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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.

 

14 / 04 / 21

British Pound

FXStreet: After closing higher on Tuesday, the GBP/USD pair is extending the upside momentum in the early European session, touching the highest level in three days near 1.3775. At the time of writing, GBP/USD is trading at 1.3774, up 0.19% on the day. The US dollar index (DXY) weakness remains the primary driver of GBP/USD’s movements lately.  The index refreshes multi-week lows near 91.70. The US Bureau of Statistics monthly report released on Tuesday showed the Core Consumer Price Index(CPI) rose to 1.6% on a yearly basis in March, which triggered a sell-off in the dollar.


On the other hand, GBP is riding higher on the optimism surrounding the “stage two” of lifting lockdown that began on Monday. On the economic data front, the UK Gross Domestic Product (GDP) rose by 0.4% in February, missing the market consensus of 0.6%. However, investors shrug off downbeat data and remain optimistic about future growth as the restrictions being eased would result in the pick of economic activities in the coming months. As for now, the focus shifts toward speeches from the Bank of England(BOE) MPC Member Professor Jonathan Haskel and the Fed Chair Jerome Powell later in the day. Traders would look out for insights into the growth and inflation prospects before placing aggressive bets.

 

US Dollar

Reuters: The dollar fell to multi-week lows against the euro and the yen on Wednesday, after an uptick in a U.S. consumer price gauge did not spark wider fears about accelerating inflation and the Federal Reserve’s tapering, pushing down U.S. bond yields. The dollar ticked down 0.2% to 108.80 yen, touching its lowest level in three weeks, down about 2 percent from a one-year peak hit at the end of last month. The euro popped up 0.1% to $1.1960, hitting its highest level since mid-March, as it extended a rally from a five-month low of $1.1704 set on March 31. Against the Swiss franc, the U.S. currency slipped to 0.9201 franc, near its lowest levels in six weeks.


While the dollar was stuck near its familiar ranges against most other currencies, the dollar’s index against a basket of six major units fell to as low as 91.724, its lowest since March 22. The greenback’s fall came as U.S. bond yields dipped, thus reducing the currency’s yield attraction, as solid demand for a 30-year bond auction trumped rises in consumer inflation. The 10-year U.S. Treasuries yield dipped to 1.620%, also its lowest levels since late March. The U.S. consumer price index jumped 0.6% in March versus the previous month, the largest gain since August 2012, and rose 2.6% from a year earlier, both 0.1 percentage point above market expectations. The core CPI, which excludes volatile foods and energy, was also a tad stronger than expected, with a year-on-year increase of 1.6%.


“Inflation has been expected to accelerate in the April-June quarter. Although the latest reading was a bit stronger than expected, it wasn’t out of the blue,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. Speculation that firmer inflation could propel the Federal Reserve to reduce its quantitative easing and low interest rates earlier than it has pledged has been a major driver of the dollar’s rally in the first quarter. “It seems like the markets have already priced in economic normalisation as U.S. bond yields have risen considerably, with the five-year yield almost reaching 1% at one point,” said Minori Uchida, chief currency strategist at MUFG Bank. The U.S. central bank has said it will look through temporary increases in inflation, and analysts expect it will allow inflation to run hotter than previously expected before raising rates. Philadelphia Fed Bank President Patrick Harker said on Tuesday it is unlikely that inflation will run out of control this year. 


Elsewhere, the New Zealand dollar rose 0.4% to $0.7086 after the country’s central bank held its official interest rate and asset purchase programme steady, widely as expected. The Singapore dollar rose 0.25% to S$1.3376 per U.S. dollar after the Monetary Authority of Singapore (MAS) left its exchange-rate policy settings unchanged. The Russian rouble gained about 2% overnight after U.S. President Joe Biden called on Russian President Vladimir Putin to reduce tensions between Russia and Ukraine. Biden phoned Putin to propose they meet in a third country, in a sign of concern about tensions spinning out of control in the Ukraine crisis. In cryptocurrencies, bitcoin hit a record high of $63,860.71 ahead of the listing of cryptocurrency platform Coinbase on Nasdaq later in the day.

 

South African Rand

Reuters: South Africa's rand reversed earlier losses on Tuesday, as traders digested news of strong gains in March U.S. inflation, though that was not expected to alter the Federal Reserve's commitment to keep interest rates at rock-bottom levels for years. At 1505 GMT the rand was flat at 14.5600 per dollar, after hitting a session low of 14.6800. The U.S. dollar fell to three-week lows after inflation data. Investors mainly focused on U.S. inflation data for further indications on the direction of lending rates in the world's biggest economy.


Accommodative U.S. monetary and fiscal policy has fuelled flows to riskier emerging market assets, but a steady rise in Treasury yields has raised fears of a quicker rise in rates. Stocks rose on the Johannesburg Stock Exchange (JSE) on Tuesday as global markets recovered after Monday's heavy sell-off. The benchmark all-share index closed up 1.03% at 67,072 points while the blue-chip index ended up 1.17% to 61,383 points. The gains were broad-based with most major indexes such as, resources and industrials ticking up on hopes that despite rising inflation, U.S. interest rates will not go up. In fixed income, the yield on the benchmark 2030 government issue was down 1.5 basis points at 9.34%.

 

Global Markets

Reuters: Global stock markets rose to a record high on Wednesday as bond yields eased after data showed U.S. inflation was not rising wildly as the economy reopens. Most Asia-Pacific share indexes followed Wall Street higher, with Hong Kong’s Hang Seng leading gains in the region, while benchmark U.S. Treasury yields continued their decline, marking a fresh three-week low. S&P 500 futures pointed to a further 0.1% rise. Japan bucked the trend, with the Nikkei falling 0.3% as rising coronavirus cases raised doubts about its economic recovery with 100 days to go until Tokyo is scheduled to host the Olympics.


European stocks looked set to open modestly higher, with Euro Stoxx futures up 0.3% and Britain’s FTSE futures 0.1% higher. The U.S. consumer price index rose 0.6%, the biggest increase since August 2012, as rising vaccinations and fiscal stimulus unleashed pent-up demand. But the data is unlikely to change Federal Reserve Chair Jerome Powell’s view that higher inflation in coming months will be transitory. Powell is scheduled to speak later in the day at the Economic Club of Washington. “The market clearly braced for higher CPI readings,” Westpac strategists wrote in a client note. They said Tuesday’s result was “clearly being interpreted within the context of the Fed’s commitment to look through ‘transitory’ inflation impulses.” For bond markets, the question is whether the benchmark yield can break below 1.6% from as low as 1.611% on Wednesday, they wrote. “That has been an important technical level, which if broken could see a quick move to 1.5%.”


The 10-year U.S. Treasury yield had surged from the start of the year to a 14-month high of 1.776% on March 30 on bets that massive fiscal stimulus would speed up a U.S. recovery, stoking faster inflation than Fed policymakers anticipate and prompting it to raise interest rates sooner than expected. But yields have eased this month, in part owing to the Fed’s insistence that labour market slack will prevent the economy from overheating. A spate of strong auction results, including of 30-year bonds on Tuesday, has also helped to tame yields. MSCI’s broadest index of Asia-Pacific shares outside Japan rallied 0.8%. Hong Kong’s Hang Seng jumped 1.4%, while China’s blue-chip index gained 0.5%. MSCI’s gauge of equity performance in 50 countries advanced 0.2%, renewing its all-time peak. “Once again, markets are looking on the bright side, and despite that higher-than-expected inflation read, it’s been interpreted as a sign of better growth,” said Michael McCarthy, chief markets strategist at CMC Markets. “We’ve seen support for those high-growth tech stocks, and other sectors exposed to economic growth, including financials.”


The decline in bond yields lifted U.S. tech stocks overnight, including Apple Inc, Microsoft Corp and Amazon.com Inc, the top three holdings of the global benchmark. The S&P 500 gained 0.33% as it also set intra-day and record closing highs, while the Nasdaq Composite added 1.05%. The Dow Jones Industrial Average fell 0.2%. Johnson & Johnson’s shares slid 1.34% after U.S. federal health agencies recommended pausing the rollout of its COVID-19 vaccine for at least a few days, after six women developed rare blood clots. Setbacks to vaccination rollouts have raised concerns about the global economic recovery. Earnings will be a focus on Wednesday, with JPMorgan Chase & Co. and Goldman Sachs Group Inc among the companies reporting. The U.S. dollar eased along with Treasury yields, slipping to a three-week low to major peers. Gold, a traditional inflation hedge, extended its rise from the lowest in more than a week to trade around $1,742 in the spot market. Bitcoin hit a record above $64,500, extending its 2021 rally to new heights on the day Coinbase shares are due to list in the United States. In oil markets, Brent crude futures rose 47 cents to $64.14 a barrel. U.S. crude futures added 47 cents to$60.65.

 

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