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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.

 

02 / 12 / 20

 

LONDON OFFICE

 

British Pound

Reuters: Sterling jumped to as high as $1.3442 on Tuesday after Times Radio said that Brexit trade deal talks have entered the “tunnel” stage of negotiations. The pound surged to hit a three-month high of $1.3442 at 1610 GMT, gaining half a percent in around 5 minutes. “Tunnel was the key word that pushed the pound higher,” said Neil Jones, head of FX sales for financial institutions at Mizuho. “The market has taken this comment as a deal is very close.” The “tunnel” is a term for an intense final stage of secretive, make-or-break negotiations. The pound held on to its gains, and was at $1.3435 at 1624 GMT, up 0.8% on the day. Against a stronger euro, it was down around 0.2% on the day at 89.69 pence, having erased some losses after the news. The pound was little changed at $1.3421 on Wednesday morning.


“The waiting game for GBP continues, but we can expect more days of contradicting headlines driving intraday oscillations in GBP,” wrote ING strategists, in a note to clients. “As time goes on, we should see the size of such swings increase as markets attribute a bigger weight to any remarks by both parties’ officials,” they said. PMI data meanwhile showed British factories grew at their fastest pace in almost three years last month as they stockpiled raw materials and rushed to finish new work before new post-Brexit customs rules come into force on Jan. 1. CMC Markets’ chief market strategist Michael Hewson said he expects the pound to continue strengthening to reach $1.35 by the year-end, helped by a weakening dollar. “Everyone’s been so negative about the pound that I think there’s scope for it to go quite a bit higher from where we are at the moment, both against the dollar and against the euro. “The pound tends to do well when stock markets do well,” he said, describing Brexit as the final roadblock for sterling, after which it could strengthen to $1.40 in 2021. Speculators have had a net short position on the pound versus the dollar since September, according to weekly CFTC futures data. Euro-sterling volatility gauges with a one-month maturity rose to a six-day high, suggesting that investors anticipate increased price swings until the transition period ends.

 

US Dollar

Reuters: The dollar stayed near a 2 1/2-year low on Wednesday as investors cautiously eyed developments in talks about further fiscal stimulus from the United States, while risk currencies held onto gains on improving risk appetite. Against major currencies, the dollar index fell 0.7% to 91.318, having hit its lowest level since late April 2018 of 91.263 overnight. The Euro and the Kiwi steadied after an overnight jump to their 2 1/2-year highs as the dollar broadly weakened. U.S. Treasury Secretary Steve Mnuchin and House of Representatives Speaker Nancy Pelosi held stimulus talks for the first time since the election, while a bipartisan group of senators and House members proposed $908 billion worth of coronavirus relief measures. Pelosi said in a statement after the talks that Mnuchin would review coronavirus relief proposals. U.S. Senate leader Mitch McConnell said on Tuesday that Congress should include a fresh wave of coronavirus stimulus in a must-pass $1.4 trillion spending bill aimed at heading off a government shutdown in the midst of a pandemic.


“The currency market is sceptical whether these proposals could be agreed in a swift manner, since hopes were shattered once already when a stimulus package didn’t come into fruition before the presidential election,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities. “Traders are closely eyeing for convincing clues that the agreement is actually reached,” he said. Also weighing the safe-haven dollar was weaker-than-expected U.S. manufacturing activity data and speculation that the Federal Reserve will act to support the economy before vaccinations become available. Fed Chair Jerome Powell and Mnuchin urged Congress to provide more help for small businesses amid a surging coronavirus pandemic and concern that relief from a vaccine may not arrive in time to keep them from failing. The Fed meets to set policy on Dec. 15-16. The euro held ground against the dollar after its strong performance overnight as it hit the highest level since May 2018. It last fetched $1.2067. Analysts said the European Central Bank could act against a rapid rise of the currency. The risk-sensitive Aussie firmed to 0.7389 per dollar after the Australian GDP data was released, while the New Zealand dollar changed hands at $0.7071, holding steady near the highest level since April 2018 hit overnight. Bitcoin rose to 0.3% at $18,833.63 after hitting a record high just under $20,000 on Tuesday.

 

South African Rand

Reuters: South Africa's rand rallied more than one percent on Tuesday, recouping most of the previous session as hopes of a coronavirus vaccine and signs of economic recovery around the world kept investors interested in risk assets. Stocks also rose, tracking global equity indices. At 1530 GMT the rand was 1.52% firmer at 15.2400 per dollar, having dipped to a three-session low of 15.4750 overnight in erratic trading. The rand's gains matched advances by fellow high-yield, emerging market currencies, with the Brazilian real and the Mexican peso both posting 1% gains. "Monday appeared to be a global case of profit taking and month-end fixes with commodities struggling, equities lower and the Dollar stronger," Standard Bank's Warrick Butler said in a note to clients. Along with optimism about a vaccine, expectations of more monetary stimulus from the United States and signs of a solid rebound in China have driven risk buying, although South Africa's specific growth challenges have tempered inflows.


On Tuesday, the government asked for a court hearing over a wage dispute with public sector trade unions to be postponed to 2021. Unions took the government to court after officials said the state could not afford to pay salary increases that were due to come into force in April 2020. Economists view the dispute as critical as the wage cuts are a centrepiece of government's plan to stabilise soaring debt levels. The Absa Purchasing Managers' Index (PMI) also showed a slower local economic recovery, with new sales dropping in November. "The pair may well consolidate in its recent trading range of 15.10-15.50," economists at ETM Analytics said. "A break of 15.00 still very much on the cards as more Fed stimulus and material progress in the development of a COVID-19 vaccine looks likely." The Johannesburg All-Share index firmed 0.73% to 57,510 points, while the Top-40 index closed up 0.74% to 52,764 points. Gold shares gained 7%, with Gold Fields up 6.68% to 140.33 and Harmony Gold 6.53% firmer to 67.40 rand.

 

Global Markets

Reuters: Asian shares rose on Wednesday after a strong lead from Wall Street fuelled by hopes for additional U.S. economic stimulus and a coronavirus vaccine, but trade was choppy as some investors booked profits. Top U.S. Senate Republican Mitch McConnell said on Tuesday that Congress should include new coronavirus stimulus in a $1.4 trillion spending bill aimed at heading off a government shutdown in the midst of the pandemic. U.S. President-elect Joe Biden told the New York Times his priority is getting a generous aid package through Congress even before he takes office in January. Top U.S. health officials, meanwhile, announced plans to begin vaccinating Americans against the coronavirus as early as mid-December once regulatory approvals are in place, as nationwide deaths hit the highest number for a single day in six months. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.27%, but was still trading below last week’s all-time high. Australian stocks rose 0.12%. Shares in China recovered from early losses and rose 0.12%. Tokyo stocks were little changed after setting a new 29-year high. Softbank Group shares fell 0.66% after Bloomberg News said the tech investor is winding down its options trades on companies including Amazon.com Inc and Facebook Inc. South Korean shares hit a record high due to signs of an increase in semiconductor demand. U.S. stock futures declined 0.23% following a record closing high for Wall Street shares.


Europe also looked set for a softer open, with Euro Stoxx 50 futures down 0.37%, German DAX futures down 0.35%, and FTSE futures trading 0.38% lower. Benchmark U.S. Treasury yields eased slightly but remained near a three-week high as Republicans and Democrats submitted proposals for economic stimulus in a bid to pass a bill some time this month. Analysts say downside for global equities is likely limited, with major uncertainties surrounding the outlook now fading. “We’ve had some positive leads, and a combination of optimism around the vaccine, and government and central bank stimulus remains in place,” said Michael McCarthy, chief markets strategist at CMC Markets. “It’s a sweet spot for markets.” MSCI’s gauge of stocks across the globe rose 0.07% in Asia on Wednesday, edging toward an all-time high. Pfizer Inc and Germany’s BioNTech SE sought emergency approval of their vaccine candidate from the European regulator on Tuesday. Competitor Moderna Inc also applied for emergency approval from the European regulator on Tuesday. Pfizer and BioNTech said their vaccine could be launched in the European Union as early as this month, though a European regulator clouded the schedule when it said it would complete its review of their vaccine by Dec. 29. The U.S. 10-year Treasury yield stood at 0.9129% in Asia, not far from a three-week high of 0.9380% hit in the previous session as investors priced in the likelihood of more fiscal spending. The spread between two-year and 10-year yields was also near its steepest in three weeks. Higher yields did not support the dollar, which was mired near its lowest level in more than 2-1/2 years as investor appetite for risk increased. Earlier this year Japan’s Softbank Group raised eyebrows by buying billions of dollars of call options for U.S. tech giants while taking long positions in the underlying shares. Some analysts say hedging by the counterparties that sold the options to Softbank contributed to a frenzied rally in the U.S. tech sector. “This could be big news ... and bad for the tech market,” Andrew Brenner, New York-based head of international fixed income at NatAlliance Securities, said in a note, adding that it depends on how much you believe SoftBank was behind increased option volatility. Oil prices extended losses in Asian trading after OPEC and its allies left markets in limbo by postponing a formal meeting to decide whether to lift output in January. Brent crude futures fell 0.74% to $47.01 per barrel, while U.S. crude fell 0.88% to $44.16 per barrel.

HONG KONG OFFICE

 

US Dollar

Reuters: The dollar index against a basket of six major currencies slipped 0.3% to 93.261. The British pound traded at $1.3307, recovering slightly from a dip to a six-week low of $1.2839 on Wednesday. 

 

The dollar held steady against the safe-harbour Swiss franc at 0.9120 and was little changed at 106.20 yen. Traders in the dollar are closely watching global equities to see if a rebound in U.S. tech shares from a rapid sell-off will support riskier assets in other markets. 

 

Across the Tasman Sea, the New Zealand dollar was little changed at $0.6680.

 

Euro

Reuters: The euro held onto gains against the dollar on Thursday as traders braced for a European Central Bank meeting to gauge policymakers’ views on the common currency’s recent appreciation and its impact on inflation. Sterling steadied above a six-week low but could face more losses due to growing concern that Britain and the European Union will fail to agree a trade deal. 

 

While markets expect the ECB to keep policy steady, investors will closely watch President Christine Lagarde’s comments on how the euro’s rise to a two-year high this month affects the outlook for inflation and economic growth.  The euro bought $1.1807 in Asia on Thursday, holding onto a 0.3% gain from the previous session. 

 

Sentiment for cable has taken a hit after Britain unveiled draft legislation that analysts say raises the possibility of it exiting the EU single market in four months time with no trade agreement in place. The euro got a boost on Wednesday after Bloomberg News reported that ECB officials are growing more confident in the bloc’s economic outlook. However, traders may be reluctant to buy the common currency further before the ECB meeting due to earlier media reports that officials are growing uncomfortable with the euro’s almost 6% appreciation against the dollar from its June low.

 

Australian Dollar

FXStreet: AUD/USD takes offers around 0.7265, down 0.25% on a day, during the early Thursday. While weakness the latest Aussie data, as well as risk-reset, can be counted as fundamental catalysts behind the quote’s pullback, a short-term falling channel since September 04 plays its technical role. 

 

However, 100-HMA questions the pairs’ further downside around 0.7260 ahead of the 61.8% Fibonacci retracement level of August 25-30 upside, near 0.7250. Although the bears are likely to recede control around 0.7250, their further dominance will aim for the 0.7200 round-figures ahead of refreshing the monthly low while visiting the channel’s support near 0.7175.

 

Meanwhile, an upside clearance of the channel resistance of 0.7285 will have to cross the 200-HMA level of 0.7305 before allowing the bulls to retake controls. In doing so, 0.7340 and 0.7380 could gain market attention before the previous month’s top, also the multi-month peak, surrounding 0.7415.

 

Global Markets

Reuters: Asian markets are expected to swing higher on Thursday, after U.S. stocks reversed course from a three-day losing streak that led the technology-heavy Nasdaq into correction territory. The U-turn in U.S. stocks, however, was already reflected in some markets, so the impact in Asia may be muted, said Rodrigo Catril, a senior FX strategist at National Australia Bank. “We still expect markets to open with a positive turn, but we don’t expect a meaningful acceleration of it,” Catril said. “It should be a positive open but not a bombastic open.”

 

Australian S&P/ASX 200 futures rose 1.28% in early trading and Japan’s Nikkei 225 futures added 0.13%. Hong Kong’s Hang Seng index futures rose 0.85%. MSCI’s gauge of stocks across the globe gained 1.44%. Wall Street ended higher on Wednesday after investors ploughed into technology stocks, taking advantage of the recent dip. 

 

The Dow Jones Industrial Average rose 439.58 points, or 1.6%, to 27,940.47, the S&P 500 gained 67.12 points, or 2.01%, to 3,398.96 and the Nasdaq Composite added 293.87 points, or 2.71%, to 11,141.56. Oil prices recovered some of the losses they saw in the prior trading session when they hovered near three-month lows. U.S. crude rose 3.5% and Brent added 2.5%, although COVID-19 outbreaks still threaten to slow a global economic recovery. U.S. crude eased 0.5% in early Asian trade on Thursday to $37.88 a barrel.

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