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TradeFred Daily Briefing
Thu 09-05-2019 12:00

In Brief:

  • Greenback hovering near 6-week lows as trade fears grow
  • Gold prices edge higher thanks to pressure on USD
  • Australia stocks move higher
  • Bitcoin & other cryptocurrencies recover following Binance hack

Bank of Japan Governor Haruhiko Kuroda rejected an idea gaining traction in some US circles that governments can spend more aggressively without causing hyper-inflation, adding that Tokyo's economic policies are nowhere close to the concept.

Kuroda said hyper-inflation could happen not only under extreme circumstances such as after a war, but also due to policy failures, as seen in some Latin American and Asian nations. "It's wrong to assume there will be no hyper-inflation even if you boost fiscal spending recklessly, as long as it's financed by the central bank," Kuroda told Japan's parliament on Thursday.

The US Dollar hovered near a six-week low versus the Yen on Thursday, weighed down against the safe-haven Japanese peer as risk aversion gripped broader markets amid concerns the US-China trade conflict could escalate. The US currency stood at 109.910 Yen after going as low as 109.70 overnight, its weakest since March 25. Meanwhile, the Kiwi remained under pressure following the Reserve Bank of New Zealand (RBNZ)’s decision to cut benchmark rate. Markets were nervously awaiting the start of two-day trade talks in Washington later in the global day to see if Chinese negotiators can convince the White House to back down on a threatened tariff hike on Friday.

US President Donald Trump said on Wednesday that China "broke the deal" it had reached in trade talks with the United States and vowed not to back down on imposing new tariffs on Chinese imports unless Beijing "stops cheating our workers." The US Trade Representative's office announced that tariffs on $200 billion worth of Chinese goods would increase to 25% from 10% on Friday, right in the middle of two days of meetings between Chinese Vice Premier Liu He and Trump's top trade officials in Washington.

The surprise deterioration in US-China trade talks has also prompted analysts to dramatically turn bearish on the Chinese Yuan. At the start of the week, the US President Donald Trump shockingly punctured optimism around trade talks between the world's top two economies by threatening to hike import tariffs on Chinese goods from Friday. Short positions on the Chinese Yuan were at their highest since mid-December, a fortnightly poll of 12 participants showed.

Oil prices dropped on Thursday amid concerns over the escalating trade battle between the United States and China, despite a surprise fall in US crude stockpiles. Brent Crude Oil futures were at $69.91 a barrel by 06:00 GMT, down 46 cents, or 0.7%, from their previous settlement. They earlier fell more than 1%. US West Texas Intermediate (WTI) Crude futures were at $61.76 per barrel, down 36 cents, or 0.6%, having also declined more than 1% earlier.

Gold prices edged up on Thursday in Asia as traders nervously await the start of two-day trade talks in Washington later in the day to see if Chinese negotiators could convince the White House to back down on a possible tariff hike on Chinese imports. Gold futures for June delivery, traded on the Comex division of the New York Mercantile Exchange, were up 0.1% at $1,282.65. Gold's rival, the USD, was little changed. The US Dollar Index Futures, which measure the Greenback against a basket of six currencies, traded at 97.373, down 0.01%.

Japanese conglomerate SoftBank Group Corp announced a stock split while keeping the per-share dividend unchanged for the year, effectively doubling its shareholder payout, as it also reported a better-than-expected annual profit. SoftBank's common stock will be split at a two-for-one ratio on June 27, while its dividend will stay at 44 Yen per share. The tech and telecoms group's operating profit for the year ended March rose 80.5 percent to 2.4 trillion Yen ($22 billion), driven by higher valuations of its tech investments.

Australian stocks were higher after the close on Thursday, as gains in the Utilities, Telecoms Services and Energy sectors led shares higher. At the close in Sydney, the S&P/ASX 200 rose 0.42%. The best performers of the session on the S&P/ASX 200 were Galaxy Resources Ltd which rose 7.49% or 0.115 points to trade at 1.650 at the close. Meanwhile, Orica Ltd added 6.01% or 1.120 points to end at 19.770 and Orocobre Ltd was up 4.64% or 0.160 points to 3.610 in late trade.

Consumer inflation in China hit a six-month high in April, mainly driven by rising pork prices, official data showed on Thursday. The official consumer price index rose 2.5% year-on-year in April, according to the National Bureau of Statistics, its highest reading since October. The number was in line with expectations and slightly higher than March’s 2.3%. Pork prices, which are heavily weighted in the gauge’s basket of goods, rose 14.4% year-on-year and 1.6% month-on-month. China's hog herd has been hit by African swine fever in recent months.

Governments of all stripes like to take credit for the jobs created in an economy, but in Australia's case it is literally true. According to figures from the Australian Bureau of Statistics (ABS) all the gains in employment for the year to February were in the public sector, some 292,900 in all. By contrast, private sector jobs actually shrank by 8,300. The reliance on government to generate jobs could be a potential headache for the Reserve Bank of Australia (RBA), which has been counting on continued gains to offset sluggish wages and falling home prices.

Major cryptocurrencies reversed losses from the day before on Thursday morning in Asia after the market was weighed down by the Binance hack news. The bullish sentiment sent Bitcoin up past $6,000. Bitcoin rose 3.14% to $6,080 by 11:36 AM ET (03:36 AM GMT), surpassing the key $6,000 level for the first time this year. The digital coin regained momentum after it was set back a little by the news that major crypto exchange Binance was hacked. On Tuesday, Binance said hackers withdrew 7,000 Bitcoins worth around $40 million in one affected transaction. Other digital tokens also traded in the green. Ethereum added 1.16% to $171.78, XRP was up 0.17% to $0.30082, and Litecoin edged up 1.61% to $75.352.

Latest Daily Reviews

In Brief:

  • Sterling volatile ahead of crucial Brexit meetings
  • Palladium soars to record highs
  • US stocks lose ground after poor retail sales
  • Cryptocurrencies tumble

Japan remained the biggest foreign owner of US Treasuries in August as China’s holdings continued to drop. Japan’s holdings of American notes, bills and bonds increased by about $44 billion to $1.17 trillion, the Treasury Department said in a monthly data release Wednesday. Japan overtook China as the largest non-US holder of Treasuries in June - the first time it has held that position since May 2017. China’s holdings decreased by about $6.8 billion to $1.1 trillion.

TradeFred Daily Briefing

In Brief:

  • Sterling loses ground vs USD & Euro
  • Asian stocks trade higher
  • New Zealand inflation accelerates faster than expected
  • Italy set to approve draft budget

The Pound pulled back from its highest level in almost five months versus the US Dollar on Wednesday, erasing some of the rally sparked by signs Britain is closing in on a deal to leave the European Union. Sterling also pulled back from its highest in five months against the Euro as investors took profit and prepared for a make-or-break summit between Britain and the EU on Thursday and Friday.

TradeFred Daily Briefing

TradeFred Daily Briefing

In Brief:

  • Sterling volatile ahead of crucial Brexit meetings
  • Palladium soars to record highs
  • US stocks lose ground after poor retail sales
  • Cryptocurrencies tumble

Japan remained the biggest foreign owner of US Treasuries in August as China’s holdings continued to drop. Japan’s holdings of American notes, bills and bonds increased by about $44 billion to $1.17 trillion, the Treasury Department said in a monthly data release Wednesday. Japan overtook China as the largest non-US holder of Treasuries in June - the first time it has held that position since May 2017. China’s holdings decreased by about $6.8 billion to $1.1 trillion.

The UK and EU will not announce a Brexit deal on Wednesday, according to several published reports. But a deal could still be announced later in the week as it was unclear at what juncture negotiations were at. GBP/USD, which had been bouncing around on headlines throughout the trading day, retreated after the reports, but was still up 0.3% at $1.2827. ITV political editor Robert Peston tweeted that there was “now no chance of Brexit deal tonight. Not at all sure about what that means for what can be agreed by EU leaders on Thursday and Friday.”

Turkish Lira markets suffered a flashback of their suffocating March squeeze on Wednesday, as authorities moved to keep a lid on volatility after a week of US sanctions and legal charges. The cost of borrowing Lira using one-week FX swaps tested two-and-a-half-month highs going as high as 20.25% , with traders reporting - just as they did in March - that some local banks were restricting the supply of Lira to overseas counterparts. Moves were nowhere near as extreme as in March, however. The squeeze back then briefly sent the cost of Lira borrowing soaring past 1,000%. This time there didn't seem to be a blanket freeze from domestic Turkish banks, and swap rates had dropped to 17.3% as trading wound down for the day.

Oil prices eased on Thursday after industry data showed a larger-than-expected build-up in stocks in the United States, although losses were limited by comments by US Treasury Secretary Steven Mnuchin on a US-China trade deal. Global benchmark Brent Crude Oil futures (LCOc1) was down by 47 cents, or 0.8%, at $58.95 a barrel by 03:30 GMT. US Crude Oil futures (CLc1) were down 48 cents, or 0.9%, at $52.88 after earlier dropping more than 1% to a session low of $52.76 earlier. US crude inventories soared by 10.5 million barrels to 432.5 million barrels in the week to October 11, according to the American Petroleum Institute's weekly report, published ahead of official government stocks data due on Thursday.

Palladium soared to record highs for a second-straight day Wednesday to rule the roost in precious metals. Gold was also a modest gainer after dismal US economic data encouraged buying on rate-cut expectations. The spot price of XPD/USD reached an all-time high of $1,780.40 per ounce, up $10 from Tuesday’s record. It later consolidated, trading at $1,772.20 by 2:48 PM ET (18:48 GMT) for a gain of $33.75, or 1.9%, on the day. Palladium futures, traded on New York Mercantile Exchange’s COMEX division, registered its own record high at $1,722.20, an improvement over Tuesday’s $1,705.55. Palladium futures settled Wednesday’s regular trading on COMEX at $1,735, up $38.40, or 2.3%, on the day.

Shares of Hong Kong property developers rose on Thursday in Asia after the city’s leader announced a host of new measures in her policy address to solve the housing crisis. The measures included raising mortgage cap for first-time buyers, resuming private land and developing brownfield sites for more public housing. By 11:32 PM ET (03:32 GMT), shares of New World Development Co Ltd (HK:0017) gained 4.5%, while Henderson Land (HK:0012) and CK Asset Holdings Ltd (HK:1113) both climbed 2.9% respectively.

Asian stocks barely moved on Thursday as soft US retail sales data raised fears about the health of the world's largest economy, sucking the steam out of a five-session rally. South Korean, Australian and New Zealand indexes were all in negative territory. Chinese shares were mostly flat while Japan's Nikkei (N225) ticked up and US stock futures (ESc1) were barely changed. That left MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) slightly higher with gains largely led by Hong Kong's Hang Seng index (HSI). The S&P 500 (SPX) shed 0.20% on Wednesday after data showed US retail sales contracted in September for the first time in seven months, in a potential sign that manufacturing-led weakness could be spreading to the broader economy.

China’s deepening economic slowdown and a glut of supply has pushed the nation’s office vacancy rate to the highest since at least 2008. The vacancy rate in 17 major cities climbed to 21.5% in the third quarter, according to CBRE Group Inc. The “spike” in vacancies this year is the worst since the depths of the global financial crisis a decade ago, said Sam Xie, the firm’s head of research in China.

Prime Minister Lee Hsien Loong said Singapore will be “lucky” to see positive economic growth in 2019, casting a dark tone over the nation’s outlook as exports continue to slump. “This year we’ll be well under 1%,” Lee said Wednesday at a conference in Singapore hosted by Forbes. “If we’re lucky we should be above zero, but the momentum has substantially diminished. And a lot of it is lack of confidence - uncertainty.” The government’s official projection is for growth to come in at 0%-1% this year, with the central bank saying earlier this week that expansion will likely be around the midpoint of that range. Growth has slowed sharply from 3.2% in 2018 as exports took a hit amid trade tensions between the US and China, two of Singapore’s biggest trade partners.

US retail sales fell for the first time in seven months in September, suggesting that manufacturing-led weakness could be spreading to the broader economy, keeping the door open for the Federal Reserve to cut interest rates again later this month. The downbeat report from the Commerce Department on Wednesday came on the heels of data this month showing a moderation in job growth and services sector activity in September. Signs of cracks in the economy's main pillar of support, ahead of the holiday season, could further stoke financial market fears of a sharper slowdown in economic growth.

Canada's annual inflation rate unexpectedly held steady at 1.9% in September, Statistics Canada said on Wednesday in its last major release of economic data before a national election, further reducing analysts' expectations the Bank of Canada will cut rates later this month. Canada is in the midst of a tight national election campaign with polls showing the governing Liberals are in a statistical tie with the opposition Conservatives, who have focused their campaign on issues related to the cost of living. Canadians vote on October 21.

A plan by the Japanese government to impose stricter rules on foreign investment in local equities will be “detrimental” to the market, impede the ability to raise funds and undermine seven years of market reforms, according to Goldman Sachs Group Inc. The Finance Ministry last week proposed a measure that would require foreign investors to report in advance when they plan to buy more than 1% of shares in companies related to national security, compared with the current threshold of 10%. The bill - which has been approved by the ruling Liberal Democratic Party - must now be greenlighted by the cabinet and then by both houses of parliament before becoming law. The changes are expected to be implemented in the fiscal year starting in April, Goldman said.

Cryptos tumbled on Wednesday after US and South Korean officials said they broke up one of the largest child pornography sites by following a Bitcoin trail. The bust was revealed after the US unsealed an indictment against Jong Woo Son, who allegedly operated a Darknet site that accepted Bitcoin and distributed pornography involving children in more than 1 million videos. Son, a South Korean, is serving 18 months in prison there. Authorities have arrested 337 sites users in 11 countries since the site was closed in March 2018.

TradeFred Daily Briefing

In Brief:

  • Sterling loses ground vs USD & Euro
  • Asian stocks trade higher
  • New Zealand inflation accelerates faster than expected
  • Italy set to approve draft budget

The Pound pulled back from its highest level in almost five months versus the US Dollar on Wednesday, erasing some of the rally sparked by signs Britain is closing in on a deal to leave the European Union. Sterling also pulled back from its highest in five months against the Euro as investors took profit and prepared for a make-or-break summit between Britain and the EU on Thursday and Friday.

Sterling had jumped against the Greenback and the Euro while British stock prices and government bond yields rose in late afternoon trading on Tuesday after a Bloomberg report that British and European Union negotiators were close to a Brexit draft deal. The Pound jumped more than 1% versus the Dollar to $1.2742 and by a similar margin against the Euro to 86.31 pence. The FTSE250 of UK mid-cap stocks (FTSC) was last up 1.6%. British government bond yields shot higher. The two-year gilt yield (GB2YT=RR) rose to its highest level since Sept. 16 at 0.575%, up around 7.5 basis points on the day.

The Turkish Lira gained on Tuesday after Washington imposed lighter-than-expected sanctions for Turkey's military incursion into Syria, providing some relief even while traders worried that heavier repercussions would follow. Nine days after he began pulling American troops out of northeastern Syria, US President Donald Trump imposed sanctions on Turkish government ministries and officials and demanded the NATO ally halt its attacks. But after a week under pressure, Turkish stocks and bonds rallied, as investors noted the sanctions did not extend to Turkey's banks or to broader US Dollar financing and markets.

Meanwhile, in Asia, investor focus is back on US-China ties with the Yuan falling after Beijing rebuked a new US legislation that takes a hard line against the crackdown on pro-democracy protests in Hong Kong. China threatened to retaliate if the US Congress follows through with enacting legislation that would require an annual review of whether Hong Kong is sufficiently autonomous from Beijing to justify its special trading status. The Chinese Ministry of Foreign Affairs said in a statement on Wednesday that it would take strong measures if the bill passed. The Hong Kong Human Rights and Democracy Act is one of four measures passed by the US House in unanimous voice votes Tuesday.

Oil prices rose on Wednesday, tracking gains in equities, as investors pinned hopes on a potential Brexit deal between Britain and the European Union and on signals from OPEC and its allies that further supply curbs could be possible. But gains were limited due to lingering concerns of a global economic slowdown. Global benchmark Brent Crude Oil futures (LCOc1) had risen 21 cents to $58.95 by 03:10 GMT, up about 0.3% from the previous day's close. U.S. West Texas Intermediate (WTI) crude (CLc1) had gained 16 cents or 0.3% to $52.97 a barrel.

US private equity firm KKR & Co and its partners have reportedly canceled the Australian IPO listing of Latitude Financial, according to Reuters which cited two unnamed sources. It was Latitude’s second attempt at listing in just over a year, Reuters said. Their sources, who claimed to have direct knowledge of the situation, said the company decided to scrap the expected A$1 billion ($676.20 million) offering this week because “a large proportion of demand for shares was coming from hedge funds rather than desired long-term investors”.

Chile's Supreme Court has ordered the Bank of Chile to allow tax authorities to examine the local accounts of Uber, rejecting an appeal by the ride-sharing company, according to a judgment seen by Reuters on Tuesday. The bank was ordered to provide the Internal Revenue Service (SII) with details of payments into and out of two bank accounts controlled by Uber´s local entity between January 1 2015 and May 30 2017, along with information about other bank accounts it previously opened then closed, within 10 days of the ruling.

Asian markets traded higher in morning trade on Wednesday, bolstered by reports of progress in UK talks with the European Union over a Brexit deal. China’s Shanghai Composite and the Shenzhen Component rose 0.1% and 0.3% by 10:30 PM ET (02:30 GMT) respectively. Beijing and Washington seemingly reached a partial “phase one” trade deal late last week but reports on Tuesday suggested that China wants a rollback in tariffs before agreeing to purchase as much as $50 billion of US-made agriculture products. Beijing also wants to hold more talks this month to hammer out certain details of the proposed deal, a Bloomberg report said yesterday. Hong Kong’s Hang Seng Index climbed 0.6%.

New Zealand's inflation accelerated at a slightly faster than expected pace in the third quarter, driven by higher household costs, but it did little to change the view that interest rates would be cut further this year to bolster the economy. Statistics New Zealand said on Wednesday that consumer prices rose 0.7% in the September quarter and 1.5% from the same period a year earlier, faster than the Reserve Bank of New Zealand's (RBNZ) forecasts and the consensus of economists polled by Reuters. Consumer prices rose 0.6% in the previous three-month period and 1.7% on year. The Reserve Bank of New Zealand (RBNZ) had forecast a 0.5% quarterly and 1.3% year-on-year rate of inflation.

Quarterly results from four of the largest US banks on Tuesday showed that American consumers are helping to prop up the economy, even as recession fears have led businesses to pull back on spending and borrowing. JPMorgan Chase & Co posted strength across all but one of its segments, and executives offered optimistic comments about the financial health of individuals. Citigroup beat estimates thanks to its global consumer business. While profits at Wells Fargo & Co were hurt by costs related to its long-running sales scandal, the bank reported positive results in community banking, with growth in home, auto and card lending. Goldman Sachs Group Inc's fledgling consumer bank also saw strength in loans and deposits.

Italy's government will approve a draft 2020 budget on Tuesday that cuts taxes for middle-earners and cracks down on tax evaders, while holding the deficit at the same level as this year, government officials said. After signing off the draft budget at a late-evening cabinet meeting the anti-establishment 5-Star Movement and centre-left coalition partners the Democratic Party will send it to Brussels for scrutiny by the European Commission. The budget scraps a hefty increase in sales tax worth 23 billion Euros ($25.35 billion) which had been scheduled to take effect in January, but which the coalition feared would push Italy's already-stagnant economy into recession.

South Korea’s central bank cut its policy rate for the second time this year and warned that growth would be weaker than forecast as a global economy hit by trade tensions slows. The move comes amid a wave of rate cutting by central banks around the world to shore up growth and highlights the sense of urgency at the Bank of Korea to offer further support for the economy, especially with consumer prices falling. Governor Lee Ju-yeol had repeatedly said the BOK had some policy room to act while expressing doubts over whether the bank’s growth forecast for this year could be achieved.