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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 / 05 / 19

 

LONDON OFFICE

 

British Pound

Reuters: The pound neared a four-month low on Thursday as Britain’s Prime Minister Theresa May battled to keep her Brexit deal, and her premiership, intact amid growing fears of a disorderly departure from the European Union. Sterling has weakened more than 1% this month as cross-party Brexit talks have yielded little and left May vulnerable to a leadership challenge. She will set out a timetable for her departure in early June after the latest attempt to get her Brexit deal approved by parliament, but could face a confidence vote if the deal is voted down. The prospect of May’s demise is weighing on the pound because some investors think it could push Britain in the direction of a disorderly no-deal Brexit. “What we’re seeing is the market pricing in a higher probability of an exit without a deal,” Adam Cole, chief currency strategist at RBC Capital Markets, said, noting the growing risk that the bill would fail to pass and May depart before parliament goes into recess in late-July.

 

“It looks increasingly likely she will be replaced by a pro-Brexit PM with no election, and that automatically increases the chances of a no-deal Brexit.” Sterling was down for the ninth straight session, touching a three-month low of $1.2794 and slipping 0.2% against the euro to 87.4 pence, the lowest since February 19. May plans to put to her thrice-rejected Brexit agreement to parliamentary vote but Eurosceptics in her party and its Northern Irish allies, as well as opposition Labour lawmakers, are expected to reject it. Boris Johnson, Britain’s former foreign minister and a prominent campaigner to leave the EU, said on Thursday he will be standing as a candidate to replace May as Conservative leader, the BBC reported. Britain’s deadline for leaving the EU is Oct. 31. May’s failure to reach a compromise on the Brexit deal with Labour has also seen one-month implied sterling volatility rise to a five-week high. The currency is also being undermined by the global risk-off mood, with tariff tensions between China and the United States threatening to degenerate into a full-scale trade war.

 

US Dollar

Reuters: The dollar held near a two-week high against its peers on Friday, supported by strong U.S. economic data and a bounce in Treasury yields. The dollar index versus a basket of six major currencies stood little changed at 97.802 after reaching 97.882 on Thursday, its highest since May 3. The greenback reached the two-week peak on robust U.S. housing data and a weekly jobless claims report which pointed to sustained labor market strength in the world’s biggest economy. The U.S. currency also drew strength as its counterparts such as the euro and pound were dogged by bearish factors. “The euro is weighed down as the euro zone is saddled with weak economic fundamentals and Italian political concerns, while it’s all about Brexit for the pound,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. 

 

The dollar initially extended overnight gains and popped above 110.00 yen. But it lost some traction, last trading at 109.735 yen, weighed down as U.S.-China trade concerns continued to bubble in the background. China may have no interest in continuing trade negotiations with the United States now, Bloomberg reported on Friday, quoting state media outlets. Against the safe-haven yen the greenback fell to a 3-1/2-month low of 109.020 at the start of the week when a trade war between the United States and China intensified. China’s yuan retreated to 6.9099 per dollar in onshore trade, its weakest since late December. The 10-year U.S. Treasury note yielded 2.387%, having pulled back from a near two-month low of 2.354% brushed the previous day.

 

South African Rand

EWN: The rand weakened on Thursday, succumbing to risk-off sentiment sparked by global fears over the tariff war between the United States and China. At 0645 GMT the rand was 0.26% weaker at R14.2600 per dollar compared with an overnight close of R14.2125 in New York. Having rallied to a two-week best of R14.1375 after the ruling African National Congress won a 57.5% majority that many investors see as key to economic reforms, the rand has slipped back towards the R14.40 mark. Tepid economic data locally, with the unemployment rate rising and retail sales advancing only 0.2% in March, added pressure on the currency following US President Donald Trump’s weekend tweets escalating the standoff with China over trade terms. The outlook for the rand and stocks is favourable, however, with low lending rates abroad and sliding inflation locally supporting carry trade by investors hunting for high-yield returns.

 

Bonds also weakened, with the benchmark 10-year bond’s yield adding 0.5 basis points to 8.425%. In stocks, financial services group Investec said full-year earnings rose 3.6% despite challenges in its main markets, South Africa and Britain. On Friday morning the rand was trading at R14.32 to the dollar, R18.32 to the pound and R16.01 to the euro as a general risk-off tone putting some pressure on emerging markets.

 

Global Markets

Reuters: Chinese stocks were trading on shaky footing on Friday, poised for their fourth straight weekly decline, as the yuan dropped amid heightened worries over the Sino-U.S. trade dispute and its impact on the country’s economy. At the midday break, the Shanghai Composite index was down 1.5% at 2,912.48 points, and down 0.9% so far this week, having stayed in negative territory for the last three weeks. The blue-chip CSI300 index dropped 1.7%, and was down 1.3% on the week. CSI300’s financial sector sub-index slipped 1.5%, the consumer staples sector dropped 2%, the real estate index down almost 2% and the healthcare sub-index fell 1.7%. The offshore yuan weakened past 6.94 per dollar for the first time since Nov. 30, 2018, erasing all gains since the U.S. and Chinese presidents met at the G20 in Argentina. The onshore yuan dropped to 6.9099 per dollar, its lowest since December 2018. China’s state planner said on Friday trade frictions with the United States has had some impact on China’s economy, but it was “controllable” and countermeasures would be rolled out when needed to “keep economic operations within reasonable range”. 

 

In currency markets, the euro was steady at $1.1178 after falling to $1.1166 overnight, its lowest since May 6. The common currency was a touch lower at 122.67 yen. It has retreated 0.5% against the yen this week, during which it slid to 122.06, the lowest since early January. The Australian dollar stretched overnight losses and fell to a new 4-1/2-month trough of $0.6883. The Aussie suffered big losses the previous day after soft domestic employment data heightened expectations for an interest rate cut by the Reserve Bank of Australia. Elsewhere, the Turkish lira slipped 0.37% to 6.0700 per dollar after the United States on Thursday terminated Turkey’s preferential trade treatment that allowed some exports to enter the country duty free. Softening the blow slightly, Washington halved its tariffs on Turkish steel imports to 25% from 50%.

HONG KONG OFFICE

 

British Pound

FXStreet: Having witnessed sustained downturn since the week start, GBP/USD stops the bears around 1.2800 during early Friday. The British Pound (GBP) recently came under pressure as cross-party Brexit talks continue to fall short of providing any solution while the UK PM Theresa May is being repeatedly pushed to outline her departure timetable. 


As per the latest news reports, the British PM May met headline Tories and leader of the 1922 committee, Sir Graham Brady, in order to give details of her departure. However, Mrs. May remained stuck to her previous commitment that she’ll give exact details after fourth voting on her Brexit proposal that is scheduled for the week starting from June 03. With the little details on hand, the GBP/USD pair traders may concentrate more on the Brexit developments and the US Michigan consumer sentiment index for May month. 


The mid-February low near 1.2775, followed by 1.2700 round-figure, could offer nearby support to the pair, a break of which can recall January lows near 1.2670. Alternatively, April bottom near 1.2865 can limit immediate upside which if broken could recall 1.2930 and 200-day simple moving average (SMA) level of 1.2960 on the chart.

 

US Dollar

Reuters: The dollar hovered near a two-week high against its peers on Friday, supported by strong U.S. economic data and a bounce in Treasury yields. The dollar index versus a basket of six major currencies was at 97.832 after reaching 97.882 on Thursday, its highest since May 3. The greenback reached the two-week peak on robust U.S. housing data and a weekly jobless claims report which pointed to sustained labor market strength for the world’s biggest economy. 


The U.S. currency also drew strength as its counterparts such as the euro and pound were confronted with a number of bearish factors. The euro was steady at $1.1175 after falling to $1.1166 overnight, its lowest since May 6. The single currency has shed 0.55% this week. The possibility of a chaotic departure from the EU has pushed the pound to a three-month trough of $1.2788 on Thursday. Sterling last stood at $1.2796, having slumped 1.5% this week. The dollar was nearly flat at 109.850 after gaining 0.2% the previous day. Against the safe-haven yen the greenback fell to a 3-1/2-month low of 109.020 at the start of the week when a trade war between the United States and China intensified. The Australian dollar was steady at $0.6891. 

 

Japanese Yen

FXStreet: The US Dollar strength and upbeat earnings report escalated the recent recovery. The USD/JPY pair is on the bids around the intra-day high of 109.92 as Tokyo open reacts to the latest change in the market’s risk sentiment and the US Dollar (USD) strength on early Friday.


Even if the US and China continue to be at loggerheads over trade after Trump administration’s protectionist measures, comments from the US Commerce Secretary Wilbur Ross that they’re getting to the core of talks with China triggered market optimism off-late. While Japan data may post -0.4% against -0.6% previous, the US consumer sentiment gauge could rise to 97.5 from 97.2 earlier.


A successful break of 110.00 becomes prerequisite for the buyers to aim for 100-day simple moving average (SMA) level of 110.50. However, 110.80 and 111.10 level including 50-day SMA might challenge the bulls then after. Alternatively, 109.50 and 109.00 could be on the seller’s radar during pullback ahead of looking at 108.80 and 108.50.

 

Global Markets

Reuters: Asian shares were trying to end a bleak week in the black on Friday as upbeat U.S. economic news and solid company earnings offered a respite from the interminable Sino-U.S. trade saga. The reprieve might prove brief, however, given the fallout from President Donald Trump’s move to block China’s Huawei Technologies from buying vital American technology. 


For now, Asian markets were just happy for a break. MSCI’s broadest index of Asia-Pacific shares outside Japan inched up 0.1% and off a 15-week trough, but was still down 1.8% for the week. Japan’s Nikkei bounced 0.7% in early trade, while the main Australian index added 0.5%. E-Mini futures for the S&P 500 were steady. Sentiment had been bolstered by better U.S. economic news, with U.S. housing starts surprisingly strong and a welcome pickup in the Philadelphia Federal Reserve’s manufacturing survey. 


In commodity markets, spot gold dropped off to $1,286.37 per ounce as risk sentiment improved. Oil futures firmed as tensions in the Middle East grew, with a Saudi-led coalition launching air strikes in retaliation for recent attacks on its crude infrastructure.

 

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