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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.

 

19 / 11 / 19

LONDON OFFICE

 

British Pound

Reuters: Sterling inched higher towards $1.30 Monday as the Conservatives lead in polls for Britain’s general election, boosting the chances of Prime Minister Boris Johnson’s withdrawal deal being passed by parliament before the Jan. 31 Brexit deadline. Johnson’s Conservatives lead the opposition Labour Party by 10 to 17 percentage points, four polls on the Dec. 12 election showed late on Saturday. A poll published by ICM for Reuters on Monday showed the Conservatives extending their lead over Labour to 10 points. “The market’s just moving to price in a higher likelihood of a majority for the Tories,” Lee Hardman, currency analyst at MUFG, said, using a colloquial name for the Conservative Party. “We’ve had the opinion polls at the weekend generally all showing increasing support for the Tory party, making the market more confident they could win a majority, seen as more favourable in the short term,” Hardman said.


In a conference of business leaders organised by Britain’s main business lobby, the CBI, Johnson said the government was postponing corporation tax cuts. The CBI’s director general warned that British businesses face the threat of extreme ideology from both the left and the right wing of politics. The pound was unchanged by her comments. The pound was last up 0.5% against the dollar at $1.2964 after touching $1.2985 earlier, its highest since October 22. If sterling rises above the $1.3012 level hit in October, it would be at its highest since May. Versus the euro, the pound strengthened further to reach a new six-month high of 85.22 pence, last trading around 0.2 percent higher at 85.49 pence. “The $1.30 level is quite a strong psychological resistance here,” Nomura’s Rochester said. “For it to really have momentum, you need to see the Labour Party’s manifesto not do as well as it did in 2017.” Left-wing Labour is expected to release its manifesto on Thursday. Analysts at JP Morgan wrote in a note to clients that a break above the $1.30 level was unlikely at this stage of the campaign cycle. Weekly futures data showed that positions betting against the pound versus the dollar fell in the week to Nov. 12 to the lowest levels since May. The net short position means that the pound has more potential to appreciate on good news than depreciate on bad news. Implied volatility gauges for sterling for one-month maturities - encompassing the election - jumped to more than 11%, nearly doubling from levels of around 6% earlier this month. This pushed out spreads between one-month and two-month maturities to widest levels since the June 2016 Brexit referendum vote.

 

US Dollar

Reuters: The dollar fell against the yen on Tuesday as receding hopes for a preliminary trade deal between the United States and China hurt demand for the greenback. The yuan touched a two-week low versus the greenback amid doubts about the U.S.-China trade war. The Australian dollar also fell after minutes from a Reserve Bank of Australia policy meeting showed central bankers considered cutting rates this month. There have been high expectations that the United States and China would sign a so-called “phase one” deal this month to scale back their 16-month long trade war. But the dollar took a hit on Monday after CNBC reported that China is pessimistic about agreeing to a deal, which suggests a resolution to perhaps the biggest risk to the global economy remains elusive. “The dollar tried to break above 109 yen, but it couldn’t because of worries about the trade deal,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.


“The Treasury market is starting to reflect similar concerns about the lack of a trade deal,” Ishikawa added. “This will keep dollar/yen in a narrow range.” The dollar fell 0.11% to 108.55 yen, following a 0.09% decline on Monday. The dollar was quoted at $1.1067 per euro on Tuesday in Asia after falling to the lowest in almost two weeks. Against a basket of six major currencies, the dollar index stood at 97.856, close to a two-week low. The yield on 10-year Treasury notes fell slightly to 1.8049% in Asia, also approaching a two-week low as uncertainty boosted demand for the safety of government debt. Citing a government source, CNBC reported on Monday that Beijing was pessimistic about a trade deal with the United States, troubled by Trump’s comments that there was no agreement on phasing out tariffs. In the onshore market, the yuan fell to a two-week low of 7.0295 per dollar. Washington and Beijing have imposed tariffs on each other’s goods in a bitter dispute over Chinese trade practices that the U.S. government says are unfair. The tariffs have slowed global trade and raised the risk of recession for some economies. Many economists say the drag on global growth will remain as long as tariffs are in place. Currency traders were also wary of the dollar after Trump met U.S. Federal Reserve Chairman Jerome Powell on Monday amid the U.S. president’s repeated criticism that the Fed has not lowered interest rates enough. “Everything was discussed including interest rates, negative interest, low inflation, easing, Dollar strength & its effect on manufacturing, trade with China, E.U. & others, etc.,” Trump tweeted soon after the meeting, calling the session “good & cordial.” In a statement, the Fed said Powell’s expectations for future policy were not discussed, but Trump has for more than a year said the Fed was undermining his economic policies by keeping interest rates too high. Elsewhere in the currency market, the Australian dollar fell 0.25% to $0.6789 and declined 0.36% to 73.73 yen. Australia’s central bank “agreed a case could be made” for another cut in the 0.75% cash rate at its November meeting given unwelcome weakness in wages growth and inflation, minutes published on Tuesday showed. The RBA decided to hold steady, in part because of worries that further easing would harm savers and confidence. The central bank has already cut rates three times since June to an historic low. The Aussie took a hit last week after data showed Australian employment suffered its sharpest fall in three years in October, underlining the need for stimulus.

 

South African Rand

EWN: The rand weakened on Monday, as cautious investors awaited clues on monetary policy from the local central bank and some of the world’s major central banks, as well as developments in U.S.-China trade talks. At 1535 GMT the rand was 0.41% weaker at 14.7850 per dollar. South Africa’s central bank decides on lending rates for the last time in 2019 on Thursday, and the regulator is expected to keep the level unchanged at 6.5%. Twenty-one of 28 economists polled by Reuters in the previous week said the repo rate would remain unchanged at the 21 November meeting. The remaining seven said the monetary policy committee (MPC) would cut rates by 25 basis points. South Africa’s relatively high rates, combined with benign consumer inflation, has shielded the rand from large selloffs despite a deteriorating fiscal and economic outlook and is set to keep it below the 15.00 mark going into year-end. 


“Given how trade uncertainty and global growth fears have encouraged central banks across the globe to ease monetary policy, all eyes will be on the South African Reserve Bank’s rate decision later in the week,” said Lukman Otunuga, senior research analyst at FXTM. “Should the SARB adopt a cautious stance and express concerns over the South African economy, the rand will be thrown in the direct firing line.” Globally, focus is on minutes of the U.S. Federal Reserve’s October meeting expected on Wednesday, while markets also await the first major speech by European Central Bank President Christine Lagarde on Friday. On the bourse, the Top-40 index rose 0.82% while the broader all-share closed 0.74% higher. Bonds weakened, with the yield on the benchmark 2026 government issue inching up 2.5 basis point to 8.405%.

 

Global Markets

Reuters: Asian share markets were mixed on Tuesday, as another day awaiting clearer news on the progress of U.S.-China trade negotiations left investors bereft of trading motivation. MSCI’s broadest index of Asia-Pacific shares outside Japan inched 0.2% higher as hopes for stimulus in China lifted Shanghai blue chips by 0.8% and Hong Kong’s Hang Seng by 1%. Japan's Nikkei, however, shed 0.2% and South Korea's Kospi 200 dropped 0.3%. Australia's S&P/ASX 200 rose 0.4%. Volumes were light across the board. E-Mini futures for the S&P 500 were flat. “It’s subdued today for sure,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank’s Asia Treasury Department in Singapore, adding that focus was by default on efforts to resolve the trade war between the world’s two biggest economies that has dented global growth. “There are some lingering doubts over whether a phase one deal can be struck ... I think the suspicion is that there’s a lot more wrinkles to iron out than initially thought.” Overnight, CNBC had reported the mood in Beijing was pessimistic about the prospects of sealing an agreement.


On the other hand, a new extension allowing U.S. companies to keep doing business with Chinese telecoms giant Huawei suggested something of an olive branch. Still, neither morsel shed much light on progress in U.S.-China negotiations, and this week’s listless trading suggests optimism that resolution is near is beginning to run out of steam. “We’re still waiting,” said Michael McCarthy, chief market strategist at brokerage CMC Markets in Sydney. “The longer we go on, the more concerns will arise. The reality is the clock is ticking.” The next deadline in the dispute is Dec. 15, when another round of U.S. tariffs on Chinese good is scheduled to take effect. Wall Street’s main indexes traded mostly flat on Monday, looking for direction on trade, though they ended the day inching higher to record closing levels. The Dow Jones Industrial Average rose 0.1%. The S&P 500 gained 0.05%, and the Nasdaq Composite added 0.1%. The yield on benchmark 10-year Treasury notes rose to 1.8118% compared with its U.S. close of 1.808% on Monday. Currency markets were similarly indecisive and range-bound. The safe-haven Japanese yen climbed as high as 108.45 per dollar before retreating to trade flat at 108.64. The Australian dollar nudged 0.2% lower to $0.6793 after the central bank said it had seen a case for cutting rates this month. The biggest mover overnight was the British pound which headed towards $1.30 as four polls showed Prime Minister Boris Johnson's Conservative Party tracking toward victory at the Dec. 12 election. Sterling hit a one-month high of $1.2984 overnight, before retreating a little in Asian trade to settle around $1.2953. “Overall, risk-related plays will continue to be whipsawed by alternating headlines, but in the short term, risk-off plays may still have room to run as uncertainties persist,” said Terence Wu, a strategist at OCBC bank in Singapore. Spot gold, which has been closely tracking the fortunes of the Sino-U.S. trade dispute, was flat at $1,470.03 per ounce. U.S. crude dropped 0.18% to $56.95 a barrel. Brent crude fell to $62.34 per barrel.

HONG KONG OFFICE

 

British Pound

FXStreet: GBP/USD stays below the short-term key resistance line despite witnessing a gap-up opening. The one-week-old rising trend line can act as immediate support while 1.3000 could keep luring buyers. With the GBP/USD buyers’ failure to cross nearly a one-month-old falling trend line, a short-term rising support line gains market attention. The quote seesaws near 1.2917 during the early Asian session on Monday. Considering the fundamentals, today’s speech from the United Kingdom (UK) Prime Minister (PM) Boris Johnson is likely to offer another upside push to the cable after recently positive sentiment favored the pair’s run-up.

 

Technically, a week-long ascending trend line, at 1.2850, will be the immediate concern for sellers ahead of an upward sloping trend line since mid-October, around 1.2800, followed by 200-bar Simple Moving Average (SMA) level of 1.2740. In a case prices decline below 1.2740, bears will target 1.2700 and October 14 low at 1.2515. On the contrary, 1.3000 and the previous month high around 1.3015 can question bulls even if they manage to cross the aforementioned resistance line at 1.2930. Also doubting the pair’s upside is overbought conditions of 14-bar Relative Strength Index (RSI).

 

US Dollar

Reuters: Currencies off to cautious start, China-U.S. trade deal in focus. Major currencies were off to a cautious start on Monday as market players looked to whether Washington and Beijing can soon sign off on a deal to end their trade war that has been a drag on the global economic growth. Chinese state media Xinhua said on Sunday the two countries had “constructive talks” on trade in a high-level phone call on Saturday, but it gave no further details.

 

Against the yen, the dollar was traded at 108.75 yen, recovering from 108.235 touched on Thursday as rising hopes of a U.S.-China trade deal undercut the yen. The currency faces a resistance around 109.00, where it has its 200-day moving average. A break-through there could open the way for a retest of its five-month high around 109.50 touched earlier this month. Rising risk appetite was mildly positive for the euro, which stood at $1.10505, bouncing back from one-month low of $1.0989 set on Thursday. That helped to push down the dollar to 97.980, near its lowest levels since Nov. 7. “Currencies will be driven by headlines related to the U.S.-China trade issues. Markets are expecting some sort of answer to that soon,” said Yukio Ishizuki, senior strategist at Daiwa Securities.

 

Data from the U.S. Federal Reserve on Friday showed the U.S. manufacturing downturn deepened in October, with output at factories tumbling 0.6%, the most since May 2018, after dropping 0.5% in September. U.S. retail sales rebounded moderately in October but consumers did cut back on purchases of big-ticket household items like furniture and on discretionary spending. Still, hopes of a U.S.-China deal have kept investor optimism afloat, with U.S. stock prices hitting a record high on Friday. Elsewhere, sterling was extending its slow recovery to reach its highest levels in two weeks, trading at $1.2919, up 0.12% so far on the day. Investors will keep an eye on developments in Hong Kong, where police trapped hundreds of protesters inside a major university, sealing off roads in the area after almost two straight days of standoffs that have raised fears of a bloody showdown with both sides refusing to back down. The turmoil could hit Hong Kong share prices and could dent risk-sensitive currencies in the region, such as the Australian dollar. The Aussie traded down slightly at $0.6815.

 

Japanese Yen

FXStreet: USD/JPY holds steady near 108.75 amid Hong Kong woes, trade hopes. USD/JPY consolidates last week’s rebound below 109.00. Hong Kong unrest weighs on risk sentiment in Monday’s Asian trades. All eyes to remain on US-China trade negotiations amid light US calendar. The USD/JPY pair is seen treading water around 108.75 region, as a sense of caution prevails in Monday’s Asian trading amid escalating Hong Kong violence. The risk-off sentiment emerges as the underlying theme at the start of the week so far, with S&P 500 futures down -0.15%, Treasury yields losing nearly 0.50% while the Asian equity markets trade with mild losses. The anti-risk Yen, thus, remains underpinned, keeping a break above the 109 handle (200-DMA/ round number) elusive. Further, the US dollar extends its recent bearish momentum across its main peers amid losses in the Treasury yields, in turn, weighing down on USD/JPY. Markets eagerly await some clarity on the US-China trade front and FOMC minutes for fresh trading impetus, as the US calendar appears light this week.

 

Global Markets

Reuters: Asian share markets got the week off to a muted start on Monday as jaded investors awaited real evidence on progress in the U.S.-China trade dispute, though sentiment found support from another record close on Wall Street. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.06% in very light volumes. Japan's Nikkei added 0.05%, but remained short of its recent 13-month top. E-Mini futures for the S&P 500 eased 0.1%, though that was from historic highs. Doubts about Sino-U.S. trade talks emerged early last week, although optimism gradually returned as U.S. officials sounded more positive.

 

In currency markets, the dollar was little changed against its main peers on Monday and well within recent tight trading ranges. Indeed, volatility in the market has been the lowest in decades recently and shows no sign of shifting. The dollar was steady on the yen at 108.72, after bouncing on Friday. Chart support lies at 108.23 with stiff resistance at 109.48. The euro, likewise, idled at $1.1054 having found support at $1.0987 last week. Investors are awaiting the first major speech by European Central Bank President Christine Lagarde due on Friday for clues on future policy. Sterling nudged up to $1.2916 as more polls showed the Tories well ahead in the election race. Against a basket of currencies, the dollar was a shade softer at 97.954. Spot gold was flat at $1,468.45 per ounce as it tracks every passing twitch in risk appetite. Oil prices were supported after Brent touched a seven-week high on Friday. In early trade, Brent crude futures firmed 2 cents to $63.32, while U.S. crude added 3 cents to $57.75 a barrel.

 

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