Showing posts with label Forex. Show all posts
Showing posts with label Forex. Show all posts

Monday, August 19, 2019

Dollar Soars to New 2019 High Even as Trump Laments Its Strength

(Bloomberg) -- The ascent of the dollar is proving almost unstoppable.

While U.S. President Donald Trump lamented its strength on Twitter, the greenback continued to surge on Monday, taking a Bloomberg index of the U.S. currency to its highest level of 2019.

The dollar strengthened as investors shifted into riskier assets such as stocks and away from havens like Treasuries, which drove up U.S. debt yields and supported the American currency. Apparent progress in trade negotiations helped buoy sentiment, as did the prospect of additional stimulus in Germany. The Bloomberg gauge hit its highs of the day after Federal Reserve Bank of Boston President Eric Rosengren downplayed the need for more rate cuts.

“We’ve been skeptical that Fed easing by itself would doom the dollar,” said John Velis, a currency strategist at Bank of New York Mellon (NYSE:BK). “With other central banks expected to ease by as much or even more than the Fed, we always thought it would take more than policy differentials to weaken the currency. Boston Fed President Rosengren’s hawkish comments today underscore the lack of downward force on the dollar coming from policy expectations.”

The U.S. currency gauge climbed as much as 0.3%, pushing it past its May peak to a level last seen in December. The dollar rose as much as 0.3% against the yen, while the euro slipped as much as 0.1% against its American counterpart.

Yields on 10-year Treasury notes climbed to 1.60% and the S&P 500 moved higher by 1.2%.

Original Article

Top 5 Things to Know in the Market on Monday

© Reuters.  © Reuters. - Here are the top five things you need to know in financial markets on Monday, August 19:

1. U.S.-China trade talks ‘positive’

President Donald Trump tweeted over the weekend that the U.S. was “doing very well with China, and talking," although he repeated that he was still not ready to do a deal.

Trump’s top economic adviser, Larry Kudlow, said earlier on Sunday that recent phone discussions between Washington and Beijing had been “positive” and indicated that there would be more teleconferences planned between negotiators over the next week to 10 days.

Kudlow said in an interview with “Fox News Sunday” that if those conversations went well, then a “substantive renewal of negotiations” could begin with Chinese negotiators visiting the U.S. to continue talks.

2. Apple talked to Trump over tariffs, U.S. decision on Huawei on tap

Trump said Sunday that he had talked with Apple's (NASDAQ:AAPL) Chief Executive Tim Cook about the impact of U.S. tariffs.

According to Trump, Cook “made a good case” that tariffs could hurt the company, especially considering that its South Korean rival Samsung (KS:005930) was not subjected to those same tariffs.

Markets were also awaiting a decision expected to arrive Monday over whether the government will allow Huawei Technologies to buy supplies from U.S. firms.

Several media outlets reported that the U.S. Commerce Department will grant a “temporary general license” that will allow business to continue for another 90 days.

Trump appeared to contradict Kudlow, saying he didn’t want the U.S. to do business with Huawei for national security reasons.

3. Stocks higher, bonds sell off as risk appetite returns

Global stocks moved higher on Monday and bonds sold off as market sentiment improved on hopes for trade talks and further signs of policy easing.

Asian stocks were sharply higher with Chinese shares leading the rally after the country’s central bank announced a long-awaited reform to interest rates.

European bourses shared in the rally after German Finance Minister Olaf Scholz said Sunday that the euro zone’s largest economy could provide fiscal stimulus, if needed, to combat a recession. Scholz suggested that the potential move would likely come after the European Central Bank restarted quantitative easing.

The improvement in equities triggered a parallel move in European sovereign debt yields, which pulled away from record lows.

U.S. futures pointed to a higher open, while yields on long-term U.S. Treasuries moved sharply higher. The yield curve inversion unwound further with the yield on the 10-year Treasury note pulling further above that of the 2-year.

4. China announces new interest-rate reform

The People’s Bank of China announced over the weekend that it will make the loan prime rate, which banks offer their preferred clients, the new benchmark for pricing loans.

The long-awaited reform is a move to help lower borrowing costs for companies that have been experiencing record defaults this year.

Analysts said the change aims to increase liquidity available to smaller businesses as an alternative to lowering the policy rate when they deem would be ineffective.

5. Oil rises after attack on Saudi oilfield

Oil traded higher after a drone attack on an oil facility in Saudi Arabia, while positive remarks on Sino-U.S. trade talks also supported sentiment.

Saturday’s drone attack was attributed to Yemeni rebels and took place on an oilfield in eastern Saudi Arabia that produces approximately 1 million barrels per day.

Although the attack caused a fire at the facility, Saudi’s energy minister reportedly said that the kingdom’s production was unaffected.

Read more: Will Jackson Hole Be Boon Or Bane For Oil And Gold? - Barani Krishnan

-- Reuters contributed to this report.

Original Article

Forex - Dollar Hovering Near 2-Week Highs, Sterling Edges Up

© Reuters.  © Reuters. - The U.S. dollar was hovering near two-week highs against a currency basket on Monday as U.S. Treasury yields bounced back from recent lows amid hopes that major economies will seek to prop up slowing growth with fresh stimulus.

The U.S. dollar index, against a basket of six major currencies was at 98.05 by 03:01 AM ET (07:01 GMT), not far from the two-week high of 98.20 reached on Friday.

The 10-year U.S. Treasury yield stood at 1.57%, having pulled away from a three-year trough of 1.47% marked last week in the wake of global slowdown fears.

Falling yields last week caused the two-year/10-year Treasury curve to invert for the first since 2007, a phenomenon widely regarded as a recession signal that puts the Federal Reserve interest rate deliberations into focus.

"This week's main event is the Jackson Hole symposium and Fed Chairman (Jerome) Powell's speech," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

Powell will deliver a speech on Friday at an annual meeting of central bankers in Jackson Hole, Wyoming.

"What Powell has to say is in focus as the discrepancy remains between what he said on interest rates and what the markets have come to expect the Fed will do," Ishikawa said.

Powell said after the Fed lowered rates in July that the easing was not the start of a series of cuts. But market expectations for the Fed to cut rates by another 25 basis points at the next policy meeting in September have increased.

The euro was steady at 1.1092 while the British pound edged up 0.15% to 1.2166.

The dollar was little changed against the yen at 106.37.

The Chinese yuan was slightly lower after U.S. President Donald Trump said he was not ready yet to make a trade with China.

Traders were also cautious ahead of the debut of China's new benchmark lending rate on Tuesday, which was announced at the weekend.

The People’s Bank of China on Saturday unveiled interest rate reforms to help lower borrowing costs for companies and support slowing growth, which has been hit by the trade war with the U.S.

--Reuters contributed to this report

Original Article

Oil Prices Gain; Sino-U.S. Trade War in Focus

© Reuters.  © Reuters. - Oil prices gained on Monday in Asia following a volatile week as traders digested the latest development on the Sino-U.S. trade front.

U.S. Crude Oil WTI Futures rose 1.0% to $55.33. International Brent Oil Futures climbed 1.1% to $59.27.

Oil markets swung between gains and losses last week as a delay on tariffs on some Chinese goods sent crude prices higher but concerns of a recession and a surge in crude stockpiles put pressure on the markets.

U.S. President Donald Trump reiterated on the weekend that he is not ready to make a trade deal with China, hinting that he wants to see Beijing deal with the ongoing protests in Hong Kong first.
“I would like to see Hong Kong worked out in a very humanitarian fashion,” Trump said. “I think it would be very good for the trade deal.”

The president added that he will make a decision on whether to extend a license that would allow Chinese tech giant Huawei to continue doing business with U.S. companies later today.

The news came following some conflicting trade war signals last week. China’s finance ministry said on Thursday it has to take necessary counter-measures to the latest U.S. tariffs on $300 billion of Chinese imports, but the Xi Jinping administration was saying it hoped to meet Washington halfway on the trade dispute.

Original Article

Yuan wobbles on Trump trade comments, details of China rate reforms awaited

HONG KONG (Reuters) - The yuan wavered on Monday after U.S. President Donald Trump said he was not ready yet to make a trade with China.

Traders were also cautious ahead of the debut of China's new benchmark lending rate on Tuesday, which was announced at the weekend.

Analysts believe the reforms will open the door to rate cuts, possibly as early as Tuesday, but are divided over the size of any initial reduction and how much it may help struggling smaller companies in the near term.

Spot yuan traded at 7.0447 per dollar at midday, pretty much unchanged from the last session close and 0.12 percent away weaker than the midpoint , which was set by the People's Bank of China at 7.0365.

The central bank on Saturday unveiled long-awaited interest rate reforms to help lower borrowing costs for companies and support slowing growth, which has been dragged by its protracted trade war with the United States.

The revamped loan prime rate (LPR), effective on Tuesday and linked to rates in medium-term lending facility (MLF), is the equivalent of a 45 basis point rate cut on loans, ANZ analysts wrote in a note on Monday. Several traders said they expect the new LPR to trim by 10 to 15 basis points.

The tweak will help achieve the State Council's goal of easing financing costs for small businesses by 1 percentage point, but tax cuts will also shoulder part of that, according to a Shanghai-based trader.

"We need to hear more about the supplementary measures," to gauge how far LPR and MLF rates will fall, said another trader in Shanghai.

However, unlike more open markets such as the United States, China's capital control will likely cap the pressure from lower interest rates on its managed currency, said a Hong Kong-based trader, adding "it will trade where the PBOC wants it to be."

Traders said the U.S.-China trade talks will continue to dominate the yuan's direction in the near term.

White House economic adviser Larry Kudlow said on Sunday trade officials from the two countries would speak within 10 days and a Chinese delegation is flying to the United States to follow up.

But Trump said on the same day he is "not ready" for a deal with Beijing, hinting again that he would like to ongoing protests in Hong Kong resolved first.

Trump also said he would not like to deal with Huawei Technologies Co Ltd - even after Reuters and other media outlets reported on Friday the U.S. Commerce Department is expected to extend a reprieve for the company to buy supplies from U.S. companies.

The offshore yuan was trading 0.14 percent softer than the onshore spot at 7.0545 per dollar.

The global dollar index (DXY) rose slightly to 98.207 from the previous close of 98.142.

US China interest rate - Aug 19, 2019 -,%202019.jpg

Original Article

Forex - USD Flat; Trump Wants Hong Kong Problems Solved Before Making Trade Deal

© Reuters.  © Reuters. - The U.S. dollar was flat on Monday in Asia as traders remained cautious ahead of Fed minutes due later this week.

The U.S. dollar index that tracks the greenback against a basket of other currencies was largely unchanged at 98.072 by 12:37 AM ET (04:37 GMT).
All eyes will be on the Federal Reserve this week as traders await fresh insights on how the central bank may respond to growing fears of a recession after the U.S. Treasury yield inverted last week.
The Fed will publish the minutes of its July meeting on Wednesday, while Fed Chairman Jerome Powell will deliver a speech on Friday.
Meanwhile, the USD/CNY pair slipped 0.1% to 7.0446.
The People’s Bank of China sets the yuan’s reference rate at 7.0365 today, versus 7.0312 on Friday.
Developments on the Sino-U.S. trade front were in focus. U.S. President Donald Trump insisted their trade war with China did no harm to the U.S. and that the economy is “doing tremendously well.”
“Our consumers are rich, I gave a tremendous tax cut, and they’re loaded up with money,” Trump said on Sunday. The president also reiterated that he is not ready to make a trade deal with China, hinting that he wants to see Beijing deal with the ongoing protests in Hong Kong first.
“I would like to see Hong Kong worked out in a very humanitarian fashion,” Trump said. “I think it would be very good for the trade deal.”

Tech giant Huawei was also under the spotlight today as U.S. President Donald Trump said he does not want to do business with the company “at all because it is a national security threat.”

The Wall Street Journal and Reuters previously reported that the U.S. was preparing to extend a licence that would allow Huawei to buy parts from U.S. companies for 90 days. The current agreement will end today.
“We’ll see what happens. I’m making a decision tomorrow,” Trump said.
The USD/JPY pair was unchanged at 106.36. The safe-haven yen was under pressure earlier today on expectations that policymakers would unleash new stimulus amid slowing global economies.

On Saturday, the People’s Bank of China said it would improve the mechanism used to establish the loan prime rate so it could “use market-based reform methods to help lower real lending rates.”
The AUD/USD pair inched up 0.1% to 0.6783, while the NZD/USD pair slipped 0.1%.

Original Article

Safe-haven currencies under pressure as stimulus hopes grow

By Stanley White

TOKYO (Reuters) - Safe-haven currencies such as the yen and Swiss franc were under pressure on Monday as expectations policymakers would unleash new stimulus eased immediate concerns about a slowing global economy.

Such hopes found support from the Chinese central bank's interest rate reforms over the weekend, seen lowering corporate borrowing costs, and reports of new fiscal stimulus in Germany.

However, investor optimism is likely to be capped ahead of a U.S. decision due later on Monday on whether to continue to allow China's Huawei Technologies to buy supplies from American companies.

"Huawei is a big test to see whether the current risk-on mood will continue in the currency market," said Takuya Kanda, general manager of the research department at Research Institute.

"There's a sense of calm right now because the stimulus story is supporting the dollar against safe-havens, but I'm not sure how long this calm will last."

The dollar index (DXY), which measures the greenback against six major currencies, was marginally higher in Asia at 98.192, close to a two-week high of 98.339 reached on Friday.

Against the yen , the dollar was little changed at 106.44 yen, near a one-week high of 106.98 yen.

The yen, which tends to be bought as a safe-haven during times of economic uncertainty, fell slightly on Monday versus the antipodean currencies.

Risk sentiment could improve further if the U.S. government offers some concessions to Huawei, which makes a resolution to the trade war more likely.

In May, the U.S. government blacklisted Huawei, accusing the world's largest telecom equipment maker of espionage and intellectual property theft. The allegations, which Huawei disputes, were a serious escalation in the U.S.-China trade war.

The U.S. Commerce Department is expected to extend a reprieve given to Huawei Technologies that permits the Chinese firm to buy supplies from U.S. companies so that it can service existing customers, two sources familiar with the situation told Reuters on Friday.

However, U.S. President Donald Trump on Sunday said he did not want the United States to do business with China's Huawei or national security reasons, casting doubt over the decision.

While a rejection for Huawei could easily fuel another bout of risk aversion, risk-sensitive currencies appeared to have found some support for now.

The Australian dollar rose 0.2% to 72.21 yen (AUDJPY=), while the New Zealand dollar rose 0.1% to 68.36 yen (NZDJPY=).

Gold, another safe-haven asset, fell 0.3% in the spot market to $1,509.30 per ounce.

The People's Bank of China unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies and support a slowing economy that has been hurt by the trade war with the United States.

Details of Chinese stimulus came after German media reported that the German government may be open to running a fiscal deficit to boost growth.

China and Germany are two major global exporters that play a crucial role in world trade, so any steps to bolster these two economies is a positive for the global economic outlook.

Graphic: World FX rates in 2019 -

Original Article

Sunday, August 18, 2019

Forex - Weekly Outlook: Aug 19 - 23

© Reuters.  © Reuters. - This week all eyes will be on the Federal Reserve as investors wait for fresh insights on how it may respond to growing fears of a recession after the Treasury yield curve inverted. The Fed will hold its annual gathering in Jackson Hole later in the week, where Chairman Jerome Powell is to deliver what will be a closely watched speech Friday. It will publish the minutes of its July meeting on Wednesday.

The dollar ended roughly flat on Friday, retracing the morning’s move higher, after worries tied to trade tensions and a Federal Reserve rate cut weighed on consumer sentiment and a report that Germany may run a deficit to boost growth lifted the euro.

Earlier Friday, the euro fell to a two-week low of 1.1067 shy of the two-year low of 1.1025 it reached on Aug. 1. Friday morning's fall was caused by growing expectations of an interest rate cut by the European Central Bank after Governing Council member Olli Rehn suggested on Thursday the central bank could restart its quantitative easing program and was open to extending it into equity purchases.

“Global markets started Friday in a better mood with sentiment boosted by expectations for the European Central Bank to err on the side of bold stimulus as soon as central bankers’ coming meeting on Sept. 12,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Also pulling the dollar lower was the University of Michigan consumer sentiment index which fell to 92.1 early this month, the lowest reading since January, from 98.4 in July. The survey’s current conditions measure dropped to its lowest level since late 2016.

The consumer sentiment data came after the Treasury yield curve inverted this week, which historically has preceded U.S. recessions.

Measured against a basket of six other major currencies, the U.S. dollar index was higher by 0.06% at 98.062. Since hitting a three-week low on Aug. 9, the dollar index has recovered, rising 1.1%

The pound advanced broadly on Friday, notching up its biggest daily rise versus the euro in nearly five months, as a combination of news and decent data provided enough ammunition to speculators to buy the struggling British currency.

The pound advanced to an eight-day high versus the greenback and also jumped 1% against the euro, its biggest single day rise since late March.

The dollar was up 0.25% against the yen at 106.36. For the week, the greenback was up 0.67% against the Japanese currency.

The dollar was higher at 0.9782 Swiss franc, for a 0.6% weekly gain.

Ahead of the coming week, has compiled a list of significant events likely to affect the markets.

Tuesday, Aug 20

German PPI (Jul)

Canada Manufacturing Sales (Jun)

U.S. FOMC Member Quarles Speaks

Wednesday, Aug 21

Canada CPI (Jul)

U.S. Existing Home Sales (Jul)

U.S. FOMC Meeting Minutes

Thursday, Aug 22

Eurozone Manufacturing & services PMIs (Aug)

U.S. initial jobless claims

U.S. services PMI (Aug)

U.S. Jackson Hole Symposium

Friday, Aug 23

U.S. Fed Chair Powell Speaks

U.S. New Home Sales (Jul)

U.S. Jackson Hole Symposium

--Reuters contributed to this report

Original Article

Argentina Treasury minister resigns, says 'significant renewal' needed amid economic crisis

© Reuters. FILE PHOTO: Argentina's Treasury Minister Nicolas Dujovne gestures during a news conference in Buenos Aires© Reuters. FILE PHOTO: Argentina's Treasury Minister Nicolas Dujovne gestures during a news conference in Buenos Aires

By Eliana Raszewski

BUENOS AIRES (Reuters) - Argentina´s Treasury Minister Nicolas Dujovne has resigned, saying in a letter seen by Reuters on Saturday he believed the government needed “significant renewal” in its economic team amid a crisis which saw the peso plunge this week.

Dujovne said in a letter to Argentine President Mauricio Macri that he had given his “all” to the job, helped tame a significant deficit and trim public spending.

“We have made mistakes as well, without a doubt, we never hesitate to recognize that and did all that was possible to correct them,” he added.

“I believe my resignation is in keeping with my place in a government… that listens to the people and acts accordingly,” he added.

Macri has appointed Hernan Lacunza, the current economy minister for Buenos Aires province, as Dujovne´s replacement, a government source told Reuters.

Argentina´s peso was in free-fall for most of this week after a shock primary election result on Sunday, when center-left Peronist candidate Alberto Fernandez trounced center-right Macri, in what was widely seen as a referendum on the government's seeking of a loan from the International Monetary Fund and austerity measures it took as a condition for the loan.

The peso depreciated 21% by the end of the week and on Friday, in a fresh blow to Macri, ratings agencies Fitch and S&P downgraded Argentina´s sovereign debt rating, raising the specter of a default as the October election approaches.

Lacunza is the former general manager of Argentina´s Central Bank and also of the Buenos Aires City Bank.

(Reporting Eliana Raszewski; writing by Aislinn Laing; Editing by Marguerita Choy)

Original Article

Friday, August 16, 2019

BlackRock’s Bet on Argentina’s Century Bond Gets Battered by Sell-Off

(Bloomberg) -- BlackRock Inc (NYSE:BLK).’s wager on Argentine debt maturing 98 years from now suffered a blow this week as the notes sank to a record.

The century bonds, sold in 2017, tumbled 29% this week, even after gaining on Thursday and Friday. That’s a big loss for the largest reported holders, which include BlackRock, Royal Bank of Canada, Legg Mason Inc (NYSE:LM). and Northwestern Mutual Life Insurance Co., according to data compiled by Bloomberg.

A spokeswoman at BlackRock, the biggest reported holder, declined to comment. Representatives at RBC, Legg Mason and Northwestern Mutual didn’t respond to requests for comment.

One silver lining, naturally, is that investors have almost a century for prices to recover. Yet a lot can happen before then. Concern that opposition candidate Alberto Fernandez could return populist policies to Argentina led to a surge in the cost to protect the bonds against losses, now implying an 80% probability of default in the next five years, data compiled by Bloomberg show.

“Lending money to Argentina for 100 years at 7% gets you a gold-plated ticket to the funny farm,” said Jim Craige, the head of emerging markets at New York-based Stone Harbor Investment Partners, who holds the nation’s debt but not the century bonds.

An actuarial table created by one legal expert estimated that Argentina would have to restructure the century bond eight times before maturity, according to Hans Humes, chief executive officer of New York-based Greylock Capital and co-chair of a creditor committee during the nation’s last debt crisis.

Mauricio Macri’s government sold the 100-year bonds in June 2017, trumpeting the arrival of an administration packed with Wall Street veterans who could transform a serial defaulter into an island of financial stability.

That optimism didn’t last long. The notes tumbled in the first half of 2018 amid a sell-off in the peso and declining economic activity. The bonds came back into vogue in recent months as a record stockpile of negative-yielding notes pushed investors into riskier securities. Macri’s shocking defeat in Sunday’s primary turned the tide once more.

Original Article

Forex - Dollar Steady on Safe-Haven Weakness as Stimulus Dims Economic Fears

© Reuters.  © Reuters. -

Original Article

Argentina central bank faces crucial peso test ahead of fraught election

© Reuters. A man shows Argentine pesos outside a bank in Buenos Aires' financial district© Reuters. A man shows Argentine pesos outside a bank in Buenos Aires' financial district

By Walter Bianchi and Jorge Otaola

BUENOS AIRES (Reuters) - Argentina's central bank will play a crucial role in propping up the peso ahead of October's presidential election, analysts said on Friday, toeing a politically fraught line between providing support without blasting through its reserves.

Argentina's peso was in free fall for most of this week after a shock primary election result on Sunday, when center-left presidential candidate Alberto Fernandez trounced center-right President Mauricio Macri by a margin of 15 percentage points. The scale of Fernandez' victory suggested he could win the upcoming ballot in the first round.

After losing about a quarter of its value in the first three days of the week, the peso has since stabilized. On Friday morning it was more or less flat at 57.15 pesos per U.S. dollar, giving policymakers a bit of breathing room.

The peso's collapse, which comes amid growing fears of a global recession, forced the central bank to sell dollars and oblige private banks to trim their dollar holdings and provide liquidity to the market. Despite those measures, analysts said the central bank will be in a politically sensitive position ahead of October's election.

"One strategic element for the government and the opposition is how the current reserves of the central bank are used," consultancy Fundacion Mediterranea said in a note.

"The opposition does not want the current administration to leave the central bank with very few reserves, and it is convenient for the government that the proposals announced by the opposition are reasonable for the markets."

The central bank has about $66 billion in reserves, of which about $20 billion are free resources that can used to pay debt and stabilize the peso, according to an Argentine government official. Since Sunday's vote, the central bank has auctioned a total of $503 million.

Macri announced on Thursday that sales taxes of around 21 percent on basic foodstuffs would be axed until the end of the year to soften the impact of an International Monetary Fund-backed austerity program on the poor. The government estimated the sales tax freeze will cost about 10 billion pesos ($174.2 million).

The shelving of the taxes was the boldest in a series of measures totaling hundreds of millions of dollars that Macri has unveiled since the primary vote as he seeks to salvage his re-election bid and revive Latin America's third-largest economy.

Original Article

Forex - Dollar Gains vs Franc, Yen as Mood Improves

© Reuters.  © Reuters. -- Risk sentiment returned to the foreign exchange markets early Friday in Europe, with the Swiss franc and yen retreating against the dollar, and the dollar retreating against the pound as a week of turbulent newsflow drew to a comparatively quiet close.

By 3:30 AM ET (0730 GMT) the dollar index, which measures the greenback against a basket of developed market currencies, was at 98.078, up 0.1% from late Thursday in the U.S. and on track for a gain of around 0.7% on the week.

The dollar was also a fraction higher against the Chinese yuan, which showed little or no reaction to comments on Thursday by U.S. President Donald Trump that he expects a phone call with his opposite number Xi Jinping “quite soon” to iron out some of their differences on trade.

Analysts at Nordea pointed out in a morning note that history suggests the dollar index will trend higher against the current background of fears of a global recession, something that could complicate U.S. policy toward China and the euro zone given the Trump administration's eagerness to weaken the dollar.

Past instances of the U.S. yield curve turning inverted have on average led to a 3% rise in the dollar index over the subsequent three months, they noted, due not least to gains against the Aussie and Kiwi. They noted that EUR/GBP also tends to strengthen in such periods.

The euro, meanwhile, remains under pressure after a week of generally poor economic data, which were followed on Thursday by comments from European Central Bank governing council member Olli Rehn calling for an “impactful and substantial” package of easing measures at the ECB’s next policy meeting in September. The euro was at was $1.1092 and at 0.9152 against the pound, on course for a weekly loss of 1% and 1.7%, respectively.

In emerging markets, the Turkish lira continued to strengthen, as did the Mexican peso in the wake of the central bank’s decision to cut its key interest rate by 25 basis points on Thursday, the latest in a growing list of easing measures by the world’s central banks. Mexico's move reflects confidence that the troubles of Argentina, whose currency lost a quarter of its value this week on fears about the future direction of economic policy, won't spread to other countries and currencies.

Original Article

Ways to Profit From $17 Trillion of Negative-Yielding Debt

(Bloomberg) -- Investors fleeing risk have boosted the global mountain of negative-yielding bonds to almost $17 trillion. Putting money into assets guaranteed to return less than their face value seems like a fool’s errand -- but there are ways they can be traded for a profit.

The most simple is to hope the price keeps going up, but there are a number of more sophisticated trading strategies. Most of these revolve around ensuring the cost of funding is even lower than that of the yields, for example, by using swap markets or currency forwards. In many cases, the shape of the curve is just as important as the outright yield level.

Here are three of the ways traders are making money in a negative-yielding world:

Borrowing over a relatively short time period and putting the money in longer maturities where yields are typically higher is one strategy to produce returns even when rates are below zero. The way to maximize returns from doing this is to use a “carry and roll” strategy.

The “carry” is the coupon of the bond being bought, while the “roll” is the capital appreciation that can be earned on the security as it slides down the yield curve toward maturity.

The chart above shows how traders can make a positive return through carry and roll in the Spanish bond market, even though yields of up to eight years to maturity are below zero. They can borrow at the Spanish three-month repurchase rate, currently around minus 0.4%, and earn around 3.5 basis points for three months in combined carry and roll by buying 10-year debt.

Another way to extract returns from negative-yielding bonds is through currency hedging. Rising demand for dollars means investors who can have funds in the U.S. currency can generate positive returns from sub-zero yields in Europe and Japan.

Lending dollars for yen via three-month currency forwards earns an annual yield of almost 2.60%. The investor can then plug the money into a haven asset, such as Japanese 10-year bonds, which yielded minus 0.235% late Friday in Tokyo, making a return of about 75 basis points above that of 10-year Treasuries.

Do the same thing except borrow in euros and an investor can earn more than 2.70% a year from German bonds. If the money is invested into Italian debt, the return surges to over 4%.

The focus on the shape of the curve is also key for investors. A steeper one creates the opportunity to borrow in the short term and invest in longer maturities.

In Japan, the six-month yen Libor rate -- the price at which banks theoretically borrow from each each other -- is minus five basis points, whereas the 20-year yen swap rate is positive 11 basis points, offering a pick up of 16 basis points.

Contrast this with the U.S., where six-month dollar Libor is about 2.03% and the 20-year swap rate is being quoted at just 1.59%, around 40 basis points lower.

The flattening of the U.S. curve may end up sending funds to a number of other markets that offer a steeper alternative -- just one of the ways traders are looking to get creative as the amount of negative-yielding debt swells to new records.

Original Article

Forex - U.S. Dollar Steadies as Retail Sales Outperform Expectations; Yen Falls

© Reuters.  © Reuters. - The U.S. dollar steadied on Friday in Asia, while the Japanese yen fell following the release of better-than-expected U.S. retail sales data.

The U.S. dollar index that tracks the greenback against a basket of other currencies inched up 0.1% to 98.062 by 12:50 AM ET (04:50 GMT).

U.S. retail sales rose 0.7% in July from a month earlier, data showed. Markets previously expected a rise of 0.3%.

Despite the positive data, analysts warned the fragile calm in markets might not last too long.

An inversion of the U.S. Treasury yield curve sparked concerns of a potential recession, while uncertainties surrounding the Sino-U.S. trade war also weigh as Beijing vowed retaliation against additional U.S. tariffs on Chinese goods.

Ongoing protests in Hong Kong are also expected to further complicate the U.S.-China relationship. On Thursday, U.S. President Donald Trump said he trusts Chinese leader Xi Jinping would want to solve the Hong Kong problem “quickly and humanely.” China responded by saying it does not want outside opinions on internal matters.

The safe-haven yen fell against the dollar as investor sentiment recovered somewhat amid hopes that central banks, particularly the Federal Reserve, would step in to ease monetary policy.

The USD/JPY pair inched up 0.1% to 106.13.

"Hoping for the best on the policy front but positioning for the worst on the economic backdrop seems to be the flavor of the day," said Stephen Innes, a managing partner at Valour Markets.

"The Fed, now out of necessity alone, will need to adjust policy much more profoundly than they expected."

Fed Chairman Jerome Powell may give a hint of his thinking when he speaks on Aug. 23 at the annual central bankers retreat in Jackson Hole, Wyoming. The topic of his remarks is Challenges for Monetary Policy, according to the Fed’s public schedule updated on Thursday.

The AUD/USD pair gained 0.2% to 0.6789, while the NZD/USD pair lost 0.1% to 0.6439.

Original Article

Dollar holds onto gains, but sentiment remains fragile

By Stanley White

TOKYO (Reuters) - The dollar held onto gains on Friday after a surge in U.S. retail sales eased concerns about the world's top economy, but traders cautioned against reading too much into one piece of data given the growing risks to the outlook.

The greenback was on course for a weekly gain against safe-haven currencies such as the Japanese yen and the Swiss franc, pointing to some respite for frayed nerves after fears of recession and protests in Hong Kong rattled financial markets.

Data showing American consumers continued to splurge in July came as a relief to investors after the U.S. bond market sounded alarms of a recession.

Yet, the fragile calm in markets is unlikely to last, traders said.

This week's inversion in the U.S. Treasury yield curve, which has historically preceded several past U.S. recessions, has stoked fresh worries about the economic impact of the Sino-U.S. trade war.

China on Thursday vowed to counter the latest U.S. tariffs on $300 billion of Chinese goods, but U.S. President Donald Trump said any pact would have to be on America's terms, suggesting a resolution to the trade war remains elusive.

Trump, who is seeking re-election in 2020 and had made the economy and his tough stance on China a key part of his 2016 campaign for the White House, said any agreement must meet U.S. demands.

More protests are also expected in Hong Kong over the weekend, which could become a new geopolitical flashpoint and further complicate the U.S.-China trade war.

"The most important point is there are more signs of a global economic slowdown," said Tsutomu Soma, general manager of fixed income business solutions at SBI Securities in Tokyo.

"Rates will continue to fall, and investors will pull back from risk, which means money will leave emerging markets and go to Treasuries, the Swiss franc, gold, and the yen."

The dollar was little changed at 106.11 yen early in Asian trading after rising 0.2% on Thursday.

For the week, the greenback was up 0.4% against the Japanese currency.

Against a basket of six major currencies, the dollar index (DXY) edged higher to 98.131. Since hitting a three-week low on Aug. 9, the dollar index has recovered, rising 1.1%

The dollar was marginally higher at 0.9767 Swiss franc , on course for a 0.4% weekly gain.

A day after inverting, the U.S. yield curve steepened a little. Curve inversion, which occurs when long-term yields dip below short-term yields.

Despite the steepening, yields continued to fall, with 30-year yields hitting record lows and 10-year yields sinking to a three-year trough.

Sterling was marginally higher, on course for its first weekly gain since mid-July, as positive data on retail sales and consumer pries showed the British economy is in better shape than some investors had feared.

The pound traded at $1.2111, close to a one-week high of $1.2150.

However, sterling bears are still on the ascendancy given the risk that Prime Minister Boris Johnson will take Britain out of the European Union without transitional trade agreements, potentially causing short-term economic turmoil.

Original Article

Thursday, August 15, 2019

Vietnam Investors Shrug Off U.S. Trade Threat in Favor of Growth

© Reuters.  Vietnam Investors Shrug Off U.S. Trade Threat in Favor of Growth© Reuters. Vietnam Investors Shrug Off U.S. Trade Threat in Favor of Growth

(Bloomberg) -- Foreign investors in Vietnam stocks are shrugging off the threat of additional U.S. tariffs on the country’s exports, even as the Southeast Asian manufacturing hub draws increased scrutiny from President Donald Trump’s government.

Robust economic growth and the government’s planned sale of stakes in state-controlled companies will offset dips in equity prices triggered by trade frictions, according to investors including Federico Parenti at Sempione Sim SpA in Milan.

“I didn’t change my view,” said Parenti, who helps manage about $3 billion including Vietnam equities at Sempione Sim in Milan. “When you invest in a country, you do it for the long term.” Vietnam Dairy Products JSC and Saigon Beer Alcohol Beverage Corp. are among the firm’s holdings.

Foreign investors have poured $843 million into Vietnam’s $191 billion stock market in the 12 months through Aug. 14, even as the benchmark Ho Chi Minh Stock Index fell about 0.9% in the period. The gauge has climbed 9.7% so far this year through yesterday’s close, the most among Southeast Asian markets and outpacing the 0.8% rise in the MSCI AC Asean Index.

The government’s sale of shares in state-enterprises helped raise about 5.16 trillion dong ($222 million) in the first half of this year, adding to a record $5.09 billion from initial public offerings last year. Corporate tax breaks, along with economic expansion exceeding 6%, “augur well for the capital market,” said Mark Mobius, who runs Mobius Capital Partners LLP.

To be sure, most investors can’t ignore the risk of the U.S. increasing duties on Vietnam goods, said Felix Lam, who manages close to $2 billion in Asia Pacific equities at BNP Paribas (PA:BNPP) Asset Management. While Lam doesn’t hold Vietnam shares as turnover is too low for his mandate, he said an increase in liquidity could allow him to buy the stocks.

READ: Vietnam Won the U.S.-China Trade War But Is Now in Trouble

“If trade negotiations take longer and are more severe, then Vietnam will be affected alongside other Asian countries,” said Lam. Still, he added, “one would expect that companies would have captured quite a lot of that in their share prices already.”

The Trump administration has been increasing pressure on Vietnam to reduce its growing trade surplus with the U.S., including increasing to 400% in July the duty on steel imports that it alleges originated in Taiwan and South Korea. Exports to America equaled 20% of gross domestic product last year and almost 26% in the first half of 2019.

For Bharat Joshi, who helps oversee $650 billion as a fund manager at Aberdeen Standard Investments, Vietnam’s domestic demand outweighs risks arising from trade tensions. The firm counts Vietnam Dairy Products as an “anchor investment” in the country.

“There is structural growth happening on the ground, you have rising middle-class income, demand for credit is starting to expand, and the government is doing all it can to privatize,” said Joshi.

Original Article

China Loses Status as U.S.’s Top Foreign Creditor to Japan

© Reuters.  China Loses Status as U.S.’s Top Foreign Creditor to Japan© Reuters. China Loses Status as U.S.’s Top Foreign Creditor to Japan

(Bloomberg) -- Japan surpassed China in June as the top holder of U.S. Treasuries as the trade war between the world’s two largest economies intensified.

Japan increased its holdings of U.S. bonds, bills and notes by $21.9 billion to $1.12 trillion, the highest level in more than 2 1/2 years, according to data released by the Treasury Department on Thursday. Meanwhile, China’s ownership rose for the first time in four months to $1.11 trillion, up by $2.3 billion.

The last time Japan held the position as America’s largest foreign creditor was May 2017. The nation has added more than $100 billion worth of Treasuries at a fairly steady pace since October 2018. Treasuries have become more attractive as the globe’s pool of negative yielding debt grows, according to BMO Capital Markets. While benchmark 10-year U.S. yields have plunged to the lowest level since 2016 in recent months, the rate on 10-year Japanese government bonds is currently negative 0.23%.

“The buying we have seen from Japanese investors is really a reflection of the globally low and negative yield environment,” said BMO strategist Ben Jeffery.

A cautious months-long calm in the U.S.-China trade war was interrupted in May when talks between the two sides broke down. In June the U.S. raised tariffs on $200 billion of Chinese goods to 25% from 10%.

While Trump and Chinese leader Xi Jinping agreed to a ceasefire in late June, that only lasted about a month before the U.S. president announced that on Sept. 1 he’ll impose a 10% levy on virtually every import from China not yet subject to duties.

This week, Trump partially backed down by delaying the 10% charge on certain items, including mobile phones and laptops, until Dec. 15 to stem the impact on holiday shopping. Beijing says it still plans to retaliate.

China’s U.S. debt hoard has come under increased scrutiny in the trade dispute amid speculation that the Asian nation could sell Treasuries in response. Earlier this month, the U.S. formally labeled China a currency manipulator after the yuan weakened past 7 per dollar.

(Updates with analyst comment from third paragraph.)

Original Article

Explainer: UK to loosen budget purse strings as Brexit nears

By David Milliken

LONDON (Reuters) - Prime Minister Boris Johnson's government has made billions of pounds of new spending commitments in its first three weeks in office, even before the potential costs of a disruptive, no-deal Brexit are taken into account.

New Finance Minister Sajid Javid will give more details of the plans next month, before a full annual budget later in the year - assuming that a no-confidence vote and an election do not intervene before then.

Following is a summary of where the public finances may be heading.


Britain's government borrowed 23.5 billion pounds ($28.4 billion) in the year to March 2019, equivalent to 1.1% of annual economic output and the lowest since the 2001/02 financial year.

This is down sharply from a peak of 9.9% of GDP in 2009/10, when the financial crisis triggered a slump in tax revenues and greater spending on some social benefits.

Public debt - the total amount of outstanding borrowing - has fallen much more slowly as a share of GDP and is still more than double its level before the financial crisis at 83% of GDP, excluding borrowing by state-owned Royal Bank of Scotland (LON:RBS).

Britain is not alone in struggling to reduce debt against a backdrop of lacklustre growth since the financial crisis, with Germany the only big advanced economy to have a lower debt-to-GDP ratio.


Johnson declined during his leadership campaign to back the government's existing fiscal rules, which aim to keep the deficit below 2% of GDP during normal economic times, and ensure debt falls as a share of GDP.

Javid has said he will respect this rule when he sets spending budgets for the next financial year in September, but the government says the longer-term future of the fiscal rules is "under review".

Since coming to power, Johnson has announced a series of costly spending pledges on police, schools and deprived towns, which taken together are likely to add as much as 9 billion pounds a year to borrowing if fully implemented.

One-off spending on Brexit preparations and new prison and hospital capacity could cost nearly 7 billion pounds, with potential ongoing funding costs not included.

Exact details - crucially including how rapidly the money is expected to be spent - will become clearer in September's spending round, though planning beyond next year is being deferred until a full spending review in 2020.

Javid has also said he will respond to a public commission that has called for more long-term infrastructure spending.

The public will probably have to wait for Javid's first budget to learn how fast Johnson plans to implement a campaign goal to raise the threshold at which the 40% income tax rate becomes payable to 80,000 pounds from 50,000 pounds.

Similar tax changes in the past have been spread out over several years, delaying the full budget impact which is likely to be about 9 billion pounds a year.

Johnson also said he wanted to reduce payroll taxes for lower earners, without giving details.

Credit ratings agency Moody's said the total cost of all these measures, if fully implemented, would increase the budget deficit by 1.5% of GDP, or roughly 30 billion pounds, unless there were other offsetting tax rises or spending cuts.

Analysts at RBC pencilled in a cost of 26 billion pounds.


Britain can borrow about 25 billion pounds a year more, and still achieve a marginal fall in debt as a share of GDP.

Moreover, the cost of new borrowing from the bond market is currently at a record low, due to fears that the world economy could be heading for a recession. Investors currently charge the UK less than 0.5% interest a year to borrow for 10 years, and an annual interest rate of around 1% for 30-year borrowing.

But interest rates are unlikely to remain this low forever, making these borrowing rates more relevant for specific infrastructure projects than for ongoing spending on public services or tax cuts.

In the longer run, Britain will face higher day-to-day expenses for pensions, healthcare and social care for an ageing population. Recessions, which typically come around every decade, add to debt and will put it on a long-run upward path unless efforts are made to reduce borrowing during good times.


Britain's Office for Budget Responsibility estimated last month that leaving the EU without a deal on Oct. 31 would add 30 billion pounds a year to public borrowing in the 2020/21 tax year, even under the more benign of two scenarios outlined by the International Monetary Fund.

Britain's government would be under pressure to direct public spending to prop up businesses or aid regions that are particularly affected by new barriers to trade with the EU.

Tax revenue would also fall due to a recession pushing up unemployment and reducing asset prices, and only a small part of the drop would be offset by customs duties and a further forecast fall in debt interest costs.

Original Article

Forex - Dollar Steady, Yen Slips as Market Selloff Pauses

© Reuters.  © Reuters. - The dollar was holding steady against a currency basket Thursday and the safe haven yen turned lower as a cautious calm returned to markets which have been roiled by a brutal selloff triggered by fears over the outlook for the global economy.

The U.S. dollar index, which measures its value against a basket of six major currencies, stood at 97.81 by 03:40 AM ET (07:40 GMT) after a 0.2% gain on Wednesday.

The dollar gained ground against the yen, rising 0.1% to 106.19. On Wednesday, the yen rallied 0.8% versus the greenback, its biggest daily gain in two weeks.

Spooked investors fled from stocks and sought safe-haven assets after the U.S. Treasury yield curve inverted Wednesday for the first time in 12 years.

The inversion, where 2-year yields trade higher than 10-year yields, is considered by some analysts to be a sign that the U.S. economy is likely to enter a recession.

Sentiment was already fragile after disappointing economic data from China and Germany revealed the extent of the damage the U.S.-Sino trade war is causing to two of the world's most important exporters.

U.S. President Donald Trump on Wednesday seemed to tie a U.S. trade deal with China to a humane resolution of the weeks of protests wracking Hong Kong.

But investor sentiment recovered somewhat amid hopes that central banks, particularly the Federal Reserve, would step in to ease monetary policy.

"Hoping for the best on the policy front but positioning for the worst on the economic backdrop seems to be the flavor of the day," said Stephen Innes, a managing partner at Valour Markets.

"The Fed, now out of necessity alone, will need to adjust policy much more profoundly than they expected."

The U.S. yield curve was inverted for the second straight trading session on Thursday, indicating that traders remain pessimistic about the growth outlook.

Against the dollar, the Swiss franc eased back to 0.9746, after rising 0.% in the previous session.

The euro was a touch higher against the greenback at 1.1147.

--Reuters contributed to this report

Original Article