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Wednesday, 25 April 2018

Sterling stuck near five-week lows as dollar bounces on yield rise


LONDON (Reuters) - Sterling fell against the dollar on Wednesday as the U.S. currency strengthened on the back of rising Treasury yields, while traders remained cautious ahead of British first-quarter economic growth numbers due on Friday.

The release will be the last key data issued before the Bank of England’s Monetary Policy Committee meeting early next month, and markets are split over whether the central bank will raise interest rates.

Governor Mark Carney dented confidence that a rate hike would happen when he said last week that Britain’s economic data was “mixed” and that there were several other MPC meetings later this year.

That sent sterling plummeting from post-Brexit vote highs and left it down for the month of April.

The pound did snap its losing streak and rise on Tuesday and overnight on news of a potentially positive M&A deal.

But with the dollar rebounding on Wednesday as the 10-year Treasury yield topped 3 percent, investors sold the pound.

“The price action today reflects more dollar strength than sterling weakness,” said Morten Helt, an FX strategist at Danske Bank, noting that the British currency had held up better against the euro in recent trading.

Helt said that, despite Carney’s comments, he still expected the BoE to hike rates as it followed the U.S. Federal Reserve in tightening policy and as it looked at the potential for a strong labour market to put upward pressure on inflation.


“We will have to see a very weak print (of GDP data on Friday) to delay a rate hike. We still believe in a rate hike and see sterling supported in the next few weeks.”

The pound fell 0.3 percent to $1.3938 (0.9996 pounds) as the dollar gained across most major currencies, and sterling was left close to a five-week low of $1.3919.

Sterling remains more than four cents off its post-Brexit vote highs of $1.4377 hit last week.

Some of those watching the market said the currency could fall further if more investors began to doubt a May rate hike.

“Slowing UK inflation and a cautious Mark Carney have forced investors to scale back expectations of a May rate hike. The pound, which remains extremely sensitive to monetary policy speculation, could depreciate further based on these factors,” said Lukman Otunuga, an analyst at FXTM.

Against the euro, which some analysts say is currently a better gauge, given that there has been considerable dollar-specific news this week, sterling gained 0.2 percent to 87.380 pence per euro.

Reporting by Tommy Wilkes

After Carney surprise, chance of May BoE rate hike down but not out


LONDON (Reuters) - Bank of England Governor Mark Carney surprised investors last week when he hinted that interest rates might not go up next month - but economists say it would be wrong to rule out an increase.

‘Forward guidance’ about central bank policy intentions was Carney’s signature policy when he arrived at the BoE from Canada in 2013. Yet even now, as he nears the end of his British sojourn, financial markets are still trying to figure him out.

“The Bank of England has been behaving like the Grand Old Duke of York,” said Lena Komileva, managing director of G+ Economics, likening Carney to the commander mocked in a British nursery rhyme for leading troops pointlessly up and down a hill.

Since the second half of last year, the BoE has warned that Britain’s economy is at risk of persistent inflation even as the approach of its exit from the European Union causes growth to lag that of other rich nations.

The BoE raised rates in November for the first time since 2007, and in February Carney and his fellow rate-setters said interest rates might need to rise slightly faster than the bank judged that markets were expecting.

In March, two members of the BoE’s Monetary Policy Committee voted for a rate rise and economists were confident an MPC majority would back a rise to 0.75 percent in May.

This all changed on Thursday when Carney alluded to “mixed data”, differences of opinion on the MPC and the possibility of rate rises later in the year in a BBC interview.

Sterling tumbled by more than a cent, short-dated bond yields recorded their biggest fall this year, and financial markets chopped the odds on a May rate rise to less than 40 percent from 65 percent before, according to Thomson Reuters calculations.

PREVIOUS JOLTS
Investors should not lose track of the bigger picture, said Mike Amey, a fund manager at PIMCO, the world’s largest bond investor, as market pricing of the chance of a May move crept back up to around 50 percent.

“Whether they hike in May or not is an open question,” Amey said. “But we think the underlying momentum in the economy is holding up quite well, and therefore that in due course we will see higher rates than are currently priced in for the next couple of years.”

PIMCO expects BoE rates to rise once or twice both this year and next - compared with the single rate rises in November 2018 and August 2019 factored in by markets.

April purchasing managers’ surveys from British businesses will probably be more important for the BoE’s May decision than the weather-affected preliminary first-quarter gross domestic product figures on Friday, Amey added.

Overall, the economy has held up better than most economists expected after the June 2016 Brexit vote, despite lagging the global rebound. And the high inflation that hit consumer demand last year is slowing as sterling recoups some of its losses.


Unemployment has fallen to a 43-year low of 4.2 percent, and a record proportion of Britons are in work.

Komileva said she saw little case to delay a rate rise.

“If the Bank were to miss May, it would create serious questions about ... what it would take for them to move again,” Komileva said.

The BoE’s signals on rates felt more arbitrary than those of the U.S. Federal Reserve or the European Central Bank, she said.

Fed policymakers make individual projections for rates while ECB President Mario Draghi regularly offers hints on policy.

This is not the first time markets have been jolted by Carney. In 2013 the BoE linked policy to the jobless rate, only for unemployment to fall far faster than policymakers forecast. And in mid-2014 and mid-2015 Carney suggested rates might rise sooner than markets expected - only to backtrack both times.

Just two months ago, Carney had said he felt he could stop giving hints on rates because markets understood the BoE’s thinking well enough to draw their own conclusions.

After that, Brexit worries eased as Britain secured an outline Brexit transition deal until the end of 2020, and economists said signs of economic weakness were the result of freak snow storms, adding to the sense that another rate hike was coming.

WAITING FOR WAGES?
The missing piece of the picture for the BoE is wage growth, the key factor for inflation pressure. At an annual 2.8 percent, wage growth is roughly in line with BoE expectations but remains weak by historic standards, especially given low unemployment.

Former BoE policymaker David Blanchflower thinks the central bank should hold off raising rates and look harder at the number of people in part-time work but who want to work longer hours, suggesting wages are unlikely to pick up sharply.

The BoE might feel it has more time to see if wages rise after a bigger-than-expected fall in inflation in March. Furthermore, sterling’s recent recovery should curb inflation pressures.

Even Michael Saunders - who voted for a rate rise last month and looks set to do so again - has said the muted response of wages to the fall in unemployment defied simple formulae.

For now, economists are still trying to gauge whether Carney’s comments were a warning that rates are unlikely to rise in May.

Alan Clarke at Scotiabank, who has dropped his forecast of a May rate rise, said they were probably intended to stop MPC members feeling they were committed to a hike next month.

Komileva said they might have the effect of dissuading wavering MPC members from backing a rate rise for fear of wrong-footing markets again.

But HSBC economists Simon Wells and Elizabeth Martins - who for now are holding with their view of a May rate rise - said they would take the comments with a grain of salt.

“Not reacting to every word the BoE utters has been a good strategy recently. We stick to this.”

Reference: David Milliken

Asian shares rattled by rising U.S. yields, cost worries


TOKYO (Reuters) - Asian shares fell on Wednesday as a rise in U.S. bond yields above 3 percent and warnings from bellwether U.S. companies of higher costs drove fears that a boom in corporate earnings may be near its peak.


MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.3 percent, hitting their weakest in almost three weeks, with tech-heavy Taiwan shares .TWII slipping to two-month lows on worries about slowing semi-conductor demand. Japan's Nikkei dropped 0.2 percent.

European shares are expected to fall, with spread-betters calling a 0.7 to 0.9 percent drop in Britain's FTSE, Germany's Dax and France's Cac.

S&P E-mini futures ESc1 slipped 0.2 percent. Wall Street shares skidded overnight, with the S&P 500 .SPX slumping 1.34 percent, the most in two-and-a-half weeks.

Industrial heavyweight Caterpillar beat earnings estimates due to strong global demand but its shares tumbled 6.2 percent after management said first-quarter earnings would be the “high water mark” for the year and warned of increasing steel prices.

“We’ve seen quite a lot of companies announcing above-estimate earnings and their shares falling sharply,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Fujito noted major financial shares such as Goldman Sachs and Citigroup as well as Google parent Alphabet, the first major tech firm to report earnings, have followed a similar pattern.

Corporate earnings are in solid shape, with analysts estimating 21.1 percent growth in the Jan-March quarter among U.S. S&P500 firms, according to Thomson Reuters data. A similar trend is expected globally.

“If shares are falling when corporate earnings are rising 20 percent and the economy is growing at 3 percent, the market is in trouble. The market reaction so far feels as if we are starting to see an end of its long rally since 2009. Investors could be thinking that the best time will be soon behind us,” he said.


Creeping gains in U.S. Treasury yields are fuelling fears that portfolio managers may move money into safer fixed-income securities at the expense of riskier assets like stocks and emerging markets.

The 10-year yield, a benchmark for global borrowing costs, has been driven steadily higher by a combination of concerns over inflation, growing debt supply, and rising Federal Reserve borrowing costs.

The 10-year U.S. Treasuries yield rose to as high as 3.009 percent. A break of its January 2014 high of 3.041 percent could turn investors even more bearish.

Fed Funds rate futures prices have been constantly falling this month, pricing in a considerable chance of three more rate hikes by the end of this year.

The impact is already reverberating in many emerging markets, with JPMorgan’s emerging market bond index  hitting a two-month low.

In Indonesia, a market with one of the largest exposures to foreign portfolio holdings, the authorities have been intervening heavily to put a floor under the rupiah, which has been flirted with two-year lows.

The Indian rupee hit a 13-month low.

“Higher yields are no doubt having a negative impact on emerging markets. We are likely to see outflows from emerging market bonds,” said Takahiko Sasaki, market economist at Mizuho Bank.

The dollar also gained a tad against major currencies.

The euro stood at $1.2226 EUR=, not far from Tuesday's low of $1.2182, a low last seen on March 1.

The dollar traded at 108.87 yen JPY= after having jumped to a 2-1/2-month high of 109.20 yen on Tuesday.

The Australian dollar fell 0.4 percent to a four-month low of $0.7572.

Against a basket of major currencies, the dollar index edged up 0.2 percent.

Oil prices were stable, but were below the more than three-year highs reached the previous session as rising U.S. fuel inventories and production weighed on an otherwise bullish market.

Brent fetched $73.86 a barrel, little changed on the day. On Tuesday it rose to $75.47, its highest since November 2014. West Texas Intermediate  crude traded flat at $67.68.

Reorting by Hideyuki Sano

Tuesday, 24 April 2018

Dollar, euro hold after U.S. 10-year yield hits 3 percent


NEW YORK (Reuters) - The U.S. dollar and euro were largely unchanged on Tuesday morning as the 10-year Treasury yield broke through the psychologically significant barrier of 3 percent.

The dollar index hit a three-month high of 90.985 against a basket of six currencies in morning trade, though the big gains on rising U.S. government bond yields mostly occurred yesterday.

“Yesterday was a big day in terms of Treasury yields impacting currencies. Today, the 10-year did claw its way up to 3 percent to no big effect as far as currencies are concerned,” said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.

Greenback gains on Tuesday drove the euro down slightly past the two-month low hit yesterday, on growing concerns that firmer U.S. Treasury yields would reduce incremental demand for the region’s bonds and stocks at a time when hedge funds have amassed record long bets in the single currency.


But after Monday’s sizeable fall, the euro looked buoyant on Tuesday, remaining well above the annual low reached in early January.

“Today we stalled at key levels, most obviously vis-à-vis the euro, which looks relatively resilient,” said Ruskin.

The U.S. 10-year Treasury yield rose above 3 percent on Tuesday for the first time in more than four years as investors reduced their U.S. bond holdings on worries about rising inflation and growing government debt supply. The 10-year reached a top of 3.003 percent, above yesterday’s close at 2.973 percent.

Some lingering worries that European Central Bank policymakers may signal a more cautious stance at a policy meeting on Thursday also pulled the single currency lower.

“We think the euro’s weakness may be overdone as despite the U.S. Treasury yield spike theme reverberating in the markets over the last 24 hours, the U.S. economy is very much in the late stages of its economic cycle and a cautious ECB meeting is baked into markets,” said Christin Tuxen, an FX strategist at Danske Bank in Copenhagen.

The single currency EUR= stabilized around $1.22 on Tuesday after having plumbed to a low of $1.2185 in the Asian session, its lowest since March 1. It has fallen 3 percent from a 2018 high above $1.2550 in mid-February.

The dollar set a 2-and-a-1/2 month high of 109.17 yen JPY= and was holding near those levels.

The rise in U.S. bond yields has dented emerging market currencies and bond markets, including those in Asia.

Higher U.S. yields can put pressure on the currencies of emerging market countries that run current account deficits such as Indonesia and India, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

A stronger dollar also intensified pressure on some commodity-linked currencies such as the Australian dollar AUD= which tumbled 0.4 percent to 0.7577 per dollar, its lowest since Dec. 13.

Reporting by Kate Duguid and Saikat Chatterjee

Scalping: Small Quick Profits Can Add Up


An Educational article

Scalping is a trading style specializing in taking profits on small price changes, generally soon after a trade has been entered and has become profitable. It requires a trader to have a strict exit strategy because one large loss could eliminate the many small gains that the trader has worked to obtain. Having the right tools, such as a live feed, a direct-access broker and the stamina to place many trades is required for this strategy to be successful.

Scalping is based on an assumption that most stocks will complete the first stage of a movement (a stock will move in the desired direction for a brief time but where it goes from there is uncertain); some of the stocks will cease to advance and others will continue. A scalper intends to take as many small profits as possible, not allowing them to evaporate. Such an approach is the opposite of the "let your profits run" mind-set, which attempts to optimize positive trading results by increasing the size of winning trades while letting others reverse.

 Scalping achieves results by increasing the number of winners and sacrificing the size of the wins. It's not uncommon for a trader of a longer time frame to achieve positive results by winning only half or even less of his or her trades - it's just that the wins are much bigger than the losses. A successful scalper, however, will have a much higher ratio of winning trades versus losing while keeping profits roughly equal or slightly bigger than losses.

The main premises of scalping are:
Lessened exposure limits risk - A brief exposure to the market diminishes the probability of running into an adverse event.
Smaller moves are easier to obtain - A bigger imbalance of supply and demand is needed to warrant bigger price changes. It is easier for a stock to make a 10 cents move than it is to make a $1 move.
Smaller moves are more frequent than larger ones - Even during relatively quiet markets there are many small movements that a scalper can exploit.
Scalping can be adopted as a primary or supplementary style of trading.

Primary Style
A pure scalper will make a number of trades a day, between five and 10 to hundreds. A scalper will mostly utilize one-minute charts since the time frame is small and he or she needs to see the setups as they shape up as close to real time as possible. Quote systems Nasdaq Level II, Total View and/or Times and Sales are essential tools for this type of trading. Automatic instant execution of orders is crucial to a scalper, so a direct-access broker is the preferred weapon of choice.

Supplementary Style
Traders of other time frames can use scalping as a supplementary approach in several ways. The most obvious way is to use it when the market is choppy or locked in a narrow range. When there are no trends in a longer time frame, going to a shorter time frame can reveal visible and exploitable trends, which can lead a trader to scalp.

Another way to add scalping to longer time-frame trades is through the so-called "umbrella" concept. This approach allows a trader to improve his or her cost basis and maximize a profit.

Umbrella trades are done in the following way:
A trader initiates a position for a longer time-frame trade.
While the main trade develops, a trader identifies new setups in a shorter time frame in the direction of the main trade, entering and exiting them by the principles of scalping.

Practically any trading system, based on particular setups, can be used for the purposes of scalping. In this regard, scalping can be seen as a kind of method of risk management. Basically, any trade can be turned into a scalp by taking a profit near the 1:1 risk/reward ratio. This means that the size of the profit taken equals the size of a stop dictated by the setup. If, for instance, a trader enters his or her position for a scalp trade at $20 with an initial stop at $19.90, then the risk is 10 cents; this means a 1:1 risk/reward ratio will be reached at $20.10.

Scalp trades can be executed on both long and short sides. They can be done on breakouts or in range-bound trading. Many traditional chart formations, such as a cups and handles or triangles, can be used for scalping. The same can be said about technical indicators if a trader bases decisions on them.

Three Types of Scalping
The first type of scalping is referred to as "market making," whereby a scalper tries to capitalize on the spread by simultaneously posting a bid and an offer for a specific stock. Obviously, this strategy can succeed only on mostly immobile stocks that trade big volumes without any real price changes. This kind of scalping is immensely hard to do successfully as a trader must compete with market makers for the shares on both bids and offers. Also, the profit is so small that any stock movement against the trader's position warrants a loss exceeding his or her original profit target.

The other two styles are based on a more traditional approach and require a moving stock where prices change rapidly. These two styles also require a sound strategy and method of reading the movement.

The second type of scalping is done by purchasing a large number of shares that are sold for a gain on a very small price movement. A trader of this style will enter into positions for several thousand shares and wait for a small move, which is usually measured in cents. Such an approach requires highly liquid stock to allow for entering and exiting 3,000 to 10,000 shares easily.

The third type of scalping is the closest to the traditional methods of trading. A trader enters an amount of shares on any setup or signal from his or her system, and closes the position as soon as the first exit signal is generated near the 1:1 risk/reward ratio, calculated as described earlier.

The Bottom Line
Scalping can be very profitable for traders who decide to use it as a primary strategy, or even those who use it to supplement other types of trading. Adhering to the strict exit strategy is the key to making small profits compound into large gains. The brief amount of market exposure and the frequency of small moves are key attributes that are the reasons why this strategy is popular among many types of traders.


Reference:  Vadim Graifer

Monday, 23 April 2018

Sterling stuck at two-week low as investors cautious over May rate hike


LONDON (Reuters) - Sterling slipped to a two-week low against the dollar on Monday as investors questioned whether the Bank of England would raise interest rates in May following weaker-than-expected economic data and cautious comments from governor Mark Carney.

The pound has been one of the best performing major currencies in 2018 and last week surged to its highest level since the Brexit referendum in June 2016.

But weaker-than-expected wage growth and inflation, and comments by Carney that the data was “mixed” hit the currency hard, sending it down almost 1.7 percent for the week as investors rushed to price in the possibility the BoE could delay raising rates until later in the year.

Analysts on Monday said they would watch gross domestic product figures due later in the week for signs of how the economy was holding up and whether it pointed to a BoE ready to hike rates.

“We think the UK data this week may be enough to rekindle rate hike expectations,” said ING FX analyst Viraj Patel.

But he cautioned that politics could impact sterling this week if a cross-party and non-binding technical vote on Brexit on Thursday threatened Prime Minister Theresa May’s leadership.


The pound traded flat at $1.3997, after earlier hitting a 2-1/2 week low of $1.3984, as broad dollar strength kept the pound under pressure.

Against the euro, the pound recovered and rose 0.3 percent to 87.515 pence.

A seasonal rise in capital inflows into Britain from foreign companies paying UK shareholders dividends has boosted sterling during April in recent years.

Economists, almost all of whom had predicted the BoE would act in May before Carney’s Thursday interview, believe the central bank’s vote on rates next month will now be very close.

Berenberg economists said that because of an acceleration in nominal wages and above-trend real GDP growth they expected four 25 basis point hikes over the next two years, with two increases each in 2018 and 2019.

Reporting by Tom Finn

Wall Street set to open higher despite rising U.S. yields


(Reuters) - Wall Street was set for gains on Monday as optimism about the strong earnings season helped ease concerns on rising U.S. bond yields.

The yield on 10-year U.S. Treasuries, the benchmark for global borrowing costs, hit 2.9980 percent, its highest since January 2014. The U.S. five-year inflation swap, a key market gauge of long-term U.S. inflation, hit its highest level in 3-1/2 years.

The last time 10-year Treasury yields neared 3 percent, in 2013, it rocked risk appetite and sent stocks sliding and was shortly before oil prices went on a mighty 75 percent tumble. More recently, the stock market sold off in February as inflation expectations sent treasury yields surging.

But analysts say that strong earnings could help investors overlook such concerns at least for the moment.


“Earnings are going to be the bigger factor, the increase in yields isn’t too excessive just yet and investors maybe willing to take it in stride,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

“We came into the earnings season with pretty lofty expectations and the earnings have been relatively strong.”

The prospect of rising inflation comes as U.S. companies are reporting results for what is turning out to be a much stronger-than-expected first quarter.

Profits at S&P 500 companies are expected to have risen 20 percent in the quarter, according to Thomson Reuters I/B/E/S, making it the strongest quarter in seven years.

At 8:44 a.m. ET, Dow e-minis1 were up 47 points, or 0.19 percent. S&P 500 e-minis  were up 5.75 points, or 0.22 percent. Nasdaq 100 e-minis were up 27.75 points, or 0.42 percent.

This week, 181 S&P 500 companies are scheduled to report including some of the technology heavy-hitters like Facebook, Microsoft, Amazon and Intel . Alphabet reports after markets close on Monday.

Shares of Hasbro fell 5.9 percent in premarket trading after the toymaker reported a bigger-than-expected drop in quarterly revenue, blaming the liquidation of Toys ‘R’ Us.

Caterpillar rose 1.4 percent Citigroup upgraded to “buy”, saying the stock could outperform over the next six to 12 months.

In a move that could ease tensions between the United States and China, U.S. Treasury Secretary Steven Mnuchin said on Saturday he may travel to China to try to resolve the differences over trade.

Reporting by Sruthi Shankar