Pages

Friday, 30 March 2018

Dollar stalls after rally, braces for headwinds in new quarter


TOKYO (Reuters) - The dollar stalled against its peers on Friday as the recovery seen earlier this week petered out ahead of the new quarter, which could potentially bring renewed pressure on the greenback.

Against a basket of six other major currencies, the dollar was off 0.2 percent to 89.985.

The index was up nearly 0.6 percent for the week, during which it touched a one-week high of 90.178 on factors including easing of concerns over global trade protectionism and perceived progress on North Korea’s nuclear programmme.

“A key part of the dollar’s recent gains were quarter-end flows, with many investors seen to have closed out short positions on the currency to lift the dollar,” said Shin Kadota, senior strategist at Barclays in Tokyo.

“It remains to be seen if the dollar can retain its gains next week when the new quarter begins, as it will no longer have support from such flows. Much of the challenging themes will remain the same in the next quarter, such as the health of the U.S. economy and trade issues.”


The dollar index was down more than 2 percent for the quarter, its fifth straight quarter of declines.

The U.S. currency, which plumbed a 16-month low of 104.560 on Monday when trade woes roiled global markets, shed 0.2 percent to 106.245 yen JPY=. It has risen 1.5 percent this week but declined 5.7 percent for the quarter.

The dollar’s fall against the yen in recent months has come despite higher U.S. bond yields. The spread between the 10-year U.S. and Japanese government bond yields reached its widest in a decade this quarter as the Federal Reserve has raised interest rates steadily while the Bank of Japan is stuck with monetary easing.

The yen is often sought in times of market turmoil and there were numerous opportunities for investors to buy the Japanese currency in the first quarter, which was punctuated by unsettling political developments in the White House, trade tensions between the United States and China and an end to Wall Street’s bull market.

“The lack of correlation between dollar/yen and the U.S.-Japan yield spread looks unnatural. Upward pressure on dollar/yen will be significant should the pair re-establish their correlation with the yield spread,” said Yukio Ishizuki, senior forex strategist at Daiwa Securities.

The euro nudged up 0.15 percent to $1.2317 EUR=, having slipped 0.3 percent this week. The common currency was up 2.6 percent for the quarter, buoyed by prospects of the European Central Bank phasing out its accommodative monetary policy.

The pound added 0.1 percent to $1.4031 and crawled away from $1.4011, a one-week low set the previous day.

Sterling has gained 3.9 percent this quarter, its best performance since mid-2015. It was lifted by hopes for a transition Brexit deal - which was eventually agreed earlier this month - and growing expectations that the Bank of England could soon raise interest rates.

The Australian dollar was up 0.1 percent at $0.7684, edging away from a three-month low of $0.7648 touched on Thursday, pressured by the U.S. dollar's broad bounce and weaker prices of commodities such as iron ore.

The Aussie was down 1.7 percent for the quarter, its yield advantage over the U.S. currency eroded as the Fed has steadily raised rates.

Major currencies were confined in a narrow range with many of the world’s key markets closed on Friday for holiday.

Reference: Shinichi Saoshiro

Harker gets more hawkish, sees two more Fed rate hikes this year


NEW YORK (Reuters) - A Federal Reserve policymaker said on Thursday he expects more interest rate hikes this year than he previously predicted, thanks to fiscal stimulus and stronger U.S. economic growth.

Philadelphia Fed President Patrick Harker said two more hikes would likely be appropriate this year, after the U.S. central bank raised rates last week. Last month, Harker said he expected two total policy tightenings in 2018.

His hawkish shift reflects the Fed’s move to a slightly more aggressive policy stance, including projections of more rate hikes over the next few years as inflation is expected to finally rise above target in 2019.

“On the heels of a strengthening outlook, I see two additional rate hikes this year as appropriate,” Harker told the New York Association for Business Economics. He added the forecast is “written in pencil” and could again change, “but overall things are looking pretty good.”

Harker, who does not vote on policy this year, said thanks in part to the recent U.S. tax cuts and government spending he now expects about 2.6 percent economic growth this year, 2.4 percent in 2019, and closer to 2 percent after that.

Nervous stock investors are hoping an unusually U.S. strong earnings season can restore some of the optimism that characterized equity markets last year.

Imploding technology stocks and fears of a trade war have pummeled the market in recent days. Given the surge in volatility this year, there is no guarantee that worst is over.

Analysts predict strong results when reporting season starts up next month, with first-quarter S&P 500 profit growth on track to be the highest in seven years, according to Thomson Reuters data. That follows a blockbuster fourth-quarter period, and recent corporate tax cuts that boosted forecasts for all of 2018.

A robust earnings period would bring back the focus on fundamentals and possibly put a floor under prices, supporting views that the 9-year-old bull market will go on, strategists said.

“It’s going to be earnings,” said Robert Pavlik, chief investment strategist and senior portfolio manager at SlateStone Wealth LLC in New York. “The market has given up so much that earnings can start to redirect attention back into a market that has gotten much cheaper relative to where we were.”

With this year’s sell-off and rising profit forecasts, stocks also are near the cheapest on a price-to-earnings basis that they have been since late 2016. The S&P 500 is trading at about 16.5 times forward earnings, well below the 18.9 level it was at in mid-December, according to Thomson Reuters data.

Stocks’ rout in early February, and more recent selling following worries over a U.S. trade war with China, Facebook privacy issues and a collapse in other tech leaders, have made investors skittish and more likely to discount the relatively strong economic backdrop that persists.

“We’ve been caught up in all of these things that could happen and may happen and that the sky is falling, but once earnings season kicks in, it’s headline news and that steals away some of the negativity,” said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta.

To be sure, next week brings the monthly U.S. jobs report, a potential catalyst for further volatility. A strong payrolls report in early February had helped spark the stock sell-off that drove the S&P 500 more than 10-percent below its Jan. 26 record high - a “correction.”

The job report briefly drove up bond yields and touched off worries that the Federal Reserve may need to speed up interest rate hikes. The S&P 500 is now about 8 percent below its record.

Just in the first three months of this year, the S&P has jumped or fallen 1 percent on 23 trading days, three times the number of 1-percent moves it made in all of 2017. In 2016, there were 48 such days.

Market participants agree that U.S. stocks are unlikely to return to the unusually calm conditions seen last year, when the Cboe Volatility Index, the most widely-followed barometer of expected near-term ups and downs for the S&P 500, logged a record low daily average reading of 11. The VIX hit a two-and-a-half-year high above 50 in early February.

Expectations for U.S. earnings this year have jumped since December, when U.S. lawmakers approved sweeping changes to the tax law, including slashing the corporate tax rate to 21 percent from 35 percent. Growth in other major economies has also lifted profit forecasts for the large stocks that generate a lot of sales overseas.

Analysts now expect first-quarter earnings for S&P 500 companies to rise 18.5 percent from a year ago, according to Thomson Reuters data.

The first-quarter S&P profit forecast is up 6.3 percentage points since Jan. 1, while the forecast for all of 2018 is up 7.7 points since then, based on Thomson Reuters data.

That suggests the bar might be relatively low for the first quarter. “You still could see some relative upside there,” said Keith Parker, U.S. equity strategist at UBS.

Many companies already have announced plans for increased buybacks and dividends, or bringing cash back from overseas, and other ways to use their tax savings. More news on that front is expected this reporting period, which is set to start with reports from JPMorgan Chase and others April 13.

“If we get a discussion of repatriation - what companies are going to bring back ... that will have a positive effect on the market,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

Reporting by Caroline Valetkevitch

Thursday, 29 March 2018

Dollar holds its gains as trade war fears recede; euro edges lower


LONDON (Reuters) - The dollar held on to its gains on Thursday after a big rise in the previous session, but traders said the outlook for the greenback remained negative as it headed for its fourth consecutive quarter of losses.

The euro, which has largely taken its direction from the dollar in recent weeks, fell back slightly to $1.2302 EUR=.

Global markets were shaken this month when U.S. President Donald Trump moved to impose tariffs on Chinese goods and Beijing threatened similar measures.

But fears of a full-blown trade war have eased on hopes negotiations can bring a compromise, encouraging investors to buy the dollar.

Quarter-end and month-end flows have also boosted the dollar as global asset and fund managers rebalanced portfolios. Data showing fourth-quarter U.S. economic growth slowed less than estimated also supported the greenback.

The dollar index, which measures the greenback against a basket of six other major currencies, was up 0.1 percent at 90.099.

Analysts said this week’s jump for the dollar looked overdone, however, and that many of the structural reasons for the U.S. currency’s decline - trade and budget deficits and monetary tightening in other parts of the world - remained.

“Is U.S. protectionism good or bad? The market is very undecided about this, but the dollar’s bounce was a little bit too bold from the market’s perspective,” said Ulrich Leuchtmann, head of FX strategy at Commerzbank.

German inflation data due out later on Thursday could move the euro but only marginally, said Leuchtmann.

The euro has been weighed down recently by comments from some European Central Bank officials suggesting the ECB is in no hurry to wind back its stimulus, given the spectre of low inflation.

So traders will be looking at German consumer price data for March, due at 1200 GMT.

“Frankly, the data would have to surprise to have a meaningful impact, the market basically has made up its mind about hikes, even if the data comes higher, it doesn’t mean the ECB would get more excited or hike any sooner,” he said.

Elsewhere, the dollar eased against the yen, losing some momentum after hopes of detente in East Asia provided the spark for its largest daily gain in six months the previous session.

The dollar fell 0.2 percent to 106.63 yen JPY=, giving back some gains after surging 1.43 percent on Wednesday, its biggest rise since Sept. 11 of last year.

China said on Wednesday North Korea’s leader Kim Jong Un pledged his commitment to denuclearisation, while U.S. President Donald Trump tweeted that Kim looked forward to meeting with him.

This has prompted some speculation among traders that a diplomatic breakthrough over North Korea’s nuclear programme might be closer at hand than ever before, although the hurdles to a solution remain stiff.

Because of Japan’s status as a net creditor nation, the yen tends to be bought on rising geopolitical tensions and vice versa.

Some traders also noted, however, that currency trading so far this week has been driven by flows related to quarter-end, and for many Japanese firms, the financial year end, on March 31.

“There are a lot of noises this week. We feel quarter-end, and financial-year end flows are somehow larger this year than usual,” said Bart Wakabayashi, Tokyo Branch Manager of State Street.

Reference: Tom Finn

Stocks reboot after tech problems, first quarter losses loom


LONDON (Reuters) - Stock markets and other riskier assets steadied on Thursday as investors dusted themselves down after a woeful week for the tech sector, readying for what was set to be the first quarterly drop in global equities in two years.

Banks and consumer stocks helped Europe’s main bourses 0.2-0.4 percent higher as the region built on a positive session for Asia’s heavyweight Nikkei, Hang Seng and Chinese markets.

For currencies traders, the dollar steadied too after a stronger-than-expected revision to Q4 growth data and hopes a nuclear standoff with North Korea has been averted gave it its largest daily gain in six months on Wednesday.

The tentative return of risk appetite and upcoming German inflation data also cooled safety plays like Bunds.

Benchmark yields - which move inversely to prices - on German government bonds crept back above 0.5 percent having been on a sharp slide for most of the month. Spanish yields meanwhile saw their biggest monthly fall since mid-2016.

The 10-year U.S. Treasury yield was at 2.773 percent after touching a near two-month low of 2.743 percent overnight amid the strains on Wall Street.

“I think most of these markets are staring at the 200-day moving average on the S&P 500 to see if it breaks,” said Societe Generale’s Kit Juckes.

“We will see if German CPI numbers (due at 1200 GMT) surprise on the upside... but I think if there is going to be another surprise in Q2 it will be yen strength again.”

Wall Street futures were pointing to a marginally higher open.

All three major U.S. indexes ended in the red again on Wednesday with $30 billion wiped off Amazon’s shares alone after reports U.S. President Donald Trump wanted to rein in the firm’s power in online retailing.

As a set, the FAANGs (Facebook, Amazon, Apple, Netflix and Google) are still well up for the quarter, but privacy concerns after it was revealed 50 million Facebook users’ data was misused has wiped over $400 billion off the shares’ value in recent weeks.

The turbulent start to 2018 in financial markets has brought an end to one of the longest ever quarterly bull runs - and there have been few places to hide.

Investors have had it all thrown at them, from the biggest ever rise in stock volatility to rapidly escalating tensions over global trade, deepening turmoil in the White House and major tech sector wobbles.

A “melt-up” that sent the MSCI’s world share index up 8 percent in January suddenly melted away. Now the Dow Jones, S&P 500, FTSE Nikkei and scores of other big markets are all down for the year.

“We have got to make sure (the market selloff) ...is not too prolonged because the longer this goes the higher the chance it will start to affect the man on street,” said Head of Equities at London & Capital Roger Jones.

GOLDEN GLOW
In Asia overnight, Japan’s Nikkei ended up 0.6 percent, Shanghai closed more than 1.2 percent higher and Hong Kong’s Hang Seng recovered from an early wobble to add 0.3 percent.

Helping the mood were media reports that Japan had sounded out North Korea’s government about a bilateral summit, and that Pyongyang had also discussed the possibility of a broader meeting with other global leaders.

Beijing had said on Wednesday that North Korea’s leader Kim Jong Un had pledged his commitment to denuclearisation at meeting with Chinese President Xi Jinping.

The greenback was 0.3 percent lower against the yen - often sought in times of market turmoil and political tensions - at 106.57 yen on Thursday. The greenback had rallied 1.4 percent on Wednesday on perceived progress over the North Korea issue, having set a 16-month trough of 104.560 on Monday.

The dollar index versus a basket of six major currencies was flat at just over 90 after reaching a one-week high of 90.147.

“Expansionary U.S. fiscal policy should support global trade, but markets will remain attentive to further tensions as the China-U.S. trade saga continues to unfold,” wrote economists at ANZ.

The euro was 0.15 percent higher at $1.2332 after losing 0.75 percent on Wednesday.

Sterling was flat at $1.4080 after shedding 0.5 percent overnight on news British retail sales fell in March for the first time in five months.

It has however had its best quarter since early 2015, and not only against a dollar which is locked in its worst run since the financial crisis, but also versus the euro.

In commodities, U.S. crude futures rose 0.4 percent to $64.64 a barrel, partly recovering after dropping 1 percent the previous day when data showed U.S. crude inventories unexpectedly rose last week.

Brent climbed 0.3 percent to $69.73 a barrel after losing 0.8 percent on Wednesday. Brent has risen more than 6 percent this month with OPEC and other suppliers expected to continue withholding output for the rest of the year and potentially into 2019.

Gold was treading water at $1,323 an ounce. Another sign of the stress in markets is that it is set for its third straight quarterly gain.

Reporting by Marc Jones

Wednesday, 28 March 2018

On China trade clash, Wall Street embraces Trump's poker face



SAN FRANCISCO (Reuters) - To Wall Street money managers who make bets for a living, U.S. President Donald Trump’s aggressive stance against China on trade looks like a high-stakes poker hand - but they believe they can play it for all it’s worth.

Fears that Trump could set off a trade conflict have roiled Wall Street since March 1, when the president announced plans to impose tariffs on imported steel and aluminium, risking retaliation from major trade partners like China, Europe and neighbouring Canada.

It’s been a roller coaster ride, with markets slumping after Trump last Friday moved to impose up to $60 billion in tariffs on some Chinese imports and China declared plans to retaliate with duties of up to $3 billion of U.S. imports even as it urged the United States to “pull back from the brink.”

China’s willingness to negotiate spurred a rebound on Monday, though jitters in the tech sector drove markets back down on Tuesday.

Investors remain concerned about a trade war between the world’s two largest economies, but some big players are sanguine about their prospects to make money even as they try and dissect Trump’s strategy on trade.

The former celebrity businessman on March 2 tweeted, “trade wars are good, and easy to win,” shocking economists who cite evidence that trade wars in the past have been destructive to economies involved.

“Other administrations have gone to trading partners like China and asked for a fairer deal, only to get a cigar put out on their forehead,” said Steve Chiavarone, a portfolio manager at Federated Investors. “I suspect Trump’s bucking of norms is absolutely part of his negotiating tactics.”

Chiavarone and others said they remain confident the S&P 500 will rise significantly this year.

“So far you are talking about small amounts of tariffs in niche sectors,” said Phil Blancato, head of Ladenburg Thalmann Asset Management in New York. “For anyone who is looking for an opportunity to enter the market here at better valuations, this is it.”

THE ART OF THE DEAL
“He has shown himself to act aggressively, quickly and unilaterally, and that’s brought China to the negotiating table,” said Ben Phillips, chief investment officer of EventShares exchange traded funds. “I truly think they are worried about him taking unilateral action and harming China’s economy.”

Fears of a trade war, which could hurt U.S. multinationals and dull the benefits of deep corporate tax cuts enacted this year, have helped push the S&P 500 down nearly 4 percent since the end of February.

The Trump administration has demanded that China immediately cut its $375 billion trade surplus with the United States by $100 billion, a position seen by some as an opening tactic in a long negotiation.

China could respond to U.S. measures with a range of tariffs aimed at U.S. multinationals, or even farmers in rural regions who helped Trump win the 2016 presidential election.

Trump’s bellicose stance with U.S. trade partners reflects a negotiating style outlined in his 1987 book, “Trump: The Art of the Deal,” said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York.

“You propose something horrific, and then when you pull back what you want is not as painful as feared,” Pursche said. “The problem is the other side isn’t dumb. Eventually, they’re going to figure that out.”

Reporting by Noel Randewich

Dollar stalls as trade war concerns linger


TOKYO (Reuters) - The dollar stalled on Wednesday as global trade tensions remained elevated, with U.S. President Donald Trump discussing joining forces with Germany to counter China’s economic practices.

The dollar index, which measures the greenback versus a group of six major currencies, dipped 0.1 percent to 89.291.

It had gained about 0.34 percent overnight, pulling away from a five-week low of 88.942.

The dollar recovered slightly on hopes that negotiations between the United States and China would produce a compromise and avoid a full-blown trade war.

But the White House said that Trump had discussed trade practices with China in calls on Tuesday with French President Emmanuel Macron and German Chancellor Angela Merkel, which could lead to an escalation of trade tensions.

The U.S. currency was 0.2 percent higher at 105.530 yen.

It had been pushed down from a high near 106.000 overnight after a slide in U.S. stocks and Treasury yields, but as fears of a global trade war faded it rebounded from the 16-month low of 104.560 yen set on Monday.

“The dollar lost some traction as equity markets sank following the latest media report on U.S. trade policy,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

He was referring to a Bloomberg report stating that the Trump administration was considering using a law reserved for national emergencies in a crackdown on some Chinese investments.

“The threat of all-out risk avoidance caused by trade concerns has eased, but some ‘risk off’ moves are likely to keep impacting currencies as long as uncertainties remain,” Yamamoto said.


The euro was 0.15 percent higher at $1.2419 EUR= after losing 0.3 percent overnight on soft euro zone economic data and dovish-sounding comments from Erkki Liikanen, a member of European Central Bank's Governing Council.

“There is always the risk of the U.S. GDP figures due today being much weaker than expected, but major dollar-selling developments seem to have run their course for the time being,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

U.S. data due later in the day include the final estimate of fourth quarter gross domestic product and pending home sales.

The pound gained 0.25 percent to $1.4190 GBP=D3 after falling 0.5 percent on Tuesday.

The Australian dollar rose 0.3 percent to $0.7698 AUD=D4 after dropping more than 0.9 percent on Tuesday.

South Africa's rand dipped 0.25 percent to 11.65 per dollar with the South Africa Reserve Bank expected to loosen monetary policy later on Wednesday.

The central bank is seen cutting its repo rate by 25 basis points to 6.50 percent with domestic inflation flagging on the back of a strong rand, which reached a three-year high against the dollar in February.

Reporting by Shinichi Saoshiro

Tuesday, 27 March 2018

Euro hits fresh five-week high as risk appetite creeps back in


LONDON (Reuters) - The euro rose to a new five-week high on Tuesday with receding fears of a global trade war hurting the dollar and encouraging investors to resume their bets on a stronger single currency.

After a big gain on Monday, the euro added another 0.3 percent to hit $1.2473, leaving it less than cent off the three year highs hit in mid-February.

With many traders betting on prolonged dollar weakness this year because of the United States’ trade and budget deficits, and investors expecting to allocate more money to the euro zone as its economy strengthens, the single currency has performed well in 2018.

However, the euro’s rally had run out of steam in recent weeks, partly because of trade tensions.

Global markets were shaken this month after U.S. President Donald Trump moved to impose tariffs on Chinese goods and Beijing threatened similar measures.

Valentin Marinov, head of G10 FX strategy at Credit Agricole, said that the ease in trade fears had allowed investors to re-focus on whether the European Central Bank would tighten monetary policy faster than expected, and for large institutional investors to resume allocating more money to the region after years of being underweight.

“You have the fact euro zone inflation may be recovering plus the old theme of (investor) diversification back into euros,” he said, adding that for the euro to move much higher you would need to see stronger evidence the ECB will in fact shrink its balance sheet.

Comments from Jens Weidmann, Germany’s likely candidate to become the European Central Bank’s next president, that market expectations of a rate hike towards the middle of next year were “not completely unrealistic” had also helped bolster the euro on Monday.

Elsewhere, the safe haven Japanese yen sagged as optimism that the United States and China could begin negotiations on trade helped ease concerns about a trade war.

The yen fell 0.1 percent to 105.51 yen versus the dollar as the Japanese currency gave up some of its large gains last week when investors fretted about trade tensions.

The euro rose 0.3 percent against the yen to 131.69 yen, after surging 1.4 percent on Monday for its biggest one-day percentage gain since June 2017.

Reports of behind-the-scenes talks between the United States and China have eased concerns for now that global trade frictions could escalate out of control.

The receding concerns over U.S.-China trade tensions whetted investor appetite for riskier assets. Wall Street scored its best day in 2-1/2 years and the Dow Jones Industrial Average saw its third-biggest point gain ever on Monday.

The dollar was flat against a basket of currencies at 88.991, its weakest level since Feb. 16.

“There is this sense in the market that the situation might not escalate into a trade war,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Asian currencies like the Korean Won and Chinese Yuan, which hit a new 2-1/2 year high, were also big winners overnight as both were expected to fare badly if trade tensions ratcheted up.

The offshore yuan strengthened to a high of 6.2364, the firmest level since Aug. 11, 2015.

Reference: Tommy Wilkes

Stocks cheered by chance of trade detente, dollar downcast


SYDNEY (Reuters) - Asian share markets sprang higher on Tuesday as reports of behind-the-scenes talks between the United States and China rekindled hopes that a damaging trade war could be averted, in turn sapping life from the dollar and yen.

Taking a cue from Wall Street, Japan's Nikkei enjoyed its best day in almost three months, jumping 2.3 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose almost 1 percent, while China blue chips .CSI3000 added 0.9 percent.

Futures for the FTSE rose 1.2 percent and spread betters pointed to steep gains for other European bourses, while E-Mini futures for the S&P 500 ESc1 firmed 0.3 percent.

The abrupt mood swing came amid reports Chinese and U.S. officials were busy negotiating to avert an all-out trade war.

White House officials are asking China to cut tariffs on imported cars, allow foreign majority ownership of financial services firms and buy more U.S.-made semiconductors, said a person familiar with the discussions.

Chinese Premier Li Keqiang on Monday pledged to maintain trade negotiations and ease access to American businesses.

“The recent escalation may have simply been a negotiating tactic that will end in a compromise,” wrote analysts at JPMorgan. “This would be consistent with the pattern around the steel/aluminum tariffs and is the interpretation that many market commentators are favoring.”

Yet they warned it was too early to say for sure, given President Donald Trump has had deeply held views on fair trade for decades.

YEN RETREATS
Even a whiff of a deal was enough to propel Wall Street to its best day in 2-1/2 years and deliver the Dow its third-biggest point gain ever.

The Dow jumped 2.84 percent, while the S&P 500 climbed 2.72 percent and the Nasdaq  3.26 percent.

The sudden bout of optimism helped offset news that the United States and many of its Allies were expelling more than 100 Russian diplomats in retaliation for a nerve agent attack on a former Russian spy in Britain.

The surge in stocks dragged on the Treasury market, which faces a record $294 billion of new supply this week. Yields on 10-year Treasury notes inched up to 2.856 percent, but remained short of last week’s top at 2.90 percent.

In currency markets the reaction was to offload both the yen and the U.S. dollar as appetite for riskier assets revived.

“The yen is being quietly sold as risk hedges are unwound and looks particularly vulnerable on the crosses,” Citi analysts said in a note.

Short-covering against the euro was especially sharp as the common currency jumped 1.4 percent overnight EURJPY= to stand at 131.51 yen.

That allowed the U.S. dollar to bounce to 105.61 yen JPY=, having been at its lowest since late 2016 at one point. Yet the U.S. currency ran into selling against almost everything else, with notable breaks by the euro and sterling.

The euro was up at $1.2450 EUR=, after cracking the March top at $1.2446, and bulls were eyeing the peak for the year so far at $1.2556.

The broad-based softness kept the dollar retrained against a basket of currencies at 89.063, after touching a five-week trough of 88.979.

The improved mood on trade gave a fillip to industrial commodities, with copper and iron ore bouncing, while spot gold XAU= inched up to $1,353.61 an ounce.

In oil markets, U.S. crude futures put on 29 cents to $65.84 a barrel, while Brent crude added 18 cents to $70.30 a barrel.

Reporting by Wayne Cole

Yen slips as easing trade fears revive risk appetite


SINGAPORE (Reuters) - The safe haven Japanese yen sagged on Tuesday as optimism that the United States and China could begin negotiations on trade helped ease concerns about a trade war, reviving demand for riskier assets.

Global markets were shaken last week after U.S. President Donald Trump moved to impose tariffs on Chinese goods and Beijing threatened similar measures, sparking fears of a trade war between the world’s two largest economies.

But reports of behind-the-scenes talks between the United States and China have eased concerns for now that global trade frictions could escalate out of control, with traders hoping any actual U.S. measures will be much more modest than first announced.

Chinese Premier Li Keqiang said on Monday it and the United States should maintain negotiations, reiterating pledges to ease access for American businesses.

The receding concerns over U.S.-China trade tensions whetted investor appetite for riskier assets. Wall Street scored its best day in 2-1/2 years and the Dow Jones Industrial Average saw its third-biggest point gain ever on Monday.

“There is this sense in the market that the situation might not escalate into a trade war,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, adding that China’s relatively moderate reaction had helped soothe such jitters.

The yen, often viewed as a safe haven currency in times of market turbulence and economic uncertainty, partly because of the resilience provided by Japan’s current account surplus, retreated due to the revival in investor risk appetite.

With the yen on the defensive, the dollar rose 0.2 percent to 105.62 yen. The greenback has bounced back after hitting a 16-month low of 104.56 yen on Monday.

Market participants said the yen showed limited reaction to testimony in Japan’s parliament by a former finance ministry official, who said Japanese Prime Minister Shinzo Abe, his wife, Finance Minister Taro Aso and their top aides did not give instructions to change documents about a land deal at the heart of a suspected cronyism scandal.

The simmering controversy has slashed Abe’s support ratings and clouded his chances of a third three-year term as ruling Liberal Democratic Party (LDP) leader in a September party vote.

The political scandal has been seen as a factor that could spur yen-buying, as it has cast some doubt over the future of Abe’s reflationary economic policy agenda, including monetary stimulus.

The euro rose 0.2 percent against the yen to 131.53 yen, after surging 1.4 percent on Monday for its biggest one-day percentage gain since June 2017.

Against the dollar, the euro rose 0.1 percent to $1.2454, clinging near Monday’s high of $1.24615, which was the euro’s strongest level since mid-February.

Comments from Jens Weidmann, Germany’s likely candidate to become the European Central Bank’s next president, helped bolster the euro on Monday. Weidmann said market expectations of a rate hike towards the middle of next year were “not completely unrealistic”, a view shared by the broader market, although some expect a rate hike by the first quarter of 2019.

The firmness of some of its major rivals as well as emerging market currencies helped weigh on the greenback.

The dollar’s index against a basket of six major peers held steady at 89.042, languishing near Monday’s five-week low of 88.979.

Emerging Asian currencies rose, with the Malaysian rinngit hitting a two-month high of 3.8700 per U.S. dollar.

“The stars are beginning to align again with the ringgit’s fortunes,” Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, said in a note, adding that buoyant oil prices were helping to support the ringgit.

Brent crude oil futures have risen 6.9 percent in March, supporting the currencies of commodities exporters.

China’s yuan extended its gains against the U.S. dollar to a seven-week high on Tuesday after the central bank set its official fixing at the strongest level in more than two-and-a-half years.

Reporting by Masayuki Kitano

Monday, 26 March 2018

Euro gains as risk appetite returns; kiwi flies


LONDON (Reuters) - The euro vaulted above the $1.24 line to the day’s highs and relatively high-yielding currencies, including the Australian dollar, gained on Monday as stocks recovered, indicating investor appetite returned after Friday’s brief sell-off.

But the dollar held close to a 16-month low against the Japanese yen as broader markets remained wary about the greenback’s outlook against the backdrop of concerns over a possible trade war.

“The Fed’s statement last week, if anything, signals a more bullish outlook for the dollar, but we are seeing renewed weakness so this may be indicative of some structural rebalancing flows,” said Richard Falkenhall, a senior FX strategist at SEB.

With positioning against the dollar at a one-year high, according to CFTC data, and the greenback recording its biggest weekly drop in a month against a basket of currencies last week, some investors prepared for a bounce.

But cracks widened, with the dollar plumbing to a 16-month low against the Japanese yen to 104.56 earlier and was trading slightly above that low at 105.11 yen.

Against the euro, the dollar was trading at a 2-1/2 week low of $1.2417, with the latest comments from Jens Weidmann, Germany’s likely candidate to become the European Central Bank’s next president, also offering some support.

Weidmann said market expectations of a rate hike towards the middle of next year were “not completely unrealistic”, a view shared by the broader market, although some expect a rate hike by the first quarter of 2019.

Still, while the ECB is hinting at raising interest rates, the Federal Reserve is already in the midst of its rate hiking cycle, with bond markets expecting more than 100 basis points in hikes over the next year, according to Reuters data.

Global markets were shaken last week after U.S. President Donald Trump moved to impose tariffs on Chinese goods, edging the world’s two largest economies closer to a trade war, but latest reports indicated a slightly more selective stance.

The United States asked China in a letter last week to cut the tariff on U.S. autos, buy more U.S.-made semiconductors and give U.S. firms greater access to the Chinese financial sector, the Wall Street Journal reported on Monday, citing unnamed sources.

U.S. stock futures were up 1.4 percent in London trade after major U.S indices fell sharply on Friday.

“Risk sentiment remains cautious and we remain bearish on the dollar’s outlook in the absence of any fundamental changes despite the rate differential factor supporting the greenback,” said Manuel Oliveri, an FX strategist at Credit Agricole in London.

Against a broad basket of its rivals, the dollar edged 0.3 percent lower after last week’s 0.8 percent fall.

The dollar’s strength against the yen was also due to Japanese factors such as growing views that a political scandal in Tokyo could deepen, with a figure in a cronyism controversy surrounding Prime Minister Shinzo Abe due to testify in parliament on Tuesday.

The prime minister’s “Abenomics” economic measures have been a factor in pulling the yen down over the past few years to the benefit of Japanese exporters. Any event that leads to a decline in his support ratings is seen weakening his ability to keep Abenomics in place.

“With worries about the United States and China locking horns on trade issues and Japan’s parliamentary testimony coming up on Tuesday, few participants are willing to buy the dollar,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

According to calculations by Reuters and Commodity Futures Trading Commission data released on Friday, speculators’ net short positioning on the yen shrank rapidly to roughly 22,000 contracts in the latest week, the smallest since November 2016, from a net short position of about 79,500 contracts.

The Australian dollar added 0.6 percent to $0.7749 and the New Zealand dollar gained nearly 1 percent to $0.7297, in a further sign that risk aversion was fading from the markets for now.

Reporting by Saikat Chatterjee

Dollar hits 16-month lows vs. yen as trade fears, Japanese political woes hurt


TOKYO (Reuters) - The dollar slipped to a 16-month low against the yen on Monday, pressured by lingering fears of a global trade war and a political crisis that has engulfed Japanese Prime Minister Shinzo Abe.

The U.S. currency traded at 104.955 yen after falling to 104.560, its weakest since November 2016.

The dollar had already slumped 1.2 percent versus its Japanese peer last week as escalating trade tensions between the United States and China stoked concerns about global growth.

Global markets were shaken after U.S. President Donald Trump moved to impose tariffs on Chinese goods, edging the world’s two largest economies closer to a trade war.

Views that Japan’s political scandal could deepen was also seen lifting the yen, with a key figure in a cronyism controversy gripping Abe due to testify in parliament on Tuesday.

Economic measures dubbed “Abenomics” initiated by Abe has been a factor that has pulled the yen down over the past few years to the benefit of exporters. Any event that leads to a decline in the premier’s support ratings is seen weakening his ability to keep Abenomics in place.

“With worries about the United States and China locking horns on trade issues and Japan’s parliamentary testimony coming up on Tuesday, few participants are willing to buy the dollar,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

“It really is typical ‘risk off’ trades dominating right now, with the yen and Swiss franc the big beneficiaries. But more speculators are jumping in, and any reversals could be sudden and violent.”

According to calculations by Reuters and Commodity Futures Trading Commission data released on Friday, speculators’ net short positioning on the yen shrank rapidly to roughly 22,000 contracts in the latest week, the smallest since November 2016, from a net short position of about 79,500 contracts.

“Even if a fresh round of speculative moves betting on yen strength emerges, dollar/yen’s fall is likely to sputter out before the pair reaches 100 yen,” said Koji Fukaya, president at FPG Securities.

During past episodes of turmoil such as the European debt crisis in 2016, participants had more reason to actively buy the Japanese currency but the situation has changed this time around with the U.S. economy stronger and their yields higher, Fukaya said.

The Swiss franc was little changed at 0.9468 franc per dollar after gaining 0.55 percent against the greenback last week.

The euro gained 0.2 percent to $1.2372 after rising 0.5 percent last week.

The dollar index against a basket of six major currencies was steady at 89.397 and in close reach of a one-month low of 89.356 set last week.

The Australian dollar added 0.4 percent to $0.7727 and the New Zealand dollar gained 0.6 percent to $0.7270.

Reporting by Shinichi Saoshiro

Asian shares battered as trade war fears sap sentiment


SYDNEY (Reuters) - Asian shares were hammered again on Monday as fears of a trade war between the United States and China took their toll, but the safe haven yen came off its highs and U.S. stock futures climbed as investors saw some light at the end of the tunnel.

Global markets were shaken when U.S. President Donald Trump moved to slap tariffs on Chinese goods, on top of import duties on steel and aluminium, prompting a defiant response from Beijing.

But E-Mini futures for the S&P 500  brushed off the gloom on Monday to leap 0.6 percent on reports the United States and China have quietly started negotiating to improve U.S. access to Chinese markets.

The United States also agreed to exempt South Korea from steel tariffs, imposing instead a quota on steel imports as the two countries renegotiate their trade deal.

“If we do start to hear more favourable news from the U.S. administration and indeed from the Chinese side over the next few trading sessions, then we may see a sharp reversal of the recent moves in the market,” said Nick Twidale, chief operating officer at Rakuten Securities Australia.

The positive headlines were little consolation for Asian shares which were left nursing their wounds.

Japan's Nikkei trimmed early losses but were still down 0.4 percent. Chinese shares declined about 1.7 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS slipped 0.4 percent for its fourth consecutive day in the red.

The index is headed for its first quarterly decline since late 2016 as the risk of faster U.S. rate rises and a trade war spooked investors who had enjoyed a multi-year bull run.

South Korea's benchmark share index .KS11 rose 0.3 percent, one of only three markets in positive territory. "Protectionism remains a source of volatility and downside risk for equities," analysts at JPMorgan said in a note.

“Asia ex-Japan equity outperformance is in part a function of faster growth and capital inflows - both clearly at risk in a trade war.”

In the uncertain global economic climate, investors looked to pile into the Japanese yen JPY=, traditionally a safe haven asset thanks to the country's massive current account surplus.

Speculators added short dollar bets to their portfolios, taking the net short position to its highest in more than a year, according to calculations by Reuters and the Commodity Futures Trading Commission for the week to March 20.Short yen positions were cut to the smallest since November 2016.

By late Asian trade, the yen had eased slightly from near 16-month highs to 104.90 per dollar while the Australian and New Zealand dollars, a liquid proxy for China plays, staged a welcome rebound.

The Aussie AUD= was up 0.3 percent while the kiwi  gained 0.6 percent.

The dollar index tracking the greenback against six other major currencies was near a one-month low at 89.423.

In commodities, international Brent crude futures opened above $70 per barrel for the first time since January but the gains could not be sustained as the ongoing trade disputes weighed on global markets.

Spot gold was flat at $1,346.8199 an ounce.

Reporting by Swati Pandey

Sunday, 25 March 2018

China renews pledges to open economy, protect IP rights


BEIJING (Reuters) - China pledged on Sunday to press ahead with market opening and reforms while reiterating that it will treat domestic and foreign firms equally and protect intellectual property rights.

The pledge on reform and equal treatment came from Vice Premier Han Zheng, at a time there are increasing prospects of a trade war with the United States.

Han, making his first speech since being named executive vice premier earlier this month, told the China Development Forum in Beijing that China needs to “open even wider to the outside world,” and would do so via its Belt and Road Initiative.

Also at the forum, He Lifeng, chairman of the National Development and Reform Commission (NDRC), said China “will deepen supply-side structural reforms and work hard to eliminate ineffective supply”.

Earlier this month, the NDRC said China, the world’s biggest steel and coal producer, would cut its annual steel capacity by around 30 million tonnes and coal capacity by about 150 million tonnes this year.

China will also promote international capacity cooperation as part of its Belt and Road Initiative, which Beijing considers to be a modern-day ‘silk road’, and widen access to the Chinese market, including the financial, telecom and education sectors, He said.

EQUAL PROTECTION
It will also “give equal protection to property rights of all ownership types by law,” and strengthen protection of intellectual property rights, said He, adding that China would better integrate its financial sector and real economy.

John Frisbie, president of the U.S.-China Business Council told Reuters China “has been promising market-opening measures and protection of intellectual property for some time, but what the U.S. business community is waiting for is action.”

The United States launched a complaint against China at the World Trade Organization on Friday, part of a package of trade measures announced by President Donald Trump on Thursday over China’s alleged theft of U.S. intellectual property..

China’s Ministry of Commerce said on Friday it opposed U.S. unilateralism and protectionism after Washington unveiled plans for tariffs on up to $60 billion in Chinese goods following an intellectual property probe.

Tim Cook, chief executive of Apple, who is co-chairing the forum, told the meeting the business community “has always supported the idea that open markets foster new ideas and allow entrepreneurship to thrive.”

“The strongest companies and economies are those that are open - those that thrive on diversity of people and ideas,” said Cook, who on Saturday called for “calm heads” in the brewing U.S.-China trade dispute.

Reporting by Kevin Yao and Matthew Miller

Just for fun


Shy Sea Horse gets a birthday cake 






Police dogs cue for food

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: tmsnrt.rs/2gsUVwB)

POWELL IN SPOTLIGHT
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