Friday, 31 August 2018

European shares fall on renewed fear of trade conflict

LONDON (Reuters) - European shares fell for a second day on Friday on reports that U.S. President Donald Trump is planning more tariffs on China, while Whitbread surged after clinching a $5.1 billion deal with Coca-Cola.

The pan-European STOXX 600 dropped 0.5 percent by 0833 GMT, on track for its biggest decline in a fortnight. Germany's DAX .GDAXI, heavier in trade-sensitive industrial stocks, fell 1 percent.

Sparring over trade between Trump and the European Union weighed on car stocks .SXAP, down 1 percent and the worst-performing sector.

Trump was reported to have rejected an EU offer to eliminate car tariffs, saying its trade policies are “almost as bad as China”. European Commission President Jean-Claude Juncker said the EU would respond in kind if the U.S. imposed car tariffs.

“It’s very hard to see a decisive resuscitation of risk appetite until these tensions are resolved,” said Paul O’Connor, head of the multi-asset team at Janus Henderson Investors.

“We have learned to under-react to some of the individual headlines because if you try to extrapolate from any of them you could find yourself in big trouble.”

Daimler, Volkswagen, BMW, and Continental were the biggest weights on the DAX, falling 1 to 1.3 percent.

In contrast, Whitbread (WTB.L) soared as much as 19 percent after the UK company agreed to sell its Costa Coffee chain to Coca-Cola (KO.N) for 3.9 billion pounds ($5.1 billion).

Traders said the deal’s value exceeded the market’s expectations by 500 million to 900 million pounds and was wrapped up more quickly than expected. Most of the cash will be returned to shareholders.

Sage (SGE.L) tumbled 9 percent, the biggest decline among European stocks, after the British software developer surprised the market by announcing Chief Executive Stephen Kelly would stand down in May next year.

“This will leave a hole and raise further questions about reaching such targets,” said Neil Campling, co-head of the global thematic group at Mirabaud Securities. “This is one we wouldn’t be bottom fishing right now.”

Air France (AIRF.PA) fell 2.5 percent, extending Thursday’s losses after Kepler Cheuvreux cut the stock to “hold” from “buy”, citing concerns about capacity growth, fuel costs and strikes.

German carrier Lufthansa (LHAG.DE) also fell 4.2 percent, after Citi cut the stock to “sell”, saying perceptions of consolidation in Germany were “overly enthusiastic” and preferring low-cost airlines easyJet and Ryanair.

Shares in Edenred fell 3 percent after Berenberg cut the stock to “sell” from “hold”, saying its business model remains structurally challenged.

While trade disputes have caused uncertainty and volatility, investors drew comfort from strong earnings.

“Concerns around trade are not significantly affecting macro and market fundamentals at this stage. There’s still a fairly strong global recovery, earnings forecasts remain resilient across the board,” said Janus Henderson’s O’Connor.

“It limits the upside but isn’t something that is changing our perception of broader market fundamentals.”

Analysts have, however, adjusted their earnings expectations for autos stocks since the trade war broke out.

Reporting by Helen Reid

Stronger sterling and trade war angst hit FTSE, Whitbread soars

LONDON (Reuters) - Britain’s top share index fell on Friday and was set to end the month with a loss as a stronger pound and broader worries over an escalation in a trade war between the United States and China dented appetite for UK stocks.

The blue-chip FTSE 100 .FTSE was down 0.3 percent at 7,495.63 points by 0904 GMT as cyclical sectors fell, while mid caps .FTMC gained 0.2 percent.

Poor sentiment over trade hit stock markets across Europe, weighing on more volatile sectors, such as financials and commodity stocks.

Reports that U.S. President Donald Trump was planning new tariffs on China ramped up the trade dispute between the two economic powers.

“The FTSE 100 looks set to end the week on a downbeat note with a threat from Donald Trump to pull the U.S. out of the World Trade Organisation helping to revive fears over global trade,” AJ Bell investment director Russ Mould said.

Closer to home, Trump rejected an offer from the European Union to eliminate tariffs on cars and said the EU’s trade policies are “almost as bad as China”, a media report said.

Oil majors BP (BP.L) and Royal Dutch Shell (RDSa.L) were down 0.7 percent and 0.5 percent respectively as the price of oil fell.

Likewise, a weaker copper price was a drag on heavyweight miners. Shares in Glencore (GLEN.L), BHP Billiton (BLT.L), Rio Tinto (RIO.L) and Anglo American (AAL.L) all fell between about 0.3 percent and 1 percent.

However, Whitbread’s (WTB.L) shares were standout gainers.

They soared 16 percent to hit their highest level since December 2015 after agreeing to sell the group’s Costa coffee chain to Coca-Cola Co (KO.N) for $5.1 billion.

“As changes of direction go, the announcement by Whitbread CEO Allison Brittain that the company is selling Costa to Coca-Cola...rather than the plan announced in April to spin it off and list it as a publicly traded company is one deserving of kudos,” Northern Trust Capital Markets analyst Oliver Sherman said.

Among fallers, Sage Group dropped nearly 7 percent after announcing the departure of its CEO.

More broadly, a stronger pound also weighed on the FTSE’s dollar-earning constituents for a third session. The currency remained near a one-month high, boosted by hopes of a breakthrough on Brexit following comments from the European Union’s chief Brexit negotiator Barnier this week.

The FTSE 100 was on track to end August with a 3.3 percent loss, as worries over a possible “no-deal” Brexit nagged.

Reporting by Kit Rees

Thursday, 30 August 2018

Stock market's advance grinds to a halt on China concerns

LONDON (Reuters) - Stock market gains came to a grinding halt on Thursday, held back by concern that China will be left behind as the United States reaches trade agreements with other North American countries and Europe.

Stock markets and major government bond yields rose in recent weeks on hopes that a global trade war could be averted, particularly with the leaders of the United States and Canada optimistic they could reach new North American Trade Agreement by Friday.

But with tariffs beginning to hurt the Chinese economy, Asian stocks lost some of their gains and European shares followed suit on Thursday on concerns over trade relations between the world’s two largest economies.

“In all honestly, the NAFTA situation probably reflects a desire to get the agreement over the line before elections in Mexico and the mid-term vote in the U.S.,” said Craig Erlam, senior market analyst at OANDA, an FX broker.

“It doesn’t mean the U.S. will look for a quick solution with China. There’s still a long way to run with these trade situations, and I wouldn’t be surprised if we see more tariffs on more goods before it gets better.”

A pan-European stock index dropped 0.4 percent on Thursday, dragging the MSCI world equity index .MIWD00000PUS, which tracks shares in 47 countries, off a five-month high.

Earlier, a Reuters poll showed activity among China’s manufacturers probably slowed for the third straight month in August.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.3 percent, with broad gains across the region offset by losses in China.

The Shanghai Composite Index .SSEC slid 0.9 percent and Hong Kong's Hang Seng .HSI fell 0.8 percent.

“Investors are relatively pessimistic and cautious for now amid low levels of trading volume, as there are still concerns over the development of the Sino-U.S. trade spat,” said Yan Kaiwen, an analyst with China Fortune Securities.

U.S. tariffs on another $200 billion of Chinese goods are expected to take effect next month.

The British pound extended its gains against the euro after recording its biggest gain in seven months on Wednesday GBP=D4. The gains came as European Union negotiator Michel Barnier signalled an more accommodative stance towards London in ongoing talks.

“It is a slight change in tone from Barnier and a sign that the EU is very aware of the Brexit deadline and they don’t want a no-deal Brexit any more than we do,” said Erlam of OANDA.

Yet another emerging market currency is under scrutiny, this time Argentina’s, after the country asked the International Monetary Fund for early assistance, alarming investors and hurting the peso and the country’s bond prices.

The IMF said it was studying the request from Argentina to speed up disbursement of the $50 billion loan.

The Argentinian peso ARS=RASL dropped more than 7 percent on Wednesday, its biggest one-day decline since the currency was allowed to float in December 2015.

Yields on Argentina’s 100-year bond issued last year rose to its highest level yet at 9.859 percent overnight.

The peso's plunge came after a currency crisis hit Turkey earlier in the month, sparking worries about all emerging markets. The Turkish lira retreated to a two-week low after Moody's on Wednesday downgraded 20 Turkish banks.

In commodities, Brent crude futures extended gains and was up 0.35 percent to $77.40 per barrel. U.S. crude futures climbed 0.37 percent to $69.77 per barrel.

Oil contracts had risen more than 1 percent on Wednesday, supported by a drop in U.S. crude and gasoline inventories and as U.S. sanctions reduced Iranian crude shipments.

Reference: Abhinav Ramnarayan

Wishful thinking? Pound buoyed by Barnier

LONDON (Reuters) - Despite new comments from Michel Barnier this morning warning of the need to prepare for a no-deal Brexit, the pound continues to take heart from his words in Berlin last night on the prospects of an ambitious future EU-UK trading relationship.

It's worth noting that, in terms of the substance, there is strictly nothing new here from the Brussels side: Barnier merely re-formulated the Brussels aspiration for a trade deal of "unprecedented scope and depth" which he already described in an August 2 newspaper article.

"We are prepared to offer Britain a partnership such as there never has been with any other third country"EU Brexit negotiator Michel Barnier
Yesterday he was also very careful to repeat the EU’s existing red lines and warn against any “cherry-picking” of the benefits of a single market.

It is also unclear from a tactical standpoint why the EU’s chief negotiator should all of a sudden relent and soften his position now: do UK observers think this is evidence of Brussels blinking first as the fear of a no-deal Brexit mounts?

Some detect at least a tonal shift from Barnier in recent weeks. That may be true. But so far at least, that has not translated into a discernible change in the EU’s basic negotiating stance.

“They just came out and surrounded our fleet, throwing petrol bombs. It was mental” Ciaran Cardell, English fisherman
The politics story that came out of nowhere this week was the renewal of hostilities over scallops in the English Channel. French vessels rammed British dredgers off the coast of Normandy in protest at their fishing during a period the French have set aside for the bivalve mollusks to breed in peace.

The row had flared up five years ago but was eased by yearly agreements. With Brexit in the offing, the French feel the English are less inclined to seek such accords. Talks are due from today to broker a truce.

Sterling extended Wednesday’s one percent rebound against the dollar and euro after EU Brexit negotiator Barnier said a specially tailored post-Brexit trade deal with Britain was on the table.

Exaggerated in part by the unwinding of recently built short positions, the pound has recaptured $1.30 for the first time since August 6 and euro/sterling has slipped back further below 0.90 – shrugging off reports that any final Brexit deal may be delayed a little beyond the October EU summit and more equivocal comments from Barnier on Thursday that the EU must be prepared for a no-deal Brexit.

Sterling was also helped by a newspaper report on Tuesday that the UK government had asked Bank of England chief Carney to stay on for an extra year beyond his scheduled departure in June 2019, even though Britain's finance ministry denied the details of the story.

The dollar was stronger elsewhere, however, with euro/dollar failing to retain a foothold above $1.17 and emerging-market currencies such as Argentina’s peso, Turkey’s lira and China’s yuan weakening sharply again overnight.

The International Monetary Fund said it was studying a request from Argentina to speed up disbursement of a $50 billion loan programme after a collapse in investor confidence in President Mauricio Macri's government sent the peso tumbling more than 7 percent on Wednesday, its biggest one-day decline since 2015.

"There’s no getting away from the fact that the Turkish economy is experiencing a deep downturn"Jason Tuvey of Capital Economics.

Dollar/lira continued to rise too, jumping above 6.50 in early trading for the first time in two weeks, after Moody’s on Wednesday downgraded 20 Turkish banks and financial institutions, fears grew about heavy foreign debt refinancing next month and October and economists warned of a rising risk of recession when business-confidence readings fell to their lowest in almost 10 years.

China’s offshore yuan weakened again, retracing much of its bounce since last Friday, and Shanghai and Hong Kong stocks underperformed Asia peers on Thursday with losses of about 1 percent. Despite rising optimism about successful NAFTA trade talks, there was little sign of optimism about moves to avert the latest U.S. round of tariffs on Chinese goods due next month.

Dollar gains more broadly were supported by firmer U.S. Treasury yields, with the 10-year above 2.88 percent, and another series of record highs set by U.S. stock indices, led by the top technology and internet stocks.

U.S. and European stock futures were down a touch first thing Thursday, with European stock and bond markets eyeing the release of German and Spanish August inflation numbers later in the session.

Reference: Reuters team

Dollar falls for fifth day as trade war fears ease

LONDON (Reuters) - The dollar fell for a fifth consecutive day on Thursday as easing concerns over trade conflicts fuelled appetite for riskier currencies though thin month-end markets checked losses.

Against its main rivals .DXY, it held at a one-month low of 94.52 as some investors bet a likely trade deal between the United States and Canada would reduce the pool of money that has flocked to the dollar in recent days on concerns that any escalation in trade conflict would be beneficial to the currency.

The United States and Canada expressed optimism on Wednesday that they could reach new NAFTA deal by a Friday, though Ottawa said a number of tricky issues remained.

“Despite volatile overnight markets in Asia, risk appetite in currencies is broadly on the mend as trade war concerns seem to be receding, which should pressure the dollar lower,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

Sterling led currency gainers on hopes that Britain and the European Union will agree on future trade ties before Brexit takes effect.

The EU’s chief Brexit negotiator Michel Barnier said on Wednesday it was prepared to offer Britain an unprecedentedly close relationship, but that the bloc must prepare for a no-deal Brexit.

Exaggerated in part by the unwinding of recently built short positions, the pound has recaptured $1.30 for the first time since Aug. 6 and euro/sterling has fallen 1.3 percent in the last two sessions to below 90 pence and is on track for its biggest two-day rise of 2018.

The euro EUR=EBS remained firm against the dollar above $1.17 as investors bet a rise in risk appetite would boost the single currency. It has gained more than 3.5 percent over the last two weeks from a two-month low.

“As investors’ focus shifted to the NAFTA and Brexit negotiations, the dollar didn’t get much of a boost from weak emerging market currencies,” said Tohru Sasaki, head of markets research at JPMorgan Chase Bank in Tokyo.

New Zealand's dollar NZD=D3 fell as much as 1 percent to $0.6645 after business confidence sunk to a decade low in August.

The offshore Chinese yuan dipped 0.3 percent to 6.8430 per dollar, extending its losses into a third session.

Reporting by Saikat Chatterjee

Wednesday, 29 August 2018

Stocks hover as investors still on tenterhooks over trade deal

LONDON (Reuters) - Global stocks faltered on Wednesday as optimism over a U.S.-Mexico trade deal faded with investors anxious about Canada’s acquiescence and eyeing a deadline for the next round of China-U.S. tariffs next week.

Canada’s chief negotiator continued talks to preserve a three-nation North American Free Trade Agreement following Monday’s deal, but uncertainty over how long it could take for a final agreement to pass Congress kept moves muted.

MSCI’s world equity index .MIWD00000PUS, which tracks shares in 47 countries, edged down 0.02 percent from the 5 1/2- month highs it hit after Mexico and the U.S. struck their deal.

“The market is quite right to say after the knee-jerk reaction higher in the Mexican peso and equities, a) there was remarkably little detail, and b) what is the state of Canada?” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

“It helps this rebound in risk assets we’re seeing after the Turkey and global EM related selloff in the first half of the month, but it is an erratic rally because we need a bit more fuel to the fire.”

European stocks managed a 0.1 percent gain. So did EMini futures for the S&P 500.

U.S. President Donald Trump threatened to proceed with Mexico alone and levy tariffs on Canada if it does not come on board with the revised trade terms. But a trade deal might struggle to win approval from Congress unless Canada comes on board.

“The final decisions are unlikely until 2019 at the earliest,” said Goldman Sachs analysts, adding that control of the House majority might have gone to Democrats by then, which could make passage of the agreement more difficult.

Currencies reflected investors’ remaining uncertainty.

The Canadian dollar CAD= stalled at 1.292 to the U.S. dollar. Mexico's peso MXN= recovered 0.3 percent to 19.02 to the dollar, having slid 1.7 percent on Tuesday as concerns over Brazil's elections affected the region.

On another front of the global trade conflicts, analysts at JPMorgan noted the deadline for public comment on Trump’s increased tariffs on $200 billion of Chinese goods was less than a week away on Sept. 5.

“End-of-month flows could start to take hold into the end of the week, and combined with light news flow and the risk of impending trade war escalation could result in conviction remaining light,” they cautioned.

The White House has said it wants to settle NAFTA before dealing with China, suggesting that trade disputes will run well into 2019.

“There’s a big debate taking place among investors: is Trump hoping to reach agreement with all the big players to demonstrate what a successful negotiator he is, or is he trying to make sure he’s got agreement with NAFTA and the EU and therefore can turn all the firepower on to China?” said Aberdeen Standard’s Milligan.

Currencies quietened down after a turbulent few days, with the dollar index .DXY 0.1 percent firmer at 94.833 after touching a four-week low overnight.

The euro eased a fraction to $1.1670 EUR= after hitting a one-month high at $1.1733 overnight. The currency's gains are being capped by concerns over Italy's budget.

“We believe that Italy is headed on a collision course with the EU as the two meet to discuss Italy’s budget in September,” wrote Man Group portfolio managers in a note.

But peripheral bond markets outperformed on the day, with Italy’s 2-year bond yield falling to 1.249.

Emerging market stocks .MSCIEF were under renewed pressure, falling 0.2 percent.

Turkey's lira slid 1.7 percent to around 6.4 to the dollar, a two-week low as concern grew about the effects of the country's currency crisis after Finance Minister Berat Albayrak was quoted as saying he did not see a risk to the economy or financial system.

Overall, though, emerging markets have had a strong recovery from the sharp selloff earlier this month.

“On balance people are looking to buy EM assets but it would be foolish to say buy them all because there are still vulnerabilities in a sizeable number,” said Aberdeen Standard’s Milligan.

In commodity markets, spot gold XAU= rose 0.2 percent to $1,203.01 an ounce.

Oil prices were little changed as falling supplies from Iran before U.S. sanctions take effect were offset by rising production outside the Organization of the Petroleum Exporting Countries.

Brent hovered at $75.98 a barrel U.S. crude plateaued at $68.55.

Reporting by Helen Reid

Dollar rises as relief over U.S.-Mexico trade deal fizzles out

LONDON (Reuters) - The dollar rose on Wednesday as relief about a U.S.-Mexico trade deal gave way to concern among investors that the conflict over trade between the U.S. and China was not about to end soon.

The greenback overnight had dipped to a four-week low as investors unwound safe-haven bets on the currency after the United States and Mexico agreed on Monday to overhaul NAFTA.

The U.S. currency has fallen for three consecutive weeks despite the United States embarking on greater monetary tightening than elsewhere.

That is partly because of political uncertainty in the U.S., reinforced by the criminal conviction of one of President Donald Trump’s ex-advisors last week and recent comments by the Federal Reserve’s chairman that seemed to suggest a slower pace of U.S. interest rate increases.

But the dollar index gained on Wednesday and at 0800 GMT was up 0.2 percent at 94.884. It traded as low as 94.434 during the previous session, its lowest since July 31.

“This deal [with Mexico] was more about making progress before the mid-term elections in the United States. Trump’s real fight will be with China,” said MUFG currency strategist Lee Hardman.

“We see reason for caution. The real fight is likely still ahead and it will not be long before investor attention shifts back to the more concerning conflict with China,” he added.

The deadline for public comment on U.S. President Donald Trump’s tariffs on another $200 billion of Chinese goods is on Sept. 5, with the new measures possibly taking effect later that month.

The euro, meanwhile, fell 0.2 percent to $1.1663, as worries mounted that Italy’s public deficit could exceed the European Union’s ceiling of 3 percent of gross domestic product.

It has risen against the greenback during the previous three sessions.

Italian headlines may keep euro-dollar rallies limited to $1.17-1.18 in the near term, said analysts at ING.

Short-term traders are shifting their focus to emerging market currencies as volatility for major currency pairs such as dollar/yen was low, said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“Emerging market currencies like the Brazilian real, Turkish lira, Russian rouble and the South African rand may receive stronger pressures,” said Yamamoto.

Elsewhere the Swedish crown edged down towards a nine-year low versus the euro on signals that no interest rate rises can be expected until next year.

China’s offshore yuan was down 0.3 percent at 6.8240 yuan per dollar, after the central bank announced fresh steps on Friday to stabilise the currency.

Reference: Tom Finn

Tuesday, 28 August 2018

S&P, Nasdaq open at record highs as trade war fears recede

(Reuters) - The S&P 500 and the Nasdaq Composite index opened at record levels on Tuesday, lifted by hopes that a trade deal between the United States and Mexico will go some way to averting a global trade war.

The Dow Jones Industrial Average .DJI rose 43.06 points, or 0.17 percent, at the open to 26,092.70. The S&P 500 .SPX opened higher by 4.71 points, or 0.16 percent, at 2,901.45. The Nasdaq Composite .IXIC gained 21.11 points, or 0.26 percent, to 8,039.01 at the opening bell.

European shares rallied on Tuesday after the United States and Mexico reached a trade agreement, with autos enjoying another day of gains on an otherwise quiet day for company news.

The pan-European STOXX 600 index was up 0.1 percent by 0850 GMT, hitting a two-week high, while Germany's exporter-heavy DAX .GDAXI gained 0.1 percent.

Britain's FTSE 100 .FTSE rose 0.6 percent following Monday's holiday, helped by a subdued sterling.

European autos .SXAP posted some of the biggest gains, up 1.3 percent after the United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA). That puts pressure on Canada to agree to new terms on auto trade and dispute settlement.

“Trade is the number one factor driving markets right now,” Jasper Reimers, market analyst at Vertex Capital Group, said.

“We’ve seen some developments between the United States and Mexico - hopefully they’re going to start spilling over now,” Reimers added.

Mining shares were also big risers, up 2 percent .SXPP as copper prices rallied on the back of a weaker dollar, which makes greenback-denominated metals cheaper for holders of foreign currency.

Among individual stocks, shares in Danish brewer Royal Unibrewer topped the STOXX with a 5.2 percent gain after the company raised its outlook for the third time this year.

With the European earnings season all but over, actual earnings growth for the MSCI EMU index has come in at 5.8 percent for the second quarter, according to Thomson Reuters I/B/E/S data.

While earnings growth has been fair for Europe, it has been nowhere near as strong as the 24.8 percent figure for the S&P 500.

Shares in British business supplies firm Bunzl climbed 1.7 percent after reporting a rise in first-half profit, thanks to recent acquisitions and higher demand from North America.

Shares in Sydbank fell more than 9 percent, however, after the Danish bank reported disappointing second-quarter earnings, missing profit forecasts.

Reporting by Kit Rees

Sterling slips to one-year low vs euro on no-deal Brexit angst

LONDON (Reuters) - Sterling fell to a near one-year low against the euro on Tuesday after British Prime Minister Theresa May played down the consequences of Britain leaving the European Union next year without securing a deal with the bloc.

Failing to reach an agreement on trade relations with the EU “wouldn’t be the end of the world,” May told reporters as she headed to Africa to try to boost Britain’s trade ties ahead of Brexit in March 2019.

May’s comments - seen as undermining Finance Minister Philip Hammond’s warnings about the economic damage from a “no-deal” Brexit - piled pressure on the pound which sank to 90.73 pence per euro, its lowest since Sept. 12, 2017.

Against the dollar the pound was broadly flat at $1.2898.

The prospect of a no-deal Brexit is becoming increasingly feasible in the eyes of investors who are hedging against the risk of the currency tanking if Britain is left isolated from the EU, its largest trading partner.

Positions are hardening as the March deadline approaches.

German Foreign Minister Heiko Maas on Tuesday said the risk of a so-called hard Brexit was “not yet off the table” and France’s prime minister has asked his ministers to prepare contingency measures in case Britain crashes out of the EU.

“The economic indicators from the UK have been respectable recently, but the political uncertainty surrounding Brexit is too great,” said CMC Markets analyst David Madden.

Short positions on the pound are now at their highest since mid-2017, he said.

Britain’s Brexit minister Dominic Raab said last week London could meet an informal October deadline to agree a deal but EU leaders expect to miss the deadline and are likely to have to hold an emergency summit in November.

Market analysts say most investors have already priced in a delay beyond October.

Reaching a deal is also only the first of several hurdles the EU and UK need to clear, such as parliamentary ratification of any agreement, before the March 2019 deadline.

Foreign exchange analysts have forecast the pound will weaken to $1.20 in the event of a no-deal Brexit, a Reuters poll this month found.

Reference: Tom Finn

World stocks hit six-month high as NAFTA deal eases trade war fears

LONDON (Reuters) - World stocks rose to a six-month high on Tuesday, lifted by investor optimism that a U.S.-Mexico deal to overhaul the North American Free Trade Agreement will go some way to averting a global trade war.

Investors expect Canada too will agree to the new terms to preserve a three-nation pact, while U.S. President Donald Trump and German Chancellor Angela Merkel spoke by telephone and the two leaders “strongly supported ongoing discussions” on trade, according to the White House.

European and Asian shares followed Wall Street’s lead, inching to multi-month highs after the S&P 500 and Nasdaq indexes surged to fresh records on Monday led by gains in technology stocks.

The dollar slipped to a four-week low and implied volatility across currencies and equity markets also eased, as investors took on greater risk appetite. Emerging market stocks hit their highest since Aug.

“Global trade tensions have undoubtedly been the most significant source of risk in 2018,” said Hussein Sayed, chief market strategist at FXTM.

“The U.S.–Mexico deal seemed to boost confidence that the trade war is moving closer to an end, and the next question is who’s next to close a deal with Trump?” he said.

MSCI’s benchmark world share index followed on from Monday’s best performance in over four months, rising 0.15 percent, while MSCI’s index of Asia-Pacific shares outside Japan climbed 0.5 percent.

A pan-European share index rose 0.3 percent for a third straight day of gains. Auto stocks continued to rally, adding 1.3 percent after enjoying their best day in a month on Monday - German carmakers rely on smooth trade between Mexico and the United States to sell Mexican-assembled vehicles into U.S. markets.

However, some analysts were cautious about the rally. Paul Donovan, chief economist at UBS Global Wealth Management, noted markets were assuming already that Canada would join the new U.S.-Mexico deal, but said: “it is not a zero risk process”.

“If Canada does not join, then getting the agreement of (U.S.) Congress will be trickier, as fast-track authorization probably will not hold,” he said.

Disputes between the United States and its trading partners have been a drag on investor sentiment for much of the year despite solid economic fundamentals and two robust quarters of corporate earnings.

And the toughest battle in the trade war - with China - still looms. The United States and China held two days of talks last week without a major breakthrough, as another round of tariffs came into effect.

The U.S. Commerce Department also said on Monday that Chinese steel wheels exports were heavily subsidized and that it could impose duties on the product.

Chinese stocks were steady to weaker, though Hong Kong’s Hang Seng index gained 0.6 percent.

JPMorgan analysts said the trade deal was not necessarily positive for the outcome of talks with China, though they said risks of a generalized global trade war had abated somewhat.

“Despite this, Asia-Pacific equities including HK/China should benefit from the weaker U.S. dollar and risk-on moves,” they added.

The dollar paused near one-month lows against a basket of currencies and the euro was near a one-month top at $1.1680. The greenback’s index has retreated from near 14-month highs and its losses accelerated last week after U.S. Federal Reserve chair Jerome Powell disappointed dollar bulls by signaling only a gradual pace of rate rises,

U.S. economic data - with consumer confidence figures due later in the day and the latest estimate for second-quarter gross domestic product expected on Wednesday - could determine the dollar’s further moves.

But its pullback has offered some respite to battered emerging and commodity-reliant currencies. South Africa’s rand has pulled off two-year lows hit earlier this month  while the Australian dollar, often used as a liquid hedge for global growth, is well above recent 1-1/2 year troughs.

There are exceptions, however. The Turkish lira fell another 1.5 percent against the dollar, adding to Monday’s 2 percent fall as concerns have not abated about Turkey’s rift with Washington and its monetary policies.

Italian borrowing costs too rose to three-month highs after Deputy Prime Minister Luigi Di Maio said the country’s public deficit could exceed the European Union’s ceiling of 3 percent of gross domestic product next year.

Reporting by Sujata Rao

Monday, 27 August 2018

Dollar steady after Powell speech, NAFTA hopes lift Mexican peso

LONDON (Reuters) - The dollar steadied against its peers on Monday as risk sentiment improved following Federal Reserve comments and signs U.S. and Mexican negotiators were homing in on a common position on the North American Free Trade Agreement (NAFTA).

At a symposium at Jackson Hole, Wyoming, Jerome Powell on Friday emphasised the central bank’s push to raise interest rates despite President Donald Trump’s criticism of higher borrowing costs.

The Treasury yield curve reached its flattest level since 2007 on Friday - a factor seen as reducing support for the dollar - in the wake of Powell’s speech.

His comments did little to change market expectations for rate hikes in September and December and disappointed some dollar bulls hoping for a more hawkish message.

“There were clearly those in the market who were wrongfooted and had thought the Fed might shift towards an auto-pilot mode (approach to rate hikes) as it did in 2004. Obviously, Powell prefers a gradual approach,” said Ulrich Leuchtmann, head of FX and emerging market research at Commerzbank AG in Frankfurt.

“The return of risk appetite is negative for the dollar and its safe-haven appeal,” he added.

The dollar index against a basket of six major currencies at GMT 0800 was broadly flat at 95.225, after slipping more than 0.5 percent in the previous session.

“Powell’s speech was nothing out of the ordinary,” said Mitsuo Imaizumi, chief forex strategist at Daiwa Securities.

“He stuck with the current policy trajectory and this means that the flattening of the U.S. yield curve would be allowed to continue.”

Adding to the positive mood, U.S. and Mexican trade negotiators appeared close to reaching a common position on the North American Free Trade Agreement (NAFTA), with Mexico’s economy minister saying on Sunday that talks have “continued to make progress”.

The Mexican peso was up 0.6 percent at 18.81 per dollar. Talks are scheduled to resume later on Monday.

A prospective trade deal with Mexico “takes a little bit of global trade war risk off the table”, said Robert Carnell, chief economist and head of research, Asia-Pacific at ING.

The euro was little changed at $1.1609 after going as high as $1.1654, its strongest since Aug. 2. The single currency had advanced more than 0.7 percent on Friday.

The Chinese yuan extended is rally in the onshore market to as high as 6.8061 per dollar, its strongest since Aug. 8.

The yuan had surged about 0.8 percent in onshore trade on Friday after the People’s Bank of China said it was adjusting its methodology for fixing the yuan’s daily midpoint, amid broad dollar strength and ongoing trade tensions between Washington and Beijing.

Other emerging currencies including the Turkish lira and the South African rand were mostly steady against the dollar.

A broad retreat in emerging market currencies, notably the Turkish lira, earlier this month had been a key source of strength for the greenback.

Reference: Tom Finn

Asian shares rise after Powell speech, stronger yuan lifts China

SHANGHAI (Reuters) - Asian shares rose on Monday, taking heart from comments by the Federal Reserve chairman that drove Wall Street to record highs on Friday, and as a tweak to the way China’s central bank manages its currency boosted the yuan and stocks.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 1.1 percent, while Japan's Nikkei stock index .N225 closed 0.9 percent higher.

European share markets were set to follow Asia higher, with European spreadbetters expecting Germany's DAX .GDAXI to gain 45 points to 12,439 and France's CAC 40 .FCHI expected to open 22 points higher at 5,454.

Adding to the positive mood, U.S. and Mexican trade negotiators appeared close to reaching a common position on the North American Free Trade Agreement (NAFTA), with Mexican Economy Minister Ildefonso Guajardo saying on Sunday that talks have “continued to make progress”.

A prospective trade deal with Mexico “takes a little bit of global trade war risk off the table,” said Robert Carnell, chief economist and head of research, Asia-Pacific at ING.

“Every time there’s a move towards fewer tariffs from the U.S. instead of more, then that should take a little pressure off the U.S. dollar,” he said.

In China, shares rose to their highest levels in two weeks.

The Shanghai Composite index .SSEC added 1.7 percent and the blue-chip CSI300 index .CSI300 surged 2.2 percent, after the People's Bank of China late on Friday revived a "counter-cyclical factor" used to set the midpoint of the daily trading band of the yuan, in a bid to support it.

The move raised hopes that a yuan recovery could boost companies with significant dollar-denominated costs, such as airlines. China Southern Airlines (600029.SS) gained 4.4 percent and Air China (601111.SS) rose 3.7 percent.

The yuan hit a two-and-a-half-week high against the U.S. dollar in early trade on Monday as the PBOC set the day's midpoint CNY=PBOC at a stronger-than-expected level.

At 0554 GMT, the yuan was trading at 6.8137 per dollar, 53 pips stronger than Friday's onshore close of 6.8190.

“China just seems to be stabilising its currency and we’re getting used to that fact now, so we’re not looking at an ever-weaker CNY, which could raise issues,” said Carnell, adding that “it reduces the scope for outflows.”

Among other Asian markets, Seoul's KOSPI index .KS11 ended up 0.3 percent.

On Friday, the S&P500 index .SPX and Nasdaq Composite .IXIC hit record highs, following comments from the chairman of the U.S. Federal Reserve, Jerome Powell, who said a gradual approach to raising rates was best to protect the U.S. economy and job growth.

The gains cemented the S&P’s longest-running bull market, as defined by some investors.

S&P500 E-mini futures ESc1 touched a record high of 2,885 on Monday morning in Asia, and were last 0.2 percent higher at 2,883.

“Powell’s Jackson Hole speech essentially confirmed the need for further gradual rate hikes and stressed that higher interest rates have served the economy well. However, rate rises remain data-dependent, and other Fed officials reiterated that ‘nothing is predetermined’,” ANZ analysts said in a note on Monday.

“The Fed Chair’s reiteration that rate rises would remain gradual gave the green light to ongoing falls in the USD and increases in equities on Friday,” the analysts said.

U.S. President Donald Trump said in a Reuters interview last week that he was “not thrilled” with Powell’s rate hike policy.

The yield on benchmark 10-year Treasury notes was at 2.8152 percent, compared with its U.S. close of 2.826 percent on Friday. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 2.6286 percent compared with a U.S. close of 2.629 percent.

Australian shares closed 0.3 percent higher on Monday, after a week of political tumult that installed Scott Morrison as the country’s sixth prime minister in less than 10 years.

The dollar fell 0.2 percent against the yen to 111.03 JPY=, while the euro EUR= was flat on the day at $1.1618.

The dollar index .DXY, which tracks the greenback against a basket of six major rivals, was flat at 95.143.

U.S. crude reversed small losses to edge up to $68.74 per barrel. Brent crude was up 0.07 percent at $75.87 per barrel.

Oil prices ended a streak of weekly declines to rise last week on tightening supply, driven by the prospect of lower oil supply from Iran.

The United States has pulled out of a nuclear accord it signed with Iran in 2015 and has imposed sanctions on Iran’s oil industry and exports.

Gold edged higher, with spot gold XAU= trading at $1,206.51 per ounce.

Reporting by Andrew Galbraith

Friday, 24 August 2018

Sterling stuck near 11-month lows vs euro

LONDON (Reuters) - The British pound slipped against the euro to within a whisker of its weakest since September 2017, hurt by a rally in the single currency and concerns about whether Britain can secure itself a trading deal with the European Union.

Sterling traded down to as low as 90.27 pence per euro, just below the 90.30 pence mark it hit earlier this month - its weakest in 11 months.

Against a broadly weaker dollar the pound edged higher, up 0.2 percent on the day at $1.2834.

Sterling has had a tough August, whacked by mounting concerns Britain could crash out of the EU without new trading arrangements in place on its scheduled exit day in March next year.

“Fears of a ‘no deal Brexit’ fears are reaching fever pitch ... Sterling has no support other than a bearish consensus and a low valuation,” said Kit Juckes, chief FX strategist at Societe Generale.

The biggest losses have come against a resurgent dollar, with weakness against the euro more contained.

Britain’s Brexit minister Dominic Raab this week said London can get a trade deal before an informal October deadline, but has also laid out the government’s plans in the case of a no-deal exit.

EU leaders, on the other hand, expect to miss the deadline and are likely to have to hold and emergency summit in November to consider any Brexit agreement struck with Britain, diplomats in Brussels said this week.

Analysts at ING said in an note that the profound worries about Britain not clinching a deal with the EU could see the pound on Friday drop to a fresh 11-month low versus the euro.

Reporting by Tommy Wilkes and Tom Finn

Dollar downbeat ahead of Powell speech, stocks subdued

LONDON (Reuters) - The dollar fell on Friday, set for its biggest weekly decline since March as markets braced for a speech by Federal Reserve chair Jerome Powell for hints on the direction of monetary policy, while a gauge of global stocks barely budged.

The MSCI All-Country World index .MIWD00000PUS, which tracks shares in 47 countries, barely managed to keep in the black, as markets in Europe opened mixed. Most major bourses in Europe registered gains of 0.1 percent apiece, although the exception was Britain's FTSE100 .FTSE index, which fell 0.1 percent.

The dollar index against a basket of six major currencies stood at 95.516 .DXY, down 0.2 percent on the day.

The U.S. currency took a hit this week after U.S. President Donald Trump said he was “not thrilled” with the Federal Reserve under his own appointee, Chairman Jerome Powell, for raising interest rates.

Analysts said growing U.S. political uncertainty, reinforced by the criminal convictions of two of Trump’s ex-advisors this week, was keeping the dollar under pressure, despite the United States embarking on greater monetary tightening than elsewhere.

“In the current state of the U.S. political system, that is dominated by doubts in the system of checks and balances, remnants of U.S. dollar negativity remain,” said Commerzbank analyst Ulrich Leuchtmann.

Powell is due to give a speech later in the day at the Jackson Hole, Wyoming, conference of central bankers. Where he stands on the pace of interest rate hikes will be scrutinised after minutes from the Fed’s most recent policy meeting indicated the central bank would tighten monetary policy soon.

The Fed should raise rates further this year and probably next year as well, despite Trump’s opposition to tighter policy, Kansas City Fed President Esther George said in interviews aired on Thursday.

Dallas Fed President Robert Kaplan also said Trump’s comments would not affect the central bank’s decision making.

The greenback was 0.1 percent higher against the yen, at 111.405 yen per dollar. JPY= It was 0.2 percent lower to the euro at $1.15605.

Elsewhere in currencies, the Australian dollar was the biggest mover, gaining half a percent on the day after the ruling Liberal party voted in a new leader.

Earlier in Asia, stocks fell after U.S.-China trade talks ended without any progress. MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.25 percent. It was still up about 1 percent on the week.

Hong Kong's Hang Seng .HSI fell 0.55 percent and the Shanghai Composite Index .SSEC gained 0.2 percent.

Australian stocks rose 0.15 percent and South Korea's KOSPI .KS11 advanced half a percent. Japan's Nikkei .N225 climbed 0.85 percent, lifted by a weaker yen.

The S&P 500 .SPX shed 0.17 percent overnight to pull back slightly from a record high scaled midweek, with industrial shares sagging after the United States and China imposed a fresh round of trade tariffs on each other.

Shares of industrial giants Caterpillar Inc CAT.N and Boeing Co BA.N, bellwethers of trade confidence, were among the biggest drags on the Dow .DJI, which lost about 0.3 percent. Caterpillar shares fell 2.0 percent, and Boeing shares fell 0.7 percent.

“Global risk sentiment remains somewhat jittery ahead of Fed Chair Powell’s speech with U.S.-Sino trade talks failing to yield any immediate progress,” strategists at OCBC Bank wrote.

Oil price rose. Brent crude futures rose 1 percent to $75.42 per barrel, while U.S. crude added 0.9 percent to $68.46.

Reporting by Ritvik Carvalho

Thursday, 23 August 2018

World Bank launches world-first blockchain bond

SYDNEY (Reuters) - The World Bank has priced the world’s first public bond created and managed using only blockchain in a A$100 million (56.84 million pounds) deal designed to test how the technology might improve decades-old bond sales practices.

Commonwealth Bank of Australia, the sole manager of the deal, said in a statement that the two-year bonds had priced to yield 2.251 percent and would settle Aug. 28.

The prototype deal, dubbed a “Bondi” bond - standing for Blockchain Operated New Debt Instrument as well as a reference to Australia’s most famous beach - is being viewed as an initial step in moving bond sales away from manual processes towards faster and cheaper automation.

“You’re collapsing a traditional bond issuance from a manual bookbuild process and allocation process, an extended settlement then a registrar and a custodian, into something that could happen online instantaneously,” James Wall, executive general manager at CBA told Reuters in an interview earlier this month.

The World Bank, whose bonds carry an AAA rating, regularly uses its borrowing power to help develop new bond markets as well as pioneering new means for selling and trading the securities.

It issues between $50 billion and $60 billion a year of bonds to back economic progress in developing countries.

Australia is a popular test site for market developments because of its well-established financial infrastructure and the familiarity of international investors with the Australian dollar, which is one of the most-traded currencies in the world.

Earlier this year Russia’s MTS, a telecoms operator, and Sberbank claimed a world-first blockchain bond.The deal, for 750 million roubles (8.7 million pounds) of 182-day paper, was however privately placed, rather than offered for wider auction, as is the norm and the case with the World Bank deal.

While there have been other prototypes or parallel simulation blockchain projects in the market before, CBA said the World Bank bond will be the first time that capital is raised from public investors through a legally valid bond issuance that uses blockchain from start to finish.

CBA set the price for the “kangaroo” deal at 23 basis points above benchmark rates. Kangaroo bonds are bonds issued in Australian dollars by foreign institutions.

The bank’s blockchain push comes as the Australian Securities Exchange plans to switch to using distributed ledger (blockchain) technology to clear and settle equities trades from 2020 to help cut costs.

Reference: Paulina Duran, Alun John

Dollar snaps losing streak as new trade tariffs kick in; Aussie slides

LONDON (Reuters) - The dollar snapped a five-day losing streak and the euro fell on Thursday, with the greenback boosted by political uncertainty, a new round of trade tariffs and the Federal Reserve’s latest policy meeting minutes that signalled a September rate rise.

While the minutes were largely as expected and initially taken as dovish by the market, analysts said dollar bulls had been looking for an excuse to pile back into the greenback after it had lost more than 2 percent from 14-month highs during its longest losing streak of the year.

The United States and China escalated their months-long trade war, implementing punitive 25 percent tariffs on $16 billion worth of each other’s goods, rattling investors who have usually sought safety in the dollar.

The greenback also found support after the Fed’s minutes showed officials discussed raising rates soon.

“I think the market has been waiting for the moment to get back in (to the dollar),” said Neil Mellor, a strategist at BNY Mellon.

The dollar index gained 0.2 percent to 95.334, moving off a near-three-week low of 94.934 reached overnight.

The euro was down about 0.3 percent at $1.1569, easing from a two-week high of $1.1623. Traders are preparing for purchasing managers’ surveys at 0800 GMT to gauge the health of the euro zone economy in August.

“I’m still not fully convinced we have a sustained dollar rally here, especially after Mr Trump’s comments,” Mellor said, referring to President Donald Trump’s criticism of the Fed’s rate hikes in an interview this week with Reuters.

The Australian dollar dropped 0.8 percent to $0.7294 as Prime Minister Malcolm Turnbull’s position looked in trouble after his senior ministers called for a second leadership vote.

The Australian dollar typically ignores Australian politics, analysts said.

“Since the Liberal leadership spill on Tuesday, the Australian dollar is easily the weakest G10 currency - despite strong Q2 construction data on Wednesday - which suggests that this is a rare instance of the Aussie carrying a small political risk premium,” said Sydney-based Sean Callow, senior currency strategist at Westpac.

The yen fell 0.3 percent to 110.85 versus the dollar on safe-haven demand for the dollar.

The Fed’s minutes showed that officials had examined how global trade disputes could affect businesses and households, suggesting that the market’s perceived path for monetary tightening could have to change if the trade conflict upsets the U.S. economy.

Dealers said domestic political pressure on Trump - exacerbated this week with news that two of his former advisers face prison sentences - would weigh on the dollar.

The offshore yuan slid 0.3 percent to 6.8695 yuan per dollar after the latest round of tariffs took effect.

The Swiss franc gained 0.2 percent to 1.1380 francs per euro, ending its recent run of losses. The franc hit a near 13-month high of 1.1244 earlier in August.

Reference: Tommy Wilkes

Wednesday, 22 August 2018

Exclusive - Britain extends lead as king of currencies despite Brexit vote

LONDON (Reuters) - Britain has extended its lead in the global currency trading business in the two years since it voted to leave the European Union, in another sign London is likely to continue to be one of the world’s top two financial centres even after Brexit.

Leaving the European Union was supposed to deal a crippling blow to London’s position in global finance, prompting a mass exodus of jobs and business. But with eight months to go, London has tightened rather than weakened its grip on foreign exchange trading, a Reuters analysis shows.

Foreign exchange - the largest and most interconnected of global markets, used by everyone from global airlines to money managers in transactions worth trillions of dollars a day - is the crowning jewel of London’s financial services industry.

Reuters’ analysis, based on surveys released by central banks in the five biggest trading centres, shows forex trading volumes in Britain had grown by 23 percent to a record daily average of $2.7 trillion (£2.1 trillion) in April compared to April 2016.

That was double the pace of its nearest rival, the United States, which was up 11 percent to $994 billion, mostly out of New York.

That means about two-fifths of all trades are handled in Britain, nearly all of them in London - a daily volume almost equivalent to the annual economic output of the United Kingdom.

The next three biggest markets are Singapore, which fell by 5 percent to $523 billion; Hong Kong, which grew 10 percent to $482 billion; and Japan, which increased by 2 percent to $415 billion.

London has dominated the foreign exchange market for nearly half a century.

Investment banks earned $4.2 billion in revenues from foreign exchange business globally in the first quarter of 2018, about 12.5 percent of all revenues in their global markets divisions, according to data from industry analytics firm Coalition.

While forex trading reaps relatively low margins, it brings in other business, allowing lenders to cross-sell other services such as interest-rate products, equity and bond issuance and advice on mergers and acquisitions, said former currency trader Keith Pilbeam, now a professor at the Cass Business School.

“It is all about getting people in,” Pilbeam said. “Selling forex is the best introduction to a company because you are talking to the treasurers of these companies.”

Bankers and traders attribute an overall growth in trading to global political uncertainty, including around Brexit itself. They also cite the presidency of Donald Trump and the threat of trade wars involving the United States, China and the EU.

London’s time zone between the United States and Asia means it is well placed in times of global turbulence, they said.

Increased volumes help the biggest players because investors want to buy and sell in markets that have the capacity to absorb large deals without significantly affecting prices.

Finally, London’s advanced FX trading hardware and high-speed sub-Atlantic cables to New York make it costly and troublesome for forex operations to move, they said, especially given that banks have a tendency to want to group together.

“The luck of geography has helped because most of the big market moving news, whether in the U.S. or Europe, has occurred during London’s trading hours,” said Neil Jones, London-based head of hedge fund sales at Japan’s Mizuho Bank.

“You may have all the uncertainty around Brexit, but this is outweighed by London’s time zone, its language, and the advantages that come from having the biggest market.”

The forex industry has emerged as a battleground between Britain and the EU in negotiations on what will replace current treaties and agreements after Brexit day on March 29, 2019.

Some EU leaders want to strip banks in Britain of the right to sell FX derivative products, which allow investors to hedge against swings in the price of currencies, to EU-based clients.

These products, the largest part of Britain’s currency market, are sold to customers around the world, not just the EU.

Banks in Britain, including the London operations of global players, are moving some staff to European cities on expectations that they will the lose the automatic right to sell services to EU investors after Brexit.

Companies that run trading platforms, such as Thomson Reuters (TRI.TO) - the parent of Reuters News - and NEX Group (NXGN.L) are shifting parts of their businesses to Dublin and Amsterdam to prepare for life after Brexit.

But Brexit supporters say the threat of job losses in Britain’s financial services industry has been exaggerated.

Tokyo, Hong Kong and Singapore had been eroding London’s dominance before the June referendum, the Bank of International Settlements (BIS) said in its last major three-year survey of global forex activity in September 2016.

The city’s tightening grip on forex trade does not prove London won’t suffer from Brexit, but it does underscore the attractiveness for banks of maintaining large international operations in the city, industry experts said.

“In order for London to be replaced there needs to be an alternative venue and there isn’t one,” said Alexander McDonald, the chief executive of industry group European Venues and Intermediaries Association.

“The FX market is effectively an offshore dollar market and offshore dollars are always going to be looking for an international home, and that’s London.”

Reference: Andrew MacAskill, Tommy Wilkes

Asian shares edge up, but political, economic woes hurt sentiment

SHANGHAI (Reuters) - Asian stocks inched higher on Wednesday, with sentiment boosted by Wall Street’s rise and a record intraday high for the S&P 500 index, but political headlines in the U.S. and Australia and a retreat in Chinese markets darkened the mood.

Investors in the region took some comfort from hopes that the trade talks between the U.S. and China expected this week will ease trade tensions.

But Chinese investors sold shares across the board, sending the Shanghai Composite index .SSEC 0.7 percent lower and the blue-chip CSI300 index .CSI300 down 0.6 percent, as economic concerns returned after the central bank said on Tuesday it would not resort to strong stimulus to support growth.

U.S. President Donald Trump told Reuters on Monday that he does not expect much progress from the trade talks with China.

European shares look set to take their lead from China, with financial spreadbetters expecting London's FTSE .FTSE to open 16 points lower, Frankfurt's DAX .GDAXI to fall 20 points, and Paris' CAC .FCHI to lose 9 points.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent, while Japan's Nikkei stock index .N225 advanced 0.6 percent.

Seoul's Kospi rose 0.3 percent, buoyed by tech firms as data showed robust chip exports, and Taiwan shares .TWII were 0.1 percent higher.

But S&P futures fell Wednesday as markets assessed the possible impact of a guilty plea from Trump’s former personal lawyer, and the conviction of former Trump campaign chairman Paul Manafort.

“Next to these headlines, trade news fell completely under the radar,” Citi analysts said, noting “concern that something could come out linked to Trump or other of his associates” and that Cohen’s guilty plea sparked a late-session bid in U.S. treasuries.

S&P E-mini futures were 0.2 percent lower at 2855.5. The yield on benchmark 10-year Treasury notes fell to 2.8279 percent compared with its U.S. close of 2.844 percent on Tuesday.

Investors are also looking to Wednesday’s release of minutes from the U.S. Federal Reserve’s August meeting, and a speech by Fed Chairman Jerome Powell on Friday for clues on future rate hikes.

Trump on Monday told Reuters he was “not thrilled” with the Fed under his appointee Powell for raising rates, and said the U.S. central bank should do more to boost the economy.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, was at 2.5995 percent Wednesday compared with a U.S. close of 2.608 percent.

Australian shares fell 0.4 percent the day after a leadership challenge to Prime Minister Malcolm Turnbull, and as a second challenge to his leadership loomed.

“There’s a bit of a risk premium now being built into Australia,” said Hugh Dive, chief investment officer at Atlas Funds Management in Sydney. “If you’re a foreign investor, suddenly Australia’s looking a lot less attractive.”

In New York on Tuesday, the S&P 500 .SPX rose as high as 2,873.23, topping the previous record of 2,872.87 set on Jan. 26. The index is poised to record its longest-running bull market in history on Wednesday.

The Dow Jones Industrial Average .DJI closed up 0.25 percent to 25,821.95, the S&P 500 .SPX rose 0.21 percent to 2,862.91, and the Nasdaq Composite .IXIC added 0.49 percent to 7,859.17.

On Wednesday, the dollar edged higher against the yen JPY=, gaining 0.12 percent to 110.42.

The dollar index .DXY, which tracks the greenback against a basket of six major rivals, was 0.05 percent lower at 95.213.

The currency has lagged following Trump’s comments on Monday, in which he also accused China and Europe of manipulating their currencies.

The euro EUR= was up 0.08 percent on the day at $1.1578, while China's yuan strengthened to 6.8425 per dollar at 0543 GMT, 88 pips stronger than its previous onshore close.

In commodity markets, U.S. crude rose 0.5 percent to $66.15 a barrel. Brent crude was 0.4 percent higher at $72.89 per barrel.

Spot gold XAU= was down less than 0.1 percent at 1,195.29, after earlier rising 0.2 percent to $1,197.76, its highest level since Aug. 14.

Reporting by Andrew Galbraith

Sterling boosted by drop in dollar, but Brexit negotiations weigh

LONDON (Reuters) - The British pound rose to a near two-week high on Tuesday after the dollar fell following comments from U.S. President Donald Trump that he was unhappy with the Federal Reserve for raising interest rates.

Sterling has recovered in recent sessions from a 14-month low, rising almost two cents from $1.2662 plumbed last week.

But with the British Brexit minister headed to Brussels for the start of a series of talks aimed at averting the UK crashing out of the European Union without a trade deal, investors remain nervous, limiting potential gains for the pound.

Underlining the uphill task that remains if the two sides are to agree, the UK’s trade minister, Liam Fox, said on Tuesday the European Union risked damaging its standing in the world if it pursued a Brexit that put its own “ideological purity” ahead of the needs of its citizens.

Investors and companies have grown increasingly concerned Britain will not be able to secure an arrangement with its largest trading partner before it is scheduled to leave the EU at the end of March 2019.

“That poor sentiment and substantial Brexit risk premium is unlikely to change and could even get worse over the short-term given the UK government is set to release 84 no-deal preparation notices,” MUFG analysts said in a note.

“With only eight weeks until we reach the self-imposed deadline for a withdrawal deal to be finalised, downside risks will persist.” 

The pound rose to as high as $1.2846 on Tuesday before settling up 0.2 percent on the day at $1.2823, led by investors selling the U.S. currency overnight.

The British currency struggled against a stronger euro, falling 0.1 percent to 89.84 pence per euro.

CMC Markets analyst David Madden noted that the pound had been in a downtrend against the dollar since April, adding: “If the bearish move continues it could target $1.2590. Pullbacks might run into resistance in the $1.2957 to $1.3000 region.”     

Reporting by Tommy Wilkes

Tuesday, 21 August 2018

Britain can't afford to close door to EU banks after Brexit

LONDON (Reuters) - Britain is expected to keep the door open for European Union banks and investors after Brexit to try to preserve London’s global financial clout, irrespective of whether it gets a good trade deal from the bloc, bankers and industry officials say.

Nerves in the City of London financial district were rattled last month when the UK government proposed future financial services trade with the EU based on “reciprocal” arrangements.

Bankers worried this meant that if the EU did not give Britain broad market access, London would impose tit-for-tat restrictions on EU banks or even tighten up treatment of all foreign lenders.

“But the Treasury later told us it does not mean that. Reciprocity would make the City very nervous,” a senior international banker in London said, speaking on condition of anonymity due to the sensitivity of the matter.

The Treasury had no immediate comment on Tuesday.

At stake is one of the most liberal and lucrative financial services trade regimes in the world.

“The City has grown up by being everyone’s playground and that needs to continue. The White Paper was not to be read as limiting market access coming into the UK,” said a senior financial sector official, referring to the government’s Brexit plan published last month.

Britain allows non-EU “third country” banks to operate as a wholesale - but not retail - branch in London, meaning it doesn’t require costly capital cushions that subsidiaries have.

It also allows overseas entities to offer a wholesale service without a permanent UK base, subject to some conditions.

“The UK’s approach to third country firms may be regarded as one of the main factors which have made it one of the world’s leading financial centers,” said a European Parliament study on Brexit.

Bankers are waiting to see how EU bank branches in Britain and UK branches in the EU will be treated in future under any trade agreement or no deal scenario.

UK policymakers say Britain should get good terms because the bloc needs City expertise to manage 1.2 trillion pounds ($1.5 trillion) of assets for EU investors, issue bonds and float new companies.

The bloc is also slow to create its own capital markets union to substitute the City, and many EU companies don’t want hikes in costs from fragmented markets, policymakers say.

But 43 percent of UK international and wholesale financial services revenue comes from the EU, the sector’s biggest export market and worth 26 billion pounds ($33 billion). Deutsche Bank estimates that Britain’s current account deficit would be 40 percent higher without this.

In a sign of UK caution, consultants advised regulators to put their open approach to foreign banks into question as a negotiating tactic, but the government did not want to do that, a senior financial official said.

Britain’s finance ministry said in a June paper that if there was no transition deal to smooth the Brexit process after the official departure day in March 2019, then as a general principle Britain would default to treating EU states largely as it does other third countries.

But there are instances where “we would need to diverge from this approach,” it said, without elaborating. It is due to publish a new paper on no-deal contingency plans shortly.

The EU has also said it will treat Britain like other third countries.

“The EU has not given any indication that it won’t allow UK banks to establish branches in the bloc,” said Vishal Vedi, Deloitte’s financial services Brexit leader.

In another sign of pragmatism, Britain has proposed a “temporary permissions regime” to allow EU banks and insurers with branches in London to continue operating after March for three years, if there is no transition period.

The EU has not reciprocated for UK bank branches in the bloc, but is urging lenders in the City to gets licenses for their European hubs.

Andrew Bailey, head of Britain’s Financial Conduct Authority, says a key question is whether EU customers will be allowed to continue doing business in London after Brexit. France has taken a tough stance on City access to the bloc.

“The FCA’s optimal position is open access, but if we can’t get that, what does the UK do?” said Jonathan Herbst, a financial services lawyer at Norton Rose Fulbright.

Britain will also be under pressure to respond if Brussels rejects its calls to ease up the EU’s “equivalence” rules for market access used by Japan and the United States. The rules give some market access to third-country firms if their home regulators have equivalent policies to those used in the EU.

The equivalence rules have also been put into UK law and in theory Britain could apply them against the bloc in retaliation.

But no matter how difficult the EU may be in respect of UK firms trying to do business there, Britain has no choice but to stick with open borders, said Simon Gleeson, a financial services lawyer at Clifford Chance.

“There is no way the UK can go for tit-for-tat. What the UK can’t do is maintain openness for Americans and impose restrictions on Europeans. The only leverage we have is that if you cut off access to us, you are hurting yourself, “ he said.

Reporting by Huw Jones

Dollar broadly lower after Trump remarks

TOKYO (Reuters) - The dollar traded lower against a basket of major peers on Tuesday after U.S. President Donald Trump said he was “not thrilled” with Federal Reserve Chairman Jerome Powell for raising interest rates.

The dollar was also soft as investors pulled out of the safe-haven currency ahead of anticipated talks this week between China and the United States, which some market participants believe might lead to an easing in their escalating trade dispute.

The dollar index against a basket of six other currencies fell 0.37 percent to 95.554 as of 0345 GMT after touching as low as 95.440, its lowest level since Aug. 9.

“At the moment, markets fear that Trump may have some impact on the Fed’s policy,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“Especially the dollar/yen, which is sensitive to the rate moves of the United States, remains under pressure.”

The yen was basically flat at 110.08 yen as of 0345 GMT, paring gains after touching as high as 109.775 yen earlier. The dollar on Tuesday fell below the psychologically-significant 110 yen level for the first time since June 28.

The greenback slipped after Trump said in a Reuters interview on Monday that he was “not thrilled” with Powell’s raising of interest rates. Trump nominated Powell last year to replace former Fed Chair Janet Yellen.

The president spooked investors in July when he criticised the Fed over tightening monetary policy. On Monday, he said the Fed should be more accommodating on interest rates.

Mizuho Securities’ Yamamoto said Fed officials don’t seem to be influenced by Trump’s comments.

“As long as the U.S. economy is okay...then I think there is no reason to stop the rate hikes from the Fed’s point of view,” he said.

Trump also said the U.S. central bank should do more to help him to boost the economy, while he also accused China and Europe of manipulating their respective currencies.

Escalating trade tensions between the United States and its trading partners and a plunge in the Turkish lira had pushed the dollar index to 96.984 on Aug. 15, its highest since June 2017.

The dollar’s rally halted ahead of trade talks between Chinese and U.S. officials in Washington. The meetings, expected to take place mid-week, involve lower-level officials but are the first formal U.S.-China trade talks since June.

“It’s positive news that China and the United States are going to have negotiations. It isn’t bad for the renminbi and a plus for Chinese stocks,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

On Tuesday, the offshore Chinese yuan was nearly flat against the greenback, edging 0.07 percent higher to 6.8326 per dollar as of 0347 GMT.

The euro, which had slipped to a 13-month low early last week amid concerns that the Turkish crisis could hurt European bank, gained on Tuesday.

The single currency rose 0.36 percent to $1.15225 as of 0347 GMT, giving up some gains after trading at $1.1544 during early morning trade.

Sera said the euro may have found support on buying from one or more institutional investors in Japan after traders returned to work on Monday after the country’s ‘bon’ holidays last week.

“It’s necessary to watch carefully at what rate the euro settles,” Sera said.

The Australian dollar was 0.13 percent higher at $0.7350, proving resilient to turmoil in politics at home where Prime Minster Malcolm Turnbull survived a leadership vote with a perilously narrow margin.

Reference: Daniel Leussink

Asian stocks up on hopes trade tensions ease, Trump comments hit dollar

TOKYO (Reuters) - Asian stocks rose on Tuesday, supported by hopes Beijing and Washington would dial back trade hostilities, though comments from the U.S. president about the yuan and Federal Reserve policy capped gains and weighed on the dollar.

Spreadbetters expected European stocks to open slightly lower, with Britain’s FTSE dipping 0.25 percent, Germany’s DAX shedding 0.05 percent and France’s CAC losing 0.1 percent.

In an interview with Reuters on Monday, President Donald Trump said that China was manipulating its currency to make up for having to pay tariffs imposed by Washington on some imports from China. This kept global trade conflict concerns alive and dented some of the market optimism ahead of upcoming U.S.-China trade talks.

He also said he believed the euro was being manipulated.

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

Australian stocks lost 1 percent, South Korea’s KOSPI gained 0.95 percent and Japan’s Nikkei advanced 0.2 percent.

Chinese shares rose, with the Shanghai Composite Index climbing more than 1 percent, helped by bargain hunting of consumer and healthcare firms after their recent slump.

Wall Street’s major indexes rose on Monday on optimism over trade talks between the United States and China, though they fell from session highs after Trump’s comments.

Immediate focus was on the lower-level trade talks due to start this week between the United States and China. Speculation that the talks might help ease trade tensions has shored up the broader equity markets over the past few sessions.

Market optimism was tested, however, after Trump said he did not “anticipate much” from the discussions.

“Given the little progress made on the U.S.-China negotiations in the past six months, investors’ expectations are still low,” wrote Tai Hui, global market strategist at J.P. Morgan Asset Management.

“Ongoing negotiation is good news, and that’s what the market is riding on at this stage, but a sustainable agreement to end this tension still seems unlikely at this point.”

In currency markets, the dollar came under pressure after Trump reiterated his displeasure at the Fed’s rate hikes, saying the central bank should do more to help him boost the U.S. economy.

“The Fed looked to have strengthened its hawkish stance at the August policy meeting. But since then, the side effects of the U.S.-China trade war have started to appear, and Republicans struggled to win a special election in Ohio,” said Daisuke Uno, chief strategist at Mitsui Sumitomo Bank in Tokyo.

“Against such a background, Trump’s latest jab at the Fed appears to have become stronger compared to the last time (in late July).”

The dollar index against a basket of six major currencies was down 0.4 percent at 95.499, extending losses from the previous day.

The euro brushed a 12-day high of $1.1544, stretching its gains after climbing about climbing about 0.35 percent overnight.

The U.S. currency touched 109.775 yen, its lowest since late June before edging back to 110.085.

The onshore Chinese yuan rose to as high as 6.828 per dollar, its strongest since Aug. 9. The currency was on track for its fourth session of gains, pulling further away from 6.934, its weakest since January 2017 marked last week.

The yuan has weakened to a 19-month low against the dollar earlier this month amid concerns towards the country’s economic growth, Sino-U.S. trade war worries and a broad rally by the dollar.

The yuan has since pulled back slightly from the trough, with the People’s Bank of China taking steps perceived by investors that the authorities were not going to allow the currency to keep depreciating indefinitely.

The yield on the 10-year U.S. Treasury note was at 2.835 percent after stooping to a near a six-week low of 2.815 percent overnight in the wake of Trump’s interest rate comments.

Oil prices nudged further up after rising the previous day, when investors grew more concerned about an expected fall in supply from Iran due to U.S. sanctions.

U.S. crude futures were up 0.33 percent at $66.65 per barrel while Brent added 0.05 percent to $72.25 per barrel.

Reporting by Shinichi Saoshiro

Monday, 20 August 2018

Pound falls as focus turns to Brexit

LONDON (Reuters) - Sterling fell on Monday as the dollar rebounded and investors shifted their focus to impending talks that may decide whether Britain gets a trade deal with the European Union before it quits the bloc.

The pound has suffered six straight weeks of losses against the dollar, its worst run since 2014, even though data such as retail sales suggest the UK economy is holding up.

With less than eight months to go until Britain leaves the EU, the government has yet to agree with Brussels the terms of its departure, and some hedge funds have started betting against the currency.

Analysts say sterling, which has shed 12 percent of its value since April, will remain vulnerable to the vagaries of Brexit negotiations in the months ahead.

“The price of the pound continues to reflect Brexit concerns and an economy that’s at best muddling through,” WorldFirst head of FX strategy Jeremy Cook said. “The limelight is elsewhere right now and there’s plenty of places people would rather be investing than sterling.”

At 0820 GMT, the pound was down 0.1 percent against the dollar at $1.2733, near a 14-month low of $1.2662. It was up 0.1 percent versus the euro at 89.61 pence per euro.

The euro slipped on Monday as the dollar gained before proposed trade talks between the United States and China this week that investors hope will ease tensions between the world’s two biggest economies.

Meanwhile, business leaders’ confidence in the British economy has fallen to its lowest point this year, reflecting uncertainty about Brexit, according to a survey published on Monday.

The euro slipped on Monday as the dollar gained before trade talks between the United States and China, due this week, which investors hope will ease tensions between the world’s two biggest economies.

Concerns that the currency crisis in Turkey could hurt euro zone banks and uncertainty about the Italian government’s planned budget also weighed on the euro, analysts said.

The dollar has gained in recent weeks, hitting a 2018 high last week, as investors seek safety, while emerging markets and the euro have suffered.

“The euro is starting to reflect greater short-term domestic political angst,” ING strategist Viraj Patel said.

“Investors will be cautious over Turkey’s medium-term economic plan, while the next month or so will also see a narrower focus on the risks around Italian budget,” he said.

Anticipated talks between Chinese and U.S. officials in Washington to discuss trade will take place in the next few days, according to media reports. Analysts say those attending will be lower-level officials, although hopes are high that the talks may yield a breakthrough in the months-long trade spat.

Dealers cited speculation that the talks could set the stage for a summit between U.S. President Donald Trump and Chinese President Xi Jinping in November.

The euro fell as much as 0.4 percent to $1.1394 EUR=, below the $1.14 level which ruffled markets last week, but was still above 13-month lows of $1.3010, also hit last week.

The dollar index rose 0.2 percent to 96.314 .DXY.

Traders are also preparing for the release of U.S. Federal Reserve policy meeting minutes on Wednesday and the Jackson Hole symposium for insights into the likely direction of U.S. monetary policy.

“Market participants will be eager to hear more details on the interpretation of the Fed’s most recent comment that further gradual rate hikes were appropriate ‘for now’. What does ‘for now’ mean and might it imply a possible change in forward guidance?” MUFG analysts said.

“Given our view that U.S. dollar bullishness has become a little excessive, this speech (by Fed Chair Jerome Powell) on Friday could well be a catalyst for a sharp reversal the other way as long dollar positions are pared.”

Positioning data released on Friday showed that speculators had increased their net long U.S. dollar positions to the highest level since mid-January 2017, according to calculations by Reuters and Commodity Futures Trading Commission data.

Emerging markets were mixed although trading was quiet and for those currencies that were down, losses were contained.

The Turkish lira TRY= snapped a three-day rebound on Friday, sliding more than 5 percent against the dollar on fears the United States would impose further economic sanctions unless Turkey handed over detained American pastor Andrew Brunson.

On Monday the lira fell 1.5 percent, pushed lower after S&P Global and Moody’s downgraded the country’s sovereign credit rating further into junk territory.

The offshore Chinese yuan CNH= fell 0.3 percent to 6.8562 per dollar. It had hit a 19-month low of 6.9585 on Wednesday.

The dollar rose 0.1 percent against the yen to 110.64 yen JPY=.

The Swiss franc rose 0.2 percent to 1.1364 francs per euro EURCHF= while sterling slipped slightly to $1.2738 GBP= against the dollar.

Reporting by Tom Finn

Dollar little changed ahead of anticipated U.S.-China talks

TOKYO (Reuters) - The dollar edged higher on Monday as confirmation was awaited that there will be talks this week between China and the United States, which markets hope will lead to an easing of their trade disputes.

The dollar index .DXY against a basket of six major currencies ticked up 0.11 percent as of 0512 GMT to 96.211 after shedding more than half a percent on Friday.

Escalating trade tensions between the United States and its trading partners, in addition to a plunge in the Turkish lira, has taken a heavy toll on emerging market currencies.

These strains had pushed the dollar index .DXY to 96.984 on Aug. 15, its highest since June 2017.

On Monday, the dollar index traded in a narrow range between 96.103 and 96.219, not far off 96.096 touched on Friday, its lowest level since Aug. 10.

The dollar’s advance halted ahead of anticipated trade talks between Chinese and U.S. officials in Washington. Media reports say the talks will take place in the next few days.

Receding fears over the Turkish lira’s late plunge on Friday reduced risk aversion in the broader markets, lifting the euro.

The U.S.-China negotiations “will not be between high level officials and are therefore unlikely to produce immediate results,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“However, the markets will be hoping that the talks pave the way for negotiations at a higher level,” he said.

Ishizuki said that the lira “could cause less of a buzz as Turkey is headed for a long holiday, and with credit downgrades done swiftly and now out of the way.”

The Turkish financial markets will be closed for national holidays August 21-24.

Standard & Poor’s cut Turkey’s sovereign credit rating by one notch to B+ from BB- on Friday, sending it deeper into “junk” territory, citing extreme lira volatility and forecasting a recession next year.

The Turkish lira had snapped a three-day rebound On Friday, sliding more than 5 percent against the dollar on fears the United States would impose more economic sanctions unless Turkey handed over detained American pastor Andrew Brunson.

The euro, which had slid to a 13-month low early last week amid concerns that the Turkish crisis could hurt European banks, managed to bounce on Friday, taking the lira’s retreat in stride.

The common currency rose 0.55 percent on Friday, and was down about 0.1 percent at $1.1426 at 0514 GMT on Monday.

The offshore Chinese yuan CNH=D3 was 0.1 percent weaker at 6.8408 per dollar after gaining about 0.4 percent on Friday, when it pulled further away from a 19-month low of 6.9585 brushed on Wednesday.

At 0514 GMT, the onshore yuan was more than half a percent higher at 6.8477 per dollar. Earlier on Monday, it touched a one-week high of 6.8450.

Dealers cited speculation the Sino-U.S. trade talks could set the stage for a summit between U.S. President Donald Trump and Chinese President Xi Jinping in November.

The dollar was slightly weaker at 110.63 yen JPY= after shedding 0.35 percent on Friday.

Kazushige Kaida, head of foreign exchange at State Street Bank in Tokyo, said dollar/yen could test the 110-level if there would unexpectedly be a negative outcome from the Sino-U.S. trade talks.

The last time the dollar weakened below that psychologically-significant handle on June 28, at 109.97 yen.

“There will be more incentive to buy the dollar if risks recede, but I don’t think dollar/yen will easily break out of its range as a result of the trade negotiations,” Kaida said.

Reporting by Shinichi Saoshiro