Friday, 23 March 2018

Global stocks tumble, bonds and yen gain as trade war fears drive rush to safety

TOKYO (Reuters) - The rumblings of a global trade war shook stock and currency markets on Friday after U.S. President Donald Trump announced long-promised tariffs on Chinese goods and Beijing pledged to fight any such war to the end.

Spreadbetters expected European stocks to open lower, with Britain's FTSE losing 0.9 percent, Germany's DAX falling 1.6 percent and France's CAC  shedding 1.5 percent.

S&P futures were down 0.6 percent, suggesting a weaker open on Wall Street later in the day.

Trump signed a presidential memorandum on Thursday that could impose tariffs on up to $60 billion of imports from China, although they have a 30-day consultation period, raising the chance that final measures could be watered down.

Investors fear that the U.S. measures could escalate into a trade war, with potentially dire consequences for the global economy.

Beijing urged the United States on Friday to “pull back from the brink”.

“China doesn’t hope to be in a trade war, but is not afraid of engaging in one,” the Chinese commerce ministry said in a statement.

China unveiled its own plans on Friday to impose tariffs on up to $3 billion of U.S. imports in retaliation against U.S. tariffs on Chinese steel and aluminium products.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 2.5 percent as stocks across the region dropped. For the week, the index recoiled over 4 percent.

Shanghai shares were down 3.8 percent.

“The economic impact on both China and the U.S. will be determined by what form the tariffs end up taking. The effects are likely to be felt more strongly in the U.S. and will increase both consumer and producer prices,” wrote Hannah Anderson, global market strategist at J.P. Morgan Asset Management.

“The equity market will bear the brunt of the market reaction. Most impacted will be the U.S., Korea, and Taiwan as companies domiciled in these markets make up a significant portion of the global production chain of Chinese exports.”

Japan's Nikkei  dropped 4.5 percent.

Australian stocks lost 1.9 percent, Hong Kong's Hang Seng  was down 3.1 percent, Taiwan shares . slid 1.6 percent and South Korea's KOSPI retreated almost 3 percent.

“A possible trade war between the United States and China is especially serious for the South Korean economy as it could directly or indirectly affect the country’s trade with them as well,” said Se Sang-young, an analyst at Kiwoom Securities.

Setting a downbeat tone for Asia, the Dow .DJI on Thursday shed 2.9 percent, the S&P 500 dropped 2.5 percent and the Nasdaq  fell 2.4 percent.

As equities took a beating, the yen, often sought in times of market turmoil, rallied against the dollar.

The greenback fell roughly 0.5 percent to as low as 104.635 yen JPY=, its weakest since November 2016. The dollar was down more than 1 percent on the week.

“In the longer run, protectionist policies touted by the United States could be watered down, in turn limiting the negative effect on trade and the global economy,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo, referring to the U.S. decision to exempt some countries from steel and aluminium tariffs.

“But until the United States makes such concessions, global stocks will be under pressure and the yen will appreciate, especially if China decides to confront the U.S. measures.”

The euro was 0.3 percent higher at $1.2334 EUR=.

The dollar index against a basket of six major currencies slipped 0.3 percent to 89.615.
It has lost roughly 0.7 percent this week, weighed down by a steady decline in U.S. Treasury yields.

Yield on the benchmark 10-year Treasury fell 7.5 basis points overnight as bond prices rose on jitters gripping the broader financial markets.

The yield fell further on Friday to 2.792 percent, its lowest in six weeks.

The 10-year Japanese government bond yield dipped to a four-month trough of 0.020 percent.

In commodities, oil prices recouped overnight losses after Saudi Arabia said that OPEC and Russian-led production curbs introduced in 2017 will need to be extended into 2019.

U.S. crude futures  were up 1.1 percent at $64.99 per barrel after losing 1.3 percent on Thursday and Brent gained 0.9 percent to $69.53.

Safe-haven spot gold XAU= rose to $1,339.12 an ounce, highest since March 7.

Other commodities did not fare as well amid the trade war fears, with copper on the London Metal Exchange falling to a three-month low of $6,628.00 per tonne.

Iron ore futures on China’s Dalian Commodity Exchange lost more than 5 percent.

Reporting by Shinichi Saoshiro

Dollar hovers above one-month low as market digests rate hike; euro struggles

LONDON (Reuters) - The dollar held near a one-month low against a basket of currencies on Thursday as investors digested the implications of a generally dovish outlook from the U.S. Federal Reserve after it raised interest rates by a quarter point as widely expected.

While markets were quick to interpret the Fed’s forecasts for inflation and growth as signalling that interest rates would rise less quickly than previously expected, some said a tightening in general dollar funding conditions could be dollar positive in the short term.

“We were negative on the dollar last year for a variety of reasons but the latest concerns about the dollar liquidity conditions and the trade war headlines makes us a bit more constructive on the dollar,” said Hans Redeker, global head of currency strategy at Morgan Stanley in London.

While the outbreak of a global trade war is generally seen bad for the greenback, some market watchers say the traders could turn to the global reserve currency for security if the trade skirmish morphs into a broad market selloff.

Though the dollar was 0.1 percent lower against a basket of currencies at 89.710, it was still holding above a one-month low of 89.396 hit in early London trades.

The Fed raised U.S. interest rates by 25 basis points to 1.75 percent on Wednesday and signalled two more hikes for 2018, but dollar bulls were expecting a total of four rate hikes in 2018.

Escalating rhetoric on trade also put pressure on the dollar. China accused the United States of “repeatedly abusing” trade practices as it braced for U.S. tariffs worth as much as $60 billion on Chinese imports, which were due to be announced on Thursday.

A global benchmark for banks to borrow dollars for three months on Thursday rose to its highest level since late 2008, a day after the Federal Reserve as expected lifted key short-term borrowing costs by a quarter point.

Analysts said a rise in dollar funding costs might push the dollar higher if tighter financial conditions translate into a global rush to secure funds.

Its losses were more pronounced against the Japanese yen, against which it was down 0.3 percent at 105.69 yen.

“The Fed hiking rates three times, and even four times, this year won’t be too big of a surprise for the currency market, which fully expects the Fed to continue normalising policy,” said Shin Kadota, senior strategist at Barclays in Tokyo.

“On the other hand, there is still room for the market to price in other central banks normalising policy. The dollar needs a big surprise to be jolted higher, something the Fed meeting did not provide,” Kadota said.

A Bank of England meeting later on Thursday is now in focus, with market participants keeping a close eye on the central bank’s policy views, after robust British wage data cemented expectations that the central bank will raise rates as early as May.

The pound extended its overnight rise to hit a near seven-week high of $1.4171.

Elsewhere, the euro found itself on the back foot after surveys showed euro zone businesses were feeling the heat from a strong currency.

The single currency was trading 0.2 percent lower at $1.2319.

Preliminary purchasing managers index numbers for March showed euro zone businesses had their slowest growth in more than a year as new business took another hit from a stubbornly strong euro.

Reporting by Saikat Chatterjee

Thursday, 22 March 2018

Dollar sags on Fed's rate hike views, pound hits seven-week high before BoE

TOKYO (Reuters) - The dollar struggled against its peers on Thursday after the Federal Reserve indicated it was more likely to raise interest rate three times in 2018 instead of the four that some currency bulls had hoped for.

The Fed raised rates by 25 basis points to 1.75 percent on Wednesday and signalled two more hikes for 2018, highlighting its growing confidence that tax cuts and government spending will boost the economy and inflation and spur more aggressive future tightening.

The U.S. central bank also projected three hikes in 2019.

The greenback slipped, however, with investors who had bet on the Fed signalling four rate increases in 2018 instead of the widely anticipated three seen to have taken profits after the announcement.

The dollar index against a basket of six major currencies was 0.3 percent lower at 89.528, after dropping as much as 0.7 percent overnight.

“The Fed hiking rates three times, and even four times, this year won’t be too big of a surprise for the currency market, which fully expects the Fed to continue normalising policy,” said Shin Kadota, senior strategist at Barclays in Tokyo.

“On the other hand, there is still room for the market to price in other central banks normalising policy. The dollar needs a big surprise to be jolted higher, something the Fed meeting did not provide,” Kadota said.

The Bank of England’s meeting later on Thursday is now in focus, with market participants keeping a close eye on the central bank’s policy views after robust British wage data cemented expectations that the central bank will raise rates as early as May.

The pound extended its overnight rally and rose to a near seven-week high of $1.4171.

“Brexit negotiations have moved forward and this is expected to provide the BoE with a lift towards raising rates,” said Takahiro Otsuka, market economist at Mitsubishi UFJ Morgan Stanley Securities. “Today’s policy meeting will provide an opportunity to see if the BoE is prepared to tighten as early as May,”

The European Union on Monday said it had agreed to grant London a status-quo transition after it exits the bloc next year, until the end of 2020.

The dollar was down 0.3 percent at 105.700 yen after slipping about 0.5 percent the previous day.

The euro added 0.2 percent to $1.2363 following a gain of 0.8 percent overnight.

The Australian dollar, which rallied more than 1 percent overnight against a flagging greenback, was down 0.3 percent at $0.7744 .

Reporting by Shinichi Saoshiro

Dollar on defensive after Fed, trade worries hit Asian shares

TOKYO (Reuters) - The U.S. dollar slipped on Thursday after the Federal Reserve did not signal a faster pace of rate hikes this year while worries about a coming announcement on tariffs from U.S. President Donald Trump dented Asian shares.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.1 percent, erasing earlier gains of up to 0.7 pct, which were led by South Korea .KS11 and Taiwan .TWII hitting six-week highs. Japan's Nikkei .N225 gained 0.4 percent.

Wall Street stock indexes ended the day lower, with the S&P 500 losing 0.18 percent and the Nasdaq Composite 0.26 percent.

The U.S. Federal Reserve raised interest rates on Wednesday and forecast two more hikes for 2018 in its first policy meeting under Chairman Jerome Powell.

Given that some investors had expected it to project three more rate hikes, the guidance was perceived by some as less hawkish than anticipated, a positive factor for risk assets in general, though analysts noted the Fed was upbeat on the economy overall.

Fed policymakers notched up rate projections for 2019 and 2020 and also raised the estimated longer-term “neutral” interest rate a touch, suggesting the current tightening cycle could go on longer than previously thought.

“They also forecast three hikes next year and two more in 2020 and clearly revised up the growth forecast as well,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“So the picture looks different when you look at longer-term projections. That explains the complicated reaction by markets. The prospects of continued rate hikes may cap shares,” he added.

The yield on two-year U.S. notes yield slipped back to 2.299 percent from 9 1/2-year high of 2.366 percent hit on Wednesday while the 10-year yield dipped to 2.872 percent after an initial spike to 2.936 percent.

That pushed the U.S. dollar lower in the currency market, with the dollar index testing this month’s low after suffering its biggest fall in two months on Wednesday.

The euro gained 0.2 percent to $1.2363, extending its recovery from a near three-week low of $1.2240 touched earlier in the week.

The dollar shed 0.4 percent to 105.66 yen, turning down on the week to edge closer to its 16-month low of 105.24 on March 2.

The British pound hit a 1 1/2-month high of $1.4171, building on Wednesday’s one-percent gains.

Strong UK wage data published on Wednesday cemented expectations that the Bank of England will likely signal a May rate hike later in the day at a monetary policy meeting.

Bucking the trend, the Hong Kong dollar HKD=D4 hit a 33-year low of 7.8469 per U.S. dollar, inching closer to the lower end of the Hong Kong Monetary Authority's targeted trading band of 7.75-7.85.

But most market participants do not see this bout of weakness as a threat or attack on Hong Kong’s dollar peg, unlike instances in the past.

With the Fed meeting over, investors are watching Trump, who is due to sign a memo on imposing tariffs on Chinese imports at 1630 GMT on Thursday.

Concerns about a trade war between the world’s two largest economies have kept many investors on guard.

U.S. Trade Representative Robert Lighthizer said on Wednesday the tariffs would target China’s high-technology sector and could also include restrictions on Chinese investments in the United States.

Investors worry such a move could trigger countermeasures by China, possibly causing a vicious cycle of escalating retaliation.

Shares on China's exchanges were lower, the with Shanghai Composite Index slipping 0.8 percent to two-week lows.

“China’s equity market is relatively domestic. We estimate that on average more than 80 percent of revenues are generated in China while only a marginal share comes from the U.S. Still, there would be first-order casualties if trade tensions escalated. In the front line would be firms with significant exposure to the US, mostly in the tech and consumer sectors,” wrote analysts at Societe Generale.

In the energy market, oil prices stood near six-week highs and closed in on a 3-year peak set in late January, helped by a surprise decline in U.S. inventories, strong compliance on OPEC production cuts, and persistent concerns on the nuclear pact with Iran.

U.S. West Texas Intermediate crude futures rose to as high as $65.74 per barrel, not far from its January peak of $66.66, having gained almost five percent so far this week.

In contrast, copper fell to three-month low of $6,702 per tonne the previous day before bouncing back to $6,817.

Reporting by Hideyuki Sano

Wednesday, 21 March 2018

Sterling jumps on strong jobs data; BOE eyed

LONDON (Reuters) - Sterling hit the day’s high after data on Wednesday showed that British workers’ overall pay rose at the fastest pace in nearly 2-1/2 years over the three months to January, boosting chances that the Bank of England will raise interest rates in May.

The Office for National Statistics also said the number of people in work grew by 168,000 in the three months to January. A Reuters poll of economists had pointed to a much smaller rise of 84,000.

“Today’s data may well give policymakers the green light to hike rates again in May,” said James Smith, an economist at ING.

“Now that a deal has been struck on the transition period, which helps cement the Bank’s assumption that the road to Brexit will be ‘smooth’ (for now at least), there are few other obvious barriers to a near-term hike.”

Sterling extended gains after the data to hit the day’s highs at $1.4066, up nearly half a percent. Before the data, sterling was up nearly a quarter of a percent on the day thanks to a struggling dollar.

Bond markets give a 70 percent probability of a rate hike by May and an 84 percent chance of two rate hikes by the end of the year, according to Thomson Reuters data.

Against the euro, sterling also hit the day’s highs and traded up 0.25 percent at 87.25 pence. Britain’s blue chip FTSE 100 index extended losses very slightly, last down 0.4 percent.

British government bond futures fell more than 30 ticks after the data, pushing two-year government bond yields 5 basis points higher on the day to 0.936 percent, their highest since May 2011, according to Tradeweb data.

With long positions in sterling whittled down in recent weeks after hitting a three-year high in late January, more upside room for the British currency is likely if the Bank of England adopts a confident stance at Thursday’s meeting.

Bank of America Merrill Lynch strategists said with May rate hike expectations firmly embedded in the market, any selloff in sterling would present a buying opportunity.

Reporting by Saikat Chatterjee

EU demands 'unilateral' power over UK banks' access after Brexit

BRUSSELS (Reuters) - European Union governments will insist on their “unilateral” control over whether and how British banks can operate in the bloc after Brexit, ministers will agree on Tuesday ahead of their leaders’ summit on Friday.

According to a draft seen by Reuters, ministers preparing the EU’s joint negotiating stance for talks with London on their future ties will say that British financial services companies can benefit from “reviewed and improved equivalence mechanisms”.

That underlines that the City of London’s hopes to continue a much closer relationship similar to their “passport” rights to operate across the bloc will not be met by EU negotiators.

The two sides will start talks on the future trading relationship next month, once EU leaders endorse the negotiating guidelines at Friday’s summit.

The guidelines include language underlining that access for British-registered firms will be subject to ensuring financial stability and the existing legal structures of the EU. They also say the two sides should aim for free trade in services.

The text makes clear that would work on existing “equivalence” rules for Britain’s big financial services industry, allowing non-EU firms to operate in certain sectors where their supervision regime is judged by the EU to be equivalent to that of the bloc itself.

In a sign of how the move to a second phase of talks dealing with future trade will test the unity seen among the other 27 states so far, Luxembourg, home to operations for many London-based fund operators, has been pressing for the EU to be generous to British-registered firms. It argues that hurting London risks driving European business to New York or Asia.

Germany and, especially, France hope, however, to attract British firms away to Frankfurt or Paris and so want to limit London’s access.

The result, diplomats said, was the compromise text which offers “improved” equivalence — the “improved” is largely meaningless, though the note refers to the fact that the EU is reviewing its equivalence rules for a range of countries.

But ramming home a determination to keep financial services rules under its own control, not sharing with London, the note states: “Equivalence mechanisms and decisions remain defined and implemented on a unilateral basis by the European Union.”

Reporting by Jan Strupczewski

Powell's Fed likely to raise rates, may upgrade 2018 outlook

WASHINGTON (Reuters) - The Federal Reserve is expected to raise interest rates at its first policy meeting under Chairman Jerome Powell and may signal more hikes are coming in response to tax cuts and government spending that could further stoke a robust U.S. economy.

The U.S. central bank projected late last year that it would lift rates three times in 2018, but some investors believe the fiscal stimulus and recent hints of inflation pressures will push policymakers to add an additional increase to the mix.

The Fed is scheduled to issue its latest policy statement at 2 p.m. EDT (1800 GMT). Powell is due to hold a press conference half an hour later.

Fed officials have speculated in recent weeks that the stimulus could drive more Americans into an already tight labor market and lift inflation to the central bank’s 2 percent target, or much above that level if the economy gets too hot.

Yet analysts are split over whether the Fed, which is wary of an early misstep under its new leadership, will raise policy tightening expectations until more price pressures are clearly evident, especially given outside risks to the economy such as a possible global trade war.

“A prudent institution would probably give more weight to the facts, at least for the moment,” Roberto Perli, a former Fed economist who is now a partner at Cornerstone Macro, wrote in a note predicting the Fed would stick with three projected rate increases for this year.

The Fed’s drive to stimulate the world’s largest economy in the wake of the 2007-2009 financial crisis and recession is drawing to a close. It raised its benchmark overnight lending rate three times last year, to a range of 1.25 to 1.50 percent, as joblessness fell and economic growth accelerated. It is expected to raise rates by another 25 basis points on Wednesday.

With futures markets anticipating another increase in June, Powell's Fed could leave its rate outlook unchanged until then to see how the economy absorbs the $1.8 trillion in stimulus expected from the Trump administration tax cuts and planned spending. (Graphic of Fed forecasts:

While recent home sales and retail spending data have been on the weak side, the overall economic picture has brightened this year. Inflation has strengthened after remaining below the Fed’s target for more than five years, and there have been more hints of wage gains.

The central bank is expected on Wednesday to boost its economic growth forecasts for the next few years, and could project that the unemployment rate will fall well below the current 4.1 percent, which is seen as a low but stable level.

The blockbuster U.S. jobs report for February could further convince Powell and his colleagues that the Fed’s stated “gradual” rate hike path could carry on longer than previously thought. A sign of this would be a rise in the Fed’s longer-term, or neutral, expected policy rate, currently at 2.8 percent.

Powell, who took over from former Fed chief Janet Yellen in early February, triggered a brief global market selloff when he told U.S. lawmakers late last month that he had grown more confident in the economic outlook. Yet worries over a new hawkish central bank are likely overblown given Powell’s cautious, consensus-building approach.

Seven of the 15 Fed policymakers who will update their forecasts on Wednesday have recently indicated the fiscal stimulus could boost their expectations for the economy, rate hikes, or for both, according to an analysis of public statements.

New York Fed President William Dudley, one of the most influential policymakers, said four rate increases this year would still be considered “gradual,” noting that fiscal policy is turning “quite stimulative.”

The comments suggested a shift “towards a potentially faster pace of tightening ... particularly with tax cuts now implemented and with an additional fiscal boost from federal spending arriving this year,” Jan Hatzius, chief U.S. economist at Goldman Sachs, wrote in a note predicting that the Fed would signal on Wednesday that rates will rise four times this year.

Reporting by Jonathan Spicer

Tuesday, 20 March 2018

Dollar perched at one-week high vs. yen before Fed vote; euro struggles

LONDON (Reuters) - The dollar held comfortably at a one-week high against the Japanese yen on Tuesday as investors positioned for the outcome of a U.S. Federal Reserve policy decision on Wednesday where it is widely expected to raise interest rates.

With a quarter point hike — its sixth since the Fed began raising interest rates in late 2015 — baked into market prices, major currencies were mired in broad ranges.

“Euro/dollar is being buffeted by cross currents, especially as both central banks (Fed and the ECB) are normalizing policy but it needs an unexpected policy action to jolt markets out of current ranges,” said Neil Jones, Mizuho’s head of currency hedge fund sales in London.

Markets expect two more rate hikes after Wednesday for the remainder of the year, although analysts warn that if a majority of Fed policymakers forecast a total of four increases this year in their projections then the dollar could gain.

“Only a confident sounding outlook wouldn’t shake the dollar out of its ranges as there seems to be more structural headwinds at play, but if we see many voices leaning towards four rate hikes, that might be a game changer in the short term,” said Richard Falkenhall, senior FX strategist at SEB.

Along with some expectations of a more confident sounding Fed, a sharp drop in a confidence survey among German investors also weighed on the single currency.

The ZEW research institute said its monthly survey showed economic sentiment among investors dropped to 5.1, its lowest reading in a year and a half, from 17.8 in the previous month. The consensus forecast in a Reuters poll was for 13.0.

The single currency was down 0.3 percent below the $1.23 line and hovering just above a three-week low of around $1.2260.

The dollar edged 0.43 percent higher against a basket of currencies to 90.15, nearly reversing a 0.5 percent drop the previous day thanks to a relief rally in sterling after a transition deal was announced and the euro’s bounce.

The common currency had drawn strength on Monday from a source-based Reuters report that ECB policymakers are shifting the focus of their debates.

Policymakers are comfortable with market forecasts, including for a rate hike by the middle of 2019, and the debate is increasingly about the steepness of the rate path thereafter, as some want future expectations contained, given the slow rebound in inflation, five sources with direct knowledge of the discussion told Reuters.

On technical charts, the dollar seems to have found strong support in the 105.00 to 105.50 yen area, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

He added that the dollar’s yield advantage over the yen could also help bolster the greenback.

“Once Japan’s new financial year starts (in April), Japanese institutional investors are likely to become active in foreign bond investments,” Murata said, referring to the possibility they will take on foreign-exchange risk in search of better returns abroad.

Still, some traders saw limited upside potential for the dollar, with the yen seen supported by signs of a retreat in investor risk appetite.

“It’s pretty easy to stay short dollar/yen in this environment given the risk aversion,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

The yen is a traditional safe-haven currency that tends to attract demand in times of market turmoil.

The dollar was trading 0.4 percent higher against the yen at 106.52 yen.

Reporting by Saikat Chatterjee

Shares on defensive as Facebook data flap spooks tech stocks

TOKYO (Reuters) - Asian shares were on the defensive on Tuesday after investors took profits in high-flying U.S. technology shares on fears of stiffer regulation, as Facebook came under fire following reports it allowed improper access to user data.

The retreat came as investors braced for new Federal Reserve Chairman Jerome Powell’s first policy meeting starting later in the day and amid concerns that U.S. President Donald Trump could impose additional punitive trade measures against China.

“U.S. tech indexes, including Nasdaq and Philadelphia semi-conductor index all hit record highs last week. So they were prone to profit-taking,” said Mutsumi Kagawa, chief strategist at Rakuten Securities.

“Shares will be capped by various uncertainties for now. Once those uncertainties are cleared, investors will shift their focus back to relatively attractive valuations,” he added.

Futures suggested European stocks are likely to rebound after falling the previous day, with Britain’s FTSE seen rising 0.5 percent from a 15-month low, Germany’s Dax expected to rise 0.5 percent and France’s Cac 0.3 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan were last up 0.2 percent after initially dropping as much as 0.5 percent. Japan’s Nikkei fell 0.5 percent.

On Wall Street the S&P 500 lost 1.42 percent and the Nasdaq Composite 1.84 percent, both suffering their worst day in five weeks.

“Investors lightened their positions ahead of the Fed’s policy meeting. The markets are completely split on whether the Fed will project three rate hikes this year or four,” said Hiroaki Mino, senior strategist at Mizuho Securities.

Facebook led the losses, tumbling 6.8 percent as the social media colossus faced demands from U.S. and European lawmakers to explain how a consultancy that worked on President Donald Trump’s election campaign gained improper access to data on 50 million Facebook users.

In addition, worries about the potential for a trade war cast a shadow after U.S. President Trump imposed tariffs on steel and aluminium.

The Trump administration is also expected to unveil up to $60 billion in new tariffs on Chinese imports by Friday, targeting technology, telecommunications and intellectual property, two officials briefed on the matter said Monday.

U.S. businesses were alarmed with several large U.S. retail companies, including Wal-Mart Inc and Target Corp, on Monday urging Trump not to impose massive tariffs on goods imported from China.

The sharp fall in share prices put a lid on long-term U.S. bond yields while short-dated yields rose ahead of an expected rate hike from the U.S. Federal Reserve after its two-day policy meeting starting on Tuesday.

The yield on 10-year Treasuries was little changed at 2.867 percent, almost 10 basis points below the four-year high of 2.957 percent touched a month ago.

But the yield on two-year notes hit a 9 1/2-year high of 2.32 percent on Monday as the Fed appears set to bump up its policy interest rates to 1.50-1.75 percent from the current 1.25-1.50 percent.

Still, with a Fed rate rise this week already fully priced in, the dollar barely gained. Instead, it was the euro that stole the spotlight after Reuters reported that European Central Bank officials were shifting their debate from bond purchases to the expected path of interest rates.

The euro rose to $1.2347, bouncing back from $1.2258 hit the previous day.

The British pound hit one-month high of $1.4088 after Britain and the European Union agreed to a 21-month post-Brexit transition period and a potential solution to avoid a “hard border” for Northern Ireland.

It was last at $1.4041.

The yen was little changed at 106.01 per dollar, with traders wary of any new developments in a cronyism scandal that has eroded support for Japanese Prime Minister Shinzo Abe.

Oil prices rose by almost 1 percent, lifted by a weak dollar, tensions in the Middle East and concerns of a further fall in Venezuelan output.

Brent crude futures traded at $66.56 a barrel, up 0.8 percent. U.S. West Texas Intermediate futures were at $62.59 a barrel, up 0.9 percent.

Reference: Hideyuki Sano

Euro supported as ECB debate seen shifting to rate path

SINGAPORE (Reuters) - The euro on Tuesday held on to gains made the previous day, when it rose on revived bets for the European Central Bank to wind down its bond-buying stimulus this year and to raise interest rates around the middle of 2019.

The euro, which advanced 0.4 percent on Monday, held steady on the day at $1.2336.

The common currency had drawn strength on Monday from a source-based Reuters report that ECB policymakers are shifting the focus of their debates.

Policymakers are comfortable with market forecasts, including for a rate hike by mid-2019, and the debate is increasingly about the steepness of the rate path thereafter, as some want future expectations contained, given the slow rebound in inflation, five sources with direct knowledge of the discussion told Reuters.

Sterling also stood tall after setting a one-month high against the dollar on Monday, as Britain and the European Union agreed to a 21-month post-Brexit transition period and a potential solution to avoid a “hard border” for Northern Ireland.

Sterling held steady at $1.4024. On Monday, the pound rose as high as $1.4088, its strongest level since Feb. 16.

The strength in euro and sterling helped weigh on the dollar, which last stood at 89.951 against a basket of six major currencies, down from Monday’s intraday high around 90.345.

Market participants are now pondering whether the U.S. Federal Reserve, which holds a two-day policy meeting that ends on Wednesday, will signal a faster pace of rate increases in the coming months as the labour market tightens further. Interest rate futures imply traders have fully priced in a rate increase this week, which would raise the target range to between 1.50 percent and 1.75 percent.

The dollar rose 0.2 percent to 106.32 yen, inching away from a 16-month low of 105.24 yen set in early March.

On technical charts, the dollar seems to have found strong support in the 105.00 to 105.50 yen area, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

He added that the dollar’s yield advantage over the yen could also help bolster the greenback.

“Once Japan’s new financial year starts (in April), Japanese institutional investors are likely to become active in foreign bond investments,” Murata said, referring to the possibility they will take on foreign-exchange risk in search of better returns abroad.

Still, some traders saw limited upside potential for the dollar, with the yen seen supported by signs of a retreat in investor risk appetite.

“It’s pretty easy to stay short dollar/yen in this environment given the risk aversion,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

The yen is a traditional safe haven currency that tends to attract demand in times of market turmoil.

U.S. equities fell on Monday, with the S&P and Nasdaq suffering their worst day in just over five weeks, as concerns over increased regulation for large tech companies was spearheaded by a plunge in Facebook shares.

Reporting by Masayuki Kitano

Monday, 19 March 2018

Sterling gains as Britain, EU seal Brexit transition deal

LONDON (Reuters) - Sterling surged on Monday as Britain and the European Union agreed on a post-Brexit transition period and said that their divorce treaty would include an emergency “backstop” to avoid a hard border in Ireland.

The pound, which had already been rallying on expectations for a transition deal, gained further after the announcement by British Brexit minister David Davis and EU chief negotiator Michel Barnier.

Against the dollar it rose as much as 1 percent to $1.4088, its strongest since Feb. 16 and the biggest one-day rise since January.

“You now have a credible timeframe for reaching a full trade agreement,” MUFG strategist Derek Halpenny said.

The headlines and sterling’s reaction suggested a transition agreement had been reached more easily than the market had expected, he said.

Investors had largely expected Britain to secure a transition agreement at Thursday’s EU summit, but concern remained that a deadlock over the Irish border would derail a deal.

Securing the terms of a transition phase was vital, because it means London and Brussels can now focus on what trading relationship the two sides have after Britain leaves the EU next year.

A transition deal also means little change in trading between the Britain and the EU between Britain’s exit and the end of 2020.

Sterling faces a pivotal week, with the Bank of England announcing an interest rate decision on Thursday after inflation and wages data. It is expected to keep rates on hold but to prepare the market for a possible increase in May, a rise it had signalled as contingent on a transition agreement.

Viraj Patel, an analyst at ING, said the pound could rise as high as $1.43 this week if economic data also supported sterling and the Bank of England sounds more hawkish than expected.

Analysts at UBS said sterling could rally as far as 85 cents per euro.

Analysts do not expect the BoE to serve up any surprises, but will be looking at both consumer inflation data, due on Tuesday, and wage data due on Wednesday for any sign of inflationary pressures building in the economy.

“Despite modest growth and moderating inflation, the BoE is likely to reiterate its intention to gradually raise rates as it sees limited slack in the economy. Now that a transition deal has been tentatively agreed, it may motivate more hawkish language from the BoE,” UBS analysts told clients.

Reporting by Tommy Wilkes

Dollar steady as Fed dot plot thickens; yen edges higher

TOKYO/SINGAPORE (Reuters) - The dollar held steady against a basket of major peers on Monday as traders braced for new Federal Reserve Chair Jerome Powell’s first monetary policy meeting this week, and as the increased threat of trade protectionism kept markets on edge.

The safe haven yen edged higher as investors’ risk appetite waned, with MSCI’s broadest index of Asia-Pacific shares outside Japan slipping 0.2 percent.

Traders are also nervous after weekend polls suggested a massive drop in public support for Prime Minister Shinzo Abe over his handling of a festering cronyism scandal, which has raised doubts about his ability to press forward with his reflationary economic agenda including monetary easing.

The dollar’s index against a basket of six major peers stood at 90.276. On Friday, the dollar index had hit a two-week high near 90.38, following strong U.S. economic data.

U.S. industrial production surged in February, while the University of Michigan Consumer Sentiment Index rose in March to the highest level since 2004.

The figures reinforced views that the global economy is enjoying strong growth and that the Federal Reserve will raise interest rates at the end of its policy meeting on Wednesday.

With a 25 basis point rate hike seen as a done deal, a key focus is on whether Fed policy makers forecast four rate hikes this year in their “dot plot” projections, instead of three they had projected at a December meeting.

The prospects of more rate hikes typically support a currency because higher interest rates tend to attract funds. However, recent political headlines have drawn more attention as investors fret that U.S. President Donald Trump’s tariff and other protectionist policies could disrupt the U.S. and global economy.

The Canadian dollar has taken the brunt of worries about U.S. protectionism, as investors discount the risk Trump may walk out of the North American Free Trade Agreement.

The Canadian currency slipped to C$1.3111 per U.S. dollar earlier on Monday, its weakest level since June 2017. It last stood at C$1.3102, little changed on the day.

In Japan, domestic politics have been an increasing focal point for traders.

A Nippon TV poll found Abe’s support crumbling some 14 percentage points from last month to 30 percent, the lowest for that poll in Abe’s more than five years in office.

The dollar eased 0.1 percent to 105.84 yen, inching back in the direction of a 16-month low of 105.24 yen set on March 2.

Most traders think the yen will rise if Abe has to resign given that his push for aggressive monetary stimulus has weighed on the currency.

“Japanese political risk will be a market focus for now. There is the risk that ‘Abenomics’ will be rolled back,” said Shinichiro Kadota, strategist at Barclays in Tokyo.

The yen also rose on the crosses, with the euro down 0.3 percent against the Japanese currency at 129.89 yen.

“There’s political concern in Japan, but also a lot of cross/yen selling,” said Tareck Horchani, head of sales trading in Asia-Pacific for Saxo Markets in Singapore.

Against the dollar, the euro fell 0.2 percent to $1.2270.

The common currency has been in a holding pattern since it hit a three-year high of $1.2556 on Feb. 16, with its March 1 low of $1.21545 seen as another support level.

Reporting by Hideyuki Sano

Powell's Fed to show policy caution, shun political friction

WASHINGTON (Reuters) - Jerome Powell heads for his first interest rate increase as Federal Reserve Chairman this week with an unanswered question looming above others: could his optimism about the U.S. economy lead to more hikes than markets have prepared for?

Powell’s public comments and Reuters conversations with his Fed colleagues since January, when he was confirmed as chairman, suggest such fears are overblown: Powell, the consensus-builder, may make some tweaks to reflect changing economic conditions but is as committed to gradual, moderate rate increases as his predecessor Janet Yellen who adopted that approach.

The new chairman’s overriding concern will be to sustain one of the longest U.S. recoveries for as long as possible, according to conversations with Fed officials and analysts. But given signs that the economy’s potential has strengthened, that might mean a policy-tightening cycle that lasts longer, with rates going a bit higher than earlier thought.

Powell was widely seen as a choice of continuity when President Donald Trump picked him. He served as one of the Fed governors during the central bank’s transition from crisis-era stimulus to a more balanced approach that led to three rate increases last year in response to steady growth and falling unemployment.

Yet uncertainty over how the 65-year old lawyer and former investment banker would steer the Fed was on full display last month when global stocks sold off briefly after Powell’s first congressional testimony.

Investors initially took his upbeat assessment of the U.S. economy as a sign he was more of a policy “hawk” than Yellen, and that four rate hikes might be in store for this year rather than the three previously telegraphed by the Fed.

This might still turn out to be the case. Even the dovish Fed Governor Lael Brainard noted recently that the economy’s “headwinds are shifting to tailwinds.”

But a stronger economy does not necessarily mean the Fed is abandoning its balanced assessment of risks to growth and price stability. Rather, it can give Powell wiggle room in balancing nudging inflation up after more than five years below target, and guarding against the risk of runaway prices as some $1.8 trillion in tax cuts and new government spending take hold.

Under Yellen, the central bank was still more guarded about the economic impact of such fiscal stimulus that could overheat an economy already near full capacity, but also boost business confidence and productivity, giving the rates more room to rise.

One hint whether the Powell Fed now sees more policy leeway will come on Wednesday when the central bank will publish its new median estimate of the so-called neutral rate of interest - the level that neither stimulates nor chills the economy.

This rate has drifted down to a 2.75 percent median, from 4 percent in 2013. A rise to, say 3 percent, could signal the fiscal stimulus and recent data like the blockbuster February jobs report have begun convincing Powell and others that the gradual rate-hike cycle could go on for another couple years or more, allowing extra room to cut rates in the next recession.

The Fed is expected to lift its policy rate to a range of 1.5 to 1.75 percent at the end of its two-day meeting on Wednesday and also update its assessment of the economy.

Months of synchronized global growth, some signs of U.S. price pressures and fears Trump's protectionist steps could escalate into a trade war have fanned concerns within the Fed that inflation, now a bit below its 2-percent target, could accelerate.

Some policymakers also worry the tax cuts could stoke risky investments that could tip the economy into another downturn.

But the Powell Fed is likely to take extreme care not to over-react to stronger economic data, according to a series of public statements by policymakers and minutes of their January meeting.

Investors can also take comfort from what those who have worked with Powell describe as his “if it ain’t broke, don’t fix it,” approach, which ultimately helped him land his job.

While Powell has shown little appetite for sweeping changes, such as revamping an inflation-targeting regime as advocated by some of his colleagues, the new Fed chief has already begun setting his own tone.

He is “careful and practical but definitely open to new approaches,” said Narayana Kocherlakota, former Minneapolis Fed president who worked with the then-Fed Governor Powell between 2013 and 2015.

For one, Powell, a Republican former Treasury official who enjoys his regular private meetings with lawmakers of both parties, emphasizes a warmer relationship with Congress and avoids venturing outside of the Fed’s strict policy remit.

During his first appearance on Capitol Hill as Fed chief, when asked what he was willing to do to ensure economic growth benefits all Americans and not just elites, Powell stuck to the script saying the Fed simply lacked the tools to do that.

That marks a contrast to the era when Yellen and her predecessor Ben Bernanke were in charge.

Their years in office were dominated by innovation and experimentation in the face of crisis, an overhaul of how the Fed sets and communicates policy, and sometimes free-form public discussions about social issues like inequality that put Yellen in particular at odds with the Republicans who control Congress.

So far Powell has dropped no hints of immediate changes to press conferences or other means of communication. His reluctance to take unnecessary risks may convince him that any change could confuse the public, do little to improve policy, and draw unnecessary political fire.

Reporting by Jonathan Spicer and Howard Schneider

Sunday, 18 March 2018

Investors eye currencies for those most at risk in a trade war

LONDON (Reuters) - Foreign exchange markets appear convinced that a global trade war is unlikely to break out anytime soon, although with long bets on some currencies at record highs, investors fear complacency may be setting in.

While the Trump administration’s threat to slap tariffs on Chinese imports has heightened fears of retaliation from Beijing, it has only mildly rattled markets enjoying a multi-year rally as global economic growth picks up.

The finance ministers of the 20 big world powers meet for a key G20 summit on Monday. Currency managers are keen to see whether diplomacy breaks out or disagreements deepen between the U.S. and others in the wake of U.S. President Donald Trump’s announcement on imposing tariffs on steel and aluminum imports.

Currencies don't like trade spats. President Obama's relatively narrow tariffs on Chinese steel in May 2016 saw the dollar index fall more than 2 percent over a month. Against the yuan, it rose 2 percent.

Similarly, within three months of President George Bush’s March 2002 tariffs on EU steel imports, the dollar declined 6 percent.

The latest trade skirmishes come as global currency volatility slips back after a February spike off multi-year lows. It remains below levels seen in recent months, according to a Deutsche Bank volatility gauge.

That leaves investors looking for early warning signs in currency markets that a broader shake-up of prices is coming.

Some currencies have moved as one would expect when smooth trade is under threat: The Canadian dollar has weakened and the Japanese yen has firmed, but the moves have for the most part been limited.

“The talk of trade wars at the moment is just that, talk. It’s such a difficult thing to quantify it appears as if the market is just ignoring it,” said Russell Silberston, a currencies manager at Investec Asset Management, which manages about $140 billion in assets.

“But don’t get me wrong, we’ve got it (the prospect of a trade war) down as a key event risk.”

Currency repercussions should a trade war materialize would be significant because low volatility levels have driven investors to embrace higher-risk strategies. Speculative positions in emerging market currencies, for instance, stand at multi-year highs.

“I’m still amazed by the lack of a reaction in Asian currencies. They must be waiting for the Chinese retaliation,” said Richard Benson, co-head of portfolio investments at Millennium Global, a currency investment manager in London.

“There would be quite meaningful moves. We are talking about Asian currencies that are at their strongest for years. There is zero of this (the risk of protectionism) priced in,” he said.

Benson believes big Asian exporters are most at risk, including the South Korean won and the Taiwanese dollar as well as the Australian dollar - a proxy for Asian economic growth.

The won and the Singapore dollar , another currency exposed to global trade flows, are trading near their strongest levels against the dollar in more than three years.

Among developed world currencies, Sweden’s crown is tipped by some for a tough time - ING strategists point out Sweden is the second-most open economy in the G10 group of rich countries based on a ratio of trade and economic output.

Bank of America Merrill Lynch sees the Canadian dollar CAD= most at risk, while the U.S. and New Zealand dollars also look vulnerable. The Swiss franc and euro would emerge stronger, they said.

Much of the confidence that the world will ride out Trump-inspired tariffs is because a sustained rebound in trade has buoyed growth, with the global economy set to expand at its fastest pace in six years.

While governments often move to protect local industry when growth is struggling, any Trump tariffs will come at a time when the world’s biggest economic engines - the United States, Europe and China - are booming.

Another explanation for the currency calm is that many market watchers do not believe Trump will follow through on his threats. David Bloom, head of global currency research at HSBC, is convinced U.S. officials may find a weaker dollar an easier solution in their bid to slash the huge U.S. trade deficit.

So what does rising protectionism mean for the dollar?

In the short-term, the dollar is likely to weaken, especially against the euro and yen. But should global growth tank or markets sink into a broader sell-off, the dollar should benefit from its status as a global reserve currency.

Investors are at least convinced about one winner: the yen, backed by a huge current account surplus and its reputation as a safe-haven thanks to the trillions of dollars that Japanese investors have poured into overseas assets.

“If there is a trade war, the yen is the safe-haven currency of choice,” said Manuel Oliveri, an FX strategist at Credit Agricole.

The yen has gained 6 percent so far this year and is near a 1-1/2 year high versus the dollar thanks in part to bets that the Bank of Japan will pull the plug on its massive bond-buying program.

BlackRock, the world’s biggest money manager, has studied immediate market reactions around six major trade risk events in the last 15 years and concludes that gold and the yen tend to outperform.

In a note, they called a trade war “arguably the most disruptive” market risk for 2018.

Reference: Tommy Wilkes, Saikat Chatterjee

Friday, 16 March 2018

Sterling edges higher against struggling dollar

LONDON (Reuters) - Sterling edged higher against a struggling dollar on Friday and is poised for its biggest weekly rise in a month as investors became cautiously optimistic that Britain would strike a deal at a summit next week over a transition period for its EU exit.

While sticking points remain such as a deadlock over the Irish border issue and recent headlines from senior officials have highlighted that differences remain, businesses have raised hopes the bloc’s leaders can endorse a transition at a Brussels summit on Friday.

“A transition deal is not a game changer for the currency markets but what will be a major driver is if we get an open-ended transition deal which will take away the nervousness of a hard Brexit,” said Morten Helt, a currency strategist at Danske Bank in London.

On Friday sterling was up by a quarter of a percent at $1.3977. For the week, it has gained one percent, its biggest rise in a month.

Against the euro, which is a better barometer for Brexit negotiations, sterling consolidated gains at a 2-1/2 week high of 88.16 pence.

Sterling hit $1.4346 on Jan. 25, its highest level against the U.S. dollar since Britain voted to leave the European Union in June 2016.

Though it has pulled back modestly from those highs, it remains near the top of its trading range of $1.20 to $1.43, buoyed by hopes a Brexit transition deal will be eventually be struck and by a generally weaker U.S. currency.

In other major developments next week, the Bank of England is set to announce a policy decision which may shed some light on the future path of interest rates. Markets are now pricing in about 36 basis points of rate hikes over the year.

Britain’s reliance on the “kindness of strangers” to finance its large current account deficit appears to be increasing, the Bank of England said on Friday.

Reporting by Saikat Chatterjee

Dollar retreats vs. yen after White House shake-up report

TOKYO (Reuters) - The dollar fell versus the yen on Friday, after a report that U.S. President Donald Trump would remove his national security adviser added to concerns about recent White House personnel changes and what that meant for policy.

Trump has decided to replace his national security adviser, H.R. McMaster, the Washington Post reported on Thursday.

Earlier this week, the U.S. currency took a hit after Trump dismissed Secretary of State Rex Tillerson as investors grew increasingly nervous about the direction U.S. policy might now take following a series departures by key members of staff.

The dollar was 0.4 percent lower at 105.940 yen after briefly touching 106.380.

The greenback was down about 0.8 percent on the week against the safe haven yen, which was boosted earlier as a political scandal engulfed Japanese Prime Minister Shinzo Abe, casting doubts on the sustainability of his economic stimulus policies.

“The best explanation for the impact the ongoing personnel changes taking place in the White House is that the dollar stands to weaken as it gets easier for President Trump to pursue protectionist policies,” said Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo.

The yen, which tends to gain in times of risk aversion, also advanced against other currencies in the wake of the latest shake-up in the White House.

The euro was down 0.35 percent at 130.410 yen, the Australian dollar slipped 0.2 percent to 82.56 yen and the New Zealand dollar lost 0.8 percent to 76.76 yen.

The New Zealand dollar’s losses against the yen in turn dragged it down versus the U.S. dollar, with the kiwi shedding 0.4 percent to $0.7245.

The dollar managed to hold gains against a basket of peers, as recent concerns about the currency arising from trade tensions eased slightly and next week’s Federal Reserve policy meeting came into focus.

The dollar index versus a group of six major currencies was little changed at 90.081 after climbing 0.5 percent the previous day.

Prior to the overnight bounce, the index had fallen for three straight sessions as fears of a global trade war grew amid signs of rising U.S. protectionism.

“U.S. protectionism is a key factor, but it is also a theme with a long timeframe,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“The market perhaps reacted excessively and the dollar was oversold, and now we are seeing those moves being balanced out as participants turn their focus on other events.”

The two-day Federal Open Market Committee meeting begins on March 19 at which the U.S. central bank is expected to raise interest rates for the first time this year.

The euro was steady at $1.2309 after declining 0.5 percent overnight. The common currency was little changed on the week, failing to make much headway against its struggling U.S. peer as the European Central Bank has stressed that its exit from easy monetary policy would be very slow.

The Canadian dollar retreated to an eight-month low after soft housing data reinforced views that the Bank of Canada could slow down the pace of its interest rate hikes.

The loonie also came under pressure after President Trump’s comments on commerce with Canada renewed trade concerns.

The Canadian dollar was little traded at C$1.3058 per dollar after reaching C$1.3072, its weakest since late June 2017.

Reporting by Shinichi Saoshiro

Asian shares slip as new U.S. political worries sour mood

TOKYO (Reuters) - Asian stocks slid on Friday as reports of more chaos in the Trump administration tested investors’ nerves, already frayed by fears that U.S. tariffs could hurt the global economy and trigger a trade war.

European stock futures point to a weaker start in Europe, with futures of Britain's FTSE and France's Cac down 0.1 percent.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.2 percent in early trade. Japan's Nikkei was down 0.6 percent.

On Wall Street, the S&P 500 edged 0.08 percent lower on Thursday, marking its first four-day losing streak of 2018. The Nasdaq Composite  dropped 0.2 percent.

U.S. shares hit a session low soon after the New York Times reported that U.S. Special Counsel Robert Mueller had issued a subpoena for documents related to U.S. President Donald Trump’s businesses.

The Washington Post, meanwhile, reported that President Donald Trump has decided to remove H.R. McMaster as his national security advisor.

The news came just days after following the recent departure of two key officials, former Secretary of State Rex Tillerson and top economic advisor Gary Cohn, from the Trump administration.

The developments, together with the report earlier this week that Trump is seeking to impose tariffs on up to $60 billion of Chinese imports, cemented investor concerns that the administration is increasingly leaning towards protectionism.

White House trade adviser Peter Navarro has said that Trump would in coming weeks get options to address China’s “theft and forced transfer” of American intellectual property as part of the investigation under Section 301.

“The key here is whether the main battle ground of the trade war will reach IT digital products. In this sector, there is division of labour in the supply chain, with each country having specialised products,” said Hiroshi Watanabe, economist at Sony Financial Holding.

“Investors have been thinking the U.S. would not take such steps as that would harm itself. But the fall in high-tech shares yesterday may suggest that investors have begun to take such risks into account,” he added.

Fears that the tariffs could disrupt synchronised global growth dwarfed recent strong economic data, including a fall in U.S. jobless claims.

Any disruptions to the information sector will cost investors particularly dearly given the sector has been the main engine of the global share rally during the past decade.

“It seems as if for Trump, only ‘America First’ policies are left to boost his popularity and to get re-elected,” said Hiroko Iwaki, senior strategist at Mizuho Securities.

“It is hard to expect political uncertainties to disappear soon. That will underpin bonds,” she added.

U.S. Treasuries yield stood little changed at 2.822 percent in Asia after having hit a near two-week low of 2.797 percent on Thursday.

In contrast, short-term bond yields rose as investors braced for a widely expected rate hike by the Federal Reserve next week, with the two-year yield hitting a 9 1/2-year high of 2.295 percent.

In Europe, the German Bund yield hit a six-week low of 0.566 percent.

Political uncertainties are mounting in Japan, where Prime Minister Shinzo Abe is under pressure for suspicions of a cover-up in a controversial land sale.

In the currency market, rising risk aversion pushed the dollar lower against the safe haven yen to 105.94 yen JPY= down 0.4 percent.

The euro was little changed at $1.2303 EUR=, having slipped 0.5 percent the previous day.

Subdued risk sentiment kept the dollar supported against riskier currencies, such as commodity-linked currencies and emerging market currencies.

The Canadian dollar CAD=D4, which has been hit also by worries Trump may pull out from NAFTA, hit a nine-month low of C$1.3072 to the dollar.

The Australian dollar AUD=D4 dropped to as low as $0.7771, its lowest level in 10 days.

“The Australian dollar had been resilient during this month’s tensions, suggesting that the very bullish global growth narrative is yet to be really shaken,” said Westpac senior currency analyst Sean Callow.

“But should the U.S.-driven trade tensions deepen in the months ahead, the Australian dollar is likely to be one of the currencies hardest hit, given Australia’s current account deficits and its heavy reliance on China for commodity exports.”

Oil prices were little changed after ending choppy Thursday trade higher as the International Energy Agency said global oil demand is expected to pick up this year, but warned supply is growing at a faster pace.

Brent futures stood flat at $65.11 per barrel.

Reference: Hideyuki Sano

Thursday, 15 March 2018

Asia stocks sag, bonds advance amid simmering trade worries

TOKYO (Reuters) - Asian stocks sagged on Thursday while government bonds attracted safe-haven demand amid mounting investor concerns that growing trade tensions will hurt the global economy.

Spreadbetters expected European equities to fare slightly better at the open, with Britain’s FTSE starting unchanged, Germany’s DAX gaining 0.3 percent and France’s CAC rising 0.25 percent..

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.13 percent.

The Asian markets took their cues from Wall Street shares, which fell for the third straight session overnight after U.S. President Donald Trump sought to impose fresh tariffs on China, intensifying fears of a trade war.

“While U.S. and Chinese officials could be negotiating behind the scenes in an attempt to prevent the situation from worsening, the markets will remain concerned as long as President Trump seems to be going his own way on the matter,” wrote Xiao Minjie, China-focused senior economist at SMBC Nikko Securities in Tokyo.

Boeing Co, seen as particularly vulnerable to retaliation from U.S. trade partners, fell 2.5 percent, leading the losers on the Dow.

Shanghai lost 0.3 percent, Hong Kong’s Hang Seng was flat and Australian stocks fell 0.25 percent. Japan’s Nikkei erased earlier losses and crawled up 0.12 percent.

Japan’s equity market “has been holding up relatively well, but it will have to decline some more if U.S. shares deepen their losses,” said Yutaka Miura, senior technical analyst at Mizuho Securities in Tokyo.

“Bargain hunters buy steadily at price dips, but most participants are wary of chasing highs amid lingering uncertainty about trade and politics.”

The benchmark 10-year Treasury yield dipped to 2.806 percent and headed for a fourth day of declines amid rising diplomatic tension between Britain and Russia, soft U.S. retail sales data and concerns over Washington’s political and trade issues.

The spectre of a trade war also boosted demand for European debt. The German 10-year bund yield was at 0.594 percent after falling to a 1-1/2-month low of 0.583 percent. Yields on British gilts and French government bonds were also lower.

In the currency market, the dollar came under pressure again after the greenback managed a modest bounce overnight following three days of losses.

The dollar index, which measures it against a basket of six major currencies, was a shade lower at 89.698. So far this week, it has fallen about 0.5 percent, dogged by trade tensions and perceived political turmoil in Washington.

The euro edged up 0.05 percent to $1.2373 after being pulled back from a six-day high of $1.2413 when European Central Bank President Mario Draghi on Wednesday struck a dovish tone on monetary policy.

The yen, often sought in times of risk aversion, gained against a variety of peers.

The dollar slipped 0.35 percent to 105.960 yen after taking a hit the previous day on Trump’s firing of U.S. Secretary of State Rex Tillerson.

The euro fell 0.4 percent to 131.045 yen and the Australian dollar shed 0.5 percent to 83.36 yen .

Oil prices held steady, supported by healthy global demand but capped by a relentless rise in U.S. production that is undermining efforts led by producer cartel OPEC to cut supplies and prop up markets.

Brent crude futures were flat at $64.89 per barrel .

Safe-haven gold rose, with spot prices gaining 0.1 percent to $1,326.16 an ounce.

Reporting by Shinichi Saoshiro

Investors still in love with growth stocks risk losing out on value

NEW YORK (Reuters) - A long rally in technology stocks has left investors thirsting for more, but that could be a mistake as the strengthening U.S. economy points to better value in other stocks.

Heavyweights like Apple, Alphabet and Facebook have especially helped growth indexes in the past year rise more than value indexes, which right now are heavily weighted in financials.

Tech so far in 2018 is the best-performing sector too, leading the recovery from the market’s steep selloff in early February, with the Nasdaq hitting record highs again in recent sessions.

That’s reflected in the performance of major benchmarks for portfolio managers, including the Russell 1000 growth index, up 6.1 percent so far this year, compared with the Russell 1000 value index, down 0.5 percent since Dec. 31.

But some money managers are betting that trend may have gone on for too long. They argue that value stocks, which tend to have lower valuations, will look especially appealing relative to growth as the economy accelerates above its historic growth rates.

“That growth has continued for as long as it has and as lopsided as it is doesn’t mean the world has changed. It means we’re overdue for the pendulum to swing back to value,” said David Katz, chief investment officer at Matrix Asset Advisors in New York.

Growth and value are two classic approaches to investing, with growth investors typically searching for companies that have higher profit growth and margins, while value investors look for stocks that seem undervalued.

A shift from growth to value could come slowly.

Based on Thomson Reuters Lipper data, so far in 2018, U.S. fund investors have been pulling more money out of value funds than growth.

CLS Investments Chief Investment Officer Rusty Vanneman, who has already shifted to favoring value over growth, said investors tend to chase performance, and “tech names have been the glamor names.”

To be sure, many tech stocks do well when the economy improves, and every sector has stocks in both value and growth.

Katz thinks banks, energy and some stocks in health care, including Gilead Sciences, make good value buys right now.

Helping the argument for value, some strategists say, is a robust economic expansion in the United States. The economy is also being given additional fiscal stimulus through sweeping changes to the tax law approved by Congress late last year, including a reduction in the corporate tax rate.

Growth stocks mostly have outperformed value since the bull market began nine years ago and far outpaced them last year, when the S&P technology index rose nearly 37 percent compared with the S&P 500’s gain of 19.4 percent.

In 2017, the Russell growth index rose 28.4 percent versus a gain of 10.9 percent in Russell value.

“It’s definitely more difficult to find the proper risk-reward ratio in growth right now,” said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm, based in Toledo, Ohio.

“It’s a valuation argument. Growth has done phenomenally and the valuations reflect that,” said Ernesto Ramos, head of quantitative equity strategy at BMO Global Asset Management.

Multiples have risen “across the board,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. But, he said, “if everything is expensive, value offers a higher margin of safety.”

Financials, which benefit from higher interest rates and would get a boost from reduced regulations that are expected under the Trump administration, have the biggest weighting in the Russell value index, accounting for about 28 percent of the index, according to Thomson Reuters data.

Technology as a sector has the biggest weighting in the Russell Growth 1000 index, accounting for roughly 39 percent.

JPMorgan Chase, Berkshire Hathaway, Exxon Mobil, Bank of America and Wells Fargo represent the biggest weightings in the Russell 1000 value index, while Apple, Microsoft,, Facebook and Alphabet are the biggest weightings in Russell 1000 growth.

Besides telecommunications, financials have the lowest valuation of any S&P 500 sector, trading at about 13.9 times forward earnings compared with technology, which has among the highest, at 19.2 times forward earnings, according to Thomson Reuters data. The benchmark S&P 500 is trading at 17.3 times forward earnings.

With value, “you’re basically trading tech exposure for financials exposure,” Ramos said.

Reporting by Caroline Valetkevitch

Wednesday, 14 March 2018

Asian shares, dollar fall as U.S. trade fears eclipse strong China data

SYDNEY (Reuters) - Shares faltered and the dollar skidded on Wednesday as investors fretted over the threat of new U.S. tariffs on Chinese imports, brushing aside data that showed the Asian economy got off to a solid start in 2018.

Investor appetite for risk was also hit by U.S. President Donald Trump’s move to fire his Secretary of State, regarded as a moderate in his administration, reinforcing market uncertainty about Trump’s future policies.

In a sign the equity market sell-off would extend elsewhere, S&P E-Mini futures were down 0.1 percent while FTSE futures slipped 0.3 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan stumbled 0.7 percent, retreating from a 1-1/2 month high on Tuesday, with the technology sector the biggest drag.

Japan's Nikkei .N225 dropped 0.8 percent. China's SSE Composite index and the blue-chip CSI 300 fell 0.5 percent each.

The MSCI Asia ex-Japan IT index declined 0.5 percent as Trump sought to impose tariffs on up to $60 billion against information technology, consumer electronics and telecoms.

Large Asian technology stocks such as LG Display, Tencent Holdings and Taiwan Semiconductor were all down by more than 1 percent.

“A full-on global trade war is unlikely but there may not be much peace on the trade front either,” said Sydney-based AMP Chief Economist Shane Oliver. “A U.S.-China trade war is the main risk.”

Investors suspect policymakers who favour protectionism will also seek to use the currency as a trade weapon, if not overtly then through benign neglect.

As news from the United States dominated, the market shrugged off stronger-than-expected data from China which showed the country’s industrial output expanded at a surprisingly faster pace at the start of the year. Fixed asset investment also handily beat forecasts, while retail sales improved from December.

“The latest Chinese economic data is very encouraging,” said Craig James, Sydney-based chief economist at CommSec.

“The economy is well placed to weather any increase in U.S. tariff rates. In fact, the Chinese statistical bureau is tipping ‘relatively fast growth’ for both exports and consumption in 2018.”

Still, investors were inconsolable and followed overnight losses on Wall Street with the Dow off 0.7 percent, the S&P 500 down 0.6 percent and the Nasdaq Composite falling 1.0 percent.

The selling intensified after Trump dismissed Tillerson following a series of public rifts over policy on North Korea, Russia and Iran. He was replaced with loyalist CIA Director Mike Pompeo.

The move comes only days after the exit of White House economic advisor Gary Cohn who was a strong proponent of free trade.

“Tillerson’s departure has left some worrying that it provides a green light to those in the office pushing for more protectionist measures,” analysts at ANZ Bank said in a note to clients. “Protectionism is on the rise.”

Since Trump took office in 2017 as many as 35 senior officials from his administration have walked out, including Tillerson, according to Citi.

Tillerson’s dismissal and the risk of new import duties on China coincided with subdued U.S. consumer price data on Tuesday with annual core inflation, at 1.8 percent, meeting expectations.

The in-line reading should have been positive for risky assets as it was the fear of a pick-up in inflation and in-turn faster U.S. rate hikes that had hit global shares in early February.

But the inflation data did little to move market expectations of Fed rate rises with an increase next week now fully priced-in.

All that put together meant dollar weakness across a basket of currencies  It eased a tad to 106.5 yen. JPY=

The yen did dip briefly after minutes of the Bank of Japan’s January meeting showed most policymakers shared the view that the central bank should “persistently” pursue powerful monetary easing.

The euro rose overnight to edge towards a recent one-month top of $1.2446 EUR=. It was last at $1.2405, while the pound GBP= was firmer at $1.3989.

In commodities, oil prices were mixed U.S. crude  up 2 cents at $60.73. Brent fell 10 cents to $64.54.

Spot gold XAU= was a touch firmer at $1,327.82 an ounce.

Reporting by Swati Pandey

Rookie crypto investors look past risks, flock to London show

LONDON (Reuters) - Dozens of stallholders, pitching anything from a happy retirement to commercial property to the future of electronics, set up shop in central London last weekend to pitch their wares.

The companies and their salesmen were not there to part ways with the actual product, however. They just wanted to encourage buying into the digital coin craze that is raising billions of dollars.

At what organisers claimed to be Britain’s first large-scale“Crypto Investor Show”, attendees were looking to get in on the next initial coin offering (ICO).

The talk of Silicon Valley, ICOs are a mostly unregulated funding mechanism for start-ups to raise capital by creating and then issuing their own virtual coins or tokens. Last year, they raised a record sum as interest in cryptocurrencies like bitcoin surged.

“I came here to learn about ICOs. You have to do your research, but I would invest, it’s the upcoming thing,” said 30-year-old Shahzad Anwar, who installs electric charging points and had travelled down from the central England town of Solihull with his brother to attend.

“To me, stocks and shares and bonds are over, they are done,” he said, as attendees listened to a pitch at a nearby stall for an ICO wanting to raise tens of millions of dollars to build and race a supercar. Another promised to build a network of rest homes for the elderly.

Regulators say ICOs are highly speculative and investors should be prepared to lose everything. Unlike stocks, most ICOs do not confer ownership rights in the underlying business, just the possibility that the tokens will be worth more in future.

Supporters say ICOs are revolutionising the capital-raising industry, a crowdfunding alternative that gives ordinary people the chance to invest in start-ups, normally the preserve of the venture capitalist elite.

From circulating on tiny online chatrooms a few years ago, cryptocurrencies and ICOs have moved to the mainstream, with public advertising common.

Some companies have pushed back, however. Facebook said it would ban all crypto adverts because of the risks to investors. Twitter said it was taking measures to prevent cryptocurrency-related accounts from running scams on its platform.

London regularly hosts conferences on blockchain, the technology underpinning cryptocurrencies, where tech wizards exchange ideas, but the London show was geared towards the general public as well as experts.

The crowds arrived, some families for a day out, touring the stalls and listening to panelists. As well as marketing, there were sessions that discussed the risks.

Several attendees who worked in the industry said they were disappointed with the ICOs on offer, with staff hired for the day to hand out flyers and with little understanding of blockchain technology, or if it was even relevant to their idea.

“Don’t fall for some of the marketing out there ... [You have to ask] is it actually solving a problem or is it just making one up?” said Linda Leaney at Globcoin, which claims to be a stable cryptocurrency backed by global currencies and gold.

One Leeds-based company, offering a token backed by commercial property, crypto trading and the founder’s online discount shopping platform, said it had raised $4 million in seed investment, and was targeting $10 million, with bonus tokens and referral awards for attendees that emailed their details.

Nearby, one programmer and salesman after another took to a small stage to explain their business. No company promised anyone a specific financial return, and aside from the price of each token and early-bird discounts, they stuck to talking up their product.

Sam Smit, a 34-year-old electronics engineer from Horsham in southern England, is a self-styled“dirty flipper” - someone who buys a token at the pre-ICO stage before token sales are opened to the general public, then sells them when they begin trading on an exchange.

“Have you seen `Wolf of Wall Street’? This is the same, pump and dump!” he said, referring to the 2013 film about the stock broker and convicted fraudster Jordan Belfort.

“People here are illiterate idiots. Often after the pre-ICO stage, it’s already too late to buy,” he said - while admitting that he had lost around $400,000 in January when cryptocurrency prices slumped.

Reference: Tommy Wilkes

Dollar struggles after Tillerson departure strikes down recovery

TOKYO (Reuters) - The dollar wallowed against the yen and other major currencies on Wednesday after the sudden dismissal of U.S. Secretary of State Rex Tillerson killed off an earlier bounce in the currency.

U.S. President Donald Trump fired Tillerson on Tuesday after a series of rifts over policy on North Korea, Russia and Iran, replacing his chief diplomat with loyalist CIA Director Mike Pompeo.

It was a repeat performance for the currency market and the dollar, which declined a week ago when the resignation of White House economic advisor Gary Cohn undermined investor confidence in the greenback.

The dollar was down 0.15 percent at 106.440 yen , having slipped overnight from a two-week high of 107.300 reached after wariness over a political controversy in Japan waned slightly.

The greenback also lost a bit of traction after February U.S. inflation data out on Tuesday matched expectations, suggesting the Federal Reserve remained on track to raise interest rates at a gradual pace.

Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo, said comings and goings in the White House were becoming something of an everyday occurrence and that dollar’s reaction was likely to become more limited each time.

“For the dollar to rise above 107 yen again, it may need a clarification of the ongoing political ‘scandal’ in Japan in addition to a hint by the Fed at this month’s meeting that it might accelerate the pace of rate hikes,” Yamamoto said.

The yen had risen against the dollar at the start of the week as a political crisis engulfed Japanese Prime Minister Shinzo Abe and his close ally, Finance Minister Taro Aso.

The Japanese currency advanced as the controversy over alleged cronyism in a government land sale raised doubts about Abe’s ability to continue pursuing his Abenomics policies, which include aggressive monetary easing.

The Fed holds a two-day policy meeting starting on March 20 and the central bank is widely expected to raise interest rates for the first time this year.

Tracking a decline in U.S. debt yields, the dollar index against a basket of six major currencies slipped to a six-day low of 89.565.

The index managed to cling above 89.407, the low point for March set last Wednesday in the wake of Cohn’s exit.

“The dollar has not declined very much despite recent negative factors as sentiment is showing signs of recovering globally, with words like Goldilocks being mentioned again,” said Shusuke Yamada, chief Japan FX strategist at Bank of America Merrill Lynch.

The February U.S. non-farm payrolls report released on Friday pointed towards not too hot nor too cold “Goldilocks” conditions. The report showed a strong increase in employment but at the same inflation fears were moderated by a slowdown in earnings growth.

The euro extended an overnight bounce and was up 0.15 percent at $1.2407 , its highest in six days.

The pound rose about 0.2 percent to a two-week high of $1.3996.

The Australian dollar added 0.1 percent to $0.7870 and in reach of a two-week peak of $0.7898 scaled the previous day on robust business indicators.

Reporting by Shinichi Saoshiro

Yen clings to gains as scandal clouds Abe's outlook

TOKYO/SINGAPORE (Reuters) - The yen held firm against the dollar on Tuesday as a political scandal engulfing Japanese Prime Minister Shinzo Abe’s government raised doubts about his ability to continue to pursue his economic policies, including monetary easing.

The yen traded at 106.44 per U.S. dollar, after gaining 0.4 percent the previous day as Abe’s cronyism scandal attracted fresh attention from market participants.

The Ministry of Finance admitted on Monday it altered documents related to a discounted sale of state-owned land to a school operator with ties to Abe’s wife.

The suspected cover-up could slash Abe’s ratings and dash his hopes for a third term as leader of his Liberal Democratic Party (LDP) in LDP leadership vote in September.

That has cast doubts over Abe’s signature reflationist polices, which he’s pushed since his election in 2012 and include efforts to cheapen the yen.

Although such doubts have lent support to the yen, the concerns over Japanese political risks have had a relatively minor effect on wider markets so far, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.

“I’m not sure if that’s going to be enough to get us out of this current little risk revival mode that the market is in,” Innes said.

“We’d have to see a further escalation ... for me to get really excited,” Innes said.

Other major currencies were little changed with the U.S. CPI data due at 1230 GMT seen as a key focus for the day.

The median forecasts by economists polled by Reuters points to annual core CPI inflation of 1.8 percent in February, which would be flat from January.

A higher reading could stoke expectations that the Federal Reserve will likely raise interest rates four times, rather than three times, this year.

A rate hike at its upcoming policy meeting on March 20-21 has been long considered a done deal while another increase in June is almost fully priced in.

Yet traders are also mindful that the prospects of more U.S. rate hikes, while theoretically positive for the dollar, may not necessarily lift the U.S. currency, given other factors weighing on the greenback.

One big issue is U.S. President Donald Trump’s tariff on steel and aluminium, which many investors worry could trigger retaliatory moves by U.S. trade partners and hurt the economy.

On diplomatic front, the surprise announcement last week that Trump plans to meet North Korean leader Kim Jong Un, boosted risk appetite, but North Korea has stayed mum.

Another point to watch is the health of the global economy, said Roy Teo, an investment strategist for LGT Bank in Singapore.

If forthcoming Purchasing Managers’ Index (PMI) surveys bolster optimism about the outlook for global growth, that could whet investor demand for riskier assets, Teo said.

“If PMIs continue to firm, I think the dollar should be on the backfoot,” he added.

The euro traded at $1.2335, having lost steam since Thursday when European Central Bank President Mario Draghi struck a cautious tone on the euro zone economy.

While acknowledging faster growth in Europe, Draghi said regional inflation remained subdued and rising protectionism is a risk, leading traders to think that the ECB will advance slowly in winding back its stimulus.

Reference: Hideyuki Sano, Masayuki Kitano