Wednesday, 25 April 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reporting by Tommy Wilkes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reference: David Milliken

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Indian rupee hit a 13-month low.

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

The dollar also gained a tad against major currencies.

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

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

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

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

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

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

Reorting by Hideyuki Sano

Tuesday, 24 April 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reporting by Kate Duguid and Saikat Chatterjee

Scalping: Small Quick Profits Can Add Up

An Educational article

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reference:  Vadim Graifer

Monday, 23 April 2018

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

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

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

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

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

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

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

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

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

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

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

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

Reporting by Tom Finn

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reporting by Sruthi Shankar

Crypto trading tumbles as investment scramble unwinds

LONDON (Reuters) - Trading activity on cryptocurrency exchanges has halved from its December peak, industry data shows, as retail interest in the virtual coins declines and the prices of many remain far below their recent highs.

Average daily traded volumes across cryptocurrency exchanges fell to $9.1 billion in March and to $7.4 billion in the first half of April, compared to almost $17 billion in December, according to data compiled by crypto analysis website CryptoCompare.

Rocketing prices of digital currencies such as bitcoin fueled a mania in the sector towards the end of 2017 as retail investors across the globe scrambled to get a piece of the action. That triggered regulatory warnings and threats to crack down on the market.

China, a major market, has shut down local cryptocurrency trading exchanges.

Since peaking in December and January, bitcoin's price has more than halved, while the second and third largest cryptocurrencies, ethereum .MVETH and Ripple's have lost even more of their value.

But crypto-trading volumes in March and April have only fallen back to their levels of November. They remain as much as 25 times above their levels of March-April last year.

“Volumes are down because there was a hype cycle in December on the back of futures products coming to market. You’ll find that most of that was retail-driven, with Korea and Japan as major instigators,” said Charles Hayter, London-based CryptoCompare’s co-founder.

“The governments have now dampened some of that irrational exuberance.”

People involved in the industry say trading activity outside of exchanges, on over-the-counter markets, where larger institutional investors tend to trade, has held up far better.

Major exchanges with drops of more than half in daily traded volumes between December and March include Bitfinex, San Fransisco-based Coinbase, Luxembourg-based Bitstamp and Poloniex, which was recently bought by Goldman Sachs-backed cryptocurrency start-up Circle.

A person close to Bitstamp said volumes were directly related to overall interest in cryptocurrencies, but that the exchange had maintained its market share between December and April. The other exchanges did not respond to requests for comment.

The slump in trading volumes will be seized on by critics of digital currencies as a further indication they are a giant Ponzi scheme that is now unravelling.

But people active in the industry say short-term price and trading swings are to be expected for a highly disruptive technology, and that true believers in the power of digital currencies will remain invested for the long-haul.

“The crypto market ... is set to soar over the next few years and beyond, as more and more investors appreciate the fundamentals,” said Nigel Green, CEO of deVere, a financial consultancy which operates a crypto exchange app.

“Whether traditionalists like it or not, the clock on digital currencies isn’t going to be turned back.”

Not all of the falls in trading volumes can be explained by weaker investor appetite.

Restrictions in countries like China will have hit exchanges used heavily by Chinese investors disproportionately, while other trading platforms may have been given a boost by the listing of new cryptocurrencies during the year.

Many new exchanges have also opened, taking market share from older platforms.

Some like OKEx and Huobi have grown their volumes since December despite the broader decline, with March among their strongest months to date.

The data compiled by CryptoCompare covers most of the biggest exchanges and the company said it added new exchanges to its database as and when their volumes hit significant levels.

Other data providers may have slightly different ways of calculating volumes, particularly when one cryptocurrency is traded against another rather than against government-backed fiat currencies like the U.S. dollar.

Some exchanges in Japan, one of the biggest markets for crypto investment, do not provide trading volume data.

Reporting by Tommy Wilkes

Wall Street falls on investor nerves about interest rates, tech

NEW YORK (Reuters) - Wall Street’s three major indexes declined on Friday as investors worried about a jump in U.S. bond yields, with technology stocks leading the decline on nerves about upcoming earnings reports and iPhone demand.

The technology index was the biggest drag on the S&P 500 with a 1.5 percent drop after registering three straight days of losses ahead of a key earnings week for the sector.

“There continues to be some concern over interest rates and their potential impact on equities. There’s also been a little bit of a lack of momentum in this earnings period,” said Rick Meckler, president of investment firm LibertyView Capital Management in Jersey City, New Jersey.

“It’s not that earnings weren’t good enough but company forecasts often weren’t strong enough to make the market continue to rise,” he said.

The Dow Jones Industrial Average fell 202.09 points, or 0.82 percent, to 24,462.8, the S&P 500 lost 22.98 points, or 0.85 percent, to 2,670.15 and the Nasdaq Composite dropped 91.93 points, or 1.27 percent, to 7,146.13.

Despite Friday’s decline the S&P eked out a gain of 0.5 percent for the week to show its second weekly gain in a row.

Equity investors were jittery as the 10-year Treasury yield reached its highest level since January 2014 as a bond selloff continued for a second day, driving the yield curve steeper after two weeks of flattening.

Benchmark 10-year notes last fell 12/32 in price to yield 2.9583 percent, from 2.914 percent Thursday.

When yields are high, investors favor bonds over equities including sectors such as consumer staples and real estate, which promise high dividends and slow, predictable growth. But high interest rates can boost bank profits so the financial sector managed to show a 0.05 percent gain, making it the best performer out of the S&P’s 11 industry sectors.

The consumer staples sector .SPLRCS was the biggest percentage decliner with a 1.7 percent fall, led by PepsiCo.

“We’re seeing a follow through from yesterday’s action when the key was weakness in consumer staples. We came to this earnings season with very optimistic expectations and we’re seeing some very fundamental bottoms up issues at these companies,” said Michael O’Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.

Procter & Gamble fell 2.9 percent on top of a 4.2 percent drop the day before when it said shrinking retailer inventories and higher costs squeezed its margins.

Philip Morris International also had a second day of declines after getting crushed due to weak shipment volumes in its quarterly report.

Apple fell 4.1 percent, making it the biggest drag on the major indexes after Morgan Stanley estimated weak demand for its latest iPhones, a day after Taiwan Semiconductor raised fears of softer smartphone sales.

Alphabet, Facebook, Intel and Microsoft are among the major technology companies reporting next week.

S&P 500 companies are expected to report their strongest first-quarter profit gains in seven years. Of the 87 companies that have reported so far, 79.3 percent have topped profit expectations, according to Thomson Reuters I/B/E/S.

Declining issues outnumbered advancing ones on the NYSE by a 2.05-to-1 ratio; on Nasdaq, a 1.68-to-1 ratio favored decliners.

The S&P 500 posted 12 new 52-week highs and 22 new lows; the Nasdaq Composite recorded 54 new highs and 51 new lows.

On U.S. exchanges 6.45 billion shares changed hands compared to the 6.92 billion average for the last 20 trading days.

Reporting by April Sinéad Carew and April Joyner

Sunday, 22 April 2018

Swiss franc dips to three-year low, more losses seen

LONDON/ZURICH (Reuters) - The Swiss franc fell to a three-year low of 1.20 against the euro on Thursday as a revival in risk appetite encouraged investors to use it to buy higher yielding assets elsewhere, betting on loose monetary policy keeping the currency weak.

The currency weakened past the level which was defended by the Swiss National Bank (SNB) during the brief era of its currency peg with the euro, which was abandoned in January 2015.

There is little expectation, that Switzerland will follow its European counterparts in tightening monetary policy, and hence boost the franc, anytime soon.

“The franc remains overvalued even by the SNB’s measures, and we are seeing an extended compression of peripheral bond yields to core European debt, signalling that risk appetite remains strong, which is pressuring the franc lower,” said Luc Luyet, currency strategist at Pictet Wealth Management.

This year the franc has weakened more than 2.5 percent, with much of the decline coming in April.

Some traders cited Russian tycoons targeted in new U.S. sanctions pulling money out of Switzerland to send it home as another factor pressuring the franc.

And as policymakers have signalled more comfort with the currency’s weakness, investors have taken to ramping up bets against the franc with the size of such trades swelling to $1.4 billion (986.61 million pounds), according to positioning data from CFTC.

Morgan Stanley strategists expect the franc to trade below 1.20 in the coming days as the SNB will remain “accommodative” with inflation still far below a 2 percent target.

SNB Chairman Thomas Jordan has said it is too early to change course and the currency situation remained “fragile”. The bank declined to comment on Thursday’s fall.

Investors are using the franc as a borrowing currency to buy into higher yielding assets. The gap between peripheral bonds spreads and benchmark issuer Germany has tightened significantly this year amid ratings upgrades and brighter growth prospects.

The Italian/German 10-year yield gap was at 117 basis points on Thursday – its tightest since August 2016 while the Spanish/German yield spread is close to its tightest in a decade.

Even on a long term historical average, the Swiss franc remained at the upper ranges on trade-weighted valuation metrics despite its recent fall, according to Thomson Reuters data.

The drop in the franc pushed bond yields higher as investors anticipated likely higher inflationary pressures emerging from the feedback from a weaker currency.

Benchmark 10-year yields rose to 0.12 percent – their highest since mid March while two-year bond yields rose to their highest levels since the start of the year, rising to minus 0.767 percent.

A strong franc weighs on Switzerland’s export-reliant economy, so the drop was welcomed by business leaders.

“The weakening of the franc to 1.20 is very welcome,” said Hans Hess, president of industry association Swissmem.

“This is extremely helpful for the bottom line of companies who export into the euro zone. They have had a really tough time in the last few years, and a lot of them have cut their costs and investments to the bone to remain competitive.”

Reporting by Tom Finn

Friday, 20 April 2018

Euro stumbles at $1.24 level as yield rise supports dollar

LONDON (Reuters) - The euro briefly flirted with $1.24 on Thursday but a rise in long-term U.S. bond yields supported the dollar and pushed the single currency further back into its recent trading range.

Given the scale of gains in the 10-year Treasury note yield, which climbed more than 5 basis points overnight for its biggest one-day surge since March 2, the dollar’s strength was limited.

The modest moves underlined investor caution and that a rally in the euro, which gained at the start of this year, has run out of steam. Investors are growing nervous that the euro zone economy’s rebound is nearing the top and the European Central Bank may move more slowly to tighten monetary policy.

Broad uncertainty stemming from U.S. President Donald Trump’s trade and economic policies, as well as geopolitical events in the Middle East and elsewhere has meanwhile weighed on the dollar.

“There is no real impulse from monetary policy. There is a little bit of fatigue with the trade war issue and the global economic cycle is losing momentum, especially in the euro zone whereas the U.S. is holding up,” said Christin Tuxen, an FX strategist at Danske Bank.

The euro fell 0.1 percent to $1.2365 after earlier hitting $1.24. The dollar index, measuring the U.S. currency against a basket of currencies, traded flat at 89.644.

Tuxen remains bullish on the euro, seeing the single currency rise towards $1.30 in 12 months but said in the short-term the euro could fall as the ECB, which meets next week, takes more time in raising rates.

With the U.S. Federal Reserve tightening, diverging interest rate views have driven the spread between U.S. and German 10-year government bond yields above 230 basis points, the highest since late December 2016.

The euro had weakened to a 14-year low the last time the yield spread was at the current width. But it has been relatively immune to the current yield spread widening. The spread has increased more than 30 basis points over the past three months, but the common currency has moved within a relatively narrow $1.2556-$1.2154 range.

“While we have been arguing that the dollar will take its cue from the U.S. economic cycle – irrespective of what the Fed does – we do believe that the outlook for global asset prices in general now rests on what U.S. monetary officials choose to do next,” ING analysts said.

The Swiss franc fell to within a whisker of the 1.20 per euro mark it last hit in January 2015 - before the Swiss National Bank removed its currency peg and the franc shot up.

Expectations the SNB will refrain from reining in its balance sheet even when the ECB acts has pushed the franc lower. The franc touched 1.9999 francs per euro earlier on Thursday before recovering to 1.1977.

Turkey’s lira, one of the worst performing currencies in recent months, fell after rallying more than 2 percent against the dollar overnight after President Tayyip Erdogan called early elections for in June, more than a year earlier than planned.

Erdogan’s early election call was seen by some market players as recognition of the need for tighter monetary policy to combat inflation.

The lira fell 0.5 percent at 4.0285 against the dollar. Wednesday's surge moved it significantly away from a record low of 4.194 set last week.

A rally in commodity prices, including large moves in oil and iron ore, helped the Australian dollar rise even after disappointing jobs data. The Aussie dollar was up 0.1 percent at $0.7793, having recovered from a low of $0.7765.

Reporting by Tommy Wilkes

Sterling extends slide after Carney punctures BoE rate hike bets

LONDON (Reuters) - Sterling extended its drop to a two-week low against the dollar on Friday after Bank of England Governor Mark Carney signalled that the central bank may not rush to raise interest rates in May because economic data was “mixed”.

Investors had this week bid up the pound, one of the best performing major currencies in 2018, to its highest level since the Brexit referendum in June 2016, in part because of growing expectations the BoE would increase rates next month to curb inflation.

But weaker than expected wage growth and inflation data this week encouraged Carney to tell the BBC on Thursday that the rate rise was far from certain and noting that there were other BoE meetings later in the year.

“Carney has moved the goalposts,” said Jane Foley, an FX strategist at Rabobank. “The data from the UK has shown signs of weakness. There are signs we could be losing momentum.”

Foley said Carney was correct to have cautioned the market but his comments raised questions about the BoE’s forward guidance in February when it had signalled a rate rise was coming soon, and this underlined that investors should see rate moves as contingent on economic data.

The pound fell as much as 0.3 percent to a day's low of $1.4037 GBP=D3, its lowest since April 6.

On Thursday, sterling slid close to 1 percent and the British currency is now down 1.35 percent for the week, barely holding on to gains for April, a month which is considered to be seasonally strong for the British currency.

Against the euro, however, sterling recovered slightly on Friday and traded up 0.1 percent at 87.58 pence per euro.

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

Analysts said some speculative money had probably bet on that pattern repeating itself, and investors were now unwinding those positions, pushing the currency lower.

Hedge funds had amassed a $3.8 billion long bet on the sterling, its longest since June 2014, according to latest positioning data.

Michael Saunders, a member of the BoE’s rate-setting Monetary Policy Committee who voted for a rate rise last month, said on Friday that rate increases should be gradual and not glacial.

Markets are pricing in a 45 percent chance of a 25 basis point rise in May, down from a near 70 percent chance before Carney spoke.

“Sensitivity to monetary policy speculation is likely to remain a key fundamental theme impacting the British Pound. If market expectations continue to deteriorate over higher U.K interest rates, sterling could be exposed to further downside risks,” said Lukman Otunuga, research analyst at FXTM.

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

Progress during the next round of negotiations between Britain and the European Union over their divorce will also influence the pound.

Reporting by Tommy Wilkes

Thursday, 19 April 2018

Dollar rises as risk appetite returns, investors turn to data

LONDON (Reuters) - The U.S. dollar clung to gains on Wednesday after rising from a three-week low as fading concerns about a trade war fed broader appetite for risk-taking among investors.

U.S. markets were buoyed by strong corporate earnings and that helped European equities on Wednesday as investors focused on economic data and put to one side worries about a global trade war.

Markets in Asia picked up on a positive finish in the United States and were helped by China’s decision to cut bank reserve requirements by 100 basis points for some commercial banks.

“Concerns about military action in Syria, trade tensions between the U.S. and China and the pace of rate hikes in the U.S. have abated somewhat,” Commerzbank economist Michael Schubert said in a note.

The dollar index against a group of six major currencies traded flat at 89.490

The dollar was helped by a weakened pound which fell to a four-day low on Wednesday after British inflation unexpectedly cooled to a one-year low in March.

The data has raised doubts over a near consensus view that the Bank of England will raise interest rates next month.

Euro zone data also came in weaker than expected as investors looked for signs of the viability of further European central bank monetary tightening.

The dollar has found support from economic indicators recently as perceived political risks recede, with Western strikes on Syria not expected to escalate.

The dollar rose 0.3 percent to 107.280 yen JPY= buoyed as improving risk appetite reduced demand for its Japanese peer, a currency often sought in times of market turmoil and political tensions.

But caution over U.S.-China trade tensions continued to linger in the background, confining currencies to narrow ranges.

“Over the last couple of days there have been few incendiary tweets from the U.S. or China to unsettle markets further. So the markets are turning a bit more risk-on but there’s always the fear of what comes next,” said Berenberg economist Florian Hense.

The euro was up 0.1 percent at $1.2387 EUR=.

The common currency rose to a three-week high of $1.2414 on Wednesday but slipped on a ZEW research institute survey showing German investor morale reached its lowest since November 2012.

The pound was down 0.5 percent at $1.4229 after it was nudged away from a post-Brexit referendum 22-month high of $1.4377 on Tuesday by weaker-than-expected British wage data.

Markets were still pricing in a more than even chance the Bank of England will hike interest rates in May, expectations of which have helped sterling advance aggressively this month.

The Canadian dollar was up 0.2 percent at C$1.2581 per dollar and in reach of a seven-week high set the previous day ahead of the Bank of Canada's interest rate decision later on Wednesday.

While the BoC is not expected to raise rates this time, expectations have risen that the central bank will tighten policy as early as next month given strong data. Investors will be looking for any hints that could reinforce such views.

Elsewhere, the Swiss franc fell to its lowest versus the euro since the Swiss National Bank scrapped its currency peg in January 2015.

Reference: Tom Finn

Currency trading volumes hit record highs in first quarter

LONDON (Reuters) - Foreign exchange trading volumes rose to a record high in the first three months of the year, data showed on Thursday, as a rise in volatility from multi-year lows encouraged more buying and selling of currencies.

The numbers released by CLS, a major settler of trades in the foreign exchange market, follows a huge surge in trading on Thomson Reuters’ trading platforms, with its March volumes up 28 percent on last year and narrowly below February’s, its best ever month.

The rise in FX volumes will be welcomed by trading platforms and banks that have struggled with calm financial markets squeezing their profits in recent years.

Wall Street banks Goldman Sachs and Morgan Stanley this week reported a jump in first-quarter profits thanks to a surge in trading activity, although Morgan Stanley executives warned results through the rest of the year may not be quite as strong.

After volatility spiked during a sudden sell-off across financial markets in January and February, price swings have returned to lower levels, with price moves in the biggest currencies notably small.

Market participants say April has been a quiet month so far, with currencies mostly shrugging off rising geopolitical tensions, concerns about a possible U.S.-China trade war and the prospect a global economic growth boom is nearing its peak. Key currency pairs remain stuck in narrow price ranges.

“FX markets are in a wait-and-see mode,” Thu Lan, an FX analyst at Commerzbank in Frankfurt said. “Everyone is waiting to see the first (monetary policy) normalization steps from central banks.”

Trading of emerging market FX, particularly the Russian rouble after the announcement of new U.S. sanctions targeting Russian companies and oligarchs, may have held up better in April but these currencies are traded in far lower volumes than the ‘G10’ currencies like the U.S. dollar, euro and Japanese yen.

CLS said in a statement that the average daily traded FX volumes submitted to it reached $1.87 trillion between January and March, surpassing a previous high of $1.67 trillion in the first quarter of 2013.

Daily volumes in March reached $1.855 trillion, down 4.8 percent on February but up on a year earlier.

As well as volatility, CLS attributed the rise in volumes to a trend of more buy-side firms like asset managers using its services.

Average daily volumes of spot and derivatives currency trading touched $461 billion in March, slightly lower than the record month of February when volumes hit $463 billion, Thomson Reuters said.

NEX Group, which owns another big FX trading platform, saw average daily foreign exchange spot trading volumes rise 7 percent to $92.7 billion in March from the previous year. Trading of fixed income products rose even more.

Reporting by Tommy Wilkes

Wednesday, 18 April 2018

Falling UK price data sends sterling to four-day low

LONDON (Reuters) - Sterling hit a four-day low on Wednesday after British inflation cooled unexpectedly, raising concerns that the Bank of England might not implement further increases to interest rates after next month’s expected hike.

A May increase to interest rates is already firmly baked into market expectations and a recent string of strong data and a Brexit transition agreement has prompted suggestion that the central bank will follow up with another increase in November.

Wednesday’s official data, however, showed annual consumer price inflation fell to 2.5 percent in March, down from 2.7 percent in February and below economists’ expectations, casting doubt over those bets.

“Sterling has fallen against the dollar, not because an imminent interest hike has been called into question – this now seems all but assured – but rather because today’s data casts doubt over the likelihood of a further rate hike in November,” said Jake Trask, a forex research director at OFX in London.

The British currency slid 0.8 percent to $1.4173 in London trading, its lowest since last Thursday and a striking reversal from Tuesday climb to $1.4377, its strongest since the Brexit referendum.

Growing bets of more rate increases have boosted sterling in recent weeks, taking it to the top of the league tables as the best-performing G10 currency with a 5 percent gain this year.

The Bank of England will raise its key interest rate to 0.75 percent in May, said nearly all of 76 economists polled by Reuters, with another 25 basis point rise expected just before Britain is due to leave the European Union early next year.

Against the euro, sterling weakened 0.6 percent to 86.45 pence.

Britain's internationally exposed FTSE 100 index, extended gains to a session high after the UK inflation data and was last up 0.7 percent.

British government bond prices surged after the data, pushing two-year yields down 6 basis points on the day to a two-week low of 0.830 percent, while 10-year yields  dropped by 5 basis points to 1.387 percent. December short sterling interest rate futures rose 4 ticks on the day to a four-week high.

Euro zone bond yields extended their falls after the UK inflation numbers as British gilt yields tumbled.

Reporting by Saikat Chatterjee

World stocks near four-week highs, Morgan Stanley shines

LONDON (Reuters) - Global stocks climbed to a near four-week high and Wall Street geared up for a strong open on Wednesday as powerful U.S. first-quarter earnings, notably from Morgan Stanley, helped revive risk appetite.

MSCI’s index of world stocks was up 0.3 percent at 1203 GMT, while the top index of euro zone stocks rose 0.3 percent, having touched its highest since Feb. 5, when a spike in volatility amplified a sell-off in global equity markets.

S&P 500 futures sparked higher, rising 0.4 percent by 1203 GMT as investors digested the latest batch of U.S. results with Morgan Stanley shining.

The bank’s shares climbed in pre-market trading after a record jump in quarterly profits, up 40 percent thanks to a strong trading boost.

It kept the pace set by Goldman Sachs which reported a surge in profits on Tuesday, also driven by a sharp increase in trading as market volatility rose.

Analysts have downgraded their European earnings estimates ahead of the first-quarter results season, while U.S. companies are expected to deliver stellar results.

Investors were watching Europe’s earnings season for signs of strain from a stronger euro, with Continental providing an early indication the currency’s rise was hurting exporters.

The tyre maker fell 4.3 percent, driving a pullback in Germany’s DAX, after a negative hit to earnings from exchange rates forced it to lower its outlook.

But a fall in the S&P 500 volatility gauge reflected investors’ renewed confidence in the resilience of equity markets. The VIX edged down, near a six-week low.

“Volatility has come down because expectations are very strong for the earnings season and the market is happy to see some hard data,” said Laurent Godin, equity analyst at Indosuez Wealth Management.

Britain’s FTSE 100 stood out with much stronger gains. It was up 0.9 percent after an unexpected fall in British inflation to a one-year low dented the pound — good news for its high percentage of overseas revenue earners.

While investors were refocusing on fundamentals after weeks dominated by geopolitical tensions, the latest Bank of America Merrill Lynch survey of fund managers showed signs of caution.

Investors cut their equity allocation to an 18-month low and increased their cash balances.

“Just like they were chasing the market up in January, investors have gradually started to sell,” said Clark Fenton, chief investment officer at Agilis Investment Management.

“I think that gives the market scope to rally a bit more as positioning has lightened up.”

Fund managers named the threat of trade war as the biggest “tail risk” in BAML’s survey, while they were less concerned about inflation causing convulsions in bond markets.

Monetary tightening, proceeding at a different pace on either side of the Atlantic, was making its mark on bond markets.

The gap between U.S. and German two-year bonds reached its widest in nearly 30 years, reflecting the diverging monetary policy outlook.

“In some ways I am sort of surprised that it hasn’t mattered more,” said Agilis’ Fenton, referring to the trans-Atlantic divergence. “I would have thought it would have helped European equity prices more on a relative basis.”

The U.S. yield curve - the gap between U.S. 2-year and 10-year government bond yields — flattened back slightly, having fallen to a low of 41.8 basis points overnight.

“I would worry if [the curve] got inverted. It’s probably a bit premature to get too bent out of shape about it now,” said Fenton.

The rise in short-dated yields has pushed the real yield on U.S. two-year Treasuries above the S&P 500 dividend yield for the first time in 10 years.

Currency market movements, outside of a sliding sterling, were restrained.

The euro was stuck at $1.2362, after topping out at $1.2413 overnight, while the dollar index hovered at 89.5.

The yen pulled back to 107.23 against the dollar, pushed down by signs of progress in talks between South and North Korea.

Strong metals prices, boosted by supply concerns after U.S. sanctions on Russian aluminum giant Rusal, helped send Europe’s basic resources stocks surging 2.1 percent.

Oil prices also continued their relentless rise.

Brent crude futures were up 86 cents at $72.44 a barrel, while U.S. crude rose 95 cents to $67.48 a barrel.

Reporting by Helen Reid

Faltering euro zone economy to suffer from U.S.-China trade dispute

BENGALURU (Reuters) - Euro zone economic growth, already moderating in part from a stronger currency, will take a further hit from the ongoing trade dispute between the United States and China, according to a majority of economists polled by Reuters.

Still, that will not deter the European Central Bank from ending its asset purchases programme this year and hiking interest rates in 2019, even though inflation is expected to remain well below the central bank’s target until at least 2021.

While the consensus for growth in the latest Reuters poll of over 100 economists taken April 6-16 was little changed from a poll last month, private business surveys suggest euro zone growth momentum has peaked.

The range of forecasts in the latest poll showed lower highs and lower lows for growth in the region compared with last month.

“The start to 2018 has been disappointing for the euro zone economy, especially after such a strong 2017. While the outlook remains favourable, it does look like peak euro zone growth has already been reached and that 2018 will show some moderation,” said Bert Colijn, senior euro zone economist at ING.

Businesses across the euro zone have been hurt by a rising euro, ending the first quarter with their weakest expansion since the start of 2017.

The single currency, up about 3 percent this year, is expected to gain a further 4 percent against the dollar in a year, according to a separate Reuters poll.

In the latest poll, over 85 percent of 55 economists who answered an extra question said the trade spat between the U.S. and China will damage the euro zone economy, including one respondent who expects the impact to be significant.

“Trade in goods weakened in February, even ahead of global trade concerns taking centre stage. Whether it is the strong euro or a looming trade war, it is not difficult to see the outlook for euro zone exports becoming more challenging,” said ING’s Colijn.

“With the European Union taking a prominent place in the global supply chain, the euro zone economy could get hurt even without being an essential player in a trade war,” he added.

After growing at its fastest pace last year since the financial crisis in recent quarters, the euro zone economy is forecast to lose some momentum and average between 0.4 percent and 0.6 percent in each quarter this year and next.

Full-year GDP growth was expected to average 2.3 percent this year and 2.0 percent next, unchanged from last month.

Price pressures remain weak. Inflation is forecast to be below the ECB’s target of just under 2 percent for the next three years.

Inflation is predicted to average 1.5 percent this year, 1.6 percent next and 1.7 percent in 2020.

Despite that, the ECB, which removed the easing bias with reference to its quantitative easing (QE) programme last month, is widely expected to end its 30 billion euros worth of monthly asset purchases by year-end.

While no major announcement is expected when ECB policymakers meet on April 26, the central bank is forecast to take its deposit rate 15 basis points higher to -0.25 percent in the second quarter next year, as it was in the previous poll.

The ECB is also expected to hike its refinancing rate in the final quarter of next year, a quarter later than forecast last month.

Over 90 percent of almost 60 economists said they were confident the central bank would take rates higher before the next downturn, including 11 respondents who were very confident.

But not everyone agreed, and the remaining five economists were not confident.

“We expect the ECB to keep rates low for longer in part because it is winding down its QE programme due to technical limits having been reached rather than its inflation objective. As this unfolds, it will need to keep rates low to limit the fall-out effects of this exercise on financial conditions,” noted Elwin de Groot, chief euro zone economist at Rabobank.

“Furthermore, even if growth stays above or close to trend, the passthrough to higher wage growth and from higher wages to core inflation is likely to be relatively slow. Hence it is not a given that the ECB will raise rates before the next downturn hits.”

Reference: Mumal Rathore, Rahul Karunakar

Tuesday, 17 April 2018

Euro climbs above $1.24 to three-week high

LONDON (Reuters) - The euro rose above $1.24 to a three-week high on Tuesday after solid Chinese economic data and receding worries about more U.S. strikes in Syria revived risk sentiment, although a monthly survey of German investor sentiment undercut the optimism.

With peripheral bond yields falling to multi-week highs, investors resumed buying the euro, nearly pulling it out of a narrow trading range in which it has been trapped for weeks.

Holding above $1.24 should encourage euro bulls again after a rally earlier this year faltered.

U.S. President Donald Trump’s comments about China and Russia trying to devalue their currencies this week also weighed on the dollar, with investors believing that the U.S. administration wants to see a weaker currency.

That helped the euro rally 0.3 percent to $1.2412, its highest since March 28, before it retreated after a monthly survey showed morale among German investors was deteriorating.

“There’s been a general weakness in the dollar and risk sentiment seems to be reviving somewhat. That is supporting the euro but also sterling and Asian currencies,” said Alvin Tan, FX Strategist at Societe Generale.”

While the dollar was flat against a basket of major currencies, it held near a two-week low tested earlier in the Asian session.

Several Asian currencies, including the Korean Won, rose on hopes that U.S.-China trade conflict would calm down.

Elsewhere, the Swiss franc fell to its lowest versus the euro since the Swiss National Bank scrapped its currency peg in January 2015. Sterling reached a new post-Brexit referendum high.

The franc, which analysts expect to fall further as the Swiss central bank sticks to its loose monetary policy even as rivals tighten, slipped 0.2 percent on the day to 1.1905.

Against the yen, the dollar fell to 107.06 yen, off the seven-week high of 107.78 yen it touched on Friday, before a meeting between Trump and Japanese Prime Minister Shinzo Abe on Tuesday and Wednesday.

Tokyo is eager to avoid being pushed into talks on a two-way free-trade agreement aimed not only at market access but at monetary and currency policies.

Traders suspect Washington will put pressure on Japan after the U.S. Treasury’s semi-annual currency report on Friday kept Japan on a monitoring list for possible manipulation.

Trump accused Russia and China on Monday of devaluing their currencies, even though the yuan has been strengthening and U.S. sanctions have been blamed for rouble’s decline.

“How grounded the comment is in fact is much less important than the fact that he said it. It also suggests that President Trump could attempt to ‘talk down the dollar’ to shrink the US import bill. This will undoubtedly reinforce the appetite for investors to hedge their dollar exposures given the unpredictability and uncertainty over dollar policy going forward,” MUFG analysts said in a note.

China’s economy grew 6.8 percent in the first quarter of 2018 from a year earlier, data showed on Tuesday, above expectations and unchanged from the previous quarter.

Reference: Tommy Wilkes

Speculators' $27 billion bet against the dollar isn't paying off

LONDON (Reuters) - Hedge funds are making their biggest bet in seven years that the dollar will weaken as evidence mounts that U.S. economic momentum is slowing, thus limiting the scope for higher interest rates.

The flattest yield curve in over a decade, with the gap between 10-year and two-year U.S. yields shrinking to just 46 basis points, suggests the current trajectory of Fed tightening is already putting the brakes on the economy.

Trouble is, there are signs that growth is slowing in other major economies too, meaning other currencies will also come under downward pressure. The greenback may not fall as far or as fast as speculators are banking on.

Even if the Fed delivers only three more rate hikes this year rather than the four that had been widely expected, that could still be three more than we get from the European Central Bank, Bank of Japan or Bank of England.

Short-term bond yield differentials, often seen as a key driver of exchange rates, certainly don’t fit with a short dollar strategy. The two-year U.S.-German yield spread is nearly 300 basis points, the widest in favour of the dollar since 1989.

All of which explains why the dollar hasn’t really gone anywhere at all for the last few months and why speculators are struggling to make money on their huge short dollar positions.

Chicago futures markets data show that hedge funds and other speculators now hold the biggest short dollar position since August 2011.

According to calculations by Reuters and Commodity Futures Trading Commission data, the value of that bet, derived from net positions of International Monetary Market speculators across a range of major and emerging currencies, now stands at $27.2 billion.

Hedge funds trading currencies and rates had a difficult first quarter, in large part thanks to the “volmageddon” burst of extreme market volatility in early February that crushed momentum and trend-following strategies.

Eurekahedge’s CTA/Managed Futures hedge fund index fell 0.33 percent in March, and was down 1.54 percent over the quarter, while its Macro hedge fund index fell 0.71 percent in March and was down 0.4 percent in the quarter. Currency trading is a big part of these two indices.

Eurekahedge’s FX index fell 0.98 percent in March, and is down 0.2 percent year to date. The dollar index, a measure of the greenback’s value against a basket of major currencies, has barely moved since mid-January, confined to a narrow range of 88.5-91.0.

But you can see why hedge funds and speculators are shorting the dollar. The Atlanta Fed’s GDPNow forecast model now predicts 2.0 percent annualised GDP growth in the first quarter. It was 3.5 percent at the start of March.

The latest U.S. employment and consumer confidence figures were among a growing raft of economic indicators to undershoot expectations. Citi’s economic surprises index has tumbled this month, and is now the lowest since October.

But it’s still in positive territory, unlike the comparable euro zone, UK and Japanese indices. Citi’s euro zone economic surprises index, in particular, has fallen off a cliff in recent weeks and is now its lowest since June 2012.

All this suggests there’s not much upside to the dollar’s main competitors either. And in the relative world of exchange rates, not all currencies can depreciate at the same time.

Shorting the dollar is proving to be a risky gamble. The larger that bet grows without an accompanying fall in the dollar, the greater the chance that speculators throw in the towel and cut their short positions.

The opinions expressed here are those of the author, a columnist for Reuters.

Reporting by Jamie McGeever

Sterling climbs to highest since Brexit vote in June 2016

LONDON (Reuters) - Sterling on Tuesday soared to its highest level since Britain’s vote to leave the European Union in June 2016, boosted by expectations that strong earnings data will seal the deal for a Bank of England interest rate hike and broad dollar weakness.

The rally comes ahead of the crucial data on the labour market and average earnings, which is due at 0830 GMT.

With worries about a disorderly exit from the EU next year pushed into the background, and seasonal inflows from foreign companies sending dividend payments to British shareholders, investors have added to their pound positions.

The pound gained 0.2 percent to $1.4371, beating a previous post-Brexit-vote high set in January.

Workers’ total earnings are expected to rise by an annual 3 percent in the three months to February, according to a Reuters poll of economists.

The data is seen as crucial because the BoE has signalled that it needs to see rises in wage pressures before it starts to raise rates as it tries to curb inflation.

“A 3 percent wage growth print in today’s UK jobs report should seal the deal for a May BoE hike – but it may be the activity data that holds the key to the pace of BoE policy normalisation and sterling’s cyclical re-pricing,” ING’s currencies strategist Viraj Patel said.

Markets expect interest rates to be raised by 25 basis points next month.

Inflation figures due Wednesday have the potential to boost sterling further.

Against the euro, sterling traded flat at 86.35 pence per euro and close to 11-month highs.

Reporting by Tommy Wilkes

Monday, 16 April 2018

Sterling rises despite Syria intervention as investors eye data

LONDON (Reuters) - The pound rose on Monday despite Britain’s military intervention in Syria, as investors focused on data that could help shore up expectations of a May interest rate hike.

Britain struck Syria with cruise missiles on Saturday in partnership with Western allies, targeting chemical weapons facilities. But the military action did not appear to hurt risk appetite as bond yields rose and the dollar fell.

Sterling on Monday rose 0.1 percent to $1.4250, continuing a two-week rally against the dollar that on Friday saw the pound push towards a new post-Brexit referendum high.

Data on British unemployment, wages and inflation numbers are due this week.

Markets expect the Bank of England to raise rates by 25 basis points next month as it tries to curb inflation and with Brexit-related risks having subsided for now and wage data still pointed upwards.

“With markets almost fully discounting a BoE rate hike, this week’s run of monthly indicators are anticipated to give the hike a green light,” Marc Ostwald, a global strategist at ADM Investor Services International in London, said in a note.

Against the euro, sterling fell 0.1% to 86.69 pence per euro, but remained at its highest against the single currency since late May 2017.

(Reuters) - U.S. stock index futures rose on Monday as investors bet the weekend’s U.S.-led missile attack on Syria would not escalate into a broader conflict.

The focus was back on earnings, with Bank of America reporting a 34 percent rise in quarterly profit. Its shares were up 0.84 percent in premarket trading.

JPMorgan, Wells Fargo and Citigroup kicked off the quarterly earnings season on Friday, although their performances failed to excite investors.

Thomson Reuters data is expecting S&P 500 companies to report an 18.6 percent rise in profits in the first quarter, their biggest rise in seven years.

Many traders say that reactions to results could be muted as market participants have already priced in benefits from corporate tax cuts, reflected in the stock market’s strong rally in 2017 and early 2018.

At 7:01 a.m. ET, Dow e-minis were up 154 points, or 0.63 percent. S&P 500 e-minis rose 16.25 points, or 0.61 percent and Nasdaq 100 e-minis gained 41.5 points, or 0.62 percent.

On Saturday, the United States, France and Britain launched 105 missiles on Syria in retaliation for a suspected poison gas attack.

The countries said the missile strikes targeted Syria’s chemical weapons capabilities and were not aimed at toppling Syrian President Bashar al-Assad or intervening in the civil war.

President Donald Trump tweeted “mission accomplished” after the attack, underlining expectations that Western action would be limited.

Russian President Vladimir Putin warned that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions.

Retail sales data for March is scheduled for release at 8:30 a.m. ET. Sales are expected to have increased 0.4 percent after falling for the previous three months that prompted analysts to downgrade their first-quarter economic growth forecasts.

Among other stocks, General Electric shares were down more than 1 percent after the company said it took a $4.24 billion equity charge and reduced earnings for the last two years by 30 cents a share.

Netflix shares rose 1.44 percent ahead of its results expected after market close on Monday.

Reporting by Sruthi Shankar and Tom Finn

Dollar heads towards 2-week lows as short bets hit 7-year highs

LONDON (Reuters) - The dollar weakened on Monday and headed towards a two-week low against a basket of rivals on growing signs of relief that a U.S.-led strike on Syria would not escalate further at a time when concerns over a trade war has rattled global markets.

Investors returned to the familiar theme of adding short bets against the dollar, as a return in appetite for risk manifested itself through higher bond yields and softer oil prices.

Despite widening interest rate differentials in its favour and the widest yield gap between two-year U.S. and German debt for nearly three decades, the dollar’s performance in recent months has been closely correlated to swings in risk appetite.

That is because though the U.S. central bank has kept on track in raising interest rates, broader financial conditions remained loose.

“Unless we see the geopolitical concerns and trade war fears showing up in hard data, currency markets seem to be broadly immune to the headlines,” NN Investments chief investment officer Valentijn van Nieuwenhuijzen said.

A weaker dollar has broadly coincided with a pick-up in demand for riskier assets and vice versa and the Syria strikes underlined that trend.

Against a broad basket of its rivals, the dollar edged 0.3 percent lower at 89.54. It has weakened 0.6 percent so far this month, taking its year-to-date losses to nearly 3 percent, extending a theme firmly in place since last year.

The dollar hit a two-week low of 89.36 last week.

“The military strikes were well telegraphed and we are seeing a continuation in the broad market theme from last week of a weaker dollar and favourable conditions for risk taking,” said Credit Agricole currency strategist Manuel Oliveri.

In a wider measure of dollar positioning that includes net contracts on the New Zealand dollar, Mexican peso, Brazilian real and Russian rouble, the U.S. dollar posted a net short position valued at $27.21 billion, its biggest since August 2011.

Other major currencies also remain trapped in trading ranges, with the euro starting the week around $1.23, a level around which it had traded all last week.

The U.S. Treasury semi-annual report didn’t jolt the currency markets, with the Trump administration again refraining from naming any major trading partners as currency manipulators as it pursues potential tariffs and negotiations to try to cut a massive trade deficit with China.

Although the Japanese yen usually draws demand in times of political tension and market turmoil due to its perceived safe-haven status, the dollar’s losses against it were small.

“The reaction in currencies has been limited as President Trump had provided advance notice about a possible strike on Syria, giving speculators ample time to brace for the actual event,” said Yukio Ishizuki, senior forex strategist at Daiwa Securities in Tokyo.

“Many speculators are showing less of a response to yen-supportive factors lately, after the Bank of Japan made clear it was not going to normalise policy soon. This goes for domestic factors as well, like falling support ratings for (Japan Prime Minister Shinzo) Abe.”

Support for Abe, who is plagued by accusations of cronyism and cover-ups, fell to 26.7 percent in a survey by private broadcaster Nippon TV released on Sunday, the lowest since he took office in December 2012.

Sterling was the big outperformer in currency markets with the British currency vaulting half a percent above the $1.43 line as investors focused on data that could help shore up expectations of a May interest rate hike.

Reporting by Saikat Chatterjee

Sunday, 15 April 2018

Dollar hits seven-week high vs yen as focus shifts to U.S. earnings

LONDON (Reuters) - The dollar climbed to a seven-week high against the yen on Friday as investors’ focus shifted to anticipated strong U.S. corporate earnings and away from concerns about a possible Western military intervention in Syria.

The weakening of the safe-haven yen suggested risk appetite had returned after a week dominated by U.S.-China trade tensions and the possibility of a U.S.-led missile strike on Syria.

Equities rose as Wall Street gained in anticipation of strong corporate earnings.

The yen’s losses came despite S&P Global Ratings on Friday revising Japan’s outlook to ‘positive’ from ‘stable’ on the view that a stronger economy set the stage for fiscal improvement.

The dollar rose 0.3 percent to 107.740 yen, taking it to its highest since late February.

“It would be naive in the extreme to suggest that the threat of an escalation of geopolitical factors has passed,” CMC Markets’ Michael Hewson said in a note.

“But recent price action might suggest we could head towards the upper end of the trading range in the coming days, particularly if U.S. earnings come in ahead of expectations,” he said.

An uptick in demand for carry trades on Friday also pointed to a return in broader risk appetite.

In carry trades, dealers sell assets in low-yielding currencies such as the Swiss franc and the Japanese yen for those in ones offering higher returns such as the Australian dollar and other commodity-related currencies.

The Australian dollar, which is sensitive to shifts in risk sentiment, rose 0.6 percent to $0.7801, a three-week high.

With few exceptions, currencies have remained quiet in the middle of tensions over trade and signs of slowing growth in Europe.

Volatility has rocked other assets but foreign exchange traders are focused on the slow-moving path toward normalising monetary policy in the world’s biggest economies rather than geopolitical risks.

An index that tracks currency volatility among developed economies is trading near its lowest level this year.

“The problem the FX market is having with U.S. policies is that no ‘strategy’ seems to be discernible, but only measures that are as erratic as they are drastic,” Commerzbank’s head of FX strategy Ulrich Leuchtmann wrote in a note.

Other analysts said trade war angst had yet to meaningfully move currency markets.

“With each subsequent Presidential tweet, the bar for what actually constitutes risk-off in global FX and bond markets tends to increase,” ING FX strategist Viraj Patel wrote in a note.

“It’s now at a stage where ... a trade or geopolitical war needs to escalate materially to influence those asset prices.”

The dollar index against a basket of six major currencies rose 0.1 percent to 89.813. It rose 0.2 percent the previous day, ending a four-day losing streak.

The euro traded flat at $1.2328 after losing 0.3 percent the previous day, which ended a four-day winning run.

The common currency has risen 0.4 percent this week, supported by comments from European Central bank officials that reinforced expectations towards monetary policy normalisation.

The Swiss franc, a perceived safe-haven currency, was little changed at 0.9534 per dollar after losing 0.5 percent overnight.

Reporting by Tom Finn

Friday, 13 April 2018

Fed's Rosengren optimistic on economy, wary of U.S. trade risks

BOSTON (Reuters) - The Federal Reserve will probably need to raise interest rates at least three more times this year in the face of a robust U.S. economy, even while possible trade disruptions pose risks, a top Fed policymaker said on Friday.

Boston Fed President Eric Rosengren, in a speech at the Greater Boston Chamber Economic Outlook Breakfast, painted an optimistic picture of strong U.S. job growth, a small rise in inflation, and above-average economic growth. But he also flagged recent trade tariffs and threats of more as a short-term risk, and argued that fiscal stimulus could pose longer-term problems.

“I expect somewhat more tightening may end up being needed” than the median of two more hikes in 2017 forecast by the central bank’s policy-making committee last month, when it delivered the first rate rise of the year, he said.

The Fed is tightening policy gradually after a strong second half to 2017, signs that below-target inflation may be picking up this year, and an unemployment rate that has held for months at a relatively low 4.1 percent.

Rosengren, a veteran policymaker who has shifted to a more hawkish stance in the last two years, said he predicted a “somewhat stronger” economic performance than even the “quite positive” forecasts from the Federal Open Market Committee.

Yet he pointed to the Trump administration’s metals tariffs and threats of more trade action targeting China as a risk in which “spillover effects are possible (and) difficult to measure,” including a spike in prices.

Asked to speak specifically about Trump’s practice of making policy pronouncements on Twitter, Rosengren demurred, saying only that policy mistakes can cause recessions and that they can come from fiscal mistakes and other factors that are hard to predict.

He also repeated a warning that if unemployment falls too much below what is seen as neutral, the economy risked a “boom-bust” fate. And he noted that recent U.S. tax cuts and government spending “risks not having sufficient fiscal capacity in the future when it might be needed” to head off an economic downturn.

“I am not forecasting significant trade disruptions or substantial boom-bust problems,” Rosengren told the Greater Boston Chamber of Commerce. “But the risk that they could develop means we must be very carefully monitoring.”

He spent a good amount of time musing about what could happen when the next downturn hits, noting that the same policy tools that lifted the economy out of the 2008 recession may not be available any longer. Looking back at the Fed’s policies to cut interest rates dramatically back then, Rosengren said the central bank did what it took to move the economy back to full employment. He said that he would prefer not to have to use those tools again in the future.

He also spent a few minutes speaking about the change of leadership at the Federal Reserve with Jerome Powell having now replaced Janet Yellen as chair. “There will be a lot of similarities between the two chairs,” he said, adding that it is premature to talk about the Powell Fed. “There will be nuances but generally it will be quite similar.”

Yellen, who holds a PhD in economics, is a “true academic economist,” Rosengren said, adding that Powell, a lawyer and former investment banker, will “be more understandable to people with less academic training.”

Reporting by Svea Herbst-Bayliss in Boston