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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.

 

26 / 03 / 19

 

LONDON OFFICE

 

British Pound

Reuters: Sterling weakened on Monday after British Prime Minister Theresa May admitted there was not yet enough support to put her Brexit deal to a third vote, while parliament plotted to pull the process away from her government. The pound had jumped higher earlier in the day on media reports that lawmakers would vote on Tuesday on May’s twice-defeated Brexit withdrawal agreement - that had raised traders’ hopes that May’s deal would pass and prevent Britain from crashing out of the European Union. But May said on Monday that she did not have the support to bring the deal to another vote. “I’m more worried about no-deal Brexit than the market. I’m not clear what Theresa May wants and what opposition Labour Party leader Jeremy Corbyn wants — these are the two main characters in this play and I can’t read them at all,” said Thomas Costerg, senior economist at Pictet Wealth Management. “The view that no-deal Brexit won’t happen because there is a majority in parliament against that is a bit of simplistic view ... Accidents can happen."

 

“Options are narrowing and narrowing and narrowing,” he said, predicting sterling would drop to as low as $1.20 with a no-deal Brexit and rise to at least $1.35-$1.40 if May’s deal was passed. With British politics at fever pitch and little clarity on how, when or even if Brexit will take place, sterling traders are struggling to navigate the blizzard of headlines. A range of outcomes remain possible including a long postponement, a no-deal exit or no Brexit at all. With the prime minister short of support - the Northern Irish party propping up her government still opposes her deal - it is not clear when she will bring her divorce agreement back to parliament. May’s ministers denied knowledge of a weekend plot to force her to give a date for leaving office. After trading as low as $1.3162, sterling was back at $1.32 by 2050 GMT. It was 0.2 percent lower against the euro at 85.74 pence. The EU has said Britain can have a short delay to Brexit but May must first win parliamentary approval for her withdrawal deal from the bloc. “The extension of the Brexit deadline was shorter than many had hoped and we still have the problem of what type of consensus deal lawmakers can rally around,” said Michael Hewson, chief market analyst at CMC Markets in London. 

 

US Dollar

Reuters: The dollar rebounded modestly against the yen on Tuesday as Treasury yields pulled back from 15-month lows as investors reassessed the risks of a sharper downturn in the global economy. Global markets recoiled on Monday in the wake of an inversion in the U.S. Treasury yield curve, which has signalled a recession in the past. “The dollar has tracked U.S. yields. But the trend may have run its course, with little further downside seemingly remaining for yields,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo. “The decline by U.S. equities has also slowed, and this has supported the dollar as it shows that the market’s economic prospects remain reasonably good with the Fed preparing to take a more dovish approach,” he said. 

 

The dollar edged up 0.1 percent to 110.065 yen and put some distance from a six-week low of 109.70 plumbed the previous day, when fears of a global economic slowdown depressed U.S. yields and boosted investor demand for the yen, a perceived safe haven. U.S. consumer confidence and housing-related data is due later in the day and could provide near-term cues for the currency market. “The dollar should draw further support if today’s economic indicators are robust, as strong data may be about the only factor to prevent Treasury yields from falling further,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. The 10-year U.S. Treasury yield stood at 2.430 percent after declining to 2.377 percent on Monday, its lowest since December 2017.

 

South African Rand

EWN: South Africa’s rand firmed on Monday, gaining alongside other emerging market currencies as concerns over a possible recession in the United States dented the dollar. Stocks weakened as sentiment for riskier assets dwindled with global stocks under pressure as fears for economic growth sent investors to safe-haven assets. At 1505 GMT the rand was 0.97% firmer at 14.3500 per dollar compared to a close of 14.4900 on Friday in New York. Most developing world currencies firmed on Monday as the dollar took a back seat after the US yield curve inverted on Friday for the first time since mid-2007, the strongest indication of a possible recession for the world’s largest economy. South African focused investors will this week keep a close eye on the central bank interest rates decision on Thursday and a Moody’s ratings review on Friday.

 

The South African Reserve Bank is expected to keep lending rates steady when it concludes its second monetary policy meeting for the year on Thursday but may strike a hawkish tone as oil and electricity prices climb. “The decision by Moody’s is far more touch-and-go as market participants continue to debate whether South Africa’s metrics have deteriorated enough to warrant a downgrade in its sovereign outlook,” RMB analyst Nema Ramkhelawan-Bhana said in a note. South Africa’s economy has barely grown in the past decade with fiscal missteps and corruption contributing to weak business and consumer confidence. The country has also experienced its worst power cuts in years this year as state utility Eskom struggles with generation capacity shortages. Bonds also firmed, with the yield on the benchmark paper due in 2026 falling 4 basis points to 8.71%. On the bourse, the Johannesburg All-Share index fell 1.32% to 55,367 points and the Top-40 index was 1.27% weaker at 49,162 points.

 

Global Markets

Reuters: Asian shares bounced back on Tuesday after two days of losses as U.S. 10-year Treasury yields edged higher, but the outlook remained murky as investors weighed the odds of whether the U.S. economy is in danger of slipping into recession. MSCI’s broadest index of Asia-Pacific shares outside Japan rebounded 0.3 percent after losing 1.4 percent in the previous session. Australian shares were flat, while Japan’s Nikkei jumped 1.8 percent after recording its biggest drop since late December on Monday. China’s blue-chip CSI300 and Hong Kong’s Hang Seng Index also rose, by 0.3 percent and 0.5 percent, respectively. Wall Street shares were little changed on Monday with the S&P 500 ending with a small loss of 0.08 percent. U.S. stock futures rose, with E-Minis for the S&P 500 tacking on one-third of a percent.

 

Investors have been spooked by sharp falls in U.S. bond yields and an inversion of the U.S. Treasury yield curve, which is widely seen as an indicator of an economic recession. The 10-year U.S. Treasury yield edged up to 2.430 percent, having shed 5 basis points on Monday. It has fallen about 18 basis points since the Federal Reserve last week ditched projections for raising rates this year and announced the end of its balance sheet reduction, citing signs of an economic slowdown. In currency markets the euro was steady at $1.1317. The single currency fell to a 10-day trough of $1.1273 on Monday, also hit by rising concerns about a slowdown in the euro zone economy but made modest gains overnight after a stronger-than-forecast German business confidence survey. The Australian dollar, sensitive to shifts in risk sentiment, was 0.15 percent higher at $0.7123 on the back of a rebound by Asian equities. In commodity markets Oil prices hovered below their recent four-month peaks, as the prospect of tighter U.S. crude supply was offset by concerns about a slowdown in global economic growth. U.S. crude futures traded at $59.21 per barrel, up nearly 0.7 percent on day, a tad below Thursday’s high of $60.39, its highest since mid-November. Brent futures were up 0.2 percent at $67.33. Gold was slightly lower at $1,320.90, not far off a near one-month peak of $1,324.60 scaled during the previous session.

HONG KONG OFFICE

 

British Pound

FXStreet: The British Pound (GBP) seesaws around 1.3200 marks versus the US Dollar (USD) during early Tuesday. The GBP/USD pair is taking the bids as the UK members of parliaments (MPs) voted on various Brexit amendments. The first one giving the parliament an authority over government to take control of Brexit was welcomed by the Pound buyers as MPs have previously turned down all the proposal of the UK PM Theresa May and caused uncertainty over the Brexit.

 

GBP/USD previously took advantage of the US Dollar weakness on the US yield inversion (10 year over 3 month) that took place on Friday. The Pound gained nearly 40 pips to 1.3220 after the MPs favor amendment A, also known as the Letwin amendment, which seeks to take control of parliament and hold indicative votes on Brexit options. The GBP/USD pair needs a successful break of 1.3240 in order to aim for 1.3310 and 1.3380 otherwise 1.3170 and 50-day SMA near 1.3080 can keep limiting the quote’s immediate downside.

 

US Dollar

Reuters: The dollar rebounded modestly against the yen on Tuesday as Treasury yields pulled back from 15-month lows as a modicum of calm returned to financial markets gripped by fears of a sharper downturn in the global economy. The dollar edged up 0.15 percent to 110.13 yen and put some distance between a six-week low of 109.70 plumbed the previous day, when fears of a global economic slowdown depressed U.S. yields and boosted investor demand for the yen, a perceived safe haven.

 

“The dollar has tracked U.S. yields. But the trend may have run its course, with little further downside seemingly remaining for yields,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo. “The decline by U.S. equities has also slowed, and this has supported the dollar as it shows that the market’s economic prospects remain reasonably good with the Fed preparing to take a more dovish approach.”

 

The euro was steady at $1.1316. The single currency had sunk to a 10-day trough of $1.1273 on Monday, also hit by rising concerns about a slowdown in the euro zone economy but made modest gains overnight after a stronger-than-forecast German business confidence survey. Sterling was effectively flat at $1.3201 after spending the previous day confined to a narrow range when British lawmakers wrested control of the parliamentary agenda from the government for a day in a highly unusual bid to find a way through the Brexit impasse. The Australian dollar, sensitive to shifts in risk sentiment, was 0.1 percent higher at $0.7118 after gaining 0.45 percent the previous day.

 

Japanese Yen

FXStreet: USD/JPY is reporting moderate gains above 110.00 at press time, having hit 1.5-month lows yesterday. The pair seems to have picked up a bid, tracking the slight recovery in the US 10-year treasury yield from lows seen yesterday. BOJ's Summary of Opinions released earlier today offered little hawkish or dovish surprises, leaving JPY pairs largely unaffected. USD/JPY is currently trading at 110.11, having hit a low of 109.70 in the Asian session yesterday - the lowest level since Feb. 8. 

 

The pair dived out of the trendline rising from January lows on Friday as the recession fears gripped markets with the spread between the US 10-year and three-month treasury yields turning negative for the first time since 2007. The resulting risk-off tone in equities kept JPY better bid in the Asian session yesterday. The dollar sell-off, however, stalled below 110.00 in the US trading hours despite the drop in the 10-year treasury yield below 2.4 percent, the lowest level since December 2017 and the pair has now moved back above the psychological level, possibly tracking the 10-year yield's recovery from 2.38 percent to current 2.42 percent. Possibly adding to the bid tone around the USD are the marginal gains in the S&P 500 futures. 

 

Looking forward, the currency pair may revisit the former support-turned-resistance of 110.30 if the recession fears ebb, allowing a recovery rally in stocks. The Bank of Japan's Summary of Opinions for the meeting, dated March 15, released a few minutes before press time reiterated the need to maintain powerful easing while keeping an eye on side-effects of stimulus. The Summary offered little hawkish or dovish surprises, leaving the JPY pairs largely unaffected. 

 

Global Markets

Reuters: Asian shares were shaky on Tuesday after U.S. Treasury yields sank to their lowest since late 2017, further below short-term interest rates and adding to fears of a U.S. recession. MSCI’s broadest index of Asia-Pacific shares outside Japan was flat in early trade after two days of losses. Japan’s Nikkei rebounded 1.1 percent after a 3.0 percent fall on Monday. Wall Street shares were little changed on Monday with the S&P 500 ending with a small loss of 0.08 percent.

 

Oil prices hovered below their recent four-month peaks, as the prospect of tighter U.S. crude supply was offset by concerns about a slowdown in global economic growth. U.S. crude futures traded at $59.26 per barrel, up 0.5 percent on day, a tad below Thursday’s high of $60.39, its highest since mid-November. Brent futures were up 0.3 percent at $67.42 a barrel.

 

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