Tuesday, 31 July 2018

Fed set to hold interest rates steady, remains on track for more hikes

WASHINGTON (Reuters) - The Federal Reserve is expected to keep interest rates unchanged on Wednesday but solid economic growth combined with rising inflation are likely keep it on track for another two hikes this year even as President Donald Trump has ramped up criticism of its push to raise rates.

The U.S. central bank so far this year has increased borrowing costs in March and June, and investors see additional moves in September and December. Policymakers have raised rates seven times since December 2015.

The Fed will announce its decision on Wednesday at 2 p.m. EDT (1800 GMT). No press conference is scheduled and only minor changes are anticipated compared with the Fed’s June policy statement, which emphasized accelerating economic growth, strong business investment and rising inflation.

“They’ve got expectations pretty much where they want them,” said Michael Feroli, an economist with JPMorgan. “They may need to finesse how they word the language on inflation but I think the ultimate message is going to be the same.”

The U.S. economy grew at its fastest pace in nearly four years in the second quarter as consumers boosted spending and farmers rushed shipments of soybeans to China to beat retaliatory trade tariffs, Commerce Department data showed on Friday.

The Fed’s preferred measure of inflation increased at a 2.0 percent pace in the second quarter, the data also showed. Economists expect data later on Tuesday to show prices in June were 2.0 percent higher than a year earlier, matching the gain in May.

That would mean two straight months that inflation has hit the Fed’s 2 percent target rate after undershooting it for six years.

Economic growth has been buoyed by the Trump administration’s package of tax cuts and government spending, and Fed Chairman Jerome Powell has said overall the economy is in a “really good place.”

The unemployment rate stands at 4.0 percent, lower than the level seen sustainable by Fed policymakers.

The central bank is expected to continue to raise rates through 2019 but policymakers are keenly debating when the so-called “neutral rate” - the sweet spot in which monetary policy is neither expansive nor restrictive - will be hit.

Rate setters are closely watching for signs that inflation is accelerating and are expecting economic growth to slow as the fiscal stimulus fades.

They also remain wary of the potential effects of a protracted trade war between the United States and China which could push the cost of goods higher and hurt company investment plans.

The Fed’s policy path will see interest rates peak at much lower levels than in previous economic cycles. Even so, Trump, in a departure from usual practice that presidents do not comment on Fed policy, said he was worried growth would be hit by higher rates.

Administration officials played down the president’s comments, saying he was not seeking to influence the Fed.

On the campaign trail, Trump criticized Powell’s predecessor as Fed chair, Janet Yellen, for keeping interest rates too low.

Trump appointed Powell and Fed governor Randal Quarles, and he has three other nominees to the rate-setting committee awaiting Senate confirmation. Almost all have been seen as mainstream in their attitude to economic policy. Economists say Trump has little influence over Fed policy beyond the personnel changes he has already made.

Trump’s tweets are a far cry from the 1970s when then-President Richard Nixon told the Fed chairman to kick rate setters “in the rump” to keep rates low until after an election. That stoked inflation and eventually strengthened the Fed’s independence, something that has become even more entrenched since.

“Powell is obviously someone who values the Fed’s independence,” said Paul Ashworth, economist with Capital Economics. “I don’t expect them to change tack because of political pressure.”

Reporting by Lindsay Dunsmuir

Bonds gain, yen falters as BOJ pledges to keep rates low

SYDNEY (Reuters) - Global bond prices gained and the yen fell on Tuesday after the Bank of Japan (BoJ) wrongfooted hawks as it pledged to keep interest rates extremely low for an extended period.

The lead for European and U.S. shares was mixed with FTSE futures down a tad while E-Minis for the S&P500 gained 0.2 percent.

BOJ’s policy announcement to make its massive stimulus program more flexible provided some comfort to bond investors, as the policy tweaks didn’t appear to show any inclination from the central bank make a radical shift from its accommodative stance.

In response, yields on 10-year Japanese government bonds (JGBs) fell 3 basis points to pull away from a 1-1/2 year high of 0.11 percent while those on 40-year bonds slid nearly 9 basis points. The move in JGBs pushed 10-year Treasury yields lower too.

German and French 10-year bond yields also slipped 3-4 basis points after BoJ decision. German bund futures opened 47 ticks higher on Tuesday.

However, the reaction in currencies was muted as some market participants awaited further clarity.

The dollar reversed losses against the yen and was last up 0.2 percent at 111.29. Against a basket of major currencies, the greenback was slightly firmer at 94.371.

“At this point, it’s very unclear what the BoJ means by allowing long-term rates to go up and down. That is as vague as it can be,” said Rodrigo Catril, senior forex analyst at National Australia Bank.

“The proof will be in how they react in the open market operations. It will be interesting to see how they allow 10-year JGB rates to increase. That will set a tone for the market.”

With Japanese monetary policy still seen stimulatory, the dollar will likely climb to 112.50 yen in the short-term and could challenge the 113-yen barrier, according to Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

Elsewhere, Asian share markets pared some of their early losses as easy monetary policy is seen as positive for risk assets although a global rout in technology shares put a lid on gains.

Japan’s Nikkei ended almost flat, after falling more than 0.5 percent earlier in the day. South Korea’s Kospi index added 0.1 after spending most of the day in the red.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.1 percent. Chinese shares were mixed with Shanghai’s SSE Composite up a touch while the blue-chip CSI300 off 0.2 percent.

Investors will next turn their attention to other central bank decisions this week. The U.S. Federal Reserve concludes its policy meeting on Wednesday and the Bank of England is seen raising interest rates on Thursday.

The British pound held at $1.3126, drifting higher from a more than 10-month trough of $1.2955 touched earlier in July.

In commodities, U.S. crude fell 35 cents to $69.78 a barrel after a sharp rally overnight while Brent fell 36 cents to $74.61.

Spot gold was flat at $1,221.03 an ounce.

Reference: Swati Pandey

Monday, 30 July 2018

Asia shares subdued for central bank, data test

SYDNEY (Reuters) - Asian share markets drifted lower on Monday while currencies kept to familiar ranges at the start of a busy week peppered with central bank meetings, corporate results and updates on U.S. inflation and payrolls.

Technology and energy shares led Japan's Nikkei .N225 down 0.7 percent, and tech also featured in South Korea's .KS11 0.2 percent decline.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.5 percent and Chinese blue chips .CSI300 by 0.3 percent.

The week features quarterly earnings from more than 140 S&P 500 companies, including Apple Inc (AAPL.O).

Disappointing results from Intel Corp (INTC.O) and Twitter Inc (TWTR.N) soured the mood on the Nasdaq .IXIC on Friday, though the S&P 500 and Dow .DJI still ended firmer for the week.

Analysts at JPMorgan cited relatively aggressive moves into “value” stocks - in particular banks - and away from shares leveraged to economic growth.

“Tech really began cracking on Tuesday before the floodgates opened on Friday,” they wrote in a note.

“The rotation will likely continue, benefiting value categories at the expense of momentum/tech as rates are biased higher,” they added. “Europe’s higher weighting to banks/resource will help it vs the U.S.”

The U.S. Federal Reserve meets on Tuesday and Wednesday and is widely expected to stand pat while reaffirming the outlook for further gradual rate rises.

The market is almost fully priced for a hike in September and leaning towards a further move before year-end.

A Bank of Japan policy meeting that ends on Tuesday has taken on greater importance amid talk it could tweak its massive asset-buying campaign.

Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia, doubted the BoJ would move just yet, but felt it may abandon the negative interest rate applied to accounts held by financial institutions at the central bank.

The BOJ could also modify its annual objective of accumulating 80 trillion yen ($720 billion) of Japanese government bonds, as well as potentially lifting its target yield for 10-year JGBs. Those yields recorded the highest close since January 2016 last week.

“Any of these policy changes would be interpreted as a step towards less monetary policy accommodation, dragging USD/JPY lower,” Haddad said.

Just the chance of such a shift has sent the yen higher in the last week or so, leaving the dollar around 111.13 yen JPY= from a peak of 113.18 earlier in the month.

Against a basket of currencies the dollar was hovering at 94.733 .DXY, having repeatedly failed to clear resistance around 95.652 this month.

The euro has had problems of its own as the European Central Bank emphasized that rates would not be rising until the second half of next year.

On Monday, the euro was flat at $1.1654 EUR=EBS, corralled between support around $1.1570 and resistance at $1.1750.

In Asia, eyes were on China's yuan after it suffered the longest weekly losing streak since November 2015. It duly weakened further, slipping past 6.8400 per dollar for the first time since June last year.

In commodity markets, oil prices were mixed with U.S. crude supported by recent upbeat news on the U.S. economy.

U.S. crude added 20 cents to $68.89, while Brent dipped 2 cents to $74.27 a barrel.

Spot gold XAU= eased 0.2 percent to $1,220.70.

Reporting by Wayne Cole

Friday, 27 July 2018

Money managers see past Trump talk, expect trade war to blow over

LONDON (Reuters) - Global money managers believe U.S. President Donald Trump’s threats to impose tariffs will not descend into a full-blown trade war, and even those particularly worried have done little to protect their portfolios.

Some of them might have felt vindicated on Wednesday when Trump agreed with the European Union not to impose car tariffs while the two sides launch negotiations. But if the threat of a transatlantic trade war has eased at least temporarily, the battle with China may only just be starting.

Trump has vowed to impose tariffs on all $500 billion of Chinese imports until Beijing ends its “unfair trade war”; he reiterated his threats on Wednesday, calling China “vicious”.

The stakes are high: a sustained trade conflict could cost the global economy nearly $500 billion, knocking growth by half a percentage point by 2020, the International Monetary Fund has said.

Yet most money managers reckon the dispute will blow over.

“The more we talk about the trade wars, the bigger we perceive the risks to be without anything fundamental necessarily changing,” said John Roe, Head of Multi-Asset Funds at Legal and General Investment Management, which manages $983 billion in assets.

“A bigger concern for us in the second half would be a pick-up in U.S. inflation. That has global ramifications that can’t be defused by a quick phone call.”

The prospect of a trade war does worry investors, who see it as the biggest risk to markets since the 2012 euro zone debt crisis, Bank of America Merrill Lynch’s poll showed this month. But few are preparing for all of Trump’s rhetoric to translate into action, or cause much damage.

One reason for that is belief that Trump’s rhetoric is aimed at voters ahead of November mid-term elections.

Second, measures so far have been small - Washington and Beijing have imposed tariffs on less than $50 billion worth of each other’s goods, essentially a rounding error for economies jointly worth $32 trillion.

And Trump’s attempts to upend the international order come at a time of relatively robust world growth. Past instances of protectionism have tended to coincide with downturns that saw governments scrambling to save jobs.

LGIM’s Roe said if the biggest worry was a 0.5 percent growth hit, “we are in a pretty benign environment.”

Also, recent trade-linked selloffs have been relatively contained - even before the U.S.-EU deal, world stocks stood less than four percent below record highs .MIWD00000PUS.

Trump changes his mind a lot and China has been relaxed and quiet in its response,” said Roberto Coronado, a credit portfolio manager at PineBridge Investments.

“Am I going to sell everything because of this? It doesn’t make sense. I would miss out and I would have made the wrong investment.”

Nor do options markets indicate investors are bracing for volatility to rise when tariffs on $200 billion of Chinese goods take effect from as early as September.

Three-month out-of-the-money equity volatility in European equities .STOXX50E, which measures volatility expectations, has been lower than current levels less than one percent of the time over the past 13 years, two bank derivatives traders said.

Chinese equity volatility also remains low, suggesting few are preparing for a further share slump .SSEC, said Anshul Gupta, head of European equity derivatives research at Bank of America Merrill Lynch. Chinese shares have fallen 15 percent in 2018.

U.S. markets do show some signs of nervousness.

Options pricing for the PowerShares QQQ Trust ETF (QQQ.O), a passive fund which includes big-ticket tech names such as Apple (AAPL.O), Microsoft (MSFT.O) and chip suppliers selling to China, show a higher preference for puts by mid-September, according to market analytics firm Trade Alert.

Puts are options that offer protection against price falls.

Investors have been more skittish about European automotive stocks .SXAP, the derivatives traders said, but following Wednesday’s U.S.-EU announcement, volatility expectations look set to ease.

The bigger risk remains an escalation with China, all the more so because growth momentum may be faltering. A Reuters poll of 150 economists worldwide reflected an overwhelming conviction that global growth had peaked.

“$200 billion [of tariffs] would be an acceleration, something quite significant. That’s not fully discounted,” said Tim Graf, State Street Global Markets’ EMEA Head of Macro Strategy.

Investor reluctance to prepare for crisis mirrors a broader trend in recent years, in which big political or geopolitical shocks like Britain’s Brexit referendum or Italy’s political crisis are too hard or costly to hedge against, and therefore remain underpriced until they explode.

BAML’s Gupta said investors were not being complacent and understood potential trade-related risks but added: “it is very hard to pinpoint which way it goes from here and who blinks first, and when.”

There are also competing concerns, such as the end of central banks’ stimulus, rising interest rates, and desperation not to miss out on what could be the bull market’s last hurrah.

Protectionism plays well among Trump’s core blue-collar voter base, and trade noise could well boost his polling ahead of mid-term elections in November.

Others say Trump’s tough talk masks a desire to secure new bilateral trading deals that he can can present as a win for American workers.

Investors wanting a sound strategy should not preclude “the idea of a rational outcome to the whole affair,” said investment firm Carmignac’s Didier Saint-Georges.

Rhetoric may not descend into a growth-sapping war because many expect Trump to tone down the bellicosity on any sign the U.S. economy is suffering.

“He thinks the strong economy is the key to winning elections,” said Kim Forrest, a fund manager at Pittsburgh-based Fort Pitt Capital Group. “And he’s not going to jeopardize that.”

Reference: Tommy Wilkes

Euro perched at three-day high on trade talk hopes

LONDON (Reuters) - The euro held at a three-day high on Thursday as concerns about a global trade war eased after the United States and the European Union agreed to begin talks on lowering tariffs.

Following talks on Wednesday with European Commission President Jean-Claude Juncker, U.S. President Donald Trump said they had agreed to “work together towards zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods.”

However, the moves in the single currency was far more subdued than equities, where auto stocks surged 2 percent, and bond yields edged higher as investors waited for the fine print to emerge on the trade discussions.

“The one thing we have learned from the last 18 months of Trump’s gyrating trade policies is that whatever looks certain today is likely to be undermined tomorrow,” Gavekal strategists said in a note.

“The Trump-Juncker pact is a welcome respite, but not yet a cause for celebration.”

The euro was up 0.1 percent at $1.1738, extending its rise after gaining 0.4 percent the previous day. Before the Trump-Juncker talks, the single currency slipped to a low of $1.1664.

The immediate focus for currency markets was the European Central Bank’s policy decision due later on Thursday where investors will study comments by President Mario Draghi for any further hints on the pace of policy normalisation.

However, another leg down on the Chinese currency after yesterday’s bounce undermined broader risk appetite in the markets. The Chinese yuan fell half a percent to 6.79.

A more than 6 percent drop in the value of the Chinese currency against the dollar since mid-June as trade tensions escalated has put pressure on export-oriented emerging markets.

Investors increased bearish positions over the past two weeks on all emerging Asian currencies, according to a Reuters poll.

Elsewhere, the dollar index held at a two-week low against a basket of six major currencies and was down 0.25 percent at 94.131.

Sterling was broadly steady at $1.3202 as expectations about a rate hike next week from the Bank of England underpinned the British currency.

Reporting by Saikat Chatterjee

Thursday, 26 July 2018

Understanding The Consumer Confidence And Price Index

An Educational Article

Traders use each the CCI and the CPI as economic indicators that can help formulate a successful trading strategy in either an up or down market.

Naturally imagine that you are talking with your neighbour in your backyard, and you mention that you and your wife are shopping for a new car, you are getting ready to refinance your house and your wife's brother recently lost his job. Your neighbour tells you he was recently promoted, his wife is starting a business and his daughter just bought a new computer. What kind of analysis about the health of the U.S. economy could an economist make based on your backyard conversation? Well, that depends on what the conversation suggests about consumer confidence.

The mention of recent or upcoming purchases of a computer and a car suggests strong consumer demand. Your plan to refinance your home is a positive sign for the future, implying that you are confident in your ability to meet future mortgage payments. The refinancing suggests also the possibility of lower mortgage payments, which could mean an increase in your discretionary income. Your neighbour’s promotion and the start of his wife's new business are also positive economic signs. The only negative reference during the conversation was the mention of one person who recently lost a job. But from the other information exchanged between you and your neighbour, the economist might conclude that consumer confidence is high. That is good news for the economy because, on average, consumers are responsible for two-thirds of the nation's economic activity, or the gross domestic product (GDP).

Consumer Confidence

Consumer confidence, measured by the Consumer Confidence Index (CCI), is defined as the degree of optimism on the state of the economy that consumers (like you and me) are expressing through their activities of saving and spending. The CCI is prepared by the Conference Board and was first calculated in 1985. In that year, the result of the index was arbitrarily set to 100, representing the index's benchmark. This value is adjusted monthly based on results of a household survey of consumers' opinions on current conditions and future economic expectations. Opinions on current conditions make up 40% of the index, with expectations of future conditions comprising the remaining 60%.

The Survey

Each month the Conference Board surveys 5,000 U.S. households. The survey consists of five questions that ask the respondents' opinions about the following:

1. Current business conditions.
2. Business conditions for the next six months.
3. Current employment conditions.
4. Employment conditions for the next six months.
5. Total family income for the next six months. Survey participants are asked to answer each question as "positive," "negative" or "neutral."
The results from the Consumer Confidence Survey are released on the last Tuesday of each month at 10am EST.

How the Data is Used

Manufacturers, retailers, banks and the government monitor changes in the CCI to factor in the data in their decision-making processes. While index changes of less than 5% are often dismissed as inconsequential, moves of 5% or more often indicate a change in the economy's direction. A month-on-month decreasing trend suggests consumers have a negative outlook on their ability to secure and retain good jobs. Thus, manufacturers may expect consumers to avoid retail purchases, particularly large-ticket items that require financing. Manufacturers may pare down inventories to reduce overhead and/or delay investing in new projects and facilities. Likewise, banks can anticipate a decrease in lending activity, mortgage applications and credit card use.

Consumer Price Index

The Consumer Price Index is a measure estimating the average price of consumer goods and services purchased by households across a specific city, region, or nation. It measures the price change for a set market of goods and services from one-time period to the next. The market basket the CPI is based on attempts to mimic the spending of a typical urban consumer. By tracking the change in CPI, traders can estimate inflation. In fact, the CPI is often used to make inflation adjustments to wages, salaries, and pensions. CPI is calculated around the world and is one of the most closely watched economic statistics.

Those who keep an eye on CPI often watch the Consumer Confidence Index as well. As explained above, the CCI measures the consumer optimism through tracking their spending and savings habits. Those using CCI as an economic indicator operate under the assumption that if consumers are optimistic, they’ll spend more money and stimulate the economy. The CCI can vary greatly from one country to the next, and recognizing international trends can be a pivotal economic indicator. In the US, the CCI is calculated by an independent research organization that surveys 5,000 households on a monthly basis. The CCI is used to calculate the US gross domestic product and factors into the Fed’s decision when determining interest rates. Like CPI, the CCI is an economic statistic with a wide sphere of influence.

Although they are both lagging indicators, together, understanding the Consumer Price Index and the Consumer Confidence Index can give day traders valuable insight into the health of the market and the economy as a whole. 

Reference: James E. Mc.Whinney  

World stocks hit four-month high on EU-U.S. trade breakthrough hopes

LONDON (Reuters) - European stocks opened much higher on Thursday, pushing world stocks to new four-month highs after the European Union and the United States agreed to negotiate on trade, easing some of the fears of a transatlantic trade war.

Concerns over the slowing pace of world economic growth and some lackluster company earnings reports capped some of equity gains, however, as did lingering fears that Washington’s trade tensions with China could escalate further.

In what the EU chief called a “major concession,” U.S. President Donald Trump agreed on Wednesday to refrain from imposing car tariffs while the two sides launch negotiations to cut other trade barriers.

There were gains across the board for European stocks on Thursday morning, led by the continent’s auto sector, which was up 2 percent at one point German’s export-reliant and auto-heavy index rose 1.4 percent

A pan-European stock index rose half a percent while the MSCI world equity index, which tracks shares in 47 countries, hit its highest since March 16 on the news.

“The lifting of the threat of tariffs on the auto sector in particular is a major development. We’ve not seen a lot of actual measures implemented but it should lift the confidence of manufacturers,” said RBC European economist Cathal Kennedy.

“The feedthrough should come through in the manufacturing sector and confidence indicators in the coming months.”

The equity gains pushed up government bond yields in the U.S. and Europe, with Germany’s 10-year yield, the benchmark for the euro zone, coming close to a one-month high at 0.42 percent.

There were clouds on the horizon, however.

Asian stocks were held back by weakness in China, where the Shanghai Composite index fell 0.7 percent and blue-chip shares lost 1.1 percent. This capped gains for MSCI’s broadest index of Asia-Pacific shares outside Japan to just 0.1 percent.

While the transatlantic mood was improving, “this deal, along with the breakdown of a large M&A deal, leave investors fearing that the trade war has just turned even more so on China,” Citi analysts told clients.

They were referring to the likelihood that Qualcomm Inc would drop its $44 billion bid for NXP Semiconductors NXPI.O after a deadline for securing Chinese regulatory approval passed.

Economic growth worries are also mounting — economists polled by Reuters said global activity had peaked, with trade protectionism seen having a significant downward impact. Thursday’s South Korean data showing slowing growth and exports reinforced that picture.

Another poll indicated U.S. second quarter growth — with data due on Friday — also would mark the peak.

Trade and growth worries were already taking a toll on some companies’ bottom lines.

U.S. automakers General Motors, Ford Motor and Fiat Chrysler Automobiles have cut profit forecasts, while Germany’s Daimler blamed U.S.-China tariffs for a 30 percent drop in second-quarter profit.

A warning of slowing growth from Facebook Inc, which saw the company’s stock fall as much as 24 percent in after-hours trading on Wednesday, highlighted risks for investors and businesses in the current earnings season.

That is likely to weigh on Wall Street at open, with S&P500 futures down 0.2 percent

Focus will now turn back to central bank policy and the softer U.S.-EU tone should help the European Central Bank stick with its plan to gradually withdraw stimulus when it meets later on Thursday.

The euro, having strengthened on Wednesday on the news, held on to its gains against the dollar and was at $1.1731 while the dollar was down 0.20 percent against a basket of currencies.

The yen fell 0.3 percent against the dollar but investors will carefully watch the Bank of Japan’s two-day policy review on July 30-31 after this week’s brief jump in yields and the Japanese currency on reports authorities were debating paring back some stimulus.

The bank is said to be considering changing the composition of exchange-traded funds it buys as part of its stimulus program.

Brent crude meanwhile was up over a percent to hit a 10-day high of $74.68 per barrel Brent crude led oil prices higher, extending gains into a third day after Saudi Arabia suspended crude shipments through a strategic Red Sea shipping lane.

Reference: Abhinav Ramnarayan

Euro edges up ahead of Trump-Juncker talks

LONDON (Reuters) - The euro edged higher on Wednesday ahead of a meeting between U.S. President Donald Trump and European Commission President Jean-Claude Juncker but gains were limited with investors cautious about a trade rift between the two powers.

Lack of clarity over where a brewing trade spat between the U.S. and Europe is heading kept most major currencies, including the U.S. dollar, range-bound on Wednesday as Juncker travelled to Washington for trade-focused talks with Trump.

The talks come after the U.S. imposed tariffs on European Union steel and aluminium and Trump’s threats to extend those measures to EU-made cars.

“Risks remain tilted to the continuation of the tough rhetoric by the U.S. President,” said, Chris Turner, head of currency strategy at ING in London.

“Given that the risk of auto tariffs is a well-known threat, any major breakthrough today may not be enough to materially affect risk appetite. Rather, we look for the FX markets to remain stable today,” he added.

The single currency was up 0.1 percent at $1.1694. The dollar versus a basket of major currencies traded broadly flat at 95.55.

Some are puzzled at how little the impending U.S. tariffs have budged the euro in recent weeks.

“The euro continues to stagnate in a sideways range despite the risk of a trade war becoming increasingly obvious ... and despite many political lapses on the part of the U.S. President,” said Commerzbank currency strategist Ulrich Leuchtmann, in Frankfurt.

“But FX markets cannot ignore economic realities for long ... The next trend will come. The only question is when.”

Investors were also eyeing a European Central Bank (ECB) policy meeting on Thursday for direction.

The ECB guided markets for steady rates “through the summer” of 2019 at a meeting last month, when it also announced it would shut its signatory bond-purchasing programme in December.

Against the yen, the dollar was 0.1 percent higher at 111.32 yen per dollar.

The yen found some support early this week on expectations the Bank of Japan might be a step closer to scaling back some of its aggressive monetary stimulus.

The Australian dollar slumped after data on Wednesday showed inflation remained stubbornly low last quarter despite fairly robust economic growth. It traded 0.2 percent lower at $0.7407.

Risk appetites remained mostly firm, supported by strong U.S. corporate earnings and hopes that China will boost fiscal support for its economy.

The offshore yuan strengthened 0.3 percent to 6.7905 per dollar.

Kazushige Kaida, head of foreign exchange at State Street Bank in Tokyo, said the market is waiting to see how Beijing would react if the United States moves to put tariffs on all $500 billion of its imports from China.

Reference: Tom Finn

Wednesday, 25 July 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:


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. 

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.

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.)

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. 

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.

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.

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. 

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 adds to recent gains after May says to lead Brexit talks

LONDON (Reuters) - The pound rose on Wednesday to its highest in a week as traders bet that Prime Minister Theresa May’s decision to take control of Brexit negotiations would make it easier to agree a divorce deal with Brussels.

With less than nine months before Britain is due to leave the European Union and May’s own political party still divided about what sort of trading relationship with Brussels they want, Brexit talks remain a headwind for the pound.

May said on Tuesday that her office would now lead Brexit negotiations rather than the dedicated Brexit ministry, giving the currency a boost.

Rising expectations of a Bank of England interest rate rise - the market is currently pricing in an 86 percent chance of a 25 basis point hike at next week’s monetary policy meeting - have also helped the currency off 10-month lows hit last week.

“May’s decision to become more directly involved in Brexit negotiations as they enter a more crucial phase has been welcomed by financial market participants,” MUFG analysts said.

The pound rose to as high as $1.3173 against the dollar, its highest level since July 17, before giving up some gains as the greenback recovered.

Sterling, which has been much less volatile against the euro, was unchanged versus the single currency at 88.885 pence per euro.

“Our central expectation is still for the UK and EU to coalesce around a cooperative outcome, which sees the UK transition out of the EU over the secular horizon,” Mike Amey, head of sterling portfolios at PIMCO, wrote this week.

“In that event we see some scope for a recovery in business investment, although clearly there are material risks around this expectation,” he said, predicting a slow pace of monetary tightening.

Reporting by Tommy Wilkes

Asia stocks track Wall Street rise, U.S.-EU meet keeps trade in focus

TOKYO (Reuters) - Asian stocks rose modestly on Wednesday, supported by upbeat Wall Street earnings and hopes China’s government spending would boost growth but trade tensions remained in focus ahead of a meeting between the U.S. and European Commission presidents.

With the trade spotlight now swinging to Europe, spreadbetters expected the region's stocks to open lower, with Britain's FTSE .FTSE dipping 0.15 percent, Germany's DAX .GDAXI losing 0.3 percent and France's CAC .FCHI shedding 0.15 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.2 percent.

The index extended the previous day’s gains made after China said it will adopt a more vigorous fiscal policy to cushion the impact of external uncertainties.

The Shanghai Composite Index .SSEC was little changed after brushing a one-month high. It has advanced roughly 3 percent so far this week. Hong Kong's Hang Seng .HSI climbed 0.8 percent.

South Korea's KOSPI .KS11 lost 0.4 percent and Japan's Nikkei .N225 rose 0.4 percent.

Overnight on Wall Street, the S&P 500 .SPX closed at its highest level since Feb. 1 as Alphabet's (GOOGL.O) blowout results bolstered expectations of a robust earnings season.

“Gains by U.S. shares are providing support for equities, as well as China’s stimulus plan. Corporate earnings will continue to come out and these will be a key focal point for the markets, which also have to keep an eye on trade developments,” said Soichiro Monji, senior economist at Daiwa SB Investments in Tokyo.

On the trade front, focus was on talks between U.S. President Donald Trump and European Commission President Jean-Claude Juncker set later on Wednesday, at which trade issues are likely to dominate.

In foreign exchange markets, the dollar index against a basket of six major currencies .DXY was little changed at 94.568, having edged up from a near two-week low of 94.207 but making little further headway as the rise in U.S. yields stalled.

The 10-year Treasury note yield US10YT=RR eased to 2.937 percent after climbing to a six-week peak of 2.973 percent overnight.

The yield shot up this week on speculation the Bank of Japan was edging closer to unwinding its aggressive monetary stimulus, following reports late last week that the central bank was holding preliminary discussions on possible changes to its monetary policy.

The euro was little changed at $1.1680 EUR= while the dollar added 0.05 percent to 111.28 yen JPY=.

The pound was flat at $1.3141 GBP=D3, holding gains from the previous day on news that British Prime Minister Theresa May would lead negotiations on the country's departure from the European Union.

The decline in China's yuan's appears to have paused for the time being, with the currency a shade firmer at 6.797 per dollar. It pulled back from a 13-month low of 6.829 set the previous day on expectations that monetary conditions would be allowed to loosen further.

The Turkish lira was on the defensive, having sunk more than 3 percent against the dollar on Tuesday after the country's central bank unexpectedly left interest rates on hold.

The central bank’s decision was in focus amid investors’ concern over its perceived lack of independence from Turkish President Tayyip Erdogan. The president is seen wanting lower borrowing costs to fuel economic growth, although the central bank is tasked with combating inflationary pressure.

“The markets delivered a decisive verdict on Turkish financial assets, when the central bank desisted from hiking rates despite CPI breaking well above trend and FX reserves plummeting,” wrote Sean Darby, chief global equity strategist at Jefferies.

“Until real rates climb sufficiently for FX reserves to stabilize and inflation to fall, Turkish financial assets will remain under pressure. We remain bearish within our global asset allocation.”

The South African rand ZAR=D3, on the other hand, stood tall after surging more than 1 percent on Tuesday on news that China would invest $14.7 billion in the local economy.

The Australian dollar fell 0.3 percent to $0.7396 AUD=D3 with its rally cut short after data showed that local inflation remained stubbornly low last quarter. The Aussie had surged 0.5 percent on Tuesday on hopes for China's stimulus.

Brent crude futures LCOc1 were up 0.6 percent at $73.89 a barrel, adding to the previous day’s gains as market focus shifted away from oversupply concerns to the possibility of increasing Chinese demand.

Copper on the London Metal Exchange (LME) traded at $6,267.50 per tonne CMCU3 after soaring 2.7 percent overnight to a two-week peak of $6,328.00 on Chinese stimulus hopes.

Iron ore on the Dalian Commodity Exchange touched a two-month peak of 479.5 yuan a tonne.

Reference: Shinichi Saoshiro

FTSE edges up helped by banks, miners

MILAN (Reuters) - Britain’s top share index rose on Tuesday as gains in banks and mining companies offset weakness in energy stocks.

Trading activity was lackluster with the FTSE 100 remaining within the tight range it has been moving in over the last few weeks due to uncertainty over the outcome of Brexit talks.

By 0830 GMT, the FTSE was up 0.4 percent, while the mid-cap index added 0.3 percent, helped by some positive earnings updates.

“There doesn’t look like there’s much on the agenda to help the FTSE with its momentum-problem, unless, perhaps, the pound suffers in the aftermath of the day’s US... PMIs” said Spreadex analyst Connor Campbell.

Banks were supported by a surge in government bond yields on exceptions over monetary policy tightening in the United States and Japan with HSBC (HSBA.L), Barclays (BARC.L) and Lloyds (LLOY.L) trading 0.7-1.4 percent higher.

Mining companies were also providing support with heavyweights Rio Tinto (RIO.L), Glencore (GLEN.L) and BHP (BLT.L) up more than 1 percent, as copper prices rebounded on concerns over possible disruptions to supply from the world’s biggest copper mine.

Elsewhere price moves were driven by broker recommendations. Royal Mail (RMG.L) rose 1.9 percent after HSBC upgraded the stock to buy from hold, while TV firm ITV gained 0.8 percent following a JP Morgan price target upgrade.

On the mid cap index, Spectris (SXS.L) fell 8 percent with analysts disappointed the electrical components supplier provided no further details on cost saving programmes.

Superdry (SDRY.L) was another big faller, down 6.9 percent after co-founder Julian Dunkerton sold down its stake in the fashion retailer, prompting Liberum to cut its rating to hold.

Shares in soft drinks company Britvic (BVIC.L) and lender Close Brothers (CBRO.L) both rose more than 2 percent after well-received trading updates.

Reporting by Danilo Masoni

Tuesday, 24 July 2018

Sterling edges up but still beholden to Brexit

LONDON (Reuters) - The pound edged up above $1.31 on Tuesday as the dollar skidded lower but gains for the British currency were capped by fresh angst over Brexit and doubts about the economy.

Weak economic data and deepening political uncertainty over the government’s Brexit position hammered sterling last week and sent it to 10-month lows.

The currency has in recent sessions, however, eked out some gains against the dollar and the euro despite weaker-than-expected retail sales and softer inflation data.

Next week the Bank of England meets, and markets are giving an 80 percent chance that it will increase interest rates.

At 0800 GMT on Tuesday the pound was up 0.1 percent against the dollar at $1.3106 and up 0.1 percent against the euro at 89.09 pence, a three-day high.

With no clear sense of direction, sterling remains exposed to moves in other currencies.

It fell to a three-week low against a resurgent yen on Monday after the Japanese currency received a boost from reports the central bank was contemplating scaling back its stimulus.

And the pound rallied against the dollar on Friday after U.S. President Donald Trump criticised the Federal Reserve’s policy on raising interest rates and accused the European Union and China of manipulating their currencies.

Sterling looks set for more volatility, especially if there are signs that support for a “hard” Brexit - crashing out of the European Union without a trade deal in place - is gaining ground.

“The price of the pound continues to reflect an enigma of uncertainties: a fragile UK government, uncertainty over the Brexit end-state and economic policy uncertainty,” said Viraj Patel, FX strategist, at ING in London.

Patel said that the pound could fall against the euro to 92 pence in the third quarter of 2018 if Brexit anxieties persist.

Britain called on European Union negotiators on Monday to urgently change their approach to Brexit or face the turmoil of a “no-deal by accident”.

With just over eight months left until Britain is due to leave the EU, there is little clarity about how trade will flow as Prime Minister Theresa May, who is grappling with a rebellion in her party, is still trying to strike a deal with the bloc.

EU chief Brexit negotiator Michel Barnier said last week that May’s new Brexit proposals contained constructive elements, though he added that many questions remain.

Reporting by Tom Finn

Euro skids before PMI data; offshore yuan dives

LONDON (Reuters) - The euro slipped a quarter of a percent on Tuesday as investors warily eyed business activity data that will shed light on whether growing rhetoric over a trade war between the U.S. and its trading partners in recent weeks has dampened sentiment.

European data has stabilized after losing momentum earlier this year, but sentiment remained cautious with French PMI data easing slightly. Eurozone PMI data is due shortly and is also expected to slip.

“Should the PMIs reflect a stronger than expected collapse today the trade conflict might increasingly become an issue for the euro as well,” Commerzbank strategists said.

In early London trading, the single currency was down 0.3 percent at $1.1654. It hit a near two-week high in the previous session at $1.1750.

The Japanese yen trimmed most of its gains against its rivals on Monday as traders dampened expectations about whether the Bank of Japan will launch a fresh round of stimulus at a scheduled policy meeting next week.

Japan’s central bank is debating changes to its interest-rate targets and stock-buying techniques, people familiar with the central bank’s thinking told Reuters, sending bond yields and the yen rocketing higher on Monday.

The yen was broadly flat against the dollar at 111.21 yen and a touch stronger against the euro and sterling.

Risk appetite was mostly firm across markets after Beijing vowed to pursue a more ‘vigorous’ fiscal policy, stepping up efforts to support growth amid rising economic headwinds.

Both the euro and sterling edged higher against the Swiss franc as investors bet that a fresh round of policy easing from China would send investors into higher-yielding assets.

However, expectations of further loosening in monetary conditions drove the offshore yuan down half a percent to a 13-month low of 6.8448 yuan per dollar, its lowest since June 2017.

Reporting by Saikat Chatterjee

Shares get China stimulus boost, bonds show the strain

LONDON (Reuters) - World shares climbed for a third day running on Tuesday, as China promised fiscal action to support the world’s second-largest economy and stellar results from internet giant Alphabet underpinned the tech stocks.

Global bonds remained under pressure on speculation the Bank of Japan may soon trim its massive stimulus. The euro was choppy as a dip in French business confidence was offset by signs of strength in German manufacturing.

European stocks were also up, partly thanks to some upbeat results from UBS, autos firm PSA and chipmaker AMS, but also just riding in the slipstream of Asia’s and Wall Street’s overnight gains.

China’s government bond yields jumped and the offshore yuan hit a one-year low after Beijing’s cabinet said it would pursue a more vigorous fiscal policy and as traders bet on further easing in monetary conditions.

Shanghai blue chips closed up 1.5 percent at a one-month high and Japan’s Nikkei had added 0.5 percent, even though a disappointing reading on factory activity suggested the threat of a trade war was starting to bite.

“The big story is that the Chinese currency continues to slide,” said Societe Generale FX strategist Alvin Tan.

“It is clear the government is moving towards policies that are supporting growth,” he adding, saying the trend was likely to bring a reaction from the United States in time.

E-Mini futures for the S&P 500 firmed 0.2 percent, as European bourses shuffled higher.

Tech stocks got a boost from Alphabet, the parent of Google, which jumped 3.6 percent after hours to a record high, valuing the group at $870 billion.

That made up for an otherwise dull Monday on Wall Street where the Dow ended down 0.06 percent, the S&P 500 gained 0.18 percent and the Nasdaq rose 0.28 percent.

Bond bulls were still smarting from speculation that the Bank of Japan is close to scaling back its monetary stimulus, a risk that lifted long-term borrowing costs globally.

Markets were worried that Japanese investors would have less incentive to hunt offshore for yield, said ANZ economist Felicity Emmett.

“The 10-basis-point steepening in the Japanese yield curve is massive in the context of a market that rarely moves more than 1 basis point,” she said. “It reflects a broader fear that central banks are reducing their purchases while U.S. bond supply is set to rise significantly.”

As a result, 10-year U.S. Treasury yields reached their highest in five weeks, around 2.96 percent, and were again nearing the 3 percent mark.

Germany’s government bond yields rose to a five-week high of 0.416 percent. Most other euro zone yields were higher by 1-3 basis points.

“Global stocks, Asian stocks in particular have seen a boost from (potential) policy-easing measures in China and this helps the general risk sentiment and adds to some of the headwinds to bond markets,” said Commerzbank strategist Rainer Guntermann.

Part of the shift in yields was caused by talk that data on second-quarter U.S. economic growth, due on Friday, would top current forecasts of 4.1 percent.

Dealers noted some media reports that President Donald Trump was predicting an outcome of 4.8 percent. That would not be out of bounds, given the much-watched Atlanta Fed GDP tracker puts growth at an annualized 4.5 percent.

Such a strong outcome would only add to the risk of faster rate increases from the Federal Reserve and underpin the dollar.

Against a basket of currencies, the dollar was hovering at 94.616 compared with a low of 94.207 on Monday. It bought 111.19 yen, against Monday’s trough of 110.75.

The euro slipped to $1.1690, having run into profit-taking at a peak of $1.1750 overnight. Turkey’s lira was down 0.5 percent and looking jumpy before what is expected to be another sharp rate increase later.

In commodity markets, oil prices were flat as the focus turned to oversupply worries and away from escalating tensions between the U.S. and Iran.

U.S. crude added 2 cents to $67.91. Brent edged up 10 cents to $73.17 a barrel.

Spot gold was barely budged at $1,224 an ounce.

Reference: Marc Jones

Monday, 23 July 2018

Sterling falls to three-week low versus resurgent yen

LONDON (Reuters) - Sterling fell to a three-week low against a resurgent yen on Monday after the Japanese currency received a boost from reports that the central bank was contemplating scaling back its stimulus.

The British currency struggled to hold on to earlier gains against the dollar and fell 0.1 percent to $1.3115, although the pound was still up from last week’s 10-month lows below $1.30.

Sterling rebounded on Friday as the greenback was undermined by U.S. President Donald Trump’s comments lamenting the dollar’s recent strength.

Against the yen, which has firmed across the board since the Bank of Japan reports, the pound slipped 0.55 percent to 145.8 yen, the lowest since July 3.

The Bank of Japan, facing stubbornly low inflation, is in unusually active discussions before this month’s policy decision, with changes to its interest-rate targets and stock-buying techniques on the table, people familiar with the central bank’s thinking told Reuters.

Sterling looks set for more volatility however amid growing talk of a likely “hard” Brexit — crashing out of the European Union without a trade deal in place.

A weekend poll revealed Britons were overwhelmingly opposed to Prime Minister Theresa May’s Brexit plan and would instead support a new right-wing political party committed to quitting the bloc.

The UK parliament starts its summer recess this week and markets are now awaiting next week’s Bank of England meeting to see if the bank decides to raise rates.

Markets currently assign a roughly 70 percent chance of a rate increase despite weaker-than-expected retail sales and softer inflation data published last week.

With the British government having unveiled its proposals for ties with the European Union after the two divorce next year, all eyes are now on the response from Brussels.

Michel Barnier, the chief EU negotiator, said Britain’s proposals on its future relationship with the European Union contained constructive elements but that many questions remained.

“The pound continues to remain on the defensive, although there is at least some relief that an immediate leadership challenge to PM May appears unlikely before the parliamentary summer recess,” MUFJ analysts told clients.

“It leaves the upcoming BoE policy meeting on 2nd August as the main event for the pound over the holiday period.”

Against the euro sterling rose 0.1 percent to 89.12 pence per euro.

Reporting by Sujata Rao and Tommy Wilkes

Bond yields rise on BoJ easing talk while stocks slide

LONDON (Reuters) - Signs that the Bank of Japan could scale back its monetary stimulus faster than expected sent tremors through bond markets on Monday, while European stocks slid as threats of further U.S. tariffs on China drained risk appetite.

Europe’s bond yields climbed after a Reuters report that the BoJ was discussing modifying its huge easing programme sent Japan’s 10-year bond yield to a six-month high.

The report rekindled anxieties about global monetary policy easing and piled further pressure on investors already struggling to navigate rising protectionism and tense geopolitics.

The yield on Europe’s benchmark bond, the German 10-year Bund, hit a one-month high of 0.39 percent while U.S. 10-year Treasury yields also hit their highest in a month at 2.90 percent.

The yen climbed to two-week highs against the dollar and was last up 0.4 percent at 110.98 per dollar.

“It’s all that concern investors have about the move from global quantitative easing to global quantitative tightening. That fear gets stoked when you have reports such as this,” said Rory McPherson, head of investment strategy at Psigma Investment Management.

“The ECB meeting this week will be more in focus now that we’ve had this concern about Japan.”

The dollar index meanwhile languished at two-week lows after U.S. President Trump criticised the Federal Reserve’s tightening policy and accused the European Union and China of manipulating their currencies.

“We see the latest news on trade policy as pointing to continued high risk of escalation between the U.S. and China, and a renewed focus of the Trump Administration on currency matters,” said Goldman Sachs analysts.

Trump’s comments against Fed rate hikes also helped steepen the Treasury yield curve.

Trump’s new threats to slap duties on all U.S. imports from China triggered sell-offs across stock markets, though good corporate earnings kept a lid on losses.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.1 percent and the MSCI all-country world index declined just 0.02 percent.

Europe’s STOXX 600 fell 0.3 percent as investors braced for a packed week of corporate earnings in Europe and a meeting between European Commissioner Jean-Claude Juncker and Trump to discuss threatened auto tariffs which could damage carmakers.

Goldman Sachs analysts said auto tariffs, if they came to pass, would likely cause weakness in the Canadian dollar and Mexican peso, possibly also affecting the euro, pound, yen, and Korean won as investors priced in a hit to the economy.

“The global economy is still OK, but the risk is now very high, and if trade policies don’t make a U-turn very soon, we’ll see a measurable impact on growth already next year,” said UniCredit chief economist Erik Nielsen.

The euro, which has been gaining from dollar weakness, climbed for a third straight day to a two-week top of $1.1750. It was last up 0.2 percent at $1.135.

Concerns about fuel demand dented oil prices after finance ministers and central bank governors at the G20 meeting in Buenos Aires said the risks to global economic growth have increased due to trade and geopolitical tensions.

U.S. crude fell slightly to $68.24 a barrel after posting its third straight weekly loss. Brent crude rose 16 cents to $73.23.

Copper, among the most sensitive to trade tensions, hovered above a one-year low hit last week, trading at $6,151 a tonne. Copper fell for the sixth week in a row last week. Gold prices declined 0.1 percent to $1,30.76 an ounce.

Reporting by Helen Reid

Japanese yen stands tall on policy stimulus unwind bets

LONDON (Reuters) - The Japanese yen rallied to near two-week highs against the euro on Monday following reports the central bank was debating moves to scale back its massive monetary stimulus.

Also pushing the yen up were comments by U.S. President Donald Trump on Friday criticizing the greenback’s strength, which in turn hit the Japanese stock markets and triggered a further unwinding of short yen positions.

“The headlines about the Japanese central bank planning to tweak its policy stimulus is triggering this big yen move but unless we see some concrete steps, the yen’s strength may falter,” said Manuel Oliveri, a currency strategist at Credit Agricole in London.

The Bank of Japan, facing stubbornly low inflation, is in unusually active discussions before this month’s policy decision, with changes to its interest-rate targets and stock-buying techniques on the table, people familiar with the central bank’s thinking told Reuters.

The central bank is scheduled to hold its next monetary policy meeting on July 30 and 31.

The BOJ’s current policy, adopted in mid-2016, consists mainly of negative short-term interest rates, keeping the 10-year yield around zero percent and buying about six trillion yen of stocks through exchange traded funds.

The Japanese yen rallied half a percent against the euro to 130.70 yen, its highest since July. 11. It rose by a similar margin against the dollar JPY=EBS 110.90 and against sterling at GBPJPY=EBS at 145.85 yen.

With short bets against the yen doubling to nearly 60 thousand contracts in the latest weekly data, according to CFTC, some traders expected more upside for the yen in the short term.

Trump’s latest comments also boosted the yen.

CNBC reported on Friday that Trump was worried the Federal Reserve will raise interest rates twice more this year. Trump said the Fed’s policy tightening and the strong dollar could hurt the U.S. economy.

Broader moves in currency markets were muted. The dollar index .DXY, a measure of its value against a basket of six major currencies, was down 0.1 percent at 94.327, slipping further from a one-year high of 95.656 touched on July 19.

Reporting by Saikat Chatterjee

Friday, 20 July 2018

Sliding yuan hits world stock markets, stokes trade war fears

LONDON (Reuters) - The Chinese yuan slid to its lowest in more than a year on Friday, further undermining global sentiment and stoking worries Beijing’s currency management could be the next flash point in a trade dispute with the United States.

The yuan slid as low as 6.8128 to the dollar in the onshore market after the central bank set a weaker fixing for the currency for the seventh straight session, forcing a volatile session in Asian stocks.

After falling 0.4 percent, MSCI’s index of Asia-Pacific shares outside Japan ended the day 0.6 percent higher as the yuan rebounded. Market participants suspected state intervention to support the currency.

The drop in the yuan came a day after U.S. President Donald Trump said he was concerned that the “Chinese currency was dropping like a rock” and the strong U.S. dollar “puts us at a disadvantage”.

His comments knocked the dollar, forcing it off one-year highs against a basket of currencies

But the yuan, hurt by concerns over the China-U.S. trade war and a slowing Chinese economy, has shed 7.6 percent of its value against the dollar since the end of the first quarter of this year.

“A weaker Chinese yuan remains a source of risk for global currency markets – and the large dollar-yuan fixing higher by the (central bank) overnight requires some cautionary monitoring,” ING Bank told clients.

Investors have vivid memories of China’s sudden devaluation of the yuan in 2015 and the subsequent turmoil in global financial markets as investors worried about the stability of the world’s second-largest economy.

European markets were not immune to the jitters. The pan-European STOXX index and Germany’s DAX - which is highly exposed to trade and China - fell 0.2 percent at the start of trading.

MSCI’s all-country world Index, which tracks shares in 47 countries, was up 0.2 percent on the day but was set to end the week flat.

Meanwhile, political concerns returned to dog Italian assets. The country’s bonds and stocks sold off after local media reported tensions within the coalition government and a newspaper interview with a lawmakrer raised fresh concerns about Rome’s commitment to the euro.

Italian newspapers reported tension between Economy Minister Giovanni Tria and the government’s two vice prime ministers. One reason for strained relations is disagreement over appointments at some state-controlled firms, including state lender Cassa Depositi e Prestiti (CDP), traders said.

And according to a report in the newspaper Corriere della Sera, the head of the budget committee in Italy’s parliament, Claudio Borghi, said Italy would come out of the euro sooner or later.

“The reports out of Italy today are a reminder of just how dysfunctional the Italian government is,” said Chris Scicluna, head of economic research at Daiwa Capital Markets in London. “It’s not helpful that these parties are packed with euro skeptics.”

The news had little effect on the euro, however, which was up 0.1 percent on the day.

In Asia on Friday, Japan’s Nikkei was down 0.3 percent, but Hong Kong’s Hang Seng gained 0.45 percent and the Shanghai Composite Index rose 2 percent.

Worries about a full-blown global trade war are likely to persist as officials from the EU Trade Commission, due to arrive in Washington next week for trade talks, are said to be preparing a list of retaliatory measures in response to proposed U.S. tariffs on European Union cars.

The dollar index, which measures the U.S. currency against a basket of peers, was down 0.1 percent on the day at 95.118.

Trump on Thursday criticized Federal Reserve policy and expressed concern about the potential impact of rising interest rates and a stronger dollar on the U.S. economy and American corporate competitiveness.

Brent crude futures rose 0.9 percent to $73.24 a barrel, maintaining their gains so far this week, after Saudi Arabia’s OPEC governor said the kingdom’s exports are likely to fall next month and inventories may be squeezed in the third quarter [O/R].

Spot gold rose 0.1 percent to $1,222.85 an ounce.

Reporting by Ritvik Carvalho

Dollar below one-year highs on Trump comments; yuan eyed

LONDON (Reuters) - The dollar held below a one-year high on Friday after U.S. President Donald Trump expressed concern about a stronger currency, although a weakening Chinese yuan reduced risk appetite.

The dollar is poised for a second straight week of gains and has gained more than 5 percent in the past three months on expectations the U.S. central bank will keep raising interest rates in the coming months.

But in a CNBC interview on Thursday, Trump said a strong dollar puts the United States at a disadvantage and that the Chinese yuan “was dropping like a rock”.

“The comments are more likely to, on the margin, stem flows into dollar assets given renewed uncertainty over the U.S. administration’s dollar policy,” ING strategists said.

Against a basket of other currencies .DXY, the dollar held at 95.19, just below the one-year high of 95.62 it reached in the previous session.

But risk appetite remained subdued after China allowed the currency to weaken by lowering its daily midpoint fixing. The People's Bank of China dropped the midpoint for a seventh straight trading day to 6.7671 per dollar on Friday, 605 pips or 0.9 percent weaker than the previous fix of 6.7066.

Friday’s fixing was the lowest since July 14, 2017, and represented the biggest one-day weakening in percentage terms since June 27, 2016.

“The Chinese currency really seems like it might be in play again rather than just catching up with a stronger dollar,” Rabobank strategists said in a daily note.

The Australian dollar AUD=D3 was barely changed at $0.7364, recouping losses after dropping nearly half a percent in early trade.

The euro weakened to $1.1639 after Italian bond yields rose.

Reporting by Saikat Chatterjee

Thursday, 19 July 2018

Wall Street lower on weak earnings, escalating trade tensions

(Reuters) - U.S. stock indexes were trading lower on Thursday, as a batch of weak quarterly reports dampened a robust earnings season and trade tensions rose on news the European Union may retaliate if United States slaps tariffs on EU cars.

EU Trade Commissioner Cecilia Malmstrom said she hoped a mission to Washington would ease the trade dispute that started after the United States imposed tariffs on EU steel and aluminum on June 1, with President Donald Trump threatening to extend them to cars and auto parts.

“Today’s theme is trade war, as the EU is going to retaliate against car tariffs and that is going to weigh,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

“The market is probably going to be defensive even though we are getting good news on the economy and as earnings continue to pour in.”

Concerns about the impact of tariffs have been rising among manufacturers in every one of the Federal Reserve’s 12 districts, a central bank report released on Wednesday showed.

However, White House trade adviser Peter Navarro on CNBC downplayed tariff-related concerns, saying President Trump’s trade strategy with China, which includes levying new tariffs, is not as disruptive as many describe.

The Consumer Staples sector dropped 0.9 percent, the most among the 11 main S&P sectors.

The losses on the sector were led by a 6.3 percent drop in shares of cigarette maker Philip Morris after the company lowered full-year profit forecast. Rival Altria (MO.N) dropped 3.3 percent.

EBay (EBAY.O) sank 9.6 percent, the most on the benchmark S&P 500 and the Nasdaq, after reporting underwhelming results and forecast.

The biggest drag on the Dow Jones Industrial Index was Travelers Cos (TRV.N), which fell 3.3 percent after the insurer missed quarterly profit estimates due to higher catastrophe losses from storms in several U.S. regions.

AmEx (AXP.N) fell 2.8 percent after the credit card company said expenses rose due to higher spending on its rewards program.

At 9:50 a.m. EDT the Dow Jones Industrial Average .DJI was down 96.18 points, or 0.38 percent, at 25,103.11, the S&P 500 .SPX was down 9.76 points, or 0.35 percent, at 2,805.86 and the Nasdaq Composite .IXIC was down 22.60 points, or 0.29 percent, at 7,831.84.

IBM (IBM.N) was a bright spot, up 4 percent after its results topped estimates due to growth in higher-margin businesses including cybersecurity and cloud computing.

Comcast (CMCSA.O) gained 3.4 percent after it dropped pursuit of a group of media assets owned by Twenty-First Century Fox Inc (FOXA.O).

Declining issues outnumbered advancers for a 1.46-to-1 ratio on the NYSE and for a 1.61-to-1 ratio on the Nasdaq.

The S&P index recorded 12 new 52-week highs and one new lows, while the Nasdaq recorded 41 new highs and 14 new lows.

Reporting by Amy Caren Daniel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reference: Tom Finn

Wednesday, 18 July 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reporting by Tommy Reggiori Wilkes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reporting by Marc Jones in London and Wayne Cole in Sydney