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DAILY BRIEF

 

 

The Daily Brief is sent to subscribers via email each morning and contains news about overnight market movements and insights into the issues of the day. The brief is free and helps keep our clients up to date on the ever changing currency markets. There are currently two daily briefs sent out, the Hong Kong Office sends out the first brief of the day with an updated London version sends out a few hours later.

 

23 / 10 / 20

LONDON OFFICE

 

British Pound

Reuters: The pound fell versus the dollar on Thursday, but was steady against the euro, stabilising after cable surged to six week highs in the previous session on news that Brexit talks were restarting. Sterling rose by as much as 1.7% versus the dollar on Wednesday after the European Union’s chief negotiator Michel Barnier said that a deal was within reach. It was still close to those highs on Thursday, as Brexit talks resumed after negotiations were halted abruptly last week. Francesco Pesole, FX strategist at ING, said that although the pound was rising and falling in response to comments about Brexit, the size of the moves was limited by a lack of certainty about the likelihood of a deal. “Right now markets are...just waiting for the tangible news, the real material progress to really buy and sell the pound,” he said. At 1504 GMT the pound, which reached as high as $1.3177 on Wednesday, was at $1.3092, down around 0.4% on the day. Versus the euro, the pound was steady at 90.315 pence, having strengthened to as much as 90.115 pence per euro in the previous session.


Britain left the EU in January and is currently in a status-quo transition period which ends on Dec. 31. Prime Minister Boris Johnson said last week the trade talks were over and told businesses to get ready for a no-deal outcome - comments that caused sterling to fall initially but were soon dismissed by market players as brinkmanship. “Market participants were never convinced by the political posturing as the pound held its ground, and they are now more convinced that both sides are heading towards a trade deal,” MUFG currency analyst Lee Hardman wrote. The Bank of England’s chief economist said on Thursday that the central bank was not poised to deploy negative rates. “At the moment really the pound is about Brexit and the Bank of England,” said ING’s Pesole. “What appears to be the Bank of England decision to possibly jump into negative rates is a function of Brexit. So that’s why it all boils down to Brexit and that’s why it’s the only thing that’s moving the market,” he added. The pound did not react to Britain’s finance minister unveiling new measures to protect jobs.

 

US Dollar

Reuters: The dollar inched higher at the end of a tough week on Friday, having shed almost a cent against the euro and suffered its largest weekly drop against the yen in a month, as a measured U.S. presidential debate left investors in a cautious mood. President Donald Trump adopted a more restrained tone than in the first debate, though exchanges again focused around the handling of the COVID-19 pandemic and personal slights. The dollar ground about 0.1% higher against a basket of currencies in the Asia session, just clear of Wednesday’s seven-week low, but still leaving it down about 0.7% for the week and in the bottom half of a months-long range. “The market reaction is rather muted in Asian trading hours but has slightly tilted towards a more conservative sentiment as seen in the strengthened dollar index,” said Gary Ng, Asia-Pacific economist at Natixis in Hong Kong. The safe-haven yen also rose about 0.2% to 104.70 per dollar, paring some losses made on Thursday after U.S. House Speaker Nancy Pelosi said there was progress in stimulus talks.


The yen is up about 0.7% for the week, its sharpest weekly rise since mid September, as investors who expect turbulent trade around the Nov. 3 election head for some shelter. The euro slipped 0.1% to $1.1800 and the Australian dollar also handed back a small early-morning gain during the Trump-Biden debate. Both currencies remain more than half a percent ahead on the dollar over the week. “People are just closing out longs ahead of the election just in case Biden isn’t elected,” said Chris Weston, head of research at broker Pepperstone in Melbourne. “We’re coming into that eye of the storm now where it takes a bit of a brave soul to put on new positions ahead of the election.” Persistent hopes that Congress might pass a stimulus package before the election and confidence that spending follows anyway, no matter who gets elected, has driven a selloff in the bond market in anticipation of inflation and government borrowing. The dollar has been sold because the prospect of stimulus has supported investors’ mood. A Biden victory, which polls predict, is seen as more likely to drive further dollar weakness as he is expected to spend more on coronavirus aid than Trump. However betting markets showed a small movement in Trump’s favour in the immediate aftermath of the debate, bookmaker Ladbrokes said on Twitter on Friday - which helped the dollar to firm. Elsewhere the New Zealand dollar edged down 0.l% after softer-than-expected inflation data, though it has still gained almost 1% for the week. The Chinese yuan also held its ground on the greenback after an official at China’s foreign exchange regulator said it has been more stable than expected, suggesting authorities are not too worried about its recent rise. The yuan has gained about 7.5% since the end of May as China has led the global coronavirus recovery. It last sat at 6.6828 per dollar in onshore trade, about half a percent shy of a 27-month peak it hit on Wednesday. “The 6.6300 levels in the USD/CNH reached on Wednesday may be a near-term bottom,” said OCBC Bank strategist Terence Wu. “Nevertheless, this bounce should not impinge on the RMB trend. This may be an opportunity to re-enter USD/CNH shorts at 6.6800/7000 levels.”

 

South African Rand

Reuters: South Africa's rand rallied to its strongest point in a month on Thursday, extended its winning streak to a fifth consecutive session as optimism about a new stimulus package in the United States continued to feed demand for risk currencies. At 1540 GMT the rand was 0.67% firmer at 16.2150 per dollar, its strongest since Sept. 21, from an opening level of 16.3400. "That the market is currently trading on stimulus headlines means relatively higher-Beta currencies such as the rand are likely to be subject to big intraday price swings, as has been the case in recent sessions," said economists at ETM Analytics. Hopes for a fresh U.S. coronavirus relief package ahead of the Nov. 3 presidential elections remain up in the air, but optimism that they will soon be concluded has kept high yielding currencies bid with investors scouring the global market for returns.


Locally, the market is on watch ahead of the medium term budget speech due next Wednesday, when the extent of the country's fiscal problems should become clearer. "The address, which could very well be a watershed moment for SA as a country, is lingering in the back of traders’ minds and could keep any ZAR-bullish momentum at bay heading into the weekend," ETM economists said. Government bonds were firmer, with the yield on the benchmark 2030 bond down 3 basis point to 9.265%. Stocks fell, in line with shares around the world amid a global surge in COVID-19 cases. The Johannesburg Stock Exchange's blue-chip Top-40 Index lost 1.23% to 50,277 points. The broader All Share Index fell 0.99% to 54,796 points. The biggest losers were gold miners, dragged lower as global bullion prices dropped 1% after better-than-expected U.S. jobs data, dimming demand for the safe-haven. Gold Fields and Harmony Gold, down 8.58% and 6.87% respectively, were followed by their peers. Pharmacist Clicks closed 3.11% lower despite posting a jump in annual profit, setting it apart from other consumer-focused firms, including other retailers and banks, which benefited from a stronger rand.

 

Global Markets

Reuters: Global stocks barely budged on Friday as investors tightened positions with less than two weeks to go before the U.S. presidential election and awaited a breakthrough in stimulus talks in Washington. The final debate between U.S. President Donald Trump and his Democrat challenger Joe Biden on Thursday presented few surprises for election watchers but slightly reinforced investor caution heading into the Nov. 3 poll. U.S. S&P 500 futures had dipped slightly after the debate but were mostly flat by midday trade. The underlying index had gained about 0.5% in the previous day on hopes that the U.S. Congress and the White House could soon strike a deal on another round of COVID-19 stimulus. Shares in Asia hardly budged, with MSCI's broadest index of Asia-Pacific shares outside Japan flat while Japan's Nikkei ticked up 0.2%. The CSI300 index of mainland China also edged up 0.2%. At Thursday’s debate, Biden renewed his criticism of Trump’s handling of the coronavirus pandemic as Trump levelled unfounded corruption accusations at Biden and his family. “I don’t think there’s anything new in it, I think that’s why the market is not moving much. The focus is still on the timing of the fiscal stimulus and how big it is,” said Moh Siong Sim, FX analyst at Bank of Singapore.


On Thursday, U.S. House of Representatives Speaker Nancy Pelosi reported progress in talks with the Trump administration for another round of financial aid, saying legislation could be hammered out “pretty soon”. While the news helped to lift U.S. share prices, the U.S. S&P500 is still down 0.9% so far this week amid uncertainties over stimulus and the election. A widening lead in polls by Biden is prompting many investors to bet on a Biden presidency and also a “blue sweep”, where Democrats win the both chambers of Congress. “A blue wave may lead to concerns about the impact on the tech sector, while a Biden win and a split Congress may imply another four years of limited policy changes and politicking,” said Mary Nicola, senior economist at Pinebridge Investments in Singapore. Reflecting concerns Democrats could take a harder stance on big tech firms, the Nasdaq index, which had led the market's rally, has underperformed lately, having lost 1.4% so far this week. Expectations of bigger government stimulus have also boosted U.S. borrowing costs. The 10-year U.S. Treasuries yield rose to 4 1/2-month high of 0.870% on Thursday and last stood at 0.853%. U.S. economic data published on Thursday surprised to the upside, as jobless claims fell more than expected and existing home sales exceeded estimates to more than a 14-year high. In the currency market, the dollar bounced back from Wednesday’s seven-week low but stayed under pressure as investors began to wager on a Biden presidency and big U.S. stimulus. The euro traded at $1.1803, down 0.2% and off Wednesday's high of $1.1805 but still up 0.7% on the week. The yen changed hands at 104.77 yen per dollar, stepping back a tad after its biggest gain in nearly two months on Wednesday. The Chinese yuan stood at 6.6729 per dollar in offshore trade, off 27-month high of 6.6278 touched on Wednesday. Oil prices were supported by hopes on U.S. stimulus and the prospect of extended output cuts. Brent futures ticked up 0.3% to $42.59 per barrel while U.S. crude futures rose 0.25% to $40.74 per barrel.

HONG KONG OFFICE

 

US Dollar

Reuters: The dollar index against a basket of six major currencies slipped 0.3% to 93.261. The British pound traded at $1.3307, recovering slightly from a dip to a six-week low of $1.2839 on Wednesday. 

 

The dollar held steady against the safe-harbour Swiss franc at 0.9120 and was little changed at 106.20 yen. Traders in the dollar are closely watching global equities to see if a rebound in U.S. tech shares from a rapid sell-off will support riskier assets in other markets. 

 

Across the Tasman Sea, the New Zealand dollar was little changed at $0.6680.

 

Euro

Reuters: The euro held onto gains against the dollar on Thursday as traders braced for a European Central Bank meeting to gauge policymakers’ views on the common currency’s recent appreciation and its impact on inflation. Sterling steadied above a six-week low but could face more losses due to growing concern that Britain and the European Union will fail to agree a trade deal. 

 

While markets expect the ECB to keep policy steady, investors will closely watch President Christine Lagarde’s comments on how the euro’s rise to a two-year high this month affects the outlook for inflation and economic growth.  The euro bought $1.1807 in Asia on Thursday, holding onto a 0.3% gain from the previous session. 

 

Sentiment for cable has taken a hit after Britain unveiled draft legislation that analysts say raises the possibility of it exiting the EU single market in four months time with no trade agreement in place. The euro got a boost on Wednesday after Bloomberg News reported that ECB officials are growing more confident in the bloc’s economic outlook. However, traders may be reluctant to buy the common currency further before the ECB meeting due to earlier media reports that officials are growing uncomfortable with the euro’s almost 6% appreciation against the dollar from its June low.

 

Australian Dollar

FXStreet: AUD/USD takes offers around 0.7265, down 0.25% on a day, during the early Thursday. While weakness the latest Aussie data, as well as risk-reset, can be counted as fundamental catalysts behind the quote’s pullback, a short-term falling channel since September 04 plays its technical role. 

 

However, 100-HMA questions the pairs’ further downside around 0.7260 ahead of the 61.8% Fibonacci retracement level of August 25-30 upside, near 0.7250. Although the bears are likely to recede control around 0.7250, their further dominance will aim for the 0.7200 round-figures ahead of refreshing the monthly low while visiting the channel’s support near 0.7175.

 

Meanwhile, an upside clearance of the channel resistance of 0.7285 will have to cross the 200-HMA level of 0.7305 before allowing the bulls to retake controls. In doing so, 0.7340 and 0.7380 could gain market attention before the previous month’s top, also the multi-month peak, surrounding 0.7415.

 

Global Markets

Reuters: Asian markets are expected to swing higher on Thursday, after U.S. stocks reversed course from a three-day losing streak that led the technology-heavy Nasdaq into correction territory. The U-turn in U.S. stocks, however, was already reflected in some markets, so the impact in Asia may be muted, said Rodrigo Catril, a senior FX strategist at National Australia Bank. “We still expect markets to open with a positive turn, but we don’t expect a meaningful acceleration of it,” Catril said. “It should be a positive open but not a bombastic open.”

 

Australian S&P/ASX 200 futures rose 1.28% in early trading and Japan’s Nikkei 225 futures added 0.13%. Hong Kong’s Hang Seng index futures rose 0.85%. MSCI’s gauge of stocks across the globe gained 1.44%. Wall Street ended higher on Wednesday after investors ploughed into technology stocks, taking advantage of the recent dip. 

 

The Dow Jones Industrial Average rose 439.58 points, or 1.6%, to 27,940.47, the S&P 500 gained 67.12 points, or 2.01%, to 3,398.96 and the Nasdaq Composite added 293.87 points, or 2.71%, to 11,141.56. Oil prices recovered some of the losses they saw in the prior trading session when they hovered near three-month lows. U.S. crude rose 3.5% and Brent added 2.5%, although COVID-19 outbreaks still threaten to slow a global economic recovery. U.S. crude eased 0.5% in early Asian trade on Thursday to $37.88 a barrel.

 

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