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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.

 

22 / 11 / 19

 

LONDON OFFICE

 

British Pound

Reuters: The pound struggled to break through the $1.30-mark yet again on Thursday, as a rebound in the dollar and an election manifesto from the opposition Labour Party that fuelled some profit-taking on the British currency. In its fourth attempt to break through $1.30 in nearly two months, the pound struggled to gain momentum as investors moved to the sidelines before the Dec. 12 election. Labour leader Jeremy Corbyn unveiled his party’s election manifesto on Thursday, setting out radical plans to transform Britain with public sector pay rises, higher taxes on companies and a sweeping nationalisation of infrastructure. “Sterling yet again found profit takers up at 1.2970, but gave up more ground than most would have expected as the USD rallied against all majors,” said John Marley, a senior currency consultant at FX risk management specialist, SmartCurrencyBusiness. “Support likely in the low 1.29’s, and very hard to see a break of this tight range ahead of the election.”


Voters face a stark choice at the country’s Dec. 12 election: opposition leader Corbyn’s socialist vision, including widespread nationalisation and free public services, or Prime Minister Boris Johnson’s drive to deliver Brexit within months and build a “dynamic market economy”. Sterling has gained more than 8% from a Sept. 3 low as markets cut the risks of a no-deal Brexit. But gains have stalled in the past month as election uncertainty has risen, including the prospect of victory for the Labour Party that has pledged tax hikes for the wealthy and a swathe of nationalisations. Jasper Lawler, head of research at London Capital Group, said sterling and shares in UK-focused companies were pricing risks attached to Brexit and a Labour government. “The more extreme the Labour manifesto, the more volatility we’d expect to see in the pound and UK shares when the polls tighten closer to election day,” he said, speaking before the manifesto launch, though he did not expect an immediate reaction. “We still favour a break above 1.30 in sterling but stand ready to reverse that call if Labour’s manifesto can capture the public’s imagination.” Following the release of the manifesto, the pound edged 0.1% lower against a broadly resurgent dollar to $1.2908 and weakened against the euro at 85.74 pence. The currency had slipped to a five-day low of $1.2888 after Tuesday’s televised debate in which Corbyn was seen to have performed better than expected. Johnson meanwhile outlined plans for a multi-billion-pound payroll tax cut but has not fully unveiled the Conservatives’ manifesto. While bearish positions on sterling have been cut in recent weeks, they remain high, and on derivatives markets too there are signs of nervousness. One-month implied volatility, a contract capturing the election date, has risen 5 percentage points in the past two weeks to 11.7%.

 

US Dollar

Reuters: The dollar held overnight gains on Friday, as investors clung to the safe-haven pending developments in Sino-U.S. trade negotiations and amid a growing scepticism about reports of progress in the talks. Movements were slight as investors also looked to a slew of global manufacturing surveys published later in the day for clues on how deeply the U.S.-China trade dispute is hurting the world’s economy. The greenback crept higher against the Japanese yen to 108.58 yen and was steady against the euro at $1.1064. Antipodean currencies were flat on the dollar, with the Aussie buying $0.6789 and the kiwi $0.6404. Against a basket of currencies the dollar last treaded at 97.993. “Trade is the elephant in the room,” said Ray Attrill, National Australia Bank’s head of FX strategy, though he added that “headline fatigue has set in,” limiting volatility in the market’s reaction to new information. Investors had earlier factored in the prospect that a partial truce could be agreed at a mid-November summit in Santiago. But that summit was cancelled and the path forward is now unclear.


China will try hard to resolve the dispute, Commerce ministry spokesman Gao Feng told reporters on Thursday. The Wall Street Journal also reported that top U.S. negotiators had been invited to Beijing for a new round of face-to-face talks, further raising hopes and risk appetite. However trade experts and people close to the White House told Reuters that negotiations could slide into next year. “With the constant barrage of seemingly contradictory stuff, the market’s given up trying to second-guess the next headline,” said Attrill. “We’ll trade it once we know what’s happening.” China's yuan, which is highly sensitive to trade news, was stable at 7.0303 per dollar in offshore trade. Elsewhere, the rising dollar kept the British pound below $1.30, while a manifesto from the British Labour Party setting out radical plans to raise tax and nationalise infrastructure also weighed. Sterling last traded at $1.2916. Purchasing managers indexes are due for Germany, the Eurozone, Britain and the United States later on Friday, offering a reading on the globe’s battered manufacturing sector. “The current narrative has global growth slowing to year end,” said Michael McCarthy, chief markets analyst at brokerage CMC Markets in Sydney. “So the real potential is if we see surprises on the upside...it could have direct impact on Euro-U.S. dollar.”

 

South African Rand

EWN: South Africa’s rand firmed on Thursday, supported by a weaker dollar and the central bank’s decision to keep the repo rate unchanged, while stocks edged lower. The U.S. dollar eased against other major currencies, with investors focused on the latest developments in a 16-month long trade dispute between the United States and China that has weighed on the world economy. At 1650 GMT the rand was 0.59% firmer at 14.7000 per dollar. The currency touched a session high of 14.6410 after the central bank kept the repo rate at 6.5% in a close decision. The bank said it wanted to see inflation expectations closer to the midpoint of its target range, despite a sustained drop in headline inflation. “The decision was not surprising against the backdrop of elevated inflation risks in both domestic and global economies,” Nedbank analysts said in a note. “A further improvement of inflation expectations would boost chances of a cut in January and this could be helped by another low headline CPI figure in December,” the Nedbank analysts said. “However, the proximity of the National Budget in February 2020 may prevent an early cut.”


On the stock market, stocks fell alongside other emerging market equities after as a diplomatic row between the United States and China sparked fears of a delay to a deal to end a trade war that has dented global growth and unsettled financial markets. The benchmark JSE Top-40 Index fell 1.44% to 50,235.68 points while the broader All-Share Index fell 1.35% to 56,540.25 points. Financials took the biggest tumble on the blue-chip index, with insurance and financial services company Discovery down 4.4% at R128.75 and Absa Group down 4.08% at R158.53. Preventing further losses was retailer Mr Price Group which shot up 11.25% to the top of the index after reporting total revenue growth of 2.6% even though profits were down 10% because of the weak economy and an imbalance in product ranges. In fixed income, the yield on the benchmark 2026 bond added 2.5 basis points to 8.33%.

 

Global Markets

Reuters: Asian equities posted a mild bounce on Friday from three-week lows hit the previous day, with persistent worries over the status of trade negotiations between China and the United States limiting the gains. MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.12%, recovering from Thursday’s drop of as much as 1.4% that took it to its lowest level since Oct. 30 on concerns that U.S. legislation on Hong Kong threatened to undermine trade talks between the world’s two largest economies. Those concerns linger, with U.S. President Donald Trump expected to sign into law two bills backing protesters in Hong Kong after the U.S. House of Representatives voted 417 to 1 for the “Hong Kong Human Rights and Democracy Act”, which the Senate had passed unanimously a day earlier. “If he’s going to be forced to sign it, then it brings another element of uncertainty to this phase one trade deal, which then pushes back into next year,” said Matt Simpson, senior market analyst at GAIN Capital in Singapore. But Simpson said that in the absence of major news on trade, rangebound market moves are “quite reflective of the small headlines coming through”.


Chinese blue-chip shares, which had opened higher, turned negative later in the morning, and were last down 0.82%. Australian shares gained 0.55% and Japan's Nikkei was up 0.43%. Worries that a "phase one" trade deal between the United States and China might not occur until next year had weighed on investor sentiment on Wall Street overnight, pulling the S&P 500 down 0.16% to 3,103.54, the Dow Jones down 0.2% to 27,766.29 and the Nasdaq Composite 0.24% lower to 8,506.21. The losses, though, were tempered by China saying it was willing to work with the United States to resolve core trade concerns, and a report in the Wall Street Journal that China has invited top U.S. trade negotiators for a new round of face-to-face talks in Beijing. “I was ready to give up on a trade deal yesterday. But it seems the Chinese haven’t so I, we, mustn’t,” Greg McKenna, strategist at McKenna Macro, said in a note. But analysts at ANZ said that whipsawing hopes over a deal were starting to wear on investors in the 16th month of the U.S.-China trade war. “It’s fair to say that some signs of trade-headline fatigue are emerging in markets,” they said in a note. U.S. Treasury yields were a shade higher. The yield on benchmark 10-year Treasury notes was at 1.7774%, up from its U.S. close of 1.772% on Thursday. The policy-sensitive two-year yield was at 1.6087% compared with a U.S. close of 1.605%. In currency markets, the yen was barely stronger, with the dollar buying 108.61. The euro EUR= was up 0.05% at $1.1063. The dollar index, which tracks the greenback against a basket of six major rivals, was off 0.04% at 97.958. Oil prices retreated after hitting two-month highs following a Reuters report that the Organization of Petroleum Exporting Countries and its allies are likely to extend existing output cuts until mid-2020. U.S. West Texas Intermediate crude dipped 0.68% to $58.18 a barrel and global benchmark Brent crude was down 0.58% at $63.60 per barrel. Spot gold edged up 0.04% to $1,464.74 per ounce.

HONG KONG OFFICE

 

British Pound

FXStreet: Bearish candlestick formation on daily chart keeps sellers’ watch over GBP/USD despite the recent pullback. 21-day SMA acts as the key to a monthly low. Bearish candlestick pattern doubts the GBP/USD pair’s latest recovery as the cable takes the bids to 1.2920 during Friday’s Asian session. Considering the bearish pin bar on the daily (D1) chart, prices are likely to liquidate the recent upside momentum unless breaking the latest high of 1.2986. In doing so, 1.3000 and the previous month high near 1.3013 will be on the short-term buyers’ radar whereas May month top close to 1.3180 will lure the bulls afterward.

 

On the downside, sellers can target the 21-day Simple Moving Average (SMA) level of 1.2882 as immediate support ahead of watching over the monthly bottom surrounding 1.2770. Should bearish signals from the 12-bar Moving Average Convergence and Divergence (MACD) stay intact past-1.2770, October 11 high close to 1.2710 will return to the charts.

 

US Dollar

Reuters: The dollar held overnight gains on Friday, as investors clung to the safe-haven pending developments in Sino-U.S. trade negotiations and amid a growing scepticism about reports of progress in the talks. Movements were slight as investors also looked to a slew of global manufacturing surveys published later in the day for clues on how deeply the U.S.-China trade dispute is hurting the world’s economy.

 

The greenback crept higher against the Japanese yen to 108.58 yen and was steady against the euro at $1.1064. Antipodean currencies were flat on the dollar, with the Aussie buying $0.6789 and the kiwi $0.6404. Against a basket of currencies the dollar last treaded at 97.993. “Trade is the elephant in the room,” said Ray Attrill, National Australia Bank’s head of FX strategy, though he added that “headline fatigue has set in,” limiting volatility in the market’s reaction to new information. Investors had earlier factored in the prospect that a partial truce could be agreed at a mid-November summit in Santiago. But that summit was cancelled and the path forward is now unclear.

 

China will try hard to resolve the dispute, Commerce ministry spokesman Gao Feng told reporters on Thursday. The Wall Street Journal also reported that top U.S. negotiators had been invited to Beijing for a new round of face-to-face talks, further raising hopes and risk appetite. However trade experts and people close to the White House told Reuters that negotiations could slide into next year. “With the constant barrage of seemingly contradictory stuff, the market’s given up trying to second-guess the next headline,” said Attrill. “We’ll trade it once we know what’s happening.” China's yuan, which is highly sensitive to trade news, was stable at 7.0303 per dollar in offshore trade.

 

Elsewhere, the rising dollar kept the British pound below $1.30, while a manifesto from the British Labour Party setting out radical plans to raise tax and nationalise infrastructure also weighed. Sterling last traded at $1.2916. Purchasing managers indexes are due for Germany, the Eurozone, Britain and the United States later on Friday, offering a reading on the globe’s battered manufacturing sector. “The current narrative has global growth slowing to year end,” said Michael McCarthy, chief markets analyst at brokerage CMC Markets in Sydney. “So the real potential is if we see surprises on the upside...it could have direct impact on Euro-U.S. dollar.”

 

Japanese Yen

FXStreet: USD/JPY flats in Tokyo as markets look for trade-deal clarity. It maintains a bullish bias above the 50-DMA. Trade war headlines were mixed, making for a slightly firmer dollar while US stocks sunk. At the time of writing, USD/JPY is flat around 108.60 trading ina narrow 10-pip range following a mixed session overnight for financial markets. where USD/JPY ranged between 108.46 and 108.70.

 

The Japan October Consumer Price Index was expected to tick up fractionally, to 0.3% YoY overall, 0.6% YoY ex-fresh food & energy. The data arrived as follows: Japan CPI (Y/Y) Oct 0.2% (est 0.3%; prev 0.2%) - Japan CPI Ex. Fresh Food (Y/Y) Oct 0.4% (est 0.4%; prev 0.3%) -Japan CPI Ex. Fresh Food And Energy (Y/Y) Oct 0.7% (est 0.6%; prev 0.5%). 

 

Chief analyst at FXStreet, Valeria Bednarik, explained that the technical perspective remains neutral in the 4-hour chart, with flat indicators, while the spot consolidates below the 100-period SMA but above the 20- and 200-period ones.

 

Global Markets

Reuters: Asian equities rose on Friday, bouncing from a three-week low touched a day earlier, but gains were capped by persistent worries over the status of trade negotiations between China and the United States. Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.12%. The index had fallen as much as 1.41% on Thursday, hitting its lowest level since October 30, on concerns that U.S. legislation on Hong Kong threatened to undermine trade talks between the world’s two largest economies.

 

Australian shares were up 0.52% and Japan's Nikkei gained 0.1%. Worries that a "phase one" trade deal between the United States and China might not occur until next year weighed on investor sentiment on Wall Street overnight, pulling the S&P 500 down 0.16% to 3,103.54, the Dow Jones down 0.2% to 27,766.29 and the Nasdaq Composite 0.24% lower to 8,506.21. Those losses were tempered by China saying it was willing to work with the United States to resolve core trade concerns, and a report in the Wall Street Journal that China has invited top U.S. trade negotiators for a new round of face-to-face talks in Beijing.

 

In currency markets, the safe-haven yen was a touch stronger, with the dollar dropping 0.05% to 108.58. The euro was up 0.05% at $1.1063. The dollar index, which tracks the greenback against a basket of six major rivals, was unchanged at 97.993. Oil prices retreated after hitting two-month highs on a Reuters report that the Organization of the Petroleum Exporting Countries and its allies are likely to extend existing output cuts until mid-2020. U.S. crude dipped 0.41% to $58.34 a barrel. Spot gold edged up 0.04% to fetch $1,464.70 per ounce.

 

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