Aussie modestly higher ahead of European markets open

Major currencies are mostly little changed overall

WCRS 20-08
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The aussie is holding a little higher after the RBA minutes release continued to suggest that the central bank will likely stay on hold at its September meeting.
WIRP AU 20-08

The kiwi is also lifted higher as such but the rest of the major currencies remain more subdued to start the new day. Changes against the dollar are less than 0.1% and the trading ranges remain relatively narrow ahead of European trading.

As for risk sentiment, equities are hold more steady around flat levels awaiting for fresh direction. With the market focus slowly shifting towards Jackson Hole, only trade headlines will matter at this point in between now and then.

Looking ahead, do continue to keep an eye on the bond market in the days ahead. Treasury yields are holding a little lower currently and a bigger drop may see other asset classes start reacting more profoundly once again.

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Forex – Argentinian Peso Collapse Sends Shockwaves Through Markets

© Reuters.  © Reuters.

Investing.com – The dollar surged against higher-yielding currencies on Monday as a plummeting sent shockwaves through emerging markets.

The dollar rose by more than one-third against the peso after a weekend primary for presidential elections in the G20 member later this year showed incumbent Mauricio Macri far behind his biggest rival, the populist Alberto Fernandez.

Fernandez’ running mate is former president Cristina Fernandez de Kirchner, from whom Macri took over as President in 2015. Fernandez is viewed with suspicion by many investors, who remember the capital controls, high inflation and chronic economic problems of de Kirchner’s last administration.

The shock also weakened of other emerging currencies perceived as vulnerable, especially at a time of slowing global growth. The dollar rose by 1.3% against the and by 1.0% against the . Further afield, it also rose by 1.2% against the {{|Turkish lira}} and by 0.5% each against the and .

By 11:20 AM ET (1520 GMT), the peso had recouped some of its losses to trade at 53.50 to the dollar, compared to a rate of 45.25 before the poll.

Macri now faces little choice but to reinstate capital controls, abandoning one of the biggest achievements of his presidency, analysts said.

The peso’s collapse “makes things worse for Macri, as peso stability (was) supposed to arrest political costs of his IMF-supported austerity,” Daniela Gabor, a professor of economics at the University of the West of England, said via Twitter. “Difficult to see how Macri can hold onto power while inflicting such high social costs.”

ARG peso collapse makes things worse for Macri, as peso stability supposed to arrest political costs of his IMF-supported austerity.

ARG peso collapse makes things worse for Macri, as peso stability supposed to arrest political costs of his IMF-supported austerity.

makes things worse for Macri, as peso stability supposed to arrest political costs of his IMF-supported austerity.

Emerging market currencies have been caught this year between slowing global demand for the commodities they export, which puts downward pressure on them, and the promise of lower dollar interest rates, which relieves that pressure. While they have mostly held their own against the dollar so far this year, the Argentinian peso, ruble and lira have all been pulled lower in recent weeks by a weakening .

The yuan was fixed at a new 11-year low against the dollar by the Chinese central bank on Monday, allowing the mainland and offshore rates to weaken a little more.

The , which is seen as a safe haven in times of market turmoil, rose to a new 15-month high of 105.05 before retreating a little to 105.31, a gain of 0.3% on the day.

The , which measures the greenback’s strength against a basket of six major currencies, fell 0.1% to 97.192.

The euro, meanwhile, rose a little as Italy’s political parties tried to stop a push for snap elections that opinion polls suggest would hand power to the populist right-wing Lega party of Matteo Salvini. rose 0.2% to 1.1218. rebounded 0.5% to 1.2092.

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Euro stuck near two-month low as markets brace for dovish ECB

By Stanley White

TOKYO (Reuters) – The euro was mired near a two-month low on Thursday ahead of a European Central Bank meeting that could signal monetary easing as growth in the currency zone falters.

Sentiment toward the single currency took a blow after data showed Germany’s manufacturing sector contracted at the fastest pace in seven years while French business growth unexpectedly slowed, sending European bond yields lower.

In Asia, emerging currencies edged lower after North Korea fired two short-range missiles into the sea early on Thursday, diminishing appetite for riskier assets in the region.

However, investor focus in Asia remains predominantly on global central bank and political developments, particularly in Europe and the United States.

Sterling held onto gains it made since Boris Johnson took office as Britain’s new prime minister on Wednesday, but investors are still wary of a no-deal Brexit in which Britain would leave the European Union without a trade agreement.

The dollar found support after U.S. Treasury Secretary Steven Mnuchin said he would not advocate for a weaker currency.

Investor focus shifts to the ECB’s meeting later on Thursday and a widely expected interest rate cut from the U.S. Federal Reserve next week, which are both expected to dictate the tempo for currencies and bond yields in coming months.

“I see more downside for the euro, because there are no good signs coming from Europe at the moment,” said Tsutomu Soma, general manager of fixed income business solutions at SBI Securities in Tokyo.

“Don’t expect European bond yields to rise anytime soon. The U.S. is headed toward lower rates, which used to be a supportive factor for the euro, but that is no longer the case.”

The common currency () traded at $ 1.11415 after touching $ 1.11270, its lowest since May 31.

The euro has fallen 2.0% so far this month on increased speculation the ECB would join other central banks in easing policy as a trade war between the United States and China weakens the global economy.

Traders see a 48% probability that European policymakers will lower a key deposit rate by 10 basis points to minus 0.50%, according to interest rate swaps.

If the ECB keeps policy on hold Thursday, economists say President Mario Draghi could flag a rate cut for the next policy meeting in September.

The Ifo institute will release its closely-watched index of German business sentiment later on Thursday, which will provide further clues about the health of Europe’s largest economy.

Sterling was a shade higher at $ 1.2484, staging a modest recovery from a 27-month low of $ 1.2382 reached last week.

Johnson promised in his first speech as prime minister to lead Britain out of the EU on Oct. 31 with “no ifs or buts” and warned there would be a no-deal Brexit if the bloc refused to negotiate.

The dollar traded at 108.200 yen , near a one-week high of 108.290 yen.

Mnuchin told CNBC in an interview the United States benefits from the greenback’s standing as the world’s reserve currency.

The dollar was also supported by a White House statement that top U.S. negotiators will meet their Chinese counterparts in Shanghai starting July 30.

The world’s two-biggest economies are seeking a resolution to their bruising trade war.

The (), which measures the greenback against six major currencies, stood at 97.701 after touching an eight-week high of 97.810 on Wednesday.

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Markets underestimate risk of sterling Brexit volatility: BlackRock

LONDON (Reuters) – Currency markets are underestimating the chance of big Brexit-related swings in the value of sterling over the next 12 months, BlackRock (NYSE:), the world’s biggest asset manager, warned on Tuesday.

Risks had risen in recent months of an “extreme” Brexit outcome – either Britain leaving the European Union without a deal, or deciding to stay in the bloc, BlackRock portfolio manager Rupert Harrison said at a mid-year investment update.

“It’s even more uncertain than it has been at any point in the process,” Harrison said. “You can imagine a very, very wide range of outcomes in the next 12 months, and currently the options markets in currencies are not reflecting the scale of that potential volatility.”

Britain is due to leave the EU on Oct. 31, but parliament has repeatedly rejected the transition arrangements negotiated by outgoing Prime Minister Theresa May, and the two contenders to succeed her have both said they could leave without a deal.

Sterling slid to a six-month low against the U.S. dollar on Tuesday below $ 1.2440, but a measure of market volatility of sterling over the next 12 months remains well below the post-2016 peak it reached in December 2018.

Harrison, who advised former finance minister George Osborne from 2006 to 2015, said Brexit continued to reduce the attraction of British assets for global investors.

“The cumulative impact of the uncertainty, as well as … all the stocking and destocking that we’ve seen, has definitely had a negative impact on momentum, which has become significantly more negative over the last three months or so,” he said.

Official data due on Wednesday is likely to show economic growth slowed to 0.1% in the three months to May, according to a Reuters poll of economists. This is down from 0.5% recorded in the first quarter of the year, when demand was boosted by stockpiling ahead of the original March 29 Brexit date.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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For Fed’s Powell, a gap with markets and Trump may need explaining

© Reuters. U.S. President Donald Trump gestures with Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve at the White House in Washington © Reuters. U.S. President Donald Trump gestures with Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve at the White House in Washington

By Howard Schneider and Ann Saphir

WASHINGTON/SAN FRANCISCO – (Reuters) – Bond investors expect an aggressive set of U.S. interest rate cuts this year, and a voluble president pines for the “old days” when his predecessors bullied central bankers to get their way.

If Federal Reserve Chairman Jerome Powell had a complicated task last year in calling an early halt to further Fed rate hikes, his mission in a Wednesday press conference may be even trickier: Thread the needle between growing expectations that lower rates are coming soon and economic data that looks reasonably healthy with rates just where they are.

Failing to pull it off could trigger the same sort of volatility and tightening of financial conditions witnessed in December, when Powell’s press conference remarks were interpreted as overly hawkish and in part responsible for an 8% drop in the over the next few days.

At the extreme, that sort of volatility could feed into the real economy and make the Fed’s job in coming weeks even more complicated.

“Powell will have to do a lot of tap dancing,” Bank of America Merrill Lynch (NYSE:) economists wrote Friday in outlining how the Fed will need to account for expected slower U.S. growth, weak inflation and trade risks, without making it seem as if a serious downturn is in the offing.

“This is a Fed that wants to insure that the recovery will continue,” they said. “The goal will be to talk about the need to ease policy but underscore that a recession is not around the corner.”

The Fed begins its two-day policy meeting on Tuesday, and will issue a new statement and economic projections at 2 p.m. (1800 GMT) on Wednesday. Powell’s press conference is scheduled to begin Wednesday at 2:30 p.m. (1830 GMT)

The central bank is expected to leave its benchmark overnight policy rate unchanged at its current range of between 2.25% and 2.5%. The federal funds rate has been at that level since December after a three-year cycle of monetary policy tightening that began slowly but ended with roughly quarterly rate hikes over 2017 and 2018.

A ‘DARKENED’ OUTLOOK?

The mood has clearly shifted since the Fed last met in early May, in part because of trade policy choices made by President Donald Trump and which the president has demanded be offset with looser monetary policy.

But it is unclear by how much. One Federal Reserve regional bank president has referred to the outlook as “darkened,” and another has called for lower rates “soon.” Powell in his most recent public comments dropped the use of the word “patient” in referring to the Fed’s posture when it comes to deciding on the next rate move.

That suggested to many analysts that the word will disappear from the policy statement as well. In May that 279-word missive said the Fed “will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.”

But an absence of patience doesn’t mean the central bank is on a hair trigger. The focus on Powell will center around how he describes the Fed’s sensitivity to upcoming data, how seriously it views the risks of a widening trade war, and whether it still sees weak inflation as likely “transitory,” as he described it in May.

A LITTLE ‘FEDSPLAINING’?

Despite his December misstep, Powell has been given generally good marks by Wall Street investors for his ability to communicate policy.

His immediate predecessors had their own miscues.

Former chairman Ben Bernanke triggered weeks of global bond market volatility with his 2013 comments about the Fed’s plan to reduce its bond purchases. And former chair Janet Yellen in 2015 had to navigate the difficulties of the first interest rate increase since the 2007 to 2009 financial crisis.

But Powell this week may have a pronounced information gap to fill. As of March, 11 of 17 policymakers felt that rates at year-end would be unchanged from today, and the other six saw them as likely a bit higher.

The expected performance of the economy has not changed that much since then. Even if Trump’s trade policies have been hard to predict, Fed officials say the economic consequences could just as easily cavort to the upside if, for example, an upcoming meeting of the Group of 20 nations ends with any hint of progress in U.S.-China trade negotiations.

At this point, as economists at Goldman Sachs (NYSE:) wrote over the weekend, the “hurdle” for the Fed to cut rates “is likely to be higher than widely believed,” with the economy and markets either healthier or more aligned with Fed policy than was the case in the 1990s when the Fed used preemptive “insurance” rate cuts to encourage continued economic growth.

If Fed officials don’t collectively push their rate view down, as markets expect and the White House demands, it will be up to Powell to explain why.

(Graphic: Fed communications ratings – https://tmsnrt.rs/31DehYx)

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US equity markets cap fine with with a strong finish

US equity markets cap fine with with a strong finish

Closing changes for the main indexes:

  • S&P 500 +29 to 2873 (+1.05%)
  • DJIA +1.0%
  • Nasdaq +1.7%

On the week:

  • S&P 500 +4.4%
  • DJIA +4.7%
  • Nasdaq +3.9%
  • Canada TSX Comp +1.2%

The 4.7% weekly rise in the Dow Jones Industrial Average was the largest since the last week of November. Any guesses on what happened last time?

Closing changes for the main indexes:

For the bulls, this is a solid outside reversal and it comes despite some tough headlines. I can offer a half-dozen good fundamental reasons stocks should be lower but they had an excellent week. That kind of defiance counts for something.

In any case, I’m eager to see what comes next week.

ForexLive

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Stocks Eye Best Week of 2019 on ‘Fed Put’ Wagers: Markets Wrap

© Bloomberg. Monitors display FTSE 100 figures outside Morgan Stanley & Co. headquarters in the Times Square neighborhood of New York. Photographer: Michael Nagle/Bloomberg © Bloomberg. Monitors display FTSE 100 figures outside Morgan Stanley & Co. headquarters in the Times Square neighborhood of New York. Photographer: Michael Nagle/Bloomberg

(Bloomberg) — U.S. stocks rallied for a fourth day after weak jobs data added to bets the Federal Reserve will cut rates. Treasury yields and the dollar fell.

The was on pace for its best week since November on speculation the Fed will move to shore up the economy after a report showed employers added the fewest workers in three months and wage gains cooled. Technology shares led the advance, while banks dropped. The two-year bond yield headed toward its longest weekly slide since 2016. Mexico’s peso climbed after President Donald Trump said there’s a “good chance” the U.S. will reach a deal to avert imposing trade tariffs on the nation.

Read: Fed Watchers Say July Interest-Rate Cut in Play, June Not Likely

Traders have aggressively increased bets the Fed will cut rates after a string of weak reports indicated the world’s largest economy is slowing. Earlier in the week, Chairman Jerome Powell signaled he’s open to easier policy amid trade tension. Fed funds futures show a quarter-point cut almost fully priced in for July, and indicate about 70 basis points of easing by the end of 2019.

“The days of the ‘Fed Put’ are back, with investors treating bad economic data as good news for stocks,” said Chris Gaffney, president of world markets at TIAA Bank. “The numbers weren’t necessarily bad enough to force a move by the FOMC later this month, but I expect Chairman Powell to continue to sound a more dovish tone. Chances of a rate cut by year-end have increased.”

On the trade front, the Trump administration said that some Chinese products exported to the U.S. won’t be subject to a tariff increase until June 15. The fell to its weakest since November before paring losses as China’s central bank governor said there’s “tremendous” room to adjust monetary policy if the trade war deepens.

In company news, Microsoft Corp (NASDAQ:). climbed back above the coveted $ 1 trillion level in market value amid a broader rally in technology shares. Beyond Meat Inc. soared to a record after the faux-meat maker’s sales forecast beat estimates. Online fashion retailer Revolve Group Inc. jumped in its trading debut after raising $ 212 million in an IPO.

Here are some notable events coming up:

  • Finance ministers and central bank governors from the G-20 nations gather in Fukuoka, Japan this weekend.

These are some of the main moves in markets:

Stocks

  • The S&P 500 Index climbed 1.1% to 2,875.24 as of 3:13 p.m. New York time, the highest in more than three weeks.
  • The Index gained 0.9%.
  • The MSCI Asia Pacific Index added 0.4%.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.3%.
  • The euro climbed 0.5% to $ 1.1332.
  • The Japanese yen rose 0.2% to 108.18 per dollar.

Bonds

  • The yield on 10-year Treasuries decreased four basis points to 2.08%.
  • Germany’s 10-year yield fell two basis points to -0.26%.
  • Britain’s 10-year yield declined one basis point to 0.813%.

Commodities

  • The Bloomberg Commodity Index rose 0.1%.
  • West Texas Intermediate crude climbed to $ 53.99 a barrel.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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S&P 500 limps to the close in rough month for US stock markets

Closing changes for the main US indexes:

SPX chart weekly
  • S&P 500 down 37 points to 2752 (-1.3%)
  • Dow down 355 points to 24815 (-1.4%)
  • Nasdaq -1.5%
  • S&P 500 closes below 200-day moving average for first time since March 8

On the week:

  • S&P 500 -2.5%
  • DJIA -2.65%
  • Nasdaq -2.3%

On the month:

  • S&P 500 6.6%
  • DJIA 6.58%
  • Nasdaq 7.93%

The DJIA was down for six straight weeks, longest streak since 2011. The other two were down for the fourth straight week.

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Some Emerging Markets Can Withstand Trump Shock on Trade

© Reuters.  Some Emerging Markets Can Withstand Trump Shock on Trade © Reuters. Some Emerging Markets Can Withstand Trump Shock on Trade

(Bloomberg) — For all the angst over the prospect of a U.S.-China trade war, there’s little chance it will trigger an across-the-board meltdown in emerging markets like last year.

If this week’s high-stakes talks in Washington fail to signal a deal’s in the pipeline, the clamor for the safety of and the may be accompanied by renewed turmoil in the weakest pockets of the developing world, such as Turkey, Argentina and South Africa. But there are plenty of nooks and crannies within emerging markets that would still attract yield-chasing investors.

The difference this time is the Federal Reserve’s now well-documented dovish tilt. At least two policy makers currently favor rate cuts, even though Chairman Jerome Powell said after last week’s two-day meeting he saw little reason to move in either direction. That’s a far cry from a year ago, when the Fed was firmly in tightening mode. All of which means the hunt for higher yield may just get another lease of life.

Here’s a non-exhaustive list of assets investors may seek out even if trade tensions worsen:

GCC Bonds

Emerging-market dollar debt has led this year’s rebound, a trend that may strengthen if Donald Trump follows up on his threat to raise tariffs on Chinese goods.

That’s good news for the Middle East.

Global investors are warming to the region, encouraged by Saudi Arabia’s impending entry into MSCI Inc.’s emerging-market indexes, this year’s oil rally and the proposed initial public offering by Saudi Aramco, the kingdom’s state-owned energy giant. Gulf bond issuers have raised more than $ 49 billion this year, with demand routinely exceeding the debt on offer by several times.

Bond sales by Gulf Cooperation Council borrowers may increase 15 percent on year to $ 90 billion in 2019, according to Franklin Templeton Investments. GCC nations are undergoing a structural shift away from their reliance on bank loans toward financing via bonds, and with foreign investors relatively underexposed to the region, a surge in inflows is in the offing, Templeton said.

Stable Currencies

Floating currencies backed by central-bank capacity to support them have an irresistible charm to global investors, especially carry traders. The may be one of those because it enjoys the best of both worlds.

While the North African nation is seeking to consolidate the economic overhaul implemented under a $ 12 billion International Monetary Fund program expiring in November, there are signs of an economic turnaround. Growth is forecast to accelerate in 2019 and 2020, while inflation, the current-account deficit and unemployment are all projected to ease, according to the IMF.

That’s encouraged the government to target lower yields on domestic debt in the new fiscal year, confident that its securities will remain coveted by investors.

Oil Exporters

Think of a country that has current-account and budget surpluses, a currency with high carry-trade potential and a main export whose price has climbed about 29 percent this year. And now think of one that’s not in President Donald Trump’s cross-hairs right now.

Russia checks all those boxes.

That’s why the is proving to be such a good trade for investors in 2019. And even after a world-topping 8.8 percent carry return, the currency’s attraction hasn’t waned. Its implied carry — a measure of interest-rate arbitrage adjusted for expected volatility — is almost triple of the average in emerging Europe, Middle East and Africa.

With inflation slowing for the first time in nine months and one of the highest real yields in the developing world, Russia looks set for possible rate cuts this year. That may spur investors to lock in bond yields at current levels.

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Kiwi the laggard ahead of European markets open

Disappointing NZ Q1 inflation data sent the kiwi lower in Asian trading

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But improved Chinese economic data for the month of March is helping to cushion the blow at the very least. NZD/USD fell to 0.6668 after the CPI figures were released but has now rebounded to 0.6735 as traders also retrace some of the earlier move to the downside.

Meanwhile, the aussie is leading gains as AUD/USD threatens a break of the 0.7200 handle buoyed by the better-than-expected data from China. Other risk assets are also feeling more confident on the day with bond yields holding a tad higher and equities also gaining some light ground so far ahead of European trading.

The dollar is holding slightly weaker against the rest of the major bloc but trading ranges in general remain relatively narrow to start the day. EUR/USD looks to be in the mood for an extension higher as it trades just above the 1.1300 handle but just take note that there are large expiries at the figure level rolling off today which could potentially keep price action limited in the session ahead.

The same goes for AUD/USD as there is a field of expiries between 0.7150-00, which could limit its upside potential should risk sentiment fail to capitalise on the slightly more positive tone in European trading later.

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