoshiro

Tuesday, 26 June 2018

European shares crawl back up after trade war-driven selloff

LONDON (Reuters) - European shares enjoyed a modest bounce on Tuesday, recovering slightly after ratcheting trade tensions had sent stock markets into a spiral as investors shed risky assets.

The pan-European STOXX 600 was up 0.2 percent by 0728 GMT, but was far from making up all the previous session’s 2 percent losses.

Germany's exporter-heavy DAX .GDAXI, which has been the most sensitive to trade tensions, managed a 0.5 percent gain.

The sectors worst hit by the trade-related selloff were Tuesday’s strongest gainers, with banks, basic resources .SXPP and oil stocks .SXEP leading the way, while tech stocks also recovered.

Merger and acquisition news drove the biggest movers.

British satellite firm Inmarsat fell 6.3 percent, the worst on the STOXX 600, after France’s Eutelsat reven said it did not intend to make an offer for the firm, having said on Monday it was considering a possible bid.

Eutelsat shares rose 2.9 percent.

Bid speculation meanwhile boosted French payments processor Ingenico 4.2 percent after Bloomberg reported on Monday that the firm was drawing preliminary interest from several private equity firms.

In results-driven moves, the food and biopharma testing firm Eurofins jumped 5.4 percent after saying it was raising its revenue target for the year, having received antitrust clearance for its acquisition of U.S. food company Covance.

Austrian paper pulp maker Andritz rose 4.6 percent after Goldman Sachs upgraded the stock to a “buy”, a day after the firm clinched a deal to buy U.S. company Xerium Technologies.

Reporting by Helen Reid

Dollar holds near 1-week lows as trade war concerns rise

LONDON (Reuters) - The dollar held near a one-week low against a basket of currencies on Tuesday as investors retreated to the sidelines while concerns grew about an intensifying conflict between the United States and its trade partners, particularly China.

The Chinese currency weakened to a fresh six-month low as expectations grew that Beijing will let the yuan weaken more in coming days to soften the impact of trade tariffs by the U.S.

“Currency markets are treading water at the moment because of the trade war concerns and in the near term we think the dollar may gain against the Chinese currency and other rivals,” said Alvin Tan, a currency strategist at Societe Generale in London.

Against a basket of its rivals .DXY, the dollar was broadly flat at 94.32, its lowest in nearly two weeks. So far this month, the index is up 0.34 percent.

Risk appetite was broadly muted with relatively safe-haven currencies such as the Japanese yen and the Swiss franc firmly supported, while high-yielding currencies such as the Australian dollar AUD=D3 were on the back foot.

With the Chinese yuan in the offshore market plumbing a fresh six-month low against the dollar, Asian currencies also came under selling pressure with a widely-tracked index following the performance of Asian currencies against the dollar down 0.3 percent on the day.

U.S. Treasury Secretary Steven Mnuchin said on Monday that coming investment restrictions from the department would not be specific to China but would apply “to all countries that are trying to steal our technology.”

However, that statement was contradicted by White House trade and manufacturing adviser Peter Navarro, who said that any investment restrictions proposed by the Trump administration would target China and not other countries.

The euro edged 0.1 percent lower at $1.1696 , extending its recovery from its 11-month low of $1.1508 touched on Thursday.

Still, the single currency remains vulnerable to regional political instability as German Chancellor Angela Merkel faces pressure to deal with the migration issue that has divided Europe and threatened her own government.

“The ongoing political angst in Europe also has contributed to risk-off market sentiment,” said Kengo Suzuki, chief forex strategist at Mizuho Securities.

Reference: Saikat Chatterjee

Global stocks fall as trade row intensifies, dollar wobbles

TOKYO (Reuters) - World stocks extended a sell-off on Tuesday as escalating trade tussles between the United States and other major economies steered investors away from riskier assets, with markets in China bearing the brunt of investor anxiety.

Spreadbetters expected European shares to open slightly higher following the previous day’s sharp losses, with Britain’s FTSE gaining 0.25 percent, Germany’s DAX rising 0.35 percent and France’s CAC climbing 0.25 percent.

The tense atmosphere lifted demand for safe-haven U.S. Treasuries and kept the dollar on the defensive as financial markets worried about the wider global economic fallout of the Trump administration’s “America First’ agenda.

Asian equities were lower across the board after Wall Street tumbled, with the S&P 500 and Nasdaq suffering their steepest losses in more than two months overnight.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.27 percent.

Hong Kong’s Hang Seng retreated 0.2 percent, the Shanghai Composite Index slid 0.8 percent, and Japan’s Nikkei was down 0.1 percent after trimming most of its earlier losses.

Tech-heavy indexes such as South Korea’s KOSPI and Taiwan’s weighted index fell 0.45 percent and 0.55 percent, respectively.

Taiwan Semiconductor Manufacturing Co was down 1.8 percent, South Korean chipmaker SK Hynix Inc lost 1 percent and Japan’s Tokyo Electron was down 0.6 percent. Chinese tech giant Tencent Holdings shed 0.3 percent.

Asian tech shares slid after U.S. peers, which derive much of their sales revenue from China, took a battering overnight.

Sparking the drop in tech shares and souring broader sentiment was a report on Monday that the U.S. Treasury Department was drafting curbs that would block companies with at least 25 percent Chinese ownership from investing in U.S. tech firms.

“Unlike the seemingly spur-of-the-moment tweets by President Trump and the retaliatory exchange of tariffs, Washington’s bid to protect intellectual property is an issue at the heart of a trade row between two powers battling for future global supremacy,” wrote Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities in Tokyo.

Besides the trade dispute with China, the United States has recently raised the stakes in a challenge to the European Union by threatening tariffs on cars imported from the bloc.

“The increasingly hawkish trade rhetoric the United States is employing could begin impacting the economy by cooling investor sentiment and curbing capital expenditure by corporations,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

“It’s turning out to be a long-term bearish factor for the financial markets, as the United States is unlikely to back down at least through its midterm elections (in November).”

The dollar index against a basket of six major currencies dipped 0.1 percent to 94.202 and was headed for its fifth straight day of losses.

The greenback was pressured as long-term U.S. Treasury yields declined to one-week lows as prices rose on heightened risk aversion in financial markets.

The euro added to the previous day’s gains and reached a near two-week high of $1.1722.

The dollar was down 0.3 percent at 109.460 yen, having fallen to a two-week low of 109.365 on Monday. The yen often attracts safe-haven bids in times of political tension and market turmoil.

Brent crude oil futures were up 0.15 percent at $74.83 on uncertainty over Libya’s capacity to deliver on exports commitments. Brent futures had fallen 1 percent overnight as receding investor risk appetite weighed on commodities.

Oil prices were capped after OPEC and its allies on Friday agreed to increase global supplies, albeit modestly.

Trade concerns kept copper on the London Metal Exchange near a 2-1/2-month low of $6,702.5 per tonne brushed on Monday. Spot gold shed 0.1 percent to $1,263.62 an ounce.

Reporting by Shinichi Saoshiro

Monday, 25 June 2018

Euro slips as trade tensions keep FX markets on edge

LONDON (Reuters) - A rally in the euro faded on Monday as the dollar edged up with trade tensions between the United States and the European Union seen deciding the near-term direction for the currencies.

Investors steered away from risk, with Asian equities in retreat and Treasury yields declining, after a report that U.S. President Donald Trump plans to bar many Chinese companies from investing in U.S. technology firms and block more tech exports to Beijing.

The report added to the sense of caution felt after President Trump on Friday threatened to impose a 20 percent tariff on all cars imported from the European Union. The EU responded by saying it will have no choice but to retaliate to such a move.

The euro at 0730 GMT on Monday was down 0.2 percent at $1.1629. EUR=EBS

The euro had climbed on Friday as traders were encouraged by improved regional economic growth data and new assurances by Italian politicians that their nation would not leave the single currency.

On Monday, the greenback rose 0.2 percent against a basket of major currencies, moving toward an 11-month high.

But the dollar hit a two-week low versus the safe-haven Japanese yen, another sign that the latest flare-up in global trade concerns has dented investor risk appetite.

“U.S. plans to unveil limits on Chinese tech firms’ investments in U.S. companies have delivered another blow to risk sentiment this morning. The trade dispute drags on and the yen is the main beneficiary,” said Societe Generale macro strategist Kit Juckes.

The greenback fell half a percent to 109.40 yen JPY=D3, its weakest since June 8.

Despite last week’s gains, the euro still appears vulnerable to regional political instability and U.S. tariffs.

U.S. President Donald Trump on Friday called for a 20 percent levy on European Union-assembled car imports.

German Chancellor Angela Merkel faces pressure to deal with the migration dispute that has divided Europe and threatened her own government.

“For the euro there’s a continuous potential for event risks, amongst others political crises in Berlin, and this means a disadvantage in the race for the status as the world’s leading currency,” said Commerzbank currencies strategist Ulrich Leuchtmann.

Commodity-linked currencies dipped as a surge by crude oil prices ran out of steam amid the latest round of trade jitters.

Oil had rallied on Friday after OPEC agreed to an unexpectedly modest increase in production from next month after Saudi Arabia persuaded Iran to cooperate.

The Australian dollar was down 0.1 percent at $0.7432 AUD=D4 after gaining 0.85 percent on Friday. The Aussie had fallen to a one-year low of $0.7394 last week, hurt by the Sino-U.S. trade spat.

The Canadian dollar slipped 0.25 percent to C$1.3295 CAD=D4 per dollar after advancing 0.4 percent on Friday. The loonie had brushed a one-year low of C$1.3384 last week, buffeted by volatility in crude oil prices.

The Turkish lira was up about 1.5 percent at 4.59 per dollar.

The lira had initially soared after Turkish president Tayyip Erdogan and his ruling AK Party claimed victory in presidential and parliamentary elections on Sunday, overcoming the biggest electoral challenge to their rule in a decade and a half.

Reference: Tom Finn

Take Five - World markets themes for the week ahead

LONDON (Reuters) - Following are five big themes likely to dominate thinking of investors and traders in the coming week and the Reuters stories related to them.


As the trade war rhetoric starts to turn into action, China’s markets are on the defensive. The yuan has fallen to its lowest against the dollar since early 2018, stocks just had their biggest weekly decline in five months, and cash rates are rising, with the 14-day repo rate hitting a two-month high as firms locked in funding to cover the end of the quarter.

The question is: What might authorities do? At present they are trying to keep markets flush to make sure the economic wheels keep turning – the central bank injected a net 340 billion yuan ($52.3 billion) in the past week, including 200 billion yuan via its one-year medium-term lending facility. Banks’ reserve ratios are also likely to be cut further.

These policy easing expectations are partly driving the yuan’s slide, but investors are wondering now how far the weakness could go.

A weak yuan might help offset the trade impact. Yet a rapid currency fall, aside from provoking more ire in Washington, could feed on itself by fuelling further outflows of money from China, as happened after the August 2015 devaluation. It would also be bad news for other emerging markets such a Taiwan, Mexico and South Korea that compete with China in export markets.

China eyes reserve cuts, other policy measures to aid small firms

EXPLAINER-What can Beijing do if China-U.S. trade row worsens?

Slowdown, default risks to prompt China reserve cut-sources


Increasingly hostile trade war rhetoric, mixing in with tit-for-tat tariffs increases risks for investors and consumers concerned about their portfolios and prices they pay for imported goods.

U.S. consumer confidence however is expected to remain at a lofty level in June as corporate profits remain healthy. The report, due on June 26, is forecast by a Reuters poll of economists to hold steady at 128, just off an 18-year high hit in May.

Economists point out the amount of tariffs being threatened is overall quite small in the context of a $20 trillion U.S. economy. In the case of China-U.S. trade, Beijing exports more than it imports, meaning it will run out of products it can tax well before Washington does. But try explaining that to people buying a TV to watch the World Cup.


The migration debate is overshadowing the official agenda for the June 28-29 EU summit, which means chances are slim of market-moving reforms being finalised. Nonetheless, up for discussion will be blueprints for strengthening the ESM bailout fund, a common euro zone budget and the banking union project to boost trust in the bloc’s financial sector. The summit may also debate plans to further ease debt restructurings in Europe.

As for country-specific issues, Italy and Britain will be in focus — the summit will mark the first EU airing for Italian Prime Minister Giuseppe Conte. For Britain, meanwhile hopes are ebbing the event will break a deadlock on how to exit the EU as Prime Minister Theresa May is struggling to find a proposal on post-Brexit customs arrangements to take into the negotiations.

The weekend marks the second anniversary of the Brexit referendum and the clock is ticking down to the scheduled exit date of March 29, 2019. Sterling, down 8 percent since mid-April, is enjoying a brief reprieve thanks to an unexpectedly hawkish Bank of England meeting on Thursday but remains on course for its worst quarter since the Brexit vote.


Flash euro zone inflation figures are expected to show exactly why the ECB’s retreat from crisis-era stimulus measures will be glacial. Economists anticipate a 1.3 percent annual rise in consumer prices in June, short of the ECB’s target of “below, but close to, 2 pct over the medium term”.

The ECB will end its 2.4 trillion euro bond-buying programme in December, but signalled that negative interest rates are here to stay for some time. That means Mario Draghi’s 8-year term as ECB president could end in October 2019 without his ever having presided over a rate rise.

Since the ECB policy decision and Draghi’s press conference on June 14, the euro has fallen as much as 2.6 pct and came close to breaking below $1.15 for the first time in almost a year. Morgan Stanley and others have lowered their euro forecasts, and weak inflation data could see another test of $1.15.


Having received three bailouts since 2010, Greece has taken a big step forward — the euro zone has agreed to extend bond maturities and defer interest on a major part of its loans to Athens, along with a big cash injection. This makes Greece’s debt load more sustainable, smoothing its path for the time after it exits the bailout in August.

Markets have reacted accordingly, with five- and 10-year bond yields falling 23 and 16 bps respectively, the latter at a four-week low.

This is good news for a euro zone facing the risk of another crisis, this time in Italy. For Greece, the question now is when it can start borrowing on markets again. It sold bonds last year for the first time in three years and wants to raise another 4.5 billion euros in 2018, including its first 10-year issue in a decade.

The prospect of a new Greek issue is also tantalising fund managers and investment bankers. But Greece has no immediate need for cash and the selloff in Italian debt has made issuance harder for southern European borrowers. Still, syndicate bankers reckon Athens should be able to grab a window of opportunity sometime before the August lull.

Reporting by Daniel Bases in New York, John Mair in Sydney, Abhinav Ramnarayan, Jamie McGeever and Tom Finn in London

Trade worries hit world stocks, oil gives back gains

LONDON (Reuters) - World shares fell on Monday, dented by worries over a worsening trade dispute between the United States and other major economies, while oil prices gave up some of the gains made after major exporters agreed a modest production increase.

The Wall Street Journal said U.S. President Donald Trump planned to bar many Chinese companies from investing in U.S. technology firms and block additional technology exports to China.

The report hit Asian stocks overnight and in London the pan-European STOXX 600 index was down over half a percent in morning trade.

S&P500 mini futures fell as much as 0.6 percent while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.95 percent to 6-1/2-month lows. Japan's Nikkei .N225 lost 0.8 percent.

Taking a particular hit on the trade tensions was the European autos sector, falling 1.4 percent and set for its seventh straight day of losses after Trump said on Friday he aimed to hike tariffs on EU car imports by 20 percent.

MSCI’s All-Country World index .MIWD00000PUS, which tracks shares in 47 countries, was down 0.3 in morning trade in Europe.

As the threat of a full-blown trade war has grown, the gauge has fallen in five of the last six weeks. Last week it fell one percent - its biggest weekly drop in three months.

“We suspect the Trump team will push ahead with these policies (which will elicit reciprocal tariffs from China and the EU) until U.S. equities start to crumble and polls move against Trump,” wrote ING strategists in a research note.

A spread between approval and disapproval ratings of the U.S. President had reached its narrowest since March 2017, they noted.

Chinese shares were among the biggest losers, falling 1.27 percent and tumbling 3.7 percent last week, as Trump threatened to hit $200 billion of Chinese imports with 10 percent tariffs.

Policymakers in China moved fast to temper any potential economic drag from the dispute, as its central bank said on Sunday it would cut the amount of cash some banks must hold as reserves by 50 basis points.

That reduction in reserve requirements, the third this year, had been widely anticipated by investors and is aimed at accelerating the pace of debt-for-equity swaps and spurring lending for smaller firms.

Despite the move, the CSI300 Index .CSI300 of mainland Chinese shares lost 0.8 percent, edging near the one-year low it touched on Friday.

The index of global auto manufacturers .MIWO0AC00PUS fell 0.7 percent. It lost 4.7 percent last week.

Trump threatened to impose a 20 percent tariff on Friday on all imports of EU-assembled cars, a month after his administration launched an investigation into whether auto imports posed a national security threat.

A senior European Commission official said on Saturday that the European Union would respond to any U.S. move to raise tariffs on cars made in the bloc.

Investors and traders are worried that threats of higher U.S. tariffs and retaliatory measures could derail a rare period of synchronised global growth.

Oil shed some of the gains posted on Friday after OPEC and non-OPEC producers agreed a modest increase in production from next month.

They did not however announce a clear target for the output hike, leaving traders guessing how much more will actually be pumped.

OPEC and non-OPEC said in a statement they would raise supply by returning to 100 percent compliance with previously agreed output cuts, after months of underproduction.

“Saturday’s OPEC+ press conference provided more clarity on the decision to increase production, with guidance for a full 1 million bpd ramp-up in 2H18,” Goldman Sachs said in a note on Sunday.

“This is a larger increase than presented Friday although the goal remains to stabilise inventories, not generate a surplus.”

U.S. crude futures traded at $68.64 per barrel, up 0.1 percent for the day after Friday’s 4.6 percent rally.

International benchmark Brent fell 1.2 percent, however, to $74.61 per barrel, giving up nearly half of its gains made on Friday.

In the currency market the euro trade flat, having retreated in early trade.

German business confidence deteriorated in June, a survey showed on Monday, suggesting the mood among company executives in Europe’s biggest economy was darkening in light of the threat of a global trade war.

The dollar fell nearly half a percent to 109.48 yen JPY=, hitting its lowest levels in two weeks as the Japanese currency firmed on concerns about the global trade frictions.

The Turkish lira gained up to 1.6 percent on expectations of a stable government after Tayyip Erdogan and his ruling AK Party claimed victory in presidential and parliamentary polls.

But his victory kept alive worries about inflation and the central bank’s independence given recent comments suggesting he wanted to take greater control of monetary policy.

The lira traded at 4.59 to the dollar, up 1.7 percent from 4.6625 at the end of last week.

Bitcoin steadied after hitting seven-month lows during the weekend as the security of cryptocurrency exchange operators came under more scrutiny. The digital currency fell as low as $5,780 overnight and last stood at $6,155.

Reporting by Ritvik Carvalho

Saturday, 23 June 2018

Sterling hits six-day high after BoE meeting but Brexit fears limit gains

LONDON (Reuters) - The pound rose to a six-day high on Friday after a Bank of England meeting revived expectations of a rate hike this year, but fears of a breakdown in Brexit talks next week limited sterling’s gains.

The British currency has struggled through much of June, weighed down by worries about a slowdown in the economy and fraught attempts by British diplomats to secure a deal to exit the European Union in March.

Sterling rallied on Thursday, though, when the Bank of England’s chief economist unexpectedly voted for an interest rate hike.

The central bank kept interest rates on hold but the decision by Andy Haldane to join two other policymakers in calling for rates to rise to 0.75 percent lifted the pound off a seven-month low as expectations grew that the BoE could tighten policy in August.

The upbeat outlook for interest rates and a weaker dollar on Friday helped sterling climb half a percent to a six-day high of $1.3312 in early European trading.

The pound later gave up most of those gains to trade at $1.3264 and the currency remains almost 8 percent below a post-Brexit referendum high hit in April.

The pound on Friday fell versus a broadly stronger euro to 87.75 pence.

Markets now see a nearly 50 percent likelihood of the BoE raising interest rates in August by 25 basis points and a 90 percent chance of a rate hike happening by the end of 2018.

“The BoE may prefer to act sooner rather than later given Brexit uncertainties may intensify later this year and make a November rate hike difficult,” analysts at MUFG said.

Nine months before Britain’s exit from the EU, the country seems to be trapped in a period of relatively low growth. In the first quarter of 2018, the economy grew by just 0.1 percent, the slowest rate since 2012.

Some market observers say the pound could rise in the coming weeks if economic data suggests any turnaround in the economy because it would help cement expectations of a rate hike.

But an EU summit on June 28-29 at which Britain is hoping to make progress in securing a favourable Brexit deal with the EU could hurt sterling, strategists say.

Prime Minister Theresa May is struggling to find a proposal on post-Brexit customs arrangements - the biggest stumbling block so far in exit talks - to take into negotiations with Brussels.

“For now I would focus more on the EU summit than the Bank of England’s August meeting. I expect the summit to be harsh on Britain and for GBP to fall next week as a result,” said ACLS analyst Marshall Gittler.

Reporting by Tom Finn

Friday, 22 June 2018

Trade and rate worries set FTSE for fifth week of losses

MILAN (Reuters) - The UK’s top share index rebounded on Friday but was set for a weekly loss as trade war concerns and the revived prospect of an interest rate hike in August took their toll.

The FTSE 100 .FTSE rose 0.5 percent by 0853 GMT, underpinned by strength among financials and materials stocks. The index was down 0.5 percent on the week and set for its fifth straight week of losses, its worst losing streak in 5 years, although the combined losses were just around 4 percent.

“Trade tensions remain the dominant theme, clarity still lacking about how far things will ultimately go between U.S. and China, and the potential ripple effect for world trade,” said Mike van Dulken and Artjom Hatsaturjants at Accendo Markets.

The FTSE hit a seven-week low in the previous session when index turned lower following a Bank of England policy vote that bolstered expectations of a rate hike in August.

Financials provided the biggest lift to the FTSE on Friday with domestically exposed banks Royal Bank of Scotland and Lloyds, which would benefit from tighter monetary policy, rising 1.6 and 1.1 percent respectively.

Sentiment on the sector also found support after big U.S. banks passed the Federal Reserve’s latest stress tests Thursday.

Heightened expectations that the BoE could tighten policy at its next meeting helped the sterling extend its rebound from seven-month lows.

Big international firms, which benefit from weaker sterling, were mixed with drugmaker GlaxoSmithKline (GSK.L) falling 1.2 percent and HSBC up 1.3 percent, as banks rose.

Oil stocks Royal Dutch Shell (RDSa.L) and BP (BP.L) fell slightly as OPEC countries were meeting in Vienna together with non-OPEC oil producers to discuss output policy.

Materials stocks were up as copper prices ticked higher although were poised for a second week of decline on fears that a trade conflict between the U.S. and China would hit demand.

Elsewhere, online clothing retailer ASOS fell 5 percent on worries a U.S. internet tax ruling could hit its local earnings.

Reporting by Danilo Masoni

Dollar eases off 11-month high; pound buoyant after hawkish BOE

TOKYO (Reuters) - The dollar pulled back from an 11-month peak against a basket of major currencies on Friday as investors took profits after the currency’s earlier rally, while sterling rebounded from a seven-month low after a slightly hawkish tilt from the Bank of England surprised the market.

The Philadelphia Federal Reserve’s manufacturing index fell sharply to a 1-1/2 year low, raising concern about the world’s largest economy and prompting some traders to book profits on bullish dollar bets, analysts said.

“The weak Philly Fed index reinforced fears that President Trump’s trade war would hurt the U.S. economic outlook and worsened the mood,” said Kengo Suzuki, chief forex strategist at Mizuho Securities.

The Philadelphia Fed index on U.S. Mid-Atlantic business activity fell to 19.9 in June from 34.4 in May, its steepest fall since January 2014.

Lower yields on U.S. Treasuries and the euro finding chart support in the $1.15 area also contributed to the dollar’s weakness.

Escalation in the U.S.-China trade conflict had underpinned safe-haven support for the dollar in recent days. The Philly Fed weaker data dragged down U.S. Treasury yields, with the 10-year yield falling to 2.897 percent in North American trade overnight.

The dollar index, which tracks the greenback against six other currencies, was effectively flat at 94.81 after touching 95.533 the previous day, its highest level since last July.

The euro EUR= rebounded from a fresh 11-month low of $1.1508 it hit overnight after testing technical support in the $1.15 area. It last traded $1.1609, up 0.05 percent on the day.

The single currency had fallen on bets of a protracted period of monetary policy divergence between the U.S. Federal Reserve and the European Central Bank.

In addition, the Italian government’s appointment on Thursday of two euro skeptics to head key finance committees reignited worries about anti-euro voices in the euro zone’s third-largest economy.

Against the yen, the greenback was little changed and last traded 110.02 yen JPY=, pulling back from a one-week high of 110.76 scaled the previous day amid lingering concerns over the trade dispute between the United States and China.

“The potential for all-out trade war, European political risks and emerging market volatility remain potent factors that should contain dollar/yen within the current range, though the lack of downside over the last week or so suggests stronger underlying demand,” wrote Robert Rennie, head of market strategy at Westpac.

Sterling last traded at $1.3262 GBP=D3, not far from Thursday's high of $1.3270.

The pound rose 0.7 percent overnight, recovering from a seven-month trough, after BOE Chief Economist Andy Haldane unexpectedly joined the minority of policymakers calling for rates to rise to 0.75 percent, citing concerns about growing wage pressure.

The Canadian dollar CAD=D4 was a shade firmer at C$1.3300 after hitting a fresh one-year low of C$ 1.3336 overnight, when it was pressured by lower oil prices and an uncertain outlook for trade, with investors eyeing a meeting of major oil producers.

The Organization of Petroleum Exporting Countries meets on Friday to decide output strategies amid calls from top consumers such as the United States, China and India to cool down oil prices and support the world economy by producing more crude.

Iran, OPEC’s third-largest producer, has so far been the main barrier to a new deal as it said OPEC was unlikely to reach an agreement and should reject pressure from U.S. President Donald Trump to pump more oil.

The Mexican peso was at 20.29 per dollar after reaching 20.2000 the previous day, its strongest level in more than two weeks, after Mexico's central bank increased benchmark rates by a quarter point to 7.75 percent in a bid to hold down inflation.

Reporting by Tomo Uetake

Thursday, 21 June 2018

Bank of England chief economist votes for rate rise, boosting chance of Aug hike

LONDON (Reuters) - The Bank of England bolstered expectations that it will raise rates for only the second time since the financial crisis at its next meeting in August, after its chief economist unexpectedly joined the minority of policymakers calling for a hike.

The central bank also set out new guidance on when it might start to sell its 435 billion pounds ($574 billion) of British government bonds, saying this could come once rates have reached around 1.5 percent, sooner than previous 2 percent guidance.

Short-dated government bond yields jumped on the news and sterling rallied by more than half a cent against the U.S. dollar on the prospect of tighter monetary policy.

“This all suggests that an August rate hike is ... more likely than not,” ING economist James Smith said. “While the Bank hasn’t offered any firm signals or commitments ... the overall outlook and tone suggests they’d still like to raise rates (if) the data allows.”

Last month the BoE had said it wanted to see signs of stronger growth before it prepared to raise rates, in contrast to the United States where the Federal Reserve has raised rates twice this year and plans to do so twice more.

The BoE’s Monetary Policy Committee (MPC) voted 6-3 this month to keep rates at 0.5 percent, where they have been for most of the past decade, in contrast to economists’ expectations in a Reuters poll for a continued 7-2 split.

Chief economist Andy Haldane joined long-term dissenters Michael Saunders and Ian McCafferty in calling for rates to rise to 0.75 percent, due to concerns that recent pay deals and labour demand could push wages up faster than expected.

This opens the door for a rate rise in August, something expected by most economists in a Reuters poll but which market pricing of one set of rate futures before the meeting viewed as a less than 50 percent probability.

There was only a modest move in this measure after the decision BOEWATCH, possibly reflecting doubts over whether Haldane’s shift in view reflected the direction of other members’ thinking.

The MPC as a whole said its previous view that first-quarter weakness was temporary and linked to unusually poor weather appeared “broadly on track”.

Household spending and sentiment bounced back strongly, and a sharp fall in factory output in April could reflect firms having built up excess stocks during the period of bad weather in the first quarter of the year, the BoE said.

At the end of last year Britain was the slowest-growing economy among the G7 group of rich nations, as businesses held back from investing ahead of Brexit and high inflation triggered by the 2016 referendum eroded households’ disposable income.

Inflation is drifting down from a five-year high of 3.1 percent hit in November, and growth in the first three months of the year was the slowest since 2012, after snow storms worsened existing weaknesses in the economy.

But with unemployment at its lowest since 1975, the BoE says the economy is running near full capacity, and that the longer-term direction for interest rates over the next two to three years is likely to be up.

Economists had expected the BoE to raise rates in May, until a string of weak data and discouraging words from BoE Governor Mark Carney in April quashed those expectations.

Reference: by David Milliken

Global shares edge up, China pulls Asia down, oil subdued pre-OPEC

SYDNEY (Reuters) - Shares crept higher in most major markets on Thursday as a lull in the Sino-U.S. trade tussle and talk of more stimulus in China helped calm nerves, though the nagging trade tensions caused Chinese shares to slip, dragging other Asian markets lower.

Oil prices eased a touch as nerves grew ahead of Friday’s meeting between OPEC and other big producers, including Russia, with growing expectations that the Vienna talks could result in an agreement to increase crude supplies.

European shares are expected to rise, with spread-betters calling a higher opening of 0.4 percent in Britain's FTSE .FTSE and France's CAC 40 .FCHI and 0.3 percent in Germany's DAX .GDAXI.

Japan's Nikkei .N225 added 0.6 percent while futures for the S&P 500 ESc1 rose 0.3 percent as investors waited for new developments on global trade.

Australia’s main index had another strong day, rising 1 percent on fund manager demand before the end of the local financial year next week.

Asian shares, however, struggled to keep early gains on concerns about the trade war.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS had gained as much as 0.5 percent before falls led by Chinese shares pushed it down 0.4 percent.

The CSI300 index of Shanghai and Shenzen shares dropped 0.4 percent .CSI300.

Still, the mere absence of new threats from President Donald Trump on tariffs was enough to stem recent selling in many markets, with investors clinging to the hope that all the bluster was a ploy which would stop short of an outright trade war.

“Many participants see the Trump Administration’s hard line as part of the negotiating strategy,” said Richard Grace, chief currency strategist at CBA.

Markets had also been encouraged by the People’s Bank of China’s move to set firm fixings for its yuan, along with the addition of extra liquidity.

There was also much speculation the central bank would cut bank reserve requirements, thus boosting lending power in the economy.

On Wall Street, resilience in tech stocks helped the Nasdaq to an all-time high, though the moves were modest. While the Dow Jones .DJI fell 0.17 percent, the S&P 500 .SPX gained 0.17 percent and the Nasdaq .IXIC 0.72 percent.

Twenty-First Century Fox Inc climbed 7.5 percent after Walt Disney Co sweetened its offer for some of the company’s assets to $71.3 billion, looking to topple Comcast Corp’s bid.

Receding risk aversion softened safe-havens such as the yen, with the dollar adding 0.31 percent to 110.71 yen JPY=.

The dollar .DXY also firmed 0.3 percent against a basket of currencies to 95.323, hitting an 11-month top. The euro EUR= was down slightly at $1.1552.

Sterling GBP=D4 hit seven-month lows at $1.3140 having made only a fleeting bounce after Prime Minister Theresa May won another crucial Brexit vote in parliament.

The Bank of England holds a policy meeting later in the session but not a single analyst polled by Reuters expects a rate hike, and some are getting cold feet about a rise in August given recent soft economic data.

While the European Central Bank has signalled an end to bond buying it also pledged to keep rates low past next summer, while the Bank of Japan shows no sign of winding back its stimulus.

“It feels like the yellow warning lights are flashing for the global economic system,” noted analysts at Citi. “However, with the ECB and BoJ still pumping in liquidity and keeping rates lower for longer, the chances of a systemic event are low.”

Ahead of Friday’s meeting of oil producers in Vienna, Saudi Arabia is trying to convince fellow OPEC members of the need to raise oil output, according to sources familiar with the talks. Iran on Thursday signalled it could be won over to a small rise in output, potentially paving the way for a deal.

Brent crude futures were down 43 cents at $74.31 a barrel, while U.S. crude was down 23 cents at $65.48.

Reporting by Wayne Cole

Dollar hits fresh 11-month peak as rate divergence bets weigh on euro

LONDON (Reuters) - The dollar rose to a fresh 11-month high and the euro sagged towards its 2018 lows on Thursday as investors increased their bets on a prolonged period of monetary policy divergence between the U.S. and European central banks.

Concerns over an escalation in a U.S.-China trade conflict, underlined by comments from top central bankers on Wednesday, have also boosted the dollar as traders reckon a more serious dispute would be inflationary for the U.S. economy, forcing the Federal Reserve to tighten rates further.

“We are really seeing divergence in monetary policy in the euro zone and the U.S. for many months to come,” said Esther Reichelt, a currencies analyst at Commerzbank in Frankfurt.

“This general sentiment has not been fully priced into the market.”

The dollar index .DXY against a group of six major currencies rose 0.3 percent to 95.406, its highest since mid-July 2017.

Buoying the greenback, long-term Treasury yields also bounced back from three-week lows. Those yields were propped up by remarks from Fed Chairman Jerome Powell, who said on Wednesday that the U.S. central bank should continue with a gradual pace of rate increases.

The euro fell 0.2 percent to $1.1548 EUR=, close to its 11-month weak point of $1.1531 hit last week.

The dollar rose 0.2 percent to 110.6 yen JPY=, moving further ahead from a one-week low of 109.55 struck on Tuesday.

Elsewhere the pound GBP= hit a new 7-month low ahead of the Bank of England policy meeting, at which the central bank is expected to keep rates on hold.

The Swiss National Bank kept its negative interest rate on hold on Thursday, as expected, and the franc was unmoved EURCHF=. Norway’s central bank will also give its policy decision later on Thursday.

The New Zealand dollar retreated to a six-month low of $0.6838 NZD=D3 after domestic data that showed slowing first quarter economic growth boosted expectations that the central bank would keep interest rates low.

The Mexican peso climbed more than 0.8 percent overnight, helped by expectations that the country's central bank will raise interest rates on Thursday. It later gave up some of those gains.

The peso has extended a rebound from 1-1/2-year low it hit last week when it was dented by a broad dollar rally, a deadlock in talks around the NAFTA free trade deal and nervousness ahead of Mexico’s July 1 presidential election.

In contrast, Brazil’s real was flat despite the country’s central bank refraining from tightening monetary policy again on Wednesday.

The real has lost 5 percent this month and brushed its lowest level since March 2016.

The tariff feud between China and the United States has added to woes for emerging markets, already under pressure due to steadily rising U.S. interest rates.

“The decline by emerging market currencies and stocks has been a key risk-off theme over the past few weeks, only offset by positive effects U.S. tax cuts are having on the global economy,” said Makoto Noji, senior strategist at SMBC Nikko Securities.

Additional reporting by Tommy Wilkes and Shinichi Saoshiro