Thursday, 27 June 2019

Futures edge higher on trade truce hopes

(Reuters) - U.S. equity futures edged higher on Thursday following a report that the United States and China had agreed to a tentative truce in their trade dispute before a G20 summit this weekend, but gains were tempered by Boeing shares after more 737 MAX woes.

Washington and Beijing were laying out an agreement that would help avert the next round of tariffs on an additional $300 billion of Chinese imports, the South China Morning Post reported, citing sources.

On Wednesday, President Donald Trump said a trade deal with his Chinese counterpart, Xi Jinping, was possible this weekend, though he was prepared to impose tariffs on virtually all remaining Chinese imports if talks fail.

Semiconductor companies, which have a sizable revenue exposure to China, were trading higher, with Advanced Micro Devices Inc (AMD.O), Nvidia Corp (NVDA.O) and Intel Corp (INTC.O) up between 0.5% and 1.7%.

Boeing Co (BA.N) fell 3.1% and was the biggest decliner among the 24 Dow components trading premarket, after Reuters reported that the U.S. Federal Aviation Administration identified a new flaw in the planemaker’s grounded 737 MAX jets.

At 7:08 a.m. ET, Dow e-minis were down 7 points, or 0.03%. S&P 500 e-minis EScv1 were up 5.75 points, or 0.2% and Nasdaq 100 e-minis NQcv1 were up 22.5 points, or 0.29%.

Investors are hoping for a resolution of the trade war, which has rattled investors who have ditched shares for the safety of bonds and gold this year and pushed the Federal Reserve to signal an interest rate cut as soon as next month.

On the data front, the U.S. Commerce Department is scheduled to report economy expanded at a 3.1% annualized rate in its third reading of first-quarter GDP growth. The data is due at 8:30 a.m. ET.

Reporting by Shreyashi Sanyal

Russell remake and G20 leave Wall Street primed for blowout volume

NEW YORK (Reuters) - U.S. equity markets are set up for a blast of volume on Friday, as investors prepare for news on the U.S.-China trade dispute from the Group of 20 meeting and the annual reconstitution of the Russell indexes, traditionally one of the largest trading days of the year.

The rebalance of the Russell indexes happens each year and becomes final on the fourth Friday in June. Stocks are added or deleted from Russell’s family of indexes, including the Russell 1000 .RUI large cap and Russell 2000 small cap, prompting fund managers to adjust portfolios to reflect new weightings.

This telegraphed adjustment increases demand for buying and selling stocks, resulting in additional trading volume, which crests right before the market close on the fourth Friday.

This year’s rebalance happens to coincide with the G20 meeting in Osaka, Japan, that will be highlighted by a meeting on Saturday between U.S. President Donald Trump and Chinese President Xi Jinping, putting investors on alert for any signs of a thaw or further breakdown in trade relations between the two world’s two largest economies.

While the meeting between the two leaders will not take place until well after U.S. markets have closed on Friday, many expect there will be news on the trade front ahead of the meeting, similar to comments by U.S. Treasury Secretary Steve Mnuchin on Wednesday.

The timing has fueled comparisons to the rebalancing of Russell's indexes in 2016, which came on the heels of the vote for Britain to leave the European Union and resulted in nearly 15.3 billion shares traded in U.S. exchanges when all was said and done. That number has only been bested since by the 15.33 billion shares traded on Dec. 21, when the Nasdaq .IXIC confirmed it was in a bear market and the S&P 500 .SPX was en route to its worst December performance since 1931.

“It is always one of the biggest trading days of the year,” said Nicholas Colas, co-founder at DataTrek Research in New York. “To me the one really different thing is this G20 meeting, and we are seeing the effect it has on market sentiment and anything can happen in Osaka.”

Passive funds will rebalance on the day of the reconstitution to minimize any tracking error, while active managers try to take advantage of any price dislocations earlier, resulting in a surge of volume toward the market close as the reconstitution becomes final.

“People are gaming this out kind of through the month of June and trying to figure out what goes in and where,” Colas said.

As of Dec. 31, 2017, about $9 trillion was benchmarked to or invested in products based on Russell U.S. indexes, according to FTSE Russell’s most recent data. Approximately $1.2 trillion are in passive investment products such as exchange traded funds (ETFs) and mutual funds.

Ivan Cajic, Virtu Financial’s Americas director of index and ETF research, projects turnover across the Russell 3000 .RUA to total about $70 billion.

According to Nasdaq, last year’s rebalance resulted in nearly 1.19 billion shares, representing $39.26 billion, changing hands during its “closing cross” in 0.935 second.

Due to the size of the trade and the number of stocks involved, FTSE Russell takes steps to be transparent to market participants regarding its methodology for inclusion, which includes factors such as market capitalization, home country and company structure, while also releasing preliminary lists of stocks that may be affected.

Those steps allow Russell to continue with the rebalance despite events that may cause additional market volatility.

“(Brexit) was the test, I use that as an example,” said Rolf Agather, managing director of North America applied research at FTSE Russell. “People say, ‘Well you have the Brexit vote on the same day, what is Russell going to do?’ We follow the rules and it works out pretty well.”

While Russell has not made any major changes to its methodology for inclusion this year, many market participants will be watching the placement of many of the recent initial public offerings.

Because many of these companies waited to go public, their size is likely to put them right into Russell’s large-cap indexes. Virtu’s Cajic noted that stocks such as Uber Technologies (UBER.N), Lyft (LYFT.O) and Beyond Meat (BYND.O) have contributed to volatility across the names expected to be added to the Russell 1000 .RUI, which have underperformed stocks that are expected to be removed from the index.

Generally, stocks being added to an index would see an uptick in price while those being removed would show a decline.

Recent IPOs must have debuted before Russell’s “rank day” this year of May 10 to be eligible in the rebalance. Russell adds IPOs after the rank day on a quarterly basis, and any IPOs that missed the cutoff, such as Slack Technologies (WORK.N), will have to wait until the next rank date, of Aug 17.

“Clearly for small-cap investors, they would’ve liked to have opportunities to own some of these stocks,” said Steve DeSanctis, equity strategist at Jefferies in New York.

“You want stocks that have these good growth prospects and the fact they stayed private for so much longer, now they are out of their market cap,” he said. “They never got a chance to swing at that particular pitch.”

Reporting by Chuck Mikolajczak

Dollar holds recent gains as hopes rise for U.S.-China trade truce

LONDON (Reuters) - The dollar held on to gains made in its recovery from recent lows on Thursday on hopes that the United States and China will agree to a trade truce before a G20 summit this weekend, although investor sentiment remained fragile.

The two countries have agreed to a tentative truce in their trade dispute, Hong Kong’s South China Morning Post cited sources as saying, ahead of U.S. President Donald Trump and Chinese President Xi Jinping’s meeting on Saturday.

That supported buying of the dollar, which had weakened in recent weeks on expectations the Federal Reserve would cut interest rates and buying of safe-haven currencies such as the Japanese yen by investors worried about the trade conflict.

A dollar index rose 0.1% against a basket of currencies to 96.351 before steadying at 96.222.

The dollar rose to as high as $1.1347 earlier but was flat on the day at $1.1367 by 1030 GMT.

Euro zone economic sentiment dropped to its lowest point in nearly three years in June, European Commission data showed, although the single currency was unmoved.

“Economic data has continued (and will continue) to take a back seat to G20 headlines, though it’s probably the case that an increase in (June) German CPI inflation was offset by weaker economic and business confidence surveys in terms of the general EUR impact this morning,” said BMO Capital Markets’ European Head of FX Strategy, Stephen Gallo.

The yen, which had jumped to five-month highs earlier this week, fell to 108.16 but later stabilised around 107.87. The Swiss franc was unchanged at 1.1117 francs per euro.

China’s offshore yuan rose 0.1% to 6.8802 yuan per dollar, helping the renminbi back towards a six-week high of 6.8370 yuan per dollar touched last week.

The outcome of the Group of 20 summit will likely weigh on the policy plans of the Fed, which opened the door to possible rate cuts after last week’s meeting as it tries to address any economic damage stemming from the trade conflict.

The Fed also faces pressure from Trump to lower rates at a time when the president has attacked European Central Bank plans to inject more stimulus and possibly ease policy.

“I do not see a good reason for risk-on in this environment, but perhaps that is my biased German perspective. It seems unlikely to me that in this environment EUR-USD would gather sufficient momentum to test the $1.14 mark again before Osaka,” Commerzbank analysts said in a research note sent to clients.

Elsewhere, sterling rose 0.2% to $1.2714 after Boris Johnson, the frontrunner to replace Theresa May as British prime minister, said that the chance of a no-deal Brexit was “a million-to-one”.

Reporting by Tommy Wilkes

Wednesday, 26 June 2019

Dollar inches higher after Fed checks aggressive easing views

TOKYO (Reuters) - The dollar edged up from a three-month low on Wednesday, as investors dialled back expectations for aggressive U.S. rate cuts but underlying conviction the Federal Reserve will need to ease policy soon capped greenback gains.

Fed Chairman Jerome Powell on Tuesday stressed the central bank’s independence from U.S. President Donald Trump, who is pushing for significant rate cuts.

St. Louis Fed President James Bullard, seen as one of the most dovish U.S. central bankers, surprised some investors by saying a 50 basis-point cut in rates “would be overdone.”

While this hosed down expectations for a half percentage point cut at the Fed’s July meeting, investors are still expecting at least a quarter percentage point reduction.

The scaling down in expectations for large rate cuts from the Fed also knocked gold prices by more than 1%, putting the precious metal on course for its first decline in seven trading sessions.

The New Zealand dollar bounced against the greenback after the nation’s central bank skipped a chance to cut interest rates at a policy meeting.

Traders still expect the Fed, the Reserve Bank of New Zealand, and other central banks to cut rates in coming months as the outlook for global growth dims, which will be a major driver of currency moves in coming months.

“The Fed is still likely to cut rates,” said Shinichiro Kadota, foreign exchange strategist at Barclays.

“How much of a cut will depend on the economic data and the Group of 20 meeting. I would not expect this rally in the dollar to extend much further.”

The dollar index against a basket of currencies stood at 96.289 on Wednesday, just above a three-month low of 95.843 touched on Tuesday.

The U.S. currency rose 0.25% to 107.44 yen, rebounding from 106.77 yen, its lowest level since its flash crash in early January.

Interest rate futures are now pricing in a 33% chance of a 50 basis point cut at the Fed’s July meeting, down from 38% earlier, while a cut of at least 25 basis points is seen as certain, according to the CME Group’s FedWatch Tool.

Traders are also eyeing a meeting between Trump and Chinese President Xi Jinping at a G20 summit over the weekend, but expectations are low for a breakthrough to end a year-long trade war between the world’s two largest economies.

Despite the slight moderation in Fed cut hopes, benchmark 10-year U.S. Treasury yields slipped below 2% due to worries about a prolonged U.S.-China trade war.

“The dollar’s upside is heavy, particularly against the yen,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities.

“Powell is worried about curbing excess expectations, but Treasury yields are clearly heading lower and U.S. economic data are not looking great. A rate cut in July is a done deal.”

The New Zealand dollar rose 0.21% to $0.6552 after the RBNZ’s decision to hold its cash rate at 1.5% as expected.

Still, the tone was unmistakably dovish with minutes showing the policy-making committee discussed whether to ease at the meeting and agreed a move would likely be needed in time.

Markets imply around a 63% chance of a reduction to 1.25% at the RBNZ’s next meeting on August 7, and are wagering heavily on 1% by year end.

Gold fell 1.0% $1,408.60 per ounce, retreating from a six-year high of $1,438.63.

The British pound slipped 0.23% to $1.2670 before the Bank of England publishes its closely-watched quarterly inflation forecasts later on Wednesday.

The BoE has said rates would need to rise in a gradual fashion as long as Britain avoids a no-deal exit from the European Union.

However, sterling remains dogged by concerns that eurosceptic Boris Johnson will become Britain’s next prime minister, increasing the chance of a no-deal Brexit.

The euro was little changed at $1.1356, pulling back slightly from a three-month high of $1.1412.

Reference: Stanley White

Asia stocks dip after Fed tapers aggressive easing expectations

TOKYO (Reuters) - Asian stocks dipped on Wednesday and the dollar inched up from three-month lows after Federal Reserve officials tempered expectations in the markets for aggressive monetary easing.

In early European trade, the pan-region Euro Stoxx 50 futures were down 0.29%, German DAX futures lost 0.31% and Britain’s FTSE futures slipped 0.26%.

Fed Chair Jerome Powell on Tuesday said the central bank is “insulated from short-term political pressures,” pushing back against U.S. President Donald Trump’s demand for a significant rate cut.

Powell, however, said Fed policymakers are wrestling with questions on whether uncertainties around U.S. tariffs, Washington’s conflicts with trading partners and tame inflation require a rate cut.

Separately, St. Louis Fed President James Bullard told Bloomberg Television he does not think the U.S. economy is dire enough to warrant a 50-basis-point cut in July, even though he pushed to lower rates last week.

Equity markets have rallied this month, with Wall Street shares advancing to record highs, after the Fed was seen to have opened the door to possible rate cuts as early as next month at is policy-setting meeting last week.

According to latest data from CME Group’s FedWatch program, federal funds futures implied that traders now see a 27% chance of the Fed lowering rates by half a percentage point in July, compared to 42% on Monday.

Trump said on Twitter on Monday that the Fed “doesn’t know what it is doing,” adding that it “raised rates far too fast” and “blew it” given low inflation and slowing global growth.

MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.15%, tracking overnight losses on Wall Street.

The Shanghai Composite Index edged down 0.25% and Australian stocks dipped 0.1%. Japan’s Nikkei retreated 0.6%.

“While Powell’s comments do not alter expectations that the Fed will ease sooner or later, they do leave a slightly negative impact on equities,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.

“The focus is now on the G20 summit. Market expectations for a meaningful breakthrough being achieved in U.S.-China trade talks are quite low, so any signs of an improvement could bode well for risk sentiment.”

The United States hopes to re-launch trade talks with Beijing after Trump and his Chinese counterpart Xi Jinping meet in Japan during the G20 summit on Saturday but Washington will not accept any conditions on tariffs, a senior administration official said on Tuesday.

The two sides could agree not to impose new tariffs as a goodwill gesture to get negotiations going, the official said, but it was unclear if that would happen.

Many G20 members have a stake in the outcome because the row has disrupted global supply chains, slowed world growth and stirred expectations of interest rate cuts or other stimulus measures by some of the group’s central banks.

The dollar index against a basket of six major currencies was up 0.15% at 96.302, extending modest overnight gains.

The index had bounced back from 95.843 on Tuesday, its lowest level since March 21, following comments from the top Fed officials.

The dollar added 0.3% to 107.490 yen after a rebound from a near six-month low of 106.780.

The greenback had sunk to the six-month trough as the yen, a perceived safe haven, had drawn bids in the face of brewing U.S.-Iran tensions.

The euro slipped 0.1% to $1.1353 after being nudged off a three-month peak of $1.1412.

The New Zealand dollar edged higher after the Reserve Bank of New Zealand (RBNZ) stood pat on monetary policy on Thursday, keeping rates at a record low 1.50%. But the kiwi’s gains were limited as the central bank expressed concern towards economic risks at home and abroad.

“Overall, today’s announcement provides a strengthened signal that another cut is coming, most likely soon, unless there is a marked improvement in the global outlook,” wrote economists at HSBC.

The kiwi last traded 0.2% higher at $0.6651.

U.S. crude oil futures advanced roughly 2% to touch a four-week high of $59.10 per barrel after data showed a decline in U.S. crude stocks.

The U.S. data helped underpin a crude market already buoyed by worries over potential U.S.-Iran conflict.

Spot gold slipped from a six-year high of $1,438.63 an ounce scaled on Tuesday after the comments from Fed officials trimmed expectations for a rate hike in July.

Gold was down 1% at $1,407.61 an ounce, headed to snap a six-day winning streak. The precious metal was still up 8.5% so far this month.

Reference: Shinichi Saoshiro

Tuesday, 25 June 2019

Dollar crumbles to new lows vs euro, yen on rate cut bets

LONDON (Reuters) - The U.S. dollar fell to a three-month low against the euro and dropped to its weakest against the Japanese yen since early January as the prospect of monetary easing by the Federal Reserve knocked demand for the U.S. currency.

The euro hit a three-month high of $1.1412, having gained 2.0% from a two-week low of $1.1181 touched a week ago as the dollar has lost steam. It last stood at $1.1396.

The dollar was last down 0.3% at 106.97, having only fallen below 107 yen per dollar in the January flash crash and then last back in April 2018.

The yen has benefited from investor nerves over tensions between the United States and Iran. Tehran said on Tuesday that U.S. sanctions permanently closed the path to diplomacy between the two countries.

Selling in the dollar has accelerated after the U.S. Federal Reserve last week signalled it would cut interest rates before year-end on mounting worries about an economic slowdown and the fallout from tariff wars between U.S. President Donald Trump and China.

U.S. 10-year Treasury yields again fell below 2% in earlier trading, reducing the interest rate advantage the dollar has enjoyed over rivals in recent years.

“We expect the Fed’s pre-emptive cuts to temporarily weigh on the USD, especially vs. G10 currencies, as the US rates advantage compresses amid an environment of slowing global growth,” said Marvin Barth, foreign exchange strategist at Barclays.

“However, the Fed’s ability to support an extended US expansion stands in contrast to clear sustained slowing – and rising risks – in China and Europe, implying a USD rebound in 2020.”

The dollar index against a basket of six major rivals fell to its lowest level in three months to 95.843, having lost 1.7% during the latest five sessions, and was last down 0.1% at 95.909.

Fed Chairman Jerome Powell and a few other of its policymakers are due to speak later on Tuesday.

Investors are waiting to see whether Trump and Chinese President Xi Jinping would at least call a truce in their trade war when they meet at the G20 summit in Osaka late this week.

Trump considers his meeting with Xi an opportunity to “maintain his engagement” and see where China is on their trade dispute, a senior U.S. official said on Monday.

Kazushige Kaida, head of forex at State Street Global Markets in Tokyo, said he believes the current market consensus is that the two leaders are “unlikely to agree on a deal”.

Elsewhere, sterling benefited from the broad dollar weakness, rising to $1.2765, up 0.2% on the day.

The pound, however, is likely to remain under pressure because of Brexit concerns, with eurosceptic Boris Johnson the frontrunner to become the next leader and prime minister.

The euro was slightly firmer against the Swiss franc, at 1.1089 francs.

Reference: Tommy wilkes

Trade stress hits stocks, dollar frets on Fed doves

SYDNEY (Reuters) - Asian shares were haunted by trade anxiety Tuesday while the risk of more dovish talk from the Federal Reserve pushed down Treasury yields and the dollar, propelling gold to fresh six-year peaks.

Investors are waiting anxiously to see if anything comes of Sino-U.S. trade talks later this week and sentiment was not helped by reports U.S. President Donald Trump would be content with “any outcome”.

Trump is slated to meet one-on-one with at least eight world leaders at the G20 summit in Osaka, including China’s President Xi Jinping and Russian President Vladimir Putin.

Chinese investors seemed none too hopeful as Shanghai blue chips slipped 1.8%. That led MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.5%.

Japan’s Nikkei lost 0.6%, while E-Mini futures for the S&P 500 edged down 0.3%. EUROSTOXX 50 futures were off 0.2% ahead of the European open.

Wall Street had been just as cautious with the Dow ending Monday up 0.03%, while the S&P 500 lost 0.17% and the Nasdaq 0.32%.

There are no less than five Fed policy makers speaking on Tuesday, including Chair Jerome Powell, and markets assume they will stick with the recent dovish message.

“It’s always possible the chair could walk back some of the market’s dovish interpretation of last week’s FOMC meeting...but we suspect he will reinforce the message laid out last week,” said Kevin Cummins, a senior U.S. economist at NatWest Markets.

“By the end of July, we believe the Fed will have seen enough to decide that action to counter downside economic risks and low inflation/inflation expectations is warranted, and so we look for a 25 basis point rate cut at the next FOMC meeting.”

Markets are running well ahead of that. Futures are fully priced for a quarter-point easing and imply around a 40%chance of a half-point move.

A total 100 basis points of cuts are implied by mid-2020, a major reason two-year yields are well under cash at 1.715%.

Yields on 10-year Treasuries have dived 120 basis points since November and, at 1.99%, are almost back to where they were before Trump was elected in late 2016.

The speed and scale of the latest decline has seen the dollar fall for four sessions in a row against a basket of other currencies to stand at a three-month low of 95.910.

“USD DXY now looks likely to break through the March low of 95.76 and below there 95.0,” said Tapas Strickland, a markets strategist at NAB.

“The drivers here continue to be heightened expectations of the Fed cutting rates - now 3.1 cuts priced by years’ end,” he said, noting that a number of index trackers showed the data flow from the United States was now showing more disappointing misses than Europe.

The euro has climbed to its highest in three months and was last holding firm at $1.1400, within striking distance of the March top of $1.1448.

Against the safe-harbor yen, the dollar hit its lowest since the January flash crash at 106.79. Dealers also noted a report from Bloomberg that Trump had privately mused about ending the postwar defense pact with Japan.

The pullback in the dollar combined with lower yields globally has put a fire under gold, which touched a six-year top. The metal is up 12% in the past month at $1,1434.51 an ounce.

Oil prices lost some ground on Tuesday, after rising sharply last week in reaction to tensions between the United States and Iran. [O/R]

Brent crude futures eased 38 cents to $64.48, while U.S. crude fell 47 cents to $57.43 a barrel.

Reference: Wayne Col

Monday, 24 June 2019

G20 nerves hit European stocks, dollar; oil gains

LONDON (Reuters) - European stocks stumbled and the dollar dropped to three-month lows on Monday as hopes waned for progress in Sino-U.S. trade talks at this week’s G20 meeting and fears grew of a confrontation with Iran.

Investors are waiting to see if Presidents Donald Trump and Xi Jinping can de-escalate a trade war that is damaging the global economy and souring business confidence. The leaders will meet during a G20 summit in Japan.

Pan-European STOXX 600 fell 0.2% , reflecting losses in Paris and Milan. Stocks in London were little changed. Germany’s export-sensitive DAX fell 0.5% after a profit warning by Daimler caused its shares to drop nearly 5%.

However, gains in Asia saw the MSCI regional and global stocks gauges rise again towards last week’s six-week highs. Wall Street also looked in line for more gains after closing lower on Friday. S&P 500 e-minis pointed to a 0.2% rise at the open.

“G20 is turning into a high-stakes poker game for risk, and if the sideline talks between Trump and Xi fail and trigger an escalation in tariffs, the odds of a full-blown global recession increase exponentially,” said Stephen Innes, managing partner at Vanguard Markets.

On Monday, Chinese Vice Commerce Minister Wang Shouwen said China and the United States should be willing to compromise in trade talks and not insist only on what each side wants.

U.S. Vice President Mike Pence’s decision on Friday to call off a planned China speech was also considered a positive sign. Pence had upset China with a fierce speech in October that laid out a litany of complaints ranging from state surveillance to human-rights abuses.

Still, most analysts doubt the two sides will come to any meaningful agreement. Tensions are reaching beyond tariffs, particularly after Washington blacklisted Huawei, the world’s biggest telecoms gear maker, effectively banning U.S. companies from doing business with it.

“Any high hopes ahead of the G20 meeting may be disappointed,” said Benjamin Schroeder, senior rates strategist at ING in Amsterdam. “In the end, uncertainty will persist and central banks could still be pushed closer to invoking their contingency plans.”

The U.S. Commerce Department said on Friday it was adding several Chinese companies and a government-owned institute involved in supercomputing to its national security “entity list”, which bars them from buying U.S. parts and components without government approval.

A Chinese newspaper said FedEx Corp was likely to be added to Beijing’s “unreliable entities list”.

U.S. markets had reached record highs after last week’s signals by the Federal Reserve that it may cut interest rates soon to bolster the U.S. economy.

However, that weakened U.S. currency, causing a dollar index to slip 0.1% lower to 96.11 after its biggest weekly drop in four months last week.

The dollar has led a broad selloff in major currencies as global central banks signaled a dovish outlook on monetary policy amid growing signs of a weak global economy.

The dollar fetched 107.39 yen, having slipped as low as 107.045 on Friday, the lowest level since its flash crash on Jan. 3.

“The market is not expecting more Fed rate cuts than it had so far, but that the reasoning behind them is being interpreted in a different manner,” Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann, wrote in a note to clients.

“While for a long time the expected weakening of growth, fears of a recession and low inflation were used as reasons for rate cuts, another reason has now been added to the list: the Fed caving in to the White House.”

The euro rose to a three-month high of $1.1387 against the dollar.

In developing markets, the Turkish lira strengthened as much as 2% after Turkey’s main opposition party won Istanbul’s re-run election for mayor, a blow to President Tayyip Erdogan.

Bitcoin pulled back from 18-month highs after jumping more than 10% over the weekend. Analysts said the gains came amid growing optimism over the adoption of cryptocurrencies after Facebook announced its Libra digital coin.

Economic woes, looming U.S. interest rate cuts and tensions between Tehran and Washington drove gold higher. The precious metal stood at $1,404.79 per ounce, not far from Friday’s six-year high of $1,410.78.

The rising tensions between Iran and the United States, after Iran shot down an American drone, also pushed oil prices higher. U.S. Secretary of State Mike Pompeo said “significant” sanctions on Tehran would be announced.

Brent crude futures rose 0.4% to $65.42 per barrel, near Friday’s three-week high of $65.76. U.S. crude futures were up 0.9% at $57.91, standing at its highest in over three weeks.

Reporting by Karin Strohecker

Dollar struggles after biggest weekly drop in four months; G20 eyed

LONDON (Reuters) - The dollar was on the back foot on Monday after sustaining its biggest weekly drop in four months last week as traders remained cautious about the prospects of trade talks between the United States and China at this week’s G20 summit.

The greenback has been on the receiving end of a broad market selloff in major currencies as global central banks led by the U.S. Federal Reserve signaled a dovish outlook on monetary policy due to growing signs of a weak global economy.

The dollar fell 1.4% against other currencies last week, its biggest weekly drop since mid-February. On Monday, it edged 0.1% lower to 96.11.

But the selloff has raised concerns that markets have turned excessively bearish against the dollar, especially since the Fed has the most room to cut interest rates relative to its peers, such as the European Central Bank, where rates are already in negative territory.

“U.S. rates are still higher than other countries’ rates and U.S. bond yields are not likely to go negative any time soon, whereas many other countries’ yields are already negative far out into the curve,” said Marshall Gittler, chief strategist at ACLS Global.

“It’s the best of a bad bunch.”

Latest weekly positioning data confirmed that view.

While hedge funds have turned mildly bearish on the outlook for the dollar in the latest weekly positioning figures, they have ramped up bearish bets against currencies such as the Australian dollar on fears of rising challenges for the global economy.

Investors focused on whether Washington and Beijing can resolve their trade dispute at a summit in Japan this week.

Both China and the United States should make compromises in trade talks, Chinese Vice Commerce Minister Wang Shouwen said on Monday.

Elsewhere, the euro stretched its rally last week, when it added 1.4%, rising about 0.15% to $1.1386, its highest since March 22. It last traded at $1.1381.

Reporting by Saikat Chatterjee;

Friday, 21 June 2019

European central bankers claim oversight over Facebook’s cryptocurrency

FRANKFURT (Reuters) - Three European central bankers are claiming oversight over Facebook’s planned virtual currency to ensure it will not jeopardize the financial system or be used to launder money.

Facebook drew worldwide interest this week when it announced plans to introduce a cryptocurrency called Libra, part of an effort to expand into digital payments.

Facebook said Libra would be backed by real-world assets, including bank deposits and short-term government securities, to make it more stable — and thus practical for payments and money transfers — than other cryptocurrencies such as bitcoin.

With the potential to reach billions of internet users and the backing of payment giants like Visa, Facebook hopes Libra will not only power transactions but offer people without bank accounts access to financial services for the first time.

But the central bankers of Britain, France and Germany said Facebook should expect scrutiny.

“It has to be safe, or it’s not going to happen,” Bank of England Governor Mark Carney told the BBC in an interview broadcast on Friday.

“We, the Fed, all the major global central banks and supervisors, would have direct regulatory (oversight),” he said, referring to the U.S. Federal Reserve.

Global central bankers have so far largely refrained from regulating digital currencies, having failed last year to reach an agreement on how to do so and concluding they were too small to pose a risk to the financial system.

Other global regulators have been monitoring the growth of cryptocurrencies. The Financial Action Task Force, a Paris-based global anti-money-laundering watchdog, is expected to announce rules to address the use of digital coins for illegal purposes.

But Libra’s announcement has put the issue back on their radar, with the focus now shifting from bitcoin to so-called stablecoins, such as Facebook’s Libra, that are backed by real-world assets.

France said on Friday it would create a task force on the matter as part of its presidency of the Group of Seven club of the world’s seven largest economies. It will be chaired by European Central Bank board member Benoit Coeure.

“It will in the coming months examine the anti-money laundering requirements, but also those of consumer protection and operational resilience and any issues relating to monetary policy transmission,” said France’s central bank governor, Villeroy de Galhau.

His German counterpart, Jens Weidmann, warned that stablecoins could undermine banks if they became a widespread alternative to bank deposits in conventional currencies.

“They could undermine the deposit-taking of banks and their business models,” Weidmann said on Friday. “This might disrupt transaction banking and financial market intermediation.”

One of the issues to be considered by the G7 task force is custodianship, or where and how the official currencies underpinning the tokens would be stored, according to a letter seen by Reuters.

This is a crucial point for stablecoins. Tether, the highest-profile stablecoin, with coins worth around $3.6 billion in existence, has faced questions over whether it holds enough U.S. dollars to back the tokens in circulation. The company has said it has sufficient reserves.

Facebook is grappling with public backlash after a series of scandals ranging from privacy breaches to accusations that it is restricting freedom of speech.

Reporting by Francesco Canepa

Small toy figures are seen on representations of virtual currency in front of the Libra logo in this illustration picture, June 21, 2019. REUTERS/Dado Ruvic/Illustration

Futures slip after strong rally as Iran tensions rise

(Reuters) - U.S. stock index futures dipped on Friday, after a strong rally in the prior session that helped the S&P 500 hit a record high, as rising tensions between the United States and Iran kept investors on edge.

Tehran had received a message from President Donald Trump, delivered through Oman overnight, warning that a U.S. attack was imminent but adding he was against war and wanted talks, Iranian officials told Reuters on Friday.

They spoke shortly after the New York Times reported that Trump had approved military strikes against Iran in retaliation for the downing of a U.S. surveillance drone but called off the attacks at the last minute.

The benchmark S&P 500 index closed at a new record of 2,954.18 on Thursday after the Federal Reserve signaled interest rate cuts beginning as early as next month.

Money markets are pricing in three Fed rate cuts before year-end and are tipping as many as five cuts through mid-2020.

Investors will now look to a G20 summit in Japan next week for signs of progress on talks between the United States and China to resolve their differences that had sparked the benchmark index’s worst monthly performance this year in May.

Oil prices rallied about 1% on fears that a U.S. military attack on Iran that would disrupt flows from the Middle East, which provides more than 20% of the world’s oil output.

At 6:35 a.m. ET, Dow e-minis were down 39 points, or 0.15%. S&P 500 e-minis were down 6.5 points, or 0.22%, and Nasdaq 100 e-minis were down 24 points, or 0.31 %.

Chipmakers took a beating in premarket trading after Britain’s IQE Plc became the latest semiconductor company to warn on full-year revenue, citing the impact of the Huawei ban.

Shares of Intel Corp, Micron Technology and Advanced Micro Devices fell between 0.4% and 1.3%.

Among other stocks, Facebook Inc fell 0.6% after Bank of England Governor Mark Carney said major central banks and regulators will want oversight of the social media company’s proposed new currency and payment system Libra.

Slack Technologies Inc gained 4%, a day after the workplace messaging platform soared nearly 50% in market debut.

On the macro front, Markit manufacturing sector flash PMI data, due at 09:45 a.m. ET, is expected to show a reading 50.4 in June up from 50, a month earlier.

The PMI reading comes after data from Germany, France and euro zone came in slightly higher in June compared to May.

Reporting by Amy Caren Daniel

Thursday, 20 June 2019

S&P 500 hits record intraday high on dovish Fed

(Reuters) - The S&P 500 hit a record intraday high soon after the market opened on Thursday as investors took comfort from signs that the Federal Reserve could cut interest rates as soon as next month to counter growing risks to global and domestic growth.

The Dow Jones Industrial Average rose 161.38 points, or 0.61%, at the open to 26,665.38. The S&P 500 opened higher by 23.14 points, or 0.79%, at 2,949.60. The Nasdaq Composite gained 100.12 points, or 1.25%, to 8,087.45 at the opening bell.

Reporting by Medha Singh

LONDON (Reuters) - The dollar sank broadly against its rivals on Thursday and is on track for its biggest two-day drop in a year after the U.S. central bank signalled it was ready to cut interest rates as early as next month.

The sharp fall in the dollar took currency markets by surprise and forced some hedge funds that had built up large long dollar bets before the rate decision to dump the greenback.

The Fed joined global peers such as the European Central Bank and the Australia’s central bank this week in signalling that more policy stimulus is needed to boost growth. That fuelled a rally in relatively higher-yielding currencies such as the Australian dollar and the Korean won.

“It seems to us as if the ‘dovish’ Fed and Trump/Xi trade optimism narratives are both being rolled into a single ball of USD negativity,” said Stephen Gallo, European head of FX strategy at BMO Capital Markets.

The dollar fell 0.5% against a basket of its rivals to 96.64, putting it on course to posting its biggest two-day losing streak since February 2018.

It also retreated by 0.5% to a six-month low against the Japanese yen at 107.47.

“With global central banks engaged in a battle to weaken their currencies, there is a rush to high-quality currencies with higher interest rates,” said Neil Mellor, a senior currency strategist at BNY Mellon in London.

The greenback came under additional pressure after benchmark 10-year Treasury yields slid to their lowest level in more than two years.

The overnight drop in global bond yields has boosted rate cut bets across global markets with money markets pricing in three rate cuts from the Fed before the end of the year and as many as five cuts until mid 2020.

But some market participants believe the Fed may kick-start its rate cutting cycle by aggressive steps compared to expectations of more gradual easing over the coming months.

“What we thought was particularly aggressive yesterday is that Powell said they hadn’t decided on the size of the cuts,” said Peter Chatwell, head of rates at Mizuho in London.

“The uncertainty of whether the first move will be 25 basis points or 50 basis points will be a valid part of market pricing.”

The widespread dollar weakness boosted appetite for risk-oriented currencies, with the euro barrelling past the $1.13 line to its one-week high while the Australian dollar and the New Zealand dollar gained half a percent each.

China’s yuan rallied to its strongest level in five weeks amid signs that Beijing and Washington are returning to the negotiating table in their trade dispute.

Bucking the global trend of dovish central banks, Norway’s central bank raised interest rates and predicted more rate hikes in the coming months, sending the currency soaring against the euro and the dollar.

Reporting by Saikat Chatterjee

Fed sees case building for interest rate cuts this year

WASHINGTON (Reuters) - The U.S. Federal Reserve on Wednesday signalled interest rate cuts beginning as early as July, saying it is ready to battle growing global and domestic economic risks as it took stock of rising trade tensions and growing concerns about weak inflation.

Even as the U.S. central bank left its benchmark interest rate unchanged for now, the shift in sentiment since its last policy meeting was marked.

The bulk of Fed policymakers slashed their rate outlook for the rest of the year by roughly half a percentage point, and Fed Chairman Jerome Powell said others agree the case for lower rates is building; the Fed dropped its pledge to be “patient” before rate moves in a sign it was poised to act; and Powell stopped referring to weak inflation as “transient.”

Although economic growth is expected to continue, Powell said policymakers’ concerns congealed in the few weeks since the Fed last met in early May, with the unpredictable outcome of President Donald Trump’s trade dispute with China and other countries at the top of their minds.

Trump slapped new tariffs on China on May 5, took other steps that upended markets, and yet of late has sent hopeful signals of progress in the dispute when he meets Chinese officials next week - difficult terrain for the Fed to navigate.

The U.S. president has repeatedly accused Powell’s Fed of undermining his administration’s efforts to boost economic growth and has repeatedly demanded that rates be cut.

“Seven weeks ago we had a great jobs report and came out of the last meeting feeling that the economy and our policy was in a good place,” Powell said. “News about trade has been an important driver of sentiment in the interim.”

“We are quite mindful of the risks to the outlook and are prepared to move and use our tools as needed,” he said in a press conference following release of a policy statement in which the central bank said it “will act as appropriate to sustain” a nearly 10-year economic expansion.

Fresh economic projections released by the Fed show nearly half of the 17 policymakers now show a willingness to lower borrowing costs over the next six months, and seven see rates likely to warrant being lowered by a full half a percentage point - near what bond investors have anticipated.

Though the baseline economic outlook remains “favorable,” Powell said, risks continue to rise, including the drag that rising trade tensions may have on U.S. business investment and signs that economic growth is slowing overseas.

“Ultimately the question we are going to be asking ourselves is, ‘are these risks going to be continuing to weigh on the outlook?’” Powell said.

“We will act as needed, including promptly if that’s appropriate, and use our tools to sustain the expansion,” he said, adding that if the Fed does ease monetary policy by cutting rates, it may also halt a gradual slimming of its massive balance sheet.

Interest-rate futures surged in response to the dovish remarks, and traders are now betting heavily on three rate cuts by the end of the year. U.S. stocks turned higher, with the benchmark S&P 500 index up about 0.3% from the previous day’s close. In the Treasury market, expectations the U.S. central bank would be cutting rates before long drove the yield on 2-year notes, often a proxy for Fed policy, to the lowest in a year and a half at around 1.75%.

“I think the big surprise was how many folks moved into the cut camp on the Fed side. You had seven members that are now looking for two cuts in 2019,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets.

“Maybe this goes to the point that the China trade situation is such a critical pivot for whether the Fed cuts or not.”

The new economic projections showed policymakers’ views of growth and unemployment were largely unchanged from March. But they now project headline inflation to be just 1.5% for the year, down from the previous projection of 1.8%.

They also expect to miss their 2% inflation target next year as well, a blow for a central bank that has missed that goal for years.

Policymakers “expressed concerns” about the pace of inflation’s return to 2%, Powell said. Wages are rising, he added, “but not at a pace that would provide much upward impetus” to inflation.

The long-run federal funds rate, a barometer for the state of the economy over the long term, was cut to 2.50% from 2.80%.

St. Louis Fed President James Bullard, who had argued that rates should be cut, dissented in Wednesday’s policy decision.

Reporting by Howard Schneider, Jason Lange and Ann Saphir; Editing by Paul Simao

Wednesday, 19 June 2019

Sterling rises for a second day as central banks turn dovish

LONDON (Reuters) - The pound edged higher for a second day on Wednesday, breaking a six-week losing streak, as investors trimmed some large short bets against the British currency built up in recent weeks.

The pound has fallen by 5% since early May, as concern grew that arch-Brexiteer Boris Johnson, the top contender to become the next British Prime Minister, will lead the country out of the European Union with or without a deal by Oct. 31.

But a dovish tilt by global major central banks, including the U.S. Federal Reserve and the European Central Bank, has lifted some of the gloom over the British currency.

“Away from Brexit headlines, the pound remains a currency heavily influenced by global risk-on, risk-off trends,” said Kamal Sharma, a director of G10 FX strategy at Bank of America Merrill Lynch.

On Wednesday, the pound rose 0.2% to $1.2583, up from Monday’s five-month low of $1.2507. Versus the euro, it gained to 89 pence.

Bank of England policymakers have said that interest rates may need to rise sooner than markets expect, but traders are in no hurry to shift their expectations. Futures markets price in no rate increases until late 2020.

Twenty economists polled by Reuters all expected the bank’s nine monetary policymakers to vote unanimously in favour of keeping borrowing costs unchanged at Thursday’s monetary policy meeting.

Reporting by Saikat Chatterjee

Wall Street set for subdued open ahead of Fed statement

(Reuters) - U.S. stock index futures pointed to a flat opening for Wall Street’s main indexes on Wednesday, as investors refrained from taking positions ahead of the Federal Reserve’s policy statement that is expected to open the door to future interest rate cuts.

Bets of a rate cut have helped markets climb in June, with the S&P 500 index gaining 6% so far and about 1% away from its all-time high hit in early May.

The Fed’s statement and new economic projections are to be released at 2 p.m. ET (1800 GMT), giving investors an idea on how a prolonged U.S.-China trade conflict, President Donald Trump’s demands for a rate cut and softer-than-expected economic data have impacted monetary policy thinking.

Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET (1830 GMT).

“Expectations remain elevated over a rate cut in July and investors will be closely scrutinizing the statement for confirmation of a cut next month,” said Lukman Otunuga, a research analyst at ForexTime Limited in London.

“Should the Fed sound less dovish than expected or completely omit any hints about taking action next month, it could send equity markets sliding.”

Global financial markets have been fired up by European Central Bank President Mario Draghi’s Tuesday volte-face on policy easing and as investors bet on a worldwide wave of central bank stimulus.

At 8:27 a.m. ET, Dow e-minis were up 17 points, or 0.06%. S&P 500 e-minis were up 0.5 points, or 0.02% and Nasdaq 100 e-minis were up 8.75 points, or 0.11%.

Sentiment was also buoyed by hopes of progress on U.S.-China trade dispute, with Beijing hinting that positive outcomes were possible in negotiations with Washington, after the world’s two largest economies agreed to revive their troubled talks at a G20 meeting this month.

Trade-sensitive industrial giants Boeing Co and Caterpillar Inc rose in premarket trading, while semiconductor companies, which source and supply products to China, also moved higher.

Boeing shares inched up 0.5% as the planemaker secured orders from Taiwan’s China Airlines and Qatar Airways at the Paris Airshow, a day after IAG placed a lifeline order for the grounded 737 MAX jet.

Among other stocks, Adobe Inc jumped 4% after the Photoshop software provider beat analysts’ estimates for quarterly profit and revenue.

Reference: Shreyashi Sanyal

Tuesday, 18 June 2019

Wall St. opens at six-week high on hopes of dovish Fed

(Reuters) - U.S. stocks opened at their highest level in six-weeks on Tuesday, with Nasdaq leading the charge, as dovish calls from the European Central Bank raised expectations of a similar accommodative stance from the Federal Reserve.

The Dow Jones Industrial Average rose 116.35 points, or 0.45%, at the open to 26,228.88. The S&P 500 opened higher by 17.04 points, or 0.59%, at 2,906.71. The Nasdaq Composite gained 75.95 points, or 0.97%, to 7,920.98 at the opening bell.

Reporting by Medha Singh

WASHINGTON/SAN FRANCISCO - (Reuters) - Bond investors expect an aggressive set of U.S. interest rate cuts this year, and a voluble president pines for the “old days” when his predecessors bullied central bankers to get their way.

If Federal Reserve Chairman Jerome Powell had a complicated task last year in calling an early halt to further Fed rate hikes, his mission in a Wednesday press conference may be even trickier: Thread the needle between growing expectations that lower rates are coming soon and economic data that looks reasonably healthy with rates just where they are.

Failing to pull it off could trigger the same sort of volatility and tightening of financial conditions witnessed in December, when Powell’s press conference remarks were interpreted as overly hawkish and in part responsible for an 8% drop in the S&P 500 over the next few days.

At the extreme, that sort of volatility could feed into the real economy and make the Fed’s job in coming weeks even more complicated.

“Powell will have to do a lot of tap dancing,” Bank of America Merrill Lynch economists wrote Friday in outlining how the Fed will need to account for expected slower U.S. growth, weak inflation and trade risks, without making it seem as if a serious downturn is in the offing.

“This is a Fed that wants to insure that the recovery will continue,” they said. “The goal will be to talk about the need to ease policy but underscore that a recession is not around the corner.”

The Fed begins its two-day policy meeting on Tuesday, and will issue a new statement and economic projections at 2 p.m. (1800 GMT) on Wednesday. Powell’s press conference is scheduled to begin Wednesday at 2:30 p.m. (1830 GMT)

The central bank is expected to leave its benchmark overnight policy rate unchanged at its current range of between 2.25% and 2.5%. The federal funds rate has been at that level since December after a three-year cycle of monetary policy tightening that began slowly but ended with roughly quarterly rate hikes over 2017 and 2018.

The mood has clearly shifted since the Fed last met in early May, in part because of trade policy choices made by President Donald Trump and which the president has demanded be offset with looser monetary policy.

But it is unclear by how much. One Federal Reserve regional bank president has referred to the outlook as “darkened,” and another has called for lower rates “soon.” Powell in his most recent public comments dropped the use of the word “patient” in referring to the Fed’s posture when it comes to deciding on the next rate move.

That suggested to many analysts that the word will disappear from the policy statement as well. In May that 279-word missive said the Fed “will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.”

But an absence of patience doesn’t mean the central bank is on a hair trigger. The focus on Powell will center around how he describes the Fed’s sensitivity to upcoming data, how seriously it views the risks of a widening trade war, and whether it still sees weak inflation as likely “transitory,” as he described it in May.

Despite his December misstep, Powell has been given generally good marks by Wall Street investors for his ability to communicate policy.

His immediate predecessors had their own miscues.

Former chairman Ben Bernanke triggered weeks of global bond market volatility with his 2013 comments about the Fed’s plan to reduce its bond purchases. And former chair Janet Yellen in 2015 had to navigate the difficulties of the first interest rate increase since the 2007 to 2009 financial crisis.

But Powell this week may have a pronounced information gap to fill. As of March, 11 of 17 policymakers felt that rates at year-end would be unchanged from today, and the other six saw them as likely a bit higher.

The expected performance of the economy has not changed that much since then. Even if Trump’s trade policies have been hard to predict, Fed officials say the economic consequences could just as easily cavort to the upside if, for example, an upcoming meeting of the Group of 20 nations ends with any hint of progress in U.S.-China trade negotiations.

At this point, as economists at Goldman Sachs wrote over the weekend, the “hurdle” for the Fed to cut rates “is likely to be higher than widely believed,” with the economy and markets either healthier or more aligned with Fed policy than was the case in the 1990s when the Fed used preemptive “insurance” rate cuts to encourage continued economic growth.

If Fed officials don’t collectively push their rate view down, as markets expect and the White House demands, it will be up to Powell to explain why.

Reporting by Howard Schneider

Draghi's stimulus hints put ECB in Trump's crosshairs

SINTRA, Portugal (Reuters) - The European Central Bank will ease policy again if inflation fails to accelerate, ECB President Mario Draghi said on Tuesday, signalling one of the biggest policy reversals of his eight-year tenure and provoking the ire of U.S. President Donald Trump.

With four years of unprecedented stimulus to revive the euro zone economy slowly bearing fruit, the ECB had been preparing markets for policy tightening, dubbed “normalisation” — only to see a global trade war derail its plans within months.

The problem is that with rates at record lows and the ECB’s balance sheet already swelled to 4.7 trillion euros (£4.2 trillion), its remaining ammunition is limited, raising doubts about the likely effectiveness of any further measures.

“In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required,” Draghi told the ECB’s annual conference in Sintra, Portugal.

With just four months left of his term, the slowdown is also a threat to Draghi’s legacy. The Italian’s promise in 2012 to do “whatever it takes” to save the euro is widely credited with holding together the currency bloc during the darkest days of its sovereign debt crisis.

“(We) will use all the flexibility within our mandate to fulfil our mandate — and we will do so again to answer any challenges to price stability in the future,” Draghi said on Tuesday. “Monetary policy remains committed to its objective and does not resign itself to too-low inflation.”

But the ECB is not alone in having to backtrack.

After abandoning interest rate hikes, the U.S. Federal Reserve may this week signal cuts in borrowing costs as global turmoil erodes confidence, hitting stocks and global trade.

Trump, who has persistently called on the Fed to ease monetary policy, accused Draghi of trying to weaken the euro to gain an unfair advantage in trade.

“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA,” Trump wrote on Twitter. “They have been getting away with this for years, along with China and others.”

Trade is a main policy issue for Trump, who has raised disputes with a number of rival world economies including the European Union.

Draghi’s comments, which markets saw as unexpectedly dovish, sent the euro down by a quarter of a percent against the dollar while stocks erased early losses and euro zone bond yields fell further, many into record-low territory.

Draghi has often said the ECB does not target a currency level, even if the exchange rate is an important factor for policy.

Draghi said the ECB, which has consistently undershot its inflation target of just under 2% since 2013, could still cut rates, adjust its interest rate guidance and had “considerable headroom” for more asset purchases.

He also said the ECB could offer “mitigating measures” to offset the unwanted side effects of negative rates, a comment indicating that a multi-tier deposit rate was also on the table.

Adding an argument for urgency of action, he noted that risks to growth in the 19 countries that use the euro are tilted to the downside and that indicators for the coming quarters point to lingering softness.

The ECB will use the “coming weeks” to study its options, he said, suggesting that action may come sooner rather than later.

ECB policymakers next meet on July 25.

Markets have already priced in 15-20 basis points of cuts in the ECB’s minus 0.40% deposit rate — a big change compared to the start of the year, when rate hikes were firmly on the table.

Draghi dismissed concerns about the ECB’s depleted policy arsenal, particularly the effectiveness of further bond purchases, saying self-imposed limits such as a rule that prevents the ECB buying more than one-third of a particular country’s debt, could be adjusted.

He said the limits are flexible because the ECB’s legal powers allow it to deploy tools that are both necessary and proportionate, adding that the European Court of Justice had already confirmed it had broad discretion.

The ECJ cleared the asset purchases in an earlier ruling but argued that limits on the ECB’s bond buys must be in place, suggesting that any tweaks to those limits could see the central bank back in court.

“We are committed, and are not resigned to having a low rate of inflation forever or even for now,” Draghi said.

“That aim is symmetric, which means that, if we are to deliver that value of inflation in the medium term, inflation has to be above that level at some time in the future.”

Reference: Francesco Canepa, Balazs Koranyi

Monday, 17 June 2019

Fed likely to resist pressure to cut U.S. rates this week

(Reuters) - U.S. stocks eked out gains at the open on Monday, as focus shifted to a pivotal Federal Reserve SAN FRANCISCO/WASHINGTON (Reuters) - The U.S. Federal Reserve, facing fresh demands by President Donald Trump to cut interest rates, is expected to leave borrowing costs unchanged at a policy meeting this week but possibly lay the groundwork for a rate cut later this year.

New economic projections that will accompany the U.S. central bank’s policy statement on Wednesday will provide the most direct insight yet into how deeply policymakers have been influenced by the U.S.-China trade war, Trump’s insistence on lower interest rates, and recent weaker economic data.

Analysts expect the “dot plot” of year-end forecasts for the Fed’s benchmark overnight lending rate - the federal funds rate - will show a growing number of policymakers are open to cutting rates in the coming months, though nowhere near as aggressively as investors expect or Trump wants.

The Fed is also widely, though not universally, expected to remove a pledge to be “patient” in taking future action on rates, opening the door to a possible cut at its coming policy meetings.

Risks may be rising, but “I don’t think they want to box themselves into a corner,” said Carl Tannenbaum, chief economist at Northern Trust. “The markets are set up for a cut in July, and if they don’t get it, financial conditions will tighten.”

The federal funds rate is currently set in a range of 2.25% to 2.50%.

The Fed’s policy-setting committee is due to release its latest statement and economic projections at 2 p.m. EDT (1800 GMT) on Wednesday after the end of a two-day meeting. Fed Chairman Jerome Powell will hold a press conference shortly after.

The Fed's last set of economic and policy projections, released in March, showed most policymakers foresaw no need to change rates this year and only very gradual rate hikes thereafter.

But since that meeting the economic outlook has become cloudier.

Recent U.S. retail sales numbers were strong. But while unemployment has held near a 50-year low of 3.6%, U.S. employers created a paltry 75,000 jobs in May. Inflation, which Powell says is low in part because of temporary factors, continues to undershoot the Fed’s 2% target.

The Atlanta Fed forecast on Friday that gross domestic product will increase at a 2.1 percent annualized rate in the April-June quarter, a drop from the 3.1 percent pace of the first three months of the year.

Trade uncertainty has increased as well, with Trump using the threat of tariffs on goods from Mexico to force the country to curb the number of mostly Central American immigrants crossing the U.S.-Mexico border.

He has also vowed to slap more tariffs on Chinese imports if no trade deal is reached when he meets Chinese President Xi Jinping at a Group of 20 summit at the end of this month in Japan.

Concern that mounting tariffs could further slow U.S. and global economic growth is one of the chief reasons traders in interest rate futures loaded up on contracts anticipating three U.S. rate cuts by the end of the year.

Fed officials may have reason to trim their rate outlook a bit, but meeting market expectations would involve a dramatic shift. Nine of the Fed’s current 17 policymakers would have to move their rate projections downward for the median to reflect a single cut, let alone three.

“Powell will do what he can to try to downplay the dots especially if they don’t show what the markets want them to show,” said Roberto Perli, economist at Cornerstone Macro. “He will have a tough time.”

Adding to the pressure for a rate cut is a yield curve inversion in parts of the market for U.S. government debt, historically a precursor of recessions. The three-month Treasury bill, for instance, has paid out a higher rate than a 5-year Treasury note for the last several months running.

And Trump, who has said that rates should be lowered by perhaps a full percentage point or more, continues to publicly berate the Fed and Powell, his handpicked chairman, for refusing to act.

“I’ve waited long enough,” Trump said in an interview with ABC News last week, talking favorably of the “old days” when Presidents Lyndon Johnson and Richard Nixon intervened forcefully in Fed policy - and set the stage, many economists argue, for the high inflation, economic volatility and recessions that followed in the 1970s.

Most of the more than 100 economists polled June 7-12 by Reuters say they are not penciling in a rate cut until the third quarter of next year. But views are shifting rapidly. Forty respondents expected at least one rate cut sometime in 2019, up from just eight who did in the previous poll.

Within the U.S. central bank, St. Louis Fed President James Bullard is the only policymaker who has said a rate cut may be needed “soon.”

Several others have signaled a readiness to move off their wait-and-see stance, with Powell saying earlier this month in a speech in Chicago that the Fed will act “as appropriate” in the face of risks posed by the global trade war and other developments.

The word “patient,” which had been repeatedly used by the Fed since early this year to signal its willingness to hold off further rate hikes, was notably absent from Powell’s remarks, though the Fed chief stopped well short of suggesting a rate cut was coming soon.

The Fed raised rates four times in 2018 but has since abandoned plans to continue lifting borrowing costs this year.

It is likely to avoid signaling any move to cut rates until it is ready to deliver, predicted Bruce Monrad, a high-yield bond portfolio manager at Boston-based Northeast Investors Trust.

Nevertheless, Monrad added, Fed policymakers may have tied their own hands by letting bets in financial markets stray so far. “They have had six months to control the rhetoric. They really haven’t walked back the market.”

Reporting by Ann Saphir and Howard Schneider

Wall St. opens slightly higher; Fed meet eyed

(Reuters) - U.S. stocks eked out gains at the open on Monday, as focus shifted to a pivotal Federal Reserve meeting that could lay the groundwork for an interest rate cut later this year.

The Dow Jones Industrial Average rose 18.92 points, or 0.07%, at the open to 26,108.53. The S&P 500 opened higher by 2.77 points, or 0.10%, at 2,889.75. The Nasdaq Composite gained 22.77 points, or 0.29%, to 7,819.43 at the opening bell.

Reporting by Medha Singh

(Reuters) - Hundreds of U.S. businesses from local bridal shops to multi-billion dollar retailers have submitted comments to the U.S. Trade Representative’s Office opposing President Donald Trump’s plan to slap tariffs on another $300 billion of Chinese imports.

The higher tariffs would affect everything from apparel and footwear to fireworks and cellphones, and was likely to raise prices for U.S. consumers, the companies warned in submissions ahead of the start of seven days of public hearings on Monday.

Diane Cheatham, owner of Diane’s Formal Affair, an Alabama-based women’s boutique, said new tariffs would completely shut down her American suppliers, who will be unable to come up with the funding to cover the additional 25% they would need to pay to import their products.

“I am writing this letter pleading with you to keep our industry out of the next round of tariffs,” Cheatham said. “I stand shoulder to shoulder with thousands of business owners in this plea. Help us make AMERICA GREAT AGAIN.”

Cheatham’s comments were echoed by many more U.S. business owners who said the new levies would hurt consumers and cause job losses.

Spirit of 76, a fireworks company that imports 100% of its product from China, said the tariffs would cause significant harm to its business where profit margins are already razor thin.

It said it would have to raise prices and the resulting loss in sales would impact hiring and expansion plans.

Large public companies, many of whom’s shares sank in May on concern over the impact of tariffs on growth, also warned in broad terms of the trouble an outright trade war would cause.

“We strongly oppose the imposition of additional tariffs,” Ralph Lauren Corp said in a letter addressed to U.S. Trade Representative Robert Lighthizer.

The luxury retailer asked for apparel and footwear to be removed from the tariff list, arguing that a rise in duties will lower sales and lead to U.S. workers losing their jobs.

Roku Inc, Tommy Hilfiger owner PVH corp and Best Buy are among a number of companies who have asked to testify at the hearings.

Reporting by Uday Sampath

Boeing crisis, trade tensions cast pall over air show

PARIS (Reuters) - Safety concerns, trade wars and growing security tensions in the Gulf are dampening spirits at the world’s largest plane makers as they arrive at this week’s Paris Airshow with little to celebrate despite bulging order books.

The aerospace industry’s marquee event is a chance to take the pulse of the $150-billion-a-year commercial aircraft industry, which many analysts believe is entering a slowdown due to global pressures from trade tensions to flagging economies, highlighted by a profit warning from Lufthansa late on Sunday.
Humbled by the grounding of its 737 MAX in the wake of two fatal crashes, U.S. planemaker Boeing will be looking to reassure customers and suppliers about the plane’s future and allay criticism of its handling of the months-long crisis.
“This is a defining moment for Boeing. It’s given us pause. We are very reflective and we’re going to learn,” Chief Executive Dennis Muilenburg pledged on Sunday.
The grounding of the latest version of the world’s most-sold jet over safety concerns has rattled suppliers and fazed rival Airbus, which is avoiding the traditional baiting of Boeing while remaining distracted by its own corruption probe.
Aerospace executives on both sides of the Atlantic are concerned about the impact of the crisis on public confidence in air travel and the risk of a backlash that could drive a wedge between regulators and undermine the plane certification system.
Airlines that rushed to buy the fuel-efficient MAX are taking a hit to profits since having to cancel thousands of flights following the worldwide grounding in March.
Even the planned launch of a new longer-range version of the successful A320neo jet family from Airbus, the A321XLR, is unlikely to dispel the industry’s uncertainty, analysts said.
The planemaker is hoping to launch the plane with up to 200 orders with the support of at least one major U.S. buyer such as American Airlines but faces a last-minute scramble to win deals.
“Boeing’s MAX crisis isn’t the most ominous dark cloud, since it can be solved, but traffic numbers are genuinely scary,” said Teal Group aerospace analyst Richard Aboulafia.
“If March and April are a sign of things to come, we’re looking at broader industry demand and capacity problems.”
“Net orders might be the lowest in years,” Aboulafia added.
Others dismiss fears of a downturn, citing the growth of the middle class in Asia and the need for airlines to buy new planes to meet environmental targets.
“The only solution that the industry has is the newest most fuel-efficient aircraft,” John Plueger, Chief Executive of Air Lease Corp, told Reuters. “So that replacement cycle is going to continue.”
“We’re talking to so many airlines who still want more aircraft, and there’s really been no lessening of those discussions,” he said.


Boeing is delaying decisions on the launch of a possible new aircraft, the mid-sized NMA, to give full attention to the 737 MAX and last-minute engine trouble on the forthcoming 777X, industry sources said.
But it could unveil a number of deals favouring widebody jets where it has the upper hand against Airbus, including at least a dozen 787 aircraft for Korean Air Lines and some demand for 777 freighters. Airbus is meanwhile set to confirm an order for A330neo jets from Virgin Atlantic.
“We’ll have some orders flow. We anticipate some widebody orders that you’ll be hearing about through the week. But that’s not our focus for the show,” Muilenburg told reporters.
Robert Stallard of Vertical Research Partners expects roughly 800 aircraft orders at the show, but noted it can be hard to tell which are truly new, firm business or old orders, or switched models. That compares with some 959 orders and commitments at the Farnborough Airshow last year.
Some analysts pegged the likely total closer to 400.
Although slowing, a multi-year boom in airline orders is still trickling down to suppliers such as engine makers. French-American CFM International is set to announce a record order by units for over 600 engines from India’s IndiGo.
The June 17-23 show is not only about jetliner deals, but also a magnet for many of the world’s arms buyers who come to preview the latest military equipment, from anti-aircraft missiles to hotly sought cyber war-fighting capabilities.
French President Emmanuel Macron will open the show by unveiling a mock-up of a proposed new fighter as France and Germany sign a deal for its development.
Industry insiders will also weigh the merits and potential fallout of United Technologies Corp’s planned $121 billion tie-up with defence contractor Raytheon Co.
The deal would potentially upend the aerospace sector, creating a conglomerate spanning commercial aviation and defence and putting pressure on major suppliers such as Honeywell and General Electric.
Air show delegates are also watching a face-off between the United States and Iran in the Gulf. The United States blames Iran for attacks on two oil tankers in a vital shipping route that have raised fears of broader confrontation in the region.
In another political row with implications for arms firms attending the show, the United States has threatened to cancel Turkey’s participation in the Lockheed F-35 fighter jet programme over Ankara’s purchase of a Russian radar system.
Watching the show attentively is China, whose own aerospace ambitions are growing at a time when U.S.-China trade tensions are rising ahead of a possible meeting between U.S. President Donald Trump and Chinese President Xi Jinping this month.


Additional reporting by Cyril Altmeyerhenzien, Laurence Frost, Alistair Smout; Editing by Mark Potter and Sonya Hepinstall