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TradeFred Daily Briefing
Fri 19-07-2019 12:00

In Brief:

  • USD on the defensive as Fed officials hint at Interest Rates cut
  • Wall Street brokerages believe Netflix outlook still positive
  • Strong candidates put off BoE role due to Brexit concerns
  • Bitcoin stages huge intraday surge to move above $10K

The US Dollar was on the defensive on Friday after Federal Reserve officials bolstered expectations of an aggressive rate cut this month to address weakening price pressures. At a central banking conference on Thursday, New York Fed President John Williams argued for pre-emptive measures to avoid having to deal with too low inflation and interest rates. Although a New York Fed representative subsequently said Williams' comments were academic and not about immediate policy direction, investors still took his remarks along with separate comments from Fed Vice Chair Richard Clarida as a dovish signal from the central bank.

Oil prices extended gains on Thursday after Iran said it had seized a foreign tanker in the Persian Gulf, pushing geopolitical premiums higher after a brief lull. New York-traded West Texas Intermediate Crude futures rose 30 cents, or 0.5%, to $57.08 a barrel by 8:13 AM ET (12:13 GMT), while Brent Crude futures, the benchmark for oil prices outside the US, gained 48 cents, or 0.8%, to $64.14. Several media reports cited Iranian state TV as saying that Revolutionary Guards forces seized a foreign tanker with 12 crew members accused of smuggling oil.

Wall Street brokerages stuck to a positive outlook on Netflix Inc on Thursday, betting that a strong content slate for the rest of 2019 would reverse shock second-quarter losses in US subscribers that sank its stock price. Netflix shares fell about 11% on worries about its earnings report on Wednesday that showed lower-than-expected global growth and signs of trouble in its US base ahead of Walt Disney Co's much-awaited launch of a rival service later this year. Netflix, whose price-to-earnings ratio is by far the largest of the five big US tech companies making up the so-called FAANG group, has quadrupled in value since 2015 but at $321 per share is down $100 from 2018 peaks. The other FAANG companies are Facebook Inc, Amazon.com Inc, Apple Inc and Alphabet Inc.

Asian markets rose on Friday amid growing expectations for aggressive Federal Reserve easing following dovish comments from New York Federal Reserve President John Williams. China’s Shanghai Composite and the Shenzhen Component gained 1.1% and 1.3% respectively by 10:40 PM ET (02:40 GMT). Hong Kong’s Hang Seng Index also climbed 1.3%. Japan’s Nikkei 225 jumped 1.8%. Data showed today that the country’s core consumer price index rose 0.6% in June from a year earlier, in line with expectations.

Morgan Stanley reported a drop in quarterly profit Thursday, hit by lower market activity amid global trade tensions and expectations for US interest rate cuts. It was the last big US bank to report earnings in a quarter that exposed weaknesses in Wall Street's investment bank and trading businesses. But Morgan Stanley executives downplayed the toll rate cuts could have on profitability and highlighted growth in the bank's wealth management unit. The wealth business, which contributes 44% of Morgan Stanley's revenue, rose 1.9% to $4.40 billion from a year earlier. The unit benefited both from higher stock prices and more lending to customers. That more than offset the effects of lower interest rates.

The number of Americans filing applications for unemployment benefits increased moderately last week, pointing to still strong labour market conditions despite signs that economic activity was slowing. Other data on Thursday showed factory activity in the mid-Atlantic region rebounded sharply in July, reaching its highest level in a year. That added to recent surveys on manufacturing that have suggested the struggling sector was stabilizing.

The improvement in the regional factory surveys likely reflects a decision by President Donald Trump not to impose tariffs on Mexican goods after the two countries struck a deal on immigration. But manufacturing, which makes up about 12% of the economy, remains hamstrung by weaker business spending on equipment, an inventory glut, a bitter trade war between the United States and China, and softening global growth.

Japan's core inflation slowed to its weakest in about two years in June, data showed on Friday, underlining the nation's long battle to boost consumer prices and adding to speculation the Bank of Japan could deliver more stimulus later this month. With the global economy slowing and factory production faltering in the face of a bruising Sino-US trade war, BOJ officials have said they remain ready to expand stimulus, joining the US Federal Reserve in signaling an easing may be coming soon.

An overwhelming majority of Japanese firms see no need for the Bank of Japan to ease policy further this year, a Reuters survey showed, despite speculation the central bank may do so as early as this month as economic pressures mount. Expectations are growing that the BOJ could expand its massive stimulus this year to cushion the impact on Japan's export-reliant economy from the US-China trade war and weakening global demand. Rises in the Yen resulting from monetary easing by other major global central banks could also prompt the BOJ into additional easing, the survey showed.

Former US Federal Reserve chair Janet Yellen and Raghuram Rajan, former governor of the Indian central bank, have been deterred from applying for the job as the governor of the Bank of England because of the political turmoil caused by Brexit, the Financial Times reported on Thursday. The two, among the world’s leading central bankers, are not being considered for the role because they would not apply, the newspaper reported. A number of potential candidates the government had considered did not want to get embroiled in the politics of Brexit, the Financial Times said.

Bitcoin regained its footing Thursday, rising above the key $10,000 level after a sudden intraday surge higher. The surge was mirrored by other crypto currencies and came despite the murky backdrop for cryptos in the wake of recent criticism of Facebook’s plans for its Libra coin. Bitcoin rose 7.9% to $10,604, after hitting an intraday low of $9,390.

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TradeFred Daily Briefing

TradeFred Daily Briefing

TradeFred Daily Briefing

In Brief:

  • USD on the defensive as Fed officials hint at Interest Rates cut
  • Wall Street brokerages believe Netflix outlook still positive
  • Strong candidates put off BoE role due to Brexit concerns
  • Bitcoin stages huge intraday surge to move above $10K

The US Dollar was on the defensive on Friday after Federal Reserve officials bolstered expectations of an aggressive rate cut this month to address weakening price pressures. At a central banking conference on Thursday, New York Fed President John Williams argued for pre-emptive measures to avoid having to deal with too low inflation and interest rates. Although a New York Fed representative subsequently said Williams' comments were academic and not about immediate policy direction, investors still took his remarks along with separate comments from Fed Vice Chair Richard Clarida as a dovish signal from the central bank.

Oil prices extended gains on Thursday after Iran said it had seized a foreign tanker in the Persian Gulf, pushing geopolitical premiums higher after a brief lull. New York-traded West Texas Intermediate Crude futures rose 30 cents, or 0.5%, to $57.08 a barrel by 8:13 AM ET (12:13 GMT), while Brent Crude futures, the benchmark for oil prices outside the US, gained 48 cents, or 0.8%, to $64.14. Several media reports cited Iranian state TV as saying that Revolutionary Guards forces seized a foreign tanker with 12 crew members accused of smuggling oil.

Wall Street brokerages stuck to a positive outlook on Netflix Inc on Thursday, betting that a strong content slate for the rest of 2019 would reverse shock second-quarter losses in US subscribers that sank its stock price. Netflix shares fell about 11% on worries about its earnings report on Wednesday that showed lower-than-expected global growth and signs of trouble in its US base ahead of Walt Disney Co's much-awaited launch of a rival service later this year. Netflix, whose price-to-earnings ratio is by far the largest of the five big US tech companies making up the so-called FAANG group, has quadrupled in value since 2015 but at $321 per share is down $100 from 2018 peaks. The other FAANG companies are Facebook Inc, Amazon.com Inc, Apple Inc and Alphabet Inc.

Asian markets rose on Friday amid growing expectations for aggressive Federal Reserve easing following dovish comments from New York Federal Reserve President John Williams. China’s Shanghai Composite and the Shenzhen Component gained 1.1% and 1.3% respectively by 10:40 PM ET (02:40 GMT). Hong Kong’s Hang Seng Index also climbed 1.3%. Japan’s Nikkei 225 jumped 1.8%. Data showed today that the country’s core consumer price index rose 0.6% in June from a year earlier, in line with expectations.

Morgan Stanley reported a drop in quarterly profit Thursday, hit by lower market activity amid global trade tensions and expectations for US interest rate cuts. It was the last big US bank to report earnings in a quarter that exposed weaknesses in Wall Street's investment bank and trading businesses. But Morgan Stanley executives downplayed the toll rate cuts could have on profitability and highlighted growth in the bank's wealth management unit. The wealth business, which contributes 44% of Morgan Stanley's revenue, rose 1.9% to $4.40 billion from a year earlier. The unit benefited both from higher stock prices and more lending to customers. That more than offset the effects of lower interest rates.

The number of Americans filing applications for unemployment benefits increased moderately last week, pointing to still strong labour market conditions despite signs that economic activity was slowing. Other data on Thursday showed factory activity in the mid-Atlantic region rebounded sharply in July, reaching its highest level in a year. That added to recent surveys on manufacturing that have suggested the struggling sector was stabilizing.

The improvement in the regional factory surveys likely reflects a decision by President Donald Trump not to impose tariffs on Mexican goods after the two countries struck a deal on immigration. But manufacturing, which makes up about 12% of the economy, remains hamstrung by weaker business spending on equipment, an inventory glut, a bitter trade war between the United States and China, and softening global growth.

Japan's core inflation slowed to its weakest in about two years in June, data showed on Friday, underlining the nation's long battle to boost consumer prices and adding to speculation the Bank of Japan could deliver more stimulus later this month. With the global economy slowing and factory production faltering in the face of a bruising Sino-US trade war, BOJ officials have said they remain ready to expand stimulus, joining the US Federal Reserve in signaling an easing may be coming soon.

An overwhelming majority of Japanese firms see no need for the Bank of Japan to ease policy further this year, a Reuters survey showed, despite speculation the central bank may do so as early as this month as economic pressures mount. Expectations are growing that the BOJ could expand its massive stimulus this year to cushion the impact on Japan's export-reliant economy from the US-China trade war and weakening global demand. Rises in the Yen resulting from monetary easing by other major global central banks could also prompt the BOJ into additional easing, the survey showed.

Former US Federal Reserve chair Janet Yellen and Raghuram Rajan, former governor of the Indian central bank, have been deterred from applying for the job as the governor of the Bank of England because of the political turmoil caused by Brexit, the Financial Times reported on Thursday. The two, among the world’s leading central bankers, are not being considered for the role because they would not apply, the newspaper reported. A number of potential candidates the government had considered did not want to get embroiled in the politics of Brexit, the Financial Times said.

Bitcoin regained its footing Thursday, rising above the key $10,000 level after a sudden intraday surge higher. The surge was mirrored by other crypto currencies and came despite the murky backdrop for cryptos in the wake of recent criticism of Facebook’s plans for its Libra coin. Bitcoin rose 7.9% to $10,604, after hitting an intraday low of $9,390.

TradeFred Daily Briefing

In Brief:

  • Pound rebounds slightly & puts pressure on USD
  • Lendlease announces Silicon Valley contract with Google
  • Asian shares fall after BOK cuts Interest Rates
  • Confidence of Japan’s manufacturers hits 3-year low

The US Dollar nursed light losses on Thursday, weighed down by lower US yields and a rebound in the Pound from 27-month lows. The Dollar index (DXY) versus a basket of six major currencies was flat at 97.200 after shedding 0.2% the previous day. The index had climbed to a one-week peak of 97.444 the previous day on stronger-than-expected US retail sales and a slump in Sterling. But it nudged lower as Treasury yields fell in the wake of weak US housing market data and concerns about the unresolved US-China trade conflict.

Currency traders who were wary of positioning outright for a hard Brexit outcome may finally be throwing in the towel: heavy selling has hit Sterling this month and metrics such as derivatives and positioning suggest no respite ahead. The question for the markets and public alike is just how far Sterling could now weaken. Just a cursory reading of historical chart troughs shows $1.20 within easy reach. But major UK banks, such as HSBC, are already talking of the possibility it breaches post-Brexit referendum lows of $1.1491. And then sights get trained on the historic all-time low of $1.0545 from March 1985, just before G7 powers acted to rein in the Superdollar of the Reagan era in the so-called "Plaza Accord".

Oil prices steadied on Thursday after falling in the previous session when official data showed US stockpiles of products like gasoline rose sharply last week, suggesting weak demand during the peak driving season. Brent Crude (LCOc1) futures were up 13 cents, or 0.2%, at $63.80 a barrel by 02:37 GMT. They fell 1.1% on Wednesday. US West Texas Intermediate Crude (CLc1) futures were down 1 cent at $56.77. The US benchmark dropped 1.5% in the previous session. Oil prices have fallen this week as worries over a Middle East conflict have eased, oil production in the Gulf of Mexico has resumed after a storm and worries have emerged over Chinese economic growth.

Spot Gold, reflective of trades in bullion, traded at $1,424.45 per ounce by 2:43 PM ET (18:43 GMT), up $13.25, or 0.9%, on the day. Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled up $12.10, or 0.9%, at $1,423.30. Gold was buoyed by an IMF statement, that claimed the USD is overvalued by 6% to 12% based on near-term economic fundamentals. This caused the Dollar index to fall 0.2%, boosting both bullion and Gold futures, which are contrarian trades to the Dollar.

Australia's LendLease Group on Thursday said it secured a contract with Alphabet Inc's Google to develop $15 billion worth of residential and retail space in Silicon Valley, sending the builder's stock to a more than eight-month high. The deal is a significant boon for LendLease, coming at a time when Australian developers navigate the domestic property market's worst downturn in a generation, characterized by a drop in building approvals and tighter consumer spending. It is also a major win for LendLease's strategy to expand abroad, and will see it reinforce its core role as a residential developer after being hobbled by its engineering division.

Asian markets fell in morning trade on Thursday. An interest rate cut by the Bank of Korea (BOK) and a worse-than-expected Australian jobs data were in focus. South Korea's central bank unexpectedly cut its policy interest rate for the first time in three years on Thursday, as uncertainties from a trade dispute with Japan add to growing concerns over the economy's outlook. The Bank of Korea announced its Monetary Policy Board voted to cut the base rate by 25 basis points to 1.50%, without elaborating, ahead of expectations in a Reuters poll that the board would lower the rate next month.

Australian full-time employment surged in June but the jobless rate stayed stuck at 5.2% as more people looked for work, a sign of spare capacity that argues for more policy stimulus. The Reserve Bank of Australia (RBA) is closely watching the monthly employment series as it is counting on labour market strength for a long-awaited pick up in wage growth and inflation. The RBA has recently estimated that the jobless rate will need to fall to 4.5% to generate any wage pressures. To help achieve that level it chopped interest rates twice since June to a record low of 1% as the economy grapples with falling home prices and miserly consumer spending.

Chinese stocks extended losses on continued momentum after US President Donald Trump said it is still a long way to go before Washington and Beijing could make a trade deal, while threatening to impose more tariffs on Chinese goods. The Shanghai Composite and the Shenzhen Component were down 0.6% and 0.9% respectively by 10:36 PM ET (02:36 GMT).

Elsewhere, Hong Kong’s Hang Seng Index fell 0.4%. Japan’s Nikkei 225 slumped 1.6% after data showed the country’s exports fell 6.7% in June from a year earlier, which was more than the expected 5.6% year-on-year decline.

Japanese manufacturers' business confidence hit a three-year low in July, highlighting the fragility of the export-led economy as external demand slackens in the face of cooling global growth and trade friction, the Reuters Tankan showed. In another worrisome sign, sentiment in the service sector improved this month but is forecast to tumble three months ahead. Both the Reuters and BOJ surveys underscore expectations among some analysts of a possible ramping up of the central bank's stimulus at its policy review later in the month.

Expectations have risen sharply that the Bank of Japan's next policy move will be to ease further, a Reuters poll of economists found, as the US Federal Reserve looks set to cut interest rates this month for the first time in over a decade. Three-quarters of economists said the BOJ's next move would be to expand stimulus, up from about half last month and 38% just two months ago. Almost two-thirds of those who predicted easing expect it within the year and some as early as this month.