Wednesday, 31 July 2019

Latest U.S.-China trade talks called 'constructive' by both sides

SHANGHAI (Reuters) - U.S. and Chinese negotiators wrapped up a brief round of trade talks on Wednesday that both sides described as “constructive,” including discussions over further Chinese purchases of American farm goods and an agreement to reconvene in September.

The first face-to-face talks since a ceasefire was agreed to last month in the trade war between the world’s two largest economies amounted to a working dinner on Tuesday at Shanghai’s historic Fairmont Peace Hotel and a half-day meeting on Wednesday, before U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin flew out.

“The meetings were constructive, and we expect negotiations on an enforceable trade deal to continue in Washington ... in early September,” White House spokeswoman Stephanie Grisham said in a statement.

“Both sides, according to the consensus reached by the two leaders in Osaka, had a candid, highly effective, constructive and deep exchange on major trade and economic issues of mutual interest,” China’s Commerce Ministry said in a statement shortly after the U.S. team left Shanghai.

It was not immediately clear what, if any, further agricultural products China agreed to buy from the United States and when - an issue that had become a bone of contention after U.S. President Donald Trump said China had not made good on promised purchases.

“The Chinese side confirmed their commitment to increase purchases of United States agricultural exports,” the White House’s Grisham said, offering no other details.

Representatives for the U.S. Trade Representative’s office did not immediately respond to a request for comment.

The Chinese statement said negotiators discussed more Chinese purchases of agricultural products from the United States, but did not say there was any agreement to buy more.

The talks began amid low expectations. Trump on Tuesday warned China against waiting out his first term to finalize any trade deal, saying if he wins re-election in the November 2020 U.S. presidential contest, the outcome will be worse for China.

Fresh fears over the trade war and concerns about a protracted fight with little near-term progress weighed on global markets on Wednesday.

Chinese Foreign Ministry spokeswoman Hua Chunying said on Wednesday that she was not aware of the latest developments during the talks, but that it was clear it was the United States that continued to “flip flop”.

“I believe it doesn’t make any sense for the U.S. to exercise its campaign of maximum pressure at this time,” Hua told a news briefing in response to a question about the tweets.

“It’s pointless to tell others to take medication when you’re the one who is sick,” she said.

The U.S.-China trade war has disrupted global supply chains and shaken financial markets as each side has slapped tariffs on billions of dollars of each other’s goods.

An official Chinese government survey released on Wednesday showed factory activity shrank for the third month in a row in July, underlining the growing strains the dispute has placed on the No. 2 economy.

The Shanghai talks were expected to center on “goodwill” gestures, such as Chinese commitments to purchase U.S. agricultural commodities and steps by the United States to ease some sanctions on Chinese telecoms equipment giant Huawei Technologies Co Ltd, a person familiar with the discussions told Reuters earlier.

Those issues are somewhat removed from the primary U.S. complaints in the trade dispute such as Chinese state subsidies, forced technology transfers and intellectual property violations - all topics the White House in its statement said were discussed. China’s account of the discussions did not mention any of the non-agricultural issues.

Trump and Chinese President Xi Jinping agreed in June at the G20 summit in Osaka, Japan, to restart trade talks that stalled in May, after Washington accused Beijing of reneging on major portions of a draft agreement. The collapse in talks prompted a steep U.S. tariff hike on $200 billion of Chinese goods.

The U.S. Commerce Department put Huawei on a national security blacklist in May, effectively banning U.S. firms from selling to Huawei, a move that enraged Chinese officials.

Trump said after the Osaka meeting that he would not impose new tariffs on a final $300 billion of Chinese imports and would ease some U.S. restrictions on Huawei if China agreed to make purchases of U.S. agricultural products.

But so far, U.S. semiconductor and software makers are still mostly in the dark about the administration’s plans.

In Sao Paulo on Tuesday, U.S. Commerce Secretary Wilbur Ross said decisions on license applications by U.S. firms to resume some sales to Huawei could come as early as next week.

Hu Xijin, editor-in-chief of China’s nationalistic Global Times tabloid, run by the ruling Communist Party’s People’s Daily newspaper, wrote on Twitter that the negotiators had “efficient and constructive” exchanges.

“The two sides discussed increasing purchase of U.S. farm products and the U.S. side agreed to create favorable conditions for it. They will hold future talks,” Hu said, without elaborating.

Reporting by Brenda Goh, David Stanway, Yilei Sun, Engen Tham

With Fed sure to cut rates, Powell on hook to flag next steps

WASHINGTON (Reuters) - The U.S. Federal Reserve is almost certain to cut interest rates for the first time in more than a decade on Wednesday, delivering a mild jolt to an economy that is facing headwinds from trade disputes and a global slowdown.

The widely expected quarter-percentage-point lowering of borrowing costs, however, is unlikely to assuage U.S. President Donald Trump’s increasingly strident demands for the central bank to ease monetary policy.

On Tuesday, Trump again called for a large interest rate cut. The Republican president has blamed the Fed under Chairman Jerome Powell for undercutting his administration’s efforts to boost economic growth.

Fed officials hope a modest rate cut will lower the odds of a recession by helping to boost tame inflation at home and offset risks from slowing growth abroad and rising tensions with trading partners like China.

The central bank is expected to leave the door open to further rate cuts should those risks fail to dissipate.

The Fed is scheduled to release its rates decision at 2 p.m. EDT (1800 GMT) at the end of a two-day policy meeting.

It will then be on Powell, who is due to hold a news conference shortly after the release of the policy statement, to explain why the move was necessary, and what comes next.

“How well the Fed communicates its guidance on potential actions to sustain the record-breaking U.S. economic expansion, and in the process stimulate inflation, will greatly determine how the markets react,” Sam Bullard, senior economist with Wells Fargo, wrote in a note to investors.

Critics, including some Goldman Sachs economists, say that cutting rates now will sap the Fed’s firepower in the event of an actual recession, and could contribute to market volatility and even asset bubbles.

Indeed, the decision will likely draw a dissent from one or two policymakers who believe that lowering rates as insurance against a sharp downturn that seems less than imminent could set the stage for an unwanted inflationary surge.

With U.S. unemployment near a 50-year low and household spending already strong, Boston Fed President Eric Rosengren and Kansas City Fed President Esther George have signaled they may not be ready to ease policy.

Powell, in explaining the Fed’s move, will likely point to a number of factors that could lead to a drop in demand for U.S. goods and services, including a European slowdown, a potentially messy British exit from the European Union and trade-induced weakness in global manufacturing, particularly in China.

And with weak U.S. business investment and inflation that’s running well below the Fed’s 2% annual target, Powell will likely argue that a rate cut will boost the economy’s ability to weather a possible global storm.

“The Fed sees a risk that the U.S. outlook will deteriorate, not a base case,” Cornerstone Macro economist Roberto Perli wrote in a research note. Unless the picture deteriorates substantially, the move “should not mark the beginning of a long series of rate cuts.”

Interest rate futures traders see about a 75% chance the Fed will cut its overnight benchmark lending rate, or fed funds rate, to a target range of 2.00% to 2.25%, and about a 25% chance of a reduction to a range of 1.75% to 2.00%. Further rate cuts are expected to bring it down to a range of 1.25% to 1.50% by the end of next year.

“Having already promised a rate cut, they can do nothing but move ahead with it,” said Drew Matus, who heads global economic and market strategy for MetLife Investment Management. “They seem to be trying to remove fear from the market.”

Reference: Ann Saphir

Asian shares at six-week low on trade worry, pound under pressure

TOKYO (Reuters) - Asian shares fell on Wednesday to a six-week trough, rattled by fresh trade war concerns following threats from President Donald Trump to Beijing, while increasing worries about a no-deal Brexit kept the pound under pressure.

Later in the day, the U.S. Federal Reserve is widely expected to cut interest rates for the first time since the financial crisis more than a decade ago. The expected easing has supported risk asset prices worldwide.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS pared losses to trade down 0.5% but earlier fell to the lowest since June 19, while Japan's Nikkei .N225 declined by 0.7%.

In early European trade, the pan-region Euro Stoxx 50 futures rose 0.1%, German DAX futures were up 0.1% and Britain’s FTSE futures were little changed.

Major Wall Street stock averages ended slightly lower on Tuesday, with the S&P 500 .SPX losing 0.26%, after Trump warned China against waiting out his current presidential term before finalizing a trade deal.

As a new round of U.S.-China trade negotiations started in Shanghai, Trump tweeted that, if he wins re-election in November 2020, the outcome could be no agreement or a harsher one.

“We expect the Fed to cut rates by 25 basis points and keep the door open to further rate cuts, which should be sufficient to keep markets satisfied,” said Mayank Mishra, a macro strategist at Standard Chartered Bank in Singapore.

“U.S.-China trade talks have just started after a long hiatus. I don’t think expectations are that high.”

After the closing bell in the United States, Apple shares (AAPL.O) rose 4.2% as its April-June earnings beat estimates and CEO Tim Cook cited “marked improvement in Greater China”.

In Asia, S&P 500 mini futures rose 0.3%.

The S&P 500 index has risen 2.4% so far this month, bolstered by expectations for Fed easing.

Fed funds rate futures are now fully pricing in a 25 basis point rate cut on Wednesday and another 25 basis point reduction by September.

U.S. consumer spending and prices rose moderately in June, pointing to slower economic growth and benign inflation that cemented expectations of Fed rate cuts.

Trump on Tuesday reiterated his call for the Fed to make a large interest rate cut, saying he was disappointed in the U.S. central bank and that it had put him at a disadvantage by not acting sooner.

In addition to worries about trade talks with the United States, Chinese shares suffered a further setback on Wednesday after the ruling Communist Party’s top decision-making body said late on Tuesday it will not use the property market as a form of short-term stimulus.

The blue-chip CSI300 index .CSI300 fell 0.7%, with a slide in shares of property developers leading a retreat in the broader market.

China will also step up efforts to boost demand, the Politburo said, which takes on more urgency after the country’s official PMI on Wednesday showed factory activity shrank for a third straight month due to the trade war.

South Korean stocks .KS11 fell to the lowest since early January on trade war jitters but then trimmed losses to trade down 0.2%. Weak quarterly results from Samsung Electronics added to concerns about an oversupply of memory chips.

Samsung, closely watched as a barometer of electronics demand, warned that Japanese curbs on the export of chip-making materials are weighing on its outlook and likely to hurt third-quarter results.

In currency markets, the British pound remains near a 28-month low hit the previous day on growing concerns about a disorderly Brexit.

Sterling traded at $1.2148 GBP=D4, not far from $1.2120 marked on Tuesday. It has fallen 4.2% so far this month, on course to log its worst monthly performance since October 2016.

“Trump’s comments suggest that U.S.-China trade negotiations are not going well, which is a new negative factor for the markets,” said Osamu Takashima, head of G10 FX strategy at Citigroup Global Markets Japan in Tokyo.

“In addition to Brexit, markets are starting to price in the Bank of England moving to dovish from hawkish at its next meeting, so this drives sterling depreciation,” Citigroup’s Takashima said.

Other major currencies were less volatile with the yen flat at 108.53 yen to the dollar JPY=EBS. The euro stood little changed at $1.1157 EUR=EBS.

U.S. West Texas Intermediate crude gained 0.69% to $58.45 per barrel after earlier reaching a two-week high of $58.53 in Asia.

Reference: Hideyuki Sano, Stanley White

Tuesday, 30 July 2019

European shares hit by Bayer, Lufthansa; FTSE shines

(Reuters) - European shares slipped on Tuesday as grim forecasts from German giants Bayer and Lufthansa soured sentiment, while a battered pound helped London’s blue-chip index outperform for a second day.

Bayer (BAYGn.DE) slipped 4.4% as it became the latest agricultural supplies company to be affected by flooded farms in the United States and by trade disputes, saying its full-year earnings target has become harder to reach.

Taking other airlines down with it, Germany’s Lufthansa (LHAG.DE) dropped 3.5% after posting a decline in second-quarter earnings and saying that the European market was likely to remain challenging this year.

A GfK survey also showed German consumer morale worsening for the third month in a row heading into August as trade disputes and a global economic slowdown bit in Europe’s biggest exporter.

Combined, that pushed Germany's main stocks index .GDAXI 0.2% lower by 0713 GMT, while the pan-European stocks benchmark fell 0.2%.

London's blue chip FTSE 100 .FTSE index touched 11 month highs, helped by a 3% jump in shares in energy giant BP (BP.L).

Reference: Susan Mathew

Bank of Japan hints at more easing if inflation sputters, keeps policy steady

TOKYO (Reuters) - The Bank of Japan held off on expanding stimulus on Tuesday but signaled its readiness to do so “without hesitation” if a global slowdown jeopardizes the country’s economic recovery.

Growing fallout from the U.S.-China trade war has prompted major central banks to signal more easing and put pressure on the BOJ, which has far less policy ammunition left to deal with a significant downturn.

The central bank also trimmed its inflation forecasts and warned that risks to the outlook were skewed to the downside, nodding to heightening overseas uncertainties that could further delay achievement of its elusive 2% inflation target.

“Today, we went a step forward by saying we’ll take additional easing steps without hesitation if there is a risk the economy will lose momentum for hitting our price target,” BOJ Governor Haruhiko Kuroda told a news conference after the decision.

“Previously, we said only that we will consider acting if the economy loses momentum for hitting our price goal,” Kuroda added, explaining that the central bank is now committing to ease immediately - not just consider easing - if momentum toward hitting its 2% inflation target falters.

As widely expected, the BOJ maintained its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%. It also said it was maintaining its massive asset buying program.

The BOJ kept intact its forward guidance, or a pledge central banks make on future monetary policy. It committed to keep interest rates at current ultra-low levels “for an extended period of time, at least through around spring 2020.”

But the central bank added a line in its policy statement that it will take additional easing steps without hesitation “if there is a greater chance the momentum for hitting its price target is lost.”

The language was identical to what BOJ Governor Haruhiko Kuroda has recently said, in talking about the need to keep the economy on track to achieve the BOJ’s price goal.

“The main point of today’s decision was the statement’s new line on the BOJ’s readiness to ease,” which is similar to the European Central Bank’s pledge to cut rates if necessary, said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

“While other central banks are heading toward additional easing, the BOJ felt the need to signal its easing bias to prevent an unwelcome spike in the yen.”

The decision on maintaining its interest rate targets was made by a 7-2 vote, with board members Goushi Kataoka and Yutaka Harada dissenting. Kataoka said the BOJ should ease further by cutting its short term rate target.

In a quarterly review of its long-term projections, the BOJ slightly trimmed its inflation forecasts for the current fiscal year ending in March 2020, and the following year.

While maintaining its view that Japan’s economy was likely to continue expanding, the BOJ warned of strong risks such as global uncertainties and soft inflation expectations.

“The momentum for achieving 2% inflation is sustained, but lacks strength,” the BOJ said in a quarterly report on the economic and price outlook.

The European Central Bank last week all but cemented market expectations for a September rate cut, while the U.S. Federal Reserve is seen cutting its policy rate by a quarter of a percentage point on Wednesday.

Easing by other major central banks is raising worries of a jump in the yen that could further strain Japanese exporters.

But years of near-zero rates have hurt financial institutions’ profits by narrowing their margin, leaving the BOJ with few tools to fight the next recession, let alone ramp up steps to accelerate inflation to its 2% target.

Japan’s annual core consumer inflation stood at 0.6% in June, the slowest pace in about two years.

Weak exports have also cast doubt on the BOJ’s view that an expected pick-up in overseas demand in the second half of this year will ease the pain on the economy from a scheduled sales tax hike in October.

Data earlier on Tuesday showed Japan’s factory output tumbled the most in nearly 1-1/2-years in June, adding to a slew of indicators suggesting slowing global growth was taking a toll on the export-reliant economy.

Many analysts expect yen moves to be among key triggers for further BOJ easing.

“The BOJ probably wanted to save its ammunition because the yen wasn’t rising much,” said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.

“If Fed moves trigger yen rises, the BOJ could either strengthen forward guidance, allow 10-year bond yields to move in a wider band, or do both,” he said.

The yen was little changed versus the dollar on Tuesday after the BOJ announcement, trading near a three-week low.

Reference: Leika Kihara, Daniel Leussink

Asia stocks advance before Fed, fresh Brexit pain sinks pound

TOKYO (Reuters) - Asian stocks advanced on Tuesday in anticipation of a cut in U.S. interest rates later this week while the pound tumbled to a 28-month low versus the dollar due to heightened concerns over prospects for a no-deal Brexit.

In early European trade, the pan-region Euro Stoxx 50 futures inched down 0.1%, German DAX futures  were little changed and Britain’s FTSE futures rose 0.3%.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2%.

The Shanghai Composite Index .SSEC rose 0.3% and Hong Kong's Hang Seng edged up 0.2%.

Australian stocks climbed as much as 0.7% to touch a record high, supported by buoyant mining shares and adding to the previous day’s tech-driven gains.

Japan's Nikkei .N225 rose 0.4%, showing limited reaction to the Bank of Japan's widely anticipated decision to stand pat on monetary policy.

The BOJ added it would ease “without hesitation” if the economy loses momentum for achieving the central bank’s 2% inflation target.

The U.S. Federal Reserve begins a two-day policy meeting later on Tuesday, which is expected to result in a 25-basis point cut in interest rates. If implemented, it would be the central bank’s first rate cut in a decade.

Prospective monetary easing by the Fed has been a key factor behind the recent bull run by global equities, particularly U.S. stocks, which have notched up record highs over the past month.

“Up until now, many market participants had been on the sidelines while the markets factored in the likelihood of the Fed’s rate cut,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities, regarding gains by Asian stocks.

“But with the Fed decision looming close some participants appear to be shaking off the caution and buying.”

Also drawing some attention were U.S.-China trade negotiations which begin in Shanghai on Tuesday, although expectations for progress during the two-day meeting are low with the markets hoping the two sides can at least detail commitments for “goodwill” gestures.

In currencies, the pound extended an overnight slump and fell to $1.2120 GBP=D3, its lowest level since March 2017.

Sterling has already lost 1.8% this week as investors scrambled to price in the possibility that a last-minute agreement to avert a no-deal Brexit may not be realized under British Prime Minister Boris Johnson, who has said the Brexit divorce was dead.

The British government, facing an Oct. 31 exit deadline, said on Monday it assumed there would be a no-deal Brexit because a “stubborn” EU was refusing to renegotiate their departure.

“The pound is being dropped like a hot potato, as the likelihood of a no-deal Brexit becomes increasingly plausible,” wrote Ipek Ozkardeskaya, Senior Market Analyst at London Capital Group.

“To many, it seems better to jump ship now, as things are about to get uglier as we approach the Oct. 31 deadline.”

The dollar index .DXY against a basket of six major currencies added to the previous day’s gains and touched a two-month high of 98.206, buoyed by sterling’s slide.

The yen JPY= advanced 0.2% to 108.585 per dollar, nudged higher as it rallied nearly 0.8% against the struggling pound.

The euro was little changed at $1.1138 EUR= after edging up 0.15% the previous day. The single currency jumped to 0.9187 per pound, its highest since September 2017.

Crude oil prices extended the previous day’s gains, with the Fed’s expected easing fuelling optimism that it would boost the economy and fuel demand in the world’s biggest oil consumer.

U.S. crude futures were up 0.65% at $57.24 per barrel and Brent crude added 0.6% to $64.09.

Reference: Shinichi Saoshiro

Monday, 29 July 2019

CORRECTED-PRECIOUS-Gold consolidates ahead of U.S. data with focus on Fed

(Reuters) - Gold firmed on Friday, having shed 1% in the previous session on robust U.S. jobs data, with investors awaiting further economic readings from Washington that could drive sentiment going into next week’s Federal Reserve meeting.

Spot gold was up 0.5% to $1,420.78 an ounce at 1205 GMT. U.S. gold futures gained 0.4% to $1,420.50

Prices were still on track for a first weekly drop in three, pressured in part by a stronger dollar and spillover from Thursday’s slide after comments from European Central Bank Governor Mario Draghi lowered expectations for an immediate cut to interest rates.

Draghi cautioned against pulling the trigger too quickly on policy easing, though he all but pledged to loosen monetary settings further as the growth outlook deteriorates .

“Gold is consolidating in a broad range from $1,400 to $1,440,” said Jigar Trivedi, commodities analyst at Mumbai-based Anand Rathi Shares & Stock Brokers, adding that support has been provided by ECB hints of stimulus from September.

Capping gold’s momentum, the dollar held near two-month highs as the market awaited second-quarter U.S. gross domestic product numbers that are expected to show the slowest growth in more than two years. The data is due at 1230 GMT.

Amid tepid data from the world’s largest economy, investors expect the U.S. Fed to cut interest rates by 25 basis points at its policy meeting ending on July 31.

“The market will now focus its attention on next week’s Fed meeting ... if Fed Chair Powell indicates that a rate cut cycle is imminent, the dollar is likely to depreciate, which should in turn benefit gold,” Commerzbank said in a note.

On the trade war front, uncertainties over whether Washington and Beijing will be able to settle their differences kept many investors on their guard. Negotiators from the two sides will meet in Shanghai next week.

“We expect gold prices to reduce further in coming sessions ... nonetheless as geopolitical risk in the middle east has escalated, there might be limited downside,” said Anand Rathi analyst Trivedi.

In other precious metals, platinum rose 0.2% to $867.09 an ounce while palladium edged up 0.3% to $1,535.42. Silver, meanwhile, firmed by 0.5% to $16.48.

“Silver is cheap relative to gold, so it has bigger potential. It is going to pull back lower ... any dip below $16 could push buying,” said Gianclaudio Torlizzi, managing director at consultancy T-Commodity in Milan.

Silver was on track for a third week of gains, having risen 1.7% so far.

Reporting by Karthika Suresh Namboothiri

TREASURIES-Bonds steady after solid growth data briefly lifts yields

NEW YORK, (Reuters) - U.S. Treasuries were steady on
Friday, after yields briefly rose on data showing that U.S.
economic growth slowed less than expected in the second quarter.

The data adds to recent evidence that the economy is
improving even as global growth weakens.
Gross domestic product increased at a 2.1% annualized rate
in the second quarter as a surge in consumer spending blunted
some of the drag from declining exports and a smaller inventory
    “The strength here is encouraging,” said Tom Simons, a money
market economist at Jefferies in New York. “We’re seeing some
evidence that things are accelerating here at the end of Q2 and
into Q3.”
The Federal Reserve is viewed as certain to cut rates when
it meets next week even as the U.S. economy improves.
The U.S. central bank has cited concerns about the global
manufacturing slowdown and inflation remaining below its target
of 2% a year. The ongoing U.S.-China trade war is also seen as
damaging business sentiment.

But the Fed is seen as less likely to cut rates by 50 basis
points given the U.S. economic improvement, with a
25-basis-point decrease more widely expected.
    “Anybody who’s still thinking that the Fed is considering
going 50 basis points next Wednesday should probably abandon
that expectation now at this point,” Simons said.
Benchmark 10-year Treasuries were last up 1/32
in price to yield 2.070%, down from 2.074% late on Thursday.
The yields rose as high as 2.100% immediately after the GDP data.
Interest rate futures traders are pricing in only a 19
percent chance of a 50-basis-point cut by the Fed at next week’s
meeting, according to the CME Group’s FedWatch tool.

Reference: Karen Brettell

Friday, 26 July 2019

Boris Johnson in his own words

Global economic growth rut at risk of deepening despite rate cuts

(Reuters) - A global economic growth rut risks deepening, despite expectations that major central banks will cut rates or ease policy further, according to Reuters polls of over 500 economists who remain worried about the U.S.-China trade war.

Major sovereign bond yields have tumbled as recent economic data have mostly underscored those concerns on growth, which appears to be slowing across most industrialized and important developing economies.

But at the same time, stock markets have rallied on hopes of easier monetary policy, despite clear signs that trade conflict and geopolitical uncertainty are undercutting investment and activity.

Increasing pessimism is clear from the latest Reuters polls taken July 1-24, which show the growth outlook for nearly 90% of over 45 economies polled was either downgraded or left unchanged. That applied not just to this year but also 2020.

“As uncertainty around trade policy is unresolved, the impact on the growth outlook is becoming more pronounced. We project global growth to slow even further, and any sustained escalation from here raises recession risks,” said Chetan Ahya, global head of economics at Morgan Stanley.

“While we believe that the easing cycle will be back in full swing, the drag from elevated uncertainty should still weigh on the macro outlook,” he added.

With the broad shift away by the world’s two biggest economies from freer trade toward tariffs, over 70% of around 250 economists who answered an additional question said a deeper global economic downturn is more likely than previously expected.

While the remaining respondents still expect a global rebound from the current rut, economists were split nearly 50-50 on that question only three months ago.

Lowered growth expectations came despite almost universal expectations of a Federal Reserve rate cut next week and more to follow, and renewed easing from the European Central Bank soon.

ECB President Mario Draghi, worried about inflation stuck well below target, said on Thursday, “This outlook is getting worse and worse” and hinted strongly that more easing is coming.

Peter Dixon, economist at Commerzbank, said, “But it is questionable whether monetary easing will actually achieve much. We are running out of monetary options and perhaps governments need to think about their fiscal alternatives.”

Nearly two-thirds of economists predicted trade tensions between the United States and its trading partners would intensify this year, and over 80% of respondents say this is the start of a global easing cycle.

While global growth forecast to average 3.2% this year lines up with the International Monetary Fund’s latest projection, it marks the lowest since polling began two years ago for the period.

“Even without another acceleration of the trade war between the U.S. and China or the re-opening of another front in Europe or elsewhere, the global economy is already slowing down further,” said Stefan Koopman, senior market economist at Rabobank.

“This was highlighted in recent (purchasing managers’)surveys, which painted a pretty consistent picture, regardless of whether one looks at Asia, the U.S. or Europe. With growth likely to lose momentum further ... there is also more uncertainty about whether core inflation will ever pick up again.”

Indeed, the other most striking finding from Reuters polls this month was the inflation outlook, which most major central banks target to base their monetary policy framework.

Inflation across most countries is forecast to remain below central banks’ mandated targets, or in some cases not expected to rise significantly.

Most major central banks turned to a holding pattern earlier in the year from some form of tightening path expected beforehand. Now expectations have moved to a series of interest rate cuts and/or launch of other policy easing measures.

The chances have increased that the next policy move by the Bank of Japan is likely to be easing further.

While the Bank of Canada is predicted to diverge from the path of its peers, it is likely to follow the Fed at some point.

Central banks in most major emerging market economies from Asia to Africa and Latin America have also turned dovish. The Reserve Bank of India, which has already cut rates three times this year, is set to do so again next month.

“With softer growth, limited inflation pressures globally, and with advanced markets’ central banks...having signaled monetary easing ahead, emerging markets’ central banks are largely following the same script,” noted Sudeep Sarma, head of Asia-Pacific research at Barclays.

Reference: Shrutee Sarkar

Asian shares slide as ECB holds off easing, earnings mixed

TOKYO (Reuters) - Asian share prices dropped on Friday following mixed U.S. earnings reports and after the European Central Bank disappointed those investors who had expected an immediate easing while the euro held above two-year lows struck overnight.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.53% while Japan's Nikkei lost 0.58%. Shanghai shares .SSEC ticked down 0.16%.

European stocks are seen almost flat, with pan-European Euro Stoxx 50 futures up 0.03%, while German DAX futures were up 0.15% and FTSE futures down 0.13%.

Wall Street shares fell from record highs on Thursday, with the S&P 500 .SPX losing 0.53%, following a flurry of downbeat quarterly results from Ford Motor and other companies.

But several companies that announced results after the market had closed on Thursday generally beat expectations, and their shares rose in after-hours trade.

Google parent Alphabet jumped 7.9%, Intel Corp 5.1% and Starbucks 6.6%. Amazon, however, dipped 1.6% on its first profit miss in two years.

U.S. stock futures ESc1 rose 0.23% in Asia.

“Some capital goods makers have reported soft earnings but otherwise U.S. earnings have been generally good, partly because investors had already lowered their expectations,” said Hitoshi Asaoka, senior strategist at Asset Management One.

“Still, with U.S. share prices already at record levels, further gains are likely to be limited unless we see clearer signs of recovery in global demand,” he said.

Uncertainties over whether Washington and Beijing will be able to settle gaping differences over trade, technology and even geopolitical ambitions, kept many investors on guard. Negotiators from the two sides will meet in Shanghai next week.

A rally in global bonds ran out of steam after European Central Bank President Mario Draghi cautioned about pulling the trigger too quickly on policy easing, even though he all but pledged to loosen monetary settings further as the growth outlook deteriorates.

Many market players had thought Draghi could cut rates on Thursday.

ECB officials told Reuters after the meeting that an interest rate cut in September appeared certain, while government bond purchases and a revamped policy message were also likely.

The euro’s overnight index swaps EUROIS are pricing in a cut of more than 10 basis points in September, to minus 0.50 percent.

“An interest rate cut of 10 basis points in September looks like a done deal now,” said Hideki Kishida, fixed income strategist at Nomura Securities.

The 10-year German government bond yield initially hit a record low of minus 0.463 percent but ended the day up slightly at minus 0.407 percent.

While European bond yields are likely to stay under pressure until the next ECB meeting on Sept 12, Brexit could become a central issue as investors look to the stance of Britain’s new government under Boris Johnson.

“If there are signs of easing tensions, we could see temporary rise in European bond yields,” Nomura’s Kishida said.

The U.S. 10-year Treasuries yield also rose 3 basis points to 2.079 percent on Thursday and last traded at 2.107 percent.

Also helping to stem falls in bond yields, new orders for key U.S.-made capital goods surged in June, suggesting some improvement in business investment.

Despite that, investors expect the Federal Reserve to cut interest rates by 0.25 percentage point at its policy meeting ending on July 31 to protect the economy from potential damage from the protracted U.S.-China trade war.

An advance reading of U.S. GDP, due at 8:30 a.m (1230 GMT), is expected to show the economy grew 1.8% in April-June, which would be the slowest growth in more than two years.

In the currency market, the euro bounced back to at $1.1149 EUR=EBS in Asian trade, after sinking to $1.1101 on Thursday, its lowest since May 2017.

The yen was little changed against the dollar at 108.62 yen per dollar JPY=EBS.

Oil prices held firm on rising tensions between the West and Iran and a big decline in U.S. crude stockpiles, though gains were held in check by worries about slowing growth in major economies.

U.S. crude ticked up 0.36% to $56.22 a barrel while Brent futures LCOc1 were up 0.16% at $63.49 per barrel.

Reference: Hideyuki Sano

Thursday, 25 July 2019

ECB prepares some sub-zero relief for wilting Europe

LONDON (Reuters) - Euro and bond yields wilted on Thursday as a slump in German business confidence piled the pressure on the European Central Bank to push interest rates even deeper into sub-zero territory later.

With the chance of a ECB rate cut priced at about 50-50, the euro was at a two-month trough, German Bund yields were slipping back toward record lows and Europe’s main stock markets shuffled higher.

New German data added to the call for ECB action as it showed business morale there had hit its lowest level since April 2013.

The ripple effect saw neighboring Switzerland’s 50-year government bond yield go negative, meaning none of its bonds now offer buyers any interest.

“The weak macro data this week means the ECB will be forced to act sooner than later,” said Daniel Lenz, a rates strategist at DZ Bank in Frankfurt.

“The German economy is navigating troubled waters,” Ifo President Clemens Fuest added, saying companies there were increasingly concerned about the outlook for their businesses.

Overnight it had been a happier story. Wall Street’s S&P 500 and Nasdaq had both hit record highs after reassuring comments from Texas Instruments about global chip demand blunted the impact of weak earnings from Boeing and Caterpillar.

Facebook also announced forecast-beating revenues, sending its shares higher in extended trading after the closing bell.

The social media firm’s stock has now surged over 56% so far this year, despite warnings on future revenue growth from new data privacy rules and forthcoming privacy-focused product changes.

Asia then managed to overcome a cautious start to finish modestly higher.

Japan’s Nikkei touched a near three-month high though Australia stole the glory as it ended near a 12-year peak after its central bank chief had stressed interest rates could continue to fall.

Chinese blue-chips also added 0.5% in Shanghai, as investors there looked with hope to a face-to-face meeting between top U.S. and Chinese negotiators next week, even if there are few signs that it will produce real progress in the two countries’ trade war.

“Lower rates are generally, in a traditional, mechanical way, good news for equity prices,” said Jim McCafferty, head of equity research, Asia ex-Japan, at Nomura.

Away from the ECB and the euro, the dollar was down fractionally against the year at 108.07 and the dollar index which tracks the greenback against six major currencies, was a barely budged 97.757.

Sterling was broadly flat too at $1.2475, after falling for several sessions as market participants feared the looming possibility of a no-deal Brexit under Britain’s new prime minister, Boris Johnson.

“If talks between the UK and EU break down, the GBP could see further losses,” said Steven Dooley, currency strategist at Western Union Business Solutions.

In commodities, U.S. crude added 20 cents to $56.08 per barrel while Brent crude climbed 15 cents to $63.33.

The advance came amid Middle East tensions and a big fall in weekly U.S. crude stocks, although the gains were curbed by a frail demand outlook and increasing signs of slowing global economic growth.

Spot gold slipped 0.2% to $1,423.09 an ounce, short of last week’s peak of $1,452.60.

Reporting by marc Jones and Saikat Chatterjee

Fed to cut rates for first time in a decade this month

(Reuters) - A quarter-point Federal Reserve interest rate cut in July is almost a done deal, according to economists in a Reuters poll, who expect another later in the year amid rising economic risks from the ongoing U.S.-China trade war.

Expectations in the July 16-24 poll for the first rate cut in more than a decade have firmed this month after several Fed members have strongly hinted policy easing is coming soon, pushing U.S. stocks to new record highs.

While that lines up with most major central banks, which have turned dovish in recent months, the latest poll shows economists, like financial markets, have settled on a 25 basis point cut in the federal funds rate to 2.00-2.25% rather than a half-point reduction.

Over 95% of 111 economists now predict a 25 basis point cut at the July 30-31 meeting. Only two economists polled expected a 50 basis point reduction and a further two said the Fed would hold steady.

“The biggest reason for the Fed to cut rates is because it has been priced into the markets for a while now. If they didn’t follow through and cut, it would cause a bit of a shock,” said Andrew Hunter, senior U.S. economist at Capital Economics.

“I think the recent general message from the Fed seems to be that it’s more about downside risks to growth rather than the economy being already weak.”

Indeed, while some forward-looking indicators on activity in the U.S. economy have dipped, the unemployment rate is the lowest in 50 years and Wall Street is at a record high - not normally the environment for a change in the interest rate cycle.

Fed rate expectations have taken a U-turn this year, going to a holding pattern earlier in the year from a steady tightening path expected beforehand to a series of cuts. Indeed, just a month ago, the U.S. central bank was still forecast to keep policy on hold for now and ease next year.

But since then, concerns about the impact from the trade war on already-slowing growth as well as weak inflation pressure have got policymakers increasingly concerned.

“Our reasoning for policy easing - slowing growth against a backdrop of subdued inflation and elevated uncertainty - is consistent with the Fed’s reasoning for insurance cuts,” noted economists at Goldman Sachs.

“By contrast, market-implied odds are consistent with a turn in the cycle, which we do not foresee in the near-term.”

The U.S. economy likely lost momentum last quarter and is now forecast to have expanded at an annualized pace of 1.8% in the April-June period, down from 3.1% reported for the first quarter, according to the poll. Growth is expected to hover around that rate in each quarter through to end-2020.

More than 75% of common contributors from last month either downgraded their growth outlook or kept it unchanged.

The latest consensus points to another rate cut in the final quarter and nearly 40% of respondents predicted a follow-up cut was likely to come as early as September.

But interest rate futures are pricing in three rate cuts this year - in July, September and December.

Beyond this year, the U.S. central bank is forecast to keep policy on hold until 2021, the poll showed.

“We don’t think this is the start of a full-on easing cycle; rather, these cuts are about providing a bit more accommodation to offset trade headwinds,” said Josh Nye, a senior economist at RBC.

“Fifty basis points of easing would fall short of what markets are currently pricing in over the next year, but should be enough to placate investors that are concerned monetary policy has become a bit too restrictive.”

The Fed’s preferred measure of inflation - the change in the core personal consumption expenditures price index - has remained below the 2% target since the start of 2019 and is not expected shoot significantly higher anytime soon.

With the economy still growing and inflation on an even keel, there was a clear gap between what the economists say the Fed is likely to do and what they recommend.

Asked what the Fed should do at this month’s meeting, nearly two-thirds of over 75 respondents said cut rates by 25 basis points. Five said policymakers should cut by 50, while the remaining - over 25% of economists - said they should do nothing.

“The issues that are affecting the U.S. economy right now and the inflation environment won’t be helped by lower rates,” said Thomas Simons, senior economist at Jefferies.

“What is weakening economic forecasts going forward is trade tensions. Lowering rates 25 or 50 basis points is not going to change that situation. From a fundamental point of view, it doesn’t make sense to us.”

Reference: Shrutee Sarkar, Rahul Karunakar

Wednesday, 24 July 2019

FOREX-Weak data, dovish ECB bets send euro to 2-month low

LONDON, July 24 (Reuters) - The euro fell to a two-month low against the dollar on Wednesday, hit by weak economic data and speculation that the European Central Bank may start easing policy as soon as this week.

Money markets are pricing in a 45% chance of a 10 basis point cut on Thursday. The ECB could also signal further reductions the road or a fresh round of quantitative easing, said Esther Maria Reichelt, an analyst at Commerzbank.

“It won’t be just about the (possible) rate cut,” she said.

Euro overnight implied volatility gauges rose to their highest since mid-December at 11.6 vol, while the common currency weakened by 0.2% to $1.1127, the lowest since May 30.

The euro has shed 2.1% of its value this month as investors priced in the probability of euro zone borrowing costs pushing further into negative territory.

This view was enhanced by German composite flash purchasing managers’ index falling unexpectedly to 51.4 in July from 52.6 in June, below a Reuters poll of a slight decline to 52.3. French composite PMI was also weaker than expected.

A broadly stronger dollar also contributed to the euro’s woes.

The U.S. currency firmed after Washington reached a deal on Monday to lift government borrowing limits, which analysts said could serve as a reason for the U.S. Federal Reserve not to cut interest rates aggressively and support the dollar.

Its index against a basket of currencies was flat at 97.66, having edged up to a five-week high of 97.76 earlier following gains of nearly 0.5% the previous day.

“In addition to the euro’s weakness ahead of the ECB meeting, the dollar is supported as market participants continue to discount the likelihood of the Fed cutting rates by 50 basis points at next week’s FOMC (Federal Open Market Committee) meeting,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

The pound traded near a two-year low after Boris Johnson on Tuesday won the contest to be Britain’s next prime minister, focusing investor attention on prospects of a no-deal Brexit.

Sterling was last up 0.1% at $1.2452, not far from the 27-month low of $1.2382 it hit last week.

Reporting by Olga Cotaga

Asia stocks stay judgment on trade talks, euro pressured

SYDNEY (Reuters) - Asian shares crept higher on Wednesday as the prospect of fresh Sino-U.S. trade talks drew a guarded welcome, while the euro hit lows on a range of counterparts amid speculation the European Central Bank was near to easing policy

Sentiment had been helped by a Bloomberg report that U.S. Trade Representative Robert Lighthizer would travel to Shanghai next week for meetings with Chinese officials.

White House economic adviser Larry Kudlow on Tuesday called it a good sign and said he expected Beijing to start buying U.S. agriculture products soon.

Japan’s Nikkei added 0.3%, while Australian stocks were up 0.7% after hitting 12-year highs. MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.1% and Chinese blue chips climbed 0.8%.

Not so welcome was news the U.S. Justice Department was opening an antitrust investigation of major digital tech firms and possible anticompetitive practices.

The department cited concerns about “search, social media, and some retail services online” — an apparent reference to Alphabet Inc, Inc and Facebook Inc.

Facebook reports results on Wednesday, and Amazon and Alphabet on Thursday.

Nasdaq futures fell 0.3% in Asian trade, while E-Mini futures for both the S&P 500 and EUROSTOXX 50 were all but flat.

The investigation announcement took a little of the gloss off a solid overnight session for Wall Street, where upbeat quarterly reports from Coca-Cola and United Technologies helped ease some concerns about earnings.

The Dow had ended Tuesday up 0.65%, while the S&P 500 gained 0.68% and the Nasdaq 0.58%.

Stocks are just a whisker away from all-time highs buoyed by expectations of a wave of policy stimulus by global central banks and a resulting sharp decline in bond yields.

The ECB is thought likely to at least offer a nod to easier policy at its meeting on Thursday.

Futures remain 100% priced for a rate cut of 25 basis points from the Federal Reserve next week, and even imply an 18% chance of 50 basis points.

The prospect of wide-scale central bank largesse helped take the sting out of the IMF’s latest downgrade to its global growth forecasts.

Although yields on two-year Treasuries edged up to 1.837% overnight, they remain far below the cash rate and down 66 basis points for the year so far.

In currencies, the dollar got a hand up from a deal to end the U.S. budget impasse, while the euro suffered a bout of nerves in case the ECB takes a more dovish turn.

The single currency was down near two-month lows at $1.1144, having shed 0.5% overnight. It also hit a near seven-month trough on the yen at 120.45 and a two-year low on the Swiss franc.

The dollar was steady on the yen at 108.13, and near a five-week top on a basket of currencies at 97.735.

Sterling loitered at $1.2440 having fallen for three sessions in a row as the outlook on Brexit got ever murkier.

Boris Johnson is set to become Britain’s new prime minister later on Wednesday, but investors are no clearer on whether he would lead the country to a no-deal exit or find a compromise.

“We may see more market volatility if the EU refuses to renegotiate the existing UK withdrawal agreement,” said BNY Mellon’s fixed income portfolio manager Howard Cunningham.

“There is scope for sterling to weaken further,” he added. “It is also possible it could match some of the lows it hit just after the EU referendum in 2016 if there is no sign of movement from either side in any further withdrawal negotiations.”

Gold steadied at $1,420.59 per ounce, though it was still short of last week’s peak at $1,452.60.

Oil prices firmed after an industry group reported a surprisingly large drop in U.S. inventories, while the U.S. Navy said it may have downed a second Iranian drone last week.

Brent crude futures added 21 cents to $64.04, while U.S. crude rose 21 cents to $56.98 a barrel.

Reference: Wayne Cole

Tuesday, 23 July 2019

Weak sterling unfazed as Johnson wins party vote as expected

LONDON, July 23 (Reuters) - Sterling recovered some losses but was little moved after news that Brexiteer Boris Johnson would replace Theresa May as prime minister after winning the leadership of the Conservative Party on Tuesday.

With Johnson long the frontrunner to win the leadership race, currency markets had already priced in his election and attention now turns to the make-up of his cabinet.

Analysts said the pound’s small move higher after the announcement was a relief rally following a dismal period for the sterling in which it had fallen to more than two-year lows.

Sterling, trading around $1.2450 beforehand, rose to $1.2475, still down 0.1% on the day.

Against the euro it was little changed at 89.74 pence , down 0.1% on the day.

“It looks to me that he got more than 60 pct so I am comfortable that’s largely priced in. But now he has to turn the party mandate into a country mandate and that’s going to be much much harder,” said Stephen Gallo, head of European FX at BMO Capital Markets.

“As for sterling, it’s a ‘sell on rallies’, 100%. Regardless of how you slice the cake, we will either end up with a no deal or a messy general election,” said Stephen Gallo, head of european FX strategy at BMO Capital Markets.

British gilt yields rose marginally after the result, with two-year yields now flat on the day at 0.49% versus slightly down earlier. But they were still near three-week lows.

There was no move in UK stock markets .

Reporting by Tommy Wilkes

Sterling in defensive mood on concerns about no-deal Brexit

TOKYO (Reuters) - Sterling was on the back foot on Tuesday as investors worried Boris Johnson, the frontrunner to become the UK’s next prime minister, would trigger a “hard Brexit” from the European Union, widely seen as a major risk for the British economy.

The euro briefly touched the lowest in five weeks due to growing expectations European Central Bank President Mario Draghi will signal a rate cut in September at a policy meeting later this week to keep inflation expectations on track.

The New Zealand dollar fell after Bloomberg News reported that the country’s central bank is refreshing its strategies for unconventional monetary policy, but trading in other Asian currencies was subdued as investors awaited major developments in China-U.S. trade negotiations.

The dollar edged higher against the yen but was hemmed in against other major currencies on expectations for a U.S. Federal Reserve rate cut next week.

Speculation over the likelihood of a no-deal Brexit and questions over how far major central banks will ease monetary policy are likely to set the tone for currency markets in coming weeks, traders and analysts said.

“Johnson is expected to become the new prime minister, so there is a real chance of a hard Brexit,” said Takuya Kanda, general manager of research at Gaitame.Com Research Institute in Tokyo.

“In the short term, further declines in the pound could be limited because positions are already very short. In the medium term, sentiment for sterling will remain soft.”

The pound traded at $1.2459, within striking distance of a 27-month low of $1.2382 reached last week.

Sterling has fallen 3.7% versus the dollar in the past three months due to uncertainty about how Britain will avoid a no-deal exit from the EU.

Britain’s Conservative Party will announce the results of a leadership election on Tuesday, with Johnson widely expected to win, setting him up to become prime minister on Wednesday.

There is growing speculation Johnson will pull Britain out of the EU on Oct. 31 without a trade deal in place.

Hedge funds have increased short positions on the pound to a 10-month high in the week to July 16, Commodity Futures Trading Commission data shows.

The New Zealand dollar fell 0.4% to $0.6734, putting the kiwi on track for a third straight day of losses.

The Reserve Bank of New Zealand has “begun scoping a project to refresh our unconventional monetary policy strategy and implementation,” the central bank said, according to a Bloomberg News article published on Tuesday.

The RBNZ kept the official cash rate at a record low of 1.50% in June but warned that interest rate cuts may be necessary in the future.

Interest rate swaps showed a 79% chance of a 25 basis point rate cut at the RBNZ’s next policy meeting on Aug.7.

“The Bloomberg story has struck a nerve because it can be linked to speculation about a rate cut at the next policy meeting,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

“It’s possible for the kiwi to go a little lower. The currency market is focused completely on central bank policy moves.”

The euro briefly fell to $1.1191, the lowest since June 19, as traders awaited the ECB’s policy meeting and Draghi’s comments at a news conference on Thursday.

Traders see a 43% probability that European policymakers will lower a key deposit rate by 10 basis points to minus 0.50% to combat risk from global trade tensions.

Economists surveyed by Reuters expect the ECB to change its forward guidance to pave the way for a rate cut in September.

The dollar traded at 108.14 yen. The dollar index was marginally higher at 97.435.

The U.S. central bank is widely expected to lower its target range of 2.25%-2.50% by 25 basis points at a meeting ending July 31, but expectations for a larger 50-basis point cut have waxed and waned due to mixed signals from Fed policymakers.

Reporting by Stanley White

ECB, Fed rate cut hopes lift stocks, sterling sags

TOKYO (Reuters) - Expectations that the European Central Bank and Federal Reserve will cut interest rates boosted stocks globally, while the pound sagged on worries that likely new prime minister Boris Johnson would lead Britain into a no-deal exit from the European Union.

In early European trade, pan-region Euro Stoxx 50 futures rose 0.46% while German DAX futures climbed 0.57% and FTSE futures 0.40%.

In Asia, Japan’s Nikkei rose 0.95% while MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.04%.

The Shanghai Composite Index edged up 0.15%. Australian stocks added 0.4% and South Korea’s KOSPI gained 0.45%.

The S&P 500 edged up towards a record high on Monday, supported by expectations that the Federal Reserve would cut interest rates at its July 30-31 policy meeting.

European stocks had also nudged higher the day before with the European Central Bank seen cutting rates by 10 basis points at its policy meeting on Thursday.

But with central bank easing no longer a fresh theme, market gains were limited.

“The likelihood of easing by the Fed is supportive for equity markets, but the probability of a 25 basis point rate cut has already been factored in for the most part,” said Soichiro Monji, senior strategist at Sumitomo Mitsui DS Asset Management.

In currency markets, the pound was 0.2% lower at $1.2449 and headed for its third session of losses.

Sterling was under pressure due to the likelihood that Britain’s ruling Conservative party would elect euroskeptic Johnson as its new leader and prime minister, replacing Theresa May. The result of the weeks-long internal party election will be announced on Tuesday.

Some investors are worried Johnson could pull Britain out of the European Union on Oct. 31 without a trade deal in place in order to appease hardline anti-EU members of his Conservative Party.

The dollar index against a basket of six major currencies rose 0.2% to 97.463, helped by a rise in U.S. Treasury yields.

The greenback gained 0.15% to 108.040 yen.

The euro dipped 0.17% to $1.1189, weighed by the possibility of easing by the ECB.

“It is going to take a bold stroke by the ECB to both satisfy markets clamoring for incremental easing and make a difference to the economy, all the while remaining inside its institutional setting and not destabilizing the financial system,” wrote Carl Weinberg, chief international economist at High Frequency Economics.

The New Zealand dollar slipped 0.4% to $0.6731, pressured in part by news the Reserve Bank of New Zealand (RBNZ) was taking a fresh look at unconventional monetary policy strategies, with interest rates already at a record low of 1.5%.

Crude oil prices edged higher after two days of sharp gains due to heightened tensions in the Middle East.

Brent crude added 0.19% to $63.38 per barrel after rising 1.2% the previous day on concerns over possible supply disruptions after Iran’s seizure of a British tanker late last week.

Reference: Shinichi Saoshiro

Monday, 22 July 2019

China Circuit breakers trip, shares soar as China's Nasdaq-style bourse debuts

SHANGHAI (Reuters) - Trading hit a fever pitch, with shares rocketing as much as 520%, as China’s new Nasdaq-style board for homegrown tech firms debuted on Monday, with valuations exceeding even the expectations of veteran investors braced for a wild ride.

Shanghai Party Secretary Li Qiang (centre L) and China Securities Regulatory Commission (CSRC) Chairman Yi Huiman (centre R) attend the listing ceremony of the first batch of companies on STAR Market, China's new Nasdaq-style tech board, at Shanghai Stock Exchange (SSE) in Shanghai, China
All of the first batch of 25 companies - ranging from chip-makers to health care firms - more than doubled their already frothy initial public offering (IPO) prices on the STAR Market, operated by the Shanghai Stock Exchange.

“The price gains are crazier than we expected,” said Stephen Huang, vice president of Shanghai See Truth Investment Management. “These are good companies, but valuations are too high. Buying them now makes no sense.”

Modeled after Nasdaq, and complete with a U.S-style IPO system, STAR may be China’s boldest attempt at capital market reforms yet. It is also seen driven by Beijing’s ambition to become technologically self-reliant as a prolonged trade war with Washington catches Chinese tech firms in the cross-fire.

Trading in Anji Microelectronics Technology (Shanghai) Co Ltd (688019.SS), a semiconductor firm, was briefly halted twice as the company’s shares hit two circuit breakers - first after rising 30%, then after climbing 60% from the market open - designed to calm frenzied buying.

The mechanisms did little to keep Anji shares in check as they soared as much as 520% from their IPO price in the morning session. By the midday break, Anji shares had leapt 415% from their IPO price, giving the company a valuation of 249 times 2018 earnings.

Suzhou Harmontronics Automation Technology Co Ltd (688022.SS), however, triggered its circuit breaker in the opposite direction, falling 30% from the market open, before rebounding. But by midday the company’s shares were still 113% higher than their IPO price.

Wild share price swings, partly the result of loose trading rules, had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors.

The STAR Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44% on debut on other boards in China.

In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20% in a day, double the 10% daily limit on other boards.

Regulators last week cautioned individual investors against “blindly” buying STAR Market stocks, but said big fluctuations were normal.

Looser trading rules were aimed at “giving market players adequate freedom in the game, accelerating the formation of equilibrium prices, and boosting price-setting efficiency,” the Shanghai Stock Exchange (SSE) said in a statement on Friday.

The SSE added that it was normal to see big swings in newly listed tech shares, as such companies typically have uncertain prospects, and are difficult to evaluate.

The exchange cited big fluctuations in IPOs shares on Nasdaq and the Hong Kong stock exchange, in particular singling out recently listed electric car firm Nio Inc (NIO) and Chinese start-up Luckin Coffee (LK.O).

SSE said that an index tracking the STAR Market would be launched on the 11th trading day following the debut of the 30th company on the board.

See Factbox

Investor focus on the STAR Market in the short term could weigh on the main board in terms of liquidity and attention, said Zhu Junchun, chief analyst with Lianxun Securities.

That effect was clear on Monday, with the benchmark Shanghai Composite Index .SSEC dipping 0.57% by midday, and the blue-chip CSI300 index .CSI300 trading flat.

Huang at Shanghai See Truth suggested rational investors wait on the sidelines and observe the market for a month, before making purchasing decisions.

Some investors, nevertheless, hailed the debut of the board that Beijing hopes will propel investment in the sector and help the country innovate and compete globally.

“The STAR Market opens a new chapter for China’s stock market,” said Yang Tingwu, vice general manager of Tongheng Investment, a hedge fund house in Fujian Province in Southern China. “Toast to the Chinese dream in our capital markets!”

Reference: Andrew Galbraith, Samuel Shen

Asia stocks fall on likely smaller Fed rate cut, pricier oil

TOKYO (Reuters) - Asia stocks fell on Monday as investors scaled back expectations of an aggressive Federal Reserve interest rate cut, while crude oil prices rose on heightened Middle East tensions following Iran’s seizure of a British tanker.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.4%.

Japan's Nikkei .N225 closed down 0.2% on the more tempered Fed easing views and caution ahead of the domestic earnings season which starts this week.

The Shanghai Composite Index .SSEC was down 1%, but all eyes were on the debt of China's new Nasdaq-style STAR tech board. It had a wild opening day as expected, with most firms surging and circuit breakers popping in early trade.

Hong Kong's Hang Seng .HSI dropped 0.9%. South Korea's KOSPI .KS11 was flat.

In early European trade, the pan-region Euro Stoxx 50 futures were up 0.06%, German DAX futures FDXc1 inched up 0.02% and Britain’s FTSE futures added 0.05%.

Global equity markets had rose briefly toward the end of last week after dovish comments by New York Fed President John Williams boosted expectations the central bank would lower rates by 50 basis points (bps) at its July 30-31 meeting.

But stock markets gave back those gains on Friday, with Wall Street shares falling, after the New York Fed walked back Williams’ comments by saying his speech was not about potential policy action at the upcoming Fed meeting.

Expectations for a larger cut were scaled back even more after the Wall Street Journal reported the Fed was likely to cut rates by 25 bps this month, and may make further cuts in the future given global growth and trade uncertainties.

“The possibility of a 50 bps cut has almost dissipated following the WSJ report and the New York Fed’s attempt to tone down earlier comments by Williams,” wrote Kenji Yamamoto, economist at Daiwa Securities.

The dollar and U.S. Treasury yields rose on the greater likelihood of a shallower rate cut.

The dollar index .DXY against a basket of six major currencies was steady at 97.174 after rising 0.4% on Friday.

The euro EUR= was little changed at $1.1216 after shedding 0.5% on Friday. The greenback edged up 0.25% to 108.00 yen JPY= thanks to a rise in U.S yields.

The benchmark 10-year Treasury yield stretched Friday’s modest gains and climbed to 2.062%.

Still, the broad decline in equity markets limited the rise in safe-haven Treasury yields.

“A factor which could guide stocks lower this week are tweets by U.S. President Donald Trump pertaining to trade issues with China,” said Junichi Ishikawa, senior forex strategist at IG Securities.

“Stocks could decline if he continues to make challenging trade comments directed at China this week.”

Trump maintained pressure on Beijing last week by renewing a threat to impose tariffs on another $325 billion of Chinese goods, even as hopes grew that the two sides could soon resume face-to-face negotiations in a bid to end their year-long trade war.

In commodities, Brent crude futures were up 1.55% at $63.44 per barrel following an increase of about 0.9% on Friday.

Iran’s Revolutionary Guards on Friday captured a British-flagged oil tanker in the Strait of Hormuz after Britain seized an Iranian vessel earlier this month, further raising tensions along a vital international oil shipping route.

U.S. crude futures advanced 0.77% to $56.06.

Gold slipped from a six-year high as the dollar firmed and as expectations for a deep rate cut by the Fed were dialed back.

Spot gold XAU= traded at $1,426.55 an ounce after going as high as $1,452.60 on Friday, its strongest since May 2013.

Reference: Shinichi Saoshiro

TREASURIES-Bonds steady after solid growth data briefly lifts yields

NEW YORK, July 26 (Reuters) - U.S. Treasuries were steady on
Friday, after yields briefly rose on data showing that U.S.
economic growth slowed less than expected in the second quarter.

The data adds to recent evidence that the economy is
improving even as global growth weakens.
Gross domestic product increased at a 2.1% annualized rate
in the second quarter as a surge in consumer spending blunted
some of the drag from declining exports and a smaller inventory
“The strength here is encouraging,” said Tom Simons, a money
market economist at Jefferies in New York. “We’re seeing some
evidence that things are accelerating here at the end of Q2 and
into Q3.”
The Federal Reserve is viewed as certain to cut rates when
it meets next week even as the U.S. economy improves.
The U.S. central bank has cited concerns about the global
manufacturing slowdown and inflation remaining below its target
of 2% a year. The ongoing U.S.-China trade war is also seen as
damaging business sentiment.

But the Fed is seen as less likely to cut rates by 50 basis
points given the U.S. economic improvement, with a
25-basis-point decrease more widely expected.
“Anybody who’s still thinking that the Fed is considering
going 50 basis points next Wednesday should probably abandon
that expectation now at this point,” Simons said.
Benchmark 10-year Treasuries             were last up 1/32
in price to yield 2.070%, down from 2.074% late on Thursday. The
yields rose as high as 2.100% immediately after the GDP data.

Interest rate futures traders are pricing in only a 19
percent chance of a 50-basis-point cut by the Fed at next week’s
meeting, according to the CME Group’s FedWatch tool.

Reporting: By Karen Brettell

TREASURIES-Bonds steady after solid growth data briefly lifts yields

NEW YORK, (Reuters) - U.S. Treasuries were steady on
Friday, after yields briefly rose on data showing that U.S.
economic growth slowed less than expected in the second quarter.

The data adds to recent evidence that the economy is
improving even as global growth weakens.
Gross domestic product increased at a 2.1% annualized rate
in the second quarter as a surge in consumer spending blunted
some of the drag from declining exports and a smaller inventory
    “The strength here is encouraging,” said Tom Simons, a money
market economist at Jefferies in New York. “We’re seeing some
evidence that things are accelerating here at the end of Q2 and
into Q3.”
The Federal Reserve is viewed as certain to cut rates when
it meets next week even as the U.S. economy improves.
The U.S. central bank has cited concerns about the global
manufacturing slowdown and inflation remaining below its target
of 2% a year. The ongoing U.S.-China trade war is also seen as
damaging business sentiment.

But the Fed is seen as less likely to cut rates by 50 basis
points given the U.S. economic improvement, with a
25-basis-point decrease more widely expected.
    “Anybody who’s still thinking that the Fed is considering
going 50 basis points next Wednesday should probably abandon
that expectation now at this point,” Simons said.
Benchmark 10-year Treasuries were last up 1/32
in price to yield 2.070%, down from 2.074% late on Thursday.
The yields rose as high as 2.100% immediately after the GDP data.
Interest rate futures traders are pricing in only a 19
percent chance of a 50-basis-point cut by the Fed at next week’s
meeting, according to the CME Group’s FedWatch tool.

Reference: Karen Brettell

Friday, 19 July 2019

EU is 'unimpressed' by threats of no-deal Brexit

LONDON (Reuters) - The EU’s chief Brexit negotiator said in an interview to be published on Thursday that he was unimpressed by threats of no-deal Brexit but that if the United Kingdom opted for such a course it would have to face the consequences.

Asked by the BBC what would happen if London tore up its EU membership card, Michel Barnier said: “The UK will have to face the consequences.”

Outrageous to suspend parliament in October over no-deal Brexit: minister
“I think that the UK side, which is well informed and competent and knows the way we work on the EU side, knew from the very beginning that we’ve never been impressed by such a threat,” Barnier said. “It’s not useful to use it”.

Barnier spoke to the BBC before Britain’s Conservative Party leadership contest. Boris Johnson, who is the frontrunner in the contest to replace Prime Minister Theresa May, has pledged to leave the EU with or without a deal on Oct. 31.

If Johnson wins, the three-year Brexit crisis could deepen as the EU has refused to countenance changing the Withdrawal Agreement and the British parliament could try to block a no-deal Brexit.

Barnier said the Withdrawal Agreement “is the only way to leave the EU in an orderly manner”.

EU Commission’s first vice-president, Frans Timmermans, told the BBC that UK ministers were “running around like idiots” when they arrived to negotiate Brexit in 2017.

Timmermans said he was shocked by the standard of the British negotiation after initially expecting a brilliant show.

“We thought they are so brilliant,” he said. “That in some vault somewhere in Westminster there will be a Harry Potter-like book with all the tricks and all the things in it to do.”

But then: “I thought, ‘Oh my God, they haven’t got a plan, they haven’t got a plan.’”

“Time’s running out and you don’t have a plan. It’s like Lance Corporal Jones, you know, ‘Don’t panic, don’t panic!’ Running around like idiots.”

Reporting by Guy Faulconbridge

G7 finance chiefs pour cold water on Facebook's digital coin plans

CHANTILLY, France (Reuters) - Group of Seven finance chiefs cast a cloud over prospects for Facebook’s Libra digital coin on Wednesday, insisting tough regulatory problems would have to be worked out first.

The massive social media company’s plan to launch a digital coin has met with a chorus from regulators, central bankers and governments saying it must respect anti-money-laundering rules and ensure the security of transactions and user data.

But there are also deeper concerns that the powers of big tech companies increasingly encroach on areas belonging to governments, like issuing currency.

Japan urges G7 to think beyond existing rules in dealing with Libra
“The sovereignty of nations cannot be jeopardised,” French Finance Minister Bruno Le Maire told journalists after chairing the first day of the two-day meeting.

“The overall mood around the table was clearly one of important concerns about the recent Libra announcements, and a shared view that action is needed urgently,” he added.

German Finance Minister Olaf Scholz said Facebook’s plans do not “seem to be fully thought through”, adding that there were also data security questions.

“I am convinced that we must act quickly and that (Libra) cannot go ahead without all legal and regulatory questions being resolved,” Scholz told journalists.

France, which chairs the Group of Seven advanced economies this year, has asked European Central Bank executive board member Benoit Coeure to set up a G7 task force to look into crypto-currencies and digital coins like the Libra.

Coeure presented a preliminary report to ministers and central bankers at the meeting, in the quaint chateau town of Chantilly, north of Paris.

Central bankers say that if Facebook wants to take deposits, it needs a banking license, which would subject it to the strict regulation that goes with operating in that industry.

Some central bankers also say that allowing people to transact anonymously is a non-starter given financial sector regulations that require payments firms to hold basic information about their customers.

Bank of Japan Governor Haruhiko Kuroda said the G7 task force was likely to evolve over time into something including a broader range of regulators beyond the group, given the huge impact Libra could have on the global economy.

“If the Libra is aspiring to be used globally, countries must seek a globally coordinated response,” Kuroda said.

“This is not something that can be discussed among G7 central banks alone.”

G7 finance ministers are also concerned about how best to tax big tech companies, with France keen to use its presidency of the two-day meeting to get broad support for ensuring minimum corporate taxation.

G7 governments are concerned that decades-old international tax rules have been pushed to the limit by the emergence of companies like Facebook and Apple, which book profits in low-tax countries regardless of the source of the underlying income.

The issue has become more vexed than ever in recent days as Paris defied U.S. President Donald Trump last week by passing a tax on big digital firms’ revenues in France, despite a threat from Trump to launch a probe that could lead to trade tariffs.

Their bilateral dispute aside, France and the United States are in favor of rules ensuring minimum taxation as part of an effort among nearly 130 countries to overhaul international tax rules.

Although a G7 agreement would set the tone for the broader push, an agreement among all of the G7 ministers on a minimum rate or range of rates is likely to prove elusive as Britain and Canada have reservations, a French Finance Ministry source said.

“If we don’t agree at the G7 level on the broad principles for taxing digital companies today or tomorrow, then quite frankly it will be complicated to find among 129 countries at the OECD,” Le Maire said.

Reference: Leigh Thomas, Michael Nienaber

Thursday, 18 July 2019

Sterling recovers from lows, helped by strong retail sales

LONDON (Reuters) - The British pound rose on Thursday after stronger-than-expected retail sales numbers and as traders betting against the currency took some profits following this week’s plunge, which came amid new concerns about the threat of a no-deal Brexit.

British retail sales rebounded unexpectedly in June, rising 1% over the previous month, according to official data. A Reuters poll of economists had forecast a month-on-month retail sales contraction of -0.3%.

Compared with June 2018, sales were up by 3.8%, stronger than all forecasts.

Several economists have predicted the UK economy shrank in the second quarter but the strong retail sales numbers may raise hopes that the economy kept growing.

Sterling dropped to a 27-month low against the dollar this week after the two candidates to replace Prime Minister Theresa May appeared to push for a no-deal Brexit if they cannot renegotiate a proposed withdrawal agreement with the European Union.

“Whist GBP’s recent underperformance is mostly related to a rising political risk premium, weak economic data have also played their part (our UK economic surprise index has swung from strongly positive to strongly negative, -50 currently, over the last couple of weeks),” said Adam Cole, strategist at RBC Capital Markets.

The pound rose 0.4% to $1.2485 after the retail sales numbers, having traded around $1.2470 beforehand.

That helped the currency move further away from the 27-month low of $1.2382 hit on Wednesday.

Against the euro, sterling recovered 0.3% to 90.030 pence. It had hit a six-month low of 90.51 pence on Wednesday.

Britain is due to leave the EU on Oct. 31, and traders worry it could depart without trading arrangements with the bloc in place. That would hit the British economy, which is already struggling because of the political uncertainty around Brexit, economists say.

Reporting by Tommy Wilkes

Global stocks slide as U.S.-China trade war takes toll on earnings

LONDON (Reuters) - Global shares slipped on Thursday on growing signs that a trade dispute between the United States and China was taking a toll on corporate earnings, with nerves spreading from Wall Street through Asia to European markets.

MSCI world equity index, which tracks shares in 47 countries, fell 0.2% to their lowest in nine days, while the Euro STOXX 600 slipped 0.5% to its lowest in almost three weeks.

The earnings season, kicking off this week, brought bad signs as rail freight giant CSX Corp, cut its revenue forecast as it warned of the impact of the U.S.-China trade war, pushing down Wall Street indexes on Wednesday.

In Europe, too, earnings were top of the agenda. Tech stocks led the slide as software firm SAP, Europe’s most valuable tech stock by market cap, reported poor results, also flagging the impact of the U.S.-China trade war.

With nerves already on edge over when face-to-face talks between the United States and China will resume, U.S. President Donald Trump on Tuesday maintained pressure on Beijing with a threat to put tariffs on another $325 billion of Chinese goods.

Investors also cited a report that progress toward a U.S.-China trade deal has stalled as the Trump administration works out how to address Beijing’s demands that it ease restrictions on Huawei Technologies.

“It’s still about the U.S. and China dispute,” Christophe Barraud, chief economist and strategist at Market Securities. “The trade war is creating uncertainty, weighed on capex, and clearly on trade flows.”

“There are also problems with guidance, especially in the transportation sector. The fact is that one of the key stories of this year is global trade flows contraction,” he said.

Adding to the concerns over corporate health, Netflix shed U.S. subscribers for the first time in 8 years, sending shares falling over 10% after the close of the market.

Compounding the trade concerns were concerning signs for the economy emerging from Japan to the United States.

Japan’s exports slumped yet again, falling 6.7% in June, while manufacturers’ confidence fell to a three-year low in July on the back of the trade tensions and slowing China growth.

U.S. housebuilding fell in June for a second consecutive month, with building permits also falling, in a possible sign of more trouble ahead for the housing market.

The earnings anxiety and macro data boosted demand for safe haven assets, with yields on benchmark 10-year and 30-year U.S. Treasuries climbing overnight.

Euro zone government bond yields slipped back toward record lows on Thursday as economic indicators and corporate earnings deepened gloom on the global economy and increased bets on interest-rate cuts by major central banks.

Amid the gloomy outlook, bets for further monetary policy easing from major central banks have grown, with speculation on whether the U.S. Federal Reserve will be cut by 25 basis points or 50 basis points in July.

While markets take comfort from central banks’ willingness to support growth, said Sunil Krishnan, head of multi-asset funds at Aviva Investors, there were concerns for equity markets that have rallied on the back of stimulus expectations.

The weak start to the Q2 earnings season may spill over into the outlook for the remainder of the year, threatening equity markets’ stellar rally this year.

“We are probably in the middle of analysts downgrading Q3 company earnings expectations,” he said.

Earlier in the day, MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.3%, with Tokyo’s benchmark Nikkei tumbling 2.0%, its biggest one-day fall in four months.

In currencies, the dollar edged lower against its rivals on the softer U.S. Treasury yields, with investors focusing their attention on the Fed’s meeting next week.

Against a basket of its rivals, the dollar edged 0.1% lower to 97.195.

Sterling was a shade higher at $1.244, off its lowest since April 2017 touched on Wednesday amid growing risks of Britain leaving the European Union in a no-deal Brexit.

Major British banks, such as HSBC, are already talking of the possibility of the pound breaching post-Brexit referendum lows of $1.149, with some asking whether the pound is headed for parity against both the dollar and the euro.

Oil prices were mixed, with U.S. crude extending losses after data showed U.S. stockpiles of gasoline and other products rising sharply last week, suggesting weak demand.

Brent crude futures were up 6 cents, or 0.1%, at $63.71 a barrel by 0755 GMT. They fell 1.1% on Wednesday.

Reporting by Tom Wilson