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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.

 

30 / 07 / 21

British Pound

Reuters: The pound hit its highest in over a month against the dollar on Thursday, extending gains driven by a fall in coronavirus cases in Britain and as a dovish U.S. Federal Reserve weighed on the greenback. The British currency has gained for five consecutive sessions, and on Thursday was 1.4% higher against the dollar on the week. By 1522 GMT, sterling was 0.5% higher on the day at $1.3869, having hit its highest since June 24 against the dollar. The dollar also fell after Fed Chair Jerome Powell’s remark that rate increases were “a ways away”.


Against a broadly stronger euro, the pound gained 0.1% to 85.10 pence per euro. Although COVID-19 infection numbers in Britain rose again on Wednesday for the first time in a week compared with the previous day, they were still lower week on week and there was little reaction from the pound. “Sterling continues to reap the benefits of the slowdown in COVID-19 cases, in turn reversing the prior market concerns about another meaningful wave,” ING said in a note to clients. “This means a further adjustment in the GBP speculative positioning lower is unlikely. Rather, there is a room to re-build sterling longs after their meaningful decline over the past few months.”


Speculators went net short on the pound for the first time since December 2020 in the week up to last Tuesday, CFTC data showed on Friday. Sterling’s performance has tracked global risk sentiment in recent weeks, with the currency’s performance in line with the direction of global stock markets. On Tuesday, however, the pound surged higher in a seemingly arbitrary move around the daily currency market fix, leaving traders stumped. Traders will look to the Bank of England next week, which appears set to keep its stimulus running at full speed despite two policymakers breaking ranks to suggest that its nearly 900 billion pound ($1.2 trillion) QE programme might have to end early as inflation speeds up. A think-tank said Britain's government should take on hundreds of billions of pounds of hard-to-sell bonds held by the Bank of England to reduce the risk of the BoE's independence being questioned when the time comes to raise interest rates.

 

US Dollar

Reuters: The dollar fell to a one-month low on Thursday, a day after the U.S. Federal Reserve said the job market still had “some ground to cover” before it would be time to ease monetary stimulus, taking the steam out of a monthlong rally by the greenback. The dollar index, which measures the greenback against a basket of six other currencies, was down 0.383% at 91.905, its lowest since June 29. The euro gained 0.35% against the dollar, to 1.1885. “The dollar’s reign over the euro appears over as the Fed appears nowhere near tapering as the economy slowly makes its way to achieving substantial progress in the labor market,” said Edward Moya, senior market analyst for the Americas at OANDA.


The index, which is still up 1.6% since the Fed’s June meeting, after a hawkish shift from the U.S. central bank, found little support from U.S. gross domestic product numbers released on Thursday. Data showed that while the U.S. economy grew solidly in the second quarter, boosted by massive government aid, growth fell short of economists’ expectations. GDP increased at a 6.5% annualised rate last quarter, the Commerce Department said on Thursday, well below the 8.5% rate economists polled by Reuters had forecast. “With the dollar already under pressure today as the risk environment stabilises and markets embrace the dovish rhetoric from Fed Chair Jerome Powell yesterday, the near-2-percentage-point miss in Q2 GDP did little to relieve the greenback,” said Simon Harvey, senior FX market analyst at Monex Europe.


U.S. Treasury yields trended lower after Wednesday’s Fed statement, with inflation-adjusted real yields tumbling to a new low, weighing on the U.S. currency. “Should the yield curve continue to slowly steepen with risk appetite remaining in place, dollar bearishness could accelerate in the coming weeks,” said OANDA’s Moya. The market took Wednesday’s Fed announcement as a positive for risk as it leaves the lower-rates-for-longer scenario intact, said Brad Bechtel, global head of FX at Jefferies. “Combined with soothing commentary from Chinese officials on what their intentions are regarding IPOs in the U.S. and this regulatory crackdown they embarked on ... markets were set up for a nice little rally last night,” he said.


China stepped up attempts to calm frayed investor nerves after a wild markets rout this week by telling foreign brokerages not to “overinterpret” its latest regulatory actions. The Australian and New Zealand dollars, reliant on world and Chinese economic growth, rose 0.33% and 0.7% respectively. The U.S. dollar’s weaker tone and a fall in coronavirus cases in Britain helped lift the British pound to its highest in over a month against the dollar.

 

South African Rand

BusinessRecorder: South Africa's rand and stocks rallied on Thursday, after the U.S. Federal Reserve's reassurance that interest rate hikes remain distant. Assets in Africa's most industrialised economy are highly susceptible to swings in sentiment on global markets. At 1600 GMT, the rand traded at 14.5550 against the dollar, around 1.1pc firmer than its previous close and mirroring gains elsewhere in emerging markets. Fed Chairman Jerome Powell in a news conference on Wednesday night took a dovish stance, saying the U.S. job market still had "some ground to cover" before it would be time to pull back emergency economic support measures.


Riskier currencies like the rand thrive on U.S. interest rates remaining low because they benefit from the interest rate differential that increases their appeal for carry trade. In equities, the all-share index on the Johannesburg Stock Exchange (JSE) jumped to its best-ever close, boosted by strong results from mining companies and upbeat trading in global shares. A further recovery for technology investor Naspers and its subsidiary Prosus after a recent rout also pulled the market higher. 


The all-share index closed up 1.52pc at 69,565 points and the Top-40 index up 1.65pc at 63,395 points. London and Johannesburg-listed Anglo American saw a jump of around 5pc as bumper commodity prices lifted first-half profits to their highest ever. Naspers and Prosus both gained around 4pc. Government bonds also firmed, with the yield on the benchmark 2030 instrument down 5 basis points to 8.875pc. 

 

Global Markets

Reuters: Asian shares fell on Friday, extending their biggest monthly drop since the height of global pandemic lockdowns last March on lingering investor concern over regulatory crackdowns in China on the education, property and tech sectors. Losses deepened even after reassurances from Chinese regulators and official media that helped to soothe investors’ nerves a day earlier, and following indications from the U.S. Federal Reserve that its bond-buying programme will remain unchanged for now.


A continuing outbreak of Delta variant COVID-19 cases in China’s coastal province of Jiangsu also weighed on the mood on Friday. Futures pointed to a lower open for European share markets. Euro Stoxx 50 futures fell 0.8%, German DAX futures fell 0.79% and FTSE futures slipped 0.68%. “It’s clear investors are very rattled by the regulatory crackdown,” said Michael Frazis, portfolio manager at Frazis Capital Partners in Sydney, while adding that the market continues to face other near-term pressure. “You will have talk about tapering, and you do have a lot of coronavirus beneficiaries which are largely in the tech sector. Earnings growth will be slow, and they will be reporting numbers off of very high bases for this time last year... We expect tech indices to be challenged in the near term, but we’re very optimistic over the medium and long term.”


On Friday, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.33%, taking its losses for the month to more than 7%. Japan’s Nikkei dipped 1.80%, its 11th straight month of falls on the last trading day in the month. Chinese blue-chips fell 1.06%, and Hong Kong’s Hang Seng fell 2.11%, with tech stocks once again dragging. The Hang Seng Tech index shed more than 4%, deepening its fall for the month to more than 18%. Seoul’s Kospi fell 1.16%. The falls in Asia came despite robust U.S. earnings and forecasts, as well as strong second-quarter economic growth figures, that helped to lift Wall Street to record intraday highs on Thursday. The U.S. economy grew past pre-pandemic levels in the second quarter, helped by rising vaccinations and government aid, though the expansion fell short of expectations and rising COVID-19 infections are clouding the outlook for the current quarter.


Lower-than-expected revenue reported by Amazon.com Inc on Thursday, and the company’s forecast of slower sales growth in the coming quarters weighed on U.S. stock futures. Nasdaq e-mini futures slid 1.30% and S&P 500 e-minis were down 0.79%. After rising Thursday on U.S. economic data, U.S. Treasury yields pulled back, particularly toward the long end of the yield curve. Benchmark 10-year notes last yielded 1.2456%, down from 1.269% late on Thursday, and the 30-year yield stood at 1.9013%, down from 1.916% on Thursday. The spread between the U.S. 10-year and 2-year yield narrowed to 106.6 basis points. “We think bond yields now discount an unduly pessimistic view of the medium- to long-term outlook. The prospects for a robust recovery - and higher bond yields - are arguably much better,” analysts at Capital Economics said in a client note. But following Fed Chairman Jerome Powell’s statement earlier this week that rate increases are “a ways away” and the job market still had “some ground to cover”, the dollar wallowed near one-month lows on Friday and was set for its worst week since May. The dollar index was last up 0.09% at 91.968, with the euro down 0.06% at $1.1879. The greenback was 0.1% higher against the yen at 109.57.


In commodities markets, oil prices fell back after global benchmark Brent on Thursday topped $76 a barrel on tight U.S. supplies. Brent was down 0.53% at $75.65 per barrel and U.S. West Texas Intermediate crude traded down 0.52% at $73.24. Brent crude is still up nearly 2% for the week. Spot gold was little changed at $1,827.31 an ounce, but was set for its best week in more than two months on the prospect of delayed Fed tapering.

 

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