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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 / 12 / 18

LONDON OFFICE

 

British Pound

Reuters: Sterling fell one percent on Friday, heading towards a 20-month low, as concerns grew that Prime Minister Theresa May’s failure to win key concessions from the European Union to salvage her Brexit deal could plunge the economy into chaos. May’s failure to win certain legally binding assurances from the EU on her deal for Britain to exit the bloc was cast as a humiliation by opponents after she exasperated other leaders with a stilted defence of Brexit. “Clearly May is having a tough time at the negotiations, judging from her comments,” said a currency strategist at a consultancy. The trip has not gone down well in currency markets, with the pound weakening nearly 1 percent to a day’s low of $1.2530. It hit a 20-month low of $1.2477 on Wednesday. “Sentiment is very cautious because of the political uncertainty,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.


After surviving a no-confidence vote by her Conservative Party on Wednesday, May asked EU leaders at a summit in Brussels for political and legal assurances that she said could convince the British parliament to approve her deal. But German Chancellor Angela Merkel and French President Emmanuel Macron ruled out any reopening of last month’s treaty aimed at ensuring a smooth exit on March 29. The British currency also weakened against the euro at 89.87 pence. On a weekly basis, the pound is set for its biggest drop in seven weeks against the dollar as the currency markets digested the tough task that May has ahead of her to win extra assurances from the EU over the Brexit deal agreed on Nov. 25. Sterling remains near the bottom of its recent range and traders say a 20-month low of below $1.25 hit on Wednesday will act as a temporary support for the battered currency unless there is further clarity on the outcome. Though most investors think the British parliament will eventually back a “softer Brexit” rather than a complete separation from the EU, traders have shied away from taking big bets in the currency markets.

 

US Dollar

Reuters: The dollar held near a 19-month high on Monday, bolstered by safe-haven buying as heightened concerns of a global economic slowdown reduced appetite for riskier assets such as stocks and Asian currencies. Weaker-than-expected economic data out of China and Europe and fears of a possible U.S. government shut down spooked investors away from stocks toward safe haven assets such as the greenback and yen. “The dollar is clearly showing it is attractive during times of market stress,” said Ray Attrill, head of currency strategy at NAB. The dollar index, which gauges its value versus six major peers, was little changed at 97.44, below the 19-month high of 97.71 it hit on Friday. Apart from fears of a global economic slowdown, markets are also focusing on the future trajectory of U.S. monetary policy. The Federal Reserve is set to raise interest rates by 25 basis points at its Dec. 18-19 meeting. The central bank has lifted rates eight times since December 2015 in a bid to restore policy to more normal settings after having slashed borrowing costs to near zero to combat the financial crisis a decade ago. 


With the December hike largely factored in by the market, larger moves in the dollar will be guided by the Fed’s forward guidance. According to their latest projections in September, the median view among the Fed’s policymakers was for three rate hikes in 2019. However, interest rate futures used to gauge the probability of further hikes are pricing in only one rate hike in 2019. Traders believe that higher U.S. borrowing costs will likely hurt U.S. growth momentum and ultimately force the Fed to pause its monetary tightening path. Recent comments by Fed officials have also been read as dovish by some analysts. Last month, Fed Chairman Jerome Powell said rates were near the range of policymakers’ estimates of “neutral” - the level at which they neither stimulate nor impede the economy. “The Fed will most likely move from an auto-pilot mode to being data dependent,” added Attrill.

 

South African Rand

BDLive: The rand came unstuck on Friday morning, reflecting the deterioration in global sentiment. The local currency shed nearly 1% against the dollar, putting it on track for the second consecutive weekly decline. Other emerging-market currencies, including the Turkish lira, were also under pressure. Emerging market assets tend to suffer when their peers are battling because investors perceive them as more risky. Global growth concerns appear to be on the radar again, after China’s retail sales and industrial output for November disappointed. Oanda analyst Stephen Iness said: “Investors are right to be worried about global growth as the Chinese economy continues to sputter. “The data lends support to the market’s view that things will get worse in China before they get better, this despite investment rising.”


The rand has had another wild run last week, as it weakened to a one-month low of R14.48/$ before bouncing back to R14.04/$ and subsequently retreating to R14.34/$. The weaker rand has the potential to stoke inflation, which accelerated to an annual rate of 5.2% in November, from 5.1% in October. The weaker currency contributed to the Reserve Bank raising interest rates by 25 basis points to 6.75% in November, for the first time in two years. At 9.50am on Friday, the rand was 0.97% weaker at R14.3123/$, 0.91% to R16.2469/€ and 0.66% against the pound at R18.0635/£. The euro was relatively flat to the dollar at $1.2658. Local bonds were also weaker, with the yield on the benchmark R186 rising to 9.21%, from 9.13% at its last settlement.

 

Global Markets

Reuters: Asian share markets began the week on a cautious note after soft economic data from China and Europe added to evidence of cooling global growth and reinforced anxiety over the broadening impact of international trade frictions. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1 percent in early Monday trade, led by losses in China and Hong Kong. The CSI 300 of Shanghai and Shenzhen share index dropped 0.9 percent. Other markets showed some resilience. Japan’s Nikkei was up 0.5 percent while U.S. stock futures ticked up 0.2 percent. Taiwan also gained 0.3 percent. On Wall Street on Friday, the S&P 500 lost 1.91 percent to 2,599.95, marking its lowest close since April 2. The Australian dollar, whose fortunes are closely tied to China's economy, was marginally lower at $0.7174. It lost 0.3 percent of its value last week as data showed Chinese November retail sales grew at the weakest pace since 2003 and industrial output rose the least in nearly three years, underlining risks to the economy. 


The offshore Chinese yuan was flat at 6.9013. The yen was flat in early Asian trade at 113.36 to the dollar. It strengthened against the euro and sterling last week, reflecting the risk-off mood in the financial markets. The euro was also little changed at $1.1304, having lost 0.6 percent last week after weaker-than expected data out of France and Germany suggested that economic activity in Europe remains weak. The biggest mover was the Mexican peso, which gained after Mexico’s new leftist government avoided major surprises in its closely watched first budget, sticking to fiscal promises made earlier to investors. The peso rose 0.8 percent to 20.094 on the dollar, edging near a key resistance of 20. Oil prices licked wounds after Friday’s falls on concerns about the global economy. U.S. West Texas Intermediate (WTI) crude futures stood flat at $51.22 per barrel, after a loss of 2.7 percent last week.

HONG KONG OFFICE

 

US Dollar

Reuters: The dollar held near a 19-month high on Monday, bolstered by safe-haven buying as heightened concerns of a global economic slowdown reduced appetite for riskier assets such as stocks and Asian currencies. Weaker-than-expected economic data out of China and Europe and fears of a possible U.S. government shut down spooked investors away from stocks toward safe haven assets such as the greenback and yen. “The dollar is clearly showing it is attractive during times of market stress,” said Ray Attrill, head of currency strategy at NAB.

 

The Australian dollar, whose fortunes are closely tied to China's economy, was marginally lower at $0.7174. It lost 0.3 percent of its value last week as data showed Chinese November retail sales grew at the weakest pace since 2003 and industrial output rose the least in nearly three years, underlining risks to the economy. The offshore Chinese yuan was flat at 6.9013. The yen was flat in early Asian trade at 113.36 to the dollar. It strengthened against the euro and sterling last week, reflecting the risk-off mood in the financial markets. The euro was also little changed at $1.1304, having lost 0.6 percent last week after weaker-than expected data out of France and Germany suggested that economic activity in Europe remains weak. Sterling remained under pressure in Asian trade, down 0.02 percent at $1.2582. British trade minister Liam Fox said on Sunday talks with the European Union to secure "assurances" for parliament on Prime Minister Theresa May's Brexit deal will take time, with a decision expected in the New Year.

 

Japanese Yen

FXStreet: USD/JPY fell from 113.65 to 113.20 in a risk-off end to the week and the defensive yen was outperforming. US equities fell around 2% with Europe down 0.5-0.9% as investors fear that global growth was coming under pressure again with European PMIs falling sharply while China’s data failed to bounce. 

Valeria Bednarik, Chief Analyst at FXStreet explained that the pair has been struggling for direction for over a month already, with the downside well-limited but no follow-through beyond the 114.50 price zone, where the pair topped early October: "The daily chart shows that technical indicators have lost upward momentum, heading lower in neutral territory, falling short of indicating a bearish extension, moreover considering that the pair has bounced several times from a bullish 100 DMA, currently at 112.40. Shorter term and according to the 4 hours chart, the technical picture is neutral, as the pair bounced modestly from directionless and converging moving averages, as technical indicators head nowhere around their midlines."

 

Australian Dollar

FXStreet: The AUD/USD pairing has opened the new trading week quietly, sticking close to where it closed out last Friday near 0.7170. Declining economic figures from China and investor concerns about a growing global slowdown saw the Aussie weaken late last week into a fresh bottom at 0.7150, and the new trading week is seeing a quiet start as investors gear up for the new week.

 

Saturday saw China's House Price Index clip into 9.3% versus the previous 8.6%, and the improved reading is helping to keep early-Monday investor confidence on-balance after last week's Retail Sales and Industrial Production misses. Monday itself sees a limited start on the calendar with no meaningful data slated for the early session, though Tuesday will be bringing another round of the Reserve Bank of Australia's (RBA) Meeting Minutes, and declining Australian/Chinese economic data in recent weeks could push the RBA further into their dovish trench, which would further pull investor confidence out of the Aussie.

 

Global Markets

Reuters: Asian share markets began the week on a cautious note after soft economic data from China and Europe added to evidence of cooling global growth and reinforced anxiety over the broadening impact of international trade frictions. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.1 percent in early Monday trade, led by losses in China and Hong Kong. The CSI 300 of Shanghai and Shenzhen share index dropped 0.9 percent. Other markets showed some resilience. Japan’s Nikkei was up 0.5 percent while U.S. stock futures ticked up 0.2 percent. Taiwan also gained 0.3 percent.

 

Oil prices licked wounds after Friday’s falls on concerns about the global economy. U.S. West Texas Intermediate (WTI) crude futures stood flat at $51.22 per barrel, after a loss of 2.7 percent last week.

 

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