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10 / 07 / 20
Reuters: Sterling edged up 0.4% on Thursday against the dollar as investors delayed responding to finance minister Rishi Sunak’s announcement of plans to revive the economy, while Brexit risks continued to weigh on the British currency. Sunak promised an additional 30 billion pounds ($38 billion) on Wednesday to help the coronavirus-hit economy. He announced bonuses to get furloughed staff back to work, cut value-added tax for the hospitality sector and temporarily scrapped a property tax on purchases of homes costing up to 500,000 pounds. Investors barely reacted to the news immediately after the announcement, and sterling was steady on Wednesday a day after hitting three-week highs against both the dollar and euro. But the pound was up on Thursday to $1.2655 at 1005 GMT against a broadly weaker dollar, which fell against most currencies as a rally in riskier assets dented demand for the safe-heaven currency. Versus the euro, sterling rose 0.3% to 89.55 pence.
“There has been a little bit of a delayed response, I think, to the fiscal story here in the UK,” said Stephen Gallo, European head of the FX strategy at BMO Financial Group. Gallo said Sunak’s fiscal plan is no game changer and that he expects sterling to remain under pressure over the summer if Britain and the European Union fail to make progress in agreeing their future trading relationship. “If it weren’t for the Brexit factor, which is holding down the pound, I think the pound would be significantly higher now because the UK has a much more dynamic fiscal story than the euro zone as a whole,” Gallo said. British and EU negotiators on Tuesday kicked off a new round of talks. German Chancellor Angela Merkel said she will continue to push to seal a deal by the end of the year, but the EU should prepare for the possibility of a no-deal scenario. Britain, which left the EU on Jan. 31, wants the same terms as Australia has if it cannot agree on a trade, Prime Minister Boris Johnson told Germany’s Angela Merkel in a telephone call on Tuesday. Australia has no comprehensive trade agreement with the EU. Much of EU-Australia trade follows default World Trade Organisation rules, though specific agreements are in place for certain goods.
Reuters: The dollar and other safe-haven currencies gained against their riskier peers on Friday after a surge in new coronavirus infections in the United States further undermined the case for a quick turnaround in the economy. More than 60,000 new COVID-19 cases were reported across the United States in the latest count, the greatest single-day tally by any country in the pandemic so far, discouraging some American consumers to return to public spaces. The caution helped to push up the dollar index about 0.1% in Asia to 96.863 from near one-month low of 96.233 touched on Thursday. The safe-haven yen hit a two-week high against the dollar, rising to 107.00 per dollar. The Swiss franc, another safe-haven, flirted near its highest level in six weeks against the euro, at 1.0619 franc per euro. Against the dollar, the franc changed hands at 0.9419 per dollar after having touched a four-month high of 0.93625 to the dollar. The euro shed 0.1% to $1.1273 , slipping back from a one-month high of $1.1371 on Thursday.
Thursday’s weekly data showed the number of Americans filing for initial jobless benefits dropped to a near four-month low last week. Still, with companies from retailers to airlines announcing job cuts and furloughs, the outlook remained highly uncertain. There were 32.9 million people receiving unemployment checks, putting together all programs, in the third week of June, up 1.411 million from the middle of the month. “Although we have seen improvements in economic data, people are beginning to think that is just a natural outcome of economic reopenings. Now they are starting to worry more about increasing infections,” said Minori Uchida, chief currency strategist at MUFG Bank. Many risk-sensitive currencies took a step back following their rally in recent weeks. The Australian dollar lost 0.3% to $0.6942 , off Thursday’s one-month high of $0.7001. The yuan, which often tends to align with risk-sensitive currency groups, bucked the trend, supported by hopes of capital inflows as Chinese shares prices have surged after Beijing indicated it wants a healthy bull market. The offshore yuan traded at 7.005 yuan per dollar, down about 0.1%, having touched near-four-month high of 6.9808 on Thursday. The Chinese currency has gained almost 1% so far this week, outpacing many others in the same time. In addition to stock investments and hopes of a recovery in the world’s second-biggest economy, higher China debt yields are also attracting foreign capital, said Dmitriy Vlasov, portfolio manager at East Capital in Hong Kong. “We have had quite a big inflows in the fixed income markets as interest rate differentials are also leading to the appreciation of the yuan.”
South African Rand
Reuters: South Africa’s rand firmed against the dollar on Thursday thanks to a rally in riskier assets globally even as poor manufacturing data at home highlighted the blow to the economy from a coronavirus lockdown. At 1540 GMT the rand was 0.12% firmer at 16.9000 per dollar, after hitting a four-week high of 16.7975 earlier. “Markets continue to seesaw, flipping between risk-on and risk-off at the blink of an eye,” Bianca Botes, executive director at Peregrine Treasury Solutions, said in a note. “Gold eased from nine-year highs on Thursday, assisting emerging market currencies to recover some ground after weakening earlier in the week.” The rand largely ignored data showing South Africa’s manufacturing output fell 49.4% year on year in April, reflecting the impact of a nationwide lockdown on the recession-hit economy.
The Johannesburg Stock Exchange (JSE) lost steam after surging for three consecutive trading days this week as poor manufacturing data and a global surge in coronavirus cases caught up with the market. The benchmark FTSE/JSE All Share Index closed down 0.15% to 55,788 points while the FTSE/JSE Top 40 Companies Index slipped 0.04% to end the day at 51,537 points. The JSE’s gold index, which represents 5 top gold mining companies, was at an all-time high on the back of rise in gold prices globally as investors shunned equities and parked money in safe haven. The index went up 3.5%, but pared some gains to settle down 0.4% from the previous close at 1600 GMT. In fixed income, the yield on the benchmark 2030 government issue was down 3.5 basis points to 9.650%.
Reuters: Asian shares and U.S. stock futures fell on Friday as record-breaking new coronavirus cases in several U.S. states stoked concern about economic recovery, while investors looked forward to earnings season. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.74%. Australian stocks declined by 0.31% as an extension of loan payment deferrals hit the banking sector. Japanese stocks were down by 0.58%. Shares in China fell 0.72% from a five-year high, the first decline in more than a week, as state media discouraged retail investors from chasing the market higher and worries about Sino-U.S. tensions re-emerged. E-mini futures for the S&P 500 erased early gains to trade down 0.41%. Euro Stoxx 50 futures were down 0.03%, German DAX futures were flat, while FTSE futures were down 0.03%, suggesting an lacklustre start to European trading. The Antipodean currencies fell and the yen rose as traders shunned risk and sought safe havens.
More than 60,500 new COVID-19 infections were reported across the United States on Thursday, the largest single-day tally of cases by any country since the virus emerged late last year in China. That heightened concerns that renewed lockdowns could hurt the economic recovery. The number of Americans filing for jobless benefits dropped to a near four-month low last week, data showed. But investors remained cautious as the report also said a record 32.9 million people were collecting unemployment checks in the third week of June, supporting expectations the labor market would take years to recover from the COVID-19 pandemic. “Weakness in financial stocks, with the bank sub-index down 2.5%, comes ahead of next week’s Q2 reporting season that sees JP Morgan, Citigroup and Wells Fargo all report next Tuesday and following news that Wells Fargo is planning to cut ‘thousands’ of jobs starting later this year,” said Ray Attrill, head of FX strategy at National Australia Bank. On Thursday, the Dow Jones Industrial Average fell 1.39% and the S&P 500 dropped 0.56%, but the tech-heavy Nasdaq rose 0.53% to its fifth record closing high in six days. Mainland China shares fell on Friday for the first time since June 29. Shares had surged to the highest since 2015 on Thursday, fueled by retail investor enthusiasm and policy support, even as regulators cracked down on margin financing and as state media warned of market risks. In the currency market, the yen edged up against the dollar and the euro as investors bought the traditional safe haven. The Australian and New Zealand dollars, which are often traded as a liquid proxy for risk because of their close ties to China’s economy, both fell against the greenback. The Aussie also fell as local officials use lockdowns and border restrictions to contain a sudden increase in coronavirus cases. U.S. crude fell 1.01% to $39.22 a barrel, while Brent crude edged 0.78% lower to $42.02 per barrel due to concerns about a long-term decline in global energy demand.
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Reuters: The dollar and other safe-haven currencies were well bid on Friday after a surge in new coronavirus cases in the United States further undermined the case for a quick economic recovery. More than 60,000 new COVID-19 infections were reported across the United States on Wednesday, the greatest single-day tally by any country in the pandemic so far, discouraging some American consumers to return to public spaces. The caution helped to lift the dollar index to 96.798 from near one-month low of 96.233 touched on Thursday. The euro fell to $1.1288, slipping back after having scaled a one-month high of $1.1371 on Thursday. Against the safe-haven yen, the dollar traded at 107.20 yen, having touched its lowest level in 10 days in the previous trade.
The Swiss franc also strengthened to its highest level in six weeks against the euro, to 1.0609 franc per euro. Against the dollar, the franc changed hands at 0.9407 per dollar after having touched a four-month high of 0.93625 to the dollar. “The market was in a mild risk-off mood, following pretty bad coronavirus figures from Florida,” said Kyosuke Suzuki, director of currencies at Societe Generale. Some market players also said a U.S. Supreme Court ruling that a New York prosecutor can obtain President Donald Trump’s financial records could have undermined risk sentiment and boosted dollar as he faces an uphill battle for re-election. Trump has fought tenaciously to keep his tax returns and other elements of his finances secret.
Many risk-sensitive currencies took a step back following their rally in recent weeks. The Australian dollar stood at $0.69605, off Thursday's one-month high of $0.7001. Commodity currencies lost traction also as oil prices dipped on worries about the renewed lockdowns in some parts of the United States. The yuan, which often tends to align with risk-sensitive currency groups, bucked the trend, supported by hopes of capital inflows as Chinese shares prices have surges after Beijing indicates it wants a healthy bull market. The offshore yuan traded at 6.999 yuan per dollar, down about 0.03% in early Asian trade, having touched near-four-month high of 6.9808 on Thursday.
FXStreet: USD/JPY is a touch soft in the open of Tokyo, weighed by the prior bearish session which took the cross down from a high of 107.40 to 107.10. The US dollar was mostly firmer, outperforming as the G10s as the US COVID-19 cases are starting to worry investors, seeing US stocks crumble, albeit recovering from their lows of the session into the close. Meanwhile, there are nerves around it being election-year with political uncertainty unfolding in the wake of the Supreme Court ruling on President Donald Trump’s financial records alarming investors.
The US Supreme Court rejected President Trump’s claim for absolute immunity in shielding his corporate and personal tax returns. Trade war tensions between the US and China, as well as the HK dispute, are also simmering away which are keeping investors in their toes. As for US data, the US weekly initial filings for jobless benefits of 1.314m were lower than estimated (est. 1.375mn). Continuing claims were better as well, in at 18.06mn (est. 18.75mn).
Analysts at Westpac explained that there is "speculation that the increase in COVID case counts and resultant restrictions will lead to an increase in claims in coming weeks." In recent news today, it is reported that the Japan government likely to slightly revise up economic assessment in the July report, according to government officials. The higher-yielding plays in the yen were in the crosses while 107.10 supports vs the greenback. A break here opens risk towards 106.70, the weekly Kijun and monthly Tankan.
FXStreet: Following a brief consolidative stint seen in the overnight trade, AUD/USD resumed its decline and fell as low as 0.6936 in the last hour before recovering to 0.6950 level. Despite the rebound, the spot loses 0.21% on the day. The aussie licks wound after sellers took over and throttled the risk assets such as stocks, yields, oil and Antipodeans amid a fresh risk-aversion wave. The persistent rise in the coronavirus cases in the US states pour cold water on the expectations of a V-shaped economic recovery.
Further, the US pollical uncertainty is raising its ugly head before the Nov presidential election, in light of the Supreme Court throwing out rulings allowing the House to access President Donald Trump’s financial records. This was the main catalyst that knocked-off the risk sentiment in the US last session, with the US equities tumbling while boosting the safe-haven US currency. Markets also remain wary over the looming US-China trade risks and souring Australian-China diplomatic relations over the Hong Kong issue, which could likely keep aussie’s recovery attempt in check.
Next of relevance remains the US Producer Price Index (PPI) and fresh coronavirus updates for fresh cues on the global market sentiment, eventually impacting the major. The immediate support is seen at 0.6936 (daily low/ 10-DMA), below which the 20-DMA at 0.6910 will be tested. On the flip side, the recovery will likely face stiff hurdle at 0.6962/70 (5-DMA/ daily pivot point). The next resistance is aligned at 0.7000 (round figure).
Reuters: Asian shares were set to open mostly lower on Friday as record-breaking new coronavirus cases and deaths in several U.S. states stoked concerns that new lockdowns could derail the economic recovery, and investors looked forward to earnings season. Australian S&P/ASX 200 futures were down 0.41%, Japan’s Nikkei 225 futures edged up 0.02%, and Hong Kong’s Hang Seng index futures lost 0.87%. E-mini futures for the S&P 500 added 0.12%. More than 60,000 new COVID-19 infections were reported across the United States on Wednesday, the greatest single-day tally of cases by any country since the virus emerged late last year in China. U.S. deaths rose by more than 900 for the second straight day. That heightened concerns that renewed lockdowns could hurt the economic recovery. The number of Americans filing for jobless benefits dropped to a near four-month low last week, data showed. But investors remained cautious as the report also said a record 32.9 million people were collecting unemployment checks in the third week of June, supporting expectations the labor market would take years to recover from the COVID-19 pandemic.
The U.S. dollar attracted safehaven inflows, rising 0.34% against a basket of currencies. On Thursday, the Dow Jones Industrial Average fell 1.39%, to 25,706.09 and the S&P 500 dropped 0.56%, to 3,152.05. “Weakness in financial stocks, with the bank sub-index down 2.5%, comes ahead of next week’s Q2 reporting season that sees JP Morgan, Citigroup and Wells Fargo all report next Tuesday and following news that Wells Fargo is planning to cut ‘thousands’ of jobs starting later this year,” said Ray Attrill, head of FX strategy at National Australia Bank. Technology stocks rose, lifting the Nasdaq Composite up 0.53%, to 10,547.75, for its fifth record closing high in six days.
Mainland China shares rallied for an eighth day on Thursday, fueled by retail investor enthusiasm and policy support, even as regulators cracked down on margin financing and as state media warned of market risks. The rise in China’s mainland equities has some similarities to the bubble there five years ago, but it is not yet close in scale, and prices could continue to inflate for some time, said Capital Economics economist Oliver Jones. “That said, another boom-bust cycle in China’s equities could have even greater knock-on effects for markets elsewhere than before, with foreign holdings far higher now than five years ago,” he said. Fueled by illegal margin lending, the 2015-16 market bubble saw the benchmark Shanghai index fall more than 40% from its peak in just a few weeks.