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DAILY BRIEF

 

 

The Daily Brief is a free email sent out each morning with information about overnight market movements and insights into the issues of the day. The brief is free and will help you keep an up-to-the-minute eye on the currency markets.

 

17 / 09 / 21

 

British Pound

Reuters: Sterling fell versus the dollar on Thursday after data showed U.S. retail sales unexpectedly increased in August, while Asian stock losses spooking sentiment also weighed on sterling. A surge in online and furniture store purchases in the United States offset a continued decline at auto dealerships, which could temper expectations for a sharp slowdown in economic growth in the third quarter. Versus the dollar, sterling fell 0.5% to a one-week low of $1.3770 at 1500 GMT, off the 5-week high of $1.3913 touched earlier this week.


“The dollar is bid across the board with the U.S. data beat sending yields higher supporting the dollar,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Capital Markets. He added that the weak performance across Asian bourses is also impacting “risk-sensitive crosses including cable.” Versus the euro, sterling edged 0.1% higher at 85.42 pence, after jumping to one-month high of 85.01 earlier in the day. Sterling has gained momentum this week as traders assessed the Bank of England’s next move after data showed British inflation rose in August by 3.2% in annual terms, the biggest monthly jump in the annual rate in at least 24 years, fuelling expectation of a rate increase.


The BoE expects inflation to hit a peak of 4% this year. The strong reading for inflation could reinforce expectations that the central bank is set to tighten monetary policy quicker than the European Central Bank or the U.S. Federal Reserve. “Should UK growth/inflation data come in on the strong side, the market’s search for the BoE terminal rate could keep GBP supported,” said Chris Turner, global head of markets at ING in a note to clients. A poll from Reuters found that investors believed the BoE would raise borrowing costs by the end of 2022. The latest inflation numbers brought forward these expectations to mid-2022.

 

US Dollar

Reuters: The dollar held near three-week highs against a basket of major currencies on Friday after a raft of strong U.S. economic data rekindled expectations of an earlier policy tightening by the U.S. Federal Reserve. U.S. retail sales unexpectedly increased in August, rising 0.7% from the previous month despite expectations of a 0.8% fall, while a business sentiment survey by the Philadelphia Fed also showed a big improvement. “Yesterday’s data were pretty strong across the board,” said Yujiro Goto, chief currency strategist at Nomura Securities. “The markets had been worried that consumption would be weak in August because of the Delta variant. But retail sales were surprisingly strong.”


The figures helped to curb cautious views on the U.S. economy after a tame consumer inflation reading and soft job growth data earlier this month, and revived expectations for an early Fed tapering. The more bullish mood faces another test later on Friday with the release of University of Michigan’s consumer sentiment index, which surprised many investors last month by tumbling to a decade-low due to smaller income gains and higher inflation. The dollar index stood at 92.865, near Thursday’s three-week high of 92.965. The euro hit a three-week low of $1.17505 overnight and last traded at $1.1769. The common currency also hit a three-week low of 128.61 yen and one-month low of 0.8501 British pound, before recovering some losses.


The dollar’s strength was most pronounced against other safe-haven assets, such as the Swiss franc and precious metals. The Swiss franc hit a five-month low of 0.92805 to the dollar, after falling 0.89% on Thursday. Gold edged up a tad to $1,759.3 per ounce after a 2.3% fall in the previous session, while silver changed hands at $22.92 per ounce. Silver lost 3.7% on Thursday, take it towards eight-month lows touched in August. The dollar bounced back to 109.84 yen, having gained 0.34% on Thursday to rise off Wednesday’s six-week low of 109.11. The yen has so far shown only a limited reaction to the ruling Liberal Democratic Party’s (LDP) leadership race, which will formally kick off on Friday ahead of a Sept. 29 vote. The LDP’s parliamentary dominance means the party’s new leader will become prime minister.


Many investors see vaccine minister Taro Kono as a front-runner, followed by former foreign minister Fumio Kishida and former internal affairs minister Sanae Takaichi. “The world’s major macro players are not expecting big policy shifts. A lack of moves in the yen is a testament to that,” said Hiromichi Shirakawa, vice chairman and chief economist for Credit Suisse in Japan. Still, former internal affairs minister Seiko Noda’s decision to join the race on Thursday increased uncertainties as it means no single candidate may win on the first round, taking the election to a run-off that could work against Kono.


Elsewhere, sterling eased to $1.3795 while the Australian dollar traded at $0.7294 after touching a three-week low of $0.7274 in the previous session. The Chinese yuan licked its wounds after Thursday’s 0.4% fall. The offshore yuan last traded at 6.4545 to the dollar, pressured by growing worries about China’s real estate sector as investors fear property giant China Evergrande could default on its coupon payment next week. Still, on a trade-weighted basis, the yuan stood near its highest level in five years, both in the onshore and offshore market. “It is hard to tell how big the impact will be. So far only Chinese shares appeared to be affected but whether this will lead to a risk-off trade, we will have to see,” said Hiroshi Morimatsu, director of forex at MUFG Bank.

 

Cryptocurrencies stepped back from this week’s high with bitcoin traded at $47,774 and ether at $3,558.

 

South African Rand

Reuters: The South African rand fell to more than two-week lows on Thursday as the dollar jumped on a surprise rebound in U.S. retail sales, extending this week's rand losses to more than 2%. At 1550 GMT, the rand traded at 14.5750 against the dollar, around 1.1% weaker than its previous close and trading near its weakest since Aug. 31. The U.S. currency was up over 0.4% against a basket of peers. After three weeks of strong gains, the rand has reversed direction since Tuesday, buffeted by disappointing domestic retail data and a recommendation from investment bank JPMorgan to sell the currency.


Market attention will soon turn to next week's interest rate decision by South Africa's central bank, as well as local consumer price index (CPI) data. The bank has left its repo rate on hold at 3.5% for its past six meetings, diverging from some other emerging market central banks which have raised rates in response to inflationary pressures. The Reserve Bank's monetary policy committee will announce its rate decision on Sept. 23, with CPI data out the day before. Indexes on the Johannesburg Stock Exchange lost heavily on Thursday, pulled down by mining companies which fell on the back of drop in commodity prices, especially of platinum group metals and gold. The retreat in commodity prices in the last two months have instilled fears that a bull run in the shares of mining companies, which are an important export revenues earner, is coming to an end. This in turn impacts the outlook on the local economy.


"It is a cocktail of negative things that is hurting the market," said Greg Davies, trader at Cratos Capital. Weak Chinese data, lower commodity prices and fall in U.S. shares have all contributed towards Thursday's fall, he said. The benchmark all-share index dropped 1.66% to end the day's trading at 63,314 points. The blue-chip index of top 40 companies fell by 1.94% to 57,098 points. The index is now where it was at the beginning of the year and has lost almost 10% in the last one month.

 

Global Markets

Reuters: Asian shares steadied on Friday after losses earlier in the week, but China jitters and global growth concerns weighed on investors’ minds, while the dollar sat near a three-week high. European shares also looked set to rise on opening with pan-region Euro Stoxx 50 futures up 0.61% and FTSE futures 0.41% higher. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.12% on Friday but was set to finish down 2.7% on the week, which would be its worst week in four.


“We’re looking at a market that is nervous, though hasn’t seen sentiment turn outright bearish,” said Kyle Rodda, an analyst at IG markets. “If you look for catalysts that could justify the next move to the upside in equities and risk assets, they are nowhere to be seen because global growth concerns are keeping investors on edge.” Hong Kong’s Hang Seng Index rose 0.23% with traders looking for oversold stocks after the benchmark posted its lowest close in 10 months the day before, as the saga around China Evergrande Group lurched towards a conclusion. The embattled property developer’s shares dropped a further 11.8% on Friday, down 35% this week but there were gains elsewhere, including in technology stocks. The previously bruised Hang Seng Tech Index rose 2.8%, on track for its best day in three-and-a-half weeks.


Australian shares fell 0.8%, as a fall in iron ore prices hurt miners, but Chinese blue chips edged up 0.58% and Japan’s Nikkei gained 0.62% to head back towards a 31-year high hit on Monday. U.S. stock futures, the S&P 500 e-minis, were up 0.7%. Chinese data earlier this week suggested growth in the world’s second-largest economy will slow in the second half of this year, while economists polled by Reuters said they expected the U.S. economic rebound to have been dented in Q3, partly on the spread of the Delta coronavirus variant. Respondents to that poll also pushed back expectations for the U.S. Federal Reserve to announce a tapering of asset purchases to November. This means next week’s Fed policy meeting is likely less consequential than would have been expected a few months ago when many investors felt a September tapering announcement was an option, but traders will be still watching closely for any policy clues from the meeting, especially after the U.S. posted an unexpected increase in August retail sales on Thursdsay.


Also due next week is a policy meeting of Indonesia’s central bank, but all 25 analysts surveyed by Reuters expected Bank Indonesia will keep its key interest rate steady. The dollar held onto its overnight gains in Asian hours on Friday, having been supported by the strong retail data while the yield on benchmark 10-year Treasury notes was 1.3362% little changed from its U.S. close of 1.331%, after also rising on the data. The dollar index stood at 92.849, near Thursday’s three-week high of 92.965. Gold recovered somewhat with the spot price trading at $1,761 per ounce, up 0.45% after falling 2.3% on Thursday as higher yields hurt the non-interest bearing metal. U.S. crude dipped 0.26% to $72.42 a barrel, and Brent crude fell 0.21% to $75.50 per barrel, as more supply came back online in the U.S. Gulf of Mexico following two hurricanes, but both are still set to post weekly gains.

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