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TradeFred Daily Briefing
Wed 15-05-2019 12:00

In Brief:

  • Aussie brushes 4-month low over TradeWar concerns
  • Gold loses its shine as Dollar bulls take over
  • Walmart announces plans for Asda IPO
  • Bitcoin hits highest level for 10 months giving cryto traders hope
The US Dollar was firmer in early Asian trade on Wednesday while the Australian Dollar brushed a more than four-month low as traders eyed Chinese and European data for clues on whether the worst is over for the global economy. The Greenback was supported as trade issues remained front-and-centre of investors' minds after US and Chinese officials had said the two countries would continue to negotiate on trade. US President Donald Trump insisted on Tuesday that trade talks with China had not collapsed and called the US-China trade war "a little squabble". China may be reluctant to commit to a deal with the US that limits its flexibility on foreign-exchange rates if officials in Beijing draw lessons from previous trade clashes between America and Japan. That’s the view of Deutsche Bank AG strategists Oliver Harvey and Shreyas Gopal, who wrote that US pressure on its biggest economic rival in the early 1990s appears to have at least indirectly contributed to an inadequate policy response from the Japanese authorities. That led to an unwanted appreciation of the yen and protracted deflation, they wrote in a note Monday. If the Yuan is the weather vane for the current mood, then bargain hunters might suddenly sense an opportunity. The Chinese currency’s six-day decline screeched to a halt today after Monday’s nerve-jangling 1% slide, as the central bank set its fixing higher than traders expected. It strengthened offshore by as much as 0.4% before drifting back a bit later. Oil eased on Wednesday after closely watched data showed a surprise rise in US crude stockpiles, but prices were supported by mounting tensions in the Middle East. Brent Crude futures were at $70.90 a barrel at 01:00 GMT, down 41 cents, or 0.7%, from their last close. Brent closed up 1.4% on Tuesday. US West Texas Intermediate (WTI) Crude futures were at $61.39 per barrel, down 24 cents, or 0.3%, from their previous settlement. WTI closed up 1.2% in the previous session. US crude stockpiles unexpectedly rose last week, while gasoline and distillate inventories increased, data from industry group the American Petroleum Institute showed on Tuesday. Saudi Arabia reported attacks against its oil industry for a second day in a row Tuesday, but instead of heightened trade war fears to depress the market, US President Donald Trump said he could have a "very fruitful meeting" at the G20 next month with his Chinese counterpart Xi Jinping. Trump's assuring words, and a triple-digit rebound for Wall Street's Dow after Monday's shock selloff, were enough to put the bulls in charge of Tuesday's action in Oil. Mexico is closing in on a deal to repeal US President Donald Trump's punitive tariffs on steel and aluminium, a senior Mexican official said on Tuesday, potentially moving a step nearer to the ratification of a major trade deal struck last year. "We are, I think, close to negotiating the lifting of the tariffs," Mexican Economy Minister Graciela Marquez told Canadian broadcaster CBC after meeting with Canadian Foreign Minister Chrystia Freeland in Toronto. "We're having very fruitful conversations on lifting the tariffs not only in the US but also here in Toronto." Gold has had its shot at $1,300. Now USD bulls want some time in the sun too. President Donald Trump's remarks that he looked forward to a "very fruitful meeting" at the G20 next month with his Chinese counterpart Xi Jinping eased trade war tensions, sending the Greenback to its best performance in two weeks. As a result, Gold futures for June delivery, traded on the Comex division of the New York Mercantile Exchange, settled down $5.50, or 0.4%, at $1,296.30 per ounce. Spot Gold, reflective of trades in bullion, was down $3.28, or 0.3%, at $1,296.56 per ounce by 3:30 PM ET (19:30 GMT). Asian Markets rise in morning trade on Wednesday, recovering from an earlier slump this week amid intensifying trade tension between the US and China. China’s Shanghai Composite and the Shenzhen Component gained 1% and 1.1% respectively by 10:30 AM ET (02:30 GMT). Hong Kong’s Hang Seng Index rose 0.7%. Walmart, the world's biggest retailer, said it is considering a stock market listing for its British supermarket arm Asda, whose attempt to combine with rival Sainsbury's was blocked by the UK regulator last month. Judith McKenna, the Walmart International CEO, told Asda managers at an event in Leeds, northern England, on Tuesday: "While we are not rushing into anything, I want you to know that we are seriously considering a path to an IPO - a public listing - to strengthen your long-term success." But she cautioned that any preparations for an IPO would "take years", according to comments released by Asda afterwards. Britain's competition regulator ruled Sainsbury's £7.3 billion ($9.4 billion) takeover of Asda could not proceed, blocking one potential exit route for Walmart from the UK. Nelson Peltzs' Trian Fund Management LP may push Legg Mason Inc to implement changes to boost returns, a person familiar with the matter said on Tuesday, the second time in 10 years that Trian has targeted the mutual fund company. The two sides have discussed cutting costs, the source said, and Legg Mason chairman, president and chief executive officer Joseph Sullivan said on an earnings call on Monday that the company plans to manage costs more effectively to improve profitability. Legg Mason's share price has fallen 15.5% in the last year. Ranked as one of the country's 30 biggest mutual fund firms, the company reported $758 billion in assets under management at the end of the fiscal year, which ended in March, up from $754.1 billion a year earlier. China on Wednesday reported surprisingly weaker growth in industrial output and retail sales for April, reinforcing expectations that Beijing needs to roll out more stimulus measures as the trade war with the United States escalates. Investment also stumbled unexpectedly, suggesting China's economy is still struggling for better footing even as a sharp hike in US tariffs on Friday ratcheted up pressure on its exporters. Growth in industrial output slowed more than expected to 5.4% in April from a year earlier, pulling back from a surprising strong 4.5-year high of 8.5% in March, which some analysts had suspected was boosted by seasonal and temporary factors. US import prices rose less than expected in April as increases in the cost of petroleum and food were tempered by the largest decrease in the price of capital goods in 10 years, suggesting inflation could remain tame for a while. The report from the Labor Department on Tuesday came on the heels of data last week that showed moderate producer and consumer price gains in April, which underscored the Federal Reserve's projection of no more interest rate hikes this year. Economists said while inflation was not too low for the US central bank to cut rates this year, the Trump administration's escalating trade war with China, if it starts to impact economic and job growth, could force the Fed's hand The Bank of England said it was carefully monitoring falling capital levels at insurers that use their own computer models for calculating capital requirements. David Rule, executive director of insurance supervision at the Bank of England's Prudential Regulation Authority, also warned insurers that ending use of the tarnished Libor interest rate benchmark was a top priority. Large insurers are allowed to use their own models, while smaller firms must use the so-called standard approach set out by regulators. Rule said he has not seen a general fall in standards. San Francisco Federal Reserve Bank President Mary Daly said on Tuesday that she wants to create inclusive growth that can expand potential employment in the future, not just to maximize how many people have jobs now. Daly said at an event Northwestern University in Illinois that - while US economic growth does not look as sluggish as it otherwise might appear, given an aging population and the scars of the 2008 financial crisis - people participate in the US labour market at rates lower than in other industrialized countries. US growth appears to be based "exclusively" on government, corporate and mortgage debt and the economy would have contracted if the United States had not added trillions in debt, Jeffrey Gundlach, chief executive of DoubleLine Capital, said in an investor webcast on Tuesday. "Nominal GDP growth over the past five years would have been negative if US public debt had not increased," said Gundlach. "One thing everybody seems to miss when they look at these GDP numbers ... they seem to not understand that the growth in the GDP it looks pretty good on the screen is really based exclusively on debt - government debt, also corporate debt and even now some growth in mortgage debt." Federal Reserve officials are sticking with their pledge for patience on interest rates, shrugging off President Donald Trump’s escalating trade war and his pressure for a cut. New York Fed President John Williams and his Kansas City colleague Esther George, who vote on policy this year, acknowledged that new tariffs on Chinese imports could affect the outlook for US inflation and growth. But both saw no need for the central bank to react. Bitcoin hit its highest level in 10 months on Tuesday, raising hopes among cryptocurrency enthusiasts of greater mainstream acceptance as an escalating US-China trade war roiled global markets, but others urged investor caution. Bitcoin, which lost three-quarters of its value in 2018, has soared by 24% since Friday and more than doubled in price so far this year. At 1612 GMT it was up 0.8% at $7,874. There was no obvious reason for the sudden rise with the opacity of cryptocurrency markets rendering it virtually impossible to prove or disprove any theories. Elsewhere, FOIN was trading at $1,703.50 by 23:26 (03:26 GMT) on the Synthetic exchange on Wednesday, up 12.20% on the day. It was the largest one-day percentage gain since May 13.

Latest Daily Reviews

In Brief:

  • Aussie in the doldrums as another Interest Rates cut expected
  • China’s holdings of US Treasuries fall
  • Eurozone wages rise at record pace
  • Bitcoin & Ethereum rise as Facebook’s cryptocurrency gathers pace

The British Pound languished near this year's low on Tuesday, due to rising worries that Boris Johnson, the front-runner to replace UK Prime Minister Theresa May, could put Britain on a path towards a dreaded no-deal Brexit.

TradeFred Daily Briefing

In Brief:

  • Asian shares wobble ahead of Federal Reserve meeting
  • Gold inches higher amid Middle East tensions
  • Oil prices rise but still finished week in the red
  • Alibaba proposes stock split ahead of rumoured floatation

Asian shares wobbled near one-week lows on Monday as investors turned cautious ahead of a closely-watched Federal Reserve meeting, while political tensions in the Middle East and Hong Kong kept risk appetite in check. European stocks were expected to open higher, with futures for Britain's FTSE climbing 0.4% and Germany's DAX up about 0.2%.

TradeFred Daily Briefing

TradeFred Daily Briefing

In Brief:

  • Aussie in the doldrums as another Interest Rates cut expected
  • China’s holdings of US Treasuries fall
  • Eurozone wages rise at record pace
  • Bitcoin & Ethereum rise as Facebook’s cryptocurrency gathers pace

The British Pound languished near this year's low on Tuesday, due to rising worries that Boris Johnson, the front-runner to replace UK Prime Minister Theresa May, could put Britain on a path towards a dreaded no-deal Brexit.

The Australian Dollar is also at its lowest levels since the flash crash of early January, hit by growing expectations of another rate cut by the country's central bank and by the spectre of a further slowdown in China - Australia's largest export market. The Yen and the Euro were steadier, with investors holding out for trading clues from policy-setting meetings by the US Federal Reserve and the Bank of Japan as well as a conference organized by the European Central Bank, all scheduled this week.

Oil prices were falling for a second day on Tuesday, after more signs that global economic growth is being hit by US-China trade tensions, although losses were limited amid tensions in the Middle East after tanker attacks last week. Brent Crude futures were down 16 cents, or 0.3%, at $60.78 a barrel by 0215 GMT. They fell 1.7% in the previous session on concerns about slowing global growth. US West Texas Intermediate (WTI) Crude futures were down 12 cents, or 0.2%, at $51.92. They dropped 1.1% on Monday.

The New York Federal Reserve said on Monday that its gauge of business growth in New York state posted a record fall this month to its weakest level in more than 2.5 years, suggesting an abrupt contraction in regional activity. Mixed US economic data is giving profit-takers an opportunity to cash out of the rally before the market possibly rises again ahead of the Fed meeting.

Above-forecast US industrial output data and upbeat retail sales and consumer confidence readings on Friday pushed back futures markets expectations of any quick rate cut by the US Federal Reserve. Yet, Monday’s slump of the Empire State manufacturing index into negative territory after posting its largest drop ever gave renewed hope to Gold bugs that an easing might be indicated by the Fed after all its policy statement due Wednesday after its monthly meeting.

Asian stocks were mixed in morning trade on Tuesday ahead of this week’s key Federal Reserve decision. China’s Shanghai Composite fell 0.2%, while the Shenzhen Component inched up 0.1%. Hong Kong’s Hang Seng Index gained 0.3%. Japan’s Nikkei 225 declined 0.3% and South Korea’s KOSPI climbed 0.2%.

A group of leading banks will for the first time include efforts to cut carbon dioxide emissions in their decision making when providing shipping company loans, executives said on Tuesday. International shipping accounts for 2.2% of global carbon dioxide (CO2) emissions and the UN's International Maritime Organization (IMO), has a long-term goal to cut greenhouse gas emissions by 50% from 2008 levels by 2050. Working with non-profit organisations the Global Maritime Forum, the Rocky Mountain Institute and London University's UCL Energy Institute, 11 banks have established a framework to measure the carbon intensity of shipping finance portfolios.

China's holdings of US Treasury bonds and notes for the month of April fell to the lowest level since May 2017, data from the US Treasury department showed on Monday, highlighting an uncertain outlook on a trade deal between Beijing and Washington. Chinese holdings of US government debt declined for a second straight month, to $1.113 trillion in April, from $1.120 trillion the previous month. Even so, the world's second-largest economy remains the largest non-US holder of Treasuries.

A private gauge of US home builder sentiment fell in June, retreating from a six-month high, as rising building costs and trade worries offset falling mortgage rates. The National Association of Home Builders and Wells Fargo said on Monday their index of builder confidence in newly built, single-family homes fell to 64 from 66 in May. Analysts polled by Reuters had forecast the reading to rise to 67. “While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues,” NAHB Chairman Greg Ugalde said in a statement.

Eurozone wages rose in the first quarter of the year at the highest pace ever recorded since data is collected, data from the European Union's statistics office showed on Monday. The increase is a positive signal for the European Central Bank's plans to drive inflation up but has so far not translated into higher prices in the 19-country Eurozone. Eurostat said wages and salaries rose 2.5% in the first three months of the year compared to the same quarter of the previous year, posting the highest increase since 2010, when it started gathering data. Salaries increased 2.3% in both the previous two quarters.

New home prices in China rose at their fastest pace in five months in May, complicating government efforts to keep frothy housing markets under control as it rolls out more stimulus for the slowing economy. Average new home prices in China's 70 major cities rose 0.7% in May from the previous month, picking up from a 0.6% rise in April and the quickest pace since December, according to Reuters calculations based on National Bureau of Statistics (NBS) data on Tuesday. That marked the 49th straight month of price gains. Sixty-seven of the total 70 cities surveyed by the NBS reported higher prices in May, the same as April. On an annual basis, home prices increased 10.7% in May, unchanged from April's growth rate.

A federal appeals court on Monday threw out a settlement requiring insurers to pay $65 million to a court-appointed receiver for companies once run by Allen Stanford, the Texas financier serving a 110-year prison term for running a large Ponzi scheme. By a 3-0 vote, the 5th US Circuit Court of Appeals said the judge who approved the accord lacked authority to void or release some claims against the insurers, including underwriters at Lloyd's of London, and bar further legal challenges over their policies and Stanford's companies.

Bank of Japan Governor Haruhiko Kuroda said the central bank's board would "certainly" discuss heightening overseas economic risks at a two-day rate review starting on Wednesday. "The BOJ will guide monetary policy appropriately taking into account the impact overseas economic changes could have on Japan's economic outlook and the momentum for achieving our inflation target," Kuroda told parliament on Tuesday.

Australia's central bank believes it will likely have to cut interest rates further from the current record low of 1.25% in order to push down unemployment and revive growth in wages and inflation. Minutes of the Reserve Bank of Australia's (RBA) June policy meeting showed its Board decided cutting rates by a quarter point at that meeting would help speed up the economy, but would not be enough on its own. "Given the amount of spare capacity in the labor market and the economy more broadly, members agreed that it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead," the minutes showed. Financial markets have already priced in another rate cut to 1% by August and a further move to 0.75% by early next year.

Prices of major cryptocurrencies were mostly higher on Tuesday in Asia, with Bitcoin hovering above the key $9,000 level on Facebook’s reported move into cryptocurrency. Bitcoin rose 2.1% to $9,267.4 by 11:30 PM ET (03:30 GMT). Ethereum gained 0.7% to $270.23. XRP jumped 4.3% to 0.44642 but Litecoin underperformed and lost 1.5% to $133.058.

Facebook is reportedly launching a new digital asset to be used as a peer-to-peer payment within messenger apps. Bitcoin surged immediately following the news, as some analysts said the news could be the biggest boost for virtual coins in history.

TradeFred Daily Briefing

In Brief:

  • Asian shares wobble ahead of Federal Reserve meeting
  • Gold inches higher amid Middle East tensions
  • Oil prices rise but still finished week in the red
  • Alibaba proposes stock split ahead of rumoured floatation

Asian shares wobbled near one-week lows on Monday as investors turned cautious ahead of a closely-watched Federal Reserve meeting, while political tensions in the Middle East and Hong Kong kept risk appetite in check. European stocks were expected to open higher, with futures for Britain's FTSE climbing 0.4% and Germany's DAX up about 0.2%.

MSCI's broadest index of Asia-Pacific shares outside Japan was little changed by early afternoon, after opening slightly weaker. Japan's Nikkei average also closed flat. Asian markets got a quick boost after Hong Kong's Hang Seng Index jumped as much as 1.4%. At the weekend, the territory's leader Carrie Lam climbed down on a bill that would have allowed extradition to China.

The Hang Seng fell for three sessions in a row through Friday, after the extradition bill triggered mass protests and some of the worst unrest seen in the territory since Britain handed it back to Chinese rule in 1997. "Last week the issue looked as if it would become another thorny point between the United States and China. As the bill is now being postponed indefinitely, things will likely calm down, which is good for markets," said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management.

The US Federal Reserve, facing fresh demands by President Donald Trump to cut interest rates, is expected to leave borrowing costs unchanged at a policy meeting this week but possibly lay the groundwork for a rate cut later this year. New economic projections that will accompany the US central bank's policy statement on Wednesday will provide the most direct insight yet into how deeply policymakers have been influenced by the US-China trade war, Trump's insistence on lower interest rates, and recent weaker economic data.

Analysts expect the "dot plot" of year-end forecasts for the Fed's benchmark overnight lending rate - the federal funds rate - will show a growing number of policymakers are open to cutting rates in the coming months, though nowhere near as aggressively as investors expect or Trump wants. The Fed is also widely, though not universally, expected to remove a pledge to be "patient" in taking future action on rates, opening the door to a possible cut at its coming policy meetings.

Gold prices inched up on Monday ahead of the Federal Reserve’s latest monetary policy meeting due later this week. Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, edged up 0.1% to $1,345.45 by 12:15 AM ET (04:15 GMT). The Fed’s meeting on Wednesday is expected to be the biggest event for the yellow metal this week.

No rate cuts are expected on Wednesday’s meeting, but markets have steadily been increasing bets for cuts throughout 2019 as concerns over the negative impact of US-China trade tensions and signs of weak job creation and muted inflation in the American economy were seen to support a more dovish stance. On June 4, Fed Chairman Jerome Powell said the central bank would act "as appropriate" to address risks from the trade dispute. In general, Gold benefits from lower interest rates that lower the opportunity cost of holding the non-yielding bullion.

In other news, heightened geopolitical risks in the Middle East that involved an attack on two oil tankers in the Gulf of Oman was cited as a tailwind for the safe-haven Gold today. The US blamed Iran for the hits as Secretary of State Mike Pompeo said it was “unmistakable” that Iran was responsible for the attacks. However, he noted that “President Trump has done everything he can to avoid war. We don’t want war.”

Oil prices gained on Monday in Asia due to the Middle East tensions. US Crude Oil WTI Futures inched up 0.1% to $52.83 by 1:05 AM ET (05:05 GMT). International Brent Oil Futures gained 0.2% to $62.13. Attacks on two oil tankers in the Gulf of Oman were cited as providing continuing support to the oil markets. Prices had jumped as much as 4.5% on Thursday following the news. Despite the gains on Thursday, Oil prices still closed last week more than 2% lower amid reports of larger-than-expected oil stockpiles.

On Monday, Brent futures had climbed 26 cents, or 0.4%, to $62.27 a barrel by 03:14 GMT. They gained 1.1% on Friday. US West Texas Intermediate (WTI) Crude futures were up 17 cents, or 0.3%, at $52.68 a barrel. They rose 0.4% in the previous session. Prices had jumped as much as 4.5% on Thursday after the attacks on two oil tankers near Iran and the Strait of Hormuz.

The Bank of Japan is expected to maintain its massive stimulus program on Thursday and signal its readiness to ramp up monetary support if growing risks such as the escalating US-China trade war threaten the economy's modest expansion. Many BOJ policymakers are wary of using their dwindling policy ammunition any time soon as years of ultra-low interest rates strain financial institutions' profits, say sources with knowledge of the central bank's thinking. But the darkening outlook is also forcing them to brace for the likelihood of another economic downturn and brainstorm ideas on how to respond, they say.

Adding to the uncertainty are heightening market expectations the US Federal Reserve will start to cut interest rates to fend off the damage from the trade war with China. While such rate cut expectations have kept a floor on stock prices so far, an actual cut by the Fed could push down the US Dollar and trigger an unwelcome Yen spike that hurts Japan's export-reliant economy, some analysts say. "There may be no immediate need for action," one of the sources said. "But with uncertainty over the outlook so high, the BOJ would need to think about how to respond if a shock hits the economy."

In Forex news, the US Dollar held near a two-week high against its major rivals on Monday ahead of a crucial US Federal Reserve meeting that many expect will lay the groundwork for an interest rate cut to bolster the world's largest economy. The Dollar index versus a basket of six major currencies was little changed at 97.479 after rising to 97.583 on Friday, its highest since June 3.

China's Alibaba Group Holding has proposed a one-to-eight stock split ahead of a listing in Hong Kong later this year that is expected to raise up to $20 billion. The split, to be presented to shareholders for a vote at an annual general meeting in Hong Kong on July 15, will increase flexibility in the firm's capital raising activities, including the issuance of new shares, the e-commerce giant said. The firm's board recommends shareholders to vote in favor of the proposal, it added in its statement dated Friday but published on the company's website on Monday. "The ... subdivision will increase the number of shares available for issuance at a lower per share price," it added.

Alibaba has filed confidentially for a Hong Kong listing, a person familiar with the matter told Reuters earlier this month. Alibaba has also proposed to change the ratio of ordinary shares to American Depositary Shares (ADS) to eight ordinary shares representing one ADS to neutralize the impact of share split on its ADS listed in the US market.

Youth unemployment in South Africa has become a "national crisis", President Cyril Ramaphosa said on Sunday at an event commemorating youth activism during the apartheid era. Unemployment in Africa's most advanced economy has remained stubbornly high since white minority rule ended 25 years ago, and creating jobs is a major challenge for Ramaphosa as he aims to reignite an underperforming economy. Unemployment inched up to 27.6% in the first quarter, official data showed in May, underscoring the task faced by Ramaphosa after his ANC party won re-election last month.

An expanded category of unemployment, including people who have stopped looking for work, rose to 38% in the first quarter from 37.0% in the previous three-month period. "We are very much alive to the fact that youth unemployment is indeed a national crisis," Ramaphosa told an audience of mainly young people and students on National Youth Day. The day honours scores of students killed during the 1976 Soweto uprising that helped focus global attention on the brutality of apartheid.

China's central bank said on Monday the second phase of a cut in the reserve requirement ratio (RRR) freed about 100 billion Yuan ($14.44 billion) worth of long-term funds. In open market operations, the People's Bank of China (PBOC) also injected 150 billion Yuan via 14-day reverse repos to "keep liquidity level stable at end-June", the bank said in a statement on its website.

The PBOC announced in May that it would implement a reduction of RRRs for some small- and medium-sized banks in three phases, as part of wider efforts to help companies weather a slowdown in the world's second largest economy. The third phase of the RRR cut is scheduled to take effect on July 15.