Emerging market FX set to falter again this year

By Vuyani Ndaba and Hari Kishan

JOHANNESBURG/BENGALURU (Reuters) – Emerging market currencies will cede more ground against the dollar this year, reversing the brief rally at the end of 2019, Reuters polls of foreign exchange strategists found.

Last year was marred by the U.S.-China trade war, which forced investors to take refuge in safe havens and proved to be painful for emerging market assets.

Major emerging currencies staged a rally of sorts in the last quarter of 2019 on hopes of Washington and Beijing inching closer to less fractured trade relations, but the political tension between the U.S. and Iran has poured cold water on that already.

“As the economic cycle is nearing its endgame and markets continue to face elevated risks, more emerging market currency weakness lies ahead,” noted currency strategists at Societe Generale (PA:). “We expect modest depreciation of 5% in spot EM FX.”

The dollar was predicted to reign supreme again after dominating currency markets over the previous two years, according to the latest Reuters polls. [EUR/POLL]

Sixteen of the 20 emerging market currencies polled Jan. 3-9 were forecast to weaken versus the dollar in 2020 after having taken a beating for the better part of the previous two years.

A majority – 35 of 62 – of currency strategists chose either developed market currencies to outperform the greenback or said no currency was likely to knock the dollar off its perch.

The remaining 27 picked emerging market currencies, which shows lack of conviction among forecasters despite these assets looking attractively cheap.

“FX markets remain priced to more optimistic growth outcomes which is a risk. We take a cautious approach to 2020 trades given limited visibility around key political events and uncertainty surrounding global macro momentum,” noted Meera Chandan, FX strategist at JP Morgan.

The World Bank in its latest report suggested the global economy was poised for a fragile recovery, beset with risks, which could weigh further on emerging markets.

Indeed, there was no respite predicted for either the battered or the Indian rupee over the coming year. [CNY/POLL] [INR/POLL]

“The most important driver of China’s currency is now economic slowing, which is increasing in scale and scope,” said Lee Hardman, currency analyst at MUFG.

“Though stimulus is expected…we think the government will reap much less yang for the yuan – and more yin: Rolling over dud projects doesn’t increase growth,” he added.

The resilient South African rand was expected to sell off over 5% to hit 15 per dollar in six months and then keep steady.

With the government expected to set its budget next month for the next three financial years, the rand faces some more challenges as ratings agencies keep watch.

“Volatility will continue to remain a feature of the rand outlook in 2020, and we expect that the currency will give back some of its December outperformance as we head towards the February Budget – and a potential Moody’s downgrade,” noted strategists at Goldman Sachs (NYSE:).

The highly volatile Turkish lira was forecast to shed almost 9% to 6.40/$ by end-December, a consistent expectation in previous surveys.

Latin America’s currencies were forecast to tread carefully in the face of continuing political tensions in the region and worries over more protectionist talk in the U.S. presidential election campaign later in 2020. [BRL/POLL]

But last month, emerging market currency gains, already in full swing, were expected to be dominated this year by high-yielding currencies rather than low-risk bets as growth finally recovers in response to lower interest rates around the globe.

Low volatility was expected to be part of this year’s theme that supports “carry trades” as investors did not expect another reduction in U.S. rates until at least the middle of 2020, delaying the likelihood of hikes capable of stoking a market frenzy.

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Forex News

How the major currencies performed this week

USD/JPY was entirely unchanged

USD/JPY was entirely unchanged

USD/JPY closed last week at 109.44 and closed today at 109.44. The week before was essentially flat as well.

However elsewhere there were some decent-sized moves in a week that’s normally a dud but has included some big moves for the second year in a row.

On Friday it was the euro that led the way, stealing the top spot from the pound with a late-day rally. The US dollar was the laggard.

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Star Citizen: Is this £200m game becoming too ambitious?

Video game Star Citizen is one of the biggest crowdfunded projects ever, raising nearly £200m ($ 250m).

It is a game with ambitions to build an entire universe to act as its users’ playground, but it has been in development since 2012 and still is nowhere near finished. So what is going on?

BBC Click’s Marc Cieslak has been in search of the brains behind Star Citizen.

See more at Click’s website and @BBCClick

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BBC News – Technology

D.E. Shaw’s Orienteer strategy posts double-digit returns this year

D.E. Shaw's Orienteer strategy posts double-digit returns this year D.E. Shaw’s Orienteer strategy posts double-digit returns this year

BOSTON (Reuters) – D.E. Shaw’s Orienteer platform, the backbone of the $ 50 billion investment firm’s multi-asset class offerings, posted high double-digit returns this year, the best ever in its six year lifetime.

The Orienteer platform’s HV variant gained 41.3% through November while the main Orienteer strategy gained 25.8% during the same time, a person familiar with the returns said.

Orienteer, launched in mid-2013 with less than $ 100 million in capital, now manages $ 2.2 billion in assets in a way that seeks risk exposure across conventional assets classes like stocks, commodities, credit and rates.

Each of the Orienteer strategies — HV variant and the main strategy — handily outperformed risk parity benchmarks. The HFR Risk Parity Vol 15 Institutional Index returned 27.3% while the HFR Risk Parity Vol 10 Institutional Index gained 18.8%, according to data from the research group.

A spokesman for D.E. Shaw declined to comment.

Risk parity funds use an allocation approach to try to build a diversified portfolio in which each asset group — equity, credit, rates and inflation — contributes an equal amount of risk so that the return is not primarily determined by stocks.

The strategy, first pioneered in the 1990s, captured investors’ attention after the financial crisis of 2007-2009. Hedge fund Bridgewater Associates, which launched its risk-parity All Weather Fund in 1996, and AQR Capital Management are big investors in the space.

Orienteer has gained in all four of its underlying risk categories, fueled by positive results from a mix of systematic and discretionary bets.

D.E. Shaw, founded in 1988, was long known for investing strategies driven by computer models, but over the years it has branched out into other strategies.

Hedge funds have generally had a more positive year in 2019 with the average fund gaining 8.6% through November, data from HFR show.

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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Economy News

“Confidence among Asian businesses rebounded sharply this quarter to hit an 18-month high”

This from the Thomson Reuters/INSEAD Asian Business Sentiment Index

  • firms’ six-month outlook +13 points to 71 for the fourth quarter
  • lifted confidence from close to a decade low in the previous quarter to its highest since June last year
  • chief risk is the Sino-U.S. trade war

More:

  • strongest reading on sales growth in a year
  • the majority of firms are not yet confident enough to plan hiring
  • “Conditions, expectations and some of the uncertainty has improved over the last quarter,” said Antonio Fatas, economics professor at global business school INSEAD in Singapore, pointing to easing tensions between China and the United States. “But I don’t see this uncertainty disappearing, I think some of these tensions are going to stay with us maybe for years or decades.” 

Survey is of 102 companies

  • in 11 Asia-Pacific countries

The report is out via Reuters and is a better sign than we’ve become accustomed to seeing in recent months. Maybe it will be a happier new year for the global economy. All eyes on US-China relations to assess that I guess. 

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3 Things Under the Radar This Week

Investing.com – Here are three things that flew under the radar this week.

1. Views of the Economy Swing With Partisanship

While overshadowed by the strong U.S. jobs report Friday, the University of Michigan’s posted its highest level since May.

The preliminary measure of sentiment for December came in at 99.2, up from 97 and topping expectations for a dip to 96.8.

One thing definitely not worrying consumers is all the headlines about the impeachment hearings, with “virtually no consumer spontaneously mentioning impeachment in response to any question in early December,” Richard Curtin, surveys of consumers chief economist said.

But politics does come into play in the survey, so much so that party-affiliated respondents act as outliers.

“The average gap between Democrats and Republicans was 18.7 points in the Obama administration and 41.6 points since Trump took office,” Curtin said.

“While the implications of the economic expectations of Democrats and Republicans are clearly exaggerated, the Independents, who represent the largest group and are less susceptible to maintaining partisan views, hold very favorable expectations, indicating the continuation of the expansion based on consumer spending,” he added.

Weak Wages Stymie Experts

The Labor Department’s employment report was applauded enthusiastically by investors, who took the opportunity to add risk.

But while the monster rise of 266,000 in was pretty straightforward, one part of the report left economists with something of a mystery.

Why is wage growth so muted given the strong job market and overall economy?

rose 0.2% in November, according to the report, down from a 0.4% rise in October. The rise was lower than the 0.3% economists predicted, according to forecasts compiled by Investing.com.

Wage inflation ticked up to 3.1%.

“Wage growth continues to remain puzzlingly weak,” Justin Wolfers, economics professor at the University of Michigan, tweeted. “Over the past year, hourly earnings are up only 3.1%. That’s the sort of number that’s unlikely to worry the Fed much (even as it continues to be puzzled by such low wage and price growth at such a low inflation rate).”

From the Federal Reserve’s point of view, and for many in the market, the absence of wage pressures is a boon and keeps the FOMC from hiking rates to combat inflation, which could stall growth and hit asset prices.

But at the same time, workers aren’t enjoying a commensurate rise in pay as the economy keeps chugging along.

“This is where the labor market diverges from 1990s boom, and helps explain why confidence in economy is high, but not as good as was during peak of 1990s boom,” Grant Thornton Chief Economist Diane Swonk tweeted.

“Both consumer sentiment and consumer confidence measures are strong, but well off the euphoric highs of the late 1990s,” Swonk added.

“The good news is that what the expansion has lacked in momentum, it has made up for in stamina,” she added. “We need that to fully regain the mojo lost in the 2000s”

3. Gold to Lose Some Luster Before Resuming Climb

has made the list of fashionable investments over the past year, outperforming the broader U.S. market at a time when stocks have recently notched record highs. But the yellow metal’s next move is likely to be to the downside before resuming a climb higher, ABN AMRO said in a note earlier this week.

Fixed on a diet of global central bank easing and low interest rates, the price of gold has jumped about 16% over the last 12 months, beating returns of about 15%. (Admittedly, the S&P 500 was in the midst of its big fourth-quarter 2018 swoon and wouldn’t bottom until Dec. 26, 2018.)

With expectations running high that global banks will continue to ease, denting the value of their respective currencies, demand for gold will remain intact and push gold prices even higher, but not before correcting.

“Even though the longer-term outlook looks solid, we expect substantial price weakness in the coming weeks and months,” said Georgette Boele, senior FX and precious-metals strategist at ABN AMRO.

The ABN AMRO strategist highlighted the metal’s 200-day moving average, $ 1,400 an ounce, as key level of support to watch.

Much of the rise in gold prices has been supported by central banks ramping up purchases of the yellow metal as they seek to hedge their euro and dollar holdings.

In 2018, central banks bought the most gold in 49 years and, in the first half of this year, their gold purchases have topped that of last year.

The need to hedge against currency debasement amid falling interest rates will likely continue to drive central bank demand.

CPM Group projects central banks will buy 20 million ounces on a net basis this year and anticipates a comparable increase in 2020.

The decline in global government bond yields, which lowers the opportunity cost of owning gold, will also support gold prices, ABN AMRO’s Boele suggested.

“The outstanding amount of negative-yielding government bonds will probably grow; while gold has no yield, it is at least not paying negative rates.”

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Economy News

Never in the History of the Euro Has Volatility Been This Low

© Reuters.  Never in the History of the Euro Has Volatility Been This Low © Reuters. Never in the History of the Euro Has Volatility Been This Low

(Bloomberg) — It has never been this calm in the euro-dollar options market and it’s starting to look like a structural shift toward persistent low volatility.

There were record lows for one- and three-month volatility in the common currency Wednesday, following similar moves in longer tenors at previous sessions. While the expected calm of Christmas holidays may explain the move over the one-month horizon, the trend runs further out and may be becoming the new norm.

The main risk ahead is arguably the U.K. December election, yet demand for protection against price swings created by a market-adverse outcome may be confined to pound crosses only, just as happened with Brexit talks. Globally, fatigue over trade-related headlines may keep ranges tight, even if current optimism over the progress in U.S.-China talks wanes. And data out of the euro area suggest the worst may be behind for the region’s economy.

Explanations vary as to why investors are refraining from taking advantage of record-low hedging costs. They include a range of soothing geopolitical and policy factors, including easing trade tensions, an outlook for steady monetary policy at the European Central Bank and the Federal Reserve as well as fading fears of a global recession. There is also the rising importance of China’s yuan to the global financial system.

Hedge funds that were betting against the move lower in volatility last week have lost heart, closing their positions following a speech by Fed Chairman Jerome Powell on Monday, according to a Europe-based trader who asked not to be identified because he is not authorized to speak publicly. Powell repeated his expectation that interest rates will remain on hold for now.

Risks will return, and with them will come volatility in the major currencies. But as investors look ahead, many of the most likely flashpoints are further out. That includes the U.S. elections in November next year, the December 2020 deadline for the U.K. to strike a trade deal with the European Union. It will also take time for any complete trade deal between U.S. and China to emerge.

In the meantime, the smart money seems to expect a prolonged period of calm.

  • NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
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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You’ll have to spend $2,500 to visit this store Santa

Harrods, the famously high-end department store in London, is putting a 1% twist on the holiday tradition of the in-store Santa: Only families that have spent at least $ 2,500 at the retailer this year will be granted access to Santa’s lap.

To be sure, the tradition of store Santas is deeply entrenched in capitalism. It’s unclear when the first store Santa appeared — by some accounts it was in a Boston store in 1890, although Macy’s also claims first dibs on the idea — yet the attraction was clearly designed to not only delight children but get their parents to open their wallets. 

Harrods said its store Santa will appear in a “Christmas Grotto” decorated by crystal company Swarovski, promising “a snow-covered woodland filled with sparkling surprises” and inhabited by Father Christmas. But the store’s site notes that only Harrods Rewards members at the Green 2 level, which is reached by spending at least £2000 ($ 2,567), would be allowed to visit “in recognition of their loyal custom,” or patronage.

Trending News

That’s striking some shoppers as downright Grinch-like. 

“They have lost the true meaning of Christmas,” James Browne, 40, told The Guardian. He said he’d taken his four children to visit the Harrods’ Santa in previous years. “Visiting Father Christmas shouldn’t be reserved for those that are fortunate enough to frequent the store and spend thousands of pounds.”

Man dressed as Father Christmas poses for photographers outside Harrods
A man dressed as Father Christmas poses for photographers outside Harrods, in central London in August 2008. Luke MacGregor / REUTERS

According to The Guardian, Harrods said it will allow 160 families who haven’t spent $ 2,500 at the store to visit the Christmas Grotto, representing about 3.6% of the expected visitors. 

In addition to spending at least $ 2,500 at Harrods to gain entry to the Christmas Grotto, visitors will also have to buy tickets at about $ 25 a pop, according to the department store website. 

Still, even if you splurged on a shopping spree at Harrods before the Grotto opens on November 15, you’re not likely to gain entry: Harrods said the Grotto is now fully booked.

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World – CBSNews.com

Why is risk tone mixed this am after rollback tariffs agreed?

Risk is in the balance…again

Risk is in the balance...again

Ok, so we have had news from China and the US that rollback tariffs will be in play? So everything should be hunky dory, right?

wrong.

There are reports of fierce internal opposition from the US regarding tariff rollbacks. This is an uneasy agreement, hence the jitters.

The US-China ‘trade war’ is taking on similar proportions to the US-Russia ‘Cold War’. Any talks of ‘Phase 1’ deals are truce’s and not resolution. Who knows which way risk will flip today – just keep your eyes and ears alert. 

ForexLive

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More weak exports data, this time from South Korea

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