Friday, 19 January 2018

Dollar hurt by U.S. shutdown fears, Treasury yields at highest since 2014

LONDON (Reuters) - The dollar wallowed near three-year lows on Friday as heightened fears of a U.S. government shutdown unnerved investors, while U.S. Treasury yields continued an upward march to hit their highest levels since September 2014.

Legislation to stave off an imminent federal government shutdown encountered obstacles in the Senate late on Thursday, despite the passage of a month-long funding bill by the House of Representatives hours earlier.

Without the injection of new money, no matter how temporary, scores of federal agencies will be forced to shut starting at midnight on Friday, when existing funds expire.

The dollar index, which measures the greenback’s value against other major currencies, was down 0.3 percent at 90.230 and close to three-year lows hit this week.

It has already lost 2 percent in the early days of 2018.

“The fear of the U.S. government shutdown has made investors nervous,” said Naeem Aslam, chief market analyst at Think Markets UK. “There is a strong possibility that the U.S. government shutdown may become a reality.”

Market players said worries of a shutdown may have also weighed on sentiment in bond markets, which remain under pressure from expectations that strong economic data globally will encourage the U.S. Federal Reserve to press ahead with monetary tightening.

U.S. 10-year Treasury yields hit their highest level in more than three years at 2.642 percent on Friday, and were set for their biggest weekly rise in a month.

“It’s a continuation of the trend and expectations for a normalization of monetary policy,” said Chris Scicluna, head of economic research at Daiwa Capital Markets, referring to rising U.S. bond yields.

In Europe, equity markets opened firmer with the exception of London's blue-chip FTSE stock index .FTSE. Germany's Dax index was 0.5 percent higher on the day .DAX and France's benchmark index was up 0.1 percent .FCHI.

The MSCI world equity index .MIWD00000PUS, which tracks shares in 47 countries, touched fresh record highs bouyed by gains in Asia.

Optimism over the global economic growth outlook and improved corporate earnings have helped share markets rally at the start of 2018. Supporting economic confidence was data on Thursday that showed China’s growth in 2017 accelerated for the first time in seven years.

China stocks ended at fresh two-year highs on Friday, with the Shanghai index .SSEC posting its fifth straight week of gains. Japan's Nikkei .N225 closed up 0.2 percent.

The euro rose 0.4 percent to $1.2280 EUR= after hitting a three-year peak above $1.2300 earlier this week on expectations that the European Central Bank would take steps towards winding back on stimulus measures to normalize monetary policy.

The euro’s rally was tempered later as some ECB officials voiced worries about the currency’s strength.

China's yuan meanwhile breached the psychologically important 6.4 dollar level for the first time in more than two years the day after Beijing said annual growth was 6.8 percent in October-December, slightly above forecasts.

Oil prices meanwhile fell more than 1 percent as a bounce-back in U.S. production outweighed ongoing declines in crude inventories.

Brent crude futures were at $68.63 a barrel, down 1.03 percent on the day. On Monday, they hit their highest since December 2014 at $70.37.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were also 1 percent lower, trading at $63.28 a barrel.

Gold prices XAU= rose, supported by a weaker dollar amid worries about a possible U.S. government shutdown, but the metal was still on track for its first weekly drop in six weeks.

Reference: Dhara Ranasinghe

Thursday, 18 January 2018

Strong China data cranks up pressure on bond markets

LONDON (Reuters) - The first acceleration by China’s giant economy in seven years kept stocks near record highs on Thursday, but added to growing pressure on bond markets as U.S. Treasury yields - the benchmark for global borrowing costs - cranked to a 10-month high.

Underlining the momentum of the world economic expansion into the back end of last year, both Chinese fourth quarter growth of 6.8 percent and December industrial output growth of 6.2 percent were ahead of expectations.

Most Asian bourses were closing when the data landed but had briefly set a new all-time record after the U.S. bluechip Dow Jones Industrial had closed above 26,000 points for the first time.

China's yuan finished strongly to hit its highest since December 2015. Europe's main FTSE, Dax and CAC40 markets then ticked higher too[.EU], though moves were choppy in the cross currents of both a rising euro and bond yields.

After a week of trying, the 10-year U.S. Treasury yield passed 2.6 percent to hit its highest since March 2017 It drove European counterparts up too with Germany’s 10-year bond yield, the region’s benchmark, near a 5-1/2 month top at 0.52 percent.

With such encouraging data coming though, “the likelihood we have higher inflation in the big economies is well over 50 percent, so that is the next turning point for the markets,” said SEB investment management’s global head of asset allocation Hans Peterson.

He added it raised two big questions. How will central banks respond? And will the rise in bond yields happen at such a pace that it impacts optimism around assets like equities?

“We are going to change the regime probably within the next 2-3 months,” he said. “Will it be accompanied by rising producer prices? If so then we can live with higher bond yields, otherwise it is a problem for us.”

The break higher in U.S. yields also lifted the dollar off a three-year low hit earlier in the day in Asia.

Ahead of U.S. trading though, the euro was regaining traction and last stood at $1.2245 EUR=, up 0.5 percent on the day but well below a peak of $1.2323 set on Wednesday, the euro's strongest level since December 2014.

Top ECB policymakers were speaking in Frankfurt. Some may have been caught off guard by the speed of the euro’s appreciation, said Lee Jin Yang, macro research analyst for Aberdeen Standard Investments in Singapore.

“Maybe they are trying to manage volatility or slow down the rise,” Lee said referring to Austria’s Ewald Nowotny who told reporters on Wednesday that the euro’s recent strength against the dollar was “not helpful.”

Wall Street was expected to tick fractionally higher when it resumes in New York with traders there bracing for another deluge of company fourth quarter results as well as some closely followed housing market data.

Elsewhere, the Canadian dollar eased about 0.1 percent to C$1.2450 CAD=D3, having see-sawed after the Bank of Canada raised interest rates but sounded a cautious tone on the future of the North American Free Trade Agreement (NAFTA).

Emerging markets were digesting a number of key interest rate meetings including Turkey which kept its rates on hold having seen last year’s 18 percent slump in the lira versus the euro drive inflation back into double digits.

South Africa's central bank was due next at 1300 GMT. After being sickly for much of 2017, a sounder political backdrop has seen the rand surge. ZAR= It is one of the best performing currencies in the world so far this year, fuelling talk of a possible rate cut.

“The South Africa meeting is the big show today. People are in it, they want to like it they want to own it,” said UBP’s EM macro and FX strategist Koon Chow. “So any dovishness or a cut would be another trigger for another leg higher.”

The rising U.S. bond could cause turbulence for EM debt markets, however. As well as the gains for benchmark Treasuries, The two-year yield hovered at a nine-year high of just over 2 percent.

“In emerging markets we are trained like dogs,” Chow said about the rising yields. “When we hear that bell ring we want to just run,”

In commodities, crude oil prices rose earlier on data showing a decline in U.S. crude inventories and as rebels in Nigeria threatened to attack the country’s petroleum infrastructure, before trimming their gains.

U.S. crude futures were 10 cents higher at $64.07 a barrel have hit a three-year high of $64.89 on Tuesday.

Spot gold XAU= was steady at $1,333 an ounce, with the dollar’s bounce pulling it back from a four-month high of $1,344.43 set on Monday.

Reporting by Marc Jones

Asia stocks touch record highs after Wall St surge, dollar edges back

TOKYO (Reuters) - Asian stocks struck record highs on Thursday, with a rally by Wall Street supporting bullish investor sentiment, while the dollar pulled back from three-year lows as comments by European Central Bank officials tempered the euro’s recent rally.

Spreadbetters expect Britain's FTSE to open 0.1 percent lower, Germany's DAX to start 0.3 percent higher and France's CAC opening up 0.2 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.2 percent higher after rising as much as 0.4 percent to a fresh record peak.

South Korea's KOSPI  was effectively flat. Japan's Nikkei .N225 reached its highest level since late 1991 earlier before ending down 0.4 percent.

Shanghai shares .SSEC rose 0.9 percent, buoyed by data showing China's economy grew 6.8 percent in the October-December quarter from a year earlier, the same rate as the previous quarter and slightly better than most economists had expected.

U.S. stocks jumped on Wednesday and the Dow closed above 26,000 for the first time as investors' expectations for higher earnings lifted stocks across sectors.

Optimism over prospects for sustained strong global growth and improved corporate earnings have helped share markets rally at the start of 2018.

“Events related to North Korea pose potential risks, but there are very few factors holding equities back at the moment,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“And bullish U.S. stocks, higher Treasury yields and signs of the euro’s recent surge running its course are all dollar-supportive factors,” Ishikawa said.

The dollar index against a basket of six major currencies was 0.3 percent higher at 90.793 after pulling back overnight from a three-year low of 90.279 set earlier in the week.

The euro was traded at $1.2203 EUR=, slipping from a three-year peak above $1.2300 after some ECB officials voiced worries about the currency's strength. The common currency had advanced this month on expectations that the central bank would take steps towards winding back on stimulus measures to normalise monetary policy.

The dollar was flat at 111.270 yen JPY= after surging 0.75 percent overnight, when it bounced from a four-month low of 110.190.

The two-year Treasury yield hovered near a nine-year high of 2.051 percent reached on Wednesday on expectations the Federal Reserve will continue to tighten monetary policy this year.

In commodities, crude oil prices rose earlier on data showing a decline in U.S. crude inventories and as rebels in Nigeria threatened to attack the country’s petroleum infrastructure, before trimming their gains.

U.S. crude futures were 2 cents higher at $63.99 a barrel. On Tuesday, they hit a three-year high of $64.89.

Many analysts warned that the recent oil price rally could lose momentum.

“We reckon that the upside is now limited for oil prices. U.S. shale oil output will increase by a good 111,000 barrels per day (bpd) next month to 10 million bpd, and will rise to about 11 million bpd by the end of next year,” said Fawad Razaqzada, market analyst at

“This would put the U.S. on par with Saudi Arabia and Russia’s output,” Razaqzada said.

Spot gold XAU= was down 0.1 percent at $1,327.56 an ounce, with the dollar’s bounce pulling it back from a four-month high of $1,344.43 set on Monday.

Reporting by Shinichi Saoshiro

Wednesday, 17 January 2018

Sterling pauses after rally as traders watch Brexit developments

LONDON (Reuters) - Sterling edged lower against the dollar on Wednesday after a rally as traders took profits and awaited the latest developments in negotiations over Britain’s departure from the European Union.

The pound has in recent days reached its highest levels since the vote to leave the European Union in June 2016, with the better-than-expected economic performance of the British economy and hopes that Britain will soon agree a transition deal with Brussels supporting sterling.

“I expect the political noise to move the pound on a short-term basis. But will it change the overall [positive] direction of the last 12 months? I don’t think so,” said Michael Hewson, chief analyst at CMC Markets, who remains bullish on the pound.

Hewson said the only event that could send sterling sharply lower was if talks with the EU broke down completely, which he said did not look likely as Brussels looked more amenable to negotiating with Britain.

The president of the EU Commission, Jean-Claude Juncker, said on Thursday Britain was welcome to rejoin the trading bloc after it has left next year.

In London, the European Union (Withdrawal) Bill is set to complete its first journey through parliament’s lower house some time after 1900 GMT, a milestone on the long road towards cementing the legal foundations of Brexit.

The pound was down marginally against the dollar at $1.3778 after hitting a high overnight of $1.3836. Data on Tuesday showing a slight fall in December inflation in Britain checked the pound’s rally.

Against the euro, which has gained broadly in recent days on expectations the European Central Bank would soon move to rein in monetary policy, the pound was up 0.2 percent at 88.7 pence.

“The talks about the transition period are due to start in late January, the negotiations on future trade relations following an EU summit at the end of March. Until a reversal of the plans is in sight EUR-GBP will continue to trade in a narrow range,” Commerzbank analysts wrote in a note.

Later, the euro fell on Wednesday after rocketing to a fresh three-year high in early trades above the $1.23 line as some investors ramped up bullish bets about the currency though some concerns from policymakers this week damped broader optimism.

Overall dollar weakness and growing optimism about the outlook of the European economy in 2018 has lent fresh legs to the euro’s rally after it gained more than 10 percent last year.

But the speed of the rise in the opening days of 2018 -- up more than 3 percent in the last two weeks -- has invited some comments from ECB officials this week, highlighting some growing concerns, according to analysts.

In an interview to an Italian daily la Repubblica, Vitor Constancio, the vice president of the European Central Bank, said he did not rule out that monetary policy would still continue to be “very accommodating for a long time”.

On Tuesday, Jens Weidmann, Germany’s representative on the ECB’s policymaking body said it would be “appropriate” for the European Central Bank to stop its bond purchases, due to run at least until September.

“The ECB is playing the good cop and the bad cop in terms of their comments over the euro but there is no doubt the currency’s rally has sowed the seeds of uncertainty in the ids of ECB policymakers,” said Viraj Patel, an FX strategist at ING in London.

The single currency rose to a session high of $1.2323 against the dollar in Asian trading before falling 0.2 percent to stand at $1.2238.

For euro bulls, these are key levels for a couple of reasons. Unlike 2017’ summer, when positioning wasn’t as stretched and valuations still reasonably attractive, current levels are not as supportive for the single currency.

Latest positioning data showed that net long euro positions are at a record high while both ECB and IMF valuation metrics show the euro is only about 6-7 percent currently compared to more than 12 percent before the French elections last year.

Morgan Stanley strategists said in a daily note that as long as inflation expectations are met and growth remains strong, the euro’s strength will be tolerated by the ECB.

Elsewhere, Canada’s central bank is widely expected to raise interest rates by 25 basis points and take the benchmark borrowing cost to 1.25 percent. Analyst expect the BoC to raise rates as many as three times in 2018.

The Australian dollar rose 0.1 percent to $0.7970 and the New Zealand dollar dipped 0.1 percent to $0.7260.

Reference: Reuters

Stocks pull back from record highs, set for second day of losses in new year

LONDON (Reuters) - World shares pulled back from record highs on Wednesday, set for only their second day of losses in the new year as lower commodity prices and a string of downbeat updates from companies dampened the mood in global markets.

European bourses opened lower, mirroring moves in Asia and Wall Street overnight, as earnings updates from companies weighed. The pan European STOXX 600 index was down 0.2 percent, but still close to a 2-1/2 year high hit earlier this month.

Asian equities stepped back from a record high as the region's resource shares were knocked by falling oil and commodity prices. Oil prices have retreated from the $70 a barrel mark hit last week, while metals such as aluminum and copper and nickel all fell on Wednesday. Japan's Nikkei .N225 fell 0.4 percent from its 26-year peak reached the previous day.

The losses across regions weighed on the MSCI world equity index, pulling it lower 0.1 percent and setting it up for only its second decline from the start of the year.

World shares have rallied in 2018 on prospects of continued strong global growth and improving earnings in the United states and elsewhere, with many analysts expecting an extension of the bull run in equities.

Earlier overnight, Wall Street paused its rally, hit by a 1.2 percent fall in energy stocks, as well as weakness in General Electric.

“There wasn’t any immediate catalyst for yesterday’s sharp sell down apart from some weakness in commodity markets, but U.S. markets’ inability to hold onto these sorts of gains might suggest that we could be due some sort of pullback, after the strong start to this year,” said Michael Hewson, chief market analyst at CMC Markets in London.

The Cboe volatility index .VIX, which measures investors’ expectation on price swings in U.S. shares, rose to a one-month closing high of 11.66 from near record low levels seen earlier this month.

The 2-year U.S. Treasury yield hit its highest level since late 2008, at 2.0390 percent.

In currencies, the euro fell after rocketing to a fresh three-year high in early trades, above the $1.23 mark.

Overall dollar weakness and growing optimism about the outlook of the European economy in 2018 has lent fresh legs to the euro’s rally after it gained more than 10 percent last year.

But the speed of the rise in the opening days of 2018 -- up more than 3 percent in the last two weeks -- has invited some comments from ECB officials this week, highlighting some growing concerns, according to analysts.

“The ECB is playing the good cop and the bad cop in terms of their comments over the euro but there is no doubt the currency’s rally has sowed the seeds of uncertainty in the ids of ECB policymakers,” said Viraj Patel, an FX strategist at ING in London.

The Canadian dollar traded at C$1.2452 per dollar CAD=D4, off its three-month high of C$1.2355 hit on Jan 5.

The Bank of Canada is seen as likely to raise its benchmark interest rate by 25 basis points to 1.25 percent later in the day, with analysts expecting three hikes this year.

Against a basket of currencies, the U.S. dollar was up 0.3 percent, but not far from its lowest level since early 2015.

Gold traded 0.3 percent lower at $1,335.8 per ounce XAU=, near Monday’s four-month peak of $1,344.7.

Bitcoin extended its sharp tumble of the past 24 hours, skidding more than seven percent on Wednesday as investors were spooked by fears regulators might clamp down on the digital currency.

The price of the world's biggest and best known cryptocurrency fell to as low as $10,567 on the Luxembourg-based Bitstamp exchange.

Oil prices pulled back from three-year highs as traders booked profits but healthy demand underpinned prices, which have been driven up by oil production curbs in OPEC nations and Russia, and demand amid healthy economic growth.

U.S. crude futures lasttraded at $63.61 per barrel, down 0.2 percent.

Global benchmark Brent crude futures fetched $68.97 a barrel, down 0.3 percent.

Reporting by Ritvik Carvalho

Investors extend bets on stocks climbing into 2019 - BAML survey

LONDON (Reuters) - Investors have raised their stock allocations to two-year highs and cut cash positions to five-year lows, with a majority expecting the equity bull run to continue into 2019, a survey by Bank of America Merrill Lynch (BAML) showed on Tuesday.

The global survey, which covers 183 participants with $526 billion under management, was conducted from Jan. 5 to 11, when world stocks recorded their strongest start to a year since 2010.

In the bank’s previous survey, the majority of respondents expected equity markets to peak in the second quarter of 2018. That forecast has now been pushed back to 2019 or beyond.

“Investors continue to favour equities,” said Michael Hartnett, chief investment strategist at BAML. “By the end of Q1, we expect peak positioning to combine with peak profits and policy to create a spike in volatility.”

Investor allocations to stocks jumped to a two-year high of a net 55 percent overweight, while bond allocations fell to a four-year low of a net 67 percent underweight.

BAML noted that investors were at their most overweight equities versus government bonds since August 2014.

The average cash balance also fell to 4.4 percent, a five-year low, from 4.7 percent in December.

The upbeat mood was reflected in investors’ outlook for corporates, with profit expectations climbing 10 percentage points to 44 percent in January.

Inflation and/or a crash in global bond markets was cited as the biggest tail risk, chosen by 36 percent of respondents, while 19 percent opted for a policy mistake by the U.S. Federal Reserve or European Central Bank.

A net 11 percent of investors surveyed expected the U.S. yield curve to flatten in 2018, the highest level in over two years, the bank noted. A net 9 percent of investors also thought that fiscal policy was too easy, the highest since 2011.

In terms of regional appetite, the eurozone remained in favour with the equity allocation holding at a net 45 percent overweight. The emerging market equity allocation also climbed to a net 41 percent overweight, from 34 percent in December.

But pessimism towards UK equities continued as Brexit uncertainty continued to weigh, with a net 36 percent underweight, back near its post global financial crisis era lows.

“The UK remains the consensus short amongst fund managers,” BAML said.

Reporting by Claire Milhench

Tuesday, 16 January 2018

Sterling steadies ahead of UK inflation data

LONDON (Reuters) - The British pound paused on Tuesday after a recent rally against the dollar, as traders waited for an update on British inflation that is expected to show price rises falling slightly from a near-six-year high.

Sterling has jumped in recent days, trading up into its highest levels since the British vote to leave the European Union in June 2016 against the dollar. Hopes that some members of the EU are ready to allow Britain to remain closer to the trading bloc after its departure have helped the pound trade higher, as has broad dollar weakness.

The pound was flat at $1.3785 by 0909 GMT, with traders focused on the consumer price inflation data released at 0930 GMT. Analysts forecast that will show a rise of 3 percent in December on a year earlier, down slightly from a near six ear high of 3.1 percent in November.

“Inflation is likely to remain stickier than usual for the next couple of months as the January effect of higher rail fares also bleeds through into the numbers. It should then start to soften towards the end of Q1 assuming the pound stays at its current levels,” said Michael Hewson, London-based chief analyst at CMC Markets.

Against a broadly weaker euro, sterling edged up 0.2 percent to 88.77 pence.

(Reuters) - Wall Street’s main indexes rose sharply on Tuesday, with the Dow hitting the 26,000 mark for the first time, as the fourth-quarter earnings season kicked into high gear.

UnitedHealth rose 2.2 percent after the largest U.S. health insurer reported results that beat analysts’ estimates and raised its full-year profit forecast.

Citigroup Inc jumped 1.4 percent after the lender reported profit that topped Wall Street expectations as strength in consumer businesses made up for lower revenue from bond and currency trading.

Hopes of strong quarterly earnings, supported by steep cut in corporate taxes, and solid global economic growth have bolstered Wall Street’s optimism in the start to 2018.

“Not only is the U.S. coming off a strong quarter, but the new tax reform measures are continuing to provide a boost, with investors keen to hear more about what impact this will have on future earnings,” said Craig Erlam, senior market analyst at online foreign exchange broker Oanda.

More than three quarters of the 26 S&P 500 companies that have reported so far have topped profit estimates, according to Thomson Reuters.

At 9:41 a.m. ET, the Dow Jones Industrial Average was up 225.34 points, or 0.87 percent, at 26,028.53, helping it record its fastest 1000-point rise. It ended above 25,000 on Jan. 4.

The S&P 500 was up 18.09 points, or 0.65 percent, at 2,804.33 and the Nasdaq Composite was up 62.08 points, or 0.85 percent, at 7,323.14.

General Motors rose 2.7 percent after the company said it expected earnings in 2018 to be largely flat, compared with 2017, but that profits should pick up pace in 2019.

General Electric shares fell 3.7 percent after the industrial conglomerate said it would record a $6.2 billion charge in the fourth quarter as part of an ongoing review of its finance arm’s insurance portfolio.

The S&P energy index fell 0.3 percent as oil prices pulled back from recent highs, with Brent crude dipping 1.07 percent to $69.51 per barrel.

Nine of the 11 major S&P sectors were higher, led by a 1.44 percent rise in the real estate index and 0.92 percent gains in the technology index.

Amazon rose more than 2 percent, extending gains from last week when data showed U.S. holiday spending surged to 12-year high, prompting price target hikes.

Bitcoin tumbled 18 percent to a four-week trough close to $11,000, after reports that a ban on trading of cryptocurrencies in South Korea was still an option. Shares of cryptocurrency-related companies were all down. Marathon Patent, Riot BlockChain, Xunlei and fell between 7.7 percent and 11 percent.

Advancing issues outnumbered decliners on the NYSE by 2,037 to 687. On the Nasdaq, 1,958 issues rose and 673 fell.

Reference: Reuters Staff

Trade options for UK financial services after Brexit

LONDON (Reuters) - A stand-off between Britain and the European Union over the future of London’s vast financial services industry is shaping up as one of the key Brexit battlegrounds of this year.

EU trade negotiator Michel Barnier has said there will be no special deal for one of Britain’s most important industries, delivering a blow to hopes of a trade agreement that maintains current flows of staff and services.

But British government officials believe the EU will change its mind partly because European countries risk damaging their own economies if they are cut off from its markets.

Financial services, which account for about 12 percent of Britain’s economic output and pay more tax than any other industry, potentially has a lot to lose from the end of unfettered access to the EU market of 440 million people after Brexit.

Below are some scenarios for financial services access to the EU after Brexit:

Dubbed the Norway option, if Britain joined the European Economic Area it would have access to the EU single market in return for accepting free movement of EU citizens, and contributing to the bloc’s budget, but with no say over the EU rules it must implement.

Joining Norway, Iceland and Liechtenstein in the EEA is not seen as a viable option for Britain given the government has ruled out accepting free movement of EU citizens, continuing contributions to the EU budget and applying EU rules it might not agree with in future.

Canada took several years to negotiate its “CETA” free trade deal with the EU and it only has a minimal section on financial services. If a Canadian financial firm wants to do business in the EU it must set up a presence inside the bloc and comply with EU regulations.

The chapter on financial services says the EU and Canada must treat each other’s sectors equally, but a “prudential carve-out” allows each side to protect consumers and financial services providers, and maintain financial stability.

“In light of CETA’s overall ambition, it is unlikely that its impact on the financial services sector in Canada and the European Union will be significant, at least in the short and medium term,” Patrick Leblond of the Centre for International Governance Innovation said.

The EU allows access to foreign financial firms if it deems their home rules to be “equivalent” or as robust as the bloc’s own regulation. This designation is solely in the gift of the EU and can be withdrawn at a month’s notice.

Not all aspects of financial services are covered, and the EU has proposed a law to make the equivalence test tougher for investment banks.

The City of London financial district says equivalence as applied by the EU is unworkable over the long term for a financial centre of Britain’s size as it would make it a “rule taker” of EU regulation.

“People are quite hardline about not having equivalence as the final state,” the City’s EU envoy, Jeremy Browne, has said.

Barnier has said the EU could treat some UK financial rules as being equivalent, but there won’t be broad access, meaning it cannot be used to replicate the passporting to EU markets that banks in Britain now enjoy.

Like the British government, the City wants a free trade deal with the EU that grants access to each other’s financial markets based on broad acceptance of each other’s rules.

Brexit minister David Davis has said Britain could negotiate such a “bespoke” deal with the EU that would extend to services.

”We’ll probably start with the best of Canada, and the best of Japan and the best of South Korea and then add to that the bit that’s missing, which is the services. He added: “‘Canada plus plus plus’ would be one way of putting it.”

The aim would be to replicate as much as possible current EU passporting.

The City says a bespoke deal would be more equal than the “one way street” of the equivalence regime, with a mechanism for managing divergences in rules that may emerge as time goes by.

“We’ve been pushing the idea of Canada plus,” said one senior banker. “We’ve been told it’s Canada dry for the financial services industry.”

A trade deal in financial services on this scale has never been done before and could take years to agree - the City acknowledges it would be on “unoccupied ground” somewhere between EEA membership and Canada’s trade deal.

The EU would be cautious about giving Britain preferential access without free movement of EU citizens in the UK. The bloc could also annoy the United States, Switzerland and Asian countries.

Barnier said Britain’s “financial services cannot benefit from a passport in the single market nor from a system of generalised equivalence of standards.”

Many banks are working on a worst case scenario of having to fall back on World Trade Organization (WTO) rules for trade with the EU which would rely on a system of tariffs policed by the body that does not adequately cover financial services.

Under a “hard” Brexit, Britain would have to set tariffs on its goods and services, a process that could take years to complete. The General Agreement on Trade in Services, or GATS, is the WTO agreement governing trade in services.

Trade in financial services on the basis of GATS would mean the loss of the current form of cross-border passporting. There is no presumed right of market access in GATS but Most Favoured Nation (MFN) treatment obligation prohibits discrimination between ‘like’ services and service suppliers from WTO members.

The National Treatment obligation prohibits WTO members from treating services and service suppliers of any other WTO member less favourably than it treats domestic ones.

Reporting by Andrew MacAskill, Anjuli Davies and Huw Jones

Euro rockets to three-year highs as bullish bets hit a record

LONDON (Reuters) - The euro climbed to a three-year high to the dollar on Monday, nearing the $1.23 line as investors ramped up bets in the backdrop of growing economic optimism in the euro zone and expectations the central bank may tighten policy soon.

Euro bulls received a shot in the arm on Monday after data showed the trade surplus in the 19-country euro area rose to its highest level in eight months, indicating a stronger euro wasn’t proving to be a headwind for companies just yet.

The currency’s rise also coincided with a fresh leg down on the dollar, with the euro zone’s improving economic outlook spurring more investors to rebalance their portfolios towards the region.

Speculators boosted net long positions in the euro to a record high in the week to Jan. 12, according to the latest futures data. Against a basket of currencies, the euro is at its highest since late 2014.

The dollar has weakened as markets grow increasingly confident that a global recovery would outpace U.S. growth and prompt other major central banks led by the ECB to unwind its easy policy quicker than market expectations.

JP Morgan strategists, for one, expect eurozone’s economy to outpace that of the U.S. in 2018.

Measured against a basket of currencies, the dollar was down 0.5 percent on Monday .DXY, its lowest since early 2015.

“There will be a correction [for the euro] at some point,” said Kit Juckes, London-based global strategist at Societe Generale. “But as long as the [economic] data remains strong, the market is going to believe in the idea that there is more coming. That tapering is going to be brought forward.”

Juckes said that the market was repricing the euro to account for the perceived change in the ECB’s monetary stance and, with fair value of the euro estimated at between $1.25 and $1.30, the single currency had further room to rise.

The euro EUR= was up 0.7 percent at $1.2284 after hitting a high of almost $1.23, adding to gains made last week after the ECB said it could revisit its communication stance in early 2018. That heightened expectations policymakers were preparing to reduce the stimulus program.

Hopes that a pro-European governing coalition is set to form in Germany have also boosted confidence in the continent.

“We remain bullish on the euro in coming months because we expect that the political risks in the euro zone will finally start abating on a more sustained basis after the March election in Italy,” Credit Agricole said.

“In addition, we expect the ECB to continue to taper its asset purchases and, ultimately, stop expanding its balance sheet.”

Still, with the euro at three-year highs, some analysts said that its strength would soon worry the ECB, encouraging it to talk down the currency.

The British pound continued to rack up highs not seen since the June 2016 vote to leave the European Union. The pound added to Friday’s surge - triggered by a report that two EU member states wanted Britain to remain as close as possible to the EU after its exit - and traded as high as $1.3819.

Against the yen, the dollar slipped to its lowest since mid-September as comments from the head of the Bank of Japan highlighted Japan’s economic recovery.

The dollar was down 0.4 percent at 110.585 yen JPY=.

Reporting by Tommy Wilkes

Monday, 15 January 2018

Three years on from currency shock, Swiss central bank can't get back to normal

ZURICH (Reuters) - Three years after the Swiss National Bank shocked currency markets by scrapping the franc’s peg to the euro, it faces the toughest task of any major central bank in normalising ultra-loose monetary policy.

If it raises rates, the Swiss franc strengthens. If it sells off its massive balance sheet, the Swiss franc strengthens. If a global crisis hits, the Swiss franc strengthens.

And the abrupt decision to scrap the currency peg on Jan. 15, 2015, means it still has credibility issues with financial markets.

“The SNB will most probably be one of the last central banks to change course, and it will take years or even decades for monetary policy to return to ‘normal’,” said Daniel Rempfler, head of fixed income Switzerland at Swiss Life Asset Managers.

The Bank of Japan illustrated the problem of reducing expansive policy when a small cut to its regular bond purchases sent the yen and bond yields higher.

The scrapping of the cap - which sought to keep the franc at 1.20 to the euro to protect exporters and ward off deflationary pressure - sent it soaring. On the day of the announcement it went to 0.86 francs buying a euro before easing in later days.

Although it weakened last year, SNB Chairman Thomas Jordan said in December it was too early to talk about normalising policy.

The SNB declined to comment further.

The SNB has to wait for the European Central Bank to start raising interest rates before it can start hiking its own policy rate from minus 0.75 percent.

If the SNB acted first, the spread between Swiss and European market rates would narrow, making Swiss investments more attractive and boosting the franc.

The ECB has already scaled back its asset purchasing programme, which is expected to end this year, but more action may be someway off.

Meanwhile, any attempt by the SNB to cut its balance sheet - which has ballooned to 837 billion francs ($861 billion) - will be hard because 94 percent of its investments are in foreign currencies, held via bonds and shares in companies such as Apple and Starbucks.

The proceeds of sales would convert to francs, again putting upward pressure on the Swiss currency, whose strength drags on the export-reliant economy.

Communicating policy that both cuts and protects would also be tricky.

“It is very difficult to say you are ready to intervene in the forex markets when you also winding down the balance sheet,” said Florian Weber, an analyst at Bank J.Safra Sarasin.

Meanwhile the massive increase of franc liquidity following the SNB’s printing of francs to weaken the currency has reduced the SNB’s ability to steer interest rates via repurchase agreements.

Before the crisis the SNB provided short-term cash to commercial banks to help reach minimum reserve requirements. The interest rate on repos helped steer the interbank lending rate.

But commercial banks now hold reserves nearly 460 billion francs above the minimum requirement, and the SNB has discontinued the repo business. The SNB would have to issue bills on a massive scale to absorb the liquidity.

“There are particular problems that will lead the SNB to be very late in the game to normalise monetary policy,” said Alan Mudie, group head of investment strategy at Societe Generale.

“It may take at least a decade.”

($1 = 0.9718 Swiss francs)

Reporting by John Revill and Angelika Gruber

Asia shares hit historic highs, dollar slips anew

SYDNEY (Reuters) - Asian shares hit historic highs on Monday after Wall Street extended its record-breaking run, while the U.S. dollar retreat continued as investors priced in the risk of tighter policies elsewhere in the developed world.

Activity was restrained somewhat as a U.S. holiday curbed trade in cash Treasuries, though E-Mini futures for the S&P500 still made gains of 0.22 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6 percent, having finally cleared the former all-time top of 591.50 from late 2007.

Australia’s main index firmed 0.2 percent, while Japan’s Nikkei added 0.3 percent.

Stocks in Hong Kong jumped 0.9 percent to another record. Investors were optimistic that Chinese gross domestic product data for the December quarter due on Thursday would show growth of at least 6.7 percent for the world’s second biggest economy.

Wall Street was on a roll as the fourth-quarter earnings season kicked off with solid results from banks and robust retail sales, driving investor optimism about economic growth.

The Dow amassed gains of 2 percent last week, while the Nasdaq gained 1.8 percent and the S&P 500 1.6 percent. The S&P 500 and Nasdaq scored eight record closing highs out of the first nine trading days of 2018, while the Dow boasted its sixth closing high of the year.

Earnings for S&P 500 companies are expected to increase on average by 12.1 percent in the quarter, with profit for financial services companies likely to increase 13.2 percent, according to Thomson Reuters I/B/E/S.

“The big consensus trade of being short U.S. dollars into 2018 and long European and U.S. financials continues to work in earnest and this remains the key focal point in the week ahead,” said Chris Weston, chief market strategist at broker IG.

“The decline in the USD index was actually the biggest sell-off since 27 June, with prices closing below the Sept. 8 low. It just shows how much sway the USD bears have right now.”

The dollar index showed no sign of bouncing early on Monday, instead edging down to a fresh trough at 90.839.

The euro was up at a three-year peak of $1.2203 and holding all of Friday’s 1.3 percent surge.

The single currency has been bolstered by speculation European Central Bank policymakers are preparing to temper their vast monetary stimulus campaign.

Also helping was news German Chancellor Angela Merkel’s CDU party and the Social Democrats (SD) were moving toward formal coalition talks.

Leading members of the Social Democrats said on Sunday they would press for improvements to the coalition blueprint, seeking to win over skeptical party members who can torpedo the deal.

The dollar slipped to a six-week low on the yen at 110.73 yen, even as the head of the Bank of Japan reiterated his commitment to keeping yields low.

The pound was at its highest since mid-2016 at $1.3741, while the Canadian dollar held firm on wagers the country’s central bank would hike interest rates at a policy meeting on Wednesday.

A softening U.S. dollar combined with resilient Chinese demand has been positive for most commodity prices.

Gold stood at $1,338.34 an ounce after reaching a four-month top of $1,339.34 on Friday.

Oil prices consolidated following six straight sessions of gains, with output cuts led by OPEC and Russia as well as healthy demand keeping crude near December 2014 highs.

Brent crude futures eased 3 cents to $69.84 a barrel, while U.S. crude rose 8 cents to $64.38.

Reporting by Wayne Cole

Sunday, 14 January 2018

Sterling soars to highest level since Brexit vote

LONDON (Reuters) - Sterling on Friday rocketed to its highest level against the dollar since the vote to leave the European Union, after a report that the Netherlands and Spain were open to a deal for Britain to remain as close as possible to the trading bloc.

The pound traded up more than one percent on the day, pushing to as high as $1.37 GBP=D3 and in the process hitting its highest level since June 24, 2016, when the pound plunged after Britain voted to quit the EU.

The gains came after Bloomberg reported that the Spanish and Dutch finance ministers had agreed to work together for a Brexit agreement that maintains close ties between the EU and Britain, in what would be a clear divergence in views among the 27 EU member states about how to treat Britain after it leaves.

Officials from the Spanish and Dutch finance ministries denied the report and said there was no new agreement between the countries on how Britain should leave the EU.

Sterling was already gaining on Friday before the report, helped by demand for euros and the continued weakness for the dollar, before spiking higher. The pound held on to most of those gains.

“I would suggest this [sterling’s jump] is purely because of news that the Dutch and Spanish are open to a softer Brexit,” Neil Jones, Mizuho’s head of hedge fund currency sales in London.

“It’s not so significant as the rally would suggest. Just because two of the 27 members say this, it doesn’t mean a softer Brexit will happen. I doubt it’s as straightforward as that,” he said.

After slumping in 2016, the pound last year had its best performance in a decade as Britain made some progress on negotiating its exit from the European Union and economic data came in better than expected.

Some traders expect Britain to secure a transition deal to leave the bloc soon, which could help lift sterling higher. Others said the pound would struggle to maintain Friday’s gains without more positive news.

Against the euro, which has rallied since minutes from the European Central Bank on Thursday pointed to tighter monetary policy in the euro zone, sterling was up 0.3 percent at 88.64 pence per euro EURGBP=D3.

The FTSE 100 .FTSE briefly fell into negative territory and touched its session low before rebounding and closing higher.

Two-year gilt yields rose more than 5 basis points on the day to peak at 0.615 percent, their highest level since Jan. 4, 2016. Five-year gilt yields rose more than 6 basis points on the day to 0.885 percent, matching the post-Brexit vote high of 0.885 percent set on Oct. 25.

Nomura currency strategist Jordan Rochester said the move higher for sterling was driven by a “big algo move”, referring to an algorithmic trade, while he also played down attaching too much importance to the Bloomberg report.

“I‘m sceptical this (report) is necessarily a game-changer at this stage as there will also be member states pushing the other way,” he said.

Reporting by Jemima Kelly and Tommy Wilkes

Friday, 12 January 2018

Euro soars to three-year high, stocks shatter records

LONDON (Reuters) - Record high world stocks headed for an eighth straight week of gains on Friday, while the euro sailed to a three-year high as progress on forming a German government added to signs the ECB may accelerate an end to its stimulus.

MSCI’s broadest gauge of the world’s stock markets hit yet another all-time high as it bulldozed toward its longest weekly winning streak since 2010.

It has already surged 3.5 percent since the start of the year. U.S. stocks were also set to open 0.1-0.4 percent higher, which should ring in yet more Wall Street records and erase any remaining memory of the short-lived losses seen midweek.

With dollar traders still dazed by the euro’s gains over the last 24 hours, the main focus is set to be consumer price inflation data due at 1330 GMT that will further feed the debate on the pace of Fed rate hikes this year.

“This bull market is highly related to the fact we are facing good growth, low inflation and soft monetary policy normalisation,” said Jeanne Asseraf Bitton, head of cross-asset research at Lyxor Asset Management. “If any of those were to be shaken that would be a big problem.”

Germany’s 10-year Bund yield had briefly hit a fresh five-month high of 0.54 percent after Chancellor Angela Merkel’s conservatives and the Social Democrats agreed a blueprint for formal coalition negotiations, news that also buoyed the euro.

Germany’s DAX gained as much as 0.3 percent with most of Europe following suit but the strength of the euro, which was almost matched by Britain’s pound and the Swiss franc, eventually dragged them back to almost flat on the day.

The euro’s leap took it as high as 1.2128, the pound was up 0.7 percent at $1.3636 while the franc enjoyed the view from a three-month high of 97.85 cents per dollar.

The euro’s overnight index swap rates have risen sharply this week as traders priced in a higher chance of a rate hike early next year.

While the currency’s rise has reflected growing optimism over the bloc’s economic recovery, investors have flagged it as a potential brake on stocks. Monica Defend, head of strategy at Amundi Asset Management, said the currency, for which she has a target of $1.22, was the biggest risk to European equities.


A sell-off in European bonds eased slightly after yields were driven higher by minutes on Thursday of the European Central Bank’s December meeting that showed policymakers think it should revisit its communication stance in early 2018.

Lyxor’s Bitton said Bund yields were already near to hitting her target for the first quarter. U.S. Treasury were starting to creep higher again too ahead of U.S. trading. They hovered at 2.56 percent having eased back from Wednesday’s 10-month high of 2.597 percent.

“Markets were a bit too complacent about bonds so they took some excuses to correct,” she said. “We were a little surprised that the market reacted so strongly to the ECB.”

The minutes showed that with the euro zone seeing its best growth in a decade, ECB policymakers were considering a gradual shift in its stance to reduce the focus on bond purchases and raise the emphasis on interest rates.

The ECB has pledged to continue its bond purchase program at least until September, and investors expect any rate hike to take place only next year.

Amundi’s Defend said the gradual removal of liquidity from central banks would drive volatility higher across asset classes this year.

“Our target for U.S. 10-year treasuries is 2.8 -- and we might afford up to 3 percent -- but going beyond that it’s becoming an alert signal,” said Amundi’s Defend.

The dollar was firmly in the doldrums too. It was eyeing CPI data due shortly after figures on Thursday showed U.S. wholesale prices dipped in December from November, reinforcing investors’ expectations that inflation will remain low.

The dollar index slipped to a six-week low, down 0.5 percent.

Bitcoin fought back 6 percent to $14,000 on the Bitstamp exchange, having fallen 11.1 percent on Thursday after the government in South Korea, a major source of digital currency demand, unveiled plans to ban cryptocurrency trading.

In more mainstream commodity markets, oil prices retreated from 2014 highs hit the previous day, but stayed near three-year highs on signs of tightening supply in the United States.

Brent crude futures hovered at $69.28 a barrel after hitting $70.05 a barrel on Thursday, their highest level since November 2014, while U.S. West Texas Intermediate crude futures stood at $63.49, down 0.3 percent on the day.

Investors warned that while rising oil prices were supportive, they could weigh negatively especially on crude-consuming regions.

Reference: Helen Reid

Dollar under pressure, euro bolstered by hawkish ECB minutes

TOKYO (Reuters) - The dollar slumped against rivals on Friday on the back of weak factory inflation data, while the euro enjoyed solid support after the European Central Bank hinted that it could be gearing up to trim its massive monetary stimulus.

The dollar index, which tracks the greenback against a basket of six major rival currencies, edged down slightly to 91.814. A move below the Jan. 2 low of 91.751 would put it at its weakest since Sept. 20.

The index was on track to shed 0.2 percent for the week, pressured by data on Thursday that showed U.S. producer prices fell for the first time in nearly 1-1/2 years in December, which could temper expectations that inflation will accelerate in 2018.

Against the yen, the dollar was almost flat on the day at 111.27 JPY=, after plumbing a six-week low of 111.05 yen on Thursday.

It was still down a steep 1.6 percent for the week in which the Japanese currency soared as a routine operational reduction in bond purchases by the Bank of Japan triggered speculation that the central bank would unwind its massive stimulus.

“Yen short positions had been building, and investors seem to be looking for opportunities to trim them,” said Yutaka Miura, a senior technical analyst at Mizuho Securities.

While the domestic economy is in its best shape in years, tame inflation meant that most market participants aren’t expecting Japan’s central bank to explicitly shift its easy policy stance anytime soon.

Japan’s economy minister on Friday suggested it is possible for the government to declare an end to deflation before consumer prices reach the BOJ’s 2 percent inflation target.

“The market is very cautious about the Bank of Japan’s policy changes, but it is not expected that they will change their policies any time soon, since CPI is still lower than 1 percent,” said Harumi Taguchi, principal economist at IHS Markit in Tokyo.

“It’s not only for Japan, but for the ECB and U.S., that markets are sensitive about anything that suggests tapering,” she said.

The euro was up 0.2 percent at $1.2050 EUR=, approaching its nearly four-month high of $1.2089 set last week. It was up 0.2 percent for the week.

The single currency rallied on Thursday, after ECB policymakers said in minutes of the bank’s December meeting that they could revisit their communication stance in early 2018, boosting expectations that they are preparing to reduce their vast monetary stimulus program.

Investors took the relatively hawkish statement as a further signal that the ECB will wind down its 2.55 trillion euro ($3.07 trillion) bond purchase scheme this year if Europe’s economy continues to hum along.

Bitcoin was up 2.8 percent at $13,618.78 on the Luxembourg-based Bitstamp exchange. It skidded over 11 percent in the previous session after the government of South Korea, a crucial source of global demand for cryptocurrency, said it is considering a plan to ban cryptocurrency trading.

($1 = 0.8295 euros)

Reporting by Lisa Twaronite

Wednesday, 10 January 2018

Wall Street slips after report China may slow U.S. bond purchases

(Reuters) - Wall Street’s major indexes slipped on Wednesday, stalling the rally that marked the start of 2018, after a report that China is considering slowing or halting purchases of U.S. government debt.

Apple, Microsoft  and Amazon were among the biggest drags on the S&P 500 and the Nasdaq, while a 0.7 percent drop in Boeing and Caterpillar weighed on the Dow.

The S&P and the Nasdaq have closed at record highs on every single day in 2018, buoyed by optimism over global economic growth and expectations of a strong quarterly earnings.

“For a market that was probably looking for reason to take a pause, it’s not unreasonable to use today’s rise in yield as a catalyst,” said Art Hogan, chief market strategist at B. Riley FBR in Boston.

The dollar dropped 0.4 percent against a basket of currencies, while long-dated Treasury yields hit fresh 10-month highs after Bloomberg reported the U.S. bond market was becoming less attractive for Beijing.

The CBOE Volatility index, a widely followed measure of market anxiety, rose to its highest level in more than a week at 10.41.

At 9:46 a.m. ET (1446 GMT), the Dow Jones Industrial Average was down 67.02 points, or 0.26 percent, at 25,318.78 and the S&P 500 .SPX was down 7.64 points, or 0.27 percent, at 2,743.65. The Nasdaq Composite .IXIC was down 25.48 points, or 0.36 percent, at 7,138.09.

Nine of the 11 major S&P sectors were lower, led by a more than 1 percent fall in interest-rate sensitive sectors such as real estate and utilities.

Banking stocks led the gainers with JPMorgan and Wells Fargo rising about half a percent each. The two largest U.S. lenders will kick off the fourth-quarter earnings season on Friday.

Earnings for S&P 500 companies are expected to increase by 11.8 percent, with biggest contribution from the energy sector, according to Thomson Reuters I/B/E/S.

“It will be the first time that Corporate America has the ability to talk about guidance that incorporates lower tax rates. It’s going to be confusing and noisy but will be fascinating,” Hogan said.

No.2 U.S. homebuilder Lennar Corp fell 0.3 percent after its profit missed estimates due to a delay in the booking of a single large transaction.

Nordstrom was about 6 percent after the retailer reported holiday period same-store sales.

Nvidia slipped 1.6 percent after the chipmaker said some of its chipsets have been affected by a memory corruption flaw.

Declining issues outnumbered advancers on the NYSE by 1,916 to 774. On the Nasdaq, 1,627 issues fell and 896 advanced.

Reporting by Sruthi Shankar

FTSE greets new record as banks rally

LONDON (Reuters) - A rise in banks and oil stocks boosted the UK’s top share index to a fresh record on Wednesday as a rise in bond yields supported financials across Europe.

Britain's blue chip FTSE 100 .FTSE index was up 0.3 percent at 7,750.58 points by 0957 GMT, outperforming the broader European market, while mid caps .FTMC declined 0.3 percent.

British banks joined in a rally with European peers as bond yields rose.

“When there’s movement in the bond yields, the UK banks do benefit from that in a number of ways. Firstly, they make higher revenues in terms of their returns,” John Moore, trader at Berkeley Capital, said.

“We think UK banks could do quite well despite the uncertainty, purely because we see them as undervalued.”

Shares in Royal Bank of Scotland led the banking sector, up 3.4 percent after broker Morgan Stanley upgraded its rating on the stock to “overweight”.

Morgan Stanley said that RBS offered the most resilience in an uncertain outlook.

Shares in peers HSBC and Standard Chartered  also gained more than 2 percent.

Wednesday was another day dominated by Christmas updates from retailers, with shares in grocer Sainsbury’s advancing 1.5 percent after it beat forecasts slightly in its Christmas trading update.

“Sainsbury’s has delivered reassuring trading through what, post the Argos acquisition, is its key quarter for sales and profitability,” analysts at UBS said in a note.

This continues a positive theme for food retailers over the festive period as shoppers resisted cutting back on food purchases despite inflationary pressures on the consumer.

Peer Morrisons  saw its shares rise in the previous session after its own update.

Elsewhere a well-received Christmas update sent shares in Ted Baker  8.2 percent to the top of the mid cap index.

Housebuilder Taylor Wimpey  found itself at the bottom of the FTSE 100, however, down 3.6 percent on the back of a trading statement.

The housebuilder said that it saw its full-year results for 2017 to be in line with expectations.

Elsewhere a warning from the UK’s Financial Conduct Authority (FCA) put pressure on shares in spreadbetters, with IG Group dropping more than 4 percent, Plus500 down 4 percent and CMC Markets down 5 percent.

The FCA said that there are “areas of serious concern” in Britain’s contracts for differences (CFDs) market, following a review.

Reporting by Kit Rees

Dollar extends losses vs yen after BOJ tapering talk

TOKYO (Reuters) - The dollar extended losses against the yen on Wednesday after the Bank of Japan’s move to trim Japanese government bond (JGB) purchases in the previous session triggered speculation that it could begin tapering its massive, ultra-easy monetary stimulus.

Despite some support from higher U.S. yields, the dollar slipped 0.3 percent to 112.31 yen, struggling in the wake of a 0.5 percent drop on Tuesday when Japan’s central bank slightly reduced the amount of its JGB purchases in its regular buying operations.

While the move was a technical tweak in line with the central bank’s policies to date, it unleashed a wave of speculation that the BOJ could be poised to begin winding down its stimulus.

The dollar earlier slipped as low as 112.17 yen, its lowest since Jan. 2.

“One would think that with U.S. yields at such high levels, the dollar would be stronger, but investors are adjusting positions, awaiting new factors,” said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

Yields on the 10-year U.S. Treasury note reached a 10-month highs, partly lifted by the BOJ’s action.

The 10-year note yield stood at 2.553 percent in Asian trading, up from its U.S. close of 2.546 percent on Tuesday. It earlier matched the overnight high of 2.555 percent, its highest since March.

“The BOJ’s move reminded traders of the fact that major central banks are willing to normalize their monetary policy,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

“I think this unwanted strengthening of the yen will make the BOJ more cautious in going forward, when they want to move toward normalization,” he said.

The dollar index, which tracks the greenback against a basket of six major rival currencies, inched down 0.1 percent to 92.473.

The euro was steady on the day at $1.1937, well below its nearly four-month high of $1.2089 set last Thursday.

Sterling was slightly lower at $1.3534 , but remained supported by expectations that Brexit talks will have a positive outcome.

Reporting by Lisa Twaronite

Tuesday, 9 January 2018

Euro rally loses steam, dollar firms slightly versus yen

TOKYO (Reuters) - The euro languished on Tuesday after slipping from last week’s high as investors were cautious after a months-long rally, while the dollar firmed against the yen though a lack of catalysts tempered its momentum.

The euro EUR= traded at $1.1968, having slipped 0.5 percent on Monday, its largest daily drop since late October.

Analysts said a correction was inevitable for the common currency after its rally over the past couple months to near its 2017 peak of $1.2092, thanks to signs of acceleration in the euro zone economy.

Speculators’ net long position in the euro/dollar futures in Chicago reached a record high last week, data from U.S. financial watchdog showed on Friday, pointing to potential for profit-taking.

“The euro is going through a consolidation after it had reached high levels above $1.2. Friday’s euro zone inflation data was somewhat weaker than expected,” said Shinichiro Kadota, senior FX and rates strategist at Barclays.

“Going forward, the market’s outlook depends more on U.S. factors, such as whether the Fed raises interest rates three times or more, and also the impact of the tax reform,” he said.

While many Federal Reserve officials have said they expect three rate hikes this year, markets are not fully convinced as inflation remains tame despite very tight labor market conditions.

Indeed, Atlanta Fed President Raphael Bostic, a voter on interest rate policy this year, said on Monday that the Fed may only need to raise interest rates two times in 2018 given weak price pressures.

Such doubts have held the dollar index down near its lowest levels since 2015 during the past few months.

The index stood at 92.345, after having fallen to 91.751 last week, not far from its 2-3/4-year low of 91.011 touched last September and way below its 2017 high of 102.26.

Against the low-yielding yen, the dollar fetched 113.15 yen JPY=, having risen to 113.40 yen on Monday, its highest level in about a half month, spurred by upbeat risk sentiment.

Its December high of 113.75 is seen as the next target level but many traders believe more catalysts are needed for a test of the 114 handle.

An immediate market focus include the talks planned later in the day between North and South Korea, their first formal contact in two years, for signs of any reduction in tensions on the Korean peninsula.

Reference: Reuters

Asian shares edge up, yen jumps as BOJ trims bond buying

TOKYO (Reuters) - Asian shares pared gains on Tuesday, pulling away from the cusp of a record high, while the yen stole the currency spotlight and jumped after the Bank of Japan’s slight reduction to its bond purchases reminded investors that it will eventually normalise policy.

European stock futures were slightly lower, suggesting a subdued opening for the region, with DAX futures slightly higher and FTSE futures up 0.2 percent.

MSCI’s broadest index of Asia-Pacific shares outside Japan was nearly flat in afternoon trade after earlier rising as high as 591.28, not far from its record peak of 591.50 scaled in November 2007.

South Korea’s share market erased its gains and slipped 0.1 percent, dragged lower by a 3.1 percent drop in shares of Samsung Electronics Co.

Samsung’s guidance fell short of market expectations despite a forecast for a record fourth-quarter profit, as a strong won and one-off staff bonuses took the shine off surging DRAM chip prices.

The MSCI tech index for Asia slipped 0.1 percent, after it had gained more than 5 percent this year.

On Wall Street on Monday, the Dow Jones Industrial Average edged down 0.05 percent, the S&P 500 gained 0.17 percent, and the Nasdaq Composite added 0.29 percent. After the best start to a year in more than a decade, investors turned cautious ahead of earnings.

Japan’s Nikkei stock index added 0.6 percent to close at its highest level since November 1991, catching up to the previous session’s gains as markets reopened after a holiday on Monday.

Against the yen, the dollar erased its early modest gains and fell 0.3 percent to 112.74 following a drop as low as 112.50, after Japan’s central bank trimmed its purchases of Japanese government bonds.

Since it adopted the yield curve control policy in 2016, the BOJ has made similar tweaks to its JGB purchases, which are regarded as mainly technical moves. On Tuesday, it cut its JGB purchases of 10 to 25 years left to maturity and those of 25 to 40 years to maturity by 10 billion yen ($88.39 million) each, from its previous operations for those zones.

While the central bank’s operational adjustments do not usually have an impact on foreign exchange markets, dealers said the timing of the move suggested some players had used it as an excuse to sell the dollar and the euro against the yen.

“Major central banks around the world have begun to normalise policy, and the BOJ’s adjustments today reminded the market that someday it will, too,” said Ayako Sera, senior market economist at Sumitomo Mitsui Trust.

The euro edged down 0.1 percent to $1.1960, shy of its nearly four-month high of $1.2089 set on Thursday. Against the yen, it skidded 0.4 percent to 134.81

The dollar index, which tracks the greenback against a basket of six major rival currencies, edged down slightly to 92.326.

Underpinning the dollar, investors bet on further U.S. interest rate hikes after Friday’s payrolls data did nothing to challenge the outlook for monetary policy tightening by the U.S. Federal Reserve. While job growth slowed more than expected, a pick-up in monthly wages pointed to labour market strength.

“Broadly, viewed in context, it was still a reasonably strong labour market,” said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

“There was nothing in there to dissuade us from the view that the Fed will move again, appropriately, likely in March,” he said.

But the dollar’s upward momentum was tempered as investors differed on the pace of tightening while U.S. inflation remains relatively cool.

Atlanta Fed President Raphael Bostic, who is a voting member of the central bank’s policy board, said on Monday that only two increases might be needed in 2018, in light of weak price pressures.

Crude oil prices firmed to their highest since May 2015, as political concerns in some OPEC nations offset projections for higher U.S. oil production.

U.S. crude rose 44 cents, or 0.7 percent, to $62.17 a barrel, while Brent crude added 35 cents, or 0.5 percent, to $68.13.

Spot gold was down 0.2 percent at $1,318.45 an ounce, pulling back from a 3-1/2-month high hit last week.

Reference: Lisa Twaronite

Monday, 8 January 2018

Asia stocks saunter toward historic high, U.S. earnings hurdle

SYDNEY (Reuters) - Asian shares crept toward all-time peaks on Monday after Wall Street boasted its best start to a year in over a decade, with brisk economic growth and benign inflation proving a potent cocktail for risk appetites.

MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.2 percent having climbed 3.1 percent last week, its strongest performance in six months.

At 588.55, the index is within spitting distance of its record top of 591.50 hit in November 2007.

The Philippines is already at a record, while Australian stocks eked out another decade top. Japan’s Nikkei was closed for a holiday but last week touched its highest since 1992.

E-Mini futures for the S&P 500 edged up 0.1 percent while spreadbetters pointed to opening gains for Europe.

“It was the global synchronized growth that drove earnings and equity markets higher last year and the global economy has entered 2018 firing on all cylinders,” said analysts at Bank of America Merrill Lynch, predicting the global economy could expand at 4 percent or more this year.

“This growth is keeping our quant models bullish and driving earnings revisions to new highs,” they added. “We stay long outside the U.S., with Asia ex-Japan and Nikkei our growth plays, Europe still for yield.”

Friday’s U.S. jobs report did nothing to challenge that outlook.

While payrolls missed forecasts, the report was perfect for equities given unemployment stayed low but with little sign of the inflationary pressures that would make the Federal Reserve more aggressive in tightening policy.

Wall Street has already enjoyed its best start to a year in more than a decade, with the Dow up 2.3 percent last week and the S&P 500 2.6 percent. The tech-heavy Nasdaq led the charge with a rise of 3.4 percent.

The quarterly U.S. earnings season kicks off this week with the Street expecting solid growth of around 10 percent, though many companies are also likely to be announcing one-off charges to account for recent tax changes.

The next major data hurdles will be U.S. consumer prices and retail sales on Friday. In Asia, China reports December inflation on Wednesday and international trade numbers on Friday.

In currency markets, the dollar has steadied for the moment after a rocky couple of weeks.

With economic activity picking up globally, the dollar has been undermined by expectations the Fed will not be the only central bank tightening policy this year.

On Friday, surprisingly strong Canadian jobs data stoked speculation that interest rates there could rise as early as next week and sent the local currency to a three-month peak.

Upbeat euro zone data has likewise underpinned the single currency at $1.2027, though it has so far failed to clear major chart resistance at the September top of $1.2092.

The dollar has fared better on the yen at 113.21, thanks in part to expectations the Bank of Japan will stick with its super-easy policies.

Japanese Prime Minister Shinzo Abe on Sunday called on central bank governor Haruhiko Kuroda to keep up efforts to reflate the economy, but added he was undecided on whether to reappoint Kuroda for another five-year term.

The combination of a soft U.S. dollar and strong global growth has been positive for commodities, with everything from coal to iron ore to copper in demand.

Spot gold made a 3-1/2-month high last week and was trading at $1,320.16 an ounce on Monday.

Oil prices reached their highest since 2015 helped in part by political tensions in Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC).

Brent was last up 13 cents at $67.75, while U.S. crude rose 16 cents to $61.60 per barrel.

Reference:  Wayne Cole

Dollar edges up from 3-1/2-month lows; euro pauses after rally

SINGAPORE (Reuters) - The dollar inched higher against a basket of major peers on Monday as data showing slower U.S. jobs growth did little to dent expectations for further Federal Reserve interest rate increases this year.

The dollar’s index against a basket of six major currencies rose 0.1 percent to 92.051, up from its Jan. 2 low of 91.751, which was its weakest level since Sept. 20.

U.S. nonfarm payrolls increased by 148,000 jobs last month, after a surge of 252,000 in November, according to data on Friday. Economists polled by Reuters had expected a December rise of 190,000.

Initially, the dollar slipped after the payrolls figures, but later regained some composure.

“The recent trend of dollar-selling is taking a bit of a pause,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, adding that the dollar drew some support after U.S. Treasury yields nudged higher on Friday.

The U.S. currency had begun 2018 on the defensive, after the dollar index fell about 9.9 percent in 2017, its weakest performance since 2003.

A synchronised global recovery has prompted other countries’ central banks to start moving towards tighter monetary policy in recent months, helping bolster their currencies.

After the U.S. jobs data, traders of U.S. short-term interest rate futures continued to bet the Fed would raise interest rates two times this year, including a probable increase in March.

Comments by some Fed officials on Friday and over the weekend suggested the U.S. central bank remained on track to raise interest rates in 2018.

San Francisco Fed President John Williams told Reuters in an interview on Saturday that the Fed should raise interest rates three times this year given the already strong economy will get a boost from tax cuts, and can tighten more or less aggressively if needed.

Federal Reserve Bank of Cleveland President Loretta Mester told Reuters in an interview on Friday she expected roughly four interest rate hikes this year, as U.S. economic growth picks up and unemployment remains low.

Against the yen, the dollar firmed about 0.1 percent to 113.20 yen, having traded in a range of roughly 112.00 yen to 113.75 yen over the past month.

The euro held steady at $1.2027. Having started the year on a firm footing, the common currency rose to $1.2089 on Thursday, nearing a 2-1/2 year peak of $1.2092 set in early September.

The euro faces some headwinds after its recent gains, said Roy Teo, investment strategist for LGT Bank in Singapore.

These include signs that speculative long positions in the euro are “getting overcrowded”, potential risks from Italian elections coming up in March, as well as the fact that core inflation in the euro zone remains subdued, Teo said.

Speculators trading currency futures increased their net long positions in the euro to a record high of 127,868 contracts in the week ended Jan. 2, data from the U.S. Commodity Futures Trading Commission showed.

The Canadian dollar last traded at C$1.2400 per U.S. dollar, up 0.1 percent from late U.S. trade on Friday.

The so-called loonie had jumped to a three-month high of C$1.2355 on Friday after jobs data that blew past expectations boosted market expectations for Canada’s central bank to raise interest rates in January.

Reporting by Masayuki Kitano

Sunday, 7 January 2018

China December forex reserves rise to $3.14 trillion, highest since September 2016

BEIJING (Reuters) - China’s foreign exchange reserves rose to their highest in more than a year in December, blowing past economists’ estimates, as tight regulations and a strong yuan continued to discourage capital outflows, central bank data showed on Sunday.

Notching up their 11th straight month of gains, reserves rose $20.2 billion in December to $3.14 trillion, the highest since September 2016 and the biggest monthly increase since July. That compares with an increase of $10 billion in November.

Economists polled by Reuters had expected reserves to rise by $6 billion to $3.125 trillion.

Capital flight had been seen as a major risk for China at the start of 2017, but a combination of tighter capital controls and a faltering dollar helped the yuan stage a strong turnaround, bolstering confidence in the economy.

The yuan rose around 6.8 percent against the greenback in 2017, recovering from a 6.5 percent loss in 2016 and reversing three straight years of depreciation.

For the full year, China’s FX reserves rose $129.5 billion from $3.011 trillion at the end of 2016. That’s the first annual rise since 2014.

China’s foreign exchange regulator said in a statement on its website that it would keep the nation’s forex reserves and international balance of payments “balanced and stable” in 2018.

The country’s reserves dropped by nearly $1 trillion from a peak of $3.99 trillion in June 2014 to $2.998 trillion in January 2017 as it sought to shore up the yuan and reduce potentially destabilizing capital outflows. But reserves have since climbed by $142 billion.

Despite the improved capital flow picture, China’s State Administration of Foreign Exchange has continued a clampdown on the movements of funds abroad. The regulator announced last month it would cap overseas withdrawals by people using domestic Chinese bank cards starting this year.

Some major global acquisitions by Chinese firms have also been put on ice by regulators, who fear they are really intended to disguise movements of capital offshore, though Beijing has maintained genuine investments will still be approved.

China’s central bank reported net foreign exchange buying for the third consecutive month in November, marking a policy victory for the authorities after a long battle to stabilize the yuan, although analysts say capital flows are likely to remain volatile as the economy slows.

Economists polled by Reuters expect the yuan to depreciate slightly this year if the dollar firms.

The value of gold reserves rose to $76.47 billion at the end of December, from $75.833 billion at the end of November, data on the People’s Bank of China’s website showed.

Reporting by Josephine Mason

Friday, 5 January 2018

Asian shares near record high, dollar weak ahead of job, wage data

TOKYO (Reuters) - Asian shares inched closer to a record high on Friday as U.S. jobs data pointed to firm economic growth although the greenback was soft as the specter of benign inflation capped domestic bond yields.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose nearly 0.4 percent to 585.0, about one percent shy of its all-time peak of 591.5 hit in November 2007, led by gains in Australia and South Korea .KS11.

Japan's Nikkei .N225 rose 0.9 percent to a 26-year high.

Spread-betters see mixed opening in Europe, with Britain's FTSE seen falling 0.1 percent and German's DAX  edging up 0.1 percent.

MSCI’s gauge of stocks across the globe has risen 2.11 percent so far this week, putting it on course to log its best weekly performance since a 2.12 percent gain in mid-July.

The U.S. ADP National Employment Report on Thursday showed U.S. private employers added 250,000 jobs in December, the biggest monthly increase since March and well above economists’ expectations of a rise of 190,000.

That helped the Dow Jones Industrial Average sail past the 25,000-mark for the first time. S&P 500 gained 0.40 percent while the Nasdaq Composite added 0.18 percent, both notching record closing highs.

The data also boosted expectations on Friday’s payroll data by the U.S. Labor Department, where economists have forecast nonfarm job growth of 190,000 in December.

Despite signs of a strong U.S. labor market, the dollar was soft, hovering just above its three-month low against a basket of major currencies.

The dollar index .DXY stood at 91.877, near Tuesday’s three-month low of 91.751.

“The dollar looks very weak at the moment. And I think the reason comes down to the fact that U.S. long-term bond yields are very low despite the Fed’s rate hikes,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

The 10-year U.S. Treasuries yield stood at 2.460 percent US10YT=RR, below its seven-month peak of 2.504 percent touched on Dec. 21. Those levels are little different from about a year ago, even after the Fed hiked interest rates three times last year and market expectations for another three hikes in 2018.

Capping U.S. long-term bond yields were expectations that inflation will remain tame as wage growth has been slower than before the 2007-2008 financial crisis.

In that regard, average hourly earnings data due at 1330 GMT, along with payroll figures, could attract more attention, given wage growth is a key factor behind inflation trends.

Economists expect U.S. wages to have risen 2.5 percent from a year earlier in December, the same as in November.

The euro held firm at $1.2070 EUR=, holding its gains so far this week of 0.6 percent and coming within sight of its 2-1/2-year peak of $1.2092 set in early September.

The euro zone’s consumer inflation data, due at 1000 GMT, is expected to show an easing to 1.4 percent in December from 1.5 percent in November.

But stronger-than-expected German inflation data published late last year is fueling speculation of a higher reading, which in turn could encourage expectations the European Central Bank may move faster to wind up its stimulus.

Many emerging economy currencies have gained even more against the dollar this week as investors look for higher yields.

Since the start of 2018, the Brazilian real BRL= gained 2.4 percent, the Mexican peso MXN= 1.8 percent, the Indonesian rupiah IDR= 1.1 percent and the Indian rupee INR= 0.7 percent.

On the other hand, the yen, which also tends to be used as a funding currency for investment in higher-yielding assets, has lost 0.3 percent against the dollar this week to 113.02 yen JPY=.

But some market players also said market moves so far this year have been mostly driven by short-term speculators and many long-term investors were on the sidelines, hampered not least by high valuations of stocks in the U.S. and some other countries.

“As far as I can see, real money investors have been cautious. So I would advise not to read too much into the new year market moves,” said Kazushige Kaida, head of foreign exchange at State Street Bank in Tokyo.

In commodities markets, oil prices softened marginally but held near their highest levels since May 2015 on concerns about supply risks due to unrest in Iran and another decline in U.S. inventories as refining activity hit a 12-year high.

U.S. crude eased to $61.97 a barrel after having risen to as high as $62.21 the previous session. International benchmark Brent futures fetched $68.02.

Reference: Hideyuki Sano