Thursday, 30 November 2017

Global stocks set to clock up another record

LONDON (Reuters) - Unlucky for some? Despite another overnight Wall St wobble involving a rotation from high-flying tech stocks to financials, the world’s broadest equity gauge – the MSCI all-country index – is on course to finish November with its 13th straight monthly gain – the longest such winning streak in the index’s 30-year history.

Whether Wednesday’s more than 1 percent drop in the tech-heavy Nasdaq and pullback in the much celebrated FAANGs – Facebook, Apple, Amazon, Netflix and Google parent Alphabet – marks some sort of high watermark remains to be seen, though the tendency to rotate to other sectors is testament to the strength of the underlying economic numbers coming through nearly everywhere across the developed world.

Yet again, numbers on Wednesday showed euro zone business and consumer confidence hitting their highest since the turn of the millennium, U.S. third-quarter GDP was revised higher to 3.3 percent annualised and Chinese November business surveys released earlier showed sentiment gauges accelerating beyond forecasts.

Is this sort of growth finally generating some inflation that will make the central banks sit up and take notice? Germany’s higher-than expected inflation November inflation certainly spooked the world’s fixed income markets.

Perhaps supporting this week’s switch to financials – that started after Federal Reserve chair nominee Powell delivered a relatively soft line on financial regulation on Tuesday - sovereign bond markets have snarled up on the German inflation news and the steady drumbeat of economic surprises elsewhere and appear to be finally taking notice of the sort of global expansion the equity markets have been feeding off all year.

Ten-year German bund and 10-year Treasury yields staged their biggest one-day jump in about three weeks, with the U.S. 2-10 year yield curve actually steepening back above 60 basis points. Overall euro zone flash inflation numbers are due for release later. But the underlying global bias is toward monetary tightening. The South Korean central bank hiked interest rates on Wednesday for the first time in six years.

The constellation of the tech shakeout and bond and yield curve shifts stateside, which have supported the dollar broadly this week, saw Asia bourses slip lower early on Thursday. HK and Seoul indices were down more than 1 percent, with Shanghai in the red too. HK-listed Tencent fell 2 percent. Japan’s Nikkei outperformed and closed higher as dollar yen jumped  back above $112. 

Positive soundings about a breakthrough in the Brexit negotiations next month at the EU summit on Dec 13-14 continued to lift the pound, which has risen to just shy of $1.35 for the first time since September. Sterling has also firmed to a three-week high against the euro.

A deal on the financial settlement between the UK and the EU looks to be in the offing as the British government accedes to Brussels' demands and newspaper reports on Thursday also said there may be movement on the other thorny issue of what happens with the Irish border after Brexit.

The unfathomable rise of Bitcoin, which rocketed to more than $11,000 on Wednesday, has turned into wild swings – traversing $1,000 up and down over 12 hours periods. It was last back down to $10,200, with no particular news or driver behind it either way.

Brent crude oil was slightly firmer as OPEC ministers meet today in Vienna.

Reference: Reuters

ECB tells banks to embrace instant payments to beat Bitcoin

ROME (Reuters) - Banks should speed up the introduction of instant payments, whereby money is received immediately and around the clock, to counter the allure of digital currencies such as Bitcoin, a European Central Bank director said on Thursday.

With Bitcoin zooming past $11,000, cryptocurrencies - which can be used for instant electronic payments - have gained prominence in the financial debate and some central banks such as Sweden’s are even considering the introduction of their own version of them.

Yves Mersch, a member of the ECB’s executive board, was dismissive of these digital tokens but he urged commercial banks to provide an alternative.

“Banks need to implement instant payments as soon as possible and provide an alternative narrative to the ongoing public debate on the alleged innovation brought by virtual currency schemes,” he told an event in Rome.

While their adoption by retailers is still low, private digital currencies are a source of worry for central bankers because they threaten their control of the banking system and money supply, which could undermine the monetary policies they use to manage inflation.

This is why some central banks such as Sweden’s Riksbank and the Bank of England are looking at the merits of introducing their own digital currency.

Mersch said the ECB would “experiment with cash on different digital technologies” but did not see scope for “adventurous applications” of such technology.

“We shall also experiment with cash on different digital technologies,” Mersch said. “Other adventurous applications of a more disruptive nature are simply not robust enough.”

His comments were echoed by Bundesbank board member Carl-Ludwig Thiele, who said in Berlin that a digital currency such as Sweden’s proposed eKrona could not be introduced in Germany, where cash payments are still prevalent.

“The issue of digital central bank money is in our view not a realistic option for the foreseeable future,” Thiele said at an event.

Reporting By Giselda Vagnoni

Yellen: Recovery 'increasingly broad based' in both U.S. and worldwide

WASHINGTON (Reuters) - A strengthening U.S. economy will warrant continued interest rate increases, Fed chair Janet Yellen said on Wednesday in remarks prepared for delivery to Congress, but she did not comment on the timing of when the next one might occur.

“The economic expansion is increasingly broad based across sectors as well as across much of the global economy,” Yellen said in remarks released ahead of her appearance later on Wednesday morning before the Joint Economic Committee.

With weak inflation likely to prove “transitory,” she said “we continue to expect that gradual increases in the federal funds rate will be appropriate.”

She did not in her prepared remarks comment on a possible December rate increase, expected by investors. Minutes of the most recent Fed meeting said “many participants” felt a rate increase would likely be warranted “in the near term.”

In what may be one of her last public appearances before leaving the Fed chair, Yellen said the economy’s momentum continues.

Job growth averaging 170,000 positions per month is enough to continue to absorb new and sidelined workers into the economy, and growth ticked up to a 3 percent annual rate over the last two quarters.

On a day after the stock market hit new records, Yellen said that while asset values were “high by historical standards, overall vulnerabilities in the financial sector appear moderate.”

Reference: Howard Schneider

Wednesday, 29 November 2017

Pound up as Britain coughs up, Bitcoin rockets

LONDON (Reuters) - Signs of progress with U.S. tax cuts and Europe’s Brexit negotiations brought fresh highs for world stocks on Wednesday, while bitcoin topped $10,000 in a frenzy for cryptocurrencies.

Britain's pound was also in focus, rising to $1.34 GBP= for the first time since October on reports that Britain has offered as much as 50 billion euros ($59.2 billion) -- most of what the European Union wants -- to settle a Brexit "divorce bill".

Sterling's strength did push London's FTSE  into the red, but elsewhere the mood was almost exclusively upbeat, particularly in bank stocks after the soon-to-be head of the Federal Reserve said some regulations could be scaled back.

Germany’s DAX, France’s CAC, Milan and Madrid were all up between 0.6 and 1.3 percent and MSCI’s all-country world index .MIWD00000PUS was at yet another record peak after all four major Wall Street indexes notched up new highs on Tuesday.

They were expected to be in consolidation mode when U.S. trading resumes. Revised Q3 GDP figures and inflation data will be vying for attention with the ongoing tug-of-war over Donald Trump’s tax cut plans.

“It seems to me markets are still trading on the theory that the glass is half full,” said fund manager Hermes’ chief economist Neil Williams.

Asian share markets had not quite as jubilant, checked by caution over the latest missile test by North Korea and concerns at recent softness in Chinese shares.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS barely budged from where it started the day, while China's blue chip index .CSI300 ended flat having slipped as much as 1 percent at one point.

Among the better performers, Japan's Nikkei .N225 added 0.5 percent, while Australia's main index rose 0.45 percent.

The prospects for a U.S. tax cut seemed to improve after Senate Republicans rammed forward their bill in a partisan committee vote that set up a full vote by the Senate as soon as Thursday, although details of the measure remained unsettled.

But Republican leaders conceded that they have yet to round up the votes needed for passage in the Senate, where they hold a narrow 52-48 majority.

Some analysts, however, did warn of the risks of unintended consequences if the package was passed.

“Tax cuts will mainly boost the demand side of the economy at a time when the economy has little spare capacity,” said Jeremy Lawson, chief economist at Standard Life Investments.

“For that reason, the package will primarily bring forward activity with most of the stimulus eventually offset by the Federal Reserve lifting interest rates more quickly.”

Fed chair nominee Jerome Powell, in his Senate confirmation hearing on Tuesday, said the case for a December rate hike was coming together.


Powell also hinted at a lighter touch for bank regulation, saying current rules were already tough enough.

The S&P financial sector  soared 2.6 percent in reaction, its biggest daily gain since March 1. That helped the Dow climb 1.09 percent, while the S&P 500 rose 0.99 percent and the Nasdaq added 0.49 percent.

Adding to the bullish mood was data showing U.S. consumer confidence surged to a near 17-year high in November, while home prices rose sharply in September, which should underpin consumer spending.

Euro zone government bond yields edged higher meanwhile as the first instalments of German state inflation data pointed to another uptick for Europe’s largest economy, which should bolster the ECB’s move to wind down its stimulus.

“In recent months we have seen core inflation dropping, and that has been identified by the ECB as a key measure,” said ING strategist Martin van Vliet.

It all helped the euro reassert its recent dominance over the dollar. The euro climbed as far as $1.1882 EUR= and against a basket of currencies the dollar at 93.241 .DXY and not far off a two-month trough touched on Monday.

Reference: Marc Jones

Pound slips as Brexit border worries weigh

LONDON (Reuters) - The pound slipped from a two-month high on Tuesday, having failed to push above $1.34 against the dollar as Brexit-related doubts began to re-exert their grip on the UK currency.

Sterling was back below $1.33 and flat against the euro and the yen at 0.8989 pence per euro and 148 yen respectively, as markets headed towards mid-morning.

There had been a brief flurry of interest as the Bank of England said UK banks could handle a bad Brexit in its annual health check on lenders, though there were more than enough difficult questions to offset any enthusiasm.

A deal on the Northern Ireland-Irish border - a key part of Brexit talks which were hoping to see a breakthrough next month - has become trickier as the Irish government has been pushed to the brink of collapse.

The country’s opposition party propping up the minority government has said the deputy prime minister’s refusal to quit over handling of problems in the police force would force the country to the polls next month.

A motion of no confidence in the minister in question, Frances Fitzgerald, is due at 2000 GMT on Tuesday unless she quits. But Irish national broadcaster RTE cited a minister as saying Fitzgerald had decided to step down.

“The EU has given the UK government a deadline of next Monday to come up with a plan on the Irish border, so that seems to be the main sticking point now,” said Societe Generale FX strategist Alvin Tan.

Whatever happens with Fitzgerald, if the deadlock between London, Dublin and Brussels over the already complex and politically sensitive border issue does keep Brexit negotiations stalled, that could spell trouble for the pound.

“In that situation, I wouldn’t be surprised if we see cable (sterling vs dollar testing the August low of $1.30 again and euro/sterling re-testing of the 93 level again,” Tan added, although he also said it could be a buying opportunity.

Sterling was buying $1.3295 as midday approached, down 0.2 percent on day. It is just about clinging on to a monthly rise against the greenback though it has seen is nearly 2 percent drop against the euro in November.

As well the Bank of England saying that UK banks could handle a “disorderly” Brexit on Tuesday, for the first time since it started its stress test exercises in 2014, all avoided bills for more capital.

Responding to a question about whether there were signs that Britain’s large current account deficit was unsettling investors, BoE Governor Mark Carney said foreign capital flows were continuing to come to Britain though a disorderly Brexit would most likely hit the economy and sterling.

“Our job is to maintain monetary and financial stability in whatever scenario, and with that bedrock one can expect that you build off that bedrock to continue to see foreign inflows as we should,” Carney said.

Reporting by Marc Jones

Tuesday, 28 November 2017

Wall Street set to grind higher, Powell hearing on deck

(Reuters) - The benchmark S&P 500 index was set to open at a record on Tuesday, gaining momentum from a positive tone in Europe, and putting aside any nerves over a U.S. tax bill and confirmation hearing for Federal Reserve chair nominee Jerome Powell.

The Senate Banking Committee will hold the hearing at 9:45 a.m. ET (1445 GMT) to confirm Powell’s nomination as head of the U.S. central bank.

In prepared remarks for the hearing, Powell defended the Fed’s use of broad crisis-fighting powers, placing himself as an extension of the line followed by current Chair Janet Yellen and her predecessor Ben Bernanke.

Analysts see little impact on the stock market.

“Some of his comments were already published and he is basically going to follow the present monetary policy,” said Peter Cardillo, chief market economist at First Standard Financial in New York.

“The tax code is really what’s on the minds of the investors right now,” Cardillo said.

The U.S. tax plan faces potential opposition from two Republican lawmakers who could prevent the sweeping legislation from reaching the Senate floor.

President Donald Trump was due to lobby Republicans at their weekly policy luncheon in the U.S. Capitol, with the Senate poised for a possible vote on the bill as early as Thursday.

Wall Street’s major indexes ended flat on Monday as gains for Amazon, following a slew of online promotions and discounts on Cyber Monday, countered losses for energy company shares.

Oil suffered losses for a second day on uncertainty over the outcome of a key OPEC meeting this week, where the members will decide on the production policy for next year.

At 9:03 a.m. ET, Dow e-minis were up 59 points, or 0.25 percent, with 27,639 contracts changing hands.

S&P 500 e-minis were up 3.75 points, or 0.14 percent, with 174,385 contracts traded.

Nasdaq 100 e-minis were up 9.5 points, or 0.15 percent, on volume of 30,131 contracts.

Shares of Rockwell Automation slipped 2 percent after bigger rival Emerson Electric withdrew its offer to buy the company. Emerson’s shares were up 1.2 percent.

Buffalo Wild Wings rose about 7 percent as Roark Capital Group, owner of restaurant chain Arby‘s, announced it had agreed to buy the company for about $2.4 billion.

The Conference Board’s consumer confidence index, due at 10:00 a.m. ET, is expected to have decreased to 124 in November from 125.9 in October, when it hit a near 17-year high.

Reporting by Sruthi Shankar and Rama Venkat Raman

Asian shares retreat from decade peak on China anxiety

SYDNEY (Reuters) - Asian shares drifted away from decade highs on Tuesday as Chinese stocks stumbled for a second straight session, while the dollar inched higher on optimism about a tax reform in the world’s biggest economy.

Investor confidence in China has been dented by rising bond yields as Beijing stepped up its crackdown on shadow banking and other risky forms of financing. Higher borrowing costs threaten to squeeze corporate profits.

The dour mood looks set to ripple across global markets with both FTSE futures and S&P E-mini futures edging lower.

Chinese shares pared some of the early losses with the CSI 300 index down 0.3 percent following a heavy sell-off on Monday. Shanghai's SSE Composite index was off 0.1 percent in volatile trading.

The CSI300 index has jumped 22 percent in 2017 so far, with the gains concentrated in a handful of large index-weighted stocks.

“The aspect of poor breadth and participation was actually the point for Chinese authorities who have been concerned with the equity market continually heading higher on very low participation,” said Chris Weston, Melbourne-based chief strategist at IG Markets.

“The question is whether further downside in Chinese mainland equities continues in the session ahead and will there be a spillover into Hong Kong and potentially even Japan, Korea and Australia?”

Most of Asia was in the red, with Hong Kong's China Enterprises Index leading the losses. South Korea's KOSPI and Thailand shares managed to eke out small gains.

MSCI’s broadest index of Asia-Pacific shares outside Japan skidded 0.2 percent from last week’s high of 570.21 points.

The index has been on an uptrend most of this year, posting a monthly loss only once in 2017. It was on track to end November in the black.

Wall Street had been mixed on Monday, with the S&P 500 off a touch, the Nasdaq losing 0.1 percent and the Dow .DJI up 0.1 percent.


The dollar inched up on the yen to 111.20 JPY=, but was still within spitting distance of a recent 2-1/2-month low, as bulls fret about potential delays in U.S. tax cuts.

The euro EUR= was steady at $1.1903, within reach of a two-month high.

The dollar got a brief boost overnight when President Donald Trump tweeted that the tax cut bill was “coming along very well”.

The tweet came after a meeting with Senate Republican tax-writers on Monday ahead of a crucial vote on the Senate floor that could come as early as Thursday.

Separately, the U.S. Senate Banking Committee holds a hearing on Tuesday to confirm the nomination of Jerome Powell at the helm of the Federal Reserve. If confirmed, Powell will have to balance tightening policy against still sluggish wages and inflation.

The bond market is concerned the Fed will hike rates too far, keeping inflation too low and ultimately slowing the economy.

That has been a major force in the remarkable pace of curve flattening in recent weeks. The 2s/10s yield curve is only 58 basis points from inverting - a classic signal that recession is just around the corner.

In commodity markets, U.S. light crude was off 36 cents at $57.75, having fallen more than a dollar overnight. Brent crude slipped 38 cents to $63.60, but not far from a near 2-1/2 year peak of $64.65 touched earlier this month.

Spot gold XAU= inched lower to $1,294.12.

Reporting by Swati Pandey

Sunday, 26 November 2017

'Stealth hedging' shows investors not so complacent

NEW YORK (Reuters) - With the U.S. stock market at a record high and daily stock gyrations near multi-decade lows, some investors have raised concerns about the lack of fear in the market, but U.S. equity options market data suggests investors are far from complacent.

Positioning in options on S&P 500 index and CBOE Volatility Index shows investors have been gradually adding to hedges over the last few months.

“We didn’t see it on our desk and no one seems to care much about hedging but somehow it’s happening,” said Jim Strugger, derivatives strategist MKM Partners in New York.

“It’s sort of under the surface, more like stealth hedging,” he said.

The S&P 500 index has climbed 16 percent this year and is on pace for its eighth straight month of gains, the longest such streak since just before the 2007-2009 financial crisis.

The CBOE Volatility Index, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, closed at a record low earlier this month.

Some investors warn that heightened reliance on strategies that profit from continued calm in stocks, and months of frustration over hedges that have gone to waste while the market powered on, have left the market extremely vulnerable to a shock.

The options market, however, suggests that investors are not as vulnerable to a sell-off in stocks as the anemic level of the VIX would suggest, analysts said.

For instance, for the S&P 500 index options, there are 2.1 puts open for each open call contract, close to the most defensive this measure has been over the last five years, according to options analytics firm Trade Alert data.

An index call option gives the holder the right to buy the value of an underlying index at a fixed level in the future. A put conveys the opposite right and is usually used to protect against declines in the index.

While some of put activity may be due to investors selling puts to generate income, brisk put volume suggests renewed interest in protective positions, analysts said.

“More often than not, even in the world we live in where volatility is so attractive to sell, you can make a fair assumption that people are buying options,” said MKM’s Strugger.

VIX options also show similarly elevated positioning in out-of-the-money VIX calls - contracts that are not profitable yet would reap gains if volatility spikes.

“When open interest on VIX out-of-the-money calls is really high, I would tend to think that the market is more aggressively hedged,” said Aashish Vyas, director of portfolio strategy at Durango, Colorado-based Swan Global Investments.

“To me, that matters more than the absolute level of the VIX,” he said.

While the data does not suggest that the market is gearing up for an immediate crash, as would be suggested if the VIX were to shoot up, it does imply that investors would not be taken by surprise if volatility starts to trend up in coming months.

“I don’t think the market is complacent,” said Joe Tigay, chief trading officer at Equity Armor Investments in Chicago.

“People have downside protection,” he said.

A recent blog post by New York Federal Reserve researchers showed that even as the overall level of volatility priced into options of varying tenure has dropped, investors are still pricing in a lot more volatility in longer dated options than in near-term contracts.

That is a departure from the pre-crisis period when investors demanded relatively similar returns for taking on one-year and one-month volatility risk, essentially betting that the state of calm would persist into the future, the researchers said.

They added that the shift in the pricing of risk, despite the low level of the VIX, showed that investors may not be so complacent after all.

Reporting by Saqib Iqbal

Thursday, 23 November 2017

Euro rises for third day on growth bets

LONDON (Reuters) - The euro climbed for a third consecutive day on Thursday as a flurry of European business surveys pointed to a strengthening growth outlook for the region.

Surveys covering both the services and manufacturing industries in Europe outshone even the most optimistic forecasters in Reuters polls -- indicating growth is broad-based - with factories having the second-best month in the index’s history.

“There is a general trend of euro-positive sentiment going through the markets and that is keeping the euro firmly supported and the ECB minutes were along expected lines,” said Commerzbank currency strategist Esther Reichelt in Frankfurt.

The minutes of the European Central Bank for its October meeting didn’t yield anything new, with policymakers broadly agreeing last month on extending its asset purchase scheme.

The single currency EUR=EBS was up 0.2 percent on the day at $1.1847 against the dollar and not far from a one-month high of $1.1862 set last week.

It also chalked up steady gains against the Swiss franc EURCHF= and the British pound respectively.

Meanwhile the dollar nursed losses after posting its biggest loss in five months on Wednesday as investors trimmed bets on the outlook for U.S. interest rate hikes next year, based on minutes from the Federal Reserve’s latest policy meeting.

With Chinese stocks down between 2-3 percent in Asian trade, low yielding currencies such as the Japanese yen and the Swiss franc remain firmly supported against the greenback as investors shied away from taking positions in a holiday-shortened week.

The minutes, however, also highlighted concern among some of the members over the inflation outlook, with the emphasis placed on economic data in determining the timing of future rate rises.

The dollar edged 0.1 percent lower against a broad trade-weighted basket of currencies on Thursday to 93.15 after falling 0.8 percent in the previous session, its biggest daily percentage fall since June.

Chinese shares took a sharp hit in the Asian session with mainland indexes down between 2-3 percent, exacerbating investor caution and dampening risk appetite.

Trading conditions were thinner than usual on Thursday, with Japanese financial markets shut for a public holiday. U.S. markets will be closed for the Thanksgiving holiday.

Reflecting the growing uncertainty about the future outlook for U.S. interest rates, an overnight rally in June futures contracts FFM8 meant that markets were pricing in a U.S. Fed funds target rate of 1.58 percent by then, implying only 2 more rate hikes, below market consensus.

Reporting by Saikat Chatterjee

Dollar dumped, bonds buoyant on Fed inflation caution

SYDNEY (Reuters) - The dollar was on the defensive Thursday after suffering its worst drubbing in five months while bonds celebrated a comeback on speculation the Federal Reserve might not tighten U.S. policy as aggressively as previously thought.

Moves in Asian share markets were mostly minor with Japanese markets closed for a holiday and the United States off for Thanksgiving. Spreadbetters pointed to a slightly easier opening for the major European bourses.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eked out a fresh 10-year peak with a rise of 0.15 percent, as did Hong Kong's main index

The dollar’s rout came after minutes of the Fed’s last meeting showed “many participants” were concerned inflation would stay below the bank’s 2 percent target for longer than expected.

That echoed comments from Fed Chair Janet Yellen that she was uncertain about the outlook for inflation and led markets to pare back pricing for more hikes next year.

While a move in December to between 1.25 and 1.5 percent is still almost fully priced in, Fed fund futures  rallied to show rates at just 1.75 percent by the end of next year.

“The US dollar was already staggering into Thanksgiving when the FOMC minutes gave it another shove,” said Sean Callow, a senior currency analyst at Westpac. “The FOMC seems to be increasingly uneasy about ”ongoing softness“ in inflation.”

“Investors can be forgiven for wondering why they should buy more U.S. dollars if we are heading into a ”Powell pause“ in the first half of 2018,” he added, referring to newly appointed Fed Chair Jerome Powell.


Against a basket of currencies, the dollar was huddled at 93.184 .DXY, having shed 0.75 percent overnight.

The euro was enjoying the view at $1.1834 EUR= after climbing from $1.1731 on Wednesday. The dollar also crumbled to 111.27 yen JPY=, near its lowest since Sept. 20. The overnight move was the largest single-day fall against the yen since May.

The Fed’s dovish turn helped break the inexorable sell off in short-term U.S. Treasuries, with yields on the two-year note falling almost five basis points to 1.727 percent. That was the sharpest daily drop since early September.

The rally spilled over into Asia, where Australian 10-year bond yields fell to their lowest since June and dealers expected European bonds to follow as well.

Wall Street had been an oasis of calm in comparison with the Dow off 0.27 percent, while the S&P 500 lost 0.08 percent and the Nasdaq  added 0.07 percent.

Verizon and AT&T rose 2.0 percent and 1.6 percent respectively on bets they will benefit from the U.S. government’s plan to rescind net neutrality rules put in place by the Obama administration.

Commodities were buoyed by the dive in the dollar, with gold up at $1,290.02 an ounce XAU= having added 0.9 percent overnight.

Oil prices paused after hitting their highest in more than two years after the shutdown of one of the largest crude pipelines from Canada cut supply to the United States.

U.S. crude futures eased back 12 cents to $57.90 a barrel, after jumping 2 percent on Wednesday to ground last trod in mid-2015. Brent crude dipped 18 cents to $63.14 a barrel.

Reference: Wayne Cole

Wednesday, 22 November 2017

Sterling seismograph eerily calm on EU summit

LONDON (Reuters) - For a currency that has seen some of its biggest ever one-day moves on the back of Brexit, there is a peculiar calm in sterling hedging prices surrounding December’s critical European Union summit.

For many, the Dec. 13-14 get-together marks a critical juncture in the process of Britain leaving the bloc, with some market analysts seeing it as a potential make-or-break moment for the pound.

At stake is whether Prime Minister Theresa May can satisfy other EU leaders that Britain has made enough commitments on issues like a final settlement bill and the Irish border to quickly start trade negotiations next year as the clock ticks down. Otherwise, the risk of economically-damaging ‘no deal’ Brexit rises dramatically.

Yet, even with so much at stake, options markets that reflect expected volatility around next month’s event and data on speculative sterling positioning appear largely neutral.

In fact, one-month implied volatility in sterling against the U.S. dollar is currently less than its 8.6 percent average of the past 20 years.

Traders still think the pound will be more volatile than other major currencies such as the euro and Swiss franc, though, and say the indication of calm is more reflective of the subdued price action of the most recent period, rather than of what could be in store.

“Sterling volatility has tended to remain higher even as FX volatility has declined, which suggests markets have a greater capacity to discount negative headlines,” said Timothy Graf, head of macro strategy at State Street Global Markets.

Implied volatility for sterling for one month against the dollar is higher than three-month rates and stands at a chunky 8 percent. Sterling volatility against currencies such as the Japanese yen and the Australian dollar is even higher.

In comparison, three-month implied volatility for the euro against the dollar stands at a relatively tame 6 percent EUR3MO= while overall stock market volatility is within touching distance of a record low of 9 percent hit this month.

One factor making traders wary of translating signals from derivatives into trades in the cash market is that the former have thrown up some conflicting signals in recent weeks.

For example, three-month ‘risk reversals’ on sterling, which shows the relative pricing of puts and calls on the pound, consistently indicated a bias to further sterling weakness throughout the year even as the pound gained ground against the dollar. It is up 10 percent to date in 2017.

“As a result, betting on sterling via the options markets has been a bit of a money losing trade this year,” said a trader at a global macro hedge fund in London.

Still, that hasn’t stopped directional bets and the cost of buying sterling puts - options to sell - remain more expensive than calls - options to buy - and show some traders at least are assuming the outcome of the EU summit will be sterling negative.

Underlying structural factors for sterling have also worsened markedly in recent months, such as a widening current account deficit, prompting some money managers to call for the British pound to be traded like an emerging market currency at a Reuters Investment Summit last week.


With few if any precedents for an event like Brexit to guide traders through the next month, large investors are harking back to trading patterns leading up to the referendum vote last year.

“The problem for investors is there are no historical references to form an expectation on something such as Brexit with a long agenda of negotiations leading up to it,” Pascal Blanque, who oversees 1.4 trillion euros at Europe’s largest asset manager Amundi told the Reuters Global Investment Summit.

As a result, some traders are taking recourse in the options markets, although expiries around the summit are less about taking directional bets and more about guarding against spikes in volatility.

What’s more, the one-month options that surround the crucial EU summit also capture key central bank policy decisions in both the United States and Britain.

“It is very difficult for investors to take a directional view given the mixed messages from politicians on the negotiation progress, therefore long volatility positions such as straddles are a good choice over outright cash bets,” said Jordan Rochester, an FX strategist at Nomura in London.

As a result, speculative bets on sterling are broadly flat, unlike before the Brexit vote, while institutional investors such as pension funds and sovereign wealth funds are broadly underweight the British currency in their portfolios.

With expectations for a major breakthrough in policy talks low, buying so-called “option straddles” which involves simultaneously selling and buying currency derivatives on either side of the summit have gained popularity.

A survey by Nomura showed that only 31 percent of its clients expected a Brexit transition deal to be agreed by January 2018, although a majority still think Brexit will go ahead.

But unlike the sharp run-up in volatility gauges in May-June last year, implied volatility on sterling remains a fraction of what it was in the final days before the Brexit vote suggesting some market participants are toning down their expectations for next month’s summit.

"Unlike the hard binary event Brexit vote last June, this is a summit and so markets are not getting too worried about this," said SSGM's Graf.

Reporting by Saikat Chatterjee

Dollar treads water, capped by sagging long-term U.S. yields

TOKYO (Reuters) - The dollar treaded water against its peers on Wednesday, capped as U.S. Treasury yields failed to rise despite increasing investor risk appetite in broader financial markets.

The dollar index against a basket of six major currencies was little changed at 93.941.

The index fell back from a one-week high of 94.165 overnight after a rally triggered earlier this week by a sagging euro stalled as long-term U.S. Treasury yields continued inching lower.

The greenback was a shade lower at 112.280 yen, after slipping overnight from a high of 112.705.

“The dollar should be getting more of a lift against the yen in this ‘risk on’ environment. But what is taking precedence is the adjustment of positions before the Thanksgiving and year-end holidays by participants, resulting in the covering of yen shorts,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

Wall Street shares rose yet again to record highs on Tuesday, while Japan’s Nikkei climbed back towards 26-year peaks.

The ongoing flattening of the Treasury yield curve, which has capped long-term yields, is a further drag on the dollar, Daiwa’s Ishizuki said.

The U.S. yield curve flattened to its lowest in a decade on Tuesday, as investors price in the expectation that the Federal Reserve will continue to raise rates while the Treasury is seen increasing short-dated debt issuance. At the same time low inflation and global demand for yield has supported longer-dated debt.

Another factor seen supporting the Japanese yen on a broader level was its recent gains against the euro.

The common currency slumped against its peers at the start of the week as German Chancellor Angela Merkel’s failure to form a three-way “Jamaica coalition” government clouded the country’s political outlook.

“Cross yen pairs recently enjoyed a good run higher. Of these pairs, euro/yen holds a dominant position,” said Koji Fukaya, president at FPG Securities in Tokyo.

“Selling of the euro against the yen gathered momentum as traditional profit-taking before Thanksgiving was joined by market participants dissolving euro longs on the German political news.”

The euro was last 0.2 percent lower at 131.790 yen, having gone as low as 131.160 on Monday to its weakest since mid-September.

The currency market showed little response to comments by Fed Chair Janet Yellen, who said late on Tuesday the central bank is “reasonably close” to its goals and should keep gradually raising U.S. interest rates to avoid the dual pitfalls of letting inflation drift below target for too long and driving unemployment down too far.

Next in focus was the minutes of the Oct. 31-Nov. 1 Fed policy meeting minutes due later in the session, to be evaluated for any new indications that an interest rate hike is likely in December.

The euro was steady at $1.1737 after crawling away from a one-week low of $1.1712 brushed overnight on the political impasse in Germany.

The Australian dollar was 0.1 percent lower at $0.7568 after slipping to a five-month trough of $0.7532 overnight on dovish-sounding Reserve Bank of Australia policy meeting minutes.

The New Zealand dollar was steady at $0.6829 after digesting a surprise increase in October domestic milk production. New Zealand is a top dairy exporter and factors that are considered negative for milk prices tend to hurt the kiwi.

Reporting by Shinichi Saoshiro

Dollar near highs as German political impasse pressures euro

TOKYO (Reuters) - The dollar gave back some of its gains in Asian trading on Tuesday but stuck close to a one-week high against a basket of currencies as a German political deadlock continued to pressure the euro.

The dollar index, which tracks the greenback against a basket of six major rival currencies, dipped 0.1 percent to 94.029, but was still within sight of its overnight peak of 94.104, its highest since Nov. 14.

The euro edged up 0.1 percent to $1.1739, nursing losses after dropping to $1.1722 in the previous session after German coalition government talks collapsed.

German Chancellor Angela Merkel, whose conservative bloc lost seats in September’s election, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

Merkel said she would prefer a new election to ruling with a minority, but Germany’s president told the parties they owed it to voters to try to form a government.

“It was primarily a euro weakness story, based on the failure to form a coalition government in Germany,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

“Stepping back from the daily activities, the big mountain that we’re still looking to traverse is still tax reform -- what form, and on what timeline,” Northey said.

U.S. Republicans are not expected to push major tax cuts through Congress this year, according to a majority of economists in a Reuters poll, who were also sceptical that tax reform would provide a significant boost to the economy.

Trading was expected to be relatively thin this week ahead of the U.S. Thanksgiving holiday on Thursday, which is also a national holiday in Japan.

The calendar is relatively sparse ahead of the holiday, with Federal Reserve Chair Janet Yellen scheduled to give a speech later on Tuesday. Minutes from the Fed’s November meeting will be released on Wednesday.

Against the yen, the dollar was slightly lower on the day at 112.59 , holding above its overnight low of 111.89 yen, which was its lowest since mid-October.

The euro was steady on the day against the yen at 132.15 yen, after skidding as low as 131.16 on Monday, its lowest since Sept. 15.

“Ahead of this week’s holidays, it would not have been unusual for the dollar to have fallen on position adjustments as investors pared their dollar-long positions, in case there was some dollar-negative news while they were away,” said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

“But due largely to the euro’s moves, the dollar is holding up,” she said.

The Australian dollar was down 0.2 percent at $0.7536, after falling as low as $0.7529 earlier, its deepest nadir since mid-June.

Minutes of the Reserve Bank of Australia’s (RBA) Nov. 7 policy meeting showed it harboured “considerable uncertainty” about how quickly wages growth and inflation might pick up.

After that meeting, the RBA trimmed its forecasts for core inflation to below its long-term 2-3 percent target band for another two years.

Bitcoin slipped nearly 4 percent on Tuesday after notching a fresh record high of $8,253.

Reporting by Lisa Twaronite

Tuesday, 21 November 2017

Asia stocks hit 10-year high on global growth optimism, dollar strong

TOKYO (Reuters) - Asian stocks rose to a 10-year high on Tuesday as investors took heart from further evidence of strength in the global economy, while the dollar hovered near a one-week high against its peers thanks to higher U.S. yields and a floundering euro.

European markets were expected to be somewhat more subdued in early trade, with financial spreadbetters expecting Britain's FTSE .FTSE to open 0.05 percent higher and Germany's DAX and France's CAC to open unchanged.

Gains on Wall Street overnight helped MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rise 0.8 percent to a fresh decade-high.

Japan's Nikkei .N225 advanced 0.7 percent, while South Korea's KOSPI  rose 0.1 percent and Australian stocks climbed 0.3 percent. Shanghai .SSEC added 0.5 percent and Hong Kong's Hang Seng was 1.3 percent higher.

Equity markets have enjoyed strong support this year thanks to rising corporate earnings on the back of an improving global economy.

That confidence was again on display overnight, with upbeat data in Germany helping the benchmark DAX brush off worries over the collapse of German coalition government talks.

German data showed strong industrial activity, while the Conference Board’s leading economic index for the United States rose 1.2 percent in October, double the rate economists polled by Reuters had expected.

Wall Street was led up by telecom and tech shares, with the Dow .DJI edging back towards record highs scaled two weeks ago. [.N]

In currencies, the dollar index against a basket of six major currencies stood near a one-week peak of 94.104 .DXY touched overnight.

The greenback was boosted by rising bond yields, with the two-year U.S. Treasury yield touching a nine-year high of 1.755 percent overnight.

The yield has risen as investors priced in more interest rate hikes by the Federal Reserve, while the Treasury is expected to increase debt issuance with a focus on short- and intermediate-dated maturities.

"The two-year yield appears to have risen too high now, as the Fed is only likely to hike rates twice at most next year considering current trends in U.S. wages and prices," said Makoto Noji, senior strategist at SMBC Nikko Securities.

The dollar was also lifted as the euro has been weakened by political risks arising from German Chancellor Angela Merkel’s failure to form a three-way coalition government, thrusting Europe’s biggest economy into a political crisis.

Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

“So another grey cloud has formed over euroland for investors to worry about. The euro may slide more in the days ahead unless a solution to Germany’s government can be found, fast,” wrote Carl Weinberg, chief economist at High Frequency Economics.

The euro inched up 0.1 percent to $1.1745 EUR= but remained near a six-day low of $1.1722 touched on Monday. A week ago, the common currency had rallied to a one-month high of $1.1862 on robust German growth data.

The dollar was steady at 112.545 yen JPY=, having bounced from a one-month low of 111.890 set overnight.

The Australian and New Zealand dollars were both slightly lower at $0.7543 AUD=D4 and $0.6804, respectively.

Oil prices were little changed as expectations of an extended OPEC-led production cut were cancelled out by rising U.S. output.

Brent crude futures were at $62.30 per barrel, 8 cents above their last close. U.S. crude were 3 cents higher at $56.45 per barrel.

Spot gold XAU= crawled up 0.25 percent to $1,279.76 per ounce after sliding more than 1 percent overnight on the dollar’s bounce.

Reporting by Shinichi Saoshiro

Euro rebounds from earlier lows as traders brush off Germany worries

LONDON (Reuters) - The euro recovered from a two-month low against the yen touched in Asian trade on Monday, with investors brushing off broader political risks arising from German Chancellor Angela Merkel’s failure to form a three-way coalition government.

Merkel, whose conservatives were weakened after they won an election in September with a reduced number of seats, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

The development thrust Germany into a political crisis that raised worries among investors of a new election if Merkel cannot form a minority government.

But after selling off sharply in early deals in Asia, trading down as much as 0.8 percent to hit 131.16 yen, the euro’s weakest since Sept. 15, the single currency rebounded as much as 1 percent to trade flat on the day, at 132.18 yen.

“What usually happens after any news at the weekend is that Asian trading tends to be a bit less liquid, and that can exaggerate the scale of the moves; when Europe came in, markets took a more level-headed approach,” said MUFG currency strategist Lee Hardman, in London.

“There’s a bit of uncertainty – we don’t know what the next step is going to be, whether it’s going to be a minority government or fresh elections - but in terms of the bigger picture I don’t see any significant change in how you value the euro,” he added.

If there were another election in Germany, the far-right, anti-immigrant Alternative for Germany (AfD) party could add to the 13 percent of votes it secured in September. But the parliamentary process required to get through another election is considered to be quite difficult, involving more than one vote in the German parliament.

The dollar had also sold off against the yen - generally sought at times of uncertainty - in Asian trading, dipping to a one-month low JPY=. But it turned higher against the Japanese currency in European trading, up 0.1 percent at 112.14 yen.

The euro fell as much as 0.5 percent against the dollar in Asian trading to $1.1722 EUR=, pulling away from a one-month high of $1.1862 set on Wednesday last week. But it recovered to trade flat on the day at $1.1789 in London trade.

“There’s no panic in the market at all – it’s really a European story,” she added. “We’re not seeing a broad risk-off move here,” said Commerzbank currency strategist Esther Reichelt, in Frankfurt.

Bitcoin was trading at just above $8,000, after hitting a record high of $8,087 on the Luxembourg-based Bitstamp exchange on Sunday.

Many analysts expect this to be a relatively calm week of trading, with U.S. markets closed for the Thanksgiving holiday on Thursday and with few major data releases.

Reporting by Jemima Kelly

Monday, 20 November 2017

Asia stocks wilt as China weakness dims mood, euro skids

TOKYO (Reuters) - Asian shares pulled back on Monday, with investor sentiment hurt by a retreat on Wall Street and a slide in Chinese stocks, while the euro skidded after German coalition talks hit an impasse.

Spreadbetters predicted the gloom would spread to European openings, with Germany's DAX .GDAXI and France's CAC  each seen down 0.5 percent and Britain's FTSE expected to fall 0.1 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan, was off its session lows but still down 0.1 percent.

Japan's Nikkei stock average .N225 finished down 0.6 percent.

“It’s year-end season, so people have more incentive to take profits,” said Kyoya Okazawa, Hong Kong-based head of institutional clients, APAC at BNP Paribas Securities.

“This week and next week, more profit-taking is coming, especially whenever some negative news comes out,” he said.

“Long-only clients overseas are looking at the Japanese equity market, because they’ve been a little bit underweight, and there is still some room to add Japanese equities going forward.”

China stocks clawed their way off session lows but were still down, after Beijing set sweeping new guidelines to regulate asset management products. Analysts said that could dampen investor appetite for riskier assets.

The Shanghai Composite index .SSEC was down 0.5 percent, while China's blue-chip CSI300 Index .CSI300 fell 0.2 percent.

“The new guideline is not the last shoe to drop, or the last piece of bad news,” said Li Huiyong, an economist at Shenwan Hongyuan Securities. “The era of tough financial supervision has just begun.”

On Friday, the Dow Jones Industrial Average .DJI shed 0.4 percent, the S&P 500 lost 0.3 percent and the Nasdaq Composite  was down 0.2 percent.

The U.S. House of Representatives on Thursday passed their version of a tax overhaul bill that would cut corporate taxes, but the Senate continued to wrangle over its rival tax bill, with investors uncertain about whether Congress will be able to reach a compromise.

Against the yen, the dollar edged up 0.1 percent to 112.10 JPY=, after earlier falling as low as 111.89, its lowest since Oct. 16.

The dollar index, which tracks the greenback against a basket of six rival currencies, added 0.4 percent to 93.987 .DXY, as the euro fell 0.5 percent to $1.1734 EUR=.

Talks among four German parties seeking to form a coalition government following an election that weakened Chancellor Angela Merkel broke down on Sunday after the pro-business Free Democrats (FDP) pulled out, citing irreconcilable differences.

The decision by the FDP means that Merkel will either seek to form a minority government with the Greens or a new election will be held.

“It’s not a total surprise, and this kind of political change will not derail the German economy,” said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo.

“We are seeing this kind of reaction in the Asian session, but we need to see how Europe will react to this news later.”

He noted that emerging currencies, which are “usually the biggest victims of risk aversion, are not really falling.”

Position unwinding ahead of this week’s U.S. Thanksgiving holiday could keep the dollar’s gains in check, market participants said.

With the market nearly fully pricing in an interest rate increase by the Federal Reserve next month, speculators cut their bearish bets on the dollar for the seventh straight week.

The net negative value of positions against the greenback fell to a four-month low in the latest week, according to calculations by Reuters of data released by the Commodity Futures Trading Commission (CFTC) on Friday.

Lower benchmark U.S. Treasury yields also restrained the dollar, as the yield curve continued to flatten. The 10-year Treasury yield stood at 2.327 percent in Asian trade, down from its U.S. close of 2.354 percent on Friday.

Yields briefly rose on Friday, with those on 2-year notes hitting a fresh nine-year peak, after U.S. housing starts surged 13.7 percent to their highest since October 2016.

Spot gold XAU= was down 0.2 percent at $1,291.54 an ounce, after it jumped to a one-month high on Friday as the dollar softened amid tax reform uncertainty.

Crude oil futures were mixed. Brent crude oil dipped 10 cents, or 0.2 percent, to $62.62 a barrel, while U.S. crude CLc1 added 7 cents, or 0.1 percent, to $56.62 a barrel.

Oil rebounded more than 2 percent on Friday after falling for five straight session as a major U.S. crude pipeline was shut and traders anticipated an OPEC deal to extend curbs on production.

But crude prices still fell for the first week in six, pressured by rising U.S. output data and doubts that Russia would support an extension of the OPEC output cut deal.

Reference: Lisa Twaronite

Sunday, 19 November 2017

Fed's Williams joke shows how a novel policy could work, or fail

BERKELEY, Calif. (Reuters) - Economists presenting at a conference earlier this week blew through the organizers’ four-slides-per-speaker limit, and the host, San Francisco Fed President John Williams, vowed to take action.

“I am going to try, over the rest of my time at the Fed, to undo that damage by not showing any slides,” he said on Saturday at a separate conference at the University of California, Berkeley.

His joke elicited chuckles from the audience of scholars who had suffered through an immense number of equation-packed slides at the San Francisco Fed’s just-concluded conference.

By paying for that excess with a promise not to show any slides himself, Williams said, he hoped to ultimately bring the total number back in line with the original limit.

The approach neatly illustrates the logic behind a bold and nearly untried monetary policy idea that Williams has lately embraced.

The idea, known as price-level targeting, calls for a central bank to make up for bouts of low inflation by encouraging high inflation later on.

It differs from the Fed’s current approach of targeting inflation at 2 percent while taking a position of “let bygones be bygones” to past periods when it is above or below that level.

Williams, Chicago Fed President Charles Evans and former Fed Chair Ben Bernanke have in recent months championed price-level targeting as a way to give central banks more scope to combat a severe downturn when merely cutting interest rates is not enough.

If people believe the central bank will stick to this policy, they will try to spend what they can during a downturn, before their money’s value is eroded by future inflation. That spending will itself pull the economy from recession faster, shortening any future period of high inflation induced by the central bank.

If such a policy were put in place now, the Fed would need to allow inflation to run at 3 percent, about twice as high as it is today, for about the next five years.

But the idea that the Fed would subject Americans to such a paycheck-draining policy strains belief, critics say.

“I find that quite implausible,” former Minneapolis Fed President Narayana Kocherlakota said earlier this week.

One economist at the Saturday conference said: “We’d probably bail on the policy halfway through.”

Williams completed his 15-minute talk there without showing a single slide. It remains to be seen whether he will stick to his policy in the 10 years before he reaches the Fed’s mandatory retirement age.

Reporting by Ann Saphir

Friday, 17 November 2017

What is The Elliott Wave

An Educational Article

Ralph Nelson Elliott developed the Elliott Wave Theory in the late 1920s by discovering that stock markets, thought to behave in a somewhat chaotic manner, in fact traded in repetitive cycles.
Elliott discovered that these market cycles resulted from investors' reactions to outside influences, or predominant psychology of the masses at the time. He found that the upward and downward swings of the mass psychology always showed up in the same repetitive patterns, which were then divided further into patterns he termed "waves".

Elliott's theory is somewhat based on the Dow theory in that stock prices move in waves. Because of the "fractal" nature of markets, however, Elliott was able to break down and analyse them in much greater detail. Fractals are mathematical structures, which on an ever-smaller scale infinitely repeat themselves. Elliott discovered stock-trading patterns were structured in the same way.
Market Predictions Based on Wave Patterns.

Elliott made detailed stock market predictions based on unique characteristics he discovered in the wave patterns. An impulsive wave, which goes with the main trend, always shows five waves in its pattern. On a smaller scale, within each of the impulsive waves, five waves can again be found. In this smaller pattern, the same pattern repeats itself ad infinitum. These ever-smaller patterns are labelled as different wave degrees in the Elliott Wave Principle. Only much later were fractals recognized by scientists.

In the financial markets we know that "every action creates an equal and opposite reaction" as a price movement up or down must be followed by a contrary movement. Price action is divided into trends and corrections or sideways movements. Trends show the main direction of prices while corrections move against the trend. Elliott labelled these "impulsive" and "corrective" waves.

Theory Interpretation
The Elliott Wave Theory is interpreted as follows:
Every action is followed by a reaction.
Five waves move in the direction of the main trend followed by three corrective waves (a 5-3 move).
A 5-3 move completes a cycle.
This 5-3 move then becomes two subdivisions of the next higher 5-3 wave.
The underlying 5-3 pattern remains constant, though the time span of each may vary.

Theory Gained Popularity in the 1970s
In the 1970s, this wave principle gained popularity through the work of Frost and Prechter. They published a legendary book on the Elliott Wave entitled "The Elliott Wave Principle – The Key to Stock Market Profits". In this book, the authors predicted the bull market of the 1970s, and Robert Prechter called the crash of 1987. (For related reading, see Digging Deeper Into Bull And Bear Markets and The Greatest Market Crashes.)

The corrective wave formation normally has three distinct price movements - two in the direction of the main correction (A and C) and one against it (B). Waves 2 and 4 in the above picture are corrections. These waves have the following structure:

Note that waves A and C move in the direction of the shorter-term trend, and therefore are impulsive and composed of five waves, which are shown in the picture above.
An impulse-wave formation, followed by a corrective wave, form an Elliott wave degree consisting of trends and countertrends. Although the patterns pictured above are bullish, the same applies for bear markets where the main trend is down.

Series of Wave Categories
The Elliott Wave Theory assigns a series of categories to the waves from largest to smallest. They are:
Grand Supercycle
To use the theory in everyday trading, the trader determines the main wave, or supercycle, goes long and then sells or shorts the position as the pattern runs out of steam and a reversal is imminent.

Reference: Investopedia

Dollar weakens on report Trump's election campaign subpoenaed

TOKYO (Reuters) - The dollar slipped on Friday, weakened by a Wall Street Journal report that investigators into possible Russian interference in the 2016 U.S. presidential election had subpoenaed President Donald Trump’s election campaign for documents.

Special Counsel Robert Mueller’s team issued the subpoena last month for documents containing specified Russian keywords from more than a dozen officials, according to the report.

The dollar index against a basket of six major currencies was down 0.35 percent at 93.593.

The index had edged up overnight to pull away from a four-week trough of 93.402 set on Wednesday. Wall Street shares rallied overnight after sagging through much of the week, causing a 4 basis points jump in the long-term Treasury yield to shore up the dollar.

“Dollar selling picked up after the market became aware of the Wall Street Journal’s report,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.

“Dollar demand from institutional investors appeared quite strong but selling by speculators seemed even stronger. We are likely to see choppy moves as participants try to adjust their positions before Thanksgiving Day (on Nov. 23).”

The greenback dropped about 0.6 percent to 112.405 yen JPY=, lowest since Oct. 19.

The dollar had bounced overnight from a one-month low of 112.470 yen midweek as an ebb in investor confidence halted a surge in global equities and lifted the Japanese currency.

“While the comeback in equities has stopped the recent decline in Treasury yields, focus remains on U.S. tax reforms,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.

“Yields cannot rise much further when it is unclear whether tax reforms can go through this year. Dollar/yen can test the 114.00 handle but lacks momentum for a sustained surge under such conditions.”

The U.S. House of Representatives on Thursday approved a broad package of tax cuts sought by Trump. The debate now moves to the Senate, where Republican majority is smaller and no decisive action is expected until after next week’s Thanksgiving holiday.

The euro rose 0.35 percent to $1.1814, paring overnight losses.

The common currency was on track to gain 1.2 percent on the week. It had rallied to a one-month high of $1.1862 on Wednesday after data showed strong growth for Germany’s economy in the third quarter.

Against the sagging dollar, sterling extended gains after drawing support overnight when an initiative by European Central Bank President Donald Tusk on Brexit negotiations was taken as mildly positive.

The pound rose 0.35 percent to $1.3238 to put further distance between the week’s low of $1.3063 marked on Monday when perceived troubles for British Prime Minister Theresa May hurt the currency.

The Australian dollar crawled up 0.15 percent to $0.7598. It was still poised to end 1 percent lower on the week, during which it sank to a near five-month low of $0.7567 on lower commodity prices and weak domestic data.

Reporting by Shinichi Saoshiro

Sterling unmoved by retail sales data; Brexit eyed

LONDON (Reuters) - Sterling was only a touch higher on Thursday as investors largely ignored marginally better-than-expected retail sales data, focusing instead on uncertainty around Brexit negotiations.

The pound fell to a four-week low against the rallying euro on Wednesday, after numbers showed wages still lagging well behind inflation, keeping pressure off the Bank of England to raise interest rates again after the first hike in a decade earlier this month.

Sterling was up slightly on the day at $1.3186, having spent this month in a tight $1.30 to $1.32 band. Against the euro, it was 0.2 percent up at 89.23 pence, still close to Wednesday’s trough of 90.14 pence.

“The data is not going to be a game changer as it is all about Brexit negotiations at the moment and sterling is going to be trading in a tight range until we see further clarity on that,” said Viraj Patel, an FX strategist at ING in London.

British retail sales recorded their first year-on-year decline since 2013 last month, despite solid growth in volumes from September, as households battled with fast-rising prices.

Data on Tuesday had put UK consumer price inflation at 3.0 percent in October, lagging expectations.

Wednesday’s numbers also showed the number of people in work in Britain fell by the most in more than two years in the three months to September, in the latest sign of weakness in Britain’s Brexit-bound economy.

Progress at a Brussels summit between European and British negotiatiors next month is seen as an important milestone in the Brexit talks, as businesses seek clarity by the new year when many will take investment decisions dependent on conditions.

“The pound has been undermined by a combination of softer UK economic data releases, heightened domestic political uncertainty and building Brexit concerns ahead of next month’s EU Leaders Summit,” wrote MUFG currency strategist Lee Hardman, in a note to clients.

“The pound is likely to prove sensitive to negative economic data releases in the near-term, given that the BoE has signalled that it is not in a rush to follow up their first hike from earlier this month.”

Reference: Saikat Chatterjee

Thursday, 16 November 2017

5 Tips for Trading During Volatile Markets

An Educational Article

Increased volatility leads many traders to seeing an increase in trading opportunities. The huge market swings trigger thoughts of monumental upside, but also for potential loss especially if traders do not take the necessary precautions. During times of volatility, traders need to adjust their strategy to compensate for erratic market. When trading during these market conditions, traders should follow the rules below.

1. Be More Selective Before Placing Trades
Wanting to take advantage of all the trading opportunities that present themselves in volatile markets, traders are tempted to place an increase number of trades. This temptation should be avoided. It is important to remember that in volatile times, losses are likely to be big. Before placing a trading, assess risk tolerance levels. Determine the level of risk that is acceptable for the trader both psychologically and financially before placing any trades.

2. Use Less Leverage
During high market volatility, losses can be traumatic. With the average trading range increased in volatile times traders should be considering how leverage will affect trades. At a one percent or even a half percent margin, investors should be mindful of how much leverage or even the size position being traded can affect their portfolio. In normal market conditions, placing a 2 lot position is fine when you are looking to make about 50-100 pips. During a more volatile time, when the potential loss is 100-200 pips, it stops being an effective risk to reward ratio. To compensate traders should look to taking on smaller trading positions, in this case only one lot as opposed to the average 2 lot position.

3. Trade with More Discipline
Traders should always follow their predetermined trading strategy regardless of market condition. During volatile markets, this is even more important to use that same level of restraint. Traders must adhere to any set stops, contingency plans or risk management benchmarks without hesitation. This will help to define how much risk is taken should price action be uncontrollable. Without this level of discipline and self control losses can be great.

4. Tighten Stops
Many traders are hesitant to use tighter stops in volatile markets because they see the large swings increasing the likelihood that the position will be taken out. Having tighter stops can also provide great risk managers in times of extreme volatility. For example, on a EURUSD trade, rather than setting an 80 pip stop to protect your position, consider placing a 50-60 pip stop. This will insure the protection of your currency position and if the stop is broken, there is a high likelihood that the trend will continue lower and the stop took you out before you could potentially lose more money.

The width of the stop being set does depend on the currency pair being trading as some pairs have wider ranges. In a Yen cross like the GBPJPY or AUDJPY, traders may be more likely to have wider stops as their average daily range is 50% more than that of the EUR/USD. With that said, stops during volatile market conditions should not as wide as before. Instead of a stop 100 pips below entry, traders may consider a 25 pip reduction and have a 75 pip stop. Below is a chart showing the EURUSD and the GBPJPY on the same very volatile day in the forex market. The EURUSD had an impressive range of nearly 600 pips! The GBPJPY far dominated though with nearly a 2000 pip trading range.

5. Be Prepared
It also helps a trader to know what is causing the current spate of volatility in the markets in order to be prepared for the unexpected. As such, an investor can accommodate their strategy to the market environment and not just the currency pair being traded. The first of these considerations is accounting for emotions in a market: is fear currently driving the market lower? Or is it buyer's mania that is keeping the bullish tone alive? Traders' overreaction and emotion tend to push markets to overextended targets. This fact alone creates volatility through simple supply and demand.

Volatility can also, and more than likely will, be sparked by economic events. In this instance, market participants may interpret fundamental data differently and not as cut and dry as the more novice trader. A perfect example of this is usually monthly manufacturing reports that are released in pretty much all industrial economies. The classic scenario has the market honed in on a particular number for the month. However, traders young and old will sometimes wonder why the market sold off if manufacturing showed positive growth. The answer is simple. The market had a different interpretation and positions were violently reshaped and shifted. These tend to create great opportunities for some and horrible memories for others. 

Panic and erratic momentum can additionally be found in certain market environments. Not to be confused with fear or greed, panic selling and buying can create very choppy and relatively untradeable markets. These conditions will lead some to flip flop their positions while leaving others gaping at the fact that the position was right, only to be stopped out prematurely. These two common examples will create further panic and volatility as traders abandon their own individual strategy for the possibility of instant profits or stoppage revenge. As a result, a vicious cycle of volatility ensues until a definitive market direction can be established.

The simple rules above, and a task of getting to know the current trading environment, can empower every trader through the ranks. Although some relate volatility with difficult and untouchable markets, opportunities continue to remain abound in these less than attractive conditions to those focused and fortunate.
By following these five simple steps, trading in volatile market conditions should be a little simpler. Don't forget to adjust leverage based on volatility, follow your trading plan, tighten your stops and know why you are getting into a trade before you place it.

Reference: Richard Lee

Asia shares gain despite Wall St. weakness, dollar edges higher

TOKYO/SYDNEY (Reuters) - Asian shares shrugged off Wall Street losses and a lackluster start to rally on Thursday, while the dollar edged up as investors priced in more U.S. rate hikes after upbeat economic data.

“European equity traders will likely inherit a positive market,” Ipek Ozkardeskaya, analyst at London Capital Group, said in a note.

Futures portended solid openings for European bourses, with European stock futures up 0.3 percent, Dax futures up 0.4 percent, and FTSE futures and CAC futures each up 0.3 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was up 0.7 percent.

Australian stocks added 0.2 percent, with sentiment helped by data showing the country’s jobless rate dipped to 5.4 percent in October, its lowest since early 2013.

Japan's Nikkei reversed early losses and surged 1.5 percent as investors hunted for bargains after a six-day losing streak

EMini futures for the S&P 500 added 0.3 percent after major indexes dropped on Wall Street overnight, with the S&P 500 energy sector  suffering a four-day decline of 4 percent, its weakest such period in 14 months.

Investor concern over the progress of a massive U.S. tax reform plan showed no sign of abating as two Republican lawmakers on Wednesday criticized the Senate’s latest proposal.

“If we look at what the markets are focusing on, it’s still very much the tax cut debates in the U.S., and how much progress there’s going to be on this front,” said Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore.

“Clearly, there’s some way to go before any deal is on the table, and I think markets perhaps may have reassessed some bullish expectations, and hence some of the dollar weakness yesterday, and probably the fact that the dollar has been unable to make up much lost ground today,” Kotecha said.

The dollar index, which tracks the greenback against a basket of six major rivals, was slightly higher on the day at 93.828. The euro was steady at $1.1791 EUR=, retreating from a one-month top of $1.1860 on Wednesday.

Against its Japanese counterpart, the dollar gained 0.2 percent to 113.04 yen JPY= after it sunk as deep as 112.47 overnight. But it remained well shy of its eight-month high of 114.735 hit last week as Japanese stocks pushed to multi-decade highs.

Doubts that the latest round of talks to overhaul the North American Free Trade Agreement would make much headway in the face of tough U.S. demands saw Mexico's peso MXN= sink to an eight-month low on Wednesday, though it steadied in Asian trade.

Mostly upbeat economic news added to expectations that the Federal Reserve would not only hike in December, which is now almost fully priced in, but multiple times next year as well.

Core U.S. inflation edged higher and retail sales beat forecasts in a positive sign for growth.

The rate outlook could push the two-year Treasury yields up further from its nine-year peaks, after the yield curve hit its flattest in a decade.

Investors also suspect this tightening will slow the U.S. economy and stop inflation ever getting to the Fed’s 2 percent target, pulling down longer-term treasury yields. As a result the gap between two- and 10-year yield has shrunk to its thinnest premium since late 2007.

“Whether it is the flattest yield curve in a decade, and what that has historically signaled for future growth, the recent troubles in high-yielding credit or lingering geopolitical tensions, it is not entirely clear what has markets spooked,” ANZ analysts wrote in a note.

In commodity markets, gold XAU= edged down 0.1 percent to $1,277.29 an ounce. It reached $1,289.09 overnight, its highest since Oct. 20.

Oil prices gained despite pressure after the U.S. government reported an unexpected increase in crude and gasoline stockpiles. They had lost ground to this week’s International Energy Agency (IEA) outlook for slower growth in global crude demand.

U.S. crude added 5 cents to $55.38 a barrel. Brent crude futures  were 15 cents higher at $62.02.

Reporting by Lisa Twaronite in Tokyo and Wayne Cole

Wednesday, 15 November 2017

Euro jumps to three-week highs as risk appetite returns

LONDON (Reuters) - The euro consolidated gains at a three-week high on Wednesday as investors grew optimistic about the single currency’s outlook with growing doubts about the prospects of the U.S. tax plan also underpinning gains.

With growth from the economic bloc exceeding the United States in the third quarter, led by economic powerhouse Germany, investors were becoming more comfortable in holding risky assets in Europe.

“The growth story in Europe is reasserting themselves and we are starting to see some doubts creep in on the prospects of the U.S. tax plan,” said Timothy Graf, head of macro strategy EMEA at State Street Global Markets in London.

The single currency EUR punched through a key technical level of $1.1734 on Tuesday and extended gains on Wednesday to rise 0.4 percent at $1.1853 against the dollar.

On a two-day rolling basis, the euro was set to stage its biggest rise in nearly six months.

Over the last few sessions, unhedged purchases of European stocks have picked up noticeably after declining in October.

The euro’s gains was also partially a dollar weakness story as the single currency’s gains was largely muted against the crosses, especially the Japanese yen EURJPY=

The euro’s gains were also bolstered by concerns that an ambitious U.S. tax plan may face headwinds even as financial markets have priced in more interest rate hikes next year.

U.S. Senate Republicans on Tuesday linked repealing a key component of Obamacare to their ambitious tax-cut plan, raising new political risks and uncertainties for the tax measure that financial markets have been monitoring closely for months.

The dollar index fell 0.3 percent to 93.553 on Wednesday as investors awaited U.S. consumer inflation data for October,later on Wednesday.

“The dollar is getting hit against the euro and the yen and the strong data out of Europe is definitely a factor with some investors bailing out of the long dollar trade,” said Alvin Tan, an FX strategist at Societe Generale in London.

Reference: Saikat Chatterjee

Global Forex code bans 'last look' trading tactic

LONDON (Reuters) - A controversial trading tactic used on the $5 trillion (£3.78 trillion) a day foreign exchange markets has been banned by a global committee of central bankers and industry officials.

The Global Foreign Exchange Committee said on Wednesday it had concluded that traders should not undertake trading activity that uses information from a customer’s trading request during the “last look” window.

“Last look” refers to the ability of dealers to reject a trade at the last minute. Critics say traders could potentially abuse this by using the market intelligence gained to influence other trades.

The committee said the decision would be reflected in a revised version of its code that was launched in May in response to banks being fined billions of dollars for rigging currency benchmarks.

The committee said it had also agreed to clarify conditions under which certain trading arrangements could be distinguished from “last look”.

“The GFXC has made a number of decisions that will help to strengthen and embed the Code across the global market,” the committee’s chair, Chris Salmon, said in a statement.

Salmon, who is executive director for markets at the Bank of England, said in September the code may need tweaking.

Reporting by Huw Jones

Forex, The Four Letter R-word

An Educational Article

A lot is written about Forex Risk; whether the markets are tolerant, averse, or neutral. It is a headline that is bandied about on a regular basis. Quantifying the value of risk, and its forex impact, may be so much harder to do in the trading arena, than reporting each day on whether the herd was charging towards, or away from risk.
In its natural state the financial market has three major attitudes towards risk that models its behaviour and actions throughout each of the global trading session. The three are; risk aversion, risk tolerance and risk-neutral. Headlines overplay the four letter Risk word, it should be used sparingly as daily risk levels do not reflect the big picture of fair value on global risk, and its forex implications.

Aversion Phase:
Risk-aversion is characterized by investors selling assets in times of global contraction that are considered risky, and swapping them for the safety of the bond market, mainly U.S. Treasuries. Risk-aversion can be seen relatively easily; commodities decline (global commodities are priced in USD values, and as such create a short commodity/Long dollar move), as investors consider that consumption will slow, while S&P futures also head lower at a sustainable pace.
In the currency market, risk-aversion strengthens the dollar, as investor sell foreign denominated assets to buy U.S. Treasuries. In this period, higher yielding currencies (those with a higher overnight, or ten year note rate) are the ones being sold the most as the USD is bought.

Tolerant Phase:
The risk-tolerance phase is seen when Treasuries and bonds are sold as investors look for higher yields in a long-term play that reflects a confidence that the global economy is expanding. In periods of relative calm and positive macroeconomic reports, traders dilute holdings in the safety of the bond market and invest their capital in stocks, commodities and higher yielding foreign currencies. Usually, bull markets are characterized by risk-tolerant phases and in this period S&P futures and global commodities head higher. Therefore, in this period the dollar is sold.

Neutral Phase:
In most cases, risk-neutrality happens when the financial market moves side-ways, unable to push to test support or resistance, and when global fair value on risk is accepted. At this stage the global economy will be hitting its peak, or hitting its trough, in the business cycle phase. This will be characterized by a re-distribution period, as investors shift their assets between the various financial instruments in preparation for the next leg of fair value on risk.
The main difference in the Neutral phase being that the shifts are not only session-by-session, they literally happen hour-by-hour as big players try to make their automated moves without detection. Sentiment is seen to change from one to the other, empowered by the relentless flow of global market trades that trigger as a contingency play, as each individual market accepts risk neutrality, or not.
The sideways moving market tends to be the more volatile as the channels are traded, and fair value sought at each regional market open and close. 

Transition Phase:
Looking towards the next three months of trade, tenured forex traders understand that fair value on the USD, and on risk, will be all about the phase that global business cycle are entering. The stages are; Trough> Expansion> Growth> Peak> Contraction. The five cycles take 10-15 years on average to work through and complete. The U.S. economy however has been completing the cycle in half that time, and that is making USD long-term valuations harder to reliably plan.
Therefore, when in Trough-to-Expansion, or Peak-to-Contraction phases, the market runs on risk neutrality and stocks dominate reads on fair value. This leads to a very high correlation (averaging 90%) between equity trade and USD movement; stocks go up and USD goes down.
When we get into the Expansion or Contraction, phase, and either one is in full flow (lasting a 5-8-year period globally, or 2-3 years in the US) risk tolerance takes over, interest rate differentials dominate the valuation of currencies, and stock market correlations reduce (averaging 60%). Fair value on risk and on the USD becomes all about growth and interest rates.

Fed Fund Phase:
In times of Growth the USD will increase against those currencies not showing inflation, and/or, higher interest rate outlooks. As and when the Federal Reserve raise overnight interest rates, it will be because of an inflation fear coming from economic expansion, and it will very likely be in a drip-fed manner of slow and steady increments as the attempt to keep the speculative interest on the long side of the USD at bay.
However, the USD will then be challenged by regional growth that does not carry the weight of massive debt and current account/trade imbalances. The USD may never get back to 90.00 on the dollar index if global regions expand at the same pace as America. As in 1972 under President Nixon, it looks as though the U.S. in 2009 has set up USD devaluation with an over-commitment to Treasury debt that now looks challenging, to say the least.

Weak Dollar Phase:
Forex traders will be looking again at whether the global economy is prepared to welcome a slimmed down version of the greenback, something that seems a ‘must-have’ for the Federal Reserve. That however can only happen in the current environment with an increasing global equity market, and a boisterous oil market arena that maintains a high level of long speculative interest.
We have to go back to the rule book set in 1972-73 when the last major forex rule was torn up and re-set, to a time that the dollar index was born if we are to gauge the potential in an ever-decreasing USD value Traders and investors may have to accept that going forward the USD/Risk link may become eroded as the debt mountain surpasses equity direction as the thing that helps or impedes daily USD valuations.

Percentage Risk Phase:
Following the laws of probability and the (Shwartz Stock Market Handbook has it as historically being the worst performing equity time of the year), forex trader eyes will be all about whether the USD gets bought in the same number as previously seen in the recent Risk Averse periods of trade. If stocks pull back and the USD does not get bought at a 90% correlated rate, we will have a signal of two things;
Firstly, that the market is valuing risk on forward Growth and interest rate differentials. Secondly, that the equity pull-back may be a technical signal that it will find support before making the next leg higher, rather than being the start of an equity collapse.
Risk Tolerance and Interest Rates will be affected by the global business cycle. Whatever the headlines roar about this session being tolerant on risk, or not, we now fully understand that at this pivotal a time, risk will be seen in the percentage correlation between equities and the USD changing.

Forex Trader Phase:
Forex traders will be looking to see that USD/CHF is moving hard when they place their trades, if not they will be questioning the moves because Swissy has become correlated to dollar index moves holding, or not. They will also be looking for oil and S&P futures markets to stay aligned, because in any play in forex, whatever the pair being traded, the USD does affect the momentum flow.
The USD affects every major traded cross pair, for example; EUR/USD x USD/JPY = EUR/JPY. Also, EUR/USD ÷ GBP/USD = EUR/GBP. The synthetic pairs (no USD on one side or the other) can only move as a percentage of the change in the major pair moves against the USD; knowing what the drivers of the USD are doing allows for targets to be realistically set, and lot size accordingly adjusted.
Getting secondary confirmation from inter-related markets is a must-do for any level forex trader, especially when fair value on risk is so hard to find as global markets transition from Trough to Growth. 

Reference: The LFB Team